<PAGE>
[LOGO OF ARMSTRONG APPEARS HERE]
To all Armstrong shareholders:
You are cordially invited to attend the 1998 Annual Meeting of the
Shareholders to be held at the principal office of the Company, Armstrong House
North, Liberty and Charlotte Streets, Lancaster, Pennsylvania, on Monday, April
27, 1998, at 10:00 a.m., local time.
As described in the accompanying proxy statement, you are being asked to
elect five directors to the Company's Board of Directors and to act on other
business that may properly come before the meeting.
Please carefully review the proxy statement and then complete and execute
your proxy and return it promptly to the Company's independent judges of
election and vote tabulators, ChaseMellon Shareholder Services, L.L.C. The vote
of each shareholder is important to the Board of Directors. We appreciate your
time and attention to this letter and the accompanying proxy statement.
Sincerely yours,
/s/ George A. Lorch
George A. Lorch
Chairman and Chief Executive Officer
March 16, 1998
<PAGE>
ARMSTRONG WORLD INDUSTRIES, INC.
Lancaster, Pennsylvania
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
The Annual Meeting of the Shareholders of Armstrong World Industries, Inc.,
will be held, in accordance with a resolution of the Board of Directors adopted
pursuant to the bylaws of the Company, on Monday, April 27, 1998, at 10:00 a.m.,
local time, at the principal office of the Company, Armstrong House North,
Liberty and Charlotte Streets, Lancaster, Pennsylvania, U.S.A., for the
following purposes:
. To elect two directors for terms expiring in 2000 and three directors for
terms expiring in 2001 and
. To transact such other business as may properly come before the meeting.
Only holders of Common Stock of record on the books of the Company at the
close of business on February 20, 1998, will be entitled to vote at the meeting.
The Board's nominees for directors are set forth in the accompanying proxy
statement.
Your vote is important. Please mark, date and sign your proxy and promptly
mail it in the enclosed envelope to the Company's independent judges of election
and vote tabulators, ChaseMellon Shareholder Services, L.L.C.
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY, CAN BE RETURNED IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Deborah K. Owen
Senior Vice President, Secretary
and General Counsel
March 16, 1998
<PAGE>
ARMSTRONG WORLD INDUSTRIES, INC.
Liberty and Charlotte Streets
Lancaster, PA 17603
PROXY STATEMENT
Proxies in the accompanying form are being solicited by the Board of
Directors of the Company for use at the Annual Meeting of the Shareholders on
Monday, April 27, 1998. The proxy statement and the form of proxy are being
mailed to shareholders commencing on or about March 16, 1998.
Only holders of Common Stock of record on the books of the Company at the
close of business on February 20, 1998 (the "Record Date"), will be entitled to
vote at the meeting. On the Record Date, there were 40,072,719 shares of Common
Stock of the Company outstanding.
If a shareholder participates in the Company's Automatic Dividend
Reinvestment Plan, the proxy sent to each shareholder will represent the number
of shares registered in the shareholder's name and the number of shares,
including fractional shares, credited to the shareholder's Automatic Dividend
Reinvestment Plan account.
Holders of Common Stock of record as of the close of business on the Record
Date, or their proxies, are entitled to one vote per share and to cumulative
voting rights in the election of directors. Under cumulative voting, a
shareholder, or the shareholder's proxies, may vote the number of shares owned
by the shareholder for as many persons as there are directors to be elected, or
may cumulate such votes and give to one or distribute among the nominees as many
votes as shall equal the total number of directors to be elected multiplied by
the number of the shareholder's shares. The nominees receiving the greatest
number of votes will be elected directors.
ELECTION OF DIRECTORS
On July 28, 1997, David W. Raisbeck was elected by the Board to be a
director. Effective January 1, 1998, E. Allen Deaver retired after almost ten
years of service as a director. On February 23, 1998, the Board increased the
stated number of directors and elected John A. Krol and David M. LeVan as
directors. Effective upon conclusion of the Board of Directors' meeting
immediately following the Annual Meeting of the Shareholders to be held April
27, 1998, J. Phillip Samper will retire after 13 years of service as a director.
Accordingly, the Board has nominated for election as directors John A. Krol and
David W. Raisbeck for terms expiring in 2000, and David M. LeVan, James E.
Marley and Jerre L. Stead for terms expiring in 2001.
