-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KvzzDdDe9cWnk7lhqQMaJnm3wpSLkYDtKL5eUXOt0FcPEsYRKUgR9IKU6fQ7bpyb lnV/dhiMADkZ8fVBFo+CQA== 0000950130-98-003758.txt : 19980803 0000950130-98-003758.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950130-98-003758 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980730 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARMSTRONG WORLD INDUSTRIES INC CENTRAL INDEX KEY: 0000007431 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 230366390 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: SEC FILE NUMBER: 333-06333 FILM NUMBER: 98674300 BUSINESS ADDRESS: STREET 1: P O BOX 3001 STREET 2: 313 W LIBERTY ST CITY: LANCASTER STATE: PA ZIP: 17604 BUSINESS PHONE: 7173970611 MAIL ADDRESS: STREET 1: P.O. BOX 3001 CITY: LANCASTER STATE: PA ZIP: 17604 FORMER COMPANY: FORMER CONFORMED NAME: ARMSTRONG CORK CO DATE OF NAME CHANGE: 19800611 424B5 1 PRELIMINARY PROSPECTUS SUPPLEMENT RULE NO. 424(b)(5) REGISTRATION NO. 333-6333 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED + +EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION. A FINAL PROSPECTUS + +SUPPLEMENT AND PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE + +SECURITIES. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL + +NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO BUY NOR + +SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, + +SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION + +UNDER THE SECURITIES LAWS OF SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUPPLEMENT (Subject to Completion, dated July 29, 1998) (To Prospectus dated November 1, 1996) $ LOGO Armstrong Armstrong World Industries, Inc. $ % SENIOR NOTES DUE 2005 $ % SENIOR DEBENTURES DUE 2028 ---------- Interest payable February 1 and August 1 ---------- THE SENIOR NOTES WILL MATURE ON AUGUST 1, 2005, AND THE SENIOR DEBENTURES WILL MATURE ON AUGUST 1, 2028. THE SENIOR NOTES WILL NOT BE REDEEMABLE PRIOR TO MATURITY. THE SENIOR DEBENTURES WILL BE REDEEMABLE, IN WHOLE OR FROM TIME TO TIME IN PART, AT THE OPTION OF THE COMPANY AT ANY TIME AT A REDEMPTION PRICE EQUAL TO THE GREATER OF (A) 100% OF THE PRINCIPAL AMOUNT OF THE SENIOR DEBENTURES TO BE REDEEMED AND (B) THE SUM OF THE PRESENT VALUES OF THE REMAINING SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST THEREON (EXCLUSIVE OF INTEREST ACCRUED TO THE DATE OF REDEMPTION) DISCOUNTED TO THE DATE OF REDEMPTION ON A SEMIANNUAL BASIS (ASSUMING A 360-DAY YEAR CONSISTING OF TWELVE 30-DAY MONTHS) AT THE TREASURY RATE (AS DEFINED) PLUS BASIS POINTS, PLUS, IN EACH CASE ACCRUED AND UNPAID INTEREST ON THE PRINCIPAL AMOUNT BEING REDEEMED TO THE DATE OF REDEMPTION. THE SENIOR NOTES AND THE SENIOR DEBENTURES (COLLECTIVELY, THE "OFFERED SECURITIES") WILL NOT BE SUBJECT TO ANY SINKING FUND. EACH SERIES OF OFFERED SECURITIES WILL BE REPRESENTED BY ONE OR MORE GLOBAL SECURITIES REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR ITS NOMINEE. BENEFICIAL INTERESTS IN SUCH GLOBAL SECURITIES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE DEPOSITARY AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, OFFERED SECURITIES IN DEFINITIVE FORM WILL NOT BE ISSUED. CONCURRENTLY WITH THIS OFFERING, THE COMPANY IS OFFERING TO SELL IN A PRIVATE PLACEMENT (THE "PRIVATE PLACEMENT"), $ MILLION AGGREGATE PRINCIPAL AMOUNT OF ITS DEBT SECURITIES TO CERTAIN QUALIFIED INSTITUTIONAL BUYERS IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER THIS OFFERING NOR THE PRIVATE PLACEMENT IS CONDITIONED UPON THE COMPLETION OF THE OTHER. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- PRICE OF SENIOR NOTES % AND ACCRUED INTEREST, IF ANY PRICE OF SENIOR DEBENTURES % AND ACCRUED INTEREST, IF ANY ----------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3) ---------- --------------- -------------- Per Senior Note....................... % % % Total............................... $ $ $ Per Senior Debenture.................. % % % Total............................... $ $ $
- ----- (1) Plus accrued interest, if any, from August , 1998. (2) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. See "Underwriters." (3) Before deducting expenses payable by the Company estimated at $ . ---------- The Offered Securities are offered, subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Offered Securities will be made on or about August , 1998 through the book-entry facilities of the Depositary against payment therefor in immediately available funds. ---------- MORGAN STANLEY DEAN WITTER CHASE SECURITIES INC. BANCAMERICA ROBERTSON STEPHENS J.P. MORGAN & CO. August , 1998 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY PERSONS TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR ANY SALE MADE HEREUNDER AND THEREUNDER DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE ON WHICH SUCH INFORMATION IS GIVEN. ---------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Incorporation of Certain Documents by Reference.......................... S-3 Cautionary Statement Concerning Forward-Looking Statements............... S-3 The Company.............................................................. S-4 Proposed Acquisition..................................................... S-4 Recent Developments...................................................... S-5 Concurrent Transaction................................................... S-6 Ratios of Earnings From Continuing Businesses to Fixed Charges........... S-6 Use of Proceeds.......................................................... S-7 Capitalization........................................................... S-8 Selected Financial Data.................................................. S-9 Selected Unaudited Pro Forma Financial Data.............................. S-10 Description of Offered Securities........................................ S-16 Underwriters............................................................. S-20 Legal Matters............................................................ S-21 Experts.................................................................. S-21 PROSPECTUS Available Information.................................................... 3 Incorporation of Certain Documents by Reference.......................... 3 The Company.............................................................. 5 Use of Proceeds.......................................................... 5 Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends................................... 5 Description of Debt Securities........................................... 6 Description of Capital Stock............................................. 17 Description of Depositary Shares......................................... 22 Plan of Distribution..................................................... 24 Validity of Securities................................................... 25 Experts.................................................................. 25
---------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE OFFERED SECURITIES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE THE OFFERED SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS." S-2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Securities and Exchange Commission (the "SEC") by the Company (file number 001-02116) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein by reference: (1) the Company's Annual Report on Form 10-K for the year ended December 31, 1997; (2) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; (3) the Company's Current Report on Form 8-K filed on June 10, 1998; (4) the Company's Current Report on Form 8-K filed on June 15, 1998; (5) the Company's Current Report on Form 8-K filed on July 13, 1998; (6) the Company's Current Report on Form 8-K filed on July 28, 1998; and (7) the Company's Definitive Proxy Statement filed on March 16, 1998. All documents filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus Supplement and to be part hereof from the date of filing of such documents. Any statement incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus Supplement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus Supplement. All information appearing in this Prospectus Supplement is qualified in its entirety by the information and financial statements (including the notes thereto) contained in the documents incorporated by reference herein. The Company will provide without charge, upon written or oral request, to each person, including any beneficial owner, to whom a copy of this Prospectus Supplement and accompanying Prospectus of the Company is delivered, a copy of any or all of the documents incorporated by reference in this Prospectus Supplement and accompanying Prospectus of the Company (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to Deborah K. Owen, Senior Vice President, Secretary and General Counsel, Armstrong World Industries, Inc., 313 West Liberty Street, Lancaster, PA 17603-2717 or by telephone at (717) 397-0611. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This Prospectus Supplement contains or incorporates statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and are subject to the safe harbor created by such sections. Such statements appear in a number of places in this Prospectus Supplement and the accompanying Prospectus and in the documents incorporated herein and therein by reference and may include statements regarding, among other matters, the intent, belief or current expectations of the Company or its officers and, information concerning possible or assumed future results of operations of the Company. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. S-3 THE COMPANY Armstrong World Industries, Inc. (the "Company") is a Pennsylvania corporation incorporated in 1891. The Company is a manufacturer of interior furnishings, including floor coverings, and building products, primarily acoustical ceiling systems, which are sold primarily for use in the furnishing, refurbishing, repair, modernization and construction of residential, commercial and institutional buildings. The Company also makes and markets a variety of specialty products for the building, automotive, textile, and other industries. The Company is a worldwide manufacturer of floor coverings for the interiors of homes and commercial and institutional buildings, with a broad range of resilient flooring together with adhesives, installation and maintenance materials and accessories. Resilient flooring, in both sheet and tile form, together with laminate flooring, 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. Floor covering products are sold to the commercial and residential market segments through wholesalers, retailers (including large home centers), and contractors, and to the hotel/motel and manufactured homes industries. A major producer of ceiling materials in the United States and abroad, the Company also markets both residential and commercial 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 (including large home centers). Commercial 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. Commercial ceiling materials and accessories, along with acoustical wall panels, are sold by the Company to ceiling systems contractors and to resale distributors. Suspension ceiling systems products are manufactured and sold through a joint venture with Worthington Industries. The Company, including a number of its subsidiaries, manufactures and markets 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; and textile mill supplies, including cots and aprons sold to equipment manufacturers and textile mills. Industry products are sold, depending on type and ultimate use, to original equipment manufacturers, contractors, wholesalers, fabricators and end users. Ceramic tile for floors, walls and countertops, together with adhesives, installation and maintenance materials and accessories are sold through home centers, independent ceramic and floor covering wholesalers, as well as sales service centers operated by Dal-Tile International Inc. ("Dal-Tile"). The Company owns approximately 15% of the outstanding shares of common stock of Dal-Tile following the Company's disposition in the third quarter of fiscal year 1998 of approximately 56% of its shares of common stock in Dal-Tile. PROPOSED ACQUISITION On June 5, 1998, the Company and DLW Aktiengesellschaft, a corporation organized under the laws of the Federal Republic of Germany ("DLW"), announced that the Company would launch a tender offer for all outstanding shares of DLW at a purchase price of DM 350 per share (the "DLW Acquisition"). DLW is a leading flooring manufacturer in Germany and the Company believes that it is the third largest flooring manufacturer in Europe. The DLW Acquisition has been unanimously approved by the Board of Directors of the Company and has received the support of the Managing Board of DLW. The tender offer commenced on July 8, 1998 and is initially scheduled to expire on August 19, 1998, unless otherwise extended. The tender offer is conditioned on the Company acquiring 75% of the shares of DLW and obtaining all necessary regulatory approvals. The transaction places a total equity value on DLW of DM 495 million (approximately $275 million). The Triangle Pacific Acquisition (as defined herein) and the DLW Acquisition are intended to position the Company as a leading worldwide manufacturer of hard surface flooring. S-4 RECENT DEVELOPMENTS The Triangle Pacific Acquisition. On June 12, 1998, the Company agreed to acquire all the outstanding common stock of Triangle Pacific Corporation ("Triangle"), a Delaware corporation (the "Triangle Pacific Acquisition"), at a price equal to $55.50 per share. Triangle is a leading manufacturer of hardwood flooring products and kitchen and bathroom cabinets. The acquisition of Triangle was completed on July 24, 1998. Triangle is now a wholly-owned subsidiary of the Company. Including the assumption of Triangle's net debt of approximately $260 million and certain expenses related to the acquisition, the total value of the Triangle Pacific Acquisition was approximately $1.18 billion. Second Quarter Results. The information set forth below is based on preliminary, unaudited data prepared by the Company and is subject to adjustments and the completion by the Company of its financial statements with respect to the quarter ended June 30, 1998. There can be no assurance that actual results, when finalized, will not vary from the financial information set forth below. The following financial data do not give effect to the Triangle Pacific Acquisition or the financing thereof. For the three months ended June 30, 1998, net earnings are estimated to have decreased $2.8 million, or 4.9%, to $56.1 million from net earnings of $58.9 million for the comparable period ended June 30, 1997. The estimated decline in earnings from the prior year reflected the effect of lower sales in emerging markets as a result of adverse economic conditions in such markets, competitive activity in North American flooring sales, particularly in the residential builder and base grade sheet vinyl product categories, and higher corporate expense. Excluding the effects of a one-time $5.1 million charge in 1997 related to Dal-Tile in which the Company owned a 34.4% (currently 15%) equity interest, net earnings for the three months ended June 30, 1998 are estimated to have decreased 12.5% from $64.0 million for the comparable period ended June 30, 1997. For the three months ended June 30, 1998, sales are estimated to have decreased $21.8 million, or 3.8%, to $555.6 million from $577.4 million for the comparable period ended June 30, 1997. For the three months ended June 30, 1998, operating income is estimated to have decreased $5.0 million, or 5.1%, to $92.9 million from $97.9 million for the comparable period ended June 30, 1997. For the six-month period ended June 30, 1998, net earnings are estimated to have decreased $1.8 million, or 1.8%, to $102.6 million from $104.4 million for the comparable period ended June 30, 1997, or a decrease of 6.4% from the comparable period ended June 30, 1997, after excluding the second-quarter one- time charge related to Dal-Tile. For the six-month period ended June 30, 1998, sales are estimated to have increased $3.0 million, or 0.3%, to $1,098.7 million from $1,095.7 million for the comparable period ended June 30, 1997. For the six months ended June 30, 1998, operating income is estimated to have decreased $2.7 million, or 1.6% to $170.0 million from $172.7 million for the comparable period ended June 30, 1997, a decrease of 4.6% from $178.2 million for the comparable period, after excluding the second quarter, one-time charge related to Dal-Tile. Downgrading of Commercial Paper, Corporate Credit and Senior Unsecured Debt. On July 15, 1998, Standard & Poor's ("S&P") lowered the Company's corporate credit and senior unsecured debt ratings to single "A' minus from single "A' and lowered its commercial paper rating on the Company to "A-2' from "A-1.' At the same time, S&P assigned its single "A' minus bank loan rating to the Company's New Credit Facility (as defined) and existing multiyear $300 million senior unsecured revolving credit facility (the "Existing Multiyear Facility"). On July 16, 1998, Moody's Investors Service ("Moody's") also lowered the Company's corporate credit and senior unsecured debt ratings to Baa1 from A2, assigned a rating of Baa1 to the Company's New Credit Facility and Existing Multiyear Facility and lowered its commercial paper rating on the Company to P-2 from P-1. Both Moody's and S&P cited factors relating to the Triangle Pacific and DLW acquisitions as the major reasons for their downgrading. S-5 CONCURRENT TRANSACTION Concurrently with the Offering made hereby, the Company is offering to sell in a private placement (the "Private Placement"), $ million aggregate principal amount of its % Senior Notes due 2003 (the "Private Placement Notes") to certain qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The Private Placement Notes will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Neither this Offering nor the Private Placement is conditioned upon the completion of the other. See "Use of Proceeds." RATIO OF EARNINGS FROM CONTINUING BUSINESSES TO FIXED CHARGES The following table sets forth the Company's consolidated ratios of earnings from continuing businesses to fixed charges for the indicated periods.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED ------------------------- ------------------- MARCH 31, MARCH 31, 1993 1994 1995 1996 1997 1997 1998 ---- ---- ---- ---- ----- --------- --------- Ratio of earnings from continu- ing businesses to fixed charges(1).................... 2.49 8.70 1.20 9.22 11.04 9.62 10.05
- -------- (1) Excluding restructuring charges for all periods and the pre-tax loss on the ceramic tile business combination for 1995, the ratios would have been 4.50, 8.70, 7.40, 10.91 and 11.04 for 1993, 1994, 1995, 1996 and 1997, respectively. See "Selected Financial Data." The ratio of earnings from continuing businesses to fixed charges has been computed by dividing earnings from continuing businesses by fixed charges. For purposes of calculating this ratio, earnings from continuing businesses consist of consolidated earnings from continuing business operations before income taxes plus fixed charges. Fixed charges consist of interest expense and one-third of rent expense which is deemed to be representative of interest and amortization of finance costs. S-6 USE OF PROCEEDS The net proceeds from the Offering are estimated to be approximately $ million after giving effect to underwriting discounts and commissions and expenses payable by the Company. Concurrently with the Offering, the Company is conducting the Private Placement, the net proceeds to the Company of which are estimated to be approximately $ million after giving effect to placement fees and commissions and expenses payable by the Company. The Company expects to utilize the net proceeds from the Offering and the Private Placement to repay short-term indebtedness as described below. Neither this Offering nor the Private Placement is conditioned upon the completion of the other. Pursuant to a new privately-placed commercial paper program (the "CP Program"), the Company issued approximately $1.0 billion of commercial paper to finance the Triangle Pacific Acquisition. The commercial paper notes issued under the CP Program are secured by lines of credit under the New Credit Facility (as defined below), have maturities of up to 364 days and bear interest at rates between approximately 5.5% and 6.0%. The Company intends to use the proceeds of the Offering and the Private Placement to repay the commercial paper notes issued under the CP Program and may utilize a portion of such proceeds for general corporate purposes pending the application thereof or invest such funds in short-term, interest bearing, investment grade obligations. In connection with the Triangle Pacific Acquisition, the Company entered into a $1.0 billion credit facility (the "New Credit Facility") with Morgan Guaranty Trust Company of New York, Bank of America NT&SA and The Chase Manhattan Bank, as lenders. Pursuant to the New Credit Facility, the Company may borrow up to an aggregate of $1.0 billion for general corporate purposes. As of July 24, 1998, there was no outstanding indebtedness under the New Credit Facility. However, all amounts available under the New Credit Facility have been reserved to guaranty repayment of the commercial paper notes issued under the CP Program described above. Upon repayment of the commercial paper with the proceeds of the Offering and the Private Placement an equivalent amount will become available under the New Credit Facility. Borrowings under the New Credit Facility generally bear interest at rates based on the London interbank offered rate ("LIBOR") plus a facility fee and LIBOR margin based fee (ranging from 0.225% per year to 0.55%) on the total outstanding indebtedness of the Company and its direct and indirect subsidiaries and the rating of the Company's senior unsecured long-term debt (including senior unsecured long-term debt of Triangle that is assumed by the Company and indebtedness under the New Credit Facility). S-7 CAPITALIZATION The following table sets forth the consolidated cash and cash equivalents, short-term debt and capitalization of the Company as of March 31, 1998 (i) on an actual basis, (ii) on a pro forma basis giving effect to the Triangle Pacific Acquisition as if it had occurred on that date, and (iii) on a pro forma basis as adjusted to give effect to the consummation of the Offering and the Private Placement and the application of the net proceeds therefrom as described under "Use of Proceeds." This table should be read in conjunction with and is qualified by reference to the selected historical and pro forma financial data contained in this Prospectus Supplement and the unaudited pro forma combined condensed financial statements and notes thereto included in documents incorporated by reference in the accompanying Prospectus.
