2500 Columbia Avenue
Our business strategy focuses on product innovation, product quality and customer service. In our businesses, these factors are the primary determinants of market share gain or loss. Our objective is to ensure that anyone buying a floor or ceiling can find an Armstrong product that meets his or her needs. Our cabinet strategy is more focused--on stock cabinets in select geographic markets. In these segments, we have the same objectives: high quality, good customer service and products that meet our customers' needs. Our markets are very competitive, which limits our pricing flexibility. This requires that we increase our productivity each year--both in our plants and in our administration of the businesses.
Armstrong Holdings, Inc. is a holding company for Armstrong World Industries, Inc., a leading international manufacturer and marketer of floors, ceilings, and cabinets. The company's flooring lines include vinyl sheet, vinyl tile, linoleum, and wood products for both the residential and commercial markets. In ceilings, Armstrong produces acoustical ceilings and suspension systems for commercial, institutional, and residential applications. The cabinet lines, strictly for the residential market, include kitchen and bath cabinets made of wood, veneer, plywood, particleboard, and fiberboard. Based in Lancaster, Pennsylvania, its home since 1929, Armstrong operates 41 manufacturing facilities in 12 countries, and about 30 percent of its revenues are generated outside North America. In December 2000 Armstrong World Industries began a long stint operating under Chapter 11 bankruptcy protection after facing mounting litigation from personal injury claims stemming from asbestos-containing floors and insulation.
Originating As Cork-Cutting Shop
In 1860 Thomas Morton Armstrong, a 24-year-old son of Scottish-Irish immigrants from Londonderry, Ireland, used $300 of savings from his job as a shipping clerk to buy a small cork-cutting shop in Pittsburgh. The firm was originally named for his partner in the venture, John O. Glass, but Glass's interest was purchased by Armstrong's brother in 1864 and the company's name was changed to Armstrong, Brother & Company.
Armstrong's original business was cutting cork stoppers, first by hand then after 1862 by machine, from the bark of cork trees, which grow in Portugal, Spain, and northern Africa. During the Civil War, 1861 to 1865, the company made bottle stoppers for the Union Army and was singled out for official praise for fulfilling its contracts at the agreed prices with top-grade corks. This good publicity enabled Armstrong to land a large contract with a New York drug firm after the war, beginning the move toward national distribution of its products. In 1864 Thomas Armstrong pioneered the concept of brand-name recognition in his industry by stamping "Armstrong" on each cork and offering a written guarantee of quality with each sale.
Originally cork was purchased from American importers, but in 1878 Armstrong made arrangements to purchase, process, and ship corkwood and corks direct from Spain, thus beginning the foreign operations that eventually would make the company the largest cork processor in Spain. By the 1890s Armstrong was the world's largest cork company, employing more than 750 people, most of whom Thomas Armstrong knew by name. In 1891 the company incorporated as Armstrong, Brother & Company, Inc. and, in 1893, purchased the Lancaster Cork Works, beginning its long involvement with the Pennsylvania Dutch area. During the 1890s Armstrong expanded its cork product line to include insulation, corkboard, gaskets, and flexible coverings for machinery. In addition, foreign markets were expanded with sales offices opening in Montreal and Toronto in 1895. In that year the corporate name was changed to Armstrong Cork Company. Thomas Armstrong died in 1908 and was succeeded as president by his son, Charles Dickey Armstrong.
Expanding into Linoleum Floor Covering in Early 20th Century
Searching for new cork-based products, the company decided to add linoleum floor covering to its line and, in 1908, the first Armstrong linoleum was produced in a new plant in Lancaster. Invented in England in 1863 by Frederick Walton, linoleum was basically a mixture of cork flour, mineral fillers, and linseed oil, which was pressed under high temperature onto burlap backing and colored with pigments. The linoleum line was the beginning of the company's involvement with floor products, which by the early 2000s, in a variety of modern forms, provided more than half of its sales volume.
Under Charles Armstrong's leadership the firm expanded its product lines with cork insulating board and other insulating materials, packaging closures, and gaskets, as well as linoleum and related flooring materials, becoming in the process a much more consumer-oriented company than before. He also continued his father's policy of responsibility toward his employees by initiating benefits that were rare, if not unprecedented, early in this century. In 1909 he established free dental service for employees. Other pioneering examples of corporate responsibility followed: extra pay for overtime in 1913, shop committees to communicate with management in 1919, paid vacations in 1924, and group life insurance in 1931. Armstrong was one of the first U.S. companies to provide such fringe benefits as pensions and group medical insurance. Thus Charles Armstrong's presidency expressed the company's philosophy that employees should be provided for voluntarily by industry rather than by means of government compulsion.
