Exhibit 99.1
EXHIBIT "C"
PROJECTED FINANCIAL INFORMATION
ARMSTRONG WORLD INDUSTRIES, INC.
SIGNIFICANT ASSUMPTIONS FOR FINANCIAL PROJECTIONS
For purposes of developing the Plan of Reorganization (the "Plan") for Armstrong
World Industries, Inc. ("AWI") *1 and evaluating its feasibility, the following
financial projections were prepared. These financial projections reflect AWI's
estimate of its expected consolidated financial position, results of operations,
and cash flows. Accordingly, the projections reflect AWI's judgment, as of the
date of this Disclosure Statement, of expected future operating and business
conditions, which are subject to change.
All estimates and assumptions shown within the projections were developed by
AWI. The assumptions disclosed herein are those that AWI believes to be
significant to the projections. Although AWI is of the opinion that these
assumptions are reasonable under the circumstances, such assumptions are subject
to significant uncertainties, such as change in demand of public and private
commercial and residential building construction and renovation, laws and
regulations, foreign currency and interest rates, inflation or other related
factors affecting AWI's businesses. Despite AWI's efforts to foresee and plan
for the effects of changes in these circumstances, AWI cannot predict their
impact with certainty. Consequently, actual financial results could vary
significantly from projected results.
THE PROJECTED FINANCIAL INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION
OR WARRANTY BY AWI OR ANY OTHER PERSON AS TO THE ACCURACY OF THE PROJECTED
FINANCIAL INFORMATION OR THAT ANY PROJECTIONS SET FORTH HEREIN WILL BE REALIZED.
The Projected Financial Information was prepared by AWI; it has not been audited
or reviewed by independent accountants. The significant assumptions used in the
preparation of the Projected Financial Information are stated below.
THE PROJECTED FINANCIAL INFORMATION, INCLUDING THE UNDERLYING ASSUMPTIONS,
SHOULD BE CAREFULLY REVIEWED IN EVALUATING THE PLAN.
It is projected that AWI will emerge from chapter 11 on July 1, 2003 (the
"Effective Date"). The reorganization will be accounted for in accordance with
the American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7").
The following Projected Financial Information is included herein:
- -------------------------------
*1 Any capitalized term used but not defined in this Exhibit "C" will have the
meaning ascribed to such term in the Plan.
1
1. Projected Consolidated Balance Sheets of Reorganized Armstrong World
Industries as of the Effective Date (which reflects the projected
accounting effects of the Plan's consummation and of "fresh start"
accounting as promulgated by SOP 90-7) and at December 31 for each of the
years from 2003 through 2007.
2. Projected Consolidated Statements of Income of Reorganized Armstrong World
Industries for each of the six month period ending December 31, 2003, and
each of the years ending December 31, 2004 through 2007.
3. Projected Consolidated Statements of Cash Flow of Reorganized Armstrong
World Industries for each of the six month period ending December 31,
2003, and each of the years ending December 31, 2004 through 2007.
4. Projected Capital Structure of Reorganized Armstrong World Industries as
of the Effective Date [TO BE ATTACHED AT A LATER DATE].
The Projected Financial Information has been prepared on the basis of generally
accepted accounting principles consistent with those currently utilized by
Armstrong World Industries in the preparation of its consolidated financial
statements except as noted in the following assumptions. The projections should
be read in conjunction with the significant assumptions, qualifications and
notes set forth below and with the audited consolidated financial statements for
the fiscal year ended December 31, 2001 contained in the 2001 Form 10-K.
WHILE AWI BELIEVES THE ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL
INFORMATION, WHEN CONSIDERED ON AN OVERALL BASIS, ARE REASONABLE IN LIGHT OF
CURRENT CIRCUMSTANCES AND EXPECTATIONS, NO ASSURANCE CAN BE GIVEN THAT ANY
PROJECTIONS WILL BE REALIZED.
A. GENERAL ASSUMPTIONS
The forecast was created on a basis of combined business unit operations using
segmental data for the business reporting entities, which include domestic and
international affiliates of AWI which are not in chapter 11.
The Business Plan assumes certain specific economic and business conditions for
2003, with general assumptions based upon future macroeconomic indicators,
historic growth and estimated directions of specific markets thereafter.
2
ECONOMIC CONDITIONS
NORTH AMERICA
- -------------
Plans have been built around a moderate economic recovery, with an assumption of
3.1% Real GDP improvement in 2003 and similar sustained modest growth for the
duration of the forecasted period.
In the residential market, housing starts and single-family sales are projected
to remain strong, but are expected to fall 2-3% in 2003 from record levels in
2002. The forecast assumes that home affordability, climbing in recent years,
will continue to enable ownership, which has grown from 64% to 68% over the
previous decade. The following supports these key indicators:
>> Interest rates are expected to rise 0.5-0.7% in 2003, but
will remain near historically low levels in the forecasted
period, continuing to fuel personal and commercial
investment.
