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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-2116
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Armstrong World Industries, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-0366390
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 3001, Lancaster, Pennsylvania 17604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 397-0611
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock ($1 par value) New York Stock Exchange, Inc.
Preferred Stock Purchase Rights Pacific Stock Exchange, Inc. (a)
9-3/4% Debentures Due 2008 Philadelphia Stock Exchange, Inc. (a)
(a) Common Stock and Preferred
Stock Purchase Rights only
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock of registrant held by non-
affiliates of the registrant based on the closing price ($56.625 per share) on
the New York Stock Exchange on January 28, 1994, was approximately $1.8 billion.
For the purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Item 10 of this 10-K
Report, (b) all directors of registrant, and (c) each shareholder that has
informed registrant by February 14, 1994, as having sole or shared voting power
over 5% or more of the outstanding Common Stock of registrant as of December 31,
1993.
This amount does not include the 5,527,692 shares of Series A ESOP Convertible
Preferred Stock as of December 31, 1993, which vote with the Common Stock as if
converted and have an aggregate liquidation preference of $263,947,293, held by
Mellon Bank, N.A., as Trustee of the Company's Employee Stock Ownership Plan.
As of January 28, 1994, the number of shares outstanding of registrant's Common
Stock was 37,252,580.
Documents Incorporated by Reference
Portions of the Proxy Statement dated March 14, 1994, relative to the April 25,
1994, annual meeting of the shareholders of registrant (the "Company's 1994
Proxy Statement") have been incorporated by reference into Part III of this
Form 10-K Report.
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PART I
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Item 1. Business
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Armstrong World Industries, Inc. is a Pennsylvania corporation incorporated in
1891. The Company is a manufacturer of interior furnishings, including floor
coverings, building products and furniture, which are sold primarily for use in
the furnishing, refurbishing, repair, modernization and construction of
residential, commercial and institutional buildings. It also manufactures
various industrial and other products. In late 1989, most of the assets
(primarily inventory and plant, property and equipment) of the Company's carpet
operations and the Company's subsidiary, Applied Color Systems, Inc., were
divested. Unless the context indicates otherwise, the term "Company" means
Armstrong World Industries, Inc. and its consolidated subsidiaries.
Industry Segments
The company operates worldwide in four reportable segments: floor coverings,
building products, furniture, and industry products. Floor coverings sales
include resilient floors, ceramic tile, and accessories.
Industry segments
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
Floor coverings $1,191.3 $1,134.9 $1,058.0
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Building products 586.7 656.7 676.3
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Furniture 449.7 438.4 417.9
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Industry products 297.7 319.8 287.1
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit (Note 2):
=========================================================================
Floor coverings $ 129.8 $ 30.2 $ 84.6
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Building products 30.5 (7.3) 46.7
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Furniture 26.6 10.3 18.2
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Industry products 32.8 35.4 43.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Depreciation and
amortization:
=========================================================================
Floor coverings $ 61.0 $ 65.5 $ 67.0
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Building products 33.1 37.1 35.1
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Furniture 12.9 13.5 13.6
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Industry products 13.1 11.6 11.4
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Corporate $ 9.9 9.2 8.2
=========================================================================
Total depreciation
and amortization $ 130.0 $ 136.9 $ 135.3
=========================================================================
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Capital additions (See Note 1 on
page 8):
=========================================================================
Floor coverings $ 59.1 $ 48.7 $ 61.0
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Building products 23.8 25.4 39.1
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Furniture 10.0 8.3 6.7
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Industry products 20.7 29.3 21.6
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Corporate 4.0 4.1 5.3
=========================================================================
Total capital additions $ 117.6 $ 115.8 $ 133.7
=========================================================================
Identifiable assets (See Note 1 on
page 8):
=========================================================================
Floor coverings $ 808.0 $ 835.6 $ 915.1
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Building products 475.2 491.6 556.0
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Furniture 234.6 238.7 239.7
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Industry products 203.8 192.9 188.6
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Corporate 207.7 251.0 250.5
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
Note 2:
Restructuring charges
in operating profit (millions) 1993 1992 1991
=========================================================================
Floor coverings $27.7 $ 80.8 $ 3.0
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Building products 13.7 35.0 4.3
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Furniture .6 4.8 .3
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Industry products 12.9 12.5 2.2
=========================================================================
Total restructuring charges
in operating profit $54.9 $133.1 $ 9.8
=========================================================================
Narrative Description of Business
The Company manufactures and sells interior furnishings, including floor
coverings (resilient flooring and all ceramic tile), building products, and
furniture, and makes and markets a variety of specialty products for the
building, automotive, textile, and other industries. The Company's activities
extend worldwide.
Floor Coverings
The Company is a prominent manufacturer of floor coverings for the interiors of
homes and commercial and institutional buildings, with a broad range of
resilient flooring, ceramic tile for floors, walls and countertops, together
with adhesives, installation and maintenance materials and accessories.
Resilient flooring, in both sheet and tile form, is made in a wide variety of
types, designs, and colors. Included are types of flooring that offer such
features as ease of installation, reduced maintenance (no-wax), and cushioning
for greater underfoot comfort. Ceramic products include glazed wall and floor
tile and marble (a portion of which is imported) and glazed and unglazed ceramic
mosaic tile, all featuring a range of designs and colors, as well as quarry
tile, natural stone and related installation products. Floor covering products
are sold to the commercial and residential market segments through wholesalers,
retailers, and contractors, and to the hotel/motel and manufactured homes
industries. Ceramic products also are sold through sales service centers
operated by American Olean Tile Company, Inc. ("American Olean"), a wholly-owned
subsidiary which manufactures and markets ceramic tile.
Building Products
A major producer of ceiling materials in the United States and abroad, the
Company markets both residential and architectural ceiling systems. Ceiling
materials for the home are offered in a variety of types and designs; most
provide noise reduction and incorporate Company-designed features intended to
permit ease of installation. These residential ceiling products are sold
through wholesalers and retailers. Architectural ceiling systems, designed for
use in shopping centers, offices, schools, hospitals, and other commercial and
institutional structures, are available in numerous colors, performance
characteristics and designs and offer characteristics such as acoustical
control, rated fire protection, and aesthetic appeal. Architectural ceiling
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materials and accessories, along with acoustical wall panels, are sold by the
Company to ceiling systems contractors and to resale distributors.
Furniture
A wholly-owned subsidiary, Thomasville Furniture Industries, Inc., and its
subsidiaries manufacture and market traditional and contemporary wood and
upholstered furniture for use in dining rooms, bedrooms, living rooms,
hotels/motels and other residential and commercial interior areas. Thomasville
furniture is sold to retailers, contract accounts and government agencies.
Thomasville also manufactures both assembled and ready-to-assemble furniture
which is sold to retailers, wholesalers and contract accounts under the
Armstrong name. In addition, it sells a line of imported furniture made by other
producers.
Industry Products
The Company, including a number of its subsidiaries, makes and sells a variety
of specialty products for the building, automotive, textile and other
industries. These products include flexible pipe insulation sold for use in
construction and in original equipment manufacture; gasket materials for new
equipment and replacement use in the automotive, farm equipment, appliance, and
other industries; textile mill supplies including cots and aprons sold to
equipment manufacturers and textile mills; adhesives; and certain cork products.
Industry products are sold, depending on type and ultimate use, to original
equipment manufacturers, contractors, wholesalers, fabricators and end users.
-----------------------------------
The principal raw materials used in the manufacture of the Company's products
are synthetic resins, lumber, plasticizers, latex, mineral fibers and fillers,
clays, starches, perlite, and pigments and inks. In addition, the Company uses
a wide variety of other raw materials. Most raw materials are purchased from
sources outside of the Company. The Company also purchases significant amounts
of packaging materials for the containment and shipment of its various products.
During 1993, adequate supplies of raw materials were available to all of the
Company's industry segments.
Customers' orders for the Company's products are mostly for immediate shipment.
Thus, in each industry segment, the Company has implemented inventory systems,
including its "just in time" inventory system, pursuant to which orders are
promptly filled out of inventory on hand or the product is manufactured to meet
the delivery date specified in the order. As a result, there historically has
been no material backlog in any industry segment.
The competitive position of the Company has been enhanced by patents on
products and processes developed or perfected within the Company or obtained
through acquisition. Although the Company considers that, in the aggregate, its
patents constitute a valuable asset, it does not regard any industry segment as
being materially dependent upon any single patent or any group of related
patents.
There is significant competition in all the industry segments in which the
Company does business. Competition in each industry segment includes numerous
active companies (domestic and foreign), with emphasis on price, product
performance and service. In addition, with the exception of industrial and
other products and services, product styling is a significant method of
competition in the Company's industry segments. Increasing domestic competition
from foreign producers is apparent in certain industry segments and actions
continue to be taken to meet this competition.
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The Company invested $117.6 million in 1993, $115.8 million in 1992, and $133.8
million in 1991 for additions to its property, plant and equipment.
Research and development activities are important and necessary in assisting the
Company to carry on and improve its business. Principal research and
development functions include the development of new products and processes and
the improvement of existing products and processes. Research and development
activities are conducted principally at the Company's Innovation Center in
Lancaster, Pennsylvania.
The Company spent $59.5 million in 1993, $60.3 million in 1992, and $55.6
million in 1991 on research and development activities worldwide for the
continuing businesses.
The Company will incur capital expenditures in order to meet the new
requirements of the Clean Air Act of 1990 and is awaiting the final promulgation
of implementing regulations by various state agencies to determine the magnitude
of additional costs and the time period over which they will be incurred. In
1993, the Company incurred capital expenditures of approximately $2.6 million
for environmental compliance and control facilities and anticipates comparable
annual expenditures for those purposes for the years 1994 and 1995.
As with many industrial companies, the Company is involved in proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), and similar state laws at approximately 21 sites. In most cases,
the Company is one of many potentially responsible parties ("PRPs") who have
voluntarily agreed to jointly fund the required investigation and remediation of
each site. With regard to some sites, however, the Company disputes either
liability or the proposed cost allocation. Sites where the Company is alleged
to have contributed a significant volume of waste material include a former
municipal landfill site in Volney, New York; and a former county landfill site
in Buckingham County, Virginia, which is alleged to have received material from
Thomasville Furniture Industries, Inc. Armstrong may also have rights of
contribution or reimbursement from other parties or coverage under applicable
insurance policies. The Company is also remediating environmental contamination
resulting from past industrial activity at certain of its current plant sites.
Estimates of future liability are based on an evaluation of currently available
facts regarding each individual site and consider factors including existing
technology, presently enacted laws and regulations, and prior Company experience
in remediation of contaminated sites. Although current law imposes joint and
several liability on all parties at any Superfund site, the Company's
contribution to the remediation of these sites is expected to be limited by the
number of other companies which have also been identified as potentially liable
for site costs. As a result, the Company's estimated liability reflects only
the Company's expected share. In determining the probability of contribution,
the Company considers the solvency of the parties, whether responsibility is
being disputed, the terms of any existing agreements, and experience regarding
similar matters. The estimated liabilities do not take into account any claims
for recoveries from insurance or third parties, unless a coverage commitment has
been provided by the insurer.
Because of uncertainties associated with remediation activities and
technologies, regulatory interpretations, and the allocation of those costs
among various other parties, the Company has accrued $4.9 million to reflect its
estimated liability for environmental remediation. As assessments and
remediation activities progress at each individual site, these liabilities are
reviewed to reflect additional information as it becomes available.
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Actual costs to be incurred at identified sites in the future may vary from the
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, the Company believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
materially adverse effect on its financial condition liquidity or results of
operations.
As of December 31, 1993, the Company had approximately 21,000 active employees,
of whom approximately 4,150 are located outside the United States. Year-end
employment in 1993 was below the level at the end of 1992. About 38% of the
Company's approximately 11,950 hourly-paid employees in the United States are
represented by labor unions.
Geographic Areas
United States net trade sales include export sales to non-affiliated customers
of $27.0 million in 1993, $24.4 million in 1992, and $29.3 million in 1991.
"Europe" includes operations located primarily in England, France, Germany,
Italy, the Netherlands, Spain, and Switzerland. Operations in Australia,
Canada, China, Hong Kong, Indonesia, Japan, Korea, Singapore, and Thailand are
in "Other foreign."
Transfers between geographic areas and commissions paid to affiliates
marketing exported products are accounted for by methods that approximate
arm's-length transactions, after considering the costs incurred by the selling
company and the return on assets employed of both the selling unit and the
purchasing unit. Operating profits of a geographic area include profits
accruing from sales to affiliates.
Geographic areas
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
United States $1,910.7 $1,841.5 $1,761.7
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Europe 456.6 544.5 508.5
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Other foreign 158.1 163.8 169.1
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Total foreign 614.7 708.3 677.6
=========================================================================
Inter-area transfers:
=========================================================================
United States 76.1 69.9 65.5
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Europe 6.0 4.0 3.9
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Other foreign 21.9 18.5 9.9
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Eliminations (104.0) (92.4) (79.3)
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit:
=========================================================================
United States $ 178.0 $ 50.7 $ 131.5
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Europe 31.7 22.5 51.8
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Other foreign 10.0 (4.6) 9.3
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Total foreign 41.7 17.9 61.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Identifiable assets (Note 1):
=========================================================================
United States $1,311.7 $1,338.0 $1,435.5
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Europe 347.0 362.5 398.5
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Other foreign 63.2 64.9 74.9
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Corporate 207.7 251.0 250.5
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Eliminations (.3) (6.6) (9.5)
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
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Reconciliation (millions) 1993 1992 1991
=========================================================================
Operating profit $219.7 $ 68.6 $ 192.6
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Corporate expense, net (91.0) (87.4) (46.5)
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Interest expense (38.0) (41.6) (45.8)
=========================================================================
Earnings (loss) from
continuing businesses
before income taxes $ 90.7 $(60.4) $ 100.3
Note 1: Identifiable assets for geographic areas and industry segments
exclude cash, marketable securities, and assets of a corporate nature.
Capital additions for industry segments include property, plant, and equipment
from acquisitions.
The Company's foreign operations are subject to foreign government legislation
involving restrictions on investments (including transfers thereof), tariff
restrictions, personnel administration, and other actions by foreign
governments. In addition, consolidated earnings are subject to both U.S. and
foreign tax laws with respect to earnings of foreign subsidiaries, and to the
effects of currency fluctuations.
Item 2. Properties
- -------------------
The Company produces and markets its products and services throughout the world,
operating 73 manufacturing plants in 11 countries, 56 of which are located
throughout the United States. Additionally, affiliates operate eight plants in
four countries.
Floor covering products are produced at 23 plants with principal manufacturing
facilities located in Lancaster and Lansdale, Pennsylvania. American Olean owns
or leases various quarries throughout the United States for the supply of clays
and shale. Under a long-term lease, a quarry in Newfoundland, Canada, also
supplies a raw material important to American Olean's manufacture of glazed tile
at a proven reserve level of approximately 50 years at current production
levels. Building products are produced at 13 plants with principal facilities
in Macon, Georgia, the Florida-Alabama Gulf Coast area and Marietta,
Pennsylvania. Furniture is manufactured at 27 plants, 14 of which are located
at Thomasville, North Carolina. Insulating materials, textile mill supplies,
fiber gasket materials, adhesives and other products for industry are
manufactured at 14 plants with principal manufacturing facilities at Munster,
Germany, Braintree, Massachusetts and Fulton, New York.
Numerous sales offices are leased worldwide, and leased facilities are utilized
for American Olean's distribution centers and to supplement the Company's owned
warehousing facilities.
Productive capacity and extent of utilization of the Company's facilities are
difficult to quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the product that is
being manufactured and individual facilities manufacture more than one type of
product. In this context, the Company estimates that the production facilities
in each of its industry segments were effectively utilized during 1993 at 80% to
90% of overall productive capacity in meeting market conditions. Remaining
productive capacity is sufficient to meet expected customer demands.
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The Company believes its various facilities are adequate and suitable.
Additional incremental investments in plant facilities are being made as
appropriate to balance capacity with anticipated demand, improve quality and
service, and reduce costs.
Item 3. Legal Proceedings
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The Company is named as one of many defendants in pending lawsuits and claims
involving, as of February 28, 1994, approximately 72,125 individuals alleging
personal injury from exposure to asbestos or asbestos-containing products. (In
late 1993, the Company revised its claims handling procedures to provide for
individual claim information to be supplied by the Center for Claims Resolution
referred to below. The claim numbers have been received from the Center. A
reconciliation is underway to match the Company claims with the Center's and the
reconciliation will continue until completion. Since the reported data will be
more current under the revised claims handling procedure, the data reflects a
decrease from the past year in the number of outstanding claims.) A total of
about 24,036 lawsuits and claims were received by the Company in 1993, compared
with 28,997 in 1992. Nearly all the personal injury suits and claims allege
general and punitive damages arising from alleged exposures, during a period of
years, commencing during World War II onward into the 1970s, to asbestos-
containing insulation products used, manufactured or sold by the companies
involved in the asbestos-related litigation. Claims against the Company
generally involve allegations of negligence, strict liability, breach of
warranty and conspiracy with other defendants in connection with alleged
exposure generally to asbestos-containing insulation products; the Company
discontinued the sale of all such products in 1969. The first asbestos-related
lawsuit was filed against the Company in 1970, and such lawsuits and claims
continue to be filed against the Company. The claims generally allege that
injury may be determined many years (up to 40 years) after alleged exposure to
asbestos or asbestos-containing products. Nearly all suits include a number of
defendants (including both members of the Center and other companies), and well
over 100 different companies are reportedly involved as defendants in the
litigation. A significant number of suits in which the Company does not believe
it should be involved have been filed by persons engaged in vehicle tire
production, aspects of the construction industry, and the steel industry. The
Company believes that a large number of the plaintiffs filing suit are
unimpaired individuals. Although a large number of suits and claims have either
been put on inactive lists, settled, dismissed or otherwise resolved, and the
Company is generally involved in all stages of claims resolution and litigation,
including trials and appeals, and while the number of pending cases reflects a
decrease during the past year, neither the rate of future dispositions nor the
number of future potential unasserted claims can be reasonably predicted at this
time.
Attention has been given by various judges both individually and collectively to
finding a comprehensive solution to the large number of pending as well as
potential future asbestos-related personal injury claims. Discussions have been
undertaken by attorneys for plaintiffs and defendants to devise methods or
procedures for the comprehensive treatment of asbestos-related personal injury
suits and claims. The Judicial Panel for Multi-district Litigation ordered the
transfer of all federal cases not in trial to a single court, the Eastern
District Court of Pennsylvania in Philadelphia, for pretrial purposes. The
Company has supported such action. The Court to which the cases have been
assigned has been instrumental in having the parties settle large numbers of
cases in various jurisdictions and has been receptive to different approaches to
the resolution of asbestos-related personal injury claims. A national class
action was filed in the Eastern District of Texas; it was not certified and the
cases involved were also transferred to the Eastern District Court of
Pennsylvania for pretrial purposes. Periodically, this Court returns certain
cases for trial to the courts from which the cases were originally transferred,
although the issue of punitive damages is retained by the Eastern District
Court.
A settlement class action which includes essentially all future asbestos-related
personal injury claims against members of the Center for Claims Resolution was
filed in Philadelphia, in the Federal
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District Court for the Eastern District of Pennsylvania on January 15, 1993.
The proposed settlement class action was negotiated by the Center and two
leading plaintiffs' law firms. The settlement class action is designed to
establish a non-litigation system for the resolution of essentially all future
asbestos-related personal injury claims against the Center members including
this Company. Other defendant companies which are not Center members may be
able to join the class action later. The class action proposes a voluntary
settlement that offers a method for prompt compensation to claimants who were
occupationally exposed to asbestos if they are impaired by such exposure.
Claimants must meet certain exposure and medical criteria to receive
compensation which is derived from historical settlement data. Under limited
circumstances and in limited numbers, qualifying claimants may choose to
litigate certain claims in court or through alternative dispute resolution,
rather than accept an offered settlement amount, after their claims are
processed within the system. No punitive damages will be paid under the
proposed settlement. The settlement is designed to minimize transactional
costs, including attorneys fees, and to relieve the courts of the burden of
handling future asbestos-related personal injury claims. Each member of the
Center has an obligation for its own fixed share in this proposed settlement.
The settlement class action does not include asbestos-related personal injury
claims which were filed before January 15, 1993, or asbestos-related property
damage claims. Agreed upon annual case flow caps and agreed upon compensation
ranges for each compensable medical category including amounts paid even more
promptly under the simplified payment procedures,have been established for an
initial period of ten years. Case flow caps may be increased during the second
five-year period depending upon case flow during the first five-year period.
The case flow figures and annual compensation levels are subject to
renegotiation after the initial 10-year period. The Court has preliminarily
approved the settlement, and notification has been provided to potential class
members who were offered the opportunity to opt out by January 24, 1994. The
Center had reserved the right to withdraw from the program if an excessive
number of individuals opted out. The Center has determined that there is not
an excessive number of opt outs and will proceed with the settlement class
action. The opt outs are not asbestos-related claims as such but reservations
of rights to possibly bring court actions in the future. The opt outs are
currently the subject of a motion before the Court which questions the
validity of most of the opt outs and seeks a further notice process to
determine whether or not they wish to remain in the class action. Therefore,
the total number of effective opt outs cannot be determined at this time. The
Court is holding a final fairness hearing which began on February 22, 1994.
The settlement will become final only after it has been approved by the
Federal District Court and the federal appellate courts. The Center members
have stated their intention to resolve over a five-year period the asbestos-
related personal injury claims pending prior to the date the settlement class
action was filed. A significant number of these pending claims have been
settled with a number of plaintiffs' counsel and a number of these claims are
currently the subject of settlement negotiations, in both instances, based
upon historical averages.
The Company is seeking agreement from its carriers or a ruling from the Court
that the settlement class action will not jeopardize existing insurance
coverage. Certain unresolved insurance coverage issues involving certain Center
members' insurance carriers acceptance of the proposed settlement will be
resolved either by alternative dispute resolution procedures in the case of the
insurance carriers which subscribed to the Wellington Agreement referred to
below, or by litigation against those carriers which did not subscribe to the
Wellington Agreement.
The Company believes that the future claimants settlement class action will be
approved. However, the potential exists that either the Federal District Court
or an appellate court will reject the settlement class action and that the
above-referenced companion insurance action will not be successful.
A few state judges and federal judges have undertaken to consolidate numbers of
asbestos-related personal injury cases for trial. The Company has generally
opposed as unfair the consolidation of numerous cases for trial. In 1992 in
Baltimore, Maryland, the Center for Claims Resolution referred to herein settled
during trial on behalf of the Company and other Center members certain asbestos-
related personal injury claims. In most of the approximately 8,500 cases
consolidated for trial, Armstrong was a named defendant. The multiphase
Baltimore trial dealt with various issues including the individual claims of six
plaintiffs, as well as product defect and negligence, and whether and on what
basis punitive damages should be awarded. The Center for Claims Resolution is
periodically drawing upon the Company's insurance assets to pay the settled
individual claims.