Charles Armstrong became chairman of the board in 1928 and the next year John J. Evans succeeded him as president. In 1934 the vice-president, Henning Webb Prentis, Jr., who was to have a great impact on the company's development, became the next president of Armstrong.
Marketing Innovations Boosting Sales
Prentis had joined the firm in 1907 when, as a 23-year-old with an M.A. in economics, he took a job with Armstrong's insulation division in Pittsburgh in order to gain some practical experience before beginning a teaching career. It was a significant hiring decision. Prentis became interested in the possibilities of advertising and public relations. He wrote the first promotional literature on cork products to be published by Armstrong, including selling aids for retailers and booklets on home decoration for consumers. In 1911 he became head of the tiny advertising department and persuaded management to support a three-year, $50,000 advertising campaign. In 1917 he arranged for the company's first national advertisement in the mass media, to appear in the September 1917 issue of the Saturday Evening Post. He pioneered his industry's recruitment of college graduates as salesmen and, with Charles Armstrong's support, helped develop the strenuous training programs that enormously strengthened company management. He improved distribution practices by initiating price lists with discounts based on quantities purchased, and insisted on the establishment of close, friendly relations with wholesalers and retailers.
Thanks largely to Prentis's marketing innovations, Armstrong grew substantially during the 1920s, reaching nearly $48 million in sales by 1929, when the company moved its headquarters from Pittsburgh to Lancaster, Pennsylvania. When the Great Depression cut sales in half and produced large losses by 1934, Prentis was appointed president to improve the company's situation. He diversified by purchasing rubber- and asphalt-tile factories, and in 1938 acquired two glass companies, Whitall Tatum and Hart Glass Manufacturing.
The company's personnel policies helped to maintain morale and loyalty during those hard times. One example was the research employee who was laid off because of the Great Depression but continued to come to work without pay and, eventually rehired, made significant contributions to the development of a new flooring process. With Armstrong's debt-free balance sheet, Prentis's efforts were successful. By 1935 dividends on the common stock were restored and in 1936 Armstrong had its most profitable year to that point, a stunning achievement at a time when the country was still in the grip of the Great Depression. By 1937 the common stock had climbed from a low of $3.25 in 1932 to a price of approximately $65.
In addition to improving Armstrong's profitability, Prentis became much more of a public figure than his predecessors. He spoke frequently on behalf of conservative business philosophies in opposition to the New Deal policies of the Roosevelt administration. He served as director of the United States Chamber of Commerce and as president of the National Association of Manufacturers. When World War II began, Prentis organized Armstrong's conversion to war production, including the establishment of a munitions division. In 1942 and 1943 he served as deputy director of the War Production Board for the Philadelphia region, becoming an employee of the government administration he had so frequently criticized.
Postwar Emphasis on Product Innovation
After the war, Armstrong prepared to meet the tremendous demand for building materials for new houses. Two more asphalt-tile plants, a fiberboard plant, and a bottle-closure plant were built. In addition the company expanded its industrial-adhesives business and added the production of glass bottles to its packaging division. By 1950 annual sales had climbed to $163 million, and earnings were at record levels. In that year Prentis became chairman of the board and was succeeded as president by Clifford J. Backstrand.
Backstrand's goal was to use the growth to date to increase profits. He emphasized not only marketing but also research, realizing that product innovation was essential for successful competition in the postwar period. He completed the building industry's biggest research-and-development center. To help sell products in the home-remodeling market, in 1953 Armstrong built in Lancaster an "idea house" filled with Armstrong products, to be used as a showcase for dealers and customers. Creativity within the company was encouraged by giving special recognition and awards to employees who came up with ideas for new products and new processes. During the 1950s cork was largely replaced by chemicals and synthetics as the basis of the company's products. By 1960 building materials accounted for 60 percent of sales, and industrial specialties and packaging were each 20 percent of sales. Backstrand improved the company's accounting methods for measuring the profitability of various operations, establishing the concept of return on capital employed as a gauge of achievement. In 1962 Backstrand became chairman and Maurice J. Warnock was appointed president.