>> Consumer confidence (as forecasted by the National
Association of Realtors) is expected to rise in 2003 to
115-118, up from 2001 and 2002 levels of approximately
106. Job starts and recovery should help support sentiment
for the duration.
Recovery in the commercial markets is anticipated to be slower than the growth
in residential, but some renewed confidence by commercial developers is expected
to take hold in 2003 as the economy rebounds and vacancy rates, which rose
significantly in 2002, fall. Moderate growth in commercial should persist in
2004-2007, driven by a stronger economy and low interest rates. Similar trends
are anticipated in the U.S. retail segment.
EUROPE
- ------
Armstrong competes in most countries throughout Western Europe. In general, much
like the United States, Western Europe has seen lower interest rates support the
housing market while helping to keep the continent from sliding into a
significant economic recession. There are concerns that home affordability is
becoming an economic strain, and, in some areas, there is a general softening of
demand. Discretionary spending on "other housing spending" is also being fueled
by interest rates.
For purposes of this forecast, it is assumed that a moderate (1-2%) economic
recovery in Europe will take place in 2003, with similar moderate growth in the
periods forecasted. This growth will vary by region, with some countries (U.K.,
Russia, and Poland) growing more quickly than others in the Eurozone.
ASIA
- ----
The expected strong growth of the Chinese market (7.0% GDP in 2003) is expected
to lead economic expansion in the area. The forecast assumes that, due to
relatively low interest rates, low inflation, and continued manufacturing
3
expansion by U.S. and European firms in the area, economic growth is anticipated
to continue in the mid-single digits for the foreseeable future, though this
will vary by country. Some countries, such as Japan and Korea, are expected to
experience more moderate growth.
FOREIGN EXCHANGE
The Company pursues sales in over 75 countries throughout the world. Therefore,
the Company has exposure to foreign exchange fluctuations for the duration of
this forecast. However, for purposes of this forecast no significant foreign
exchange fluctuations have been assumed.
COMPETITIVE POSITION- FLOORS
AMERICAS:
- ---------
Over the past 10 years ending 2001, the floor coverings market has grown at a
Compound Average Growth Rate (CAGR) of 5.6%. Growth has varied for the category
types, with customer preference, new product designs, and technology changing
the product offering mix and sales results. The Company participates in three of
these primary product lines - resilient (vinyl), hardwood, and laminates.
Experience varies by product:
U.S. FLOOR COVERING SALES 1992-2001
- -----------------------------------
1992 2001
- ---- ----
($12.4B SALES) ($20.2B SALES)
Carpet 71% Carpet 65%
Vinyl 12% Ceramic 10%
Ceramic 9% Hardwood 9%
Hardwood 5% Vinyl 8%
Rubber 3% Laminates 4%
Rubber 4%
Segment sales experience and future expectations in the forecast vary by
product:
WOOD: [historic 10-year CAGR 12%]
Wood floors have gained significant share of the floor covering segments,
growing from 5% to 9% of total share. The Company, selling under the product
names Bruce(TM), Robbins(TM) and Hartco(TM), participates in a highly
competitive landscape of traditional wood floor and new entry manufacturers. The
sales expectations in the forecast are based on assumptions that the wood floor
market will continue to take some share away from other types of floor covering
surfaces. However, as more suppliers enter the marketplace, price-point pressure
will grow. The Company plans on offsetting this pressure through superior new
product offerings at continuously improving service levels.
4
LAMINATE: [historic 10 year CAGR 25+%]
The fastest growing market in all of Americas flooring is laminates, and the
Company, by some estimates, is #2 in market size for this product. The growing
competition in this relatively small market has increased pricing pressure
significantly. The product is expected to continue to grow sales in the high
single-digit range, with technology and price the largest determinates on margin
growth. The Company does not manufacture laminate flooring. Instead, the Company
enters into long-term contracts with third party manufacturers for supply of
this product.
RESILIENT: [historic 10 year CAGR 2%]
While shrinking as a percentage of total floor offerings, resilient/vinyl sales
have grown based upon the overall growth of the industry. The forecast assumes
that the markets will remain flat in resilient as wood and laminates take share,
mainly from carpet. The Company plans on improving product market share by
improved performance with key distributors and customers and continuously
improving product design offerings and services.
EUROPE:
- -------
The Company competes in two distinct Flooring markets in Europe, each with its
own market demands, supply conditions, and competitive landscapes.
Sports Flooring/Textile is served by the Armstrong Desso business and
concentrates primarily on customers throughout Europe, though a small amount of
sales also occurs in North America. The sports flooring/textile market in Europe
is forecasted to be flat over the forecast period, with a series of highly
fragmented manufacturers challenged by excess capacity for the foreseeable
future. Sales and margin growth assumptions are consistent with the Company's
continued commitment to pursuing market leadership and cost productivity in this
flat environment.