PRO FORMA FOR TRIANGLE PRO FORMA AS PACIFIC ADJUSTED FOR ACTUAL ACQUISITION DEBT OFFERINGS (3) -------- ------------ ------------------ (DOLLARS IN MILLIONS) Cash and cash equivalents............ $ 48.9 $ 45.8 $ 45.8 Short-term debt: Short-term debt.................... 135.7 135.7 135.7 Current maturities of long-term debt.............................. 3.5 7.4 7.4 -------- -------- -------- $ 139.2 $ 143.1 $ 143.1 ======== ======== ======== Long-term debt: % Senior Notes due 2003........... $ -- $ -- $ -- % Senior Notes due 2005........... -- -- -- % Senior Debentures due 2028...... -- -- -- -------- -------- -------- Subtotal of senior debt offering... -- -- 600.0 9 3/4% Debentures due 2008......... 125.0 125.0 125.0 10 1/2% Senior Notes due 2003...... -- 166.3 166.3 Short-term Notes (1)(2)............ -- 900.0 300.0 Medium-term notes 8 3/4-9% due 1998-2001......................... 28.1 28.1 28.1 Bank loans due 1999-2000........... 25.0 25.0 25.0 Industrial development bonds....... 19.5 41.0 41.0 Other (1).......................... 29.7 112.4 112.4 Less: Current maturities........... (3.5) (7.4) (7.4) -------- -------- -------- Net long-term debt................... 223.8 1,390.4 1,390.4 Employee Stock Ownership Plan (ESOP) loan guarantee...................... 201.8 201.8 201.8 Shareholders' equity: Common stock $1 par value per share, authorized 200 million shares; issued 51,878,910 shares.. 51.9 51.9 51.9 Capital in excess of par value..... 169.0 169.0 169.0 Reduction for ESOP loan guarantee.. (205.8) (205.8) (205.8) Retained earnings.................. 1,369.0 1,369.0 1,369.0 Other comprehensive income (4)..... (14.5) (14.5) (14.5) -------- -------- -------- 1,369.6 1,369.6 1,369.6 Less common stock in treasury, at cost: 1997--11,759,510 shares; 1996-- 10,714,572 shares................. 539.6 539.6 539.6 -------- -------- -------- Total shareholders' equity....... 830.0 830.0 830.0 -------- -------- -------- Total capitalization............. $1,255.6 $2,422.2 $2,422.2 ======== ======== ========
- -------- (1) See notes (a) and (d) to Unaudited Condensed Combined Pro Forma Financial Statements. (2) The acquisition financing included the issuance by Armstrong of public and/or private short and long-term debt securities. The long-term debt issued was comprised of short-term notes, which will be characterized as long-term debt for accounting purposes because the notes are backed by a long-term debt facility, and term debt. (3) Gives effect to the consummation of the Offering and the Private Placement and the application of the net proceeds therefrom. However, neither this Offering nor the Private Placement is conditioned upon the completion of the other. If the Private Placement is not consummated, the Company's short-term debt and long-term debt will be affected accordingly. See "Use of Proceeds." (4) Includes minimum pension liability adjustment and foreign currency translation adjustment and hedging activities. S-8 SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for the Company for each of the years in the five-year period ended December 31, 1997, and selected unaudited historical financial data for the three-month periods ended March 31, 1997 and 1998. The historical data for the five full years shown below has been derived from the audited consolidated financial statements of the Company. The historical data for the three-month periods ended March 31, 1997 and 1998 has been derived from the Company's unaudited consolidated financial statements and includes, in the opinion of the Company's management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the data for such periods. Financial information for the interim periods presented is not necessarily indicative of the financial information for the full year. The historical data set forth below should be read in conjunction with the consolidated financial statements and notes thereto of the Company incorporated by reference herein.
AT OR FOR THE THREE MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------------------------------- ------------------ 1993 1994 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA) (UNAUDITED) INCOME STATEMENT DATA: Net sales............... $ 2,075.7 $ 2,226.0 $ 2,325.0 $ 2,156.4 $ 2,198.7 $ 518.3 $ 543.1 Costs of goods sold..... 1,453.7 1,483.9 1,581.1 1,459.9 1,461.7 347.0 362.7 Selling, general and administrative expenses............... 435.6 449.2 457.0 413.2 385.3 100.3 104.0 Equity (earnings) loss from affiliates........ (1.4) (1.7) (6.2) (19.1) 29.7 (3.8) (0.7) Restructuring charges... 89.3 -- 71.8 46.5 -- -- -- Loss from ceramic tile business combination... -- -- 177.2 -- -- -- -- Operating income........ 98.5 294.6 44.1 255.9 322.0 74.8 77.1 Interest expense........ 38.0 28.3 34.0 22.6 28.0 6.3 6.6 Other expense (income), net.................... (6.1) 0.5 1.9 (6.9) (2.2) 0.2 (1.0) Earnings from continuing businesses before income tax(a).......... 66.6 265.8 8.2 240.2 296.2 68.3 71.5 Income taxes............ 17.6 78.6 (5.4) 75.4 111.2 22.8 25.0 Earnings from continuing businesses............. 49.0 187.2 13.6 164.8 185.0 45.5 46.5 Earnings (loss) from continuing businesses applicable to common stock(b)............... 35.1 173.1 (0.7) 158.0 185.0 45.5 46.5 Per common share- basic................. 0.95 4.62 (0.02) 4.04 4.55 1.11 1.17 Per common share- diluted............... 0.93 4.09 (0.02) 3.82 4.50 1.10 1.15 Net earnings............ 63.5 210.4 123.3 155.9 185.0 45.5 46.5 Net earnings applicable to common stock(b)..... 49.6 196.3 109.0 149.1 185.0 45.5 46.5 BALANCE SHEET DATA: Total assets............ 1,869.2 2,159.0 2,149.8 2,135.6 2,375.5 2,191.0 2,408.6 Net long-term debt...... 256.8 237.2 188.3 219.4 223.1 228.9 223.8 Shareholders' equity.... 569.5 735.1 775.0 790.0 810.6 781.9 830.0 OTHER DATA: Capital expenditures.... 110.3 138.4 182.7 228.0 160.5 30.2 30.4 Depreciation and amortizations.......... 117.0 120.7 123.1 123.7 132.7 32.3 32.2 Working capital-- continuing businesses.. 279.3 384.4 346.8 243.5 128.5 232.1 106.0
- -------- (a) Continuing businesses excludes the results of Thomasville Furniture Industries, Inc., reclassified as a discontinued business in 1993, 1994 and 1995. (b) After deducting preferred dividend requirements and adding the tax benefits for unallocated preferred shares. Beginning in 1996, ceramic tile results were reported under the equity method, whereas prior to 1996, ceramic tile operations were reported on a consolidated or line item basis. S-9 SELECTED UNAUDITED PRO FORMA FINANCIAL DATA The Unaudited Condensed Combined Pro Forma Balance Sheet as of March 31, 1998, gives effect to the Triangle Pacific Acquisition as if the acquisition, accounted for as a purchase, had occurred on that date. The Unaudited Pro Forma Condensed Combined Statements of Earnings for the year ended December 31, 1997, and three months ended March 31, 1998, give effect to the Triangle Pacific Acquisition as if it had occurred on January 1, 1997 and 1998, respectively. The pro forma information is based on historical financial statements of Triangle and the Company after giving effect to the Triangle Pacific Acquisition using the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the pro forma financial statements. The Company will continue its study to determine the fair value of the acquired assets and liabilities. The pro forma financial statements have been prepared on the basis of preliminary estimates. The pro forma statements have been prepared by the Company based on the financial statements of Triangle (filed with the Company's Current Report on Form 8-K dated July 13, 1998 under Item 7 (a) thereto). These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma financial statements should be read in conjunction with the audited financial statements and notes of the Company included in the Company' Annual Report on Form 10-K for the year ended December 31, 1997, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and the Company's Current Reports on Form 8-K filed on June 15, 1998, July 13, 1998 and July 28, 1998, each of which is incorporated by reference in this Prospectus Supplement. S-10 ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA BALANCE SHEET (UNAUDITED) AS OF MARCH 31, 1998 (AMOUNTS IN MILLIONS)
ARMSTRONG TRIANGLE PRO-FORMA ARMSTRONG CONSOLIDATED PACIFIC ADJUSTMENTS PRO-FORMA ------------ -------- ----------- --------- ASSETS: Current assets: Cash and cash equivalents...... $ 48.9 $ 4.7 $ (7.8)(d) $ 45.8 Accounts receivable less allowance..................... 293.0 77.5 -- 370.5 Inventories.................... 217.9 146.6 11.9 (a) 376.4 Income tax benefits............ 22.5 24.5 (a) 47.0 Other current assets........... 35.8 4.3 -- 40.1 -------- ------ ------- -------- Total current assets........... 618.1 233.1 28.6 879.8 -------- ------ ------- -------- Property, plant and equipment... 1,990.8 255.6 -- 2,246.4 Less: accumulated depreciation and amortization.............. 1,022.5 57.2 -- 1,079.7 -------- ------ ------- -------- Net property, plant and equipment..................... 968.3 198.4 -- 1,166.7 Insurance for asbestos-related liabilities.................... 291.6 0.0 -- 291.6 Investment in affiliates........ 173.4 0.0 -- 173.4 Goodwill........................ 97.2 (97.2)(a) 787.4 (a) 787.4 Trademarks...................... 38.6 -- 38.6 Deferred financing fees......... 4.3 (4.3)(a) 0.0 Other noncurrent assets......... 357.2 4.2 -- 361.4 -------- ------ ------- -------- Total assets................... $2,408.6 $575.8 $ 714.5 $3,698.9 ======== ====== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities Short-term debt................ $ 135.7 $ -- $ -- $ 135.7 Current installments of long- term debt..................... 3.5 3.9 -- 7.4 Accounts payable and accrued expenses...................... 333.5 67.8 -- 401.3 Income taxes................... 39.4 6.2 -- 45.6 -------- ------ ------- -------- Total current liabilities...... 512.1 77.9 -- 590.0 -------- ------ ------- -------- Long-term debt.................. 223.8 261.1 899.2 (d) 6.3 (a) 1,390.4 ESOP loan guarantee............. 201.8 -- -- 201.8 Postretirement and postemployment benefits........ 248.7 -- -- 248.7 Asbestos-related liabilities.... 149.9 -- -- 149.9 Other long-term liabilities..... 171.6 3.6 1.4 (a) 176.6 Deferred income taxes........... 56.2 39.3 1.5 (a) 97.0 Minority interest in subsidiaries................... 14.5 -- -- 14.5 -------- ------ ------- -------- Total noncurrent liabilities.... 1,066.5 304.0 908.4 2,278.9 -------- ------ ------- -------- SHAREHOLDER'S EQUITY: Common stock................... 51.9 0.1 (0.1)(a) 51.9 Capital in excess of par value......................... 169.0 93.9 (93.9)(a) 169.0 Reduction for ESOP loan guarantee..................... (205.8) -- -- (205.8) Retained earnings.............. 1,369.0 99.9 (99.9)(a) 1,369.0 Other comprehensive income..... (14.5) -- -- (14.5) Treasury stock................. (539.6) -- -- (539.6) -------- ------ ------- -------- Total shareholders' equity...... 830.0 193.9 (193.9) 830.0 -------- ------ ------- -------- Total liabilities and shareholders' equity........... $2,408.6 $575.8 $ 714.5 $3,698.9 ======== ====== ======= ========
The accompanying notes to unaudited condensed combined pro forma financial statements are an integral part of these statements. S-11 ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1997 (AMOUNTS IN MILLIONS)
ARMSTRONG TRIANGLE PRO-FORMA ARMSTRONG CONSOLIDATED PACIFIC ADJUSTMENTS PRO-FORMA ------------ -------- ----------- --------- Net Sales....................... $2,198.7 $652.9 $ -- $2,851.6 Cost of goods sold.............. 1,461.7 495.3 -- 1,957.0 Selling, general and administrative expense......... 385.3 80.5 19.7 (e) 485.5 Goodwill Amortization........... -- 2.6 (2.6)(f) -- Equity loss from affiliates..... 29.7 -- -- 29.7 -------- ------ ------ -------- Operating income................ 322.0 74.5 (17.1) 379.4 Interest expense................ 28.0 22.9 58.4 (g) 109.3 Other (income) expenses, net.... (2.2) -- -- (2.2) -------- ------ ------ -------- Earnings before income taxes.... 296.2 51.6 (75.5) 272.3 Income taxes.................... 111.2 19.8 (19.5)(h) 111.5 -------- ------ ------ -------- Net Earnings.................... $ 185.0 $ 31.8 $(56.0) $ 160.8 ======== ====== ====== ======== Net earnings per share of common stock: Basic......................... $ 4.55 $ 3.96 Diluted....................... $ 4.50 $ 3.92 Average number of common shares outstanding Basic......................... 40.6 40.6 Diluted....................... 41.0 41.0
The accompanying notes to unaudited condensed combined pro forma financial statements are an integral part of these statements. S-12 ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1998 (AMOUNTS IN MILLIONS)
ARMSTRONG TRIANGLE PRO-FORMA ARMSTRONG CONSOLIDATED PACIFIC ADJUSTMENTS PRO-FORMA ------------ -------- ----------- --------- Net Sales....................... $543.1 $173.4 $ -- $716.5 Cost of goods sold.............. 362.7 133.5 -- 496.2 Selling, general and administrative expense......... 104.0 22.2 4.9 (e) 131.1 Goodwill Amortization........... -- 0.7 (0.7)(f) -- Equity (earnings) from affiliates..................... (0.7) -- -- (0.7) ------ ------ ------ ------ Operating income................ 77.1 17.0 (4.2) 89.9 Interest expense................ 6.6 6.2 14.6 (g) 27.4 Other (income) expenses, net.... (1.0) -- -- (1.0) ------ ------ ------ ------ Earnings before income taxes.... 71.5 10.8 (18.8) 63.5 Income taxes.................... 25.0 4.1 (4.9)(h) 24.2 ------ ------ ------ ------ Net Earnings.................... $ 46.5 $ 6.7 $(13.9) $ 39.3 ====== ====== ====== ====== Net earnings per share of common stock: Basic......................... $ 1.17 $ 0.99 Diluted....................... $ 1.15 $ 0.97 Average number of common shares outstanding Basic......................... 39.8 39.8 Diluted....................... 40.5 40.5
The accompanying notes to unaudited condensed combined pro forma financial statements are an integral part of these statements. S-13 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS (a) The acquisition is to be accounted for as a purchase business combination. The purchase price, including acquisition costs, has been allocated as follows (see note b):
MARCH 31, 1998 ------------- (IN MILLIONS) Purchase price: Acquisition of outstanding shares of common stock(b)......... $ 818.8 Effect of assumed exercise of employee and director stock options and outstanding warrants............................ 70.1 Tax benefit on exercise of options and warrants.............. (24.5) Acquisition expenses........................................... 18.1 Book value of net assets acquired.............................. (193.9) ------- Excess of purchase price over net assets acquired.............. $ 688.6 ======= Allocation of purchase price: Increase in inventory value to convert from LIFO to current cost.......................................................... $ 11.9 Elimination of deferred financing fees......................... (4.3) Eliminate acquired goodwill.................................... (97.2) Adjust senior notes to redemption price (at August 1, 1998).... (6.3) Adjustment to pension liability to reflect projected benefit obligation and a change in discount rate assumptions.......... (1.4) Net increase in deferred tax liabilities....................... (1.5) Goodwill....................................................... 787.4 ------- $ 688.6 =======
The purchase price allocation is preliminary and further refinements are likely to be made based on the completion of final valuation studies. (b) Represents the cash purchase of 100% of Triangle's outstanding common stock (14,752,345 shares at March 31, 1998 at $55.50 per share, or $818.8 million). (c) In accordance with the merger agreement, Triangle has cancelled all outstanding options and warrants and pay to the holders of such options and warrants cash equal to the difference between the offer price and the exercise price. As of March 31, 1998, 2,183,540 options and warrants with an average fair value of $32.10 were held by officers and directors of Triangle. Triangle will record an expense of $70.1 million before tax ($45.6 million after tax) related to these options and warrants. In addition, the Company will pay Triangle for the payments related to the cancellation of these options. The total amount of cash payments related to outstanding shares of common stock and the options and warrants held by officers and directors of Triangle is as follows:
MARCH 31, 1998 ---------- (MILLIONS) Cash purchase of Triangle outstanding common stock............... $818.8 Expense for cancellation of outstanding options and warrants..... 70.1 ------ Total............................................................ $888.9 ======
S-14 (d) The acquisition financing included the issuance by the Company of short and long-term public and private debt securities. The long-term debt issued was comprised of short-term notes, which will be characterized as long-term debt for accounting purposes because the notes are backed by a long-term debt facility, and term debt.
MARCH 31, 1998 ---------- (MILLIONS) Details of acquisition financing: Uses of cash requirements: Acquisition of outstanding shares of common stock............... $818.8 Reimbursement for payment for exercise of officers' and directors' options and outstanding warrants.................... 70.1 Acquisition costs............................................... 18.1 ------ Total cash requirements......................................... $907.0 ====== Sources of cash requirements: Long-term debt issuance, estimated interest rate 6.5%........... $899.2 Cash from internal sources...................................... 7.8 ------ Total cash requirements......................................... $907.0 ======