By the early 1960s Armstrong had extensive foreign operations, manufacturing textile-mill supplies in India and flooring in plants in Canada, Britain, and West Germany, as well as continuing to process cork in Spain. Warnock attempted to reduce the company's strong dependency on the housing and construction markets by entering the consumer products field with a liquid wax plus detergent that cleaned and polished floors at once. Successful at first, this move to enter the supermarket-oriented consumer market eventually failed to justify its invested capital and was discontinued. Otherwise, Warnock's tenure as president was successful with new efficiencies in organization, improvement in flooring products, and continued growth in sales to $460 million by 1967. In 1966 and 1967 Armstrong entered the carpet business with the purchase of Brinton Carpets and E. & B. Carpet Mills. By the end of the 1960s, over one-third of Armstrong's sales came from products developed by the company within the previous decade. Armstrong invariably promoted from within and, in accordance with this policy, Warnock was succeeded in 1968 by a flooring executive who had spent his entire adult life with the company, James H. Binns.
Addition of Furniture
Binns's tenure as president from 1968 to 1978 brought significant changes in the makeup and direction of the company, based on his belief that Armstrong's future lay mainly in the interior-furnishings market, which was entering a boom period. In 1968 Armstrong acquired the furniture manufacturer Thomasville Furniture Industries and the furniture wholesaler Knapp & Tubbs, although the latter company was sold in 1972. In 1969 Binns sold the line of cleansers, waxes, and polishes to Chemway Corporation and the extensive packaging operations to Kerr Glass Manufacturing Company. The insulation-contracting business was sold to its former employees. Altogether Binns sold off businesses with about $125 million in annual sales, about one-fourth of sales volume. By the early 1970s about 90 percent of sales were concentrated in building products and home furnishings, and about 10 percent in industrial products such as gaskets and textile-mill supplies. This ratio continued into the 1990s.
In 1978 Binns became chairman of the board, and Harry A. Jensen served as president and CEO until his retirement in 1983. Through the 1970s and much of the 1980s Armstrong continued to grow in the same directions. The production of linoleum was discontinued in 1974, but the company continued to develop new types of resilient flooring, among which Solarian no-wax flooring became a well-known brand name. In 1980 the corporate name was changed to Armstrong World Industries, Inc. to reflect its growing international operations and the fact that it was no longer based on the cork business. Sales generally trended upward with some annual fluctuations due to changes in the building cycle, reaching $1 billion in 1977 and $2 billion in 1987. Earnings followed the same pattern with net income increasing from $66 million in 1979 to $187 million in 1989.
Addition of Ceramic Tile, Divestment of Carpet
Between 1983 and 1988, Joseph L. Jones served as president and chairman. His successor, William W. Adams, oversaw a series of significant events in the late 1980s. In 1988 Armstrong entered the ceramic-tile business by acquiring American Olean Tile Company from National Gypsum Company for $330 million, adding about $200 million to 1989 sales. In December 1989 Armstrong completed the sale of its carpet division, abandoning that business which was not producing an adequate return on investment, thus reducing annual sales by about $300 million. In addition, in 1989 the company sold Applied Color Systems, a small digital color-processing-control business.
In July 1989 Armstrong learned that the Belzberg family of Canada had acquired 9.85 percent of its stock and had announced the intention of gaining control of the company and selling its furniture and industrial products divisions. The Belzberg's stock ownership increased in 1990 to 11.7 percent. In April 1990, Senate Bill 1310 of the Pennsylvania legislature, the strongest antitakeover bill passed by any state, with support from Armstrong, became law. The bill provided for seizure of short-term profits in a failed takeover, limited voting rights of hostile shareholders, and guaranteed severance pay to employees who lost jobs because of a corporate takeover. A few days after passage of the law, the Belzbergs lost a proxy attempt at the company's annual meeting, seating only one of four candidates for directors on the board. At the end of the next month, the Belzbergs sold their Armstrong stock at a loss of about $18 million. In June 1990 Armstrong and the Belzberg affiliates resolved the remaining issues between them by withdrawing lawsuits and countersuits against each other.