In 1983, three of the Company's four primary insurers entered into an Interim
Agreement with the Company to provide defense and indemnity coverage on an
interim basis for asbestos-related personal injury claims and for the defense of
asbestos-related property damage claims which are described below. One
- 10 -
primary insurer did not enter into the Interim Agreement, but did subscribe to
the Wellington Agreement as noted below. The Interim Agreement was superseded
by the Wellington Agreement with respect to the coverage issues for asbestos-
related personal injury claims. The one primary insurer of the four primary
carriers that did not subscribe to the Wellington Agreement subsequently entered
into a separate agreement with the Company resolving coverage issues for
asbestos-related property damage claims and for asbestos-related personal injury
claims which complements the Wellington Agreement. All of the Company's primary
insurers are paying for the defense of asbestos-related property damage claims
in accordance with the provisions of the Interim Agreement pending the final
resolution on appeal of the coverage issues for asbestos-related property damage
claims in the California insurance litigation referenced later in this note.
The Company's insurance carriers providing coverage for asbestos-related claims
are as follows: Reliance Insurance, Aetna Insurance and Liberty Mutual
Insurance Companies are primary insurers that have subscribed to the Wellington
Agreement. Travelers Insurance Company is a primary insurer that entered into
a settlement agreement which complements Wellington. The excess insurers which
subscribed to Wellington are Aetna Insurance Company, Fireman's Fund Insurance
Company, Insurance Company of North America, Lloyds of London, Fidelity and
Casualty Insurance Company, First State Insurance Company and U.S. Fire
Insurance Company. Home Insurance Company and Travelers Insurance Company are
excess insurers which entered into settlement agreements for coverage of
personal injury claims which complement Wellington, and Great American is an
excess insurer which also entered into a settlement agreement with the Company.
The Company also entered into a settlement agreement with American Home
Assurance Company and National Union Fire Insurance Company (known as the AIG
Companies) which complements the Wellington Agreement. Other excess insurers
against whom the Company has received a favorable trial and appellate court
decision in the California insurance litigation described below are: Central
National Insurance Company, Interstate Insurance Company, Puritan Insurance
Company, CNA Insurance Company and Commercial Union Insurance Company. Midland
Insurance Company, an excess carrier, which insured the Company with $25 million
of coverage, became insolvent during the trial. The Company is pursuing claims
with the state guaranty associations on account of the Midland insolvency and is
currently exploring how the Midland Insurance Company insolvency gaps can be
otherwise addressed by payments from the Company's other insurance carriers.
Certain companies in the London block of coverage and certain carriers providing
coverage at the excess level for property damage claims only have also become
insolvent. In addition to the aforementioned insurance carriers, certain
insurance carriers which were not included in the Company's California insurance
litigation described later herein also provide insurance for asbestos-related
property damage claims.
The Company along with 52 other companies (defendants in the asbestos-related
litigation and certain of their insurers) signed the 1985 Agreement Concerning
Asbestos-Related Claims (the "Wellington Agreement"). This Agreement provided
for a final settlement of nearly all disputes concerning insurance for asbestos-
related personal injury claims between the Company and three of its primary
insurers and seven of its excess insurers which also subscribed to the
Wellington Agreement. The one primary insurer that did not sign the Wellington
Agreement had earlier entered into the Interim Agreement with the Company and
had paid into the Wellington Asbestos Claims Facility (the "Facility"). The
Wellington Agreement provides for those insurers to indemnify the Company up to
the policy limits for claims that trigger policies in the insurance coverage
period, and nearly all claims against the Company fall within the coverage
period; both defense and indemnity are paid under the policies and there are no
deductibles under the applicable Company policies. The Wellington Agreement
addresses both products and non-products coverage. One of the Company's larger
excess insurance carriers entered into a settlement agreement in 1986 with the
Company under which payments also were made through the Facility and are now
being paid through the Center for Claims
- 11 -
Resolution referenced below in this note. Coverage for asbestos-related
property damage claims was not included in the settlement, and the agreement
provides that either party may reinstitute a lawsuit in the event the coverage
issues for property damage claims are not amicably resolved. In 1987, an excess
insurer also made, under reservation of rights, certain payments which were
processed through the Facility. These payments were made under reservation
because no settlement of the outstanding coverage issues has been effected with
that carrier.
The Wellington Agreement also provided for the establishment of the Facility to
evaluate, settle, pay and defend all pending and future asbestos-related
personal injury claims against those companies which subscribed to the
Agreement. The insurance coverage designated by the Company for coverage in the
Facility consists of all relevant insurance policies issued to the Company from
1942 through 1976. Liability payments and allocated expenses with respect to
each claim filed against Wellington Agreement subscribers who were defendants in
the underlying asbestos-related personal injury litigation were allocated on a
formula percentage basis to each such defendant, including the Company. The
Facility, which has dissolved, over time was negatively impacted by concerns
raised by certain subscribers relating to their share of liability payments and
allocated expenses and by certain insurer concerns with respect to defense costs
and Facility operating expenses. As a result of seven subscribing companies
giving notice that they wished to withdraw their cases from the Facility, a
majority of the insurers and the company subscribing members agreed to dissolve
the ongoing operation of the Facility as of October 3, 1988 and the Facility has
now been fully dissolved. Except for eliminating the future availability of an
insurer-paid special defense fund benefit linked to the existence of the
Facility, a benefit not deemed material to the Company, the dissolution of the
Facility essentially did not affect the Company's overall Wellington Agreement
insurance settlement, which stood on its own separate from the Facility. The
relinquishment of the insurer-paid special defense fund benefit was a condition
of insurer support for the creation of the Center and its expected benefits.
A new asbestos-related personal injury claims handling organization known as the
Center for Claims Resolution (the "Center") was created in October 1988 by
Armstrong and 20 other companies, all of which were former members of the
Facility. Insurance carriers are not members of the Center, although certain of
the insurance carriers for those members that joined the Center signed an
agreement to provide approximately 70% of the financial support for the Center's
operational costs during its first year of existence; they also are represented
ex officio on the Center's governing board. The Center adopted many of the
conceptual features of the Facility, and the members' insurers generally provide
coverage under the Wellington Agreement terms. The Center has operated under a
revised concept of allocated shares of liability payments and defense costs
for its members based primarily on historical experience and has defended the
members' interests and addressed the claims in a manner consistent with the
prompt, fair resolution of meritorious claims. In late 1991, the Center
sharing formula was revised to provide that members will pay only on claims in
which the member is a named defendant. This change has caused a slight
increase in the Company's share, but has enhanced the Company's case
management focus. Future claim payments by the Center pursuant to the proposed
settlement class action will require each member to pay its own fixed share.
A large share member earlier withdrew from the Center. Accordingly, the
allocated shares of liability payments and defense costs of the Center were
recalculated with the remaining members' shares being increased. Under the class
action settlement resolution, if a member withdraws from the Center or the
settlement, the shares of those remaining members would not be increased. It is
expected that the Center members will reach an agreement with the insurers
relating to the continuing operation of the Center and that the insurers' will
fund the Center's operating expenses for its sixth year of operation. With the
filing of the settlement class action, the Center will continue to process
pending claims and will handle the program for processing future claims if the
settlement class action is approved by the courts.
- 12 -
Consistent with the Center's objective of prompt resolution of meritorious
claims, and to establish the Center's credibility after the cessation of the
Facility and for other strategic reasons, a planned increase in claims
resolution by the Center was implemented during the first two years. This
increased the rate of utilization of Company insurance for claims resolution,
offset in part by savings in defense costs. During the first three years, the
rate of claims resolution had about trebled from the prior two years of
experience. An increase in the utilization of the Company's insurance also will
occur as a result of the class action settlement due to the commitment to
attempt to resolve pending claims within five years. Aside from the commitments
under the class action settlement, no forecast can be made for future years
regarding either the rate of claims or the rate of pending and future claims
resolution by the Center or the rate of utilization of Company insurance. If
the settlement class action is finally approved, projections of the rate of
disposition of future cases may be made and the rate of insurance usage will
be accelerated as an effort is made to resolve both outstanding cases and
address future claims.
The Company is also one of many defendants in a total of 73 pending lawsuits and
claims, including class actions, as of February 28, 1994, brought by public and
private entities, including public school districts and public and private
building owners. These lawsuits and claims include allegations of damage to
buildings caused by asbestos-containing products and generally claim
compensatory and punitive damages and equitable relief, including reimbursement
of expenditures, for removal and replacement of such products. They appear to
be aimed at friable (easily crumbled) asbestos-containing products, although
allegations in some suits encompass all asbestos-containing products, including
allegations with respect to asbestos-containing resilient floor covering
materials. Class actions have been certified involving four distinct classes of
building owners: public and private schools; Michigan state public and private
schools; colleges and universities, and private property owners who leased
facilities to the federal government. Subject to fairness hearings, resolution
has been reached with the class representatives for the national public and
private schools class action as well as with the class representatives for the
private property owners who leased facilities to the federal government. The
Company vigorously denies the validity of the allegations against it contained
in these suits and claims. Increasing defense costs, paid by the Company's
insurance carriers either under reservation or settlement arrangement, will be
incurred. As a consequence of the California insurance litigation discussed
elsewhere in this note, the Company believes that it is probable that costs of
the property damage litigation that are being paid by the Company's insurance
carriers under reservation of rights will not be subject to recoupment. These
suits and claims were not handled by the former Facility nor are they being
handled by the Center.
Certain co-defendant companies in the asbestos-related litigation have filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. As a
consequence, this litigation with respect to these co-defendants (with several
exceptions) has been stayed or otherwise impacted by the restrictions placed on
proceeding against these co-defendants. Due to the uncertainties involved, the
long-term effect of these Chapter 11 proceedings on the litigation cannot be
predicted.
The Company concluded in early 1989 the trial phase of a coordinated lawsuit in
a California state court to resolve a dispute concerning certain of its
insurance carriers' obligations with respect to insurance coverage for alleged
- 13 -
personal injury and property damage asbestos-related lawsuits and claims. The
trial court issued favorable final decisions in important phases of the trial
relating to coverage for personal injury and property damage lawsuits and
claims. The Company earlier dismissed from the asbestos-related personal injury
coverage portion of the litigation those insurance carriers which had subscribed
to the Wellington Agreement, and the excess carriers which entered into a
settlement agreement with the Company which complements Wellington also have
been dismissed.
As indicated above, the California trial court issued final decisions in various
phases in the insurance lawsuit. One decision concluded that the trigger of
insurance coverage for asbestos-related personal injury claims was continuous
from exposure through death or filing of a claim. The court also found that a
triggered insurance policy should respond with full indemnification up to
exhaustion of the policy limits. The court concluded that any defense
obligation ceases upon exhaustion of policy limits. Although not as
comprehensive, another important decision in the trial established a favorable
defense and indemnity coverage result for asbestos-related property damage
claims; the final decision holds that, in the event the Company is held liable
for an underlying property damage claim, the Company would have coverage under
policies in effect during the period of installation and during any subsequent
period in which a release of fibers occurred. Appeals were filed from the trial
court's final decision by those carriers still in the litigation and the
California Court of Appeal has substantially upheld the trial court's final
decisions. The insurance carriers have petitioned the California Supreme Court
to hear the various asbestos-related personal injury and property damage
coverage issues. The California Supreme Court recently accepted review pending
its review of related issues in another California case. Based upon the trial
court's favorable final decisions in important phases of the trial relating to
coverage for asbestos-related personal injury and property damage lawsuits and
claims, including the favorable decision by the California Court of Appeal, and
a review of the coverage issues by its trial counsel, the Company believes that
it has a substantial legal basis for sustaining its right to defense and
indemnification. After concluding the last phase of the trial against one of
its primary carriers, which is also an excess carrier, the Company and the
carrier reached a settlement agreement on March 31, 1989. Under the terms of
the settlement agreement, coverage is provided for asbestos-related bodily
injury and property damage claims generally consistent with the interim rulings
of the California trial court and complements the coverage framework established
by the Wellington Agreement. The parties also agreed that a certain minimum and
maximum percentage of indemnity and allocated expenses incurred with respect to
asbestos-related personal injury claims would be deemed allocable to non-
products claims coverage and that the percentage amount would be negotiated
between the Company and the insurance carrier. These negotiations continue.
The Company also settled both asbestos-related personal injury and property
damage coverage issues with a small excess carrier and in 1991 settled those
same issues with a larger excess carrier. In these settlements, the Company and
the insurers agreed to abide by the final judgment of the trial court in the
California insurance litigation with respect to coverage for asbestos-related
claims.
Non-products claims coverage insurance is available under the Wellington
Agreement (and the previously-referenced settlement agreement with one primary
carrier) for such claims. Certain excess policies also provide non-products
coverage. Non-products claims include claims that may have arisen out of
exposure during installation of asbestos materials or before control of such
materials has been relinquished. Negotiations have been undertaken with the
Company's primary insurance carriers and are currently underway with several of
them to categorize the percentage of previously resolved and to be resolved
asbestos-related personal injury claims as non-products claims and to establish
the entitlement to such
- 14 -
coverage. The additional coverage potentially available to pay claims
categorized as non-products, at both the primary and excess levels, is
substantial, and at the primary level, includes defense costs in addition to
limits. No agreement has been reached with the primary carriers on the amount
of non-products coverage attributable to claims that have been disposed of or
the type of claims that should be covered by non-products insurance. One of
the primary carriers alleges that it is no longer bound by the Wellington
Agreement and one primary carrier seemingly takes the view that the Company
verbally waived certain rights regarding non-products coverage against that
carrier at the time the Wellington Agreement was signed. All the carriers
presumably raise other reasons why they should not pay their coverage
obligations. The Company is entitled to pursue alternative dispute resolution
proceedings against the primary and certain excess carriers to resolve the non-
products coverage issues.
ACandS, Inc., a former subsidiary of the Company, which for certain insurance
periods has coverage rights under some insurance policies, and has accessed such
coverage on the same basis as the Company, was a subscriber to the Wellington
Agreement, but was not a subscriber to the Center. ACandS, Inc. had filed a
lawsuit against the Company to partition certain insurance policies and for an
accounting. It sought to have a certain amount of insurance from the joint
policies reserved solely for its use in the payment of defense and indemnity
costs for asbestos-related claims. The two companies have negotiated a
settlement of their dispute and have signed a settlement agreement.
Based upon the Company's experience with this litigation and its disputes with
insurance carriers, a reserve was recorded in June 1983 to cover estimated
potential liability and settlement costs and legal and administrative costs not
covered under the Interim Agreement, cost of litigation against the Company's
insurance carriers, and other factors involved in the litigation which are
referred to herein about which uncertainties exist. As a result of the
Wellington Agreement, the reserve was earlier reduced for that portion
associated with pending personal injury suits and claims. As a result of the
March 31, 1989, settlement referenced above, the Company received $11.0
million, of which approximately $4.4 million was credited to income with nearly
all of the balance being recorded as an increase to its reserve for potential
liabilities and other costs and uncertainties associated with the asbestos-
related litigation. Future costs of litigation against the Company's insurance
carriers and other legal costs indirectly related to the litigation will be
expensed outside the reserve. The Company does not know how many claims will be
filed against it in the future, nor the details thereof or of pending suits not
fully reviewed, nor the expense and any liability that may ultimately result
therefrom, nor does the Company know whether the settlement class action will
ultimately succeed, nor the annual claims flow caps to be negotiated after the
initial 10-year period for the settlement class action or the then compensation
levels to be negotiated for such claims or the success the Company may have in
addressing the Midland Insurance Company insolvency with its other insurers.
Subject to the foregoing and based upon its experience and other factors
referred to elsewhere in this note, the Company believes that it is probable
that substantially all of the expenses and any liability payments associated
therewith within the framework of the class action settlement and the initial
ten-year period thereof will be paid--in the case of the personal injury claims,
by agreed-to coverage under the Wellington Agreement and by payments by
nonsubscribing insurers that entered into settlement agreements with the Company
and additional insurance coverage reasonably anticipated from the outcome of the
insurance litigation and from the Company's claims for non-products coverage
both under certain insurance policies covered by the Wellington Agreement and
under certain insurance policies not covered by the Wellington Agreement which
claims have yet to be accepted by the carriers--and in the case of the asbestos-
related property damage claims, under an existing interim agreement, by
insurance coverage settlement agreements and through additional coverage
reasonably anticipated from the outcome of the insurance litigation.
Accordingly, the Company believes that it is probable that charges to expense
associated with such suits and claims should not be significant.
Even though uncertainties still remain as to the potential number of unasserted
claims, liability resulting therefrom, and the ultimate scope of its insurance
coverage, after consideration of the factors involved, including the Wellington
Agreement, the referenced settlements with other insurance carriers, the results
of the trial phase and the first level appellate stage
- 15 -
of the California insurance coverage litigation, the remaining reserve, the
establishment of the Center, the proposed settlement class action, and its
experience, the Company believes the asbestos-related lawsuits and claims
against the Company will not have a material adverse effect on its earnings or
financial position.
-------------------------------
In 1984, suit was filed against the Company in the U. S. District Court for the
District of New Jersey (the "Court") by The Industry Network System (TINS), a
producer of video magazines in cassette form, and Elliot Fineman, a consultant
(Fineman and The Industry Network System, Inc. v. Armstrong World Industries,
- -----------------------------------------------------------------------------
Inc., C.A. No. 84-3837 JWB). At trial, TINS claimed, among other things, that
- --------------------------
the Company had improperly interfered with a tentative contract which TINS had
with an independent distributor of the Company's flooring products and further
claimed that the Company used its alleged monopoly power in resilient floor
coverings to obtain a monopoly in the video magazine market for floor covering
retailers in violation of federal antitrust laws. The Company denied all
allegations and continues to do so. On April 19, 1991, after a three-month
trial, the jury rendered a verdict in the case, which as entered by the court in
its order of judgment, awarded the plaintiffs the alternative, after all post-
trial motions and appeals were completed, of either their total tort claim
damages (including punitive damages), certain pre-judgment interest, and post-
judgment interest or their trebled antitrust claim damages, post-judgment
interest and attorneys fees. The higher amount awarded to the plaintiffs as a
result of these actions totaled $224 million in tort claim damages and pre-
judgment interest, including $200 million in punitive damages.
On June 20, 1991, the Court granted judgment for the Company notwithstanding the
jury's verdict, thereby overturning the jury's award of damages and dismissing
the plaintiffs' claims with prejudice. Furthermore, on June 25, 1991, the Court
ruled that, in the event of a successful appeal restoring the jury's verdict in
the case, the Company would be entitled to a new trial on the matter.
On October 28, 1992, the United States Court of Appeals for the Third Circuit
issued an opinion in Fineman v. Armstrong World Industries, Inc. (No. 91-5613).
-------------------------------------------
The appeal was taken to the Court of Appeals from the two June 1991 orders of
the United States District Court in the case. In its decision on the
plaintiff's appeal of these rulings, the Court of Appeals sustained the U. S.
District Court's decision granting the Company a new trial, but overturned in
certain respects the District Court's grant of judgment for the Company
notwithstanding the jury's verdict.
The Court of Appeals affirmed the trial judge's order granting Armstrong a new
trial on all claims of plaintiffs remaining after the appeal; affirmed the trial
judge's order granting judgment in favor of Armstrong on the alleged actual
monopolization claim; affirmed the trial judge's order granting judgment in
favor of Armstrong on the alleged attempt to monopolize claim; did not disturb
the District Court's order dismissing the alleged conspiracy to monopolize
claim; affirmed the trial judge's order dismissing all of Fineman's personal
claims, both tort and antitrust; and affirmed the trial judge's ruling that
plaintiffs could not recover the aggregate amount of all damages awarded by the
jury and instead must elect damages awarded on one legal theory. However, the
Third Circuit, contrary to Armstrong's arguments: reversed the trial judge's
judgment for Armstrong on TINS's claim for an alleged violation of Section 1 of
the Sherman Act; reversed the trial judge's judgment in favor of Armstrong on
TINS's claim for tortious interference; reversed the trial judge's judgment in
favor of Armstrong on TINS's claim for punitive damages; and reversed the trial
judge's ruling that had dismissed TINS's alleged breach of contract claim.
- 16 -
The Court of Appeals, in affirming the trial court's new trial order, agreed
that the trial court did not abuse its discretion in determining that the jury's
verdict was "clearly against the weight of the evidence" and that a new trial
was required due to the misconduct of plaintiffs' counsel.
The foregoing summary of the Third Circuit's opinion is qualified in its
entirety by reference thereto.
The Court of Appeals granted the Company's motion to stay return of the case to
the District Court pending the Company's Petition for Certiorari to the Supreme
Court appealing certain antitrust rulings of the Court of Appeals. The Company
was informed on February 22 that the Supreme Court denied its Petition. The
case has been remanded by the Third Circuit Court of Appeals in Philadelphia to
the U. S. District Court in Newark, New Jersey, and a new trial has been set for
late April 1994. It is unknown what damage claims TINS will be permitted upon
retrial of the case. But during the first trial, claims for actual damages of
at least $17.5 million were asserted by plaintiffs' expert and even greater
amounts were asserted by Mr. Fineman. Under the antitrust laws, proven damages
are trebled. In addition, plaintiff would likely ask for punitive damages,
companion to its request for tort damages. Other damages which would likely be
sought include reimbursement of attorneys' fees and interest, including
prejudgment interest.
The Company denies all of TINS's claims and accordingly is vigorously defending
the matter. In the event that a jury finds against the Company, such jury
verdict could entail unknown amounts which, if sustained, could have a material
adverse effect on its earnings and financial position.
--------------------
As previously discussed on pages 6 and 7, with regard to a former county
landfill in Buckingham County, Virginia, Thomasville Furniture Industries, Inc.,
and seven other parties have been identified by the U.S. Environmental
Protection Agency ("USEPA") as potentially responsible parties ("PRPs") to fund
the cost of remediating environmental conditions at this federal Superfund site.
After review of investigative studies to determine the nature and extent of
contamination and identify various remediation alternatives, USEPA issued its
Proposed Remedial Action Plan in May 1993 proposing a $21 million clean-up cost.
In November 1993, however, USEPA issued a revised plan which recommended a
reduced $3.5 million alternative, subject to additional costs depending on test
results. The PRPs believe that other alternatives are appropriate and
discussions with USEPA and Virginia State officials continue.
Spent finishing materials from Thomasville's Virginia furniture plants at
Appomattox and Brookneal allegedly comprise a significant portion of the waste
presently believed to have been taken to the site by a now defunct disposal firm
in the late 1970s. Accordingly, Thomasville could be called upon to fund a
significant portion of the eventual remedial costs.
- 17 -
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- -------------------------------------
The information appearing in Item 10 hereof under the caption "Executive
Officers of the Registrant" is incorporated by reference herein.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded on the New York Stock Exchange, Inc., the
Philadelphia Stock Exchange, Inc., and the Pacific Stock Exchange, Inc. As of
January 28, 1994, there were approximately 7,876 holders of record of the
Company's Common Stock.