Resilient Floors are also facing a flat to declining market during the course of
the forecast. The resilient market is characterized as highly fragmented, with
excess capacity further depressing market prices. Product preferences on style
differ significantly by country, further fragmenting the market. For the period
forecasted, AWI is assuming no growth in Western Europe, but growth
possibilities in Eastern Europe. Germany, the Company's largest volume region,
is expected to remain in its economic stagnation at least through 2003.
The Company will grow revenues and margins by focusing efforts in key targeted
market segments and pursuing productivity in manufacturing to drive profit
improvement.
5
COMPETITIVE POSITION- BUILDING PRODUCTS
AMERICAS:
- ---------
The Commercial Ceiling business is expected to be virtually flat in 2003, as
current office vacancies will defer much new construction. Expectations
incorporated in the forecast are for growth of 1.5-2.0% for the duration of the
projected period. Retail sales are expected to grow to match residential demand.
Similar to Floors, new product development, styling, price, and services
continue to drive market share for products in the Americas. New product
developments, especially in alternative material ceilings such as wood and
metal, are increasing customer options and competition.
EUROPE:
- -------
As in the U.S., the commercial markets in Europe are expected to grow, but at a
slower rate than GDP due to current vacancies. In addition, sales growth will
differ by region, with slight improvements in Western Europe following two years
of decline, and moderate growth in Russia and Eastern Europe.
The Company is the leading branded commercial mineral fiber supplier in Western
Europe. As pressure is increasingly being placed on traditional mineral fiber by
metal and soft ceiling entries, the Company expects to grow its metal ceilings
business in Europe.
ASIA:
- -----
The rapidly growing Chinese industrialization, coupled with preparations for the
2008 Olympics, should continue to attract investment over the projected period.
Other countries in the region should also experience growth, especially South
Asia. There is strong competition in the region from drywall ceilings,
competition that is fueled by excess capacity and low installed pricing, which
makes the product attractive versus other ceiling applications.
COMPETITIVE POSITION- CABINETS
The market for cabinets in the U.S. is expected to rise 4% in 2003, as
remodeling activities from strong home resale levels in 2001-2003 continue to
drive demand. From 2004 onwards, however, a moderate (1-2%/year) contraction in
the market is anticipated as home resale markets slow and the remodeling
activities decline due to slightly increasing interest rates and increased
financing costs. The Company contends that share can be gained through improving
customer delivery performance, providing superior product quality, and
introducing new product styles and offerings.
6
PRICING/INFLATION
Inflation on sales price differs by business, depending on the industry and
geography in which it competes, the competitive platform that exists, new
products that may be introduced, and the expected demands of the customer. In
general, the forecasts assume little to no gain in sales price due to the
competitive nature of the businesses.
Inflation on costs other than raw materials is generally assumed to be in line
with CPI (U.S.) and other country equivalent calculations of price increase.
Inflation pressures are expected to be moderate (<2% in the U.S. and 2-4% in
most other countries) in 2003 and the duration of the forecast.
Salary increases are assumed to trend in line with inflation and job
availability (unemployment) figures. Where available, contracted wage increases
are included in the forecast. Otherwise, similar assumptions on CPI and
unemployment are utilized for manufacturing labor cost inflation assumptions.
Principal raw material assumptions differ by business and by product line. Raw
materials purchases include the following:
Wood:
- -----
Inflation of 4% in 2003 is forecast to normalize pricing from current depressed
levels, with 2% increases expected annually from 2004 through 2007.
PVC/Plasticizers:
- -----------------
In the U.S. operations, materials are expected to be 3% higher in 2003, with
increases expected to trend with overall CPI for 2004 through 2007. Europe
expectations are similar for 2003, but increases thereafter are expected to be
nominal.
Natural Gas:
- ------------
Market prices for natural gas are expected to be stable over the forecast
period, as the market pursues supply/demand equilibrium. In addition, the
Company utilizes a formal hedging system to moderate against exposure to large
short-term price swings.
Selling, General, Administrative and Other Expense:
- ---------------------------------------------------
Selling, general, administrative and other expenses are forecasted in the
individual business entities based upon their expectations of delivering quality
products to the customer while attaining productivity within the operations to
improve operating margin. Growth and decline outlooks in each business entity
are based upon the individual needs of the specific business unit.
In addition, corporate support costs are assessed to the businesses. Cost
assessments are based upon a level of effort; generally a calculation based on
measurements such as employee headcount per group, man hours per group, invoices
processed or materials procured per group. Corporate support costs cover
services for accounting, treasury, tax, human resources, communications, legal,
safety, shared services, and other corporate officer services.
7
B. DISTRIBUTIONS UNDER THE PLAN
Cash, debt securities and common stock of Reorganized AWI will be distributed
pursuant to the Plan.