Rocky Times in the 1990s
The early and mid-1990s saw the company continue to be involved in litigation relating to personal-injury suits and other claims based on asbestos-containing insulation products, a business that was sold by Armstrong in 1969. The claims were being paid by insurance income under the Wellington Agreement on asbestos-related claims. In 1988 Armstrong and 20 other companies replaced the Wellington Asbestos Claims Facility with the Center for Claims Resolution, which continued in operation through the mid-1990s. Other cases were brought by public school districts, private property owners, and others, including a lawsuit filed with the U.S. Supreme Court by 29 states. By 1994 Armstrong had recorded $198 million in liability and defense costs on its balance sheet, and estimated that it might be responsible for $245 million in additional liability by 2004.
Overall, this period was fairly rocky for Armstrong, punctuated with restructuring charges and divestments on the one hand and awards for quality and record sales on the other. In 1992 the company posted $165.5 million in restructuring charges, mainly to close four major manufacturing plants, two in the United States, and one each in Canada and Belgium. Another $89.3 million restructuring charge was incurred the following year in relation to the elimination of hundreds of jobs. In fact, Armstrong's workforce became increasingly streamlined as the 1990s went on, with more than 6,300 fewer people employed in 1996 as in 1990. In the midst of these changes came a change in management as well, as George A. Lorch took over Adams's duties as president and CEO in September 1993 and then became chairman as well in April 1994 when Adams retired.
Momentous events proved to transform Armstrong during 1995. Although of only small financial consequence, the company's sale of its champagne cork business in Spain was important symbolically as it marked Armstrong's exit from its original business. More important was the divestment of the company's furniture business, which was struggling as a result of a long recession in the furniture market. In December Armstrong sold Thomasville Furniture to the maker of Broyhill and Lane furniture, INTERCO International Inc., for $331.2 million. Another struggling Armstrong business--its ceramic tile operations, which was beset with low-cost competitors in Spain and Italy--was also divested later that same month. In a deal with Dal-Tile International Inc., Armstrong traded $27.6 million and American Olean Tile for about a one-third stake in Dal-Tile. Also in 1995, Armstrong entered the European metal ceilings business through the acquisition of the U.K.-based Cape PLC. Finally, in October the company's Building Products Operations, after twice being named a finalist earlier in the decade, was awarded the prestigious Malcolm Baldrige National Quality Award, an honor that highlighted Armstrong's continued commitment to making quality products.
By 1996, then, Armstrong World Industries was involved in fewer core businesses than it had been for decades but held a leading position in nearly all of them. In the building area, the company specialized in floor coverings, ceilings, and adhesives, while its industrial products were led by insulation and gasketing materials. When its numbers were adjusted to reflect only these ongoing businesses, Armstrong posted record net sales of $2.16 billion in 1996, while net earnings hit $155.9 million, an increase of 26 percent over the previous year.
Following its 1995 divestments, Armstrong concentrated on bolstering its core operations, through joint ventures, alliances, and acquisitions. It also increasingly looked outside its home country for growth opportunities. In 1996 the company completed a joint venture ceiling plant in Shanghai and entered into joint ventures in Europe for the manufacture of soft-fiber and metal ceilings. Armstrong that same year formed an alliance with the Austria-based F. Egger Co. for the manufacture of laminate flooring, a new product category for the Armstrong flooring line. In 1997 the company entered into a battle with Sommer Allibert S.A. concerning which company would take over Domco Inc., a Quebec-based maker of flooring products. Armstrong's bid eventually failed, however, after a lengthy battle.
The deal-making continued in the late 1990s. In 1998 Armstrong sold its stake in the loss-making Dal-Tile after unsuccessfully attempting to gain control of the firm. This ended Armstrong's ten-year foray into the ceramic tile sector. Armstrong also completed two large acquisitions in 1998. The firm significantly bolstered its European operations by purchasing DLW AG for about $275 million plus the assumption of $74 million in debt. Based in Bietigheim-Bissingen, Germany, DLW was the leading flooring manufacturer in Germany and the third largest flooring company in Europe and had revenues of $669 million in 1997. DLW's flooring lines included carpet products, returning Armstrong to the carpet business. Back in the United States, Armstrong snapped up the world's leading producer of hardwood floors, Triangle Pacific Corporation, a Dallas firm whose annual sales totaled $653 million. Triangle produced wood floors under several brands, including Bruce, Hartco, and Robbins, and it derived 28 percent of its revenues from the sale of kitchen and bathroom cabinets, marking a new product line for Armstrong. The price tag for Triangle was a hefty $777 million plus $260 million in assumed debt.