Total
First Second Third Fourth Year
===========================================================================================================
1993
===========================================================================================================
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 28 7/8 29 3/8 30 1/4 40 1/4 28 7/8
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 1/8 34 3/4 42 1/2 55 1/4 55 1/4
===========================================================================================================
1992
===========================================================================================================
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 26 29 5/8 27 1/2 24 1/2 24 1/2
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 7/8 37 1/2 32 3/8 32 3/4 37 1/2
===========================================================================================================
- 18 -
Item 6. Selected Financial Data
- ---------------------------------
- --------------------------------------------------------------------------------
EIGHT - YEAR SUMMARY
- --------------------------------------------------------------------------------
For Year ($ millions except for per-share data) 1993 1992 1991 1990 1989 1988 1987 1986
==================================================================================================================================
Net sales 2,525.4 2,549.8 2,439.3 2,518.8 2,488.7 2,261.2 1,969.6 1,602.3
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 1,802.3 1,888.7 1,801.1 1,816.6 1,764.0 1,611.0 1,383.6 1,117.5
- ----------------------------------------------------------------------------------------------------------------------------------
Selling and administrative expense 505.0 511.6 468.3 462.6 436.6 392.0 339.0 286.2
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense 38.0 41.6 45.8 37.5 40.5 25.8 11.5 5.4
- ----------------------------------------------------------------------------------------------------------------------------------
Restructuring charges (89.9) (165.5) (12.8) (6.8) (5.9) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Gain from sales of woodlands -- -- -- 60.4 9.5 1.9 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous income (expense) 0.5 (2.8) (11.0) (32.6) (7.6) 11.7 3.0 1.6
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses
before tax 90.7 (60.4) 100.3 223.1 243.6 246.0 238.5 194.8
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes 27.2 (0.5) 39.7 76.7 85.9 92.4 97.4 82.6
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses 63.5 (59.9) 60.6 146.4 157.7 153.6 141.1 112.2
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of sales 2.5% (2.3)% 2.5% 5.8% 6.3% 6.8% 7.2% 7.0%
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of average monthly
assets 3.2% (2.8)% 2.9% 7.1% 8.3% 10.2% 11.6% 11.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses
applicable to common stock (a) 49.6 (73.7) 41.2 126.9 148.0 153.2 140.7 111.8
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--primary 1.32 (1.98) 1.11 3.26 3.26 3.31 2.98 2.33
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--fully diluted (b) 1.26 (1.98) 1.11 2.99 3.11 3.31 2.98 2.33
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 63.5 (227.7) 48.2 141.0 187.6 162.7 150.4 122.4
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of sales 2.5% (8.9)% 2.0% 5.6% 7.5% 7.2% 7.6% 7.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common
stock (a) 49.6 (241.5) 28.8 121.5 177.9 162.3 150.0 122.0
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of average
shareholders' equity 9.0% (33.9)% 3.3% 13.0% 17.9% 17.0% 17.6% 16.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--primary 1.32 (6.49) .77 3.12 3.92 3.51 3.18 2.54
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--fully diluted (b) 1.26 (6.49) .77 2.86 3.72 3.51 3.18 2.54
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share
of common stock 1.20 1.20 1.19 1.135 1.045 .975 .885 .7325
- ----------------------------------------------------------------------------------------------------------------------------------
Purchases of property, plant,
and equipment 117.6 115.8 133.8 195.1 231.0 198.7 183.0 139.8
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate cost of acquisitions -- 4.2 -- 16.1 -- 355.8 71.5 53.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization 130.0 136.9 135.7 130.1 134.0 109.2 91.4 74.3
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of employees--
continuing businesses 21,682 23,500 24,066 25,014 25,349 22,801 21,020 18,916
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 37.2 37.1 37.1 38.8 45.4 46.2 47.2 48.1
==================================================================================================================================
- 19 -
YEAR-END POSITION
==================================================================================================================================
Working capital 204.1 167.1 238.9 181.8 323.5 139.0 255.3 327.7
- ----------------------------------------------------------------------------------------------------------------------------------
Net property, plant, and equipment 1,039.1 1,072.0 1,152.9 1,147.4 1,059.2 1,040.2 760.7 603.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,929.3 2,009.8 2,149.9 2,146.3 2,033.0 2,097.7 1,602.5 1,298.2
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 256.8 266.6 301.4 233.2 181.3 185.9 67.7 58.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total debt as a percentage of
total capital (c) 52.2% 57.2% 46.9% 45.7% 36.1% 35.9% 22.8% 16.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 569.5 569.2 885.5 899.2 976.5 1,021.8 913.8 813.0
- ----------------------------------------------------------------------------------------------------------------------------------
Book value per share of
common stock 14.71 14.87 23.55 24.07 23.04 21.86 19.53 16.85
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shareholders (d)(e) 7,962 8,611 8,896 9,110 9,322 10,355 9,418 9,621
- ----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding 37.2 37.1 37.1 37.1 42.3 46.3 46.2 47.5
- ----------------------------------------------------------------------------------------------------------------------------------
Market value per common share 53 1/4 31 7/8 29 1/4 25 37 1/4 35 32 1/4 29 7/8
==================================================================================================================================
Notes:
(a) After deducting preferred dividend requirements and adding the tax benefits
for unallocated shares.
(b) See definition of fully diluted earnings per share on page 38.
(c) Total debt includes short-term debt, current installments of long-term debt,
long-term debt, and ESOP loan guarantee. Total capital includes total debt
and total shareholders' equity.
(d) Includes one trustee who is the shareholder of record on behalf of
approximately 4,300 employees in 1993, 4,500 employees in 1992, 4,600
employees in 1991, 4,500 employees in 1990, 4,700 employees in 1989, and
4,400 employees in 1988 who have beneficial ownership through the company's
retirement savings plans.
(e) Includes, for 1987 and 1986, a trustee who was the shareholder of record on
behalf of approximately 11,000 employees who obtained beneficial ownership
through the Armstrong Stock Ownership Plan, which was terminated at the end
of 1987.
- 20 -
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
---------------------
1993 compared with 1992
Financial condition
As shown on the Consolidated Statements of Cash Flows, net cash provided by
operating activities in 1993 was $291.2 million which was more than sufficient
to cover investments in property, plant, and equipment and dividends. The excess
cash, plus cash proceeds from the sale of assets and the decrease in cash and
cash equivalents, was used to reduce debt by $124.1 million.
For 1993, the company recorded an $89.9 million charge before tax ($60.0
million after tax) for restructuring resulting from 1993 decisions associated
with major process improvements and significant organizational changes
recommended by the teams of project PATH (a company initiative announced in
August 1993 to strengthen its global competitiveness). Approximately 80% of the
before-tax losses were related to charges for severance and special retirement
incentives associated with the elimination of employee positions, and
approximately one-third of the before-tax loss represented future cash outlays.
Most of the cash outlays are expected to occur in 1994 and to be offset by
operating savings. The operating cash savings, resulting from restructuring
actions taken during 1993 and 1992, more than offset the 1993 cash outlays of
$39.3 million for restructuring.
During the fourth quarter of 1993, the company terminated, prior to maturity,
interest rate swaps totaling $100 million, and currency swaps totaling $37.2
million.
Working capital was $204.1 million as of December 31, 1993--$37.0 million
higher than the $167.1 million at year-end 1992. The primary reason for the
increase in working capital was the repayment of short-term debt. Accounts
receivable and inventories declined $19.1 million and $33.2 million,
respectively, both reflecting reductions in most business units with half of the
reductions attributed to the European building products business.
A financing arrangement of a foreign subsidiary's principal pension plan,
whereby the subsidiary became self-insured for its pension obligations, resulted
in recording a noncurrent asset and long-term liability of $37.7 million (see
page 42).
The company's 1993 year-end ratio of current assets to current liabilities
was 1.47 to 1, compared with 1.31 to 1 ratio reported in 1992. The 1993 and 1992
year-end ratio of total debt to total capital was 52.2% and 57.2%, respectively.
The company is involved in significant asbestos-related litigation which is
described more fully under "Litigation" on pages 60-64 and which should be read
in connection with this discussion and analysis. The company does not know how
many claims will be filed against it in the future, nor the details thereof or
of pending suits not fully reviewed, nor the expense and any liability that may
ultimately result therefrom, nor does the company know the annual claims flow
caps to be negotiated after the initial 10-year period for the settlement class
action or the then compensatory levels to be negotiated for such claims or the
success the company may have in addressing the Midland Insurance Company
insolvency with its other insurers. Subject to the foregoing and based upon its
experience and other factors, the company believes that it is probable that
substantially all of the expenses and any liability payments associated
therewith will be paid--in the case of the personal injury claims, by agreed-to
coverage under the Wellington Agreement and supplemented by payments by non-
subscribing insurers that entered into settlement agreements with the company
and additional insurance coverage reasonably anticipated from the outcome of the
insurance litigation and from the company's claims for non-products coverage
both under certain insurance policies covered by the Wellington Agreement and
under certain insurance policies not covered by the Wellington Agreement which
claims have yet to be accepted by the carriers--and in the case of the asbestos-
related property damage claims, under
- 21 -
an existing interim agreement, by insurance coverage settlement agreements and
through additional coverage reasonably anticipated from the outcome of the
insurance litigation. To the extent that costs of the property damage litigation
are being paid by the company's insurance carriers under reservation of rights,
the company believes that it is probable that such payments will not be
subjected to recoupment. Thus, the company has not recorded any liability for
any defense costs or indemnity relating to these lawsuits other than a reserve
in "Other long-term liabilities" for the estimated potential liability
associated with claims pending and intended to cover potential liability and
settlement costs, legal and administrative costs not covered under the
agreements, and certain other factors which have been involved in the litigation
about which uncertainties exist. Even though uncertainties still remain as to
the potential number of unasserted claims, the liability resulting therefrom,
and the ultimate scope of its insurance coverage, after consideration of the
factors involved, including the Wellington Agreement, the settlements with other
insurance carriers, the results of the trial phase and the first level appellate
stage of the California insurance litigation, the remaining reserve, the
establishment of the Center for Claims Resolution, the proposed settlement class
action, and its experience, the company believes that this litigation will not
have a material adverse effect on its earnings, liquidity, or financial
position.
The accounting treatment for the Company's asbestos-related personal injury
litigation will be affected by changes in accounting practices required by the
Financial Accounting Standards Board Interpretation Number 39 (FIN 39) and the
Securities and Exchange Commission Staff Accounting Bulletin No. 92 (SAB 92).
FIN 39, which is effective beginning in 1994, does not permit offsetting unless
a right of set off exists. Historically, the Company has been following the
practice of offsetting the liability for asserted claims with expected insurance
coverage. The Company intends to reflect the required changes in its first
quarter 1994 Form 10-Q and, therefore, will record a liability for
asbestos-related personal injury claims and an asset for insurance coverage
deemed probable.
Reference is made to the litigation involving The Industry Network System,
Inc. (TINS), discussed on pages 64-65. The company denies all of TINS' claims
and accordingly is vigorously defending the matter. In the event that a jury
finds against the company, such jury verdict could entail unknown amounts
which, if sustained, could have a material adverse effect on its earnings and
financial position.
Reference is also made to environmental issues as discussed on pages 51, 52,
and 61. The company believes any sum it may have to pay in connection with
environmental matters in excess of amounts accrued would not have a material
adverse effect on its financial condition, liquidity, or results of operations.
Long-term debt, excluding the company's guarantee of the ESOP loan, was
reduced by $9.8 million in 1993. At year-end 1993, long-term debt represented
45% of shareholders' equity compared with 47% at the end of 1992.
Should a need develop for additional financing, it is management's opinion
that the company has sufficient financial strength to warrant the required
support from lending institutions and financial markets.
- 22 -
Consolidated results
Net sales in 1993 of $2.53 billion decreased 1.0% compared with 1992 sales of
$2.55 billion. The weaker European exchange rates were a key factor in the sales
decline. Translating foreign currency sales to U.S. dollars at 1992 exchange
rates would have resulted in a year-to-year sales increase of 1.9%. Armstrong's
residential markets were very positive in the U.S., but the weakness in the
European economies and the lackluster commercial markets worldwide reduced the
overall opportunity. While sales in the first two quarters of 1993 were lower
than the comparable 1992 quarters, third and fourth quarter sales did exceed
those of the prior year.
Net earnings were $63.5 million compared with a net loss in 1992 of $227.7
million. Net earnings per common share were $1.32 on a primary basis and $1.26
on a fully diluted basis. The net loss per share of common stock was $6.49 on
both a primary and fully diluted basis for 1992.
The return on common shareholders' equity in 1993 was 9.0% compared with a
negative 33.9% in 1992.
The 1992 loss reflects charges of $167.8 million after tax related to the
company's adoption, retroactive to January 1, 1992, of SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions;" and SFAS 112,
"Employers' Accounting for Postemployment Benefits." The computation of SFAS 112
was refined during 1993 with the net loss in 1992 being reduced and restated by
$6.5 million or 18 cents per share. The restated 1992 net loss from continuing
businesses totaled $59.9 million, or a $1.98 loss per share of common stock.
The effective tax rate for 1993 was 30.0%. This reflects the company's higher
use of foreign tax credits, reductions of deferred taxes because some foreign
countries reduced their statutory tax rates, and lower foreign tax rates, which
more than offset the 1% increase in the U.S. statutory tax rate. The net loss
from 1992 included an effective tax benefit rate of only 1.0%, primarily because
some of the restructuring charges did not provide tax benefits. The company also
adopted SFAS 109, "Accounting for Income Taxes," resulting in tax benefits of
$5.5 million for 1992 being credited directly to retained earnings rather than
to income taxes on the consolidated statement of earnings.
Restructuring charges for 1993, totaling $89.9 million before tax, were
included in the earnings from continuing businesses and were associated with
Armstrong initiatives to enhance its global competitiveness. These costs are
primarily associated with the elimination of employee positions in the U.S. and
Europe. For the full year 1992, restructuring charges totaled $165.5 million
before tax and related to the closing of four major manufacturing plants; the
scaling back of operations in certain other plants in the U. S. and abroad;
accruals for costs associated with the elimination of positions throughout the
rest of the company; as well as write-downs of the value of land, buildings,
equipment, and intangible assets of the company. Cash outlays for the 1993
restructuring charges will occur primarily throughout 1994 and should be fully
recovered within two to three years.
- 23 -
The cost of goods sold for 1993, when expressed as a percent of sales, was
71.4%--the lowest level for the last four years--and compares favorably with
1992's cost of goods sold of 74.1%. These lower costs reflect the positive
effects of the 1992 restructuring activities, productivity gains, some pricing
increases, and product mix enhancements.
Interest expense was favorably affected by lower debt levels and lower
interest accruals for tax obligations. Miscellaneous income and expense in 1993
included the positive effects of lower amortization of acquired intangibles as a
result of the 1992 restructuring, profits resulting from the closing out of some
interest rate swaps in anticipation of interest rate increases, and gain on sale
of assets. Partially offsetting these positive effects were some increased
environmental expenses and a small foreign exchange loss in 1993 compared with a
small foreign exchange gain in 1992.
Geographic area results (see pages 7 and 8)
United States--Sales increased by nearly 4% from 1992 levels. The 1992 net
sales included five months of the building products segment's grid sales that
were made prior to the formation of the Armstrong and Worthington Industries
joint venture (WAVE) effective June 1, 1992. Removing these sales from 1992
would result in an additional 1% increase in the year-to-year sales comparison.
Operating profits jumped 251% when comparing 1993 with those of 1992. The
continuing economic recovery provided increased opportunity in our end-use
markets. During 1993, single family housing starts increased 6% and the sale of
existing single family homes rose nearly 8%. Nonresidential new construction
appeared to be close to the bottom of its cycle.
A major source of higher sales in 1993 was the significant increase in
business channeled through national home centers and mass merchandisers. These
sales, coupled with the stronger resilient flooring business, were major factors
in generating significantly higher operating profits. The furniture and ceramic
tile businesses also generated higher sales, while sales in the building
products and textile products businesses were lower. The operating profit
improvements were also driven by the 1992 restructuring activities that resulted
in lower manufacturing costs in most domestic businesses, by some higher sales
levels, and by continuing productivity improvements.
Operating profits for both years included significant restructuring charges.
The 1993 and 1992 restructuring charges total about $37 million and $98 million,
respectively. The 1993 restructuring charges were primarily attributable to
position eliminations. The 1992 restructuring charges included closing two
plants, the write-down of fixed assets, and the elimination of employee
positions.
Export sales of Armstrong products from the U.S. to trade customers increased
nearly $3 million, or 11%, compared with 1992.
Europe--The 1993 European economic environment continued to be weak in both
the commercial and residential markets; however, the British market offered some
improvement for Armstrong products. Net sales decreased 16%, but two-thirds of
the decline reflected the weakening of European currencies. Excluding the impact
of the strong U.S. dollar, insulation products was the only business in Europe
that recorded a year-to-year sales increase. The European building products
business relies entirely on commercial construction and had the largest decline,
nearly 12%. Even with lower sales, operating profits for Europe improved 41%.
This improvement was primarily the result of lower costs caused by restructuring
actions taken in the latter part of 1992, including the closing of the Ghlin,
Belgium, ceilings manufacturing facility.
Other foreign--Sales in 1993 declined nearly 4% from those of 1992. Operating
profits were recorded for 1993 compared with an operating loss in 1992. The 1992
operating loss resulted from restructuring charges associated with the closing
of the Gatineau, Canada, ceilings manufacturing plant. The overall sales decline
was a result of lower sales of resilient flooring in Japan and Southeast Asia
that were partially offset by higher sales of flooring in Australia and Canada
and of building products in the Pacific Rim. Excluding the impact of the
restructuring charges in 1992, operating profit for 1993 increased in the year-
to-year comparison.
Industry segment results (see pages 3 and 4)
Floor coverings--Worldwide sales were 5% higher in 1993 than in 1992, with
operating profits increasing threefold from 1992 levels. The operating profit
included restructuring charges in 1993 of almost $28 million compared with
nearly $81 million in 1992. Almost three-fourths of the 1993 restructuring
charges were related to ceramic tile with the remainder recorded in resilient
flooring. Nearly all of the 1992 restructuring charges related to ceramic tile.
Sales in the resilient flooring portion increased in North America but were
lower in the European and Pacific areas. The North American increase was driven
by sales in the U.S. market with strong growth through national account home
centers and mass merchandisers as well as modest growth through wholesalers. The
U.S. resilient flooring business was also helped by higher sales of existing
homes and new housing construction. Ceramic tile recorded a modest sales
increase primarily because of its residential business. The commercial
institutional market for ceramic tile continued to be weak, providing little
sales growth in 1993 compared with 1992.
- 24 -
Operating profits, excluding the effects of restructuring charges, increased
42%. Resilient flooring operating profits improved because of the higher sales
levels and because of significantly lower manufacturing costs that were achieved
by process improvement and productivity gains. Ceramic tile continued to record
a loss in 1993 as it did in 1992, but the losses were less in each of the 1993
quarters when compared with 1992. The ceramic tile business was adversely
affected by very competitive pricing and a shift in product mix to lower margin
products.
Capital investments for 1993 were higher than those of 1992 with continued
concentration of these expenditures in improving and maintaining the current
manufacturing processes and in generating additional capacity from existing
equipment.
Building products--On a worldwide basis, market conditions did not improve in
the commercial construction markets in 1993. The North American sales
comparison reflects a decline because the first five months of 1992 included
grid that was sold prior to the formation of the WAVE joint venture. The
European markets, with the exception of the United Kingdom, were weaker in 1993.
European sales declined by nearly 22%, of which half was caused by weaker
European currencies.
The 1993 operating profit included restructuring charges of nearly $14
million, while the 1992 operating loss included $35 million of restructuring
charges. This segment lowered its cost structure significantly as a result of
restructuring actions taken in 1992 that included the closing of two
manufacturing facilities and productivity improvements that were attained in
1993. Even with lower sales and competitive pricing early in 1993, the lower
cost structure that was put in place, coupled with some higher sales prices in
the second half of 1993, permitted this segment to increase operating profits.
Capital investments in 1993 were about the same as 1992, but both years'
expenditures were lower than depreciation levels.
Furniture--Operating results for this segment were positive--1993 sales
nearly 3% higher than those of 1992 and operating profits more than 150% higher
than last year. Both years contained restructuring charges that were less than
$1 million in 1993 and nearly $5 million in 1992. Exclusive of restructuring
charges, this segment recorded operating profits that were 80% higher than last
year.
With the U.S. consumer household durable goods spending increasing in 1993,
modest sales increases were recorded in the Thomasville wood and upholstery
business that more than offset declines in the Armstrong retail, ready-to-
assemble furniture, and the contract business.
The operating profit improvement was driven by higher sales volume, lower
costs resulting from the 1992 restructuring program, and improved productivity.
Higher lumber costs had a negative impact on 1992 operating results and
continued to increase throughout much of 1993 but were offset by increased sales
prices. Capital expenditures in 1993 increased modestly over those of 1992.
Industry products--Almost three-quarters of the sales of this segment
generally occur in European markets, which in 1993 remained in recession,
limiting growth opportunities. Worldwide sales declined nearly 7%, with the
stronger U.S. dollar accounting for 95% of the decline. Operating profits
declined by slightly more than 7%, with restructuring charges of almost $13
million in each year.
The insulation business remains the most significant portion of this segment.
Excluding the negative effect of currency translation, sales grew modestly while
operating profits recorded a small decline. The German market remained
relatively strong for this business while markets in the other European
countries were adversely affected by weak economies. Sales in North America and
the Pacific Rim recorded a small increase in 1993. While the insulation business
restructuring programs did lower costs, they were not able to offset the impact
of the lower sales and competitive pricing pressures.
The textile mill supplies business recorded significantly lower sales that
were driven by the worldwide recession in the textile industry. This business,
while lowering its cost structure, was unable to offset the impact of the
significantly lower sales worldwide. The gasket materials business recorded
slightly lower sales, with a small decline in operating profit from 1992 levels.
Capital expenditures were reduced by about one-third from 1992 levels, but
were almost 40% greater than annual depreciation levels. The capital investments
continue generally to support future growth of this segment.
- 25 -
1992 compared with 1991
Financial condition
As shown on the Consolidated Statements of Cash Flows, net cash provided by
operating activities in 1992 was $186.8 million, more than sufficient to cover
investments in property, plant, and equipment, and dividends, and an investment
in a new joint venture. The balance of cash, including cash proceeds from sale
of assets, was used to reduce debt and increase cash and cash equivalents.
During the first quarter of 1992, the company redeemed, for $8.8 million, all
outstanding 8% sinking-fund debentures due in 1996 at face value plus accrued
interest to the date of redemption.
For 1992, the company recorded a $165.5 million charge before tax ($123.8
million after tax) in connection with a restructuring plan designed to
increase the overall profitability of the company by closing four major
plants; scaling back of certain operations; elimination of positions
throughout the company; and write-downs of land, buildings, equipment and
intangible assets. Approximately two-thirds of the before-tax losses were
noncash charges related to the write-down of assets. Cash outlays for
restructuring charges in 1992 were approximately $9.4 million. Most of the
cash outlays are expected to occur in 1993 and to be offset by operating
savings resulting from the restructuring.
During the fourth quarter of 1992, the company adopted three new financial
accounting statements: SFAS 106, SFAS 109 and SFAS 112. Adoption of these
financial accounting statements had no current cash flow impact on the company.
Receivables declined $2.7 million and inventories declined $17.0 million.