The Company has been advised by persons named in the accompanying proxy
that they intend to vote pursuant to the proxy for the election of the following
persons and, if necessary, to exercise cumulative voting rights to secure the
election of as many as possible of the following nominees: John A. Krol, David
M. LeVan, James E. Marley, David W. Raisbeck and Jerre L. Stead. Each individual
nominated for election as a director of the Company has agreed to serve if
elected. However, the Company is informed that in the event of the refusal or
inability of any nominee for director to serve, the persons named in the
accompanying form of proxy intend to vote at the meeting pursuant to the proxy
for the election of such other person, if any, as may be nominated by the Board
of Directors, subject to the right of the persons named in the proxy to exercise
cumulative voting rights as described above.
1
<PAGE>
------------------------------------
NOMINEES FOR TERMS TO EXPIRE IN 2000
------------------------------------
JOHN A. KROL
Chairman of the Board
E.I. du Pont de Nemours and Company
Member--Board Affairs and Governance Committee and Management Development and
Compensation Committee
Director since February 1998 Age 61
[PHOTO APPEARS HERE]
Mr. Krol is a graduate of Tufts University where he also received a master's
degree in chemistry. In 1997, he became Chairman of the Board of DuPont
(chemicals, fibers, petroleum, life sciences and diversified businesses), which
he joined in 1963, and where he has also served as Chief Executive Officer
(1995-1998), President (1995-1997), Vice Chairman (1992-1995), and Senior Vice
President of DuPont Fibers (1990-1992). He is a director of Mead Corporation,
J.P. Morgan & Co., the National Association of Manufacturers, the Delaware Art
Museum, and Catalyst. Mr. Krol also serves on the Boards of Trustees of the
Tufts University and the University of Delaware and is a member of The Business
Council.
DAVID W. RAISBECK
Executive Vice President and President, Trading Sector, Cargill, Incorporated
Member--Audit Committee and Finance Committee
Director since 1997 Age 48
[PHOTO APPEARS HERE]
Mr. Raisbeck is a graduate of Iowa State University and the executive MBA
program at the University of Southern California. He joined Cargill,
Incorporated (agricultural trading and processing businesses), in 1971 and has
held a variety of merchandising and management positions focused primarily in
the commodity and the financial trading businesses. Mr. Raisbeck was elected
President of Cargill's Trading Sector in June 1993, a director of Cargill's
Board in August 1994 and Executive Vice President in August 1995. He is also
executive supervisor of Cargill Human Resources and a member of the Executive
Committee and Human Resources Committee of the Cargill Board. Mr. Raisbeck is a
member of the Chicago Mercantile Exchange, Minneapolis Grain Exchange and the
Commodity Marketing Exchange in New York City. He is a governor of the Iowa
State University Foundation.
------------------------------------
NOMINEES FOR TERMS TO EXPIRE IN 2001
------------------------------------
DAVID M. LeVAN
Chairman, President and Chief Executive Officer Conrail, Inc.
Member--Board Affairs and Governance Committee and Management Development and
Compensation Committee
Director since February 1998 Age 52
[PHOTO APPEARS HERE]
Mr. LeVan is a graduate of Gettysburg College and the Harvard University
Advanced Management Program. Since May 1996, he has served as Chairman,
President and Chief Executive Officer of Conrail (rail freight transportation),
which he joined in 1978, and where he has also served as Chief Operating Officer
(1994-1996), Executive Vice President (1993-1994), and in various Senior Vice
President positions (1990-1993). He is a Certified Public Accountant. Mr. LeVan
is a member of the Board of Trustees of Gettysburg College and a member of the
Board of Education for the School District of Philadelphia.
2
<PAGE>
------------------------------------
NOMINEES FOR TERMS TO EXPIRE IN 2001
------------------------------------
JAMES E. MARLEY
Chairman of the Board
AMP Incorporated
Member--Audit Committee (Chairman) and Finance Committee
Director since 1988 Age 62
[PHOTO APPEARS HERE]
Mr. Marley is a graduate of Pennsylvania State University and earned a master's
degree in mechanical engineering from Drexel University. Since 1993, he has
served as Chairman of the Board of AMP Incorporated (electrical/electronic
connection devices), which he joined in 1963 where he served as President and
Chief Operating Officer (1990-1992) and President (1986-1990). He also serves on
the Boards of Harsco Corporation, The Pinnacle Health System and the
Manufacturers' Alliance for Productivity and Innovation.
JERRE L. STEAD
Chairman and Chief Executive Officer
Ingram Micro, Inc.