The Asbestos PI Trust and the holders of Allowed Unsecured Claims will share in
the Plan consideration, made up of the following components:
a) Available Cash
b) New Notes, and
c) Substantially all of the outstanding common stock of Reorganized
AWI
ASSET DISTRIBUTIONS
- -------------------
AWI expects to distribute cash and certain other assets on or after the
Effective Date as follows:
a) Assuming the class of Asbestos Property Damage Claims votes to
accept the Plan, $5 million (funded exclusively with proceeds
from insurance) will be used to fund the Asbestos PD Trust, which
will be responsible for satisfying Asbestos Property Damage
Claims.
b) Approximately $350 million of cash will be distributed to the
Asbestos PI Trust and to holders of Allowed Unsecured Claims.
c) Approximately $183 million in book value of insurance assets will
be distributed to the Asbestos PI Trust.
DEBT SECURITIES
- ---------------
Debt securities as described below, will be issued on the Effective Date:
AWI will issue three series of new unsecured notes in the principal amounts of
$___ million, $___ million, and $___ million, which will mature five, seven, and
ten years, respectively, after the Effective Date.
COMMON STOCK
- ------------
Common Stock of Reorganized AWI will also be issued pursuant to the Plan. Based
on, among other things, its analysis of the Projected Financial Information, the
market value of securities of other companies serving similar markets and their
capitalization rates, AWI's financial advisors, Lazard Freres & Co. LLC, have
calculated the Total Enterprise Value of Reorganized AWI to be $3,000 million.
Refer to Section XI, entitled, "REORGANIZATION VALUE," of the Disclosure
Statement for a description of the assumptions made and caveats thereto.
8
SHARE OF DISTRIBUTION
- ---------------------
Refer to Section V, entitled, "THE PLAN OF REORGANIZATION," of the Disclosure
Statement for a description of the distributions to be made to various classes
of creditor.
OTHER LIABILITIES
- -----------------
AWI will reinstate approximately $38 million of liabilities, including loans
against Company Owned Life Insurance ("COLI") for certain retired and current
executives
C. OTHER SPECIFIC ASSUMPTIONS
CASH
- ----
It is assumed that interest of 1.5% will be earned on surplus cash balances. A
revolving credit facility is assumed to be necessary to enable Reorganized AWI
to fund part of the distributions under the Plan and, if necessary, working
capital and operating needs. For these purposes, $49.7 million in borrowings
will be required as of the Effective Date under this facility, and repayments of
these borrowings will be made no later than December 2003. Interest is
calculated accordingly at a rate of 3 1/4 % per annum on these borrowings based
upon an assumed drawdown period of 6 months.
Reorganized AWI will retain $139.2 million in cash for ongoing business needs
and certain expenses pursuant to the Plan, as follows: Approximately $27 million
will be paid for certain Administrative Expenses, $8 million will be distributed
with respect to Allowed Convenience Claims and cure costs with respect to
assumed executory contracts, and $4 million will be paid for new debt financing
costs.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
To adjust net property, plant and equipment to an estimate of its fair value in
accordance with SOP 90-7, AWI plans to review its property, plant and equipment
and has hired American Appraisals to obtain appraisals to determine what
revisions, if any, should be made to these asset values. Since the appraisal
process is not yet complete, a $150 million increase is an estimate used for
purposes of the projections. The actual adjustment at the Effective Date could
be higher or lower. Any adjustment to this allocation would have no impact on
cash flow but would impact the projected statement of income.
For purposes of this projection, the fair value adjustment of the property,
plant and equipment is being amortized over eleven years, which approximates the
estimated useful remaining life of the assets. However, actual amortization
periods used at the Effective Date could be shorter or longer.
PENSION AND POST-RETIREMENT BENEFIT OBLIGATIONS
- -----------------------------------------------
In accordance with SOP 90-7, asset and liability accounts representing pension
assets and obligations and post-retirement benefit obligations are adjusted to
reflect projected actuarial valuations of these assets and liabilities as of the
Effective Date.
9
INVENTORIES
- -----------
In accordance with SOP 90-7, inventories are adjusted to recognize the estimated
manufacturing profit in finished goods and work in process. In addition,
existing LIFO inventory reserves are eliminated as of the Effective Date.
REORGANIZATION GOODWILL
- -----------------------
In accordance with SOP 90-7, the reorganization value in excess of amounts
allocable to identifiable assets is an intangible asset. This item has no tax or
cash flow implications.
DEBT
- ----
The new unsecured public debt is expected to bear interest based upon U.S.
Treasury notes with like maturities plus a spread determined to be the average
corporate spread over such Treasury Notes for outstanding issues of comparable
maturity and comparable rated U.S companies.
For the purposes of this forecast, it is assumed that Reorganized AWI will issue
New Notes on the following terms:
a) $____ million, five year note with interest at ___% per annum
b) $___million, seven year note with interest at ___% per annum
c) $___ million, ten year note with interest at ___ % per annum
All New Notes are assumed to have bullet maturities with full repayments of
principal to be made at the respective 5, 7, and 10-year anniversaries of the
Effective Date and to have interest paid semi-annually, unless otherwise
specified.