Each reflects the translation of foreign currency receivables or inventories to
U.S. dollars at lower exchange rates. Higher sales volume late in the fourth
quarter increased receivables and helped lower inventories. Current income tax
benefits increased $8.1 million, principally because of deferred tax benefits
related to restructuring charges. Other noncurrent assets decreased $53.1
million because of a $30.0 million write-off of intangible assets and a $30.0
million reduction of prepaid pension costs, both attributable to restructuring
activities. Partially offsetting the decreases in noncurrent assets were
investments in the WAVE grid joint venture.
- 26 -
The company's year-end ratio of current assets to current liabilities
declined to approximately 1.3 to 1 from the 1.5 to 1 ratio reported in 1991. The
major cause of the decline is the $47.9 million of accrued expenses associated
with restructuring activities.
The company is involved in significant litigation, which is described more
fully under "Litigation" on pages 60-65 and which should be read in connection
with this discussion and analysis.
Although the company does not know how many claims will be filed against it
in the future, nor the details thereof or of pending suits not fully reviewed,
nor the expense and any liability that may ultimately result therefrom, based
upon its experience and other factors, the company believes that it is probable
that nearly all of the expenses and any liability payments associated therewith
will be paid--in the case of the personal injury claims, by agreed-to coverage
under the Wellington Agreement and supplemented by payments by nonsubscribing
insurers that entered into settlement agreements with the company and additional
insurance coverage reasonably anticipated from the outcome of the insurance
litigation and from the company's claims for non-products coverage, both under
certain insurance policies covered by the Wellington Agreement and under certain
insurance policies not covered by the Wellington Agreement which claims have yet
to be accepted by the carriers--and in the case of the property damage claims,
under an existing interim agreement, by insurance coverage settlement agreements
and through additional coverage reasonably anticipated from the outcome of the
insurance litigation. To the extent that costs of the property damage litigation
are being paid by the company's insurance carriers under reservation of rights,
the company believes that it is probable that such payments will not be
subjected to recoupment. Thus, the company has not recorded any liability for
any defense costs or indemnity relating to these lawsuits other than a reserve
in "Other long-term liabilities" for the estimated potential liability
associated with claims pending intended to cover potential liability and
settlement costs, legal and administrative costs not covered under the
agreements, and certain other factors which have been involved in the litigation
about which uncertainties exist. Even though uncertainties still remain as to
the potential number of unasserted claims, the liability resulting therefrom,
and the ultimate scope of its insurance coverage, after consideration of the
factors involved, including the Wellington Agreement, the settlements with other
insurance carriers, the remaining reserve, the establishment of the Center for
Claims Resolution, the proposed settlement class action, and its experience, the
company believes that this litigation will not have a material adverse effect on
its earnings, liquidity, or financial position.
Reference is made to the litigation involving The Industry Network System,
Inc. (TINS), discussed on pages 64-65. The company denies all of TINS'
claims and accordingly is vigorously defending the matter. In the event that a
jury finds against the company, such jury verdict could entail unknown amounts
which, if sustained, could have a material adverse effect on its earnings and
financial position.
Long-term debt, excluding the company's guarantee of the ESOP loan, was
reduced by $34.8 million in 1992. At year-end 1992, long-term debt represented
47% of shareholders' equity compared with 34% at the end of 1991. The increase
is the result of shareholder equity reductions caused primarily by the
cumulative-effect charges from adoption of accounting statements and
restructuring charges previously discussed.
Should a need develop for additional financing, it is management's opinion
that the company has sufficient financial strength to warrant the required
support from lending institutions and financial markets. In June 1992, the
company's registration statement for $250 million of debt securities was
declared effective.
Consolidated results
Record net sales in 1992 of $2.55 billion increased 4.5% from $2.44 billion
in 1991. Increased sales opportunity was provided by the residential, do-it-
yourself, and industrial markets, while for the fifth consecutive year,
commercial markets remained depressed. European economies continued
- 27 -
to reflect a recessionary environment, which resulted in reduced demands for the
company's products. Sales in each of the 1992 quarters were above those of 1991.
The rate of growth was highest in the first quarter, but was lower during the
last three quarters of the year.
Net losses in 1992 were $227.7 million, compared with net earnings of $48.2
million in 1991. Net losses per share of common stock for 1992 were $6.49 on
both a primary and fully diluted basis compared with 1991 net earnings of 77
cents per share.
The return on common shareholders' equity in 1992 was a negative 33.9%
compared with a positive return of 3.3% in 1991.
The 1992 losses reflect charges of $167.8 million after tax related to the
company's adoption, retroactive to January 1, 1992, of SFAS 106 and SFAS 112.
The 1991 net earnings included a $12.4 million after-tax provision related to
discontinued businesses.
Losses from continuing businesses in 1992 totaled $59.9 million, compared
with earnings from continuing businesses of $60.6 million in 1991. The loss per
share of common stock from continuing businesses was $1.98 on both a primary and
fully diluted basis compared with 1991 earnings per share of $1.11.
The net loss for 1992 included an effective tax benefit rate of 1.0% compared
with 1991's effective tax rate of 39.6%. The reduced 1992 tax benefit rate is
generally because some of the restructuring charges do not provide tax benefits.
In addition, a lower share of foreign countries' earnings resulted in lower tax
rates. The company also adopted SFAS 109 resulting in tax benefits of $5.5
million for 1992 being credited directly to retained earnings rather than to
income taxes on the consolidated statement of earnings. The 1991 effective tax
rate included an increased share of the company's earnings coming from foreign
countries with higher tax rates and a $3.7 million deferred income tax charge
reflecting increases in state income tax rates.
The loss from continuing businesses before income taxes was $60.4 million,
compared to earnings from continuing businesses before income taxes in 1991 of
$100.3 million.
Included in the loss from continuing businesses for the full year 1992 were
restructuring charges of $165.5 million before tax. These restructuring charges
related to the closing of four major manufacturing plants--two in the U.S., one
in Canada, one in Belgium--and to the scaling back of operations in certain
other plants in the U.S. and abroad. Also included were accruals for costs
associated with elimination of positions throughout the company, as well as
write-downs of the value of land, buildings, equipment, and intangible assets of
the company. The cash outlays for the restructuring charges will occur primarily
in 1993 and are expected to be recovered by the savings resulting from the
restructuring. Restructuring charges for 1991 amounted to $8.4 million after
tax.
Lower short-term interest rates favorably affected interest expense.
Miscellaneous income and expense in 1992 included the positive effects of an
insurance reimbursement for certain costs associated with the 1990 takeover
threat, foreign exchange gains, lower amortization of intangibles, and a gain
from the early retirement of certain debt; the 1991 results included foreign
exchange gains of $5.9 million.
The cost of goods sold for 1992, when expressed as a percent of sales, was
74.1% compared with 1991's 73.8%. This higher cost relationship is the result of
the previously mentioned expense accruals required by SFAS 106 and SFAS 112.
Operating results were affected by competitive pricing pressures and higher
fixed costs concurrent with slow sales growth.
- 28 -
Geographic area results (see pages 7 and 8)
United States--Sales increased more than 4% while operating profits declined
61% when compared with 1991. Residential end-use markets improved significantly
in 1992 when compared with 1991. Single family housing starts increased at a
double digit rate while the sales of existing single family homes provided a
more modest increase. New construction put in place for private nonresidential
buildings was significantly lower in 1992 than in 1991.
The 1992 net sales included only five months of the building products
segment's grid sales compared with a full year's sales in 1991 as a result of
the grid joint venture with Worthington Industries effective June 1, 1992.
Results after that date have been recorded on an equity-accounting basis. The
major contributor to increased sales in 1992 was the resilient flooring business
which benefited from significant new product introductions and year-to-year
improvements in the previously mentioned single family housing starts and sales
of existing homes. Most domestic businesses were affected by competitive and
promotional pricing and less favorable product mix. Costs associated with the
expansion of the residential ceramic tile program adversely impacted profit
performance.
The largest decline in operating profit is attributable to the major
restructuring charges recorded during 1992, including the closing of the
Pleasant Garden, N.C., furniture plant, the closing of the Quakertown, Pa.,
quarry-tile ceramic plant, and related accruals for the write-downs of land,
buildings, and equipment, as well as elimination of employee positions.
Export sales of Armstrong products from the U.S. to trade customers declined
$5 million or 17% during 1992 when compared with 1991.
Europe--The 1992 economic environment in Europe continued to weaken in both
the commercial and residential markets. Net sales increased 7%, but more than
half of the increase was the result of translating foreign currency sales to
- 29 -
U.S. dollars at higher exchange rates. Operating profits declined 56%. Nearly
60% of this decline was due to restructuring charges related to the closing of
the Ghlin, Belgium, plant and to accruals for the elimination of employee
positions. The European insulation business continued its sales and operating
profit improvement, primarily as a result of a strong German insulation market.
This business's operating profit was reduced by start-up costs related to new
facilities in Spain and Germany during 1992. The European ceilings business was
affected by the depressed commercial markets coupled with competitive pricing
and a less favorable product mix.
Other foreign--Sales in 1992 declined 3% from those of 1991 while an
operating loss was recorded for the year. The operating loss included
restructuring charges associated with the closing of the Gatineau, Canada,
ceilings manufacturing plant. Sales improvement was recorded in the Southeast
Asian area, but operating profits declined in this area as a result of increased
costs that are designed to obtain future growth.
Industry segment results (see pages 3 and 4)
Floor coverings--Sales were 7% higher in 1992 than in 1991, with operating
profits declining by 64%. Operating profits include restructuring charges in
1992 of nearly $81 million compared with $3 million in 1991. Nearly all of the
restructuring charges relate to ceramic tile.
Sales in the resilient flooring portion increased significantly, paced by
sales in North America, where a new annual sales record was set with the help of
the introduction of the largest-ever assortment of new flooring products during
the second quarter of 1992. Ceramic tile recorded a small increase in sales
primarily because of the developments in the residential ceramic tile markets
through American Olean and Armstrong distribution channels. The ceramic tile
portion continues to be adversely affected by the depressed commercial
institutional market and recorded losses in both 1992 and 1991.
Operating profits during 1992, while positively affected by the sales growth,
were adversely affected by competitive pricing, movement towards a lower margin
sales mix, small increases in raw material costs in the second half of the year,
and continuing costs related to the new residential ceramic tile businesses.
Capital investments for 1992 were lower than 1991 but continued to be
directed toward product development, cycle-time reduction, and manufacturing
process improvements.
Building products--On a worldwide basis, market conditions remained depressed
in the commercial construction markets, resulting in lower opportunity and
declining product prices. Sales declined nearly 3% year to year while recording
an operating loss that included restructuring charges of $35 million in 1992
compared with $4.3 million in 1991.
The year-to-year sales decline was caused by the transfer of grid sales for
the last seven months of 1992 to the WAVE joint venture.
The continued decline of nonresidential construction in the U.S. and abroad
significantly affected the operating results. Worldwide competitive pricing
pressures and lack of sales growth eroded operating profit faster than the
company's ability to lower costs.
- 30 -
Capital investments in 1992 were reduced significantly from prior year levels
and were directed towards manufacturing process improvement and consolidations.
During 1992, the company closed its Gatineau, Canada, and Ghlin, Belgium,
ceilings plants and scaled back other operations. In 1991, Armstrong exited
certain wall businesses and its Forms + Surfaces architectural products
business.
Furniture--The 1992 sales increased 5%, while operating profits declined 43%,
including restructuring charges of $4.8 million.
The contract furniture, ready-to-assemble furniture, and upholstered
furniture businesses reflected sales increases that were partially offset by
lower sales in the Thomasville wood business. Operating results were adversely
affected by promotional pricing efforts, higher lumber costs, and increased
costs for employee medical benefits.
Actions were taken in 1992 to monitor customer satisfaction, increase square
footage of the Thomasville Home Furnishings Stores, reengineer upholstery
operations to improve service, and develop a computerized order service system
for expediting shipments. Investments in these areas increased capital
expenditures modestly for 1992 compared with 1991. Restructuring actions
included closing the Pleasant Garden manufacturing facility and elimination of
salaried employee positions.
Industry products--Worldwide sales increased 11% while operating profits
declined $7.7 million, or 18%. Restructuring charges were $12.5 million in 1992
and $2.2 million in 1991.
The insulation business remained strong in 1992 because of the European
markets, particularly in Germany. New product introductions and improved
technical values through new formulations aided the success of this business.
Profitability was slowed somewhat by start-up costs for new facilities in Spain
and Germany that increased capacity. The gasket materials business recorded
strong sales and operating profit increases when compared with 1991. The textile
mill supplies business recorded small sales increases, but operating results
declined because of cost and pricing pressures.
- 31 -
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED STATEMENTS OF EARNINGS
The Financial Review, pages 38-65, is an integral part of these statements.
Years ended December 31 (millions except for per-share data) 1993 1992 1991
===========================================================================================================================
Current earnings
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $2,525.4 $2,549.8 $2,439.3
- ---------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 1,802.3 1,888.7 1,801.1
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 723.1 661.1 638.2
- ---------------------------------------------------------------------------------------------------------------------------
Selling and administrative expense 505.0 511.6 468.3
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from continuing businesses before other
- ---------------------------------------------------------------------------------------------------------------------------
income (expense) and income taxes 218.1 149.5 169.9
- ---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense (38.0) (41.6) (45.8)
- ---------------------------------------------------------------------------------------------------------------------------
Restructuring charges (89.9) (165.5) (12.8)
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous income (expense) 0.5 (2.8) (11.0)
- ---------------------------------------------------------------------------------------------------------------------------
(127.4) (209.9) (69.6)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses before income taxes 90.7 (60.4) 100.3
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes 27.2 (0.5) 39.7
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses 63.5 (59.9) 60.6
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Discontinued businesses:
- ---------------------------------------------------------------------------------------------------------------------------
Loss, net of income tax benefit of $1.9 -- -- (3.8)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses,
- ---------------------------------------------------------------------------------------------------------------------------
net of income tax benefit of $4.6 -- -- (8.6)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits, net of income tax benefit of $84.9 -- (135.4) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits, net of income tax benefit of $20.9 -- (32.4) --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 63.5 $ (227.7) $ 48.2
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Dividends paid on Series A convertible preferred stock 19.2 19.3 19.4
- ---------------------------------------------------------------------------------------------------------------------------
Tax benefit on dividends paid on unallocated preferred shares 5.3 5.5 --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock $ 49.6 $ (241.5) $ 28.8
===========================================================================================================================
- 32 -
- ---------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
- ---------------------------------------------------------------------------------------------------------------------------
Primary:
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses $ 1.32 $ (1.98) $ 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Loss from discontinued businesses -- -- (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses -- -- (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits -- (3.64) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits -- (.87) --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1.32 $ (6.49) $ .77
===========================================================================================================================
Fully diluted:
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses $ 1.26 $ (1.98) $ 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Loss from discontinued businesses -- -- (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses -- -- (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits -- (3.64) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits -- (.87) --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1.26 $ (6.49) $ .77
===========================================================================================================================
- 33 -
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED BALANCE SHEETS
The Financial Review, pages 38-65, is an integral part of these statements.
As of December 31 (millions except for numbers of shares and per-share data) 1993 1992
===========================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------
Current assets:
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 9.1 $ 15.2
- ---------------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable
- ---------------------------------------------------------------------------------------------------------------------------
(less allowance for discounts and losses: 1993--$37.5; 1992--$32.2) 283.5 302.6
- ---------------------------------------------------------------------------------------------------------------------------
Inventories 286.2 319.4
- ---------------------------------------------------------------------------------------------------------------------------
Income tax benefits 36.8 43.2
- ---------------------------------------------------------------------------------------------------------------------------
Other current assets 24.8 32.3
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 640.4 712.7
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment
- ---------------------------------------------------------------------------------------------------------------------------
(less accumulated depreciation and amortization: 1993--$1,006.7; 1992--$936.3) 1,039.1 1,072.0
- ---------------------------------------------------------------------------------------------------------------------------
Other noncurrent assets 249.8 225.1
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,929.3 $2,009.8
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
- ---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
- ---------------------------------------------------------------------------------------------------------------------------
Short-term debt $ 105.4 $ 223.7
- ---------------------------------------------------------------------------------------------------------------------------
Current installments of long-term debt 5.8 9.4
- ---------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 293.3 290.2
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes 31.8 22.3
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 436.3 545.6
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt 256.8 266.6
- ---------------------------------------------------------------------------------------------------------------------------
Employee Stock Ownership Plan loan guarantee 253.9 260.2
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 18.8 25.5
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement and postemployment benefit liability 283.7 279.5
- ---------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 99.6 52.9
- ---------------------------------------------------------------------------------------------------------------------------
Minority interest in subsidiaries 10.7 10.3
- ---------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 923.5 895.0
- ---------------------------------------------------------------------------------------------------------------------------
- 34 -
Shareholders' equity:
- ---------------------------------------------------------------------------------------------------------------------------
Class A preferred stock. Authorized 20 million shares;
- ---------------------------------------------------------------------------------------------------------------------------
issued 5,654,450 shares of Series A convertible preferred stock;
- ---------------------------------------------------------------------------------------------------------------------------
outstanding: 1993--5,527,692 shares; 1992--5,578,265 shares;
- ---------------------------------------------------------------------------------------------------------------------------
retired: 1993--126,758 shares; 1992--76,185 shares 263.9 266.4
- ---------------------------------------------------------------------------------------------------------------------------
Common stock, $1 par value per share.
- ---------------------------------------------------------------------------------------------------------------------------
Authorized 200 million shares; issued 51,878,910 shares 51.9 51.9
- ---------------------------------------------------------------------------------------------------------------------------
Capital in excess of par value 29.7 26.1
- ---------------------------------------------------------------------------------------------------------------------------
Reduction for ESOP loan guarantee (241.8) (249.2)
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings 927.7 922.7
- ---------------------------------------------------------------------------------------------------------------------------
Foreign currency translation (3.4) 8.6
- ---------------------------------------------------------------------------------------------------------------------------
1,028.0 1,026.5
- ---------------------------------------------------------------------------------------------------------------------------
Less common stock in treasury, at cost: 1993--14,656,488 shares;
- ---------------------------------------------------------------------------------------------------------------------------
1992--14,750,597 shares 458.5 457.3
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 569.5 569.2
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,929.3 $2,009.8
===========================================================================================================================
- 35 -
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED STATEMENTS OF CASH FLOWS
The Financial Review, pages 38-65, is an integral part of these statements.
Years ended December 31 (millions) 1993 1992 1991
===========================================================================================================================
Cash flows from operating activities:
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 63.5 $ (227.7) $ 48.2
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings (loss) to net cash
- ---------------------------------------------------------------------------------------------------------------------------
provided by operating activities:
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 130.0 136.9 135.7
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (1.3) (36.6) (1.6)
- ---------------------------------------------------------------------------------------------------------------------------
Loss from restructuring activities, net of paid costs 50.6 156.1 --
- ---------------------------------------------------------------------------------------------------------------------------
Loss from cumulative effect of changes in accounting -- 167.8 --
- ---------------------------------------------------------------------------------------------------------------------------
Loss on sale of discontinued businesses -- -- 8.6
- ---------------------------------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities net of
- ---------------------------------------------------------------------------------------------------------------------------
effect of accounting changes, restructuring, and dispositions:
- ---------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in receivables 18.3 (11.9) (3.9)
- ---------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in inventories 28.4 (1.3) 7.9
- ---------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in other current assets 10.8 10.2 (17.1)
- ---------------------------------------------------------------------------------------------------------------------------
(Increase) in other noncurrent assets (45.3) (27.0) (23.2)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in accounts payable and accrued expenses 18.0 7.9 (25.8)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in income taxes payable 11.3 1.4 (4.4)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in other long-term liabilities 15.5 16.5 15.1
- ---------------------------------------------------------------------------------------------------------------------------
Other, net (8.6) (5.5) 10.9
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 291.2 186.8 150.4
- ---------------------------------------------------------------------------------------------------------------------------
- 36 -
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ---------------------------------------------------------------------------------------------------------------------------
Purchases of property, plant, and equipment (117.6) (115.8) (133.4)
- ---------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of land and facilities 10.3 5.5 3.0
- ---------------------------------------------------------------------------------------------------------------------------
Investment in joint ventures -- (4.2) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (107.3) (114.5) (130.4)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in short-term debt (114.9) 25.5 (47.6)
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of long-term debt -- -- 83.2
- ---------------------------------------------------------------------------------------------------------------------------
Reduction of long-term debt (9.2) (30.6) (5.2)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (63.8) (63.8) (63.6)
- ---------------------------------------------------------------------------------------------------------------------------
Other, net (2.8) 6.5 (3.7)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (190.7) (62.4) (36.9)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents .7 (2.9) .5
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (6.1) $ 7.0 $ (16.4)
===========================================================================================================================
Cash and cash equivalents at beginning of year $ 15.2 $ 8.2 $ 24.6
===========================================================================================================================
Cash and cash equivalents at end of year $ 9.1 $ 15.2 $ 8.2
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information
- ---------------------------------------------------------------------------------------------------------------------------
Interest paid $ 33.8 $ 39.9 $ 45.0
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 15.8 $ 31.0 $ 53.5
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
- 37 -
FINANCIAL REVIEW
The consolidated financial statements and the accompanying data in this report
include the accounts of the parent Armstrong World Industries, Inc., and its
domestic and foreign subsidiaries. All significant intercompany transactions
have been eliminated from the consolidated statements.
OPERATING STATEMENT ITEMS
Net sales in 1993 total $2,525.4 million, 1.0% below the 1992 total of
$2,549.8 million. 1992 sales were 4.5% above the 1991 total of $2,439.3 million.
The amounts reported as net sales are the total sales billed during the year
less the sales value of goods returned, trade discounts and customers'
allowances, and freight costs incurred in delivering products to customers.
Net earnings of $63.5 million for 1993 compared with a net loss for 1992 of
$227.7 million and earnings of $48.2 million for 1991. Included in the earnings
for 1993 were restructuring charges of $60.0 million after tax. For years 1992
and 1991, after-tax restructuring charges were $123.8 million and $8.4 million,
respectively. The 1992 loss also included a $167.8 million after-tax charge for
the cumulative effect of changes in accounting related to the adoption of
Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," and SFAS 112, "Employers'
Accounting for Postemployment Benefits."
Earnings (loss) per common share are presented on the Consolidated Statements
of Earnings on page 32.
Primary earnings (loss) per share, for "Earnings (loss) from continuing
businesses" and "Net earnings (loss)," are determined by dividing the earnings
(loss), after deducting preferred dividends (net of tax benefits on unallocated
shares), by the average number of common shares outstanding and shares issuable
under stock options, if dilutive.
Fully diluted earnings (loss) per share include the shares of common stock
outstanding and the adjustments to common shares and earnings (loss) required to
portray the convertible preferred shares on an "if converted" basis unless the
effect is antidilutive.
Research and development costs were $59.5 million in 1993, $60.3 million in
1992, and $55.6 million in 1991.
Advertising costs were $37.8 million in 1993, $42.4 million in 1992, and $42.9
million in 1991.
Maintenance and repair costs were $126.1 million in 1993, $137.2 million in
1992, and $138.1 million in 1991.