(e) Represents the amortization of goodwill of $787.4 million over a 40 year amortization period, or $19.7 million per year. (f) Represents an adjustment to general expenses to eliminate amortization of the goodwill acquired from Triangle. (g) Represents interest expense related to the long-term debt identified in (d) above. (h) Represents income tax benefits related to pro forma adjustments at the effective rate. (i) The unaudited condensed combined pro forma financial statements exclude the effect of the DLW Acquisition announced on June 5, 1998. S-15 DESCRIPTION OF OFFERED SECURITIES The following description of the particular terms of the Offered Securities (referred to in the accompanying Prospectus as the "Debt Securities") supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Debt Securities set forth in the accompanying Prospectus, to which description reference is hereby made. The following summary of the Offered Securities is qualified in its entirety by reference to the Indenture referred to in the accompanying Prospectus. Capitalized terms not otherwise defined herein or in the accompanying Prospectus have the meanings given to them in the Prospectus. GENERAL The Senior Notes and the Senior Debentures offered hereby each constitute a series of Senior Debt Securities under the Senior Indenture, limited, with respect to the Senior Notes to $ in aggregate principal amount and with respect to the Senior Debentures to $ in aggregate principal amount. The Senior Notes will mature on August 1, 2005, and the Senior Debentures will mature on August 1, 2028. The Senior Notes and the Senior Debentures will bear interest at the respective rates per annum set forth on the cover page of this Prospectus Supplement from the date of issue, or the most recent Interest Payment Date to which interest has been paid or provided for, and will be payable semi-annually on February 1 and August 1 of each year, commencing February 1, 1999 to the persons in whose names the Offered Securities are registered at the close of business on January 15 or July 15 (each, a "Regular Record Date"), as the case may be, next preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Offered Securities are not entitled to the benefit of any sinking fund. The Offered Securities will be issued in denominations of U.S. $1,000 or any integral multiple thereof. The Offered Securities will be unsecured senior obligations of the Company, ranking on a parity with all other unsecured and unsubordinated indebtedness of the Company which may be outstanding from time to time. REDEMPTION AT THE OPTION OF THE COMPANY The Senior Notes will not be redeemable prior to maturity. The Senior Debentures will be redeemable in whole or in part, at the option of the Company on any date (a "Redemption Date"), at a redemption price equal to the greater of (1) 100% of the principal amount of the Senior Debentures to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to such Redemption Date) discounted to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus basis points, plus in the case of each of clause (1) and (2) accrued and unpaid interest on the principal amount of Senior Debentures being redeemed to such Redemption Date; provided, however, that installments of interest on Senior Debentures that are due and payable on an Interest Payment Date falling on or prior to the relevant Redemption Date shall be payable to the holders of such Senior Debentures registered as such at the close of business on the relevant Regular Record Date according to their terms and the provisions of the Senior Indenture. "Treasury Rate" means, with respect to any Redemption Date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Maturity Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the S-16 semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Senior Debentures to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Senior Debentures. "Independent Investment Banker" means Morgan Stanley & Co. Incorporated or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee, after consultation with the Company. "Comparable Treasury Price" means, with respect to any Redemption Date, (1) the average of four Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated, Chase Securities Inc., BancAmerica Robertson Stephens and J.P. Morgan Securities Inc. and their respective successors, provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date. Holders of Senior Debentures to be redeemed will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. If fewer than all of the Senior Debentures are to be redeemed, the Trustee will select, in such manner as it shall deem fair and appropriate, the Senior Debentures of such series to be redeemed in whole or in part. Unless the Company defaults in payment of the redemption price, on and after any Redemption Date interest will cease to accrue on the Senior Debentures or portions thereof called for redemption. BOOK-ENTRY SYSTEM, FORM AND DELIVERY Each series of the Offered Securities will be represented by one or more Global Securities registered in the name of Cede & Co., the nominee of the Depository Trust Company, as Depositary, and the provisions set forth under "Description of Debt Securities--Global Securities" in the accompanying Prospectus will apply to the Offered Securities. The Depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds securities that its participants (the "Participants") deposit with the Depositary. The Depositary also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants (the "Direct Participants") include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The S-17 Depositary is owned by a number of its Direct Participants and by The New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the Depositary's system is also available to others such as securities brokers and dealers, banks and trust companies that clear through, or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the "Indirect Participants"). The rules applicable to the Depositary and its Participants are on file with the U.S. Securities and Exchange Commission. Purchases of the Offered Securities under the Depositary's system must be made by or through Direct Participants, which will receive a credit for the Offered Securities on the Depositary's records. The ownership interest of each actual purchaser of each Offered Security (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' respective records. Beneficial Owners will not receive written confirmation from the Depositary of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Offered Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Offered Securities except in the event that use of the book-entry system for the Offered Securities is discontinued. To facilitate subsequent transfers, all Offered Securities deposited by Participants with the Depositary will be registered in the name of Cede & Co. The deposit of the Offered Securities with the Depositary and their registration in the name of Cede & Co. effect no change in beneficial ownership. The Depositary has no knowledge of the actual Beneficial Owners of the Offered Securities; the Depositary's records reflect only the identify of the Direct Participants to whose accounts such Offered Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Senior Debentures are being redeemed, the Depositary's practice is to determine by lot the amount of the interest of each Direct Participant in such series to be redeemed. Neither the Depositary nor Cede & Co. will consent or vote with respect to the Offered Securities. Under its usual procedures, the Depositary mails an omnibus proxy (an "Omnibus Proxy") to the Company as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Offered Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption premium, if any, and interest payments on the Offered Securities will be made to Cede & Co. The Depositary's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on the Depositary's records unless the Depositary has reason to believe that it will not receive payment on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities for the accounts of customers in bearer form or registered in "street-name," and will be the responsibility of such Participant and not of the Depositary, the underwriters, or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption premium, if any, and interest to Cede & Co. is the responsibility of the Company or the respective trustees. Disbursement of such payments to Direct Participants is the responsibility of the Depositary, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. S-18 The Depositary may discontinue providing its services as securities depository with respect to the Offered Securities at any time by giving reasonable notice to the Company. Under such circumstances and in the event that a successor securities depository is not obtained, certificates for the Senior Notes and the Senior Debentures are required to be printed and delivered. In addition, the Company may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor securities depository). In that event, certificates will be printed and delivered. The Company will not have any responsibility or obligation to Participants or the persons for whom they act as nominees with respect to the accuracy of the records of the Depositary, its nominee or any Direct or Indirect Participant with respect to any ownership interest in the Offered Securities, or with respect to payments to or providing of notice for the Direct Participants, the Indirect Participants or the Beneficial Owners. The information contained herein under the caption "Description of Offered Securities--Book-Entry System, Form and Delivery" concerning the Depositary and the Depositary's book-entry system has been obtained from sources that the Company believes to be reliable. Neither the Company, the Trustee nor the underwriters, dealers or agents take responsibility for the accuracy or completeness thereof. THE TRUSTEE The trustee under the Senior Indenture will be The Chase Manhattan Bank, formerly known as Chemical Bank, as successor to Mellon Bank, N.A., as Trustee (the "Trustee"). In addition, ChaseMellon Shareholder Services, L.L.C., an affiliate of The Chase Manhattan Bank, is the Rights Agent under the Company's Rights Plan, as defined and discussed more fully in the accompanying Prospectus. The Trustee also provides cash management and other banking and advisory services to the Company in the normal course of business. Upon the occurrence of an Event of Default or an event which, after notice or lapse of time or both, would become an Event of Default, or upon the occurrence of a default under such other indenture, the Trustee may be deemed to have a conflicting interest with respect to the Offered Securities for purposes of the Trust Indenture Act of 1939 and, unless the Trustee is able to eliminate any such conflicting interest, the Trustee may be required to resign as Trustee under the Senior Indenture. In that event, the Company would be required to appoint a successor trustee for the Senior Indenture. S-19 UNDERWRITERS Under the terms and subject to the conditions contained in an Underwriting Agreement, dated the date hereof, the Underwriters named below have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective principal amounts of the Offered Securities set forth opposite their respective names below:
PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF SENIOR UNDERWRITER OF SENIOR NOTES DEBENTURES ----------- ---------------- ---------------- Morgan Stanley & Co. Incorporated.......... Chase Securities Inc....................... BancAmerica Robertson Stephens............. J.P. Morgan Securities Inc................. $ $ ---- ---- Total.................................. $ $ ==== ====
The Underwriting Agreement provides that the obligation of the several Underwriters to pay for and accept delivery of the Offered Securities is subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the Offered Securities if any are taken. The Underwriters initially propose to offer part of the Offered Securities directly to the public at the public offering prices set forth on the cover page hereof and part to certain dealers at prices that represent a concession not to exceed % of the principal amount in the case of the Senior Notes and % of the principal amount in the case of the Senior Debentures. Any Underwriter may allow, and any such dealers may reallow, a concession to certain other dealers not to exceed % of the principal amount in the case of the Senior Notes and % of the principal amount in the case of the Senior Debentures. After the initial offering of the Offered Securities, the respective offering prices and other selling terms may from time to time be varied by the Underwriters. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. The Senior Notes and the Senior Debentures are each a new issue of securities with no established trading market. The Company does not intend to apply for the listing of the Offered Securities on a national securities exchange, but has been advised by the Underwriters that they intend to make a market in the Offered Securities. However, they are not obligated to do so and may discontinue the market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Offered Securities. In order to facilitate the offering of the Offered Securities, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the prices of the Offered Securities. Specifically, the Underwriters may overallot in connection with the offering, creating a short position in the Offered Securities for their own account. In addition, to cover overallotments or to stabilize the price of the Offered Securities, the Underwriters may bid for, and purchase, the Offered Securities in the open market. Finally, the Underwriters syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Offered Securities in the Offering, if the Underwriter repurchases previously distributed Offered Securities in transactions to cover Underwriter short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market prices of the Offered Securities above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. Certain of the Underwriters and their respective affiliates have, from time to time, performed various investment or commercial banking and financial advisory services for the Company, including Morgan Stanley & Co. Incorporated which recently acted as lead manager in connection with the sale by the Company of 9,000,000 shares of Dal-Tile's common stock. For its advisory services to the Company in the Triangle Pacific S-20 Acquisition, the Company paid J.P. Morgan Securities Inc., one of the Underwriters, a fee of $4.0 million, reimbursed J.P. Morgan Securities Inc. for its out-of-pocket expenses and agreed to indemnify J.P. Morgan Securities Inc. and certain related persons against certain liabilities, including certain liabilities under the federal securities laws, arising out of its engagement. J.P. Morgan Securities Inc. also received customary fees for acting as dealer manager in connection with the Triangle Pacific Acquisition. Each of Morgan Stanley & Co. Incorporated, Chase Securities Inc., J.P. Morgan Securities Inc. and BancAmerica Robertson Stephens act as dealers under the CP Program. In addition, The Chase Manhattan Bank, an affiliate of Chase Securities Inc., Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan Securities Inc., and Bank of America NT&SA, an affiliate of BancAmerica Robertson Stephens, act as lenders under the New Credit Facility and The Chase Manhattan Bank is the trustee under the Indenture. LEGAL MATTERS Certain matters with respect to the validity of the Offered Securities offered hereby will be passed upon for the Company by Rogers & Wells LLP, New York, New York. Certain legal matters relating to the Offered Securities will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. Rogers & Wells LLP and Davis Polk & Wardwell will rely upon the opinion of David D. Wilson, Associate General Counsel of the Company as to matters of Pennsylvania law. EXPERTS The consolidated financial statements of the Company as of December 31, 1997 and 1996, and for each of the years in the three-year period ended December 31, 1997, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Triangle as of January 2, 1998 and January 3, 1997, and for the years ended January 2, 1998 and January 3, 1997, incorporated by reference in this Prospectus Supplement, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and or included herein in reliance upon the authority of said firm as experts in accounting and auditing. S-21 PROSPECTUS $500,000,000 LOGO Armstrong ARMSTRONG WORLD INDUSTRIES, INC. DEBT SECURITIES, COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES Armstrong World Industries, Inc., a Pennsylvania corporation ("Armstrong" or the "Company"), may offer and sell from time to time, together or separately, up to an aggregate initial public offering price of $500,000,000 or the equivalent thereof in other currencies, foreign currency units or composite currencies such as the European Currency Unit (the "Specified Currency"), subject to the limitations set forth below, in one or more series (a) debt securities ("Debt Securities"), which may be either senior debt securities ("Senior Debt Securities") or subordinated debt securities ("Subordinated Debt Securities"); (b) shares of common stock, $1.00 par value per share ("Common Stock"), including Preferred Stock Purchase Rights which attach to each share of Common Stock (the "Rights"); (c) shares of Class A preferred stock, no par value per share ("Preferred Stock"); and (d) depositary shares ("Depositary Shares") or any combination of the foregoing, each in amounts, at prices and on terms to be determined at the time of sale. The Debt Securities, Common Stock with attached Rights, Preferred Stock, and Depositary Shares are collectively referred to herein as the "Securities." All specific terms of the offering and sale of Securities, including the initial public offering price, aggregate amount, listing on any securities exchange or quotation system, risk factors, if any, and the agents, underwriters or dealers, if any, to be utilized in connection with the sale of the Securities, will be set forth in an accompanying Prospectus Supplement ("Prospectus Supplement"). With respect to the Debt Securities, the related Prospectus Supplement will set forth the specific designation, rights and restrictions, whether they are senior or subordinated, the currencies or currency units or composite currencies in which they are denominated, the aggregate principal amount, the maturity, rate and time of payment of interest, any conversion, exchange, redemption or sinking fund provisions, and any other terms of the Securities offered thereby. With respect to the Preferred Stock, the related Prospectus Supplement will set forth the specific designation, rights, preferences, privileges and restrictions thereof, including dividend rate or rates (or method of ascertaining the same), dividend payment dates, voting rights, liquidation preference, any conversion, exchange, redemption or sinking fund provisions, and any other terms of the Securities offered thereby. The Prospectus Supplement will also contain information, where applicable, regarding certain United States federal income tax considerations relating to the Securities offered thereby. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- The Company may sell the Securities directly, or through agents, underwriters or dealers designated from time to time, or through a combination of such methods, which underwriters may include Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch & Co. or may be a group of underwriters represented by firms including one or more of such firms and such firms may act as agents. See "Plan of Distribution." If agents of the Company or underwriters or any dealers are involved in the sale of Securities in respect of which this Prospectus is being delivered, the name of such agents, underwriters or dealers, and any applicable commissions or discounts, will be set forth in or may be calculated from the Prospectus Supplement relating to such Securities. The Company reserves the sole right to accept and, together with their respective agents from time to time, to reject in whole or in part any proposed purchase of Securities to be made directly or through agents. --------------- The Prospectus may not be used to consummate the sale of Securities unless accompanied by a Prospectus Supplement. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED HEREIN OR THEREIN OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ---------------- TABLE OF CONTENTS AVAILABLE INFORMATION..................................................... 3 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3 THE COMPANY............................................................... 5 USE OF PROCEEDS........................................................... 5 RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............................................ 5 DESCRIPTION OF DEBT SECURITIES............................................ 6 DESCRIPTION OF CAPITAL STOCK.............................................. 17 DESCRIPTION OF DEPOSITARY SHARES.......................................... 22 PLAN OF DISTRIBUTION...................................................... 24 VALIDITY OF SECURITIES.................................................... 25 EXPERTS................................................................... 25