INCOME TAXES
- ------------
As described more fully in Section XIV of the Disclosure Statement, entitled
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN," it is expected that
Reorganized AWI will receive tax deductions for cash and the value of stock
distributed to the Asbestos PI Trust upon such distribution. With respect to
debt securities distributed to the Asbestos PI Trust, deductions are received as
the debt securities are repaid. These deductions will result in substantial tax
net operating losses. The tax net operating losses will be reduced by the amount
of debt (excluding asbestos liabilities) and certain other prepetition
liabilities cancelled in the reorganization.
An income tax receivable of $57.2 million will result from the carryback of tax
net operating losses to years in which income is available and the company
elects for carryback. Assuming the Effective Date is July 1, 2003, $57.2 million
should be received by June 30, 2004. This assumes that the Asbestos PI Trust is
funded on the Effective Date. If funding occurs after the Effective Date, the
income tax receivable would be eliminated and would be offset by an increase in
deferred income tax assets.
10
A deferred income tax asset results from tax net operating losses and deferred
deductions available to offset income tax payments in future years. Foreign tax
credit carryforwards have been ignored, since it is expected that they will
expire unutilized. For purposes of these projections, it is assumed that all
other tax benefits are available upon the Effective Date and that no valuation
allowance is necessary.
A statutory federal income tax rate of 35% is assumed throughout the projection
period. The differences between the statutory and the effective tax rates for
the projection period are due primarily to foreign and state income taxes. Due
to the large tax net operating loss carryforward, AWI's current federal tax
liability will be limited to alternative minimum taxes. Alternative minimum
taxes of approximately $0.7 million, $1.8 million, and $2.6 million are expected
to be paid in 2003, 2004, and 2005, respectively. However, these amounts should
be refunded in full in 2006.
The current portion of income taxes payable set forth in the consolidated
balance sheets is based on the assumption that payment generally occurs before
the end of the calendar year.
LIABILITIES SUBJECT TO COMPROMISE
- ---------------------------------
Liabilities subject to compromise will be discharged at the Effective Date.
11
Armstrong World Industries, Inc. and Subsidiaries
Projected Consolidated Balance Sheets
($ in Millions- unaudited)
-------------------------------------------------------------
Pro Forma July 1, 2003
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Pre-emergence POR Reorganization
Assets Balance Sheet Adjustments Balance Sheet
Current assets:
Cash and cash equivalents $ 439.5 $ (300.3)(1,8) $ 139.2
Accounts receivable less allowance 387.7 - 387.7
Inventories 438.8 70.6 (2) 509.4
Income Tax Benefit - 57.2 (3) 57.2
Other current assets 62.0 (13.0)(5) 49.0
--------------------------------- ------------------
Total current assets 1,328.0 (185.5) 1,142.5
Property, plant, and equipment, net 1,244.4 150.0 (4) 1,394.4
Insurance for asbestos related liabilities 170.1 (170.1)(5) -
Prepaid pension costs 440.3 (112.5)(6) 327.8
Investment in affiliates 45.0 - 45.0
Goodwill, net 235.4 (235.4)(7) -
Excess Reorganization Value - 686.3 (7) 686.3
Other intangibles, net 87.7 - 87.7
Income Tax Benefit - 457.3 (3) 457.3
Other noncurrent assets 115.0 (1.0)(6) 114.0
--------------------------------- ------------------
Total assets $ 3,665.9 $ 589.1 $ 4,255.0
================================= ==================
Liabilities & Shareholders' Equity
Current liabilities:
Short-term debt $ 21.1 $ - $ 21.1
Current installments of long-term debt 3.6 - 3.6
Accounts payable and accrued expenses 346.6 - 346.6
Income taxes 39.4 - 39.4
--------------------------------- ------------------
Total current liabilities 410.7 - 410.7
Liabilities subject to compromise 2,358.4 (2,358.4)(8) -
Long-term debt 46.5 - 46.5
Restructured Debt - 775.0 (8) 775.0
Exit Revolver - 49.7 (8) 49.7
Postretirement and post employment benefit liabilities 256.8 140.8 (6) 397.6
Pension benefit liabilities 172.4 21.7 (6) 194.1
Other long-term liabilities 80.6 37.5 (9) 118.1
Deferred income taxes 14.5 158.2 (10) 172.7
Minority interest in subsidiaries 10.7 - 10.7
--------------------------------- ------------------
Total liabilities 3,350.6 (1,175.5) 2,175.1
Shareholders' equity:
Equity pre/post emergence 315.3 1,764.6 2,079.9
Additional changes in APIC for restricted stock
Retained earnings -
--------------------------------- ------------------
Total shareholders' equity 315.3 1,764.6 2,079.9
--------------------------------- ------------------
Total liabilities and shareholders' equity $ 3,665.9 $ 589.1 $ 4,255.0
================================= ==================
** TABLE CONTINUED ** .....
12
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Reorganized Projected at
---------------------------------------------------------------------
December 31,
---------------------------------------------------------------------
Assets 2003 2004 2005 2006 2007
Current assets:
Cash and cash equivalents $ 145.6 $ 356.1 $ 553.1 $ 796.5 $ 1,070.6
Accounts receivable less allowance 348.2 367.1 389.3 412.5 435.5
Inventories 475.4 480.2 491.4 507.1 518.9
Income Tax Benefit 57.2 - - - -
Other current assets 51.7 51.7 51.8 51.9 52.0
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Total current assets 1,078.1 1,255.1 1,485.6 1,768.0 2,077.0
Property, plant, and equipment, net 1,404.0 1,391.6 1,380.5 1,362.8 1,344.8
Insurance for asbestos related liabilities - - - - -
Prepaid pension costs 338.8 361.5 384.3 407.2 430.7
Investment in affiliates 48.4 53.9 59.6 65.1 71.0
Goodwill, net - - - - -
Excess Reorganization Value 686.3 686.3 686.3 686.3 686.3
Other intangibles, net 86.3 80.9 73.6 67.7 61.8
Income Tax Benefit 444.6 413.8 368.4 329.9 293.5
Other noncurrent assets 116.8 123.3 130.0 136.9 144.1
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Total assets $ 4,203.3 $ 4,366.4 $ 4,568.3 $ 4,823.9 $ 5,109.2
=====================================================================
Liabilities & Shareholders' Equity
Current liabilities:
Short-term debt $ 21.1 $ 21.1 $ 21.1 $ 21.1 $ 21.1
Current installments of long-term debt 6.1 4.8 4.6 4.6 4.6
Accounts payable and accrued expenses 327.5 343.3 340.4 349.8 356.9
Income taxes 39.4 39.4 39.4 39.4 39.4
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Total current liabilities 394.1 408.6 405.5 414.9 422.0
Liabilities subject to compromise - - - - -
Long-term debt 40.4 35.6 31.0 26.4 21.8
Restructured Debt 775.0 775.0 775.0 775.0 775.0
Exit Revolver - - - - -
Postretirement and post employment benefit liabilities 395.8 391.6 386.3 379.9 372.9
Pension benefit liabilities 195.1 196.9 198.6 200.4 202.2
Other long-term liabilities 109.9 110.8 111.8 112.9 114.0
Deferred income taxes 172.5 192.1 215.1 240.2 266.0
Minority interest in subsidiaries 11.3 13.8 16.4 19.2 21.8
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Total liabilities 2,094.1 2,124.4 2,139.7 2,168.9 2,195.7
Shareholders' equity:
Equity pre/post emergence 2,079.9 2,079.9 2,079.9 2,079.9 2,079.9
Additional changes in APIC for restricted stock 8.3 16.6 24.8
Retained earnings 29.3 162.1 340.4 558.5 808.8
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Total shareholders' equity 2,109.2 2,242.0 2,428.6 2,655.0 2,913.5
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Total liabilities and shareholders' equity $ 4,203.3 $ 4,366.4 $ 4,568.3 $ 4,823.9 $ 5,109.2
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** TABLE COMPLETE **
See Explanatory Notes to the Consolidated Financial Statements
13
Explanatory notes to the Consolidated Financial Statements concerning "POR
--------------------------------------------------------------------------
adjustments".
- -------------
1. Cash projected to be paid as of the Effective Date includes $350
million to the Asbestos PI Trust and the holders of Allowed Unsecured
Claims paid out of cash and cash equivalent balances and drawings
under the Revolving Credit Facility. The remaining cash and cash
equivalent balance of $139 million will be used for distributions and
payments with respect to Allowed Convenience Claims, cure amounts
under assumed executory contracts, Exit Financing Costs, and certain
Administrative Expenses, as well as operating cash needs estimated to
be $100 million.
2. To adjust inventory to its approximate fair value through the
elimination of the LIFO reserve ($50 million) and recognition of the
estimated manufacturing profit in finished goods inventory ($20
million). Following the Effective Date, inventory will continue to be
calculated on the LIFO method for both book and tax purposes, where
permitted.
3. Armstrong will receive tax deductions for cash, debt and the value of
equity securities contributed to the Asbestos PI Trust. An income tax
receivable of $57.2 million will result from carryback of losses to
years with available income. Additional deferred income tax assets of
$457.3 million result from deferred deductions available to offset
income tax payment in future periods. For purposes of these
projections, it is assumed that all tax benefits, other than foreign
tax credit carryforwards, are available upon the Effective Date and
no valuation allowance is necessary. Foreign tax carryforwards were
ignored because they are expected to expire unutilized.
4. To adjust net property, plant and equipment to an estimate of its
fair value in accordance with the fresh start accounting provisions
of SOP 90-7. Since the appraisal process is not yet complete, $150
million is an estimate used for purposes of these projections.
5. To record the transfer, at book value, of certain insurance related
assets to the Asbestos PI Trust.
6. To record the fair value of the benefit plans as of the Effective
Date, in accordance with SOP 90-7 and FAS 106, 112, and 87.
7. In accordance with the fresh start accounting provisions SOP 90-7,
existing goodwill is eliminated and excess reorganization value is
recorded for amounts in excess of value allocable to identifiable
assets.
