Armstrong Reports 4Q Results

Lancaster, PA, April 2, 2007--Armstrong World Industries in the fourth quarter 2006 reported operating income from continuing operations that increased to $16.5 million from a $10.1 million loss in the fourth quarter of 2005. Adjusted operating income from continuing operations of $47.2 million increased 38% compared to adjusted operating income of $34.1 million in the prior year quarter.

Nnet sales of $817.3 million increased 2%, including a $13 million favorable impact from foreign exchange rates, from fourth quarter net sales of $805.5 million in 2005.

The company said that as a result of the application of fresh-start reporting upon emergence from Chapter 11, its our post-emergence financial statements are not comparable with pre-emergence financial statements. However, it said it has combined the results of the predecessor company (the first nine months of 2006) with the results of the successor company (the last three months of 2006) to facilitate the year-to-year discussion of operating results. Combining pre-emergence and post-emergence results is not in accordance with GAAP.

The company uses adjusted income from operations in managing the business, including communications with its Board of Directors and employees, and believes that they provide users of this financial information with meaningful comparisons of operating performance between current results and results in prior periods. Adjusted income excludes certain items, including those related to Chapter 11 proceedings, the impact of fresh-start reporting, restructuring charges and related costs, and certain other gains and losses to allow meaningful comparisons of operating performance. As detailed in the attached reconciliation to GAAP, these adjustments amounted to charges of $44 million for the full year 2006 compared to $66 million in 2005, and $31 million in the fourth quarter of 2006 compared to $44 million in the fourth quarter of 2005.

The $13 million year-over-year growth in fourth quarter 2006 adjusted operating income came from higher price increases and improved product mix in Building Products, and lower manufacturing expense in Resilient Flooring. Notably, the income growth was achieved despite volume declines, related to weakness in the North American housing markets, in resilient and wood flooring and in the residential ceilings business.

Segment Highlights

Resilient Flooring net sales were $278.5 million in the fourth quarter of 2006 and $282.7 million in the same period of 2005. Excluding the favorable impact of foreign exchange rates, net sales decreased 4%. The decline was due to decreased volume for vinyl products in North America, only partially offset by growth in Europe and Asia. A reported operating loss of $1.2 million in the quarter compared to a reported loss in the fourth quarter of 2005 of $20.4 million. Adjusted operating income of $0.3 million improved compared to a loss of $10.0 million on the same basis in the prior year period. The improvement is primarily attributable to reduced manufacturing expense and lower SG&A expense.

Wood Flooring net sales of $192.6 million in the fourth quarter declined 8% from $209.0 million in the prior year as weakness in the U.S. housing markets reduced volume of solid wood floors. A reported operating loss of $0.2 million in the quarter was below income of $6.5 million reported in the fourth quarter of 2005. Adjusted operating income of $10.3 million declined from income of $21.8 million on the same basis in the prior year period. The reduction in operating income was due to lower sales combined with higher lumber prices and increased promotional spending.

Building Products net sales of $289.7 million in the fourth quarter of 2006 increased from $263.2 million in the prior year. Excluding the effects of favorable foreign exchange rates of $7 million, sales increased by 7%, primarily due to price increases made to offset inflationary pressures and to improved product mix in the North American markets. Volume increased in Europe and the Pacific Rim, but declined in North America. Reported operating income decreased to $24.9 million from operating income of $32.5 million in the fourth quarter of 2005. Adjusted operating income of $42.6 million grew from income of $34.0 million on the same basis in the prior year period. The growth was driven by improved price realization and better product mix.

Cabinets net sales in the fourth quarter of 2006 of $56.5 million increased 12% from $50.6 million in 2005 on higher selling prices and increased volume. Reported operating income for the fourth quarter of $0.2 million improved from the prior year's $0.2 million operating loss. Adjusted operating income of $1.1 million improved from a loss of $0.1 million on the same basis in the prior year period, driven by the sales growth.

Unallocated corporate expense of $7.2 million in 2006 decreased from $28.5 million in 2005. Adjusted expense of $7.1 million was below expense of $11.6 million on the same basis in the prior year, primarily due to a $4 million increased U.S. pension credit related to plan changes and favorable asset performance.

Total Year Results

For the full year ending December 30, 2006, net sales were $3,425.9 million compared to $3,326.6 million reported for 2005. Excluding the $8 million favorable impact from exchange rates, net sales increased by 3%. The sales growth was due to improved price and product mix on modestly declining volume. All segments grew sales except Resilient Flooring.

Reported operating income for the year was $210.8 million in 2006 compared to operating income of $101.1 million for the same period in 2005. Adjusted operating income of $254.9 million increased 53% compared to adjusted operating income of $166.8 million in the prior year period. The improvement in operating income benefited from price realization and improved manufacturing productivity in excess of inflation. Improved product mix and reduced SG&A expenses also contributed to the year-over-year growth.

Global macroeconomic indicators suggest a diverse outlook for our key markets for 2007. Based on these indicators, we expect flat to modest growth across North American and European commercial markets, and sustained growth in the Pacific Rim. The outlook for North American residential markets is uncertain due to the continuing weakness in U.S. housing starts and mixed indicators for renovation. On a consolidated basis, improved prices and increased manufacturing productivity are anticipated to offset cost inflation.

Sale of European Carpet and Sports Flooring Business

Today, AWI also announced the completion of the sale of the principal operating companies of Armstrong's European Textile and Sports Flooring business segment, Tapijtfabriek H. Desseaux N.V. and its subsidiaries, to NPM Capital N.V. Armstrong expects no material gain or loss on the sale, and the Company will invest the proceeds in continuing operations.