Member--Board Affairs and Governance Committee and Management Development and
Compensation Committee (Chairman)
Director since 1992 Age 55
[PHOTO APPEARS HERE]
Mr. Stead is a graduate of the University of Iowa and was a participant in the
Advanced Management Program, Harvard Business School. On September 1, 1996, he
became Chairman and Chief Executive Officer of Ingram Micro, Inc. (technology
products and services). During 1995, he served as Chairman, President and Chief
Executive Officer of Legent Corporation (integrated product and service software
solutions) until its sale late in 1995. He was Executive Vice President,
American Telephone and Telegraph Company (telecommunications) and Chief
Executive Officer of AT&T Global Information Solutions (computers and
communicating), formerly NCR Corp. (1993-1994). He was President of AT&T Global
Business Communications Systems (communications) (1991-1993). He serves on the
Board of Garrett Evangelical Seminary and the University of Iowa Board of
Visitors. He is also a Director of TBG Holdings N.V., TJ International, Inc.,
and American Precision Industries, Inc.
------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1999
------------------------------------
H. JESSE ARNELLE
Of Counsel
Womble, Carlyle, Sandridge & Rice
Member--Audit Committee and Finance Committee
Director since 1995 Age 64
[PHOTO APPEARS HERE]
Mr. Arnelle is Of Counsel with the law firm of Womble, Carlyle, Sandridge & Rice
since October 1997 and former senior partner and co-founder of Arnelle, Hastie,
McGee, Willis & Greene, a San Francisco-based corporate law firm. He is a
graduate of Pennsylvania State University and the Dickinson School of Law. Mr.
Arnelle served as Vice-Chairman (1993-1995) and Chairman (1996-1997) of the
Board of Trustees of the Pennsylvania State University. He serves on the Boards
of Wells Fargo & Company and subsidiary Wells Fargo Bank, Waste Management,
Inc., FPL Group, Inc., Eastman Chemical Company, Textron Corporation and Union
Pacific Resources.
3
<PAGE>
------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1999
------------------------------------
DONALD C. CLARK
Former Chairman of the Board
Household International, Inc.
Member--Board Affairs and Governance Committee (Chairman) and Management
Development and Compensation Committee
Director since 1996 Age 66
[PHOTO APPEARS HERE]
Mr. Clark is a graduate of Clarkson University and Northwestern University where
he earned his MBA degree. He joined Household International, Inc. (consumer
financial services), in 1955 and, after holding a number of managerial and
executive positions, was elected Chief Executive Officer in 1982 and Chairman of
the Board in 1984. In 1994, he relinquished the title of Chief Executive Officer
and retired as a Director and Chairman of the Board in May 1996, as a result of
reaching Household's mandatory retirement age for employee directors. Mr. Clark
is a Director of Ripplewood Holdings L.L.C., a trustee of Northwestern
University, and Chairman of the Board of Trustees of Clarkson University. He is
also a Director of Warner-Lambert Company, Ameritech Corporation, Scotsman
Industries, Inc., and PMI Group, Inc.
GEORGE A. LORCH
Chairman, President and Chief Executive Officer of Armstrong
Director since 1988 Age 56
[PHOTO APPEARS HERE]
Mr. Lorch is a graduate of Virginia Polytechnic Institute. He began his
Armstrong association in 1963. He has served as the Company's Chairman of the
Board since April 1994. Prior to his election as President and Chief Executive
Officer in September 1993, he served as Executive Vice President from 1988.
After various assignments in marketing (1963-1983) with Armstrong and an
Armstrong subsidiary, he served as Group Vice President for Carpet Operations
during the period 1983 to 1988. Mr. Lorch is also a Director of Household
International, Inc. R.R. Donnelley & Sons Company and Warner-Lambert Company. He
is a member of The Policy Committee of the Business Roundtable and a member of
the Conference Board and The Pennsylvania Business Roundtable.
------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2000
------------------------------------
VAN C. CAMPBELL
Vice Chairman, Corning Incorporated
Member--Audit Committee and Finance Committee (Chairman)
Director since 1991 Age 59
[PHOTO APPEARS HERE]
Mr. Campbell graduated from Cornell University and holds an MBA degree from
Harvard University. He is Vice Chairman of Corning Incorporated (glass and
ceramic products) and is a member of its Board of Directors. He also serves on
the Boards of Dow Corning Corporation, General Signal Corporation, Covance Inc.,
and Quest Diagnostics Incorporated. Mr. Campbell is a Trustee of the Corning
Foundation, the Rockwell Museum and the Corning Museum of Glass.