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8. To record the discharge of Liabilities Subject to Compromise through
the distribution pursuant to the Plan of debt securities, common
stock, and the cash previously mentioned in Note 1.
o Armstrong will issue five, seven and ten year notes in the
aggregate principal amount of $775 million.
o New Common Stock of Reorganized AWI will be issued with an
estimated value of $2,079.9 million before dilution. The Existing
AWI Common Stock will be cancelled, and the holder thereof will
receive New Warrants with an expected fair value of approximately
$40-$50 million.
o Restricted stock awards granted at the Effective Date are
expensed over the term of the award based on the fair value of
the stock at the date of grant. As the restricted stock vests,
the fair value is credited to equity as a component of Additional
Paid In Capital.
9. To record liabilities reinstated on the books of Reorganized AWI.
10. To the extent that the above adjustments give rise to temporary
book/tax differences, deferred taxation has been provided on these
amounts at statutory rates of income tax.
Income Statement Impact
-----------------------
SOP 90-7 adjustments impact the consolidated statement of income as
follows:
1. Manufacturing profit in inventory as part of the finished goods
inventory adjustment to fair value. Disposal of this inventory based
on estimated sales is projected to increase cost of sales by
approximately $20 million in the second half of 2003.
2. The fair value adjustment of the property, plant and equipment is
being amortized over eleven years, unfavorably impacting the P&L by
$6.8 million in the second half of 2003 and $13.6 million per year
thereafter.
3. Projected reorganization expense incurred after the Effective Date
in the amount of $9.2 million in 2003 and $2.0 million in 2004 has
been included in the determination of Operating Income.
15
Armstrong World Industries, Inc. and Subsidiaries
Projected Consolidated Income Statement
($ in Millions- unaudited)
-----------------------------------------------------------------------
Reorganized Projected at
December 31,
-----------------------------------------------------------------------
2H 2003 2004 2005 2006 2007
Net Sales $ 1,697.7 $ 3,546.0 $ 3,753.4 $ 3,959.7 $ 4,170.1
Cost of Goods Sold 1,219.3 2,496.3 2,632.2 2,763.0 2,904.6
Depreciation 67.7 137.1 136.6 137.0 136.8
-----------------------------------------------------------------------
Gross Profit 410.7 912.6 984.6 1,059.7 1,128.7
SGA 324.0 649.6 660.5 679.9 704.2
Amortization 8.2 17.9 18.8 17.4 17.4
Equity in earnings from affiliates (10.6) (21.2) (24.0) (24.9) (25.8)
Post Confirmation Reorganization Expense 9.2 2.0 0.0 0.0 0.0
-----------------------------------------------------------------------
Operating income (loss) $ 79.9 $ 264.3 $ 329.3 $ 387.3 $ 432.9
Interest expense 31.2 61.5 61.4 61.1 60.8
Other (income) expense (1.1) (3.8) (6.8) (10.1) (14.0)
Reorganization expense 0.0 0.0 0.0 0.0 0.0
-----------------------------------------------------------------------
Earnings before income taxes $ 49.8 $ 206.6 $ 274.7 $ 336.3 $ 386.1
Income tax expense 19.7 71.4 93.8 115.3 132.9
Minority interest 0.8 2.3 2.6 2.8 2.9
-----------------------------------------------------------------------
Net earnings from Continued Operations $ 29.3 $ 132.9 $ 178.3 $ 218.2 $ 250.3
=======================================================================
SEGMENTAL DATA
2H 2003 2004 2005 2006 2007
Net Sales
Resilient Floor $ 622.0 $ 1,288.8 $ 1,331.7 $ 1,374.9 $ 1,424.1
Wood Floor 371.9 792.4 821.8 844.2 866.8
Textile & Sports Floor 138.4 266.1 271.4 276.8 282.3
Eliminations (4.5) (9.4) (9.8) (10.3) (10.8)
-----------------------------------------------------------------------
Total Floor $ 1,127.8 $ 2,337.9 $ 2,415.1 $ 2,485.6 $ 2,562.4
Building Products 445.1 926.9 977.3 1,013.3 1,040.2
Cabinets 124.8 281.2 361.0 460.8 567.5
-----------------------------------------------------------------------
Total Company $ 1,697.7 $ 3,546.0 $ 3,753.4 $ 3,959.7 $ 4,170.1
=======================================================================
Operating Income
Resilient Floor $ 57.3 $ 107.7 $ 120.5 $ 137.4 $ 148.8
Wood Floor 24.4 66.2 76.2 85.6 92.3
Textile & Sports Floor 3.5 14.0 18.0 22.0 25.0
-----------------------------------------------------------------------
Total Floor $ 85.2 $ 187.9 $ 214.7 $ 245.0 $ 266.1
Building Products 57.6 127.4 146.2 155.4 159.4
Cabinets 6.7 22.3 31.2 47.0 66.9
Corporate/other (including Fresh Start adjustments) (69.6) (73.3) (62.8) (59.9) (59.5)
-----------------------------------------------------------------------
Total Company $ 79.9 $ 264.3 $ 329.3 $ 387.3 $ 432.9