---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK, PACIFIC AND/OR PHILADELPHIA STOCK EXCHANGES. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 AVAILABLE INFORMATION Armstrong is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC" or the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the SEC located at Citicorp Center, Suite 1400, 500 West Madison Street, Room 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such information can be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information concerning the Company can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, the offices of the Pacific Stock Exchange, Inc., 301 Pine Street, San Francisco, California 94104-7098, and the offices of the Philadelphia Stock Exchange, 1900 Market Street, Philadelphia, Pennsylvania 19103, on which exchanges certain of Armstrong's securities are listed. Armstrong's Common Stock is listed on the New York, Pacific and Philadelphia Stock Exchanges under the symbol "ACK." Armstrong has filed with the SEC two Registration Statements on Form S-3 (the "Registration Statements") under the Securities Act of 1933, as amended (the "1933 Act"), with respect to the Securities. This Prospectus does not contain all of the information set forth in the Registration Statements, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Reference is hereby made to the Registration Statements and related exhibits for further information with respect to the Company and the Securities offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each statement is qualified in its entirety by reference to the copy of the applicable document filed with the SEC. The Registration Statements and the exhibits thereto may be inspected without charge at the office of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained from the SEC at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding the Company that is electronically filed through the Commission's Electronic Data Gathering, Analysis and Retrieval system. Such information is publicly available through the Commission's Web site (http://www.sec.gov.). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the SEC by Armstrong under the 1934 Act (file number 001-02116) are incorporated herein by reference: (1) the Company's Annual Report on Form 10-K for the year ended December 31, 1995, certain portions of which are superseded by the Company's Current Report on Form 8-K filed on October 18, 1996; (2) the Company's Current Report on Form 8-K filed on January 16, 1996; (3) the Company's Current Report on Form 8-K filed on January 16, 1996, as amended by a Form 8-K/A filed on March 13, 1996; (4) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, certain portions of which are superseded by the Company's Current Report on Form 8-K filed on October 18, 1996; (5) the Company's Current Report on Form 8-K filed on May 13, 1996; (6) the Company's Current Report on Form 8- K filed on July 29, 1996, and any amendments or reports filed for the purpose of updating the Description of the Company's Capital Stock contained in such report; (7) the description of the Company's Preferred Stock Purchase Rights, set forth in the Registration Statement on Form 8-A/A dated March 15, 1996; (8) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, certain portions of which are superseded by the Company's Current Report on Form 8-K filed on October 18, 1996; (9) the Company's Current Report on Form 8-K filed on October 15, 1996; and (10) the Company's Current Report on Form 8-K filed on October 18, 1996. All documents filed by Armstrong with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the termination of the offering or offerings of the Securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be part hereof 3 from the date of filing of such documents. Any statement incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus. All information appearing in this Prospectus is qualified in its entirety by the information and financial statements (including the notes thereto) contained in the documents incorporated by reference herein. Armstrong will provide without charge, upon written or oral request, to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, a copy of any or all of the documents incorporated by reference in this Prospectus (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to L.A. Pulkrabek, Senior Vice-President, Secretary and General Counsel, Armstrong World Industries, Inc., 313 West Liberty Street, Lancaster, Pennsylvania 17603-2717 (telephone 717-397-0611). [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 4 THE COMPANY Armstrong World Industries, Inc. is a Pennsylvania corporation incorporated in 1891. The Company is a manufacturer of interior furnishings, including floor coverings, and building products 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 1995, Armstrong sold its furniture business and combined its ceramic tile business with Dal-Tile International Inc. ("Dal-Tile"), retaining a minority equity interest in the combined company. Unless the context indicates otherwise, the term "Company" means Armstrong World Industries, Inc. and its consolidated subsidiaries. USE OF PROCEEDS Except as otherwise described in the Prospectus Supplement, Armstrong intends to use the net proceeds from the sale of the Securities offered hereby for general corporate purposes, which may include additions to working capital, refinancing existing indebtedness, capital expenditures and possible acquisitions. Armstrong has not allocated a specific portion of the net proceeds for any particular use at this time. Specific information concerning the use of proceeds from the sale of any Securities may be included in the Prospectus Supplement relating to such Securities. RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth the Company's consolidated ratios of earnings to fixed charges for the indicated periods.(1)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- SIX MONTHS ENDED 1991 1992 1993 1994 1995 JUNE 30, 1996 ---- ----- ---- ---- ---- ---------------- 2.56 N/A(2) 2.49 8.70 1.20 7.59
- -------- (1) Excluding restructuring charges for all periods and the pre-tax loss on the ceramic tile business combination for 1995, the ratios would have been 2.80, 2.89, 4.50, 8.70 and 7.40 for 1991, 1992, 1993, 1994 and 1995, respectively. (2) Earnings were inadequate to cover fixed charges by $66.3 million. The following table sets forth the Company's consolidated ratio of earnings to combined fixed charges and preferred dividends for the indicated periods:(1)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- SIX MONTHS ENDED 1991 1992 1993 1994 1995 JUNE 30, 1996 ---- ----- ---- ---- ----- ---------------- 1.88 N/A(2) 1.74 5.61 N/A(3) 4.79
- -------- (1) Excluding restructuring charges for all periods and the pre-tax loss on the ceramic tile business combination for 1995, the ratios would have been 2.05, 2.08, 3.14, 5.61 and 5.04 for 1991, 1992, 1993, 1994 and 1995, respectively. (2) Earnings were inadequate to cover fixed charges and preferred stock dividends by $85.6 million. (3) Earnings were inadequate to cover fixed charges plus preferred stock dividends by $10.6 million. The ratio of earnings to fixed charges has been computed by dividing earnings by fixed charges. The ratio of earnings to fixed charges and preferred stock dividends has been computed by dividing earnings by the sum of fixed charges and preferred stock dividend requirements. For purposes of calculating these ratios, earnings consist of consolidated earnings from continuing business operations before income taxes plus fixed charges. Fixed charges consist of interest expense, one-third of rent expense which is deemed to be representative of 5 interest and amortization of finance costs. In June 1989, the Company established an Employee Stock Ownership Plan (the "ESOP"). The Company is the guarantor of a $270 million loan to the ESOP. Contributions made by the Company to the ESOP and dividends paid by the Company on the convertible preferred stock purchased by the ESOP are used by the ESOP to pay installments of principal and interest on the ESOP loan. Such contributions and dividends are not included in the above ratios of earnings to fixed charges or ratios to combined fixed charges and preferred stock dividends. Interest expense on the ESOP loan was approximately $23.2 million, $22.9 million, $22.3 million, $21.7 million and $21.0 million for the years ended December 31, 1991, 1992, 1993, 1994 and 1995, respectively. Part of the contributions made by the Company represent payroll deductions made by participants in the ESOP. DESCRIPTION OF DEBT SECURITIES The Senior Debt Securities are to be issued under an Indenture, dated as of August 6, 1996 (the "Senior Indenture"), between the Company and Mellon Bank, N.A., as Trustee (the "Trustee" or "Mellon"). The Subordinated Debt Securities are to be issued under a separate Indenture, dated as of August 6, 1996 (the "Subordinated Indenture"), also between the Company and Mellon as Trustee. The Senior Indenture and Subordinated Indenture are sometimes referred to collectively as the "Indentures." Copies of the Senior Indenture and Subordinated Indentures are filed as exhibits to the Registration Statement of which this Prospectus is a part. The Debt Securities may be issued from time to time in one or more series. The particular terms of each series, or of Debt Securities forming a part of a series, which are offered by a Prospectus Supplement will be described in such Prospectus Supplement. The following summaries of certain provisions of the Indentures do not purport to be complete and are subject, and are qualified in their entirety by reference, to all the provisions of the Indentures, including the definitions therein of certain terms, and, with respect to any particular Debt Securities, to the description of the terms thereof included in the Prospectus Supplement relating thereto. Wherever particular Sections or defined terms of the Indentures are referred to herein or in a Prospectus Supplement, such Sections or defined terms are incorporated by reference herein or therein, as the case may be. GENERAL The Indentures will provide that Debt Securities in separate series may be issued thereunder from time to time without limitation as to aggregate principal amount. The Company may specify a maximum aggregate principal amount for the Debt Securities of any series. (Section 301) The Debt Securities are to have such terms and provisions which are not inconsistent with the Indentures, including as to maturity, principal and interest, as the Company may determine. Unless otherwise specified in the applicable Prospectus Supplement, the Senior Debt Securities when issued will be unsecured and unsubordinated obligations of the Company and will rank on a parity with all other unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt Securities when issued will be subordinated in right of payment to the prior payment in full of all Senior Debt of the Company, as described under "Subordination of Subordinated Debt Securities" and in the applicable Prospectus Supplement. The applicable Prospectus Supplement will set forth whether the Debt Securities offered shall be Senior Debt Securities or Subordinated Debt Securities, the price or prices at which the Debt Securities to be offered will be issued and will describe the following terms of such offered Debt Securities: (1) the title of such Debt Securities; (2) any limit on the aggregate principal amount of such Debt Securities or the series of which they are a part; (3) the Person to whom any interest on a Debt Security of the series shall be payable, if other than the Person in whose name that Debt Security (or one or more predecessor Debt Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of any of such Debt Securities will be payable; (5) the rate or rates at which any of such Debt Securities will bear interest, if any, the date or dates from which any such interest will accrue, the Interest Payment Dates on which any such interest will be payable and the Regular Record Date for any such interest payable on any Interest Payment Date; 6 (6) the place or places where the principal of and any premium and interest on any of such Debt Securities will be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions on which any of such Debt Securities may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase any of such Debt Securities pursuant to any sinking fund or analogous provision or at the option of the Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions on which any of such Debt Securities will be redeemed or purchased, in whole or in part, pursuant to any such obligation; (9) the denominations in which any of such Debt Securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof; (10) if the amount of principal of or any premium or interest on any of such Debt Securities may be determined with reference to an index or pursuant to a formula, the manner in which such amounts will be determined; (11) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any of such Debt Securities will be payable (and the manner in which the equivalent of the principal amount thereof in the currency of the United States of America is to be determined for any purpose, including for the purpose of determining the principal amount deemed to be Outstanding at any time); (12) if the principal of or any premium or interest on any of such Debt Securities is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than those in which such Debt Securities are stated to be payable, the currency, currencies or currency units in which payment of any such amount as to which such election is made will be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount is to be determined); (13) if other than the entire principal amount thereof, the portion of the principal amount of any of such Debt Securities which will be payable upon declaration of acceleration of the Maturity thereof; (14) if the principal amount payable at the Stated Maturity of any of such Debt Securities will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which will be deemed to be such principal amount as of any such date for any purpose, including the principal amount thereof which will be due and payable upon any Maturity other than the Stated Maturity or which will be deemed to be Outstanding as of any such date (or, in any such case, the manner in which such deemed principal amount is to be determined); (15) if applicable, that such Debt Securities, in whole or any specified part, are defeasible pursuant to the provisions of the Indentures described under "Defeasance and Covenant Defeasance--Defeasance and Discharge" or "Defeasance and Covenant Defeasance--Covenant Defeasance," or under both such captions; (16) if applicable, the terms of any right to convert Debt Securities into shares of Common Stock of the Company or other securities or property; (17) whether any of such Debt Securities will be issuable, in whole or in part, in the form of one or more Global Securities, defined below, and, if so, the respective Depositaries for such Global Securities, the form of any legend or legends to be borne by any such Global Security in addition to or in lieu of the legend referred to under "Form, Exchange and Transfer--Global Securities" and, if different from those described under such caption, any circumstances under which any such Global Security may be exchanged, in whole or in part, for Debt Securities registered, and any transfer of such Global Security, in whole or in part, may be registered, in the names of Persons other than the Depositary for such Global Security or its nominee; (18) any addition to or change in the Events of Default applicable to any of such Debt Securities and any change in the right of the Trustee or the Holders to declare the principal amount of any of such Debt Securities due and payable; (19) any addition to or change in the covenants in the Indentures described under "Certain Restrictive Covenants" applicable to any of such Debt Securities; and (20) any other terms of such Debt Securities not inconsistent with the provisions of the applicable Indenture. (Section 301) Debt Securities, including Original Issue Discount Securities, may be sold at a substantial discount below their principal amount. Certain special United States federal income tax considerations (if any) applicable to Debt Securities sold at an original issue discount will be described in a Prospectus Supplement under "United States Taxation." In addition, certain special United States federal income tax or other considerations (if any) applicable to any Debt Securities which are denominated in a currency or currency unit other than United States dollars will be described in a Prospectus Supplement under "United States Taxation." Unless otherwise set forth in the applicable Prospectus Supplement, neither the Indentures nor the Debt Securities will contain provisions which would afford holders of the Debt Securities protection in the event of a takeover, recapitalization, or similar restructuring involving the Company that could adversely affect such holders. 7 CONVERSION RIGHTS The terms on which Debt Securities of any series are convertible into Common Stock or other securities or property will be set forth in the Prospectus Supplement relating thereto. Such terms shall include provisions as to whether conversion is mandatory or at the option of the holder and may include provisions pursuant to which the number of shares of Common Stock or other securities or property to be received by the Holders of Debt Securities would be calculated according to the market price of Common Stock or other securities or property as of a time stated in the applicable Prospectus Supplement. (Article Fourteen) SUBORDINATION OF SUBORDINATED DEBT SECURITIES Unless otherwise indicated in the Prospectus Supplement, the following provisions will apply to the Subordinated Debt Securities. The Subordinated Debt Securities will, to the extent set forth in the Subordinated Indenture, be subordinate in right of payment to the prior payment in full of all Senior Debt, including the Senior Debt Securities. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of the Company, the holders of Senior Debt will first be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Debt before the Holders of the Subordinated Debt Securities will be entitled to receive or retain any payment in respect of the principal of (and premium, if any) or interest, if any, on the Subordinated Debt Securities. (Section 1502) By reason of such subordination, in the event of liquidation or insolvency, creditors of the Company who are not holders of Senior Debt or Holders of Subordinated Debt Securities may recover less, ratably, than holders of Senior Debt and may recover more, ratably, than the Holders of the Subordinated Debt Securities. In the event of the acceleration of the maturity of any Subordinated Debt Securities, the holders of all Senior Debt outstanding at the time of such acceleration will first be entitled to receive payment in full of all amounts due thereon before the Holders of the Subordinated Debt Securities will be entitled to receive any payment upon the principal of (or premium, if any) or interest, if any, on the Subordinated Debt Securities. (Section 1503) No payments on account of principal (or premium, if any) or interest, if any, in respect of the Subordinated Debt Securities may be made if there shall have occurred and be continuing a default in any payment with respect to Senior Debt, or an event of default with respect to any Senior Debt resulting in the acceleration of the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. (Section 1504) For purposes of the subordination provisions, the payment, issuance and delivery of cash, property or securities (other than stock and certain subordinated securities of the Company) upon conversion of a Subordinated Debt Security will be deemed to constitute payment on account of the principal of such Subordinated Debt Security. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company to the extent that such claim for post-petition interest is allowed in such proceeding), on Debt (as defined under "Restrictive Covenants--Limitation on Liens"), whether incurred on or prior to the date of the Subordinated Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Subordinated Debt Securities or to other Debt which is pari passu with, or subordinated to, the Subordinated Debt Securities; provided, however, that Senior Debt shall not be deemed to include the Subordinated Debt Securities. The Subordinated Indenture does not limit or prohibit the incurrence of additional Senior Debt, which may include indebtedness that is senior to the Subordinated Debt Securities, but subordinate to other obligations of the Company. The Senior Debt Securities, when issued, will constitute Senior Debt. 8 The Prospectus Supplement may further describe the provisions, if any, applicable to the subordination of the Subordinated Debt Securities of a particular series. FORM, EXCHANGE AND TRANSFER The Debt Securities of each series will be issuable only in fully registered form, without coupons, and, unless otherwise specified in the applicable Prospectus Supplement, only in denominations of $1,000 and integral multiples thereof. (Section 302) At the option of the Holder, subject to the terms of the Indentures and the limitations applicable to Global Securities, Debt Securities of each series will be exchangeable for other Debt Securities of the same series of any authorized denomination and of a like tenor and aggregate principal amount. (Section 305) Subject to the terms of the Indentures and the limitations applicable to Global Securities, Debt Securities may be presented for exchange as provided above or for registration of transfer (duly endorsed or with the form of transfer endorsed thereon duly executed) at the office of the Security Registrar or at the office of any transfer agent designated by the Company for such purpose. No service charge will be made for any registration of transfer or exchange of Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. The Company has appointed the Trustee as Security Registrar. Any transfer agent (in addition to the Security Registrar) initially designated by the Company for any Debt Securities will be named in the applicable Prospectus Supplement. (Section 305) The Company may at any time designate additional transfer agents or rescind the designation of any transfer agent or approve a change in the office through which any transfer agent acts, except that the Company will be required to maintain a transfer agent in each Place of Payment for the Debt Securities of each series. (Section 1002) If the Debt Securities of any series (or of any series and specified terms) are to be redeemed in part, the Company will not be required to (i) issue, register the transfer of or exchange any Debt Security of that series (or of that series and specified terms, as the case may be) during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of any such Debt Security that may be selected for redemption and ending at the close of business on the day of such mailing or (ii) register the transfer of or exchange any Debt Security so selected for redemption, in whole or in part, except the unredeemed portion of any such Debt Security being redeemed in part. (Section 305) GLOBAL SECURITIES Some or all of the Debt Securities of any series may be represented, in whole or in part, by one or more global securities which will have an aggregate principal amount equal to that of the Debt Securities represented thereby (a "Global Security"). Each Global Security will be registered in the name of a Depositary or a nominee thereof identified in the applicable Prospectus Supplement, will be deposited with such Depositary or nominee or a custodian therefor and will bear a legend regarding the restrictions on exchanges and registration of transfer thereof referred to below and any such other matters as may be provided for pursuant to the Indentures. Notwithstanding any provision of the Indentures or any Debt Security described herein, no Global Security may be exchanged, in whole or in part, for Debt Securities registered, and no transfer of a Global Security, in whole or in part, may be registered, in the name of any Person other than the Depositary for such Global Security or any nominee of such Depositary unless (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or has ceased to be qualified to act as such as required by the Indentures, (ii) there shall have occurred and be continuing an Event of Default with respect to the Debt Securities represented by such Global Security or (iii) there shall exist such circumstances, if any, in addition to or in lieu of those described above as may be described in the applicable Prospectus Supplement. All securities issued in exchange for a Global Security or any portion thereof will be registered in such names as the Depositary may direct. (Sections 204 and 305) 9 As long as the Depositary, or its nominee, is the registered Holder of a Global Security, the Depositary or such nominee, as the case may be, will be considered the sole owner and Holder of such Global Security and the Debt Securities represented thereby for all purposes under the Debt Securities and the Indentures. Except in the limited circumstances referred to above, owners of beneficial interests in a Global Security will not be entitled to have such Global Security or any Debt Securities represented thereby registered in their names, will not receive or be entitled to receive physical delivery of certificated Debt Securities in exchange therefor and will not be considered to be the owners or Holders of such Global Security or any Debt Securities represented thereby for any purpose under the Debt Securities or the Indentures. All payments of principal of and any premium and interest on a Global Security will be made to the Depositary or its nominee, as the case may be, as the Holder thereof. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in a Global Security. Ownership of beneficial interests in a Global Security will be limited to institutions that have accounts with the Depositary or its nominee ("participants") and to persons that may hold beneficial interests through participants. In connection with the issuance of any Global Security, the Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of Debt Securities represented by the Global Security to the accounts of its participants. Ownership of beneficial interests in a Global Security will be shown only on, and the transfer of those ownership interests will be effected only through, records maintained by the Depositary (with respect to participants' interests) or any such participant (with respect to interests of persons held by such participants on their behalf). Payments, transfers, exchanges and other matters relating to beneficial interests in a Global Security may be subject to various policies and procedures adopted by the Depositary from time to time. None of the Company, the Trustee or any agent of the Company or the Trustee will have any responsibility or liability for any aspect of the Depositary's or any participant's records relating to, or for payments made on account of, beneficial interests in a Global Security, or for maintaining, supervising or reviewing any records relating to such beneficial interests. PAYMENT AND PAYING AGENTS Unless otherwise indicated in the applicable Prospectus Supplement, payment of interest on a Debt Security on any Interest Payment Date will be made to the Person in whose name such Debt Security (or one or more Predecessor Debt Securities) is registered at the close of business on the Regular Record Date for such interest. (Section 307) Unless otherwise indicated in the applicable Prospectus Supplement, principal of and any premium and interest on the Debt Securities of a particular series will be payable at the office of such Paying Agent or Paying Agents as the Company may designate for such purpose from time to time, except that at the option of the Company payment of any interest may be made by check mailed to the address of the Person entitled thereto as such address appears in the Security Register. Unless otherwise indicated in the applicable Prospectus Supplement, the corporate trust office of the Trustee in The City of New York will be designated as the Company's sole Paying Agent for payments with respect to Debt Securities of each series. Any other Paying Agents initially designated by the Company for the Debt Securities of a particular series will be named in the applicable Prospectus Supplement. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent or approve a change in the office through which any Paying Agent acts, except that the Company will be required to maintain a Paying Agent in each Place of Payment for the Debt Securities of a particular series. (Section 1002) All monies paid by the Company to a Paying Agent for the payment of the principal of or any premium or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium or interest has become due and payable will be repaid to the Company, and the Holder of such Debt Security thereafter may look only to the Company for payment thereof. (Section 1003) 10 RESTRICTIVE COVENANTS Limitation on Liens. The Senior Indenture will provide that, except as otherwise provided in the next succeeding paragraph, the Company shall not, and shall not permit any Restricted Subsidiary to, issue, assume or guarantee any indebtedness for borrowed money ("Debt") secured by any mortgage, pledge, security interest, lien or other encumbrance (a "Lien") upon any Principal Property of the Company or of any Restricted Subsidiary or upon any shares of stock or Debt of any Restricted Subsidiary (whether such Principal Property, shares of stock or Debt are now owned or hereafter acquired) without in any such case effectively providing concurrently with the issuance, assumption or guaranty of any such Debt that the Senior Debt Securities (together with, if the Company shall so determine, any other indebtedness of or guaranty by the Company or such Restricted Subsidiary then existing or thereafter created which is not subordinate to the Senior Debt Securities) shall be secured equally and ratably with (or, at the option of the Company, prior to) such Debt, so long as such Debt shall be so secured; provided, however, that the foregoing restrictions shall not prevent, restrict or apply to (and there shall be excluded from secured Debt in any computation made for purposes of the "Limitation on Liens" covenant) Debt secured by (A) Liens on property, shares of stock or indebtedness of any corporation existing at the time such corporation becomes a Restricted Subsidiary or arising thereafter (i) otherwise than in connection with the borrowing of money arranged thereafter and (ii) pursuant to contractual commitments entered into prior to and not in contemplation of such corporation's becoming a Restricted Subsidiary; (B) Liens on any property (including shares of stock or Debt) existing at the time of acquisition thereof (including acquisition through merger or consolidation) or securing the payment of all or any part of the purchase price or construction cost thereof or securing any Debt incurred prior to, at the time of or within 180 days after, the acquisition of such property, shares of stock or Debt or the completion of any such construction, whichever is later, for the purpose of financing all or any part of the purchase price or construction costs thereof (provided such Liens are limited to such property, improvements thereon and the land upon which such property and improvements are located and any other property not then constituting a Principal Property); (C) Liens on any property to secure all or any part of the cost of development, operations, construction, alteration, repair or improvement of all or any part of such property, or to secure Debt incurred prior to, at the time of or within 180 days after, the completion of such development, operation, construction, alteration, repair or improvement, whichever is later, for the purpose of financing all or any part of such cost (provided such Liens are limited to such property, improvements thereon and the land upon which such property and improvements are located and any other property not then constituting a Principal Property); (D) Liens which secure Debt owing by a Restricted Subsidiary to the Company or to another Restricted Subsidiary or by the Company to a Restricted Subsidiary; (E) Liens securing indebtedness of a corporation which becomes a successor of the Company in accordance with the provisions described under "Consolidation, Merger and Sale of Assets"; (F) Liens on property of the Company or a Restricted Subsidiary in favor of the United States of America or any State thereof, or any department agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction of the property subject to such Liens, or in favor of any trustee or mortgagee for the benefit of holders of indebtedness of any such entity incurred for any such purpose; (G) Liens existing at August 6, 1996; and (H) any extension, renewal or replacement (or successive extension, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (A) to (G), inclusive, or of any Debt secured thereby; provided that such extension, renewal or replacement Lien shall be limited to all or any part of the same property that secured the Lien extended, renewed or replaced (plus any improvements on such property) and shall secure no larger amount of Debt than that existing at the time of such extension, renewal or replacement. Notwithstanding the foregoing restrictions, the Company and any one or more Restricted Subsidiaries may issue, assume or guarantee Debt secured by a Lien which would otherwise be subject to the foregoing restrictions if at the time it does so (the "Incurrence Time") the aggregate amount of such Debt plus all other Debt of the Company and its Restricted Subsidiaries secured by a Lien which would otherwise be subject to the foregoing restrictions (not including Debt permitted to be secured under clauses (A) through (H) of the next preceding paragraph), plus the aggregate Attributable Debt (determined as of the Incurrence Time) of Sale and Leaseback 11 Transactions (other than Sale and Leaseback Transactions permitted by clause (1) under "--Limitations on Sale and Leaseback Transactions") entered into after August 6, 1996 and in existence at the Incurrence Time (less the aggregate amount of proceeds of such Sale and Leaseback Transactions which shall have been applied in accordance with clause (3) under "Limitations on Sale and Leaseback Transactions"), does not exceed 15% of Consolidated Net Tangible Assets. Limitations on Sale and Leaseback Transactions. The Senior Indenture will provide that the Company shall not itself, and shall not permit any Restricted Subsidiary to, enter into any arrangements after August 6, 1996 with any bank, insurance company or other lender or investor (other than the Company or another Restricted Subsidiary) providing for the leasing as lessee by the Company or by any such Restricted Subsidiary of any Principal Property (except a lease for a temporary period not to exceed three years by the end of which it is intended the use of such Principal Property by the lessee will be discontinued), which was or is owned by the Company or a Restricted Subsidiary and which has been or is to be sold or transferred by the Company or a Restricted Subsidiary more than 180 days after the completion of construction and commencement of full operation thereof by the Company or such Restricted Subsidiary, to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such Principal Property (herein called a "Sale and Leaseback Transaction") unless (1) the Company or such Restricted Subsidiary would (at the time of entering into such arrangement) be entitled pursuant to clauses (A) through (H) above under "--Limitation on Liens," without equally and ratably securing the Senior Debt Securities, to issue, assume or guarantee indebtedness secured by a Lien on such Principal Property; or (2) the Attributable Debt of the Company and its Restricted Subsidiaries in respect of such Sale and Leaseback Transaction and all other Sale and Leaseback Transactions entered into after August 6, 1996 (other than such Sale and Leaseback Transactions as are permitted by clause (1) or clause (3) of this paragraph), plus the aggregate principal amount of Debt secured by Liens on Principal Properties then outstanding (excluding any such Debt secured by Liens covered in subdivisions (A) through (H) under "--Limitation on Liens") which do not equally and ratably secure the Senior Debt Securities, would not exceed 15% of Consolidated Net Tangible Assets; or (3) the Company, within 180 days after the sale or transfer, applies or causes a Restricted Subsidiary to apply an amount equal to the greater of the net proceeds of such sale or transfer or fair market value of the Principal Property so sold and leased back at the time of entering into such Sale and Leaseback Transaction (in either case as determined by the Board of Directors) to the retirement of Senior Debt Securities or other indebtedness of the Company (other than indebtedness subordinated to the Senior Debt