Depreciation and amortization amounted to $130.0 million in 1993, $136.9
million in 1992, and $135.3 million in 1991. These amounts include amortization
of intangible assets of $10.0 million in 1993, $16.2 million in 1992, and $18.0
million in 1991.
- 38 -
Depreciation charges for financial reporting purposes are determined generally
on the straight-line basis at rates calculated to provide for the retirement of
assets at the end of their useful lives. Accelerated depreciation is generally
used for tax purposes. When assets are disposed of or retired, their costs and
related depreciation are removed from the books, and any resulting gains or
losses are reflected in "Miscellaneous income (expense)." Intangibles are
amortized over periods ranging from three to 40 years.
Restructuring charges amounted to $89.9 million in 1993 compared with similar
charges of $165.5 million in 1992 and $12.8 million in 1991.
The 1993 charges were primarily the result of accruals for severance and
special retirement incentives associated with the elimination of employee
positions.
The 1992 charges relate to the company's closing of four major manufacturing
facilities--two in the U.S., one in Canada, one in Belgium--and to the scaling
back of operations in certain other plants in the U.S. and abroad. The provision
also includes accruals for costs associated with the elimination of positions
throughout the company, as well as write-downs of the value of land, buildings,
equipment and intangible assets of the company.
Details of miscellaneous
income (expense) (millions) 1993 1992 1991
====================================================================
Interest and dividend income $ 7.5 $ 4.5 $ 5.3
- --------------------------------------------------------------------
Foreign exchange, net gain (loss) (.7) 1.4 5.9
- --------------------------------------------------------------------
Amortization of intangibles and
other, net (loss) (4.2) (6.8) (20.1)
====================================================================
Subtotal 2.6 (.9) (8.9)
====================================================================
Less minority interest 2.1 1.9 2.1
====================================================================
Total $ .5 $(2.8) $(11.0)
Employee compensation is presented in the table below and excludes
restructuring charges for severance costs and early retirement incentives.
Employee compensation
cost summary (millions) 1993 1992 1991
====================================================================
Wages and salaries $709.8 $741.5 $699.4
- --------------------------------------------------------------------
Payroll taxes 68.2 74.3 69.6
- --------------------------------------------------------------------
Pension credits (3.5) (.7) (.9)
- --------------------------------------------------------------------
Insurance and other benefit costs 78.0 87.2 62.7
====================================================================
Total $852.5 $902.3 $830.8
Average total employment of 21,682 in 1993 compares with 23,500 in 1992 and
24,066 in 1991.
- 39 -
Pension costs
The company and a number of its subsidiaries have pension plans covering
substantially all employees. Benefits from the principal plan are based on the
employee's compensation and years of service.
Generally, the company's practice is to fund the actuarially determined
current service costs and the amounts necessary to amortize prior service
obligations over periods ranging up to 30 years, but not in excess of the full
funding limitation.
Funding requirements are determined independently of expense, using an
expected long-term rate of return on assets of 8.67%. The company's principal
plan is subject to the full funding limitation in 1993, 1992, and 1991, and
the company made no contribution to that plan in any of these years.
Contributions of $.8 million in 1993, $.6 million in 1992, and $.3 million in
1991 were made to defined-benefit plans of company subsidiaries.
The total pension cost from all plans are presented in the table below.
Total pension cost (millions) 1993 1992 1991
====================================================================
U.S. defined-benefit plans:
- --------------------------------------------------------------------
Net pension credit $(17.4) $(16.2) $(13.0)
====================================================================
Early retirement incentives 38.0 30.0 4.5
- --------------------------------------------------------------------
Defined contribution plans 6.0 5.9 5.3
- --------------------------------------------------------------------
Non-U.S. defined-benefit plans:
- --------------------------------------------------------------------
Net pension cost 6.1 6.1 4.0
- --------------------------------------------------------------------
Early retirement incentives -- 1.3 --
- --------------------------------------------------------------------
Other funded and unfunded
pension costs 1.8 2.2 2.8
====================================================================
Total pension cost $ 34.5 $ 29.3 $ 3.6
The net credit for U.S. defined-benefit pension plans is presented in the
table below.
Net credit for U.S. defined-benefit
pension plans (millions) 1993 1992 1991
====================================================================
Actual return on assets $(236.9) $(94.8) $(210.6)
- --------------------------------------------------------------------
Less amount deferred 155.9 17.8 140.2
====================================================================
Expected return on assets (81.0) (77.0) (70.4)
- --------------------------------------------------------------------
Net amortization and other (6.9) (6.3) (4.5)
- --------------------------------------------------------------------
Service cost--benefits earned
during the year 19.1 18.7 16.2
- --------------------------------------------------------------------
Interest on the projected benefit
obligation 51.4 48.4 45.7
====================================================================
Net pension credit $ (17.4) $(16.2) $ (13.0)
- 40 -
Accruals for the cost of early retirement incentives were $38.0 million in
1993 compared with $30.0 million in 1992. The cost of these incentives is
included as a part of the restructuring charges discussed on page 39.
The company has defined-contribution pension plans for eligible employees at
certain of its U.S. subsidiaries, such as the Employee Stock Ownership Plan
(ESOP) described on page 44. Company contributions and accrued compensation
expense related to the ESOP are included with other plans' contributions and
costs, based on the compensation of each eligible employee. The costs of such
plans totaled $6.0 million in 1993, $5.9 million in 1992, and $5.3 million in
1991.
The funded status of the company's U.S. defined-benefit pension plans is
presented in the following table.
Funded status of U.S. defined-benefit
pension plans (millions) 1993 1992
=====================================================================
Actuarial present value of benefit obligations:
Vested benefit obligation $ (704.0) $ (585.4)
=====================================================================
Accumulated benefit obligation $ (743.1) $ (620.5)
=====================================================================
Projected benefit obligation for
services rendered to date $ (797.2) $ (712.1)
=====================================================================
Plan assets at fair value 1,248.2 1,059.4
=====================================================================
Plan assets in excess of projected
benefit obligation 451.0 347.3
- --------------------------------------------------------------------
Unrecognized transition asset (53.0) (59.3)
- --------------------------------------------------------------------
Unrecognized prior service cost 114.2 84.9
- --------------------------------------------------------------------
Unrecognized net gain--experience
different from assumptions (428.3) (285.7)
- --------------------------------------------------------------------
Provision for restructuring charges (27.1) (10.6)
=====================================================================
Prepaid pension cost $ 56.8 $ 76.6
The plan assets at each December 31 are based on measurements from October
31 to December 31. Stated at fair value, they are primarily listed stocks,
bonds, and investments with a major insurance company.
Note: Rates used in determining the actuarial present value of the projected
benefit obligation at the end of 1993 and 1992 are: (1) the discount rate or the
assumed rate at which the pension benefits could be effectively settled, 7.00%
in 1993 and 7.25% in 1992; and (2) the compensation rate or the long-term rate
at which compensation is expected to increase as a result of inflation,
promotions, seniority, and other factors, 4.75% in both 1993 and 1992. The
expected long-term rate of return on assets was 8.25% in both 1993 and 1992.
The company has pension plans covering employees in a number of foreign
countries which utilize assumptions that are consistent, but not identical, with
those of the U.S. plans.
Net cost for non-U.S. defined-benefit
pension plans (millions) 1993 1992 1991
====================================================================
Actual return on assets $(14.3) $(9.1) $(8.7)
- --------------------------------------------------------------------
Less amount deferred 8.0 2.6 2.4
====================================================================
Expected return on assets (6.3) (6.5) (6.3)
- --------------------------------------------------------------------
Net amortization and other .5 .5 .1
- --------------------------------------------------------------------
Service cost--benefits earned
during the year 5.2 5.3 4.4
- --------------------------------------------------------------------
Interest on the projected benefit
obligation 6.7 6.8 5.8
====================================================================
Net pension cost $ 6.1 $ 6.1 $ 4.0
The following table presents the funded status of the non-U.S. defined-
benefit pension plans at December 31.
- 41 -
Funded status of non-U.S. defined-benefit
pension plans (millions) 1993 1992
====================================================================
Actuarial present value of benefit obligations:
Vested benefit obligation $(83.1) $(69.6)
====================================================================
Accumulated benefit obligation $(88.7) $(73.8)
====================================================================
Projected benefit obligation for
services rendered to date $(95.9) $(84.8)
====================================================================
Plan assets at fair value 58.3 78.5
====================================================================
Projected benefit obligation greater
than plan assets (37.6) (6.3)
- --------------------------------------------------------------------
Unrecognized transition obligation 2.9 3.6
- --------------------------------------------------------------------
Unrecognized prior service cost 2.8 3.0
- --------------------------------------------------------------------
Unrecognized net gain--experience
different from assumptions (4.9) (5.4)
- --------------------------------------------------------------------
Adjustment required to recognize
minimum liability (5.3) (.8)
====================================================================
Accrued pension cost $(42.1) $ (5.9)
In 1993, a foreign subsidiary reorganized the financing arrangement of its
principal pension plan and became self-insured. As a result, the subsidiary
recorded, as of December 31, 1993, plan-related liabilities of $37.7 million and
assets of equal value. Prior to 1993, the asset value had been reported as an
asset of the pension plan.
Postretirement benefits other than pensions
and postemployment benefits
The company has plans that provide for medical and life insurance benefits to
certain eligible employees, worldwide, when they retire from active service. The
company funds these benefit costs primarily on a pay-as-you-go basis, with the
retiree paying a portion of the cost for health-care benefits through
deductibles and contributions.
In 1992, the company adopted SFAS 106, which recognizes the estimated future
cost of providing health-care and other postretirement benefits on an accrual
basis over the active service life of the employee. Prior to 1992,
postretirement benefit expenses were recognized as claims were incurred.
Armstrong elected to immediately recognize the cumulative effect of the
change in accounting for postretirement benefits of $220.3 million ($135.4
million after taxes) which represented the unfunded accumulated postretirement
benefit obligation (APBO) as of January 1, 1992. Under the new standard, total
retiree health-care and life insurance expense was $21.2 million in 1993 and
$22.3 million in 1992. These costs were $12.7 million in 1991.
The company announced in 1989-90 a 15-year phaseout of its cost of health-care
benefits for certain future retirees. These future retirees include parent
company nonunion employees and some union employees. Shares of ESOP convertible
preferred stock (see page 44) are scheduled to be allocated to these employees,
based on employee age and years to expected retirement. In addition, they may
enroll in a voluntary portion of the ESOP to purchase additional shares.
- 42 -
The following tables set forth the funded status of the company's
postretirement benefit plans at December 31 and the periodic postretirement
benefit costs.
Funded status of postretirement
benefit plans (millions) 1993 1992
====================================================================
Retirees $143.3 $116.5
- --------------------------------------------------------------------
Fully eligible active plan participants 39.9 39.0
- --------------------------------------------------------------------
Other active plan participants 64.7 71.4
====================================================================
Total accumulated postretirement benefit
obligation $247.9 $226.9
====================================================================
Unrecognized prior service credit 8.8 --
====================================================================
Unrecognized net gain (loss) (24.1) 1.0
====================================================================
Accrued postretirement benefit cost $232.6 $227.9
Periodic postretirement
benefit costs (millions) 1993 1992
====================================================================
Service cost of benefits earned during the year $ 3.9 $ 4.7
- --------------------------------------------------------------------
Interest cost on accumulated postretirement
benefit obligation 18.1 17.6
====================================================================
Amortization of prior service credit (.8) --
====================================================================
Periodic postretirement benefit cost $ 21.2 $ 22.3
The assumed health-care cost trend rate used to measure the APBO was 14% in
1992, decreasing 1% per year to an ultimate rate of 6% by the year 2000. The
health-care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, if the health-care cost trend rate assumptions were
increased by 1%, the APBO as of December 31, 1993, would be increased by $22.5
million. The effect of this change on the total of service and interest costs
for 1993 would be an increase of $2.3 million. The APBO at December 31, 1993,
was determined utilizing a discount rate of 7.75% and a compensation rate of
4.75%. The discount and compensation rates used in determining the APBO at
December 31, 1992, were 8.25% and 4.75%, respectively.
The company provides certain postemployment benefits to eligible parent
company and subsidiary employees. These benefits are provided to former or
inactive employees and their dependents during the time period following
employment but before retirement.
Prior to 1992, postemployment benefit expenses were recognized on a pay-as-
you-go basis. In 1992, the company adopted SFAS 112, which recognizes the
estimated future cost of providing postemployment benefits on an accrual basis
over the active service life of the employee. Armstrong elected to immediately
recognize the cumulative effect of the change in accounting for postemployment
benefits of $53.3 million ($32.4 million after tax), which represented the
unfunded accumulated postemployment benefit obligation (APBO) as of January 1,
1992. A refinement of the computation in 1993 resulted in restatements of the
1992 financial statements. The effect of the restatements was to reduce the
previously reported loss from continuing businesses by $1.7 million or 5 cents
per share and to
- 43 -
reduce the previously reported net loss by $6.5 million or 18 cents per share.
Total postemployment benefit expense was $4.6 million in 1993 and $6.3 million
in 1992.
Employee Stock Ownership Plan (ESOP)
In 1989, Armstrong established an ESOP that borrowed $270 million from banks
and insurance companies, repayable over 15 years and guaranteed by the
company. The ESOP used the proceeds to purchase 5,654,450 shares of a new
series of convertible preferred stock issued by the company. Through December
31, 1993, the ESOP allocated to participants 1,276,350 shares and retired
126,758 shares. The preferred stock has a minimum conversion value of $47.75
per share with an annual dividend of $3.462.
The ESOP currently covers parent company nonunion employees, some union
employees, and those employees of major domestic subsidiaries who wish to
participate in the voluntary contribution portion of the plan.
Armstrong used the proceeds from the 1989 sale of preferred stock to
repurchase common stock in 1989 and 1990 for the company treasury. The
company's guarantee of the ESOP loan has been recorded as a long-term
obligation and as a reduction of shareholders' equity on its consolidated
balance sheet.
Details of ESOP debt service
payments (millions) 1993 1992 1991
====================================================================
Preferred dividends paid $19.2 $19.3 $19.4
- --------------------------------------------------------------------
Employee contributions 5.9 5.9 6.0
- --------------------------------------------------------------------
Company contributions 3.5 2.2 .7
====================================================================
Debt service payments made
by ESOP trustee $28.6 $27.4 $26.1
The company recorded costs for the ESOP, utilizing the 80% of the shares
allocated method, of $4.5 million in 1993, $4.4 million in 1992, and $3.6
million in 1991, consisting primarily of accrued compensation expenses plus
company contributions. Costs for all years continue to be offset by savings
from changes to company-sponsored health-care benefits and elimination of a
contribution-matching feature in the company-sponsored voluntary retirement
savings plan.
- 44 -
Taxes totaled $113.6 million in 1993, $92.4 million in 1992, and $126.4
million in 1991.
Details of taxes (millions) 1993 1992 1991
=========================================================================
Earnings (loss) from continuing
businesses before income taxes:
Domestic $ 85.7 $(59.2) $100.5
- ------------------------------------------------------------------------
Foreign 29.3 8.0 58.7
- ------------------------------------------------------------------------
Eliminations (24.3) (9.2) (58.9)
=========================================================================
Total $ 90.7 $(60.4) $100.3
=========================================================================
Income taxes:
Payable:
Federal $ 28.4 $ 20.4 $ 13.0
- ------------------------------------------------------------------------
Foreign 10.6 16.2 27.8
- ------------------------------------------------------------------------
State 3.7 3.2 .1
=========================================================================
42.7 39.8 40.9
=========================================================================
Deferred:
Federal (14.3) (37.9) (5.7)
- ------------------------------------------------------------------------
Foreign (1.2) (2.4) .9
- ------------------------------------------------------------------------
State -- -- 3.6
=========================================================================
(15.5) (40.3) (1.2)
=========================================================================
Total income taxes 27.2 (.5) 39.7
- ------------------------------------------------------------------------
Payroll taxes 68.2 74.3 69.6
- ------------------------------------------------------------------------
Property, franchise, and capital
stock taxes 18.2 18.6 17.1
=========================================================================
Total taxes $113.6 $ 92.4 $126.4
=========================================================================
Components of deferred tax (benefit) expense:
Restructuring benefit $(25.4) $(39.7) $ (.7)
- ------------------------------------------------------------------------
Difference between book and tax
depreciation (3.0) 3.7 12.5
- ------------------------------------------------------------------------
Purchased tax benefits (2.4) (2.2) (2.5)
- ------------------------------------------------------------------------
Pension plan 5.0 3.2 5.4
- ------------------------------------------------------------------------
Alternative minimum tax 5.0 (5.2) (10.6)
- ------------------------------------------------------------------------
Other items 5.3 (.1) (5.3)
=========================================================================
Total deferred tax (benefit) expense $(15.5) $(40.3) $ (1.2)
In 1992, the company adopted SFAS 109, "Accounting for Income Taxes," which
supersedes SFAS 96. Under SFAS 109, deferred tax assets and liabilities are
recognized using enacted tax rates for the expected future tax consequences of
events that have been recognized in the financial statements or tax returns.
Generally, SFAS 96 prohibited consideration of any future events in calculating
deferred taxes.
SFAS 109 also requires recognition in shareholders' equity of the tax benefit
for dividends paid on unallocated shares of stock held by the ESOP which
amounted to $5.3 million in 1993 and $5.5 million in 1992. Under SFAS 96, this
benefit was recognized in the statement of earnings and amounted to $6.0 million
in 1991. The tax benefit for dividends paid on allocated shares held by an ESOP
are recognized in the statements of earnings under the provisions of both SFAS
109 and SFAS 96.
- 45 -
At December 31, 1993, unremitted earnings of subsidiaries outside the United
States were $93.1 million (at current balance sheet exchange rates) on which no
U.S. taxes have been provided. If such earnings were to be remitted without
offsetting tax credits in the United States, withholding taxes would be $11.5
million. The company's intention, however, is to permanently reinvest those
earnings or to repatriate them only when it is tax effective to do so.
Reconciliation to
U.S. statutory tax rate 1993 1992 1991
====================================================================
Statutory tax (benefit) rate 35.0% (34.0)% 34.0%
- --------------------------------------------------------------------
State income taxes 2.6 3.5 2.4
- --------------------------------------------------------------------
(Benefit) on ESOP dividend (1.5) (1.7) (6.6)
- --------------------------------------------------------------------
(Benefit) taxes on foreign and
foreign-source income (8.8) 3.7 7.3
====================================================================
Other items .9 3.5 2.5
- --------------------------------------------------------------------
Restructuring charges 1.8 24.0 --
====================================================================
Effective tax (benefit) rates 30.0% (1.0)% 39.6%
BALANCE SHEET ITEMS
Cash and cash equivalents decreased to $9.1 million at the end of 1993 from
$15.2 million at the end of 1992. Operating and other factors associated with
the decrease in cash and cash equivalents are detailed in the Consolidated
Statements of Cash Flows on page 36.
Short-term investments, substantially all of which have maturities of three
months or less when purchased, are considered to be cash equivalents and are
carried at cost or less, generally approximating market value.
Receivables declined $19.1 million in 1993, with most of the decrease
related to the collection of customer notes and miscellaneous receivables, and
a $5.3 million reserve increase for discounts and losses. Customers'
receivables declined $2.0 million even though sales increased by 4% in the
fourth quarter.
Accounts and notes receivable (millions) 1993 1992
====================================================================
Customers' receivables $287.0 $289.0
- --------------------------------------------------------------------
Customers' notes 22.3 29.6
- --------------------------------------------------------------------
Miscellaneous receivables 11.7 16.2
====================================================================
321.0 334.8
====================================================================
Less allowance for discounts and losses 37.5 32.2
====================================================================
Net $283.5 $302.6
- 46 -
Generally, the company sells its products to select, preapproved groups of
customers that include: flooring and building material distributors, ceiling
systems contractors, regional and national mass merchandisers and home centers,
original equipment manufacturers, and large furniture retailers. The businesses
of these customers are directly affected by changes in economic and market
conditions. The company considers these factors and the financial condition of
each customer when establishing its allowance for losses from doubtful accounts.
The carrying amount of the receivables approximates fair value because of the
short maturity of these items.
Trade receivables are recorded in gross billed amounts as of date of shipment.
Provision is made for estimated applicable discounts and losses.
Inventories were $33.2 million lower at the end of 1993, a 10 percent decline
from the 1992 year-end position. The decrease was primarily a result of the
successful ongoing process changes that reduced cycle time and improved
inventory turnover from 8.0 to 8.8 turns on sales. Approximately half of the
inventory reduction occurred in Europe with about $4.0 million of the reduction
related to the translation of foreign currency inventories to U.S. dollars at
lower exchange rates.
Approximately 51% in 1993 and 48% in 1992 of the company's total inventory is
valued on a LIFO (last-in, first-out) basis. Such inventory values were lower
than would have been reported on a total FIFO (first-in, first-out) basis, by
$109.7 million at the end of 1993 and $108.3 million at year-end 1992.
Inventories (millions) 1993 1992
====================================================================
Finished goods $176.8 $203.4
- --------------------------------------------------------------------
Goods in process 34.5 34.3
- --------------------------------------------------------------------
Raw materials and supplies 74.9 81.7
====================================================================
Total $286.2 $319.4
Inventories are valued at the lower of cost or market. Approximately two-
thirds of 1993's domestic inventories are valued using the LIFO method. Other
inventories are generally determined on a FIFO method.
Income tax benefits were $36.8 million in 1993 and $43.2 million in 1992. Of
these amounts, deferred tax benefits were $34.1 million in 1993 and $39.9
million in 1992.
Other current assets were $24.8 million in 1993, a decrease of $7.5 million
from the $32.3 million in 1992. The decrease primarily reflects a reduction in
prepaid costs.
Property, plant, and equipment (millions) 1993 1992
=====================================================================
Land $ 32.2 $ 36.5
- --------------------------------------------------------------------
Buildings 505.1 490.8
- --------------------------------------------------------------------
Machinery and equipment 1,446.5 1,420.2
- --------------------------------------------------------------------
Construction in progress 62.0 60.8
=====================================================================
Gross book value 2,045.8 2,008.3
=====================================================================
Less accumulated depreciation
and amortization 1,006.7 936.3
=====================================================================
Net book value $1,039.1 $1,072.0
The $37.5 million increase in gross book value to $2,045.8 million at the
end of 1993 includes $117.6 million for capital additions; a $12.5 million
write-down for restructuring; and a $42.6 million reduction from sales,
retirements, dispositions and other changes. Also, because of translating
foreign currency property, plant, and equipment into U.S. dollars at lower
exchange rates, 1993 gross book value was reduced by $25.0 million and net
book value decreased by $11.8 million.
The unexpended cost of approved capital appropriations amounted to $69.8
million at December 31, 1993, substantially all of which is scheduled to be
expended during 1994.
Property, plant, and equipment values are stated at acquisition cost, with
accumulated depreciation and amortization deducted to arrive at net book
value.