=======================================================================
16
Armstrong World Industries, Inc. and Subsidiaries
Projected Consolidated Statements of Cash Flows
($ in Millions- unaudited)
--------------------------------------------------------------
Reorganized Projected at
December 31,
--------------------------------------------------------------
2H 2003 2004 2005 2006 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29.3 $ 132.9 $ 178.3 $ 218.2 $ 250.3
Depreciation and amortization 75.9 155.0 155.4 154.4 154.2
Deferred income taxes (0.2) 19.7 23.0 25.1 25.8
Other Non-Cash charges 10.0 - - - -
Equity (earnings) change in affiliates (10.6) (21.2) (24.0) (24.9) (25.8)
(Increase) decrease in receivables 39.5 (18.9) (22.2) (23.2) (23.0)
(Increase) decrease in inventories 34.0 (4.9) (11.2) (15.7) (11.8)
(Increase) decrease in other current assets (2.7) 57.2 (0.1) (0.1) (0.1)
(Increase) decrease in other noncurrent assets (1.2) 1.8 15.9 8.6 5.6
Increase (decrease) in accounts payable and accrued expenses (19.1) 15.8 5.4 17.7 15.3
Increase (decrease) in income taxes payable 0.0 - - - -
Increase (decrease) in other long-term liabilities (9.0) (1.5) (2.6) (3.5) (4.2)
Other, including foreign exchange translation impact
on operating assets 0.8 2.3 2.6 2.8 2.9
--------------------------------------------------------------
NET CASH PROVIDED (USED BY) OPERATING ACTIVITIES $ 146.7 $ 338.2 $ 320.5 $ 359.4 $ 389.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (94.2) (137.3) (137.0) (130.8) (130.4)
Distributions of equity affiliates 7.2 15.7 18.3 19.4 19.9
--------------------------------------------------------------
NET CASH PROVIDED (USED FOR) INVESTING ACTIVITIES $ (87.0) $ (121.6) $ (118.7) $ (111.4) $ (110.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Total Debt (non-revolver) (3.6) (6.1) (4.8) (4.6) (4.6)
Total Revolver (49.7) - - - -
Other, net - - - - -
--------------------------------------------------------------
NET CASH PROVIDED (USED FOR) FINANCING ACTIVITIES $ (53.3) $ (6.1) $ (4.8) $ (4.6) $ (4.6)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 6.4 $ 210.5 $ 197.0 $ 243.4 $ 274.1
Cash and cash equivalents at beginning of period $ 139.2 $ 145.6 $ 356.1 $ 553.1 $ 796.5
Cash and cash equivalents at end of period $ 145.6 $ 356.1 $ 553.1 $ 796.5 $ 1,070.6
==============================================================
17
IMPORTANT INFORMATION FOR HOLDERS OF COMMON STOCK OF
ARMSTRONG HOLDINGS, INC.
--------------------------------------------
In connection with the proposed Plan , the Board of Directors of Armstrong
Holdings, Inc. ("AHI") contemplates proposing the dissolution and winding-up of
AHI. In that regard, AHI intends to file relevant materials with the U.S.
Securities and Exchange Commission ("SEC"), including a proxy or consent
solicitation statement with respect to approval by AHI's shareholders of the
dissolution of AHI and a plan of liquidation. Because those documents will
contain important information, stockholders of AHI are urged to read them, if
and when they become available. When filed with the SEC, they will be available
for free at the SEC's website, www.sec.gov. AHI stockholders will receive
information at an appropriate time on how to obtain documents related to such
matters for free from AHI. Such documents are not currently available.
Directors and executive officers of AHI and its subsidiaries may be deemed to be
participants in AHI's solicitation of proxies or consents from its stockholders
in connection with this matter. Information about such directors and executive
officers and their respective stock ownership and other interests is set forth
in AHI's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Participants in AHI's solicitation may also be deemed to include various
directors, executive officers and other persons:
DIRECTORS: H. Jesse Arnelle, Van C. Campbell, Judith R. Haberkorn, John A. Krol,
Michael D. Lockhart, James E. Marley, Ruth M. Owades, M. Edward Sellers, Jerre
L. Stead
OFFICERS: Matthew J. Angello, Leonard A. Campanaro, Chan W. Galbato, Gerard L.
Glenn, David E. Gordon, Michael D. Lockhart, Debra L. Miller, John N. Rigas,
William C. Rodruan, Stephen J. Senkowski, Barry M. Sullivan, April L. Thornton
As of the date of this communication, none of these participants individually
beneficially owns more than 1% of AHI's common stock. Except as disclosed above,
to the knowledge of AHI, none of these persons has any interest, direct or
indirect, by security holdings or otherwise, in AHI. Stockholders will be able
to obtain additional information regarding the interests of the participants by
reading the proxy or consent solicitation statement of AHI if and when it
becomes available.
18