4
<PAGE>
------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2000
------------------------------------
J. PHILLIP SAMPER
President and Chief Executive Officer
Avistar Systems, L.P.
Member--Board Affairs and Governance Committee and Management Development and
Compensation Committee
Director since 1985 Age 63
[PHOTO APPEARS HERE]
Mr. Samper is a graduate of both the University of California at Berkeley and
the American Graduate School of International Management. He also earned a
master's degree in management from the Massachusetts Institute of Technology. In
late 1997, he was named President and Chief Executive Officer, Avistar Systems,
L.P. (video conferencing company) and served for most of 1997 as Chairman,
President and Chief Executive Officer with Quadlux, Inc. (commercial/residential
ovens). During 1995 until its merger with Silicon Graphics, Inc., in February
1996, Mr. Samper served as Chairman and Chief Executive Officer of Cray
Research, Inc. (high performance computers and service). Through February 1995,
Mr. Samper served as the Chief Executive of Sun Microsystems Computer
Corporation (computer workstations), a major unit of Sun Microsystems, Inc. He
retired as Vice-Chairman and Executive Officer of Eastman Kodak Company
(photographic, chemical and health care products) in 1990 after a career
spanning 28 years. As a Hispanic, Mr. Samper has been active in pro-Hispanic
efforts nationally. He is also a Director of Interpublic Group of Companies,
Inc., Sylvan Learning Systems, Inc., and Ingram Micro, Inc.
During 1997, the Board of Directors held ten meetings; each director
attended at least 75% of the aggregate total meetings of the Board of Directors
and meetings (21 in total) of the standing Audit, Board Affairs and Governance,
Management Development and Compensation and Finance (formerly Finance and
Pension) Committees on which each such director served.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company are compensated
at the rate of $20,000 per year and, in addition, $1,000 for each Board and
Committee (other than Executive Committee) meeting attended and $1,000 per diem
plus reasonable expenses for special assignments in connection with Board
activity. An annual fee of $3,000 is paid to each Committee chairman. Effective
January 1, 1998, nonemployee members of the Executive Committee are paid an
annual fee of $3,000 in lieu of an attendance fee paid per meeting; a total of
12 telephonic meetings are scheduled for 1998. Directors who are officers or
employees of the Company are not separately compensated as directors or for
attendance at Board or Committee meetings or as Committee chairmen. Directors
may elect to defer cash payments to the Armstrong Deferred Compensation Plan.
During 1997, six nonemployee directors made such deferrals to the Armstrong
Deferred Compensation Plan, and one nonemployee director has an account balance
under the Deferred Compensation Plan for Non-Employee Directors (a plan as to
which future deferrals were terminated June 25, 1990).
On December 18, 1995, the Board voted to discontinue the Directors'
Retirement Income Plan for directors who join the Board after January 1, 1996.
Under the Plan, a director who attains at least six years of Board service is
eligible for retirement benefits following termination of Board service. The
annual retirement benefit is equal to the Board retainer in effect on the date
of termination and is payable for a period equal to the director's length of
Board service. Payments cease upon a director's death. Directors who elected to
discontinue Plan participation and waive their right to any accrued benefit
became eligible to receive awards of phantom shares of Common Stock under the
Armstrong Deferred Compensation Plan. Under such an election, a director who had
less than 12 years of Board
5
<PAGE>
service on January 1, 1996, became eligible to receive an annual award of 200
phantom shares commencing January 1, 1996, and continuing each January 1 up
until the time the director attains 12 years of Board service. In addition, all
directors who elected to discontinue participation in the Directors' Retirement
Income Plan received a phantom share award to replace the value of the accrued
benefit the director elected to forfeit. The phantom share award to each
director was the greater of 200 shares times the number of full years of Board
service as of January 1, 1996, or that number of shares whose fair market value
as of January 1, 1996, equated to the present value of benefits accrued under
the Directors' Retirement Income Plan. Four of the five current directors who
joined the Board prior to January 1, 1996, elected to discontinue their
participation in the Directors' Retirement Income Plan and receive the phantom
share awards. Any director who joins the Board after January 1, 1996, will be
eligible to receive an annual award of 200 phantom shares each January 1 up
until the time the director attains 12 years of Board service.