- 47 -
Other noncurrent assets (millions) 1993 1992
====================================================================
Goodwill and other intangibles $ 68.1 $ 82.6
- --------------------------------------------------------------------
Pension-related assets 76.0 98.1
- --------------------------------------------------------------------
Other 105.7 44.4
====================================================================
Total $249.8 $225.1
Significant items included in the $24.7 million increase were a $37.7 million
addition of paid up insurance policy assets that were previously part of a
foreign subsidiary pension plan's assets (see page 42) and a deferred income tax
benefit of $13.5 million. Partially offsetting these increases were a net charge
of $19.8 million to the prepaid pension asset and a $6.4 million write-off of
certain intangible assets.
Noncurrent assets are carried at cost or less or under the equity method of
accounting.
Accounts payable and
accrued expenses (millions) 1993 1992
====================================================================
Trade payables $ 90.8 $ 94.0
- --------------------------------------------------------------------
Other payables 54.5 51.2
- --------------------------------------------------------------------
Payroll and related taxes 37.3 42.6
- --------------------------------------------------------------------
Restructuring costs 41.7 47.9
- --------------------------------------------------------------------
Other 69.0 54.5
====================================================================
Total $293.3 $290.2
The carrying amount of accounts payable and accrued expenses approximates fair
value because of the short maturity of these items.
Income taxes (millions) 1993 1992
====================================================================
Payable--current $ 31.7 $ 20.2
- --------------------------------------------------------------------
Deferred--current 0.1 2.1
====================================================================
Total $ 31.8 $ 22.3
- 48 -
Deferred income taxes (millions) 1993 1992
============================================================================
Postretirement and postemployment
benefits $ (99.6) $ (95.4)
- ----------------------------------------------------------------------------
Restructuring benefits (31.0) (39.7)
- ----------------------------------------------------------------------------
Alternative minimum tax credit (20.3) (25.4)
- ----------------------------------------------------------------------------
Excess foreign tax credit carryforward (6.9) --
- ----------------------------------------------------------------------------
Other (69.6) (55.4)
============================================================================
Total gross deferred tax assets $(227.4) $(215.9)
============================================================================
Less valuation allowance 6.9 --
============================================================================
Net deferred assets $(220.5) $(215.9)
============================================================================
Accumulated depreciation $ 96.2 $ 115.3
- ----------------------------------------------------------------------------
Pension costs 29.4 35.0
- ----------------------------------------------------------------------------
Other 66.1 53.3
============================================================================
Total deferred income tax liabilities $ 191.7 $ 203.6
============================================================================
Net deferred income tax liabilities (assets) $ (28.8) $ (12.3)
============================================================================
Less net income tax (benefits)--current (34.1) (37.8)
- ----------------------------------------------------------------------------
Less net income tax (benefits)--noncurrent (13.5) --
============================================================================
Deferred income taxes--long term $ 18.8 $ 25.5
The tax effects of principal temporary differences between the carrying
amounts of assets and liabilities and their tax bases are summarized in the
preceding table.
Under current law, the alternative minimum tax credits have an unlimited
carryforward life for U.S. tax purposes. A valuation allowance was not
established for these benefits because management believes the company will
earn sufficient taxable income to utilize the benefits.
The tax audit reviews have been completed for years 1988 through 1990, and the
company believes that there will be no adverse effect on the company's financial
condition.
Average Average
year-end year-end
interest interest
Debt (millions) 1993 rate 1992 rate
======================================================================
Short-term debt:
Foreign banks $ 29.9 6.81% $ 60.4 9.53%
- ----------------------------------------------------------------------
Commercial paper 75.5 3.36% 163.3 3.66%
======================================================================
Total short-term debt $105.4 -- $223.7 --
======================================================================
Long-term debt:
9 3/4% debentures
due 2008 $125.0 9.75% $125.0 9.75%
- ----------------------------------------------------------------------
Medium-term notes 116.8 8.71% 125.0 8.68%
- ----------------------------------------------------------------------
Industrial
development
bonds 17.9 3.08% 18.3 3.34%
- ----------------------------------------------------------------------
Mortgages, notes
and other 2.9 11.25% 7.7 10.69%
======================================================================
Total long-term debt 262.6 -- 276.0 --
======================================================================
Less current installments 5.8 -- 9.4 --
======================================================================
Net long-term debt $256.8 8.85% $266.6 8.85%
- 49 -
The December 31, 1993, carrying amounts of short-term debt ($105.4 million)
and current installments of long-term debt ($5.8 million) approximate fair
value because of the short maturity of these items.
The December 31, 1993, carrying amount of net long-term debt was $256.8
million, compared with a fair value estimate of $301.3 million. The fair value
estimates of long-term debt were based upon quotes from major financial
institutions, taking into consideration current rates offered to the company
for debt of the same remaining maturities.
The medium-term notes were issued at rates from 8% to 9% with maturities
ranging from 1994 to 2001.
The 9 3/4% debentures and the medium-term notes are not redeemable by the
company until maturity and there are no sinking-fund requirements.
Scheduled amortization of long-term debt (millions)
====================================================================
1995 $19.8 1998 $13.5
- --------------------------------------------------------------------
1996 40.1 1999 --
- --------------------------------------------------------------------
1997 13.7
In 1983, the company issued a $37.2 million noninterest-bearing installment
note and has made the first of two required payments. The second installment
payment of $18.6 million is due in 2013. The $1.5 million present value of
this payment is recorded in other long-term debt. The estimated fair value at
December 31, 1993, was $4.4 million.
Armstrong currently has unused domestic short-term lines of credit of
approximately $245 million from eight banks. In addition, the company's
foreign subsidiaries have approximately $144 million of unused short-term
lines of credit available from banks. Most of the credit lines are extended on
a fee basis.
The company can borrow from its banks generally at rates approximating the
lowest available to commercial borrowers and can issue short-term commercial
notes supported by the lines of credit.
Financial instruments with off-balance sheet risks
The company uses forward contracts, foreign currency options, and interest
rate or currency swaps to selectively hedge foreign currency and interest rate
risk exposures. Realized and unrealized gains and losses on contracts that
hedge expected future cash flows are recognized in other income and expense.
Realized and unrealized gains and losses on contracts that hedge net
investment in foreign subsidiaries are recognized in shareholders' equity.
At December 31, 1993, forward contracts and foreign currency options hedging
anticipated transactions totaled approximately U.S. $142.6 million and were
primarily denominated in European currencies. The forward contracts and options
mature within one year.
The estimated market value of the forward contracts and foreign currency
options at December 31, 1993, was $.8 million and was included in "Other
current assets." These values were obtained from dealer quotes and published
foreign currency market rates.
In 1987, the company entered into a $15 million interest rate swap
agreement. The swap expires in 1994 and provides for the company to pay
interest at the 30-day U.S. commercial paper rate and to receive interest at
an average fixed annual rate of 10.22%.
In 1993, the company terminated prior to expiration interest rate swaps
totaling $100 million and currency swaps totaling $37.2 million. Also, the
company entered into a $25 million interest rate swap agreement. The swap
expires in 1998 and provides for the company to pay interest at the six-month
London interbank offered rate, and to receive interest at a fixed rate of
5.575%.
The carrying values of the interest rate agreements represent a net asset of
$.6 million, compared with a net asset of $1.0 million at fair value, based on
quotes from major financial institutions. The fair values represent the
estimated amount the company would have received by terminating these
agreements on December 31, 1993.
- 50 -
The counterparties to these instruments are major international financial
institutions, and the company continually monitors its position and the credit
ratings of the counterparties. The company does not anticipate a loss
resulting from any credit risk of these institutions.
For reporting purposes, the assets and liabilities of the forward contracts,
foreign currency options, and interest rate swaps are offset because the
agreements provide for a right of offset.
As of December 31, 1993, the company had provided $62 million in standby
letters of credit and financial guarantees. The company's policy does not
normally require collateral or other security to support these instruments.
Other long-term liabilities were $99.6 million in 1993 and $52.9 million in
1992. The significant item included in the $46.7 million increase is the $37.7
million of pension liabilities assumed by the company as a result of becoming
self-insured for the pension obligations in a foreign subsidiary (see page 42).
Other long-term liabilities include amounts for pensions, deferred
compensation, workers' compensation, vacation accrual, and a reserve for the
estimated potential liability primarily associated with claims pending in the
company's asbestos-related litigation.
Based upon the company's experience with this litigation--as well as the
Wellington Agreement, other settlement agreements with certain of the
company's insurance carriers, and an earlier interim agreement with several
primary carriers--this reserve is intended to cover potential liability and
settlement costs, legal and administrative costs not covered under the
agreements, and certain other factors which have been involved in the
litigation about which uncertainties exist. Future costs of litigation against
the company's insurance carriers and other legal costs indirectly related to
the litigation, expected to be modest, will be expensed outside the reserve.
Amounts, primarily insurance litigation costs, estimated to be payable within
one year are included under current liabilities.
The company does not know how many claims will be filed against it in the
future, nor the details thereof or of pending claims and suits not fully
reviewed, nor the expense and any liability that may ultimately result
therefrom, nor does the company know the annual claims flow caps to be
negotiated after the initial 10-year period for the settlement class action or
the then compensation levels to be negotiated for such claims or the success the
company may have in addressing the Midland Insurance Company insolvency with its
other insurers. Subject to the foregoing and based upon its experience and other
factors referred to under "Litigation" on pages 60-64, the company believes
that it is probable that such charges to expense associated with the suits and
claims should not be significant.
The fair value of other long-term liabilities was estimated to be $87.2
million at December 31, 1993, using a discounted cash flow approach.
Environmental
The company will incur capital expenditures in order to meet the new
requirements of the Clean Air Act of 1990 and is awaiting the final
promulgation of implementing regulations by various state agencies to
determine the magnitude of additional costs and the time period over which
they will be incurred. In 1993, the company incurred capital
- 51 -
expenditures of approximately $2.6 million for environmental compliance and
control facilities, and anticipates comparable annual expenditures for those
purposes for the years 1994 and 1995.
As with many industrial companies, Armstrong is involved in proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), and similar state laws at approximately 21 sites. In most
cases, Armstrong is one of many potentially responsible parties ("PRPs") who
have voluntarily agreed to jointly fund the required investigation and
remediation of each site. With regard to some sites, however, Armstrong
disputes either liability or the proposed cost allocation. Sites where
Armstrong is alleged to have contributed a significant volume of waste
material include a former municipal landfill site in Volney, New York, and a
former county landfill site in Buckingham County, Virginia, which is alleged
to have received material from Thomasville Furniture Industries, Inc. (see
page 65). Armstrong may also have rights of contribution or reimbursement from
other parties or coverage under applicable insurance policies. The company is
also remediating environmental contamination resulting from past industrial
activity at certain of its current plant sites.
Estimates of future liability are based on an evaluation of currently
available facts regarding each individual site and consider factors including
existing technology, presently enacted laws and regulations, and prior company
experience in remediation of contaminated sites. Although current law imposes
joint and several liability on all parties at any Superfund site, Armstrong's
contribution to the remediation of these sites is expected to be limited by
the number of other companies also identified as potentially liable for site
costs. As a result, the company's estimated liability reflects only the
company's expected share. In determining the probability of contribution, the
company considers the solvency of the parties, whether responsibility is being
disputed, the terms of any existing agreements, and experience regarding
similar matters. The estimated liabilities do not take into account any claims
for recoveries from insurance or third parties, unless a coverage commitment
has been provided by the insurer.
Because of uncertainties associated with remediation activities and
technologies, regulatory interpretations, and the allocation of those costs
among various other parties, the company has accrued $4.9 million to reflect
its estimated liability for environmental remediation. As assessments and
remediation activities progress at each individual site, these liabilities are
reviewed to reflect additional information as it becomes available.
Actual costs to be incurred at identified sites in the future may vary from
the estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental
remediation costs, the company believes that any sum it may have to pay in
connection with environmental matters in excess of the amounts noted above
would not have a material adverse effect on its financial condition,
liquidity, or results of operations.
- 52 -
Geographic Areas
United States net trade sales include export sales to non-affiliated customers
of $27.0 million in 1993, $24.4 million in 1992, and $29.3 million in 1991.
"Europe" includes operations located primarily in England, France, Germany,
Italy, the Netherlands, Spain, and Switzerland. Operations in Australia,
Canada, China, Hong Kong, Indonesia, Japan, Korea, Singapore, and Thailand are
in "Other foreign."
Transfers between geographic areas and commissions paid to affiliates
marketing exported products are accounted for by methods that approximate
arm's-length transactions, after considering the costs incurred by the selling
company and the return on assets employed of both the selling unit and the
purchasing unit. Operating profits of a geographic area include profits
accruing from sales to affiliates.
Geographic areas
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
United States $1,910.7 $1,841.5 $1,761.7
- -------------------------------------------------------------------------
Europe 456.6 544.5 508.5
- -------------------------------------------------------------------------
Other foreign 158.1 163.8 169.1
- -------------------------------------------------------------------------
Total foreign 614.7 708.3 677.6
=========================================================================
Inter-area transfers:
=========================================================================
United States 76.1 69.9 65.5
- -------------------------------------------------------------------------
Europe 6.0 4.0 3.9
- -------------------------------------------------------------------------
Other foreign 21.9 18.5 9.9
- -------------------------------------------------------------------------
Eliminations (104.0) (92.4) (79.3)
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit:
=========================================================================
United States $ 178.0 $ 50.7 $ 131.5
- -------------------------------------------------------------------------
Europe 31.7 22.5 51.8
- -------------------------------------------------------------------------
Other foreign 10.0 (4.6) 9.3
- -------------------------------------------------------------------------
Total foreign 41.7 17.9 61.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Identifiable assets (Note 1):
=========================================================================
United States $1,311.7 $1,338.0 $1,435.5
- -------------------------------------------------------------------------
Europe 347.0 362.5 398.5
- -------------------------------------------------------------------------
Other foreign 63.2 64.9 74.9
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
- -------------------------------------------------------------------------
Eliminations (.3) (6.6) (9.5)
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
- 53 -
Reconciliation (millions) 1993 1992 1991
=========================================================================
Operating profit $219.7 $ 68.6 $ 192.6
- -------------------------------------------------------------------------
Corporate expense, net (91.0) (87.4) (46.5)
- -------------------------------------------------------------------------
Interest expense (38.0) (41.6) (45.8)
=========================================================================
Earnings (loss) from
continuing businesses
before income taxes $ 90.7 $(60.4) $ 100.3
Note 1: Identifiable assets for geographic areas and industry segments
exclude cash, marketable securities, and assets of a corporate nature.
Capital additions for industry segments include property, plant, and equipment
from acquisitions.
The Company's foreign operations are subject to foreign government legislation
involving restrictions on investments (including transfers thereof), tariff
restrictions, personnel administration, and other actions by foreign
governments. In addition, consolidated earnings are subject to both U.S. and
foreign tax laws with respect to earnings of foreign subsidiaries, and to the
effects of currency fluctuations.
- 54 -
Industry Segments
The company operates worldwide in four reportable segments: floor coverings,
building products, furniture, and industry products. Floor coverings sales
include resilient floors, ceramic tile, and accessories.
Industry segments
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
Floor coverings $1,191.3 $1,134.9 $1,058.0
- -------------------------------------------------------------------------
Building products 586.7 656.7 676.3
- -------------------------------------------------------------------------
Furniture 449.7 438.4 417.9
- -------------------------------------------------------------------------
Industry products 297.7 319.8 287.1
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit (Note 2):
=========================================================================
Floor coverings $ 129.8 $ 30.2 $ 84.6
- -------------------------------------------------------------------------
Building products 30.5 (7.3) 46.7
- -------------------------------------------------------------------------
Furniture 26.6 10.3 18.2
- -------------------------------------------------------------------------
Industry products 32.8 35.4 43.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Depreciation and
amortization:
=========================================================================
Floor coverings $ 61.0 $ 65.5 $ 67.0
- -------------------------------------------------------------------------
Building products 33.1 37.1 35.1
- -------------------------------------------------------------------------
Furniture 12.9 13.5 13.6
- -------------------------------------------------------------------------
Industry products 13.1 11.6 11.4
- -------------------------------------------------------------------------
Corporate $ 9.9 9.2 8.2
=========================================================================
Total depreciation
and amortization $ 130.0 $ 136.9 $ 135.3
=========================================================================
- 55 -
Capital additions (See Note 1 on
page 54):
=========================================================================
Floor coverings $ 59.1 $ 48.7 $ 61.0
- -------------------------------------------------------------------------
Building products 23.8 25.4 39.1
- -------------------------------------------------------------------------
Furniture 10.0 8.3 6.7
- -------------------------------------------------------------------------
Industry products 20.7 29.3 21.6
- -------------------------------------------------------------------------
Corporate 4.0 4.1 5.3
=========================================================================
Total capital additions $ 117.6 $ 115.8 $ 133.7
=========================================================================
Identifiable assets (See Note 1 on
page 8):
=========================================================================
Floor coverings $ 808.0 $ 835.6 $ 915.1
- -------------------------------------------------------------------------
Building products 475.2 491.6 556.0
- -------------------------------------------------------------------------
Furniture 234.6 238.7 239.7
- -------------------------------------------------------------------------
Industry products 203.8 192.9 188.6
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
Note 2:
Restructuring charges
in operating profit (millions) 1993 1992 1991
=========================================================================
Floor coverings $27.7 $ 80.8 $ 3.0
- -------------------------------------------------------------------------
Building products 13.7 35.0 4.3
- -------------------------------------------------------------------------
Furniture .6 4.8 .3
- -------------------------------------------------------------------------
Industry products 12.9 12.5 2.2
=========================================================================
Total restructuring charges
in operating profit $54.9 $133.1 $ 9.8
=========================================================================
- 56 -
Stock options
No further options may be granted under the 1984 Long-Term Stock Option Plan
for Key Employees since the 1993 Long-Term Stock Incentive Plan, approved by
the shareholders in April 1993, replaced the 1984 Plan for purposes of
granting additional options.
Awards under the 1993 Long-Term Stock Incentive Plan may be in the form of
stock options, stock appreciation rights in conjunction with stock options,
performance restricted shares and restricted stock awards. No more than
4,300,000 shares of common stock may be issued under the Plan, and no more
than 430,000 shares of common stock may be awarded in the form of restricted
stock awards. The Plan extends to April 25, 2003. Pre-1993 grants made under
predecessor plans will be governed under the provisions of those plans. At
December 31, 1993, there were 3,987,295 shares available for grant under the
1993 Plan.
Options are granted to purchase shares at prices not less than the closing
market price of the shares on the dates the options were granted, and expire
10 years from the date of grant. The average share price of all options
exercised was $27.41 in 1993, $12.34 in 1992, and $13.20 in 1991.
Changes in option shares outstanding
(thousands except for share price) 1993 1992 1991
===============================================================================
Option shares at beginning of year 1,730.7 1,458.5 1,179.8
- -------------------------------------------------------------------------------
Options granted 245.1 383.9 311.8
===============================================================================
1,975.8 1,842.4 1,491.6
===============================================================================
Less: Option shares exercised 182.2 27.4 10.9
- -------------------------------------------------------------------------------
Stock appreciation rights
exercised 14.0 9.1 .6
- -------------------------------------------------------------------------------
Options canceled 71.2 75.2 21.6
===============================================================================
267.4 111.7 33.1
===============================================================================
Option shares at end of year 1,708.4 1,730.7 1,458.5
===============================================================================
Average share price of options $ 33.20 $ 32.88 $ 33.21
===============================================================================
Option shares exercisable at
end of year 1,464.2 1,349.1 1,150.7
Performance restricted shares is a feature of the 1993 Long-Term Stock
Incentive Plan which entitles certain key executive employees to earn shares
of Armstrong's common stock, only if the company meets certain predetermined
performance measures during a three-year performance period. At the end of the
performance period, common stock awarded will generally carry an additional
four-year restriction period whereby the shares will be held in custody by the
company until the expiration or termination of the restriction. Compensation
expense will be charged to earnings over the period in which the restrictions
lapse. At the end of 1993, there were 68,505 performance restricted shares
outstanding, with associated potential future common stock awards falling in
the range of zero to 205,515 shares of Armstrong common stock.
- 57 -
Restricted stock awards can be used for the purposes of recruitment, special
recognition, and retention of key employees. There were no restricted stock
awards granted during 1993.
Shareholders' equity changes for 1993, 1992, and 1991 are summarized below:
Years ended December 31
(millions except for per-share data) 1993 1992 1991
========================================================================
Series A convertible preferred stock:
========================================================================
Balance at beginning of year $ 266.4 $ 267.7 $ 268.3
- ------------------------------------------------------------------------
Shares redeemed 2.5 1.3 .6
- ------------------------------------------------------------------------
Balance at end of year $ 263.9 $ 266.4 $ 267.7
========================================================================
Common stock, $1 par value:
========================================================================
Balance at beginning and end
of year $ 51.9 $ 51.9 $ 51.9
========================================================================
Capital in excess of par value:
========================================================================
Balance at beginning of year $ 26.1 $ 25.8 $ 25.7
- ------------------------------------------------------------------------
Stock issuances 3.6 .3 .1
- ------------------------------------------------------------------------
Balance at end of year $ 29.7 $ 26.1 $ 25.8
========================================================================
Reduction for ESOP loan guarantee:
========================================================================
Balance at beginning of year $(249.2) $ (256.0) $ (261.8)
- ------------------------------------------------------------------------
Principal paid 6.3 4.5 2.9
- ------------------------------------------------------------------------
Accrued compensation 1.1 2.3 2.9
- ------------------------------------------------------------------------
Balance at end of year $(241.8) $ (249.2) $ (256.0)
========================================================================
Retained earnings:
========================================================================
Balance at beginning of year $ 922.7 $1,208.7 $1,224.1
- ------------------------------------------------------------------------
Net earnings (loss) for year 63.5 (227.7) 48.2
- ------------------------------------------------------------------------
Tax benefit on dividends
paid on unallocated
preferred shares 5.3 5.5 --
- ------------------------------------------------------------------------
Total $ 991.5 $ 986.5 $1,272.3
- ------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------
Preferred stock
$3.462 per share $ 19.2 $ 19.3 $ 19.4
- ------------------------------------------------------------------------
Common stock
$1.20 per share in 1993; 44.6
$1.20 per share in 1992; 44.5
$1.19 per share in 1991 44.2
- ------------------------------------------------------------------------
Total dividends $ 63.8 $ 63.8 $ 63.6
- ------------------------------------------------------------------------
Balance at end of year $ 927.7 $ 922.7 $1,208.7
========================================================================
- 58 -
Foreign currency translation:
========================================================================
Balance at beginning of year $ 8.6 $ 44.7 $ 48.3
- ------------------------------------------------------------------------
Translation adjustments and
hedging activities (12.5) (37.0) (2.4)
- ------------------------------------------------------------------------
Allocated income taxes .5 .9 (1.2)
- ------------------------------------------------------------------------
Balance at end of year $ (3.4) $ 8.6 $ 44.7
========================================================================
Less treasury stock at cost:
========================================================================
Balance at beginning of year $ 457.3 $ 457.3 $ 457.3
- ------------------------------------------------------------------------
Stock purchases .1 -- --
- ------------------------------------------------------------------------
Stock issuance activity, net 1.1 -- --
========================================================================
Balance at end of year $ 458.5 $ 457.3 $ 457.3
========================================================================
Total shareholders' equity $ 569.5 $ 569.2 $ 885.5
Treasury shares changes for 1993, 1992, and 1991 are as follows:
Years ended December 31
(thousands) 1993 1992 1991
========================================================================
Common shares
========================================================================
Balance at beginning of year 14,750.6 14,776.3 14,787.0
- ------------------------------------------------------------------------
Stock purchases 2.4 .6 .1
- ------------------------------------------------------------------------
Stock issuance activity, net (96.5) (26.3) (10.8)
========================================================================
Balance at end of year 14,656.5 14,750.6 14,776.3
Preferred stock purchase rights plan
In 1986, the Board of Directors declared a distribution of one right for
each share of the company's common stock outstanding on and after March 21,
1986. Following the two-for-one stock split later in 1986, one-half of one
right attaches to each share of common stock outstanding. In general, the
rights become exercisable at $175 per right for a fractional share of a new
series of Class A preferred stock (which will differ from the Series A
Convertible Preferred Stock issued to the Employee Stock Ownership Plan
described on page 44) 10 days after a person or group either acquires
beneficial ownership of shares representing 20% or more of the voting power of
the company or announces a tender or exchange offer that could result in such
person or group beneficially owning shares representing 28% or more of the
voting power of the company. If thereafter any person or group becomes the
beneficial owner of 28% or more of the voting power of the company or if the
company is the surviving company in a merger with a person or group that owns
20% or more of the voting power of the company, then each owner of a right
(other than such 20% stockholder) would be entitled to purchase shares of
common stock having a value equal to twice the exercise price of the right.