Needing to cut costs, Armstrong late in 1998 announced a workforce reduction of 12 percent, or about 750 jobs worldwide. Restructuring and other charges sent the company into a net loss of $9.3 million for the year. The asbestos-related litigation continued to take its toll as well. Late in 1999 Armstrong took a $335.4 million charge to boost its reserves for pending and future asbestos personal-injury claims. It managed to eke out a profit of $14.3 million that year, but also announced a program to divest itself of noncore assets. Toward that end, Armstrong sold its textile product operations in 1999 and the following year its insulation products division and its installation products group, the latter of which focused on adhesives for installing floors. Armstrong also acquired GEMA Holdings AG, a maker of metal ceilings based in Switzerland, in 2000. To facilitate the completion of both divestments and acquisitions, Armstrong set up a holding company called Armstrong Holdings, Inc. in May 2000. Armstrong Holdings became the publicly traded parent company of Armstrong World Industries, the main operating subsidiary. In August 2000 Lorch retired from his position as chairman and CEO. Named as his successor was Michael D. Lockhart, who had served as chairman and CEO of General Signal Corporation, an industrial controls company acquired by SPX Corporation in October 1998.
Operating Under Chapter 11 Bankruptcy
With the company facing mounting asbestos-related lawsuits--nearly 200,000, the payouts from which were projected to total as high as $1.4 billion--and its stock pummeled by the uncertainty surrounding its financial condition, Lockhart made the difficult decision of directing the Armstrong World Industries unit to file for Chapter 11 bankruptcy protection in December 2000. The filing provided Armstrong with considerable breathing room. Pending litigation was immediately frozen, and the company was automatically relieved of its obligation to pay creditors.
While attempting to come up with a resolution of the asbestos litigation, Armstrong continued operating under Chapter 11 protection. The weak economy hurt results in 2001, when sales slid 3.5 percent to $3.14 billion, although the net income of $92.8 million was the firm's best showing since 1997. In 2002 Armstrong unveiled a plan for emerging from bankruptcy that called for all current and future asbestos personal-injury claims to be channeled to a newly formed trust, initially funded by the company; nearly all of Armstrong's stock was slated to go to asbestos claimants and the firm's unsecured creditors, its bondholders, bank lenders, and suppliers. To cover the additional liability anticipated by this plan, Armstrong recorded a pretax charge of $2.5 billion in the fourth quarter of 2002, leading to the largest loss in the firm's 140-plus-year history, $2.14 billion.
Armstrong initially hoped to emerge from bankruptcy in the summer of 2003, but various delays ensued and the company was forced to amend its plan of reorganization several times. A further setback occurred in February 2005 when a federal judge ruled the plan illegal because it envisioned giving current stockholders a kind of option, known as warrants, to buy new Armstrong shares. This ruling was a victory for Armstrong's unsecured creditors, who had opposed the plan, hoping that a better deal might emerge through various asbestos bills that were being considered by the U.S. Congress. The bills called for the creation of a federal trust to pay the asbestos-related claims of the more than 50 corporations that had been pushed into bankruptcy by asbestos lawsuits.
In the meantime, Armstrong posted its third consecutive annual net loss in 2004 as it took a $153 million charge to write down the value of its struggling European resilient flooring business. The company returned to the black in 2005, spurred by strong results from its ceilings and wood flooring operations and by efficiency gains won through a series of cost-cutting initiatives launched over the previous few years. Net profits totaled $112.1 million on revenues of $3.56 billion.
Despite the rosier results, Armstrong's emergence from bankruptcy remained up in the air. The company in early 2006 submitted yet another modification of its reorganization plan, this one dropping the warrants ruled illegal. The unsecured creditors remained in opposition, however, contending that Armstrong was overstating its potential asbestos liabilities and thereby setting aside too much for asbestos claimants at the expense of the creditors' portion of the bankruptcy-plan payouts. The creditors continued to hold out hope for Congressional action, but the passage of a bill during the 2006 election year was far from certain.
Armstrong World Industries, Inc.; Armstrong Wood Products, Inc.; Armstrong Hardwood Flooring Company; Armstrong DLW AG (Germany); Tapijtfabriek H. Desseaux N.V. (Netherlands); Armstrong Metalldecken Holdings AG (Switzerland).
Principal Operating Units
Armstrong Floor Products; Armstrong Building Products; Armstrong Cabinet Products.
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