Securities) or indebtedness of a Restricted Subsidiary, for money borrowed, having a stated maturity more than 12 months from the date of such application or which is extendible at the option of the obligor thereon to a date more than 12 months from the date of such application, provided that the amount to be so applied shall be reduced by (i) the principal amount of Senior Debt Securities delivered within 180 days after such sale or transfer to the Trustee for retirement and cancellation, and (ii) the principal amount of any such indebtedness of the Company or a Restricted Subsidiary other than Senior Debt Securities voluntarily retired by the Company or a Restricted Subsidiary within 180 days after such sale or transfer; provided, further, that notwithstanding the foregoing, no retirement referred to in this clause (3) may be affected by payment at Maturity. Notwithstanding the foregoing, where the Company or any Restricted Subsidiary is the lessee in any Sale and Leaseback Transaction, Attributable Debt shall not include any Debt resulting from the guarantee by the Company or any other Restricted Subsidiary of the lessee's obligation thereunder. CERTAIN DEFINITIONS The term "Attributable Debt" means, in respect of a Sale and Leaseback Transaction and as of any particular time, the present value (discounted at the rate of interest implicit in the terms of the lease involved in such Sale and Leaseback Transaction, as determined in good faith by the Company) of the obligation of the lessee thereunder for net rental payments (excluding, however, any amounts required to be paid by such lessee, whether or not designated as rent or additional rent, on account of maintenance and repairs, services, insurance, taxes, assessments, water rates or similar charges or any amounts required to be paid by such lessee thereunder 12 contingent upon monetary inflation or the amount of sales, maintenance and repairs, insurance, taxes, assessments, water rates or similar charges) during the remaining term of such lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended). The term "Consolidated Net Tangible Assets" means the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom (a) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (b) all current liabilities, all as reflected in the Company's latest audited consolidated balance sheet contained in the Company's most recent annual report to its stockholders under Rule 14a-3 of the Exchange Act prior to the time as of which "Consolidated Net Tangible Assets" shall be determined. The term "Maturity," when used with respect to any security, means the date on which the principal of such security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. The term "Principal Property" means any single manufacturing plant, research laboratory or other similar facility located within the United States of America (other than its territories and possessions) and owned by, or leased to, the Company or any Restricted Subsidiary, the book value of the property, plant and equipment of which (as shown, net of depreciation, on the books of the owner or owners) is not less than 2% of the Consolidated Net Tangible Assets at the end of the most recent fiscal year of the Company, reflected in the latest audited consolidated statement of financial position contained in the Company's most recent annual report to its stockholders under Rule 14a-3 of the Exchange Act, except (a) any such plant or facility (i) owned or leased jointly or in common with one or more Persons other than the Company and its Subsidiaries, in which the interest of the Company and its Restricted Subsidiaries does not exceed 50%, or (ii) which the Board of Directors determines by Board Resolution in good faith is not of material importance to the total business conducted, or assets owned, by the Company and its Subsidiaries as an entirety, or (b) any portion of any such plant or facility which the Board of Directors determines by Board Resolution in good faith not to be of material importance to the use or operation thereof. The term "Restricted Subsidiary" means any Subsidiary substantially all the property of which is located, or substantially all of the business of which is carried on, within the United States of America (other than its territories and possessions) which shall at the time, directly or indirectly through one or more Subsidiaries or in combination with one or more other Subsidiaries, own or be a lessee of a Principal Property. CONSOLIDATION, MERGER AND SALE OF ASSETS The Indentures will provide that the Company may not consolidate with or merge into, or convey, transfer or lease its properties and assets substantially as an entirety to, any Person (a "successor Person"), and may not permit any Person to merge into, or convey, transfer or lease its properties and assets substantially as an entirety to, the Company, unless (i) the successor Person (if any) is a corporation, partnership, trust or other entity organized and validly existing under the laws of any domestic jurisdiction and assumes the Company's obligations on the Debt Securities and under the Indentures, (ii) immediately after giving effect to the transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing, (iii) if, as a result of the transaction, property of the Company or a Restricted Subsidiary would become subject to a Lien that would not be permitted under "Restrictive Covenants--Limitations on Liens," the Company takes such steps as shall be necessary to secure the Senior Debt Securities, if any, equally and ratably with (or prior to) the indebtedness secured by such Lien, and (iv) certain other conditions are met. (Section 801) EVENTS OF DEFAULT Each of the following will constitute an Event of Default under the Indentures with respect to Debt Securities of any series: (a) failure to pay principal of or any premium on any Debt Security of that series when due (with respect to Subordinated Debt Securities, whether or not such payment is prohibited by the 13 subordination provisions of the Subordinated Indenture); (b) failure to pay any interest on any Debt Securities of that series when due, continued for 30 days (with respect to Subordinated Debt Securities whether or not such payment is prohibited by the subordination provision of the Subordinated Indenture); (c) failure to deposit any sinking fund payment, when due, in respect of any Debt Security of that series (with respect to Subordinated Debt Securities, whether or not such deposit is prohibited by the subordination provisions of the Subordinated Indenture); (d) failure to perform any other covenant of the Company in the Indentures (other than a covenant included in the Indentures solely for the benefit of a series other than that series), continued for 60 days after written notice has been given by the Trustee, or the Holders of at least 25% in principal amount of the Outstanding Debt Securities of that series, as provided in the Indentures; (e) certain events in bankruptcy, insolvency or reorganization; and (f) any other Event of Default specified in the applicable Prospectus Supplement. (Section 501) If an Event of Default (other than an Event of Default described in clause (e) above) with respect to the Debt Securities of any series at the time Outstanding shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series by notice as provided in the Indentures may declare the principal amount of the Debt Securities of that series (or, in the case of any Debt Security that is an Original Issue Discount Security or the principal amount of which is not then determinable, such portion of the principal amount of such Debt Security, or such other amount in lieu of such principal amount, as may be specified in the terms of such Debt Security) to be due and payable immediately. If an Event of Default described in clause (e) above with respect to the Debt Securities of any series at the time Outstanding shall occur, the principal amount of all the Debt Securities of that series (or, in the case of any such Original Issue Discount Security or other Debt Security, such specified amount) will automatically, and without any action by the Trustee or any Holder, become immediately due and payable. After any such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the Outstanding Securities of that series may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal (or other specified amount), have been cured or waived as provided in the Indentures. (Section 502) For information as to waiver of defaults, see "Modification and Waiver." Subject to the provisions of the Indentures relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing the Trustee will be under no obligation to exercise any of its rights or powers under the Indentures at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 603) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Debt Securities of that series. (Section 512) No Holder of a Debt Security of any series will have any right to institute any proceeding with respect to the Indentures, or for the appointment of a receiver or a trustee, or for any other remedy thereunder, unless (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default with respect to the Debt Securities of that series, (ii) the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series have made written request, and such Holder or Holders have offered reasonable indemnity, to the Trustee to institute such proceeding as trustee and (iii) the Trustee has failed to institute such proceeding, and has not received from the Holders of a majority in aggregate principal amount of the Outstanding Securities of that series a direction inconsistent with such request, within 60 days after such notice, request and offer. (Section 507) However, such limitations do not apply to a suit instituted by a Holder of a Debt Security for the enforcement of payment of the principal of or any premium or interest on such Debt Security on or after the applicable due date specified in such Debt Security. (Section 508) The Company will be required to furnish to the Trustee annually a statement by certain of its officers as to whether or not the Company, to their knowledge, is in default in the performance or observance of any of the terms, provisions and conditions of the Indentures and, if so, specifying all such known defaults. (Section 1004) 14 MODIFICATION AND WAIVER Modifications and amendments of the Indentures may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Debt Security, (b) reduce the principal amount of, or any premium or interest on, any Debt Security, (c) reduce the amount of principal of an Original Issue Discount Security or any other Debt Security payable upon acceleration of the Maturity thereof, (d) change the place or currency of payment of principal of, or any premium or interest on, any Debt Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security, (f), in the case of Subordinated Debt Securities, modify the subordination provisions in a manner adverse to the Holders of the Subordinated Debt Securities, (g) reduce the percentage in principal amount of Outstanding Securities of any series, the consent of whose Holders is required for modification or amendment of the Indentures, (h) reduce the percentage in principal amount of Outstanding Securities of any series necessary for waiver of compliance with certain provisions of the Indentures or for waiver of certain defaults, or (i) modify such provisions with respect to modification and waiver. (Section 902) The Holders of a majority in principal amount of the Outstanding Securities of any series may waive compliance by the Company with certain restrictive provisions of the Indentures. (Sections 1010 and 1008 of the Senior Indenture and the Subordinated Indenture, respectively). The Holders of a majority in principal amount of the Outstanding Securities of any series may waive any past default under the Indentures, except a default in the payment of principal, premium or interest and certain covenants and provisions of the Indentures which cannot be amended without the consent of the Holder of each Outstanding Security of such series affected. (Section 513) The Indentures will provide that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given or taken any direction, notice, consent, waiver or other action under the Indentures as of any date, (i) the principal amount of an Original Issue Discount Security that will be deemed to be Outstanding will be the amount of the principal thereof that would be due and payable as of such date upon acceleration of the Maturity thereof to such date, (ii) if, as of such date, the principal amount payable at the Stated Maturity of a Debt Security is not determinable (for example, because it is based on an index), the principal amount of such Debt Security deemed to be Outstanding as of such date will be an amount determined in the manner prescribed for such Debt Security, and (iii) the principal amount of a Debt Security denominated in one or more foreign currencies or currency units that will be deemed to be Outstanding will be the U.S. dollar equivalent, determined as of such date in the manner prescribed for such Debt Security, of the principal amount of such Debt Security (or, in the case of a Debt Security described in clause (i) or (ii) above, of the amount described in such clause). Certain Debt Securities, including those for whose payment or redemption money has been deposited or set aside in trust for the Holders and those that have been fully defeased pursuant to Section 1302, will not be deemed to be Outstanding. (Section 101) Except in certain limited circumstances, the Company will be entitled to set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give or take any direction, notice, consent, waiver or other action under the Indentures, in the manner and subject to the limitations provided in the Indentures. In certain limited circumstances, the Trustee will be entitled to set a record date for action by Holders. If a record date is set for any action to be taken by Holders of a particular series, such action may be taken only by persons who are Holders of Outstanding Securities of that series on the record date. To be effective, such action must be taken by Holders of the requisite principal amount of such Debt Securities within a specified period following the record date. For any particular record date, this period will be 180 days or such shorter period as may be specified by the Company (or the Trustee, if it set the record date), and may be shortened or lengthened (but not beyond 180 days) from time to time. (Section 104) 15 DEFEASANCE AND COVENANT DEFEASANCE If and to the extent indicated in the applicable Prospectus Supplement, the Company may elect, at its option at any time, to have the provisions of Section 1302, relating to defeasance and discharge of indebtedness, or Section 1303, relating to defeasance of certain restrictive covenants in the Indentures, applied to the Debt Securities of any series, or to any specified part of a series. (Section 1301) Defeasance and Discharge. The Indentures will provide that, upon the Company's exercise of its option (if any) to have Section 1302 applied to any Debt Securities, with respect to any Subordinated Debt Securities, the provisions of Article Fifteen of the Subordinated Indenture relating to subordination will cease to be effective and, with respect to any Debt Securities, the Company will be discharged from all its obligations with respect thereto (except for certain obligations to exchange or register the transfer of Debt Securities, to replace stolen, lost or mutilated Debt Securities, to maintain paying agencies and to hold moneys for payment in trust) upon the deposit in trust for the benefit of the Holders of such Debt Securities of money or U.S. Government Obligations, or both, which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of and any premium and interest on such Debt Securities on the respective Stated Maturities in accordance with the terms of the Indentures and such Debt Securities. Such defeasance or discharge may occur only if, among other things, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Company has received from, or there has been published by, the United States Internal Revenue Service a ruling, or there has been a change in tax law, in either case to the effect that Holders of such Debt Securities will not recognize gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge were not to occur. (Sections 1302 and 1304) Defeasance of Certain Covenants. The Indentures will provide that, upon the Company's exercise of its option (if any) to have Section 1303 applied to any Debt Securities, the Company may omit to comply with certain restrictive covenants, including those described under "Restrictive Covenants" and in the last sentence under "Consolidation, Merger and Sale of Assets" and any that may be described in the applicable Prospectus Supplement, and the occurrence of certain Events of Default, which are described above in clause (d) (with respect to such restrictive covenants) under "Events of Default" and any that may be described in the applicable Prospectus Supplement, will be deemed not to be or result in an Event of Default, in each case with respect to such Debt Securities, and, in the case of the Subordinated Indenture, the provisions of Article Fifteen relating to subordination will cease to be effective with respect to any Subordinated Debt Securities. The Company, in order to exercise such option, will be required to deposit, in trust for the benefit of the Holders of such Debt Securities, money or U.S. Government Obligations, or both, which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of and any premium and interest on such Debt Securities on the respective Stated Maturities in accordance with the terms of the Indentures and such Debt Securities. The Company will also be required, among other things, to deliver to the Trustee an Opinion of Counsel to the effect that Holders of such Debt Securities will not recognize gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance were not to occur. In the event the Company exercised this option with respect to any Debt Securities and such Debt Securities were declared due and payable because of the occurrence of any Event of Default, the amount of money and U.S. Government Obligations so deposited in trust would be sufficient to pay amounts due on such Debt Securities at the time of their respective Stated Maturities but may not be sufficient to pay amounts due on such Debt Securities upon any acceleration resulting from such Event of Default. In such case, the Company would remain liable for such payments. (Sections 1303 and 1304) NOTICES Notices to Holders of Debt Securities will be given by mail to the addresses of such Holders as they may appear in the Security Register. (Sections 101 and 106) 16 TITLE The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name a Debt Security is registered as the absolute owner thereof (whether or not such Debt Security may be overdue) for the purpose of making payment and for all other purposes. (Section 308) GOVERNING LAW The Indentures and the Debt Securities will be governed by, and construed in accordance with, the law of the State of New York. (Section 112) REGARDING THE TRUSTEE The Trustee is the trustee for the Debt Securities to be issued. The Trustee is also trustee under the Company's ESOP, as defined below, as discussed more fully herein. In addition, Chemical Mellon Shareholder Services, L.L.C., an affiliate of the Trustee, is the Rights Agent under the Company's Rights Plan, as defined below, as discussed more fully herein. The Trustee also provides cash management and other banking and advisory services to the Company in the normal course of business. Upon the occurrence of an Event of Default or an event which, after notice or lapse of time or both, would become an Event of Default, or upon the occurrence of a default under such other indenture, the Trustee may be deemed to have a conflicting interest with respect to the Debt Securities for purposes of the Trust Indenture Act of 1939 and, unless the Trustee is able to eliminate any such conflicting interest, the Trustee may be required to resign as Trustee under either the Subordinated Indenture or the Senior Indenture. In that event, the Company would be required to appoint a successor trustee for such Indenture. DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 200,000,000 shares of Common Stock, par value $1.00 per share, and 20,000,000 shares of Class A Preferred Stock, without par value. The following description of the capital stock of the Company is a summary, and as such, it does not purport to be complete and is subject, and qualified in its entirety by reference to, the more complete descriptions contained in (i) the Articles of Incorporation of the Company, as amended (the "Articles"), the Bylaws of the Company, as amended (the "Bylaws"), and the Rights Agreement, effective March 21, 1996, between the Company and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), copies of each of which are incorporated by reference as exhibits to the Registration Statement of which this Prospectus is a part, and (ii) the certificate of designation relating to each series of Preferred Stock. COMMON STOCK Dividends. Subject to the rights and preferences that may be applicable to any outstanding Preferred Stock, the holders of Common Stock are entitled to receive dividends, when, if and as declared by the Board of Directors of the Company, out of funds legally available therefor. Voting Rights. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by shareholders, except that shareholders are entitled to cumulate their votes in the election of directors. Under cumulative voting, a shareholder has the right to multiply the total number of shares which the shareholder is entitled to vote by the number of directors to be elected and to cast the whole number of votes so determined for one nominee or to distribute them among different nominees. The Bylaws require shareholders desiring to nominate persons for election as a director to give advance notice of such nominations to the Company. 17 Other than in the election of directors, whenever any corporate action is to be taken by vote of the shareholders of the Company, or by a class of such shareholders of the Company, generally, it shall be authorized upon receiving the affirmative vote of a majority of the votes cast by such shareholders, or by such class of shareholders, entitled to vote thereon. The Articles and Bylaws require, however, the approval by the holders of at least 80% of the votes which all shareholders of the Company would be entitled to cast at an annual election of directors, voting together as a single class, for the removal of any director, class of directors or the entire Board of Directors (subject to nonremoval if sufficient votes are cast against removal) or for any change to any provision of the Articles or Bylaws providing for the number of directors, the classification of directors or the filling of vacancies on the Board of Directors, unless any such change is unanimously approved by the Board of Directors of the Company. In addition, the Bylaws of the Company may be amended only by a vote of two-thirds of the Board of Directors then in office, subject to the power of the shareholders to change such action. The Bylaws provide for the Board of Directors to be divided into three classes of directors, each class as nearly equal in number as possible, with one class being elected each year for a three-year term. The classification of the Board helps to ensure continuity and stability of corporate leadership and policy; however, it also has the effect of making it more difficult for a person to acquire control of the Company because at least two annual meetings are necessary to effect a change in a majority of the Company's directors. Further, while cumulative voting enables minority shareholders to gain representation on the Board, the existence of a classified Board increases the number of shares required to elect at least one director. Liquidation. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after the payment of the liabilities and the liquidation preferences of any outstanding preferred stock. Other Information. The Common Stock does not carry preemptive rights, is not redeemable, does not have any conversion rights, is not subject to further calls and is not subject to any sinking fund provisions. The shares of Common Stock currently outstanding are freely alienable, fully paid and nonassessable. Except in certain circumstances as discussed below under "Description of Capital Stock--Certain Provisions Affecting Control of the Company," the Common Stock is not subject to discriminatory provisions based on ownership thresholds. Conversion of Series A ESOP Preferred Stock. On July 31, 1996, the Trustee appointed by the Company's Employee Stock Ownership Plan, Mellon Bank, N.A., converted the shares of Series A ESOP Preferred Stock formerly held by the trustee for the account of participants in the Employee Stock Ownership Plan into Company Common Stock. CLASS A PREFERRED STOCK The Class A Preferred Stock, other than Series One Preferred Stock as discussed below, is issuable in one or more series and will have the dividend, conversion, redemption, voting and liquidation rights set forth below unless otherwise provided in the Prospectus Supplement relating to a particular series of the Preferred Stock. Reference is made to the Prospectus Supplement relating to the particular series of the Preferred Stock offered thereby for specific terms, including: (i) the title of the series and the number of shares in the series offered; (ii) the price at which such series will be issued; (iii) the dividend rate (or method of calculation), the dates on which dividends shall be payable and the dates from which dividends shall commence to accumulate for such series; (iv) any redemption or sinking fund provisions of such series; (v) any conversion provisions of such series; (vi) the voting rights, if any, of such series; (vii) the liquidation preference of such series; and (viii) any additional dividend, liquidation, redemption, sinking fund and other special or relative rights, preferences, qualifications, privileges, limitations, options and restrictions of such series. The Class A Preferred Stock is available for possible future financing and acquisition transactions, to pay stock dividends or make distributions, to fund employee benefit plans and for other general corporate purposes. Under certain circumstances, the Class A Preferred Stock could be used to create voting impediments for persons seeking to gain control of the Company. 18 Dividends. The Preferred Stock will be preferred over the Common Stock (but may be subordinated as to the other series of Preferred Stock) as to the payment of dividends. Before any dividends or distributions on the Common Stock shall be declared and set apart for payment or paid, the holders of shares of each series of Preferred Stock shall be entitled to receive dividends (either in cash, shares of Common Stock or Preferred Stock, or otherwise), when, as and if declared by the Board of Directors, at the rate and on the date or dates as set forth in the Prospectus Supplement. With respect to each series of Preferred Stock, the dividends on each share of such series shall be cumulative from the date of issuance of such shares unless some other date is set forth in the Prospectus Supplement relating to any such series. Accruals of dividends shall not bear interest. Conversion. Shares of any series of Preferred Stock will be convertible into shares of Common Stock or into shares of any other series of Preferred Stock to the extent set forth in the Prospectus Supplement relating to any such series. Redemption. Shares of any series of Preferred Stock will be redeemable to the extent set forth in the Prospectus Supplement relating to any such series, which may or may not include any restrictions on the repurchase or redemption thereof while there is any arrearage in the payment of dividends. Voting Rights. Unless otherwise provided in the Prospectus Supplement, the holders of shares of Preferred Stock will be entitled to one vote for each share of Preferred Stock held by them on all matters presented to shareholders. Liquidation. The Preferred Stock will be preferred over the Common Stock (but may be subordinated as to other series of Preferred Stock, as described herein) as to assets so that the holders of each series of Preferred Stock will be entitled to be paid, upon the voluntary or involuntary liquidation, dissolution or winding up of the Company and before any distribution is made to the holders of Common Stock, the amount set forth in the Prospectus Supplement relating to any such series, but in such case the holders of such series of Preferred Stock will not be entitled to any other or further payment. Other Information. Unless otherwise provided in the Prospectus Supplement, the Preferred Stock will not carry any preemptive rights, will not be, upon issuance, subject to further calls and will not be, upon issuance, subject to any sinking fund provisions. The Preferred Stock will be, when issued, fully paid and nonassessable. Unless otherwise provided in the Prospectus Supplement, and except in certain circumstances as discussed below under "Description of Capital Stock--Certain Provisions Affecting Control of the Company," the Preferred Stock will not be, upon issuance, subject to discriminatory provisions based on ownership thresholds. SERIES ONE PREFERRED STOCK AND PREFERRED STOCK PURCHASE RIGHTS Preferred Stock Purchase Rights. The Series One Preferred Stock, which is a series of Class A Preferred Stock, is issuable pursuant to the exercise of rights to purchase Series One Preferred Stock ("Rights"). The Series One Preferred Stock is not being offered hereby, although the Rights will attach to any Common Stock which may be sold pursuant to this Prospectus and any Prospectus Supplement. On March 21, 1996, the Board of Directors of the Company paid a distribution of one Right for each outstanding share of Common Stock of the Company to shareholders of record on January 19, 1996, and with respect to each share of Common Stock that may be issued by the Company prior to the date on which the Rights first become exercisable (or the earlier redemption or expiration of the Rights), subject to adjustment in certain events. In general, the Rights become exercisable ten 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 would result in such person or group beneficially owning shares representing 28% or more of the voting power of the Company. When the Rights become exercisable, each Right entities its holder (other than such 20% shareholder or tender or exchange offeror) to buy one one-hundredth of a newly issued share of Series One Preferred Stock at a purchase price of $300, subject to adjustment. If, after the Rights become exercisable, 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 corporation in a merger with a person or group that owns 20% or more of the voting power of the 19 Company, then each owner of a Right (other than such 20% or 28% shareholder) will be entitled to purchase shares of Armstrong's Common Stock having a value equal to twice the exercise price of the Right. In addition, if, after the Rights become exercisable, the Company is a party to a merger and is not the surviving company or 50% or more of the Company's assets or earnings power are sold in a single or series of related transactions, then each owner of a Right will be entitled to purchase shares of the acquiring person having a value equal to twice the exercise price of the Right. Until the Rights first become exercisable, the Rights attach to and trade with shares of the Company's Common Stock. Generally, the Rights are redeemable at the option of the Company for $.05 per Right at any time prior to the tenth day following a public announcement that a person or group has acquired beneficial ownership of 20% or more of the voting power of the Company. The Rights expire by their terms on March 21, 2006, unless earlier redeemed. The terms of the Rights are set forth in the Rights Agreement which has been filed with the SEC as an Exhibit to a Registration Statement on Form 8-A/A filed on March 15, 1996, file number 001-02116, and is incorporated herein by reference. Dividends. Subject to the rights and preferences of the holders of any other series of Class A Preferred Stock, the holders of Series One Preferred Stock are entitled to receive cumulative, quarterly dividends, without interest, when and as declared by the Board of Directors of the Company, out of funds legally available therefor, in preference to the holders of Common Stock and in an amount per share equal to the greater of $36.00 or 100 times, as adjusted, the aggregate per share amount of all cash and non-cash dividends or other distributions, other than a dividend or distribution payable in shares of Common Stock, paid on the Common Stock in the immediately preceding quarter. Conversion Rights. In the event the Company enters into any consolidation, merger, combination or other transaction in which the Common Stock is exchanged for or changed into other stock or securities, cash and/or any other property, then the Series One Preferred Stock will be at the same time, similarly exchanged for or converted into an amount per share equal to 100 times, as adjusted, the aggregate amount for or into which the Common Stock is exchanged or converted. Voting Rights. Holders of Series One Preferred Stock have no voting rights except as may be provided by law. Redemption. The Series One Preferred Stock may be redeemed at the option of the Board of Directors of the Company, as a whole, but not in part, at any time, at a cash price per share equal to 100 times, as adjusted, the average market value, as defined, of the Common Stock, plus all accrued but unpaid dividends. The Company is not entitled, however, to purchase or otherwise acquire shares of the Series One Preferred Stock if the quarterly dividend in respect thereof is accrued and has not been paid or declared and a sum sufficient for the payment thereof set apart unless all shares of such stock at the time outstanding are purchased or otherwise acquired. Liquidation. Subject to the rights and preferences of the holders of any other series of Class A Preferred Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series One Preferred Stock are entitled to $100 per share, plus all accrued and unpaid dividends, plus an amount equal to the holder's pro rata share of assets that would be available for distribution after payment of all liabilities, liquidation preferences and distributions on the Common Stock, if any, as determined according to a formula and subject to adjustment in certain events. The amount payable to the holders of Series One Preferred Stock as so determined is prior to any payment or distribution to the holders of Common Stock. Other Information. The Series One Preferred Stock does not carry any preemptive rights, will not be subject, upon issuance, to any sinking fund provisions and will not be subject, upon issuance, to any further calls. Upon issuance, the shares of the Series One Preferred Stock will be freely alienable, fully paid and nonassessable. Except in certain circumstances as discussed below under "Description of Capital Stock--Certain Provisions Affecting Control of the Company," the Series One Preferred Stock will be, upon issuance, freely alienable and not subject to discriminatory provisions based on ownership thresholds. 