Should the company be acquired in a merger or other business combination, or
sell 50% or more of its assets or earnings power, each right would entitle the
holder to purchase, at the exercise price, common shares of the acquirer
having a value of twice the exercise price of the right. The exercise price
was determined on the basis of the Board's view of the long-term value of the
company's common stock. The rights have no voting power nor do they entitle a
holder to receive dividends. At the company's option, the rights are
redeemable prior to becoming exercisable at five cents per right. The rights
expire on March 21, 1996.
- 59 -
Litigation
The company is one of many defendants in pending lawsuits and claims
involving, as of December 31, 1993, approximately 78,437 individuals alleging
personal injury from exposure to asbestos-containing products. A total of
about 24,036 lawsuits and claims were received by the company in 1993,
compared with 28,997 in 1992. Nearly all the personal injury suits and claims
seek compensatory and punitive damages arising from alleged exposure to
asbestos-containing insulation products used, manufactured, or sold by the
company. The company discontinued the sale of all asbestos-containing
insulation products in 1969. A significant number of suits in which the
company believes it should not be involved were filed in 1993 by persons
engaged in vehicle tire production, aspects of the construction industry and
the steel industry. Although a large number of suits and claims pending in
prior years have been resolved, neither the rate of future dispositions nor
the number of future potential unasserted claims can be reasonably predicted.
Attention continues to be given by various judges to finding a comprehensive
solution to the large number of pending as well as potential future asbestos-
related personal injury claims, and the Judicial Panel for Multi-district
Litigation ordered the transfer of all federal cases not in trial to the Eastern
District Court in Philadelphia for pretrial purposes.
A settlement class action which includes essentially all future asbestos-
related personal injury claims against members of the Center for Claims
Resolution referred to below was filed in Philadelphia on January 15, 1993, in
Federal District Court for the Eastern District of Pennsylvania. The proposed
class action settlement was negotiated by the Center and two leading
plaintiffs' law firms. The settlement class action is designed to establish a
nonlitigation system for the resolution of essentially all future asbestos-
related personal injury claims against the Center members including this
company. Other defendant companies which are not Center members may be able to
join the class action later. The class action proposes a voluntary settlement
that offers a method for prompt compensation to claimants who were
occupationally exposed to asbestos if they are impaired by such exposure.
Claimants must meet certain exposure and medical criteria to receive
compensation which is derived from historical settlement data. Under limited
circumstances and in limited numbers, qualifying claimants may choose to
litigate certain claims in court or through alternative dispute resolution,
rather than choose an offered settlement amount, after their claims are
processed within the system. No punitive damages will be paid under the
proposed settlement. The settlement is designed to minimize transactional
costs, including attorneys' fees, and to relieve the courts of the burden of
handling future asbestos-related personal injury claims. Each member of the
Center has an obligation for its own fixed share in this proposed settlement.
The settlement class action does not include asbestos-related personal injury
claims which were filed before January 15, 1993, or asbestos-related property
damage claims. Agreed upon annual case flow caps and agreed upon compensation
levels for each compensable medical category have been established for an
initial period of ten years. The case flow figures and annual compensation
levels are subject to renegotiation after the initial ten-year period. The
Court has preliminarily approved the settlement, and notification has been
provided to potential class members which were offered an opportunity to opt
out by January 24, 1994. The Court will hold a final fairness hearing on
February 22, 1994. If a significant number of future claimants choose to opt
out, the Center members also reserve the right to withdraw from the program.
The settlement will become final only after it has been approved by the
courts. The Center members also have stated their intention to resolve over a
five-year period the asbestos personal injury claims pending prior to the date
the settlement class action was filed. A significant number of these pending
claims have been settled with a number of the plaintiffs' counsel.
- 60 -
The company is seeking agreement from its insurance carriers or a ruling from
the Court that the settlement class action will not jeopardize existing
insurance coverage. Certain unresolved insurance coverage issues involving
certain Center members' insurance carriers acceptance of the proposed settlement
will be resolved either by alternative dispute resolution in the case of the
insurance carriers which subscribed to the Wellington Agreement or by litigation
against those carriers which did not subscribe to the Wellington Agreement.
A few state judges have been undertaking to consolidate numbers of asbestos
personal injury cases for trial. The company generally opposes these actions as
being unfair. Approximately 8,500 cases were consolidated in 1992 in a
multiphase trial in Baltimore, Maryland. The multiphase trial dealt with various
issues and a settlement was effected during the trial of those claims in which
the company was a named defendant.
The pending personal injury lawsuits and claims against the company are being
paid by insurance proceeds under the 1985 Agreement Concerning Asbestos-Related
Claims, the "Wellington Agreement." A new claims handling organization, known as
the Center for Claims Resolution, was created in October 1988 by Armstrong and
20 other companies to replace the Wellington Asbestos Claims Facility, which has
been dissolved. Except for eliminating the future availability of an insurer-
paid special defense fund linked to the existence of the Facility, the
dissolution of the Facility does not essentially affect the company's overall
Wellington insurance settlement which provides for a final settlement of nearly
all disputes concerning insurance for asbestos-related personal injury claims as
between the company and three of its primary insurers and eight of its excess
insurers. The one primary carrier that did not sign the Wellington Agreement
paid into the Wellington Facility and settled with the company in March 1989 all
outstanding issues relating to insurance coverage for asbestos-related personal
injury and property damage claims. In addition, one of the company's large
excess-insurance carriers entered into a settlement agreement in 1986 with the
company under which payments for personal injury claims were made through the
Wellington Facility, and this carrier continues to make payments for such claims
through the Center for Claims Resolution. Other excess-insurance carriers also
have entered into settlement agreements with the company which
- 61 -
Litigation (continued)
complement Wellington. ACandS, Inc., a former subsidiary of the company, which
for certain insurance periods has coverage rights under some company insurance
policies, subscribed to the Wellington Agreement but did not become a member of
the Center for Claims Resolution.
One excess carrier and certain companies in an excess carrier's block of
coverage have become insolvent. Certain carriers providing excess level
coverage solely for property damage claims also have become insolvent.
However, it is not expected that the insolvency of these carriers will affect
the company's ability to have insurance available to pay asbestos-related
claims. ACandS, Inc., had filed a lawsuit against the company to have a
certain amount of insurance from the joint policies reserved solely for its
use in the payment of the costs associated with the asbestos-related personal
injury and property damage claims. The two companies have negotiated a
settlement of their dispute and have signed a settlement agreement.
The Center for Claims Resolution operates under a concept of allocated
shares of liability payments and defense costs for its members based primarily
on historical experience, and it defends the members' interest and addresses
pending and future claims in a manner consistent with the prompt, fair
resolution of meritorious claims. In late 1991, the Center sharing formula was
revised to provide that members will pay only on claims in which the member is
a named defendant. This change has caused a slight increase in the company's
share, but has enhanced the company's case management focus. Although the
Center members and their participating insurers were not obligated beyond one
year, the insurance companies are expected to commit to the continuous
operation of the Center for a sixth year and to the funding of the Center's
operating expenses. With the filing of the settlement class action, the Center
will continue to process pending claims and will handle the program for
processing future asbestos-related personal injury claims if the class action
settlement is approved by the courts. No forecast can be made for future years
regarding either the rate of pending and future claims resolution by the
Center or the rate of utilization of company insurance, although it is
expected if the settlement class action is approved that the rate of insurance
usage will be accelerated.
The company is also one of many defendants in a total of 73 pending lawsuits
and claims, including class actions, as of December 31, 1993, brought by
public and private entities, including public school districts, and public and
private building owners. These lawsuits and claims include allegations of
property damage to buildings caused by asbestos-containing products and
generally claim compensatory and punitive damages and equitable relief,
including reimbursement of expenditures, or removal and replacement of such
products. These suits and claims appear to be aimed at friable (easily
crumbled) asbestos-containing products although allegations in some suits
encompass other asbestos-containing products, including allegations with
respect to asbestos-containing resilient floor tile. The company vigorously
denies the validity of the allegations against it contained in these suits and
claims. Increasing defense costs, paid by the company's insurance carriers
either under reservation or settlement arrangement, will be incurred. These
suits and claims are not encompassed within the Wellington Agreement nor are
they being handled by the Center for Claims Resolution.
- 62 -
In 1989, Armstrong concluded the trial phase of a lawsuit in California state
court to resolve disputes concerning certain of its insurance carriers'
obligations with respect to personal injury and property damage liability
coverage, including defense costs, for alleged personal injury and property
damage asbestos-related lawsuits and claims. As indicated earlier, the company
reached a settlement agreement after the conclusion of the trial phase with one
of its primary carriers which is also an excess carrier. The Court issued final
decisions, and the carriers appealed. The California Court of Appeal has
substantially upheld the trial court's final decisions and the insurance
carriers have petitioned the California Supreme Court to hear the asbestos-
related personal injury and property damage coverage issues. The California
Supreme Court recently accepted review pending its review of related issues in
another California case. Based upon the trial court's favorable final decisions
in important phases of the trial relating to coverage for asbestos-related
personal injury and property damage lawsuits and claims, including the favorable
decision by the California Court of Appeal, and a review of the coverage issues
by its counsel, the company believes it has a substantial legal basis for
sustaining its right to defense and indemnification. For the same reasons, the
company also believes that it is probable that claims by the several primary
carriers for recoupment of defense expenses in the property damage litigation,
which the carriers also appealed, will ultimately not be successful.
The company is currently negotiating with the company's primary insurance
carriers to categorize the percentage of previously resolved and to be resolved
asbestos-related personal injury claims as non-products claims and to establish
the entitlement to such coverage. Such non-product claims coverage insurance is
available under the Wellington Agreement and the settlement agreement with one
of its primary carriers referred to above for such claims. Non-products claims
include claims that may have arisen out of exposure during installation of
asbestos materials or before control of such materials has been relinquished.
Certain excess policies also provide non-products coverage. The additional
coverage potentially available to pay claims categorized as non-products, at
both the primary and excess levels is substantial and, at the primary level,
includes defense costs in addition to limits. The company is entitled to
pursue alternative dispute resolution proceedings against the primary and
certain excess carriers to resolve the non-products coverage issues.
The company does not know how many claims will be filed against it in the
future, nor the details thereof or of pending suits not fully reviewed, nor the
expense and any liability that may ultimately result therefrom, nor does the
company know the annual claims flow caps to be negotiated after the initial ten-
year period for the settlement class action or the then compensation levels to
be negotiated for such claims or the success the company may have in addressing
the Midland Insurance Company insolvency with its other insurers. Subject
- 63 -
Litigation (continued)
to the foregoing and based upon its experience and other factors referred to
above, the company believes that it is probable that substantially all of the
expenses and any liability payments associated therewith will be paid--in the
case of the personal injury claims, by agreed-to coverage under the Wellington
Agreement and supplemented by payments by nonsubscribing insurers that entered
into settlement agreements with the company and additional insurance coverage
reasonably anticipated from the outcome of the insurance litigation and from the
company's claims for non-products coverage both under certain insurance policies
covered by the Wellington Agreement and under certain insurance policies not
covered by the Wellington Agreement which claims have yet to be accepted by the
carriers--and in the case of the asbestos-related property damage claims, under
an existing interim agreement, by insurance coverage settlement agreements and
through additional coverage reasonably anticipated from the outcome of the
insurance litigation. Thus, the company has not recorded any liability for any
defense costs or indemnity relating to these lawsuits other than as described in
the "Other long-term liabilities" section regarding the reserve on page 51.
Even though uncertainties still remain as to the potential number of
unasserted claims, the liability resulting therefrom, and the ultimate scope
of its insurance coverage, after consideration of the factors involved,
including the Wellington Agreement, the settlements with other insurance
carriers, the results of the trial phase and the first level appellate stage
of the California insurance litigation, the remaining reserve, the
establishment of the Center for Claims Resolution, the proposed settlement
class action, and its experience, the company believes that this litigation
will not have a material adverse effect on its earnings, liquidity, or
financial position.
- --------------------------------------------------------------------------------
In October 1992, the U.S. Court of Appeals for the Third Circuit issued its
decision in a lawsuit brought by The Industry Network System, Inc. (TINS), and
its founder, Elliot Fineman. The plaintiffs alleged that in 1984 Armstrong had
engaged in antitrust and tort law violations and breach of contract which
damaged TINS' ability to do business. The Court of Appeals sustained the U.S.
District Court's decision that the April 1991 jury verdict against Armstrong in
the amount of $224 million including $200 million in punitive damages should be
vacated, and that there should be a new trial on all claims remaining after the
appeal. The Court of Appeals sustained the District Court ruling that the jury's
verdict had reflected prejudice and passion due to the improper conduct of
plaintiffs' counsel and was clearly contrary to the weight of the evidence. The
Court of Appeals affirmed or did not disturb the trial court's order dismissing
all of TINS' claims under Section 2 of the Sherman Act for alleged conspiracy,
monopolization and attempt to monopolize and dismissing all of Mr. Fineman's
personal claims. These claims will not be the subject of a new trial. However,
the Court of Appeals reversed the trial court's directed verdict for Armstrong
on TINS' claim under Section 1 of the Sherman Act, reversed the summary judgment
in Armstrong's favor on TINS' claim for breach of contract based on a 1984
settlement agreement, and reversed the judgment n.o.v. for Armstrong on TINS'
tortious interference and related punitive damage claims. These claims will be
the subject of a new trial.
- 64 -
The Court of Appeals granted the company's motion to stay return of the case
to the District Court pending the company's Petition for Certiorari to the
Supreme Court appealing certain antitrust rulings of the Court of Appeals. The
company was informed on February 22, 1993, that the Supreme Court denied its
Petition. The case has been remanded by the Third Circuit Court of Appeals in
Philadelphia to the U.S. District Court in Newark, New Jersey, and a new trial
has been set for early April 1994. It is unknown what damage claims TINS will
allege upon retrial of the case. But during the first trial, claims for actual
damages of at least $17.5 million were asserted by plaintiffs' expert and even
greater amounts were asserted by Mr. Fineman. Under the antitrust laws, proven
damages are trebled. In addition, plaintiff would likely ask for punitive
damages, companion to its request for tort damages. Other damages which would
likely be sought include reimbursement of attorneys' fees and interest,
including prejudgment interest.
The company denies all of TINS' claims and accordingly is vigorously defending
the matter. In the event that a jury finds against the company, such jury
verdict could entail unknown amounts which, if sustained, could have a material
adverse effect on its earnings and financial position.
- --------------------------------------------------------------------------------
As previously discussed on pages 51 and 52 under "Environmental" with regard
to a former county landfill in Buckingham County, Virginia, Thomasville
Furniture Industries, Inc. and seven other parties have been identified by the
U.S. Environmental Protection Agency ("USEPA") as Potentially Responsible
Parties ("PRPs") to fund the cost of remediating environmental conditions at
this federal Superfund site. After review of investigative studies to determine
the nature and extent of contamination and identify various remediation
alternatives, USEPA issued its Proposed Remedial Action Plan in May 1993
proposing a $21 million clean-up cost. In November 1993, however, USEPA issued a
revised plan which recommended a reduced $3.5 million alternative, subject to
additional costs depending on test results. The PRPs believe that other
alternatives are appropriate and discussions with USEPA and Virginia State
officials continue.
Spent finishing materials from Thomasville's Virginia furniture plants at
Appomattox and Brookneal allegedly comprise a significant portion of the waste
presently believed to have been taken to the site by a now defunct disposal firm
in the late 1970s. Accordingly, Thomasville could be called upon to fund a
significant portion of the eventual remedial costs.
- 65 -
Independent Auditors' Report
The Board of Directors and Shareholders,
Armstrong World Industries, Inc.:
We have audited the consolidated financial statements of Armstrong World
Industries, Inc. and its subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the related supplementary information on depreciation rates and
schedules listed in the accompanying index. These consolidated financial
statements and supplementary information and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and supplementary information and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Armstrong
World Industries, Inc., and subsidiaries at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion the related supplementary
information and schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.
As discussed under litigation in the Financial Review section, the Company is
involved in antitrust litigation, the outcome of which cannot presently be
determined. Accordingly, no provision for any liability that may result has
been made in the accompanying consolidated financial statements. Also, as
discussed in the Financial Review section, effective January 1, 1992, the
Company changed its methods of accounting to adopt the provisions of the
Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes," SFAS 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions" and SFAS 112, "Employers' Accounting for Postemployment
Benefits."
KPMG PEAT MARWICK
Philadelphia, Pa.
February 14, 1994
- 66 -
Quarterly financial information Total
(millions except for per-share data) First Second Third Fourth Year
===========================================================================================================
1993
===========================================================================================================
Net sales $611.9 $629.0 $660.1 $624.4 $2,525.4
- -----------------------------------------------------------------------------------------------------------
Gross profit 159.1 183.9 197.9 182.2 723.1
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses 11.3 31.9 42.3 (22.0) 63.5
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) 11.3 31.9 42.3 (22.0) 63.5
- -----------------------------------------------------------------------------------------------------------
Per share of common stock:*
- -----------------------------------------------------------------------------------------------------------
Primary:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .21 .76 1.04 (.68) 1.32
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) .21 .76 1.04 (.68) 1.32
- -----------------------------------------------------------------------------------------------------------
Fully diluted:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .21 .68 .93 (.68) 1.26
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) .21 .68 .93 (.68) 1.26
- -----------------------------------------------------------------------------------------------------------
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 28 7/8 29 3/8 30 1/4 40 1/4 28 7/8
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 1/8 34 3/4 42 1/2 55 1/4 55 1/4
===========================================================================================================
1992
===========================================================================================================
Net sales $638.4 $651.7 $659.6 $600.1 $2,549.8
- -----------------------------------------------------------------------------------------------------------
Gross profit 169.4 176.5 174.8 140.4 661.1
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing business 15.9 20.1 (80.3) (15.6) (59.9)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (151.9) 20.1 (80.3) (15.6) (227.7)
- -----------------------------------------------------------------------------------------------------------
Per share of common stock:*
- -----------------------------------------------------------------------------------------------------------
Primary:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .33 .45 (2.25) (.51) (1.98)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (4.18) .45 (2.25) (.51) (6.49)
- -----------------------------------------------------------------------------------------------------------
Fully diluted:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .32 .41 (2.25) (.51) (1.98)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (4.18) .41 (2.25) (.51) (6.49)
- -----------------------------------------------------------------------------------------------------------
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 26 29 5/8 27 1/2 24 1/2 24 1/2
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 7/8 37 1/2 32 3/8 32 3/4 37 1/2
===========================================================================================================
* Quarterly earnings (loss) per-share data do not always equal the total year
amounts due to changes in the average shares outstanding and, for fully
diluted data, the exclusion of the antidilutive effect in certain quarters and
for the total year.
- 67 -
Fourth quarter 1993 compared with fourth quarter 1992
Fourth quarter sales from continuing businesses rose to record levels at
$624.4 million, an increase of 4% from the $600.1 million from last year.
The net loss for the fourth quarter was $22.0 million, or 68 cents per
share of common stock. This loss included $60.0 million after tax of
restructuring charges primarily related to the elimination of employee positions
in the U.S. and Europe.
The fourth quarter 1992 net loss was $15.6 million, or 51 cents per share
of common stock. Also included in this reporting were restructuring charges of
$24.3 million after tax related to the closing of a ceiling materials plant in
Ghlin, Belgium, and provisions for charges related to the elimination of
employee positions on a worldwide basis.
Despite the negative impact of restructuring charges in the fourth quarter
of 1993, the company benefitted from higher sales levels in most businesses,
some sales price increases, and from lower manufacturing costs, resulting from
the 1992 restructuring actions and from improved productivity. This resulted in
the company's cost of goods sold as a percent of sales declining to 70.8%
compared with 76.6% last year. Nonmanufacturing costs were comparable to 1992.
Armstrong also experienced lower interest costs during the quarter from lower
debt levels and tax obligations. The 1992 fourth quarter results also included a
$5.5 million after-tax gain from foreign exchange compared with only $.8 million
after-tax gain this year.
The 1993 effective tax benefit rate was 39.9% compared with only 7.1% last
year. Armstrong's current year fourth quarter reflected recovery of deferred
taxes resulting from some reduced foreign statutory tax rates, and most of the
restructuring charges provided tax benefits. The 1992 effective tax benefit rate
was much lower because some of the restructuring charges did not provide tax
benefits.
Of Armstrong's four industry segments, floor coverings and furniture
showed sales increases in the fourth quarter
compared with year-ago levels, while sales in the building products and industry
products segments were below those of 1992. Operating results were higher in the
building products and furniture segments, while floor coverings and industry
products declined. Excluding restructuring charges, all four segments recorded
improved operating profits. The floor coverings operating profit of $12.9
million in 1993 and $13.4 million in 1992 includes restructuring charges of
$27.7 million and $7.6 million, respectively. Exclusive of these charges, the
improved profit levels were driven by higher U.S. resilient flooring sales, a
modest increase in ceramic sales, and lower manufacturing costs. The building
products' fourth quarter 1993 operating loss of $2.4 million includes a
restructuring charge of $13.7 million compared with a 1992 operating loss of
$14.9 million that included an $11.9 restructuring charge. Despite lower sales
in building products, this segment's operating results improved because of
extensive restructuring programs, lower operating costs, and some pricing
actions in Europe and North America. The furniture segment's sales and operating
profits improved from those of last year. Higher sales, along with lower costs,
aided the profit improvement as did inventory valuation reserve adjustments. The
industry products segment was adversely affected by unfavorable European
exchange rates and the continuing lack of growth in the European economies.
Operating profits were lowered by competitive pricing pressures, while
restructuring charges of $12.9 million and $1.2 million were recorded for 1993
and 1992, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
---------------------
Not applicable.
