Armstrong's Losses Grow in 4Q

Lancaster, PA, March 30--Armstrong Holdings, Inc. in the fourth quarter of 2004 reported an operating loss of $134.8 million compared to an operating loss of $12.1 million in the fourth quarter of 2003. The company reported fourth quarter 2004 net sales of $855.3 million that were 6.1% higher than fourth quarter net sales of $805.8 million in 2003. Excluding the favorable effects of foreign exchange rates of $18.4 million, net sales increased 3.8%. For the year 2004 the company reported a loss of $43.8 million compared to an operating loss of $19.3 million for 2003. During 2004, Armstrong recorded non-cash goodwill impairment charges of $108.4 million and a fixed asset impairment charge of $44.8 million related to European resilient flooring business. Net sales for the year 2004 were $3,497.3 million, an increase of 7.3% from the $3,259.0 million reported for 2003. Excluding the favorable effects of foreign exchange rates of $87.9 million, consolidated net sales increased 4.5%. During 2004 and 2003, Armstrong implemented several manufacturing and organizational changes to improve cost structure and enhance competitive position. The charges for these initiatives incurred in 2004 totaled approximately $50 million, of which approximately $32 million was for accelerated depreciation and fixed asset impairments. In 2003, charges for cost reduction initiatives totaled approximately $54 million, of which approximately $32 million was for accelerated depreciation and fixed asset impairments. The remaining amounts were primarily for severances and other related costs. Resilient Flooring net sales of $1,215.1 million in 2004 increased from net sales of $1,181.5 million in 2003. Excluding the favorable impact of foreign exchange rates of $27.6 million, 2004 net sales were essentially flat versus 2003. An operating loss of $150.2 million in 2004 compared to operating income in 2003 of $56.2 million. Contributing to the 2004 loss were a non-cash goodwill impairment charge of $108.4 million, a non-cash fixed asset impairment charge related to the European resilient business of $44.8 million and cost reduction initiative charges of $32.7 million. Lower laminate sales volume, increased costs to purchase PVC and wage and salary inflation also reduced operating results. Wood Flooring net sales of $832.1 million in 2004 increased 12.7% from $738.6 million in the prior year. This increase was driven primarily by improved pricing and increased volume in certain products. Operating income of $51.4 million in 2004 compared to an operating loss of $4.0 million in 2003. In addition to the positive impact of higher sales, lower expenses for implementing cost reduction initiatives and lower manufacturing overhead resulting from prior initiatives contributed to the improved operating results. Partially offsetting these were higher costs for lumber and increased production expenses in certain plants. Textiles and Sports Flooring net sales of $265.4 million decreased in 2004 compared to $271.9 million in 2003. Excluding the translation effect of changes in foreign exchange rates of $25.8 million, net sales decreased by 10.8%, primarily from volume declines in carpet flooring products due to weak economic conditions in primary selling markets and loss of market share, caused by the lack of new product development. An operating loss of $7.1 million in 2004 compared to an operating loss of $11.0 million recorded for 2003. 2003 results included expenses of $7.5 million associated with cost reduction initiatives. The further decrease was due to the negative impact of lower sales volume and prices.