20 CERTAIN PROVISIONS AFFECTING CONTROL OF THE COMPANY General. Certain provisions of the Company's Articles, Bylaws and the Pennsylvania Business Corporation Law (the "PBCL") operate only with respect to extraordinary corporate transactions, such as mergers, reorganizations, tender offers, sales or transfers of substantially all of the Company's assets or the liquidation of the Company, and could have the effect of delaying or making more difficult a change in control of the Company in certain circumstances. Certain Provisions of the Articles. The Articles provide that a Business Combination (as defined below) with an Interested Shareholder (as defined below) requires the affirmative vote of shareholders entitled to cast at least a majority of the votes which all shareholders, other than the Interested Shareholder, would be entitled to cast at an annual election of directors, voting together as a single class, unless the transaction is approved by a majority of the Disinterested Directors (as defined below) or the transaction meets certain fair price and procedural requirements. An "Interested Shareholder" is, with certain exceptions, any person, or his assignee or successor (not including Armstrong or an affiliate of Armstrong), who is (or was within the previous two years) the beneficial owner of more than ten percent of the voting power of the outstanding voting stock, together with such person's affiliates and associates. A "Business Combination" includes, among other transactions, the following: (i) the merger or consolidation of the Company with the Interested Shareholder; (ii) the sale of all or substantially all of the assets of the Company to the Interested Shareholder or its affiliates or associates; (iii) the issuance of securities of the Company to an Interested Shareholder having a value equal to greater than ten percent of the assets of the Company; (iv) the adoption of any plan for the liquidation or dissolution of the Company proposed by or on behalf of the Interested Shareholder; or (v) any reclassification or recapitalization of securities which effectively increases the proportional equity share of the Interested Shareholder. The term "Disinterested Director" means a director who is neither affiliated with nor a representative of an Interested Shareholder and (i) was a director prior to the time an Interested Shareholder became such, (ii) was recommended or elected to fill a vacancy created by an increase in the size of the Board of Directors by a majority of the Disinterested Directors then in office, or (iii) was a successor of a Disinterested Director and was recommended or elected to succeed a Disinterested Director by a majority of the Disinterested Directors then in office. Certain other provisions of the Articles and Bylaws which could have the effect of delaying or preventing a Change in Control of the Company are described above under the captions "Description of Capital Stock--Common Stock" and "Description of Capital Stock--Class A Preferred Stock." Certain Provisions of the PBCL. The Company is governed by certain "anti- takeover" provisions in the PBCL which include the following: (i) provisions which prohibit certain business combinations (as defined in the PBCL) involving a corporation that has voting shares registered under the Exchange Act and an "interested shareholder" (generally defined to include a person who beneficially owns shares representing at least 20% of the votes that all shareholders would be entitled to cast in an election of directors of the corporation) unless certain conditions are satisfied or an exemption is applicable; (ii) provisions concerning a "control-share acquisition" in which the voting rights of certain shareholders of the corporation (specifically, a shareholder who acquires 20%, 33 1/3% or 50% or more of the voting power of the corporation) are conditioned upon the consent of a majority vote at a meeting of the independent shareholders of the corporation after disclosure by such shareholder of certain information, and with respect to which such shareholder is effectively deprived of voting rights if consent is not obtained; (iii) provisions pursuant to which any profit realized by a "controlling person or group," generally defined as a 20% beneficial owner, from the disposition of any equity securities within twenty-four months prior to, and eighteen months succeeding, the acquisition of such control is recoverable by the corporation; (iv) provisions pursuant to which severance payments are to be made by the corporation to any eligible employee of a covered corporation whose employment is terminated, other than for willful misconduct, with ninety days before, or twenty-four months after, a control- share acquisition; (v) provisions pursuant to which any holder of voting shares of a registered corporation who objects to a "control transaction" (generally defined as the acquisition by a person or group (the "controlling person or group") that would entitle the holders thereof to cast at least 20% of the votes that all shareholders would be entitled to cast in an election of the directors of the corporation) is entitled to make a written demand on the controlling person or group for payment of the fair value of the voting shares of the corporation held by the shareholder; (vi) a set of interrelated 21 provisions which are designed to support the validity of actions taken by the Board of Directors in response to takeover bids, including specifically the Board's authority to "accept, reject or take no action" with respect to a takeover bid, and permitting the unfavorable disparate treatment of a takeover bidder; and (viii) provisions which allow the directors broad discretion in considering the best interests of the corporation, including a provision which permits the Board to consider various corporate interests including the short and long-term interests of the corporation and the resources, intent and conduct of any person seeking to acquire the corporation. DESCRIPTION OF DEPOSITARY SHARES General. The Company may, at its option, elect to offer fractional shares of Preferred Stock, rather than full shares of Preferred Stock. In the event such option is exercised, the Company will issue to purchasers receipts for Depositary Shares, each of which will represent a fraction (to be set forth in the Prospectus Supplement relating to a particular series of Preferred Stock) of a share of a particular series of Preferred Stock. The shares of any series of the Preferred Stock underlying the Depositary Shares will be deposited under a separate Deposit Agreement (the "Deposit Agreement") between the Company and a bank or trust company selected by the Company having its principal office in the United States and having a combined capital and surplus of at least $50,000,000 (the "Depositary"). The Prospectus Supplement relating to a series of Depositary Shares will set forth the name and address of the Depositary. Subject to the terms of the Deposit Agreement, each owner of a Depositary Share will be entitled, in proportion to the applicable fractional interest in a share of Preferred Stock underlying such Depositary Share, to all the rights and preferences of the Preferred Stock underlying such Depositary Share (including dividend, voting, redemption, conversion and liquidation rights). The Depositary Shares will be evidenced by Depositary Receipts issued pursuant to the Deposit Agreement. Pending the preparation of definitive engraved Depositary Receipts, the Depositary may, upon the written order of the Company, issue temporary Depositary Receipts substantially identical to (and entitling the holders thereof to all the rights pertaining to) the definitive Depositary Receipts but not in definitive form. Definitive Depositary Receipts will be prepared thereafter without unreasonable delay, and temporary Depositary Receipts will be exchangeable for definitive Depositary Receipts at the Company's expense. Upon surrender of Depositary Receipts at the office of the Depositary and upon payment of the charges provided in the Deposit Agreement and subject to the terms thereof, a holder of Depositary Shares is entitled to have the Depositary deliver to such holder the whole shares of Preferred Stock underlying the Depositary Shares evidenced by the surrendered Depositary Receipts. Dividends. The Depositary will distribute all cash dividends or other cash distributions received in respect of the Preferred Stock to the record holders of Depositary Shares relating to such Preferred Stock in proportion to the numbers of such Depositary Shares owned by such holders on the relevant record date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any holder of Depositary Shares a fraction of one cent, and any balance not so distributed shall be added to and treated as part of the next sum received by the Depositary for distribution to record holders of Depositary Shares. In the event of a distribution other than in cash, the Depositary will distribute property received by it to the record holders of Depositary Shares entitled thereto, unless the Depositary determines that it is not feasible to make such distribution, in which case the Depositary may, with the approval of the Company, sell such property and distribute the net proceeds from such sale to such holders. Conversion and Exchange. If any Preferred Stock underlying the Depositary Shares is subject to provisions relating to its conversion or exchange as set forth in a Prospectus Supplement relating thereto, each record holder of Depositary Shares will have the right or obligation to convert or exchange such Depositary Shares into other securities of the Company or rights or payments pursuant to the terms thereof. 22 Redemption. After the date fixed for redemption as may be set forth in any Prospectus Supplement relating to the Depositary Shares, the Depositary Shares so called for redemption will no longer be deemed to be outstanding, and all rights of the holders of the Depositary Shares will cease, except the right to receive the moneys payable upon such redemption and any money or other property to which the holders of such redeemed Depositary Shares were entitled upon surrender to the Depositary of the Depositary Receipts in respect thereof. Unless otherwise provided in the Prospectus Supplement or in the Deposit Agreement, the Depositary Shares will not be subject to any restriction on the repurchase or redemption thereof while there is any arrearage in the payment of dividends. Voting Rights. Upon receipt of notice of any meeting at which the holders of the Preferred Stock are entitled to vote, the Depositary will mail the information contained in such notice of meeting to the record holders of the Depositary Shares relating to such Preferred Stock. Each record holder of such Depositary Shares on the record date (which will be the same date as the record date for the Preferred Stock) will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the number of shares of Preferred Stock underlying such holder's Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote the number of shares of Preferred Stock underlying such Depositary Shares in accordance with such instructions, and the Company will agree to take all action which may be deemed necessary by the Depositary in order to enable the Depositary to do so. The Depositary will abstain from voting shares of Preferred Stock to the extent it does not receive specific instructions from the holders of Depositary Shares relating to such Preferred Stock. Other Information. Unless otherwise provided in the Prospectus Supplement or the Deposit Agreement, the Depositary Shares will not carry any conversion rights, will not be subject, upon issuance, to any sinking fund provisions, will not carry any liquidation or preemption rights and will not be, upon issuance, subject to any further calls. The Depositary Shares will be, when issued, freely alienable, fully paid and nonassessable. Unless otherwise provided in the Prospectus Supplement or the Deposit Agreement, and except in certain circumstances as described above under "Description of Capital Stock-- Anti-Takeover Provisions," the Preferred Stock will not be, upon issuance, subject to discriminatory provisions based on ownership thresholds. Amendment and Termination of the Deposit Agreement. The form of Depositary Receipt evidencing the Depositary Shares and any provision of the Deposit Agreement may at any time be amended by agreement between the Company and the Depositary. However, any amendment which materially and adversely alters the rights of the existing holders of Depositary Shares will not be effective unless such amendment has been approved by the record holders of at least a majority of the Depositary Shares then outstanding. A Deposit Agreement may be terminated by the Company Depositary only if (i) all outstanding Depositary Shares relating thereto have been redeemed or (ii) there has been a final distribution in respect of the Preferred Stock of the relevant series in connection with any liquidation, dissolution or winding up of the Company and such distribution has been distributed to the holders of the related Depositary Shares. Charges of Depositary. The Company will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. The Company will also pay charges of the Depositary in connection with the initial deposit of the Preferred Stock and any redemption of the Preferred Stock. Holders of Depositary Shares will pay transfer and other taxes and governmental charges and such other charges as are expressly provided in the Deposit Agreement to be for their accounts. Miscellaneous. The Depositary will forward to the holders of Depositary Shares all reports and communications which are delivered to the Depositary and which are required to be furnished to the holders of the Preferred Stock. Neither the Depositary nor the Company will be liable if either is prevented or delayed by law or any circumstance beyond its control in performing its obligations under the Deposit Agreement. The obligations of the Company and the Depositary under the Deposit Agreement will be limited to performance in good faith of their duties thereunder and they will not be obligated to prosecute or defend any legal proceeding in respect of any Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished. Either may rely upon written 23 advice of its counsel or accountants, or information provided by persons presenting Preferred Stock for deposit, holders of Depositary Shares or other persons believed to be competent and on documents believed to be genuine. Resignation and Removal of Depositary. The Depositary may resign at any time by delivering to the Company notice of its election to do so, and the Company may at any time remove the Depositary, any such resignation or removal to take effect upon the appointment of a successor Depositary and the Company's acceptance of such appointment. Such successor Depositary must be appointed within 90 days after delivery of the notice of resignation or removal and must be a bank or trust company having its principal office in the United States and having a combined capital and surplus of at least $50,000,000. PLAN OF DISTRIBUTION The Company may sell the Securities being offered hereby in any of four ways: (i) directly to purchasers, (ii) through agents, (iii) through underwriters, and (iv) through dealers. Offers to purchase Securities may be made by potential investors or their agents on an unsolicited basis or may be solicited directly by the Company or agents designated by the Company from time to time. The applicable Prospectus Supplement or Prospectus Supplements will set forth the terms of the offering of the Securities, including the name or names of any agents, underwriters or dealers, the purchase price of the Securities and the proceeds to be received by the Company from such sale, any underwriting discounts and other items constituting underwriters' compensation and any discounts and commissions allowed or reallowed or paid to dealers or agents. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers or agents may be changed from time to time. In connection with the sale of Securities, underwriters or agents may receive compensation from the Company in the form of underwriting discounts or commissions. Underwriters may sell Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters. Underwriters, dealers and agents participating in the distribution of Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Securities may be deemed to be underwriting discounts and commissions, under the Securities Act of 1933, as amended. Such underwriters, dealers and agents may be entitled under agreements which may be entered into by the Company to indemnification by the Company against and contribution toward certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Securities may be distributed in one or more transactions from time to time at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. If so indicated in the applicable Prospectus Supplement or Prospectus Supplements, the Company will authorize dealers or other persons acting as the Company's agents to solicit offers by certain institutions to purchase Securities from the Company at the public offering price set forth in the applicable Prospectus Supplement or Prospectus Supplements pursuant to delayed delivery contracts ("Contracts") providing for payment and delivery on the future date or dates stated in the applicable Prospectus Supplement or Prospectus Supplements. Each Contract will be for an amount not less than, and the aggregate amount of Securities sold pursuant to Contracts shall be not less nor more than, the respective amounts stated in the applicable Prospectus Supplement or Prospectus Supplements. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions, and other institutions, but will in all cases be subject to the approval of the Company. The obligations of any purchaser under any Contract will not be subject to any conditions except (1) the purchase by an institution of the Securities covered by its Contract shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject and (2) if Securities are being sold to underwriters, the Company shall have sold to such underwriters the total principal amount of such Securities less the principal amount thereof covered by Contracts. Underwriter and such other persons will not have any responsibility in respect of the validity or performance of Contracts. 24 The Securities (other than Common Stock) will be a new issue of securities with no established trading market. If so indicated in the applicable Prospectus Supplement, any underwriters or agents to or through whom Securities are sold by the Company for public offering and sale may make a market in such Securities, but such underwriters and agents will not be obligated to do so and may discontinue any market-making at any time without notice. No assurance can be given as to the liquidity of the trading market for any Securities, other than Common Stock. Certain of the underwriters, dealers and/or agents and their associates may be customers of, engage in transactions with and perform services for the Company, including its subsidiaries, in the ordinary course of business. VALIDITY OF SECURITIES Unless indicated otherwise in a Prospectus Supplement relating thereto, the validity of the Securities will be passed upon for Armstrong by Buchanan Ingersoll Professional Corporation, Pittsburgh, Pennsylvania. With the exception of the Preferred Stock Purchase Rights, the validity of the Securities will be passed upon for the underwriters or agents, as the case may be, by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will rely upon the opinion of Buchanan Ingersoll Professional Corporation as to all matters of Pennsylvania law. EXPERTS The consolidated financial statements and schedule of the Company and its subsidiaries as of December 31, 1995 and 1994 and for each of the fiscal years in the three-year period ended December 31, 1995, have been incorporated by reference herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick L.L.P., independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. With respect to the unaudited interim financial information for the periods ended June 30, 1996 and 1995, and, March 31, 1996 and 1995, incorporated by reference herein, the independent certified public accountants have reported that they applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports included in the Company's quarterly report on Form 10-Q for the quarters ended June 30, 1996 and March 31, 1996, certain portions of which are superseded by the Company's Current Report on Form 8-K filed on October 18, 1996, and incorporated by reference herein, state that they did not audit and they do not express an opinion on the interim financial information. Accordingly, the degree of reliance on such reports should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of section 11 of the 1933 Act for their reports on the unaudited interim financial information because those reports are not "reports" or a "part" of the registration statement prepared or certified by the accountants within the meaning of sections 7 and 11 of the 1933 Act. The consolidated financial statements of Dal-Tile International Inc. incorporated by reference in the Company's Current Report on Form 8-K, as amended, for the fiscal year ended December 31, 1994, have been audited by Ernst & Young L.L.P., independent auditors, as set forth in their report thereon (which contains an explanatory paragraph with respect to a change in the method of accounting for income taxes as discussed in Note 8 to the consolidated financial statements) incorporated therein and herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 25 -----END PRIVACY-ENHANCED MESSAGE-----