- 68 -
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Directors of the Registrant
- ---------------------------
The information appearing in the tabulation in the section captioned "Election
of Directors" on pages 1-5 of the Company's 1994 Proxy Statement is incorporated
by reference herein.
Executive Officers of the Registrant
- -------------------------------------
William W. Adams* -- Age 59; Chairman of the Board since September 7, 1993;
Chairman of the Board and President (Chief Executive Officer) 1988-1993; .
E. Allen Deaver* -- Age 58; Executive Vice-President since March 1, 1988.
George A. Lorch* -- Age 52; President (Chief Executive Officer) since September
7, 1993; Executive Vice-President 1988-1993.
Henry A. Bradshaw -- Age 58; Group Vice-President, Worldwide Building Products
Operations since February 1, 1993; Group Vice-President, Building Products
Operations, 1990-1993; General Manager Manufacturing, Building Products
Operations, 1985-1990.
Dennis M. Draeger -- Age 53; Group Vice-President, Worldwide Floor Products
Operations since February 1, 1993; Group Vice-President Floor Products
Operations 1988-1993.
William W. Locke -- Age 58; Group Vice-President, Worldwide Industry Products
and Pacific Operations since February 1, 1993; Group Vice-President,
International and Industry Products Operations, 1990-1993; Group Vice-President,
International Operations, 1983-1990.
Robert J. Shannon, Jr. -- Age 45; President, American Olean Tile Company, Inc.
since March 1, 1992; and the following positions with Armstrong World
Industries, Inc.: General Manager, Worldwide Gasket Products, International and
Industry Product Operations, 1991-1992; Manager, Fiber Products, Industry
Products Division, 1989-1991; Marketing Manager, Adhesives and Coatings,
Corporate Markets Division, 1986-1989.
Frederick B. Starr -- Age 61; President, Thomasville Furniture Industries, Inc.
since 1982.
Larry A. Pulkrabek -- Age 54; Senior Vice-President, Secretary and General
Counsel since February 1, 1990; Vice-President, Secretary and General Counsel,
1977-1990.
William J. Wimer -- Age 59; Senior Vice-President, Finance since January 25,
1993; Senior Vice-President, Finance, and Treasurer, 1990-1993; Vice-President
and Controller, 1978-1990.
Stephen C. Hendrix -- Age 53; Treasurer since January 25, 1993; and the
following positions with SmithKline Beecham Corporation (Pharmaceuticals,
Consumer Products): Vice-President and Treasurer, 1989-1991; Vice-President and
Assistant Treasurer, International, 1987-1989.
Bruce A. Leech, Jr. -- Age 51; Controller since February 1, 1990; Controller,
International Operations, 1983-1990.
- 69 -
All information presented above is current as of March 1, 1994. The term of
office for each Executive Officer in his present capacity is one year, and each
such Executive Officer will serve until reelected or until a successor is
elected at the annual meeting of directors which follows the annual
shareholders' meeting. Each Executive Officer has been employed by the Company
in excess of five continuous years with the exception of Mr. Hendrix. Members
of the Executive Committee of the Board of Directors as of March 1, 1994, are
designated by an asterisk(*) following each of their names. The Executive
Committee consists of those Executive Officers who serve as Directors.
Item 11. Executive Compensation
- --------------------------------
The information appearing in the sections captioned "Compensation Committee
Interlocks and Insider Participation," "Executive Officers' Compensation,"
(other than the information contained under the subcaption "Performance Graph")
and "Retirement Income Plan Benefits," on pages 11-17 of the Company's 1994
Proxy Statement is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information appearing in the sections captioned "Stock Ownership of Certain
Beneficial Owners" on page 18 and "Directors' and Executive Officers' Security
Ownership" on page 7 of the Company's 1994 Proxy Statement is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
The financial statements and schedules filed as a part of this Annual Report on
Form 10-K are listed in the "Index to Financial Statements and Schedules" on
page 75.
- 70 -
a. The following exhibits are filed as a part of this Annual Report on Form
10-K:
Exhibits
- --------
No. 3(a) Registrant's By-laws, as amended, are incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein they appeared as Exhibit 3(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended
are incorporated by reference herein from the registrant's
1990 Annual Report on Form 10-K wherein they appeared as
Exhibit 3(b).
No. 4(a) Rights Agreement dated as of March 21, 1986, between the
registrant and Morgan Guaranty Trust Company of New York, as
Rights Agent, (as to which First Chicago Trust Company of
New York has succeeded as Rights Agent,) relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from the Company's 1990 Annual Report on
Form 10-K wherein it appeared as Exhibit 4(a).
No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In
Success Plan") as amended, is incorporated by reference
herein from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 4(b).
No. 4(c) Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee, is incorporated herein by reference from
the registrant's Form 8-K dated February 1, 1991, wherein it
appeared as Exhibit 4.1.
No. 4(d) Supplemental Indenture dated as of October 19, 1990, between
the registrant and The First National Bank of Chicago, as
Trustee, is incorporated herein by reference from the
registrant's Form 8-K dated October 31, 1990, wherein it
appeared as Exhibit 4.1.
No. 10(i)(a) Copy of Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies.
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended, is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(b).
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(a).
- 71 -
No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from the Company's 1990 Annual Report on Form 10-K wherein
it appeared as Exhibit 10(iii)(c).
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended,
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appears as
Exhibit 10(iii)(d).
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(e).
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appears as Exhibit 10(iii)(f).
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(g).
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(h).
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1991
Proxy Statement wherein it appeared as Exhibit A.
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(j).
No. 10(iii)(j) Copy of Thomasville Value Plan of Thomasville Furniture
Industries, Inc.
No. 10(iii)(k) Copy of Thomasville Achievement Plan of Thomasville
Furniture Industries, Inc.
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on pages 25 and 26 of this
Annual Report on Form 10-K.
No. 22 List of the registrant's domestic and foreign subsidiaries.
No. 24 Consent of Independent Auditors.
No. 25 Powers of Attorney and authorizing resolutions.
- 72 -
No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Retirement Savings Plan For
Salaried Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1993, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1993, is herewith filed with the
Commission.
- 73 -
b. During the last quarter of 1993, no reports on Form 8K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARMSTRONG WORLD INDUSTRIES, INC.
--------------------------------
(Registrant)
By /s/ George A. Lorch
-----------------------------
President
Date March 28, 1994
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Directors and Principal Officers of the registrant:
George A. Lorch President (Principal Executive Officer)
William J. Wimer Senior Vice-President, Finance
(Principal Financial Officer)
Bruce A. Leech, Jr. Controller
(Principal Accounting Officer)
Wm. Wallace Abbott Director
William W. Adams Chairman of the Board
Van C. Campbell Director By /s/ George A. Lorch
E. Allen Deaver Director ----------------------
Ursula F. Fairbairn Director (George A. Lorch as
Michael C. Jensen Director attorney-in-fact and
James E. Marley Director on his own behalf)
Robert F. Patton Director
J. Phillip Samper Director As of March 28, 1994
Jerre L. Stead Director
- 74 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
The following consolidated financial statements and Financial Review are filed
as a part of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Earnings for the Years Ended December 31, 1993,
1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1992, and 1991
The following additional financial data should be read in conjunction with the
financial statements. Schedules not included with this additional data have been
omitted because they are not applicable or the required information is presented
in the financial statements or the financial review.
Additional Financial Data Page No.
------------------------- --------
For Year ended or
at December 31,
-----------------
Supplementary information to financial
review
Computation for Primary Earnings 1993, 1992 and 1991 76
per Share
Computation for Fully Diluted 1993, 1992 and 1991 77
Earnings per Share
Depreciation Rates 1993, 1992 and 1991 78
Schedules submitted:
V - Property, Plant, and Equipment 1993, 1992 and 1991 79-81
VI - Accumulated Depreciation and
Amortization of Property,
Plant, and Equipment 1993, 1992 and 1991 82-84
VIII - Valuation and Qualifying Reserves 1993, 1992 and 1991 85
IX - Short-Term Borrowings 1993, 1992 and 1991 86-87
- 75 -
Computation for Primary Earnings Per Share
for Years ended December 31
(Amounts in millions except for per-share data)(a)
1993 1992(b) 1991
---- ---- ----
Common Stock and Common Stock Equivalents
- -----------------------------------------
Average number of common shares outstanding
including shares issuable under stock options 37.7 37.2 37.2
==== ==== ====
Earnings Per Share from Continuing Businesses
- ---------------------------------------------
Earnings (loss) from continuing businesses $ 63.5 $(59.9) $ 60.6
Less:
Dividend requirement on Series A convertible
preferred stock 19.2 19.3 19.4
Plus:
Tax benefit on dividends paid on unallocated
preferred shares 5.3 5.5 --
------- -------- -------
Earnings (loss) from continuing businesses
applicable to common stock $ 49.6 $(73.7) $ 41.2
Earnings (loss) from continuing businesses
per share of common stock $ 1.32 $ (1.98) $ 1.11
======= ======== =======
Net Earnings (Loss) Per Share
- -----------------------------
Net earnings (loss) $ 63.5 $(227.7) $ 48.2
Less:
Dividend requirement on Series A convertible
preferred stock 19.2 19.3 19.4
Plus:
Tax benefit on dividends paid on unallocated
preferred shares 5.3 5.5 --
------- -------- -------
Net earnings (loss) applicable to common stock $ 49.6 $(241.5) $ 28.8
Net earnings (loss) per share of common stock $ 1.32 $ (6.49) $ 0.77
======= ======== =======
(a) In 1992 the Company adopted Statement of Financial Accounting Standards
(SFAS) 109 "Accounting for Income Taxes." SFAS 109 requires recognition in
shareholders' equity of the tax benefit for dividends paid on unallocated
shares of stock held by an Employee Stock Ownership Plan which amounted to
$5.3 million in 1993 and $5.5 million in 1992. Under SFAS 96, this benefit
was recognized in the statement of earnings and amounted to $6.0 million in
1991.
(b) In 1992 the Company adopted SFAS 112 "Employer's Accounting for
Postemployment Benefits." A refinement of the computation in 1993 resulted
in restatements of the 1992 earnings. The effect of the restatements was
to reduce the previously reported loss from continuing businesses by $1.7
million or 5 cents per share and to reduce the previously reported net loss
by $6.5 million or 18 cents per share.
- 76 -
Computation for Fully Diluted Earnings Per Share
for Years ended December 31
(Amounts in millions except for per-share data)
1993 1992(a) 1991(a)
---- ---- ----
Common Stock and Common Stock Equivalents
- -----------------------------------------
Average number of common shares outstanding
including shares issuable under stock options 37.7 37.2 37.2
Average number of common shares issuable under
the Employee Stock Ownership Plan 5.6 5.9 5.9
---- ---- ----
Average number of common and common equivalent
shares outstanding 43.3 43.1 43.1
==== ==== ====
Pro Forma Adjustment to Earnings (Loss)
- ---------------------------------------
from Continuing Businesses
--------------------------
Earnings (loss) from continuing businesses
as reported $ 63.5 $ (59.9) $ 60.6
Less:
Increased contribution to the Employee Stock
Ownership Plan assuming conversion of
preferred shares to common 8.2 8.3 12.9
Net reduction in tax benefits assuming
conversion of the Employee Stock Ownership
Plan preferred shares to common 0.9 0.7 --
------- -------- -------
Pro forma earnings (loss) from continuing
businesses $ 54.4 $ (68.9) $ 47.7
Fully diluted earnings (loss) per share
from continuing businesses $ 1.26 $ (1.98) $ 1.11
======= ======== =======
Pro Forma Adjustment to Net Earnings (Loss)
- -------------------------------------------
Net earnings (loss) as reported $ 63.5 $(227.7) $ 48.2
Less:
Increased contribution to the Employee Stock
Ownership Plan assuming conversion of
preferred shares to common 8.2 8.3 12.9
Net reduction in tax benefits assuming conversion
of the Employee Stock Ownership Plan
preferred shares to common 0.9 0.7 --
------- -------- -------
Pro forma net earnings (loss) $ 54.4 $(236.7) $ 35.3
Fully diluted net earnings (loss) per share $ 1.26 $ (6.49) $ 0.77
======= ======== =======
(a) Fully diluted earnings per share for years 1992 and 1991 were antidilutive.
- 77 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
Supplementary Information to Financial Review
Depreciation
- ------------
The approximate average effective rates of depreciation are as follows:
Year ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
% % %
Domestic companies:
Buildings 3.2 3.2 3.1
Machinery and Equipment 6.8 6.8 6.8
Foreign companies:
Buildings 3.2 3.0 3.0
Machinery and Equipment 8.0 8.2 8.9
- 78 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant, and Equipment
------------------------------
Year Ended December 31, 1993
----------------------------
(millions)
SCHEDULE V
-----------
Page 1 of 3
Foreign
Balance at Retire- currency Other changes(b) Balance
beginning Additions ments translation ------------- at end
of year at cost or sales Debit (Credit) Debit Credit of year
---------- --------- -------- -------------- ----- ------ -------
(a)
Land $ 36.5 $ .2 $ (1.3) $ (.6) $ --- $ (2.6) $ 32.2
Buildings 490.8 13.8 (3.4) (5.3) 11.2 (2.0) 505.1
Machinery and Equipment 1,420.2 85.8 (60.0) (18.0) 33.5 (15.0) 1,446.5
Construction in Progress 60.8 17.8 (.3) (1.1) --- (15.2) 62.0
-------- ------ ------ ------ ----- ------ --------
$2,008.3 $117.6 $(65.0) $(25.0) $44.7 $(34.8) $2,045.8
======== ====== ====== ====== ===== ====== ========
(a) includes writedowns relating to restructuring activities of:
Land 2.4
Buildings 1.6
Machinery and Equipment 7.8
Construction in Progress .7
----
Total 12.5
(b) transferred to/from other accounts and miscellaneous adjustments
- 79 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant, and Equipment
------------------------------
Year Ended December 31, 1992
----------------------------
(millions)
SCHEDULE V
----------
Page 2 of 3
Foreign
Balance at Retire- currency Other changes(c) Balance
beginning Additions ments translation ------------- at end
of year at cost or sales Debit (Credit) Debit Credit of year
---------- --------- -------- -------------- ----- ------ -------
(a)(b)
Land $ 34.9 $ 2.5 $ (.2) $ (.7) $ --- $ --- $ 36.5
Buildings 498.5 12.6 (2.1) (8.1) .3 (10.4) 490.8
Machinery and Equipment 1,432.1 95.3 (38.1) (38.5) 8.2 (38.8) 1,420.2
Construction in Progress 69.0 5.4 (.5) (2.1) --- (11.0) 60.8
-------- ------ ------ ------ ----- ------ --------
$2,034.5 $115.8 $(40.9) $(49.4) $ 8.5 $(60.2) $2,008.3
======== ====== ====== ====== ===== ====== ========
(a) includes writedowns relating to restructuring activities of:
Buildings 10.4
Machinery and Equipment 32.3
----
Total 42.7
(b) includes contribution of $6.8 million of Machinery and Equipment
and $1.7 million of Construction in Progress to the Worthington
Armstrong Venture
(c) transferred to/from other accounts and miscellaneous adjustments
- 80 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant, and Equipment
------------------------------
Year Ended December 31, 1991
----------------------------
(millions)
SCHEDULE V
----------
Page 3 of 3
Foreign
Balance at Retire- currency Other changes(a) Balance
beginning Additions ments translation ------------- at end
of year at cost(a) or sales Debit (Credit) Debit Credit of year
---------- ---------- -------- -------------- ----- ------ -------
Land $ 36.1 $ .1 $ (1.2) $ (.1) $ .1 $ --- $ 34.9
Buildings 472.6 26.8 (2.5) (.9) 2.5 --- 498.5
Machinery and Equipment 1,360.2 135.6 (52.7) (3.7) .1 (7.4) 1,432.1
Construction in Progress 98.9 (28.7) --- (1.2) --- --- 69.0
-------- ------ ------ ------ ----- ------ --------
$1,967.8 $133.8 $(56.5) $(5.9) $2.7 $(7.4) $2,034.5
======== ====== ====== ====== ===== ====== ========
(a) transferred to/from other accounts, and miscellaneous adjustments
- 81 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1993
----------------------------
(millions)
SCHEDULE VI
-----------
Page 1 of 3
Foreign
Balance at Additions Retirements, currency Other changes(a) Balance
beginning charged to renewals and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $184.8 $ 15.9 $ (2.5) $ (2.2) $(.2) $2.7 $198.5
Machinery and Equipment 751.5 104.1 (40.3) (11.0) (2.4) 6.3 808.2
------ ------ ------ ------ ----- ---- --------
$936.3 $120.0 $(42.8) $(13.2) $(2.6) $9.0 $1,006.7
====== ====== ====== ====== ===== ==== ========
(a) transferred to/from other accounts and miscellaneous adjustments
- 82 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1992
----------------------------
(millions)
SCHEDULE VI
-----------
Page 2 of 3
Foreign
Balance at Additions Retirements, currency Other changes(a) Balance
beginning charged to renewals and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $174.3 $ 15.9 $ (1.9) $ (3.2) $ (2.8) $2.5 $184.8
Machinery and Equipment 707.3 104.9 (34.3) (23.4) (8.8) 5.8 751.5
------ ------ ------ ------ ------ ---- ------
$881.6 $120.8 $(36.2) $(26.6) $(11.6) $8.3 $936.3
====== ====== ====== ====== ====== ==== ======
(a) transferred to/from other accounts and miscellaneous adjustments
- 83 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1991
----------------------------
(millions)
SCHEDULE VI
-----------
Page 3 of 3
Foreign
Balance at Additions Retirements, currency Other changes(a) Balance
beginning charged to renewals and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $158.3 $ 15.1 $ (2.6) $ (.2) $ -- $3.7 $174.3
Machinery and Equipment 662.1 102.4 (49.7) (2.1) (5.5) .1 707.3
------ ------ ------ ------ ------ ---- ------
$820.4 $117.5 $(52.3) $ (2.3) $ (5.5) $3.8 $881.6
====== ====== ====== ====== ====== ==== ======
(a) transferred to/from other accounts and miscellaneous adjustments
- 84 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Valuation and Qualifying Reserves
---------------------------------
Years Ended December 31, 1993, 1992 and 1991
--------------------------------------------
(millions)
SCHEDULE VIII
--------------
Additions
Balance at charged Balance
beginning (credited) at end
of year to earnings Deductions(a) of year
---------- ---------------- ------------- --------
Assets:
Provision for discounts
and losses - 1993 $32.2 $89.3 $84.0 $37.5
===== ===== ===== =====
Provision for discounts
and losses - 1992 $30.1 $93.2 $91.1 $32.2
===== ===== ===== =====
Provision for discounts
and losses - 1991 $32.8 $80.5 $83.2 $30.1
===== ===== ===== =====
(a) includes discounts granted and uncollectible receivables, less recoveries
and valuation reserves related to discontinued businesses that have been
classified as other assets
- 85 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE IX
-----------
Short-Term Borrowings(a)
---------------------
(millions)
Page 1 of 2
Maximum Average Weighted
Category of Average amount amount average
aggregate Balance Year-End outstanding outstanding interest
short-term at end of interest during the during the rate during
borrowings period rate period period the period(b)
------------- --------- -------- ----------- ----------- -------------
Year ended December 31, 1993
- ----------------------------
Commercial paper $ 75.5 3.36% $163.3 $122.8(c) 3.21%
Bank debt 29.9 6.81% 106.5 67.7(d) 9.07%
------ ------
$105.4 $190.5
====== ======
Year ended December 31, 1992
- ----------------------------
Commercial paper $163.3 3.66% $215.1 $171.2(c) 3.78%
Bank debt 60.4 9.53% 65.8 35.7(d) 9.47%
------ ------
$223.7 $206.9
====== ======
(a) the terms and conditions of the various categories of short-term borrowings
were those typically offered by lenders to companies with excellent credit
ratings
(b) based on total periods' interest expense (related to short-term borrowings)
divided by the average amount outstanding during the period
(c) based on daily balances divided by 365 days
(d) based on daily balances divided by 365 days and, in some instances, based on
total of 12 month-end balances divided by 12
- 86 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE IX
-----------
Short-Term Borrowings(a)
---------------------
(millions)
Page 2 of 2
Maximum Average Weighted
Category of Average amount amount average
aggregate Balance Year-End outstanding outstanding interest
short-term at end of interest during the during the rate during
borrowings period rate period period the period(b)
------------- --------- -------- ----------- ----------- -------------
Year ended December 31, 1991
- ----------------------------
Commercial paper $176.6 5.02% $247.3 $169.9(c) 6.10%
Bank debt 27.6 9.16% 88.0 40.9(d) 8.82%
------ ------
$204.2 $210.8
====== ======
(a) the terms and conditions of the various categories of short-term borrowings
were those typically offered by lenders to companies with excellent credit
ratings
(b) based on total periods' interest expense (related to short-term borrowings)
divided by the average amount outstanding during the period
(c) based on daily balances divided by 365 days
(d) based on daily balances divided by 365 days and, in some instances, based
on total of 12 month-end balances divided by 12
- 87 -
EXHIBIT INDEX
Exhibits
- --------
No. 3(a) Registrant's By-laws, as amended, are incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein they appeared as Exhibit 3(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended
are incorporated by reference herein from the registrant's
1990 Annual Report on Form 10-K wherein they appeared as
Exhibit 3(b).
No. 4(a) Rights Agreement dated as of March 21, 1986, between the
registrant and Morgan Guaranty Trust Company of New York, as
Rights Agent, (as to which First Chicago Trust Company of
New York has succeeded as Rights Agent,) relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from the Company's 1990 Annual Report on
Form 10-K wherein it appeared as Exhibit 4(a).
No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In
Success Plan") as amended is incorporated by reference
herein from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 4(b).
No. 4(c) Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee, is incorporated herein by reference from
the registrant's Form 8-K dated February 1, 1991, wherein it
appeared as Exhibit 4.1.
No. 4(d) Supplemental Indenture dated as of October 19, 1990, between
the registrant and The First National Bank of Chicago, as
Trustee, is incorporated herein by reference from the
registrant's Form 8-K dated October 31, 1990, wherein it
appeared as Exhibit 4.1.
No. 10(i)(a) Copy of Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies.
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(b).
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10 (iii)(a).
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No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from the Company's 1990 Annual Report on Form 10-K wherein
it appeared as Exhibit 10(iii)(c).
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appeared as
Exhibit 10(iii)(d).
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)e.
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appeared as Exhibit 10(iii)(f).
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(g).
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(h).
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1991
Proxy Statement wherein it appeared as Exhibit A.
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(j).
No. 10(iii)(j) Copy of Thomasville Value Plan of Thomasville Furniture
Industries, Inc.
No. 10(iii)(k) Copy of Thomasville Achievement Plan of Thomasville
Furniture Industries, Inc.
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on pages 25 and 26 of this
Annual Report on Form 10-K.
No. 22 List of the registrant's domestic and foreign subsidiaries.
No. 24 Consent of Independent Auditors.
No. 25 Powers of Attorney and authorizing resolutions.
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No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Retirement Savings Plan For
Salaried Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1993, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1993, is herewith filed with the
Commission.
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