In addition to the foregoing, all nonemployee directors participate in the
Restricted Stock Plan for Non-Employee Directors pursuant to which each
nonemployee director will receive an initial award of 200 shares of Common Stock
upon becoming a director and will be eligible to receive annual awards of shares
of Common Stock on July 1 of each year. Under an award schedule approved by the
shareholders, the annual award of 300 restricted shares of Common Stock will
increase to 400 shares effective July 1, 1999; and 500 shares effective July 1,
2001. Under the Plan, the shares of Common Stock may not be transferred by the
director and are subject to forfeiture under certain conditions. Subject to
these forfeiture provisions, each nonemployee director has the right to receive
dividends on and has voting power with respect to the shares.
On February 23, 1998, the Board voted to allow any director to make an
annual election to receive, in the form of nonstatutory stock option grants, the
value of the next year's: (1) cash payments, (2) phantom share award under the
Armstrong Deferred Compensation Plan, and (3) award of Common Stock under the
Restricted Stock Plan for Non-Employee Directors. A director may separately
elect to receive stock options in lieu of each of these compensation elements.
Normally, a director will make such election not later than December 1 in the
year preceding the year of the payment or award. For 1998, directors may make
elections prior to April 1, 1998, with regard to certain payments and awards for
the remainder of the year. The number of stock options will be determined by
converting the value of the scheduled payment or award into a stock option grant
with an equivalent present value using an option pricing model. All stock option
grants will be authorized by the Board under the terms and conditions of the
1993 Long-Term Stock Incentive Plan. Such stock options will be granted at fair
market value, have a ten-year option term, be immediately exercisable, and be
transferable by the director to an immediate family member or a trust
established for such family member.
The Board of Directors has adopted a minimum stock ownership guideline for
nonemployee directors equal to five times the annual Board retainer. Currently,
this equates to $100,000 worth of Common Stock. Directors have five years from
date of notification to meet this ownership guideline. Shares awarded under the
Restricted Stock Plan for Non-Employee Directors and deferred stock units held
under the Armstrong Deferred Compensation Plan will be counted for purposes of
satisfying the ownership guideline. Six of the nine nonemployee directors as of
March 16, 1998, have met the minimum stock ownership guideline.
BOARD OF DIRECTORS COMMITTEES
The Board of Directors has, among others, an Audit Committee, a Management
Development and Compensation Committee and a Board Affairs and Governance
Committee as described below. The Finance (formerly the Finance and Pension)
Committee and the Executive Committee are also standing committees of the Board.
The Committees receive their authority and assignments from the Board of
Directors and report to the Board.
Audit Committee--The Committee is composed of James E. Marley (Chairman),
H. Jesse Arnelle, Van C. Campbell and David W. Raisbeck. The Committee held
three meetings during 1997. In fulfilling its responsibilities, the Committee's
activities included, but were not limited to, recommendation of the employment
of the independent auditors; review of the scope and results of the independent
auditors' audit activities and the fees proposed and charged therefor; review of
nonaudit services of the independent auditors and the fees proposed and charged
therefor; review of the scope and results of the internal
6
<PAGE>
audit activities; review of officers' travel and entertainment expenses; and
review of the financial activities, financial position and related reports of
the consolidated Company.
Management Development and Compensation Committee--The Committee is composed of
- -------------------------------------------------
Jerre L. Stead (Chairman), Donald C. Clark, J. Phillip Samper, and effective
February 23, 1998, John A. Krol and David M. LeVan. James E. Marley was a member
of the Committee prior to being appointed Chairman of the Audit Committee in
April 1997. The Committee held four meetings during 1997. In fulfilling its
responsibilities, the Committee reviews and recommends to the Board of Directors
matters involving the annual compensation of all directors who are officers of
the Company; reviews the compensation plans for the senior officers of the
Company; and periodically reviews the management development plans, the salary
and incentive compensation plans and the administration of such plans covering
the salaried employees of the Company. Meeting annually, the Committee reviews
matters of senior management succession. The Committee also administers the
Long-Term Stock Option Plan for Key Employees, the 1993 Long-Term Stock
Incentive Plan, the Company's Management Achievement Plan and the Armstrong
Deferred Compensation Plan.
Board Affairs and Governance Committee--The Committee is composed of Donald C.
- --------------------------------------
Clark (Chairman), J. Phillip Samper, Jerre L. Stead, and effective February 23,
1998, John A. Krol and David M. LeVan. Two meetings were held during 1997. In
fulfilling its responsibilities, the Committee reviews and makes recommendations
dealing with development, performance and effective functioning of the Board.
The Committee reviews and recommends new director candidates for consideration
by the Board of Directors and recommends to the Board the director nominees for
election at the annual shareholders' meeting. The Committee will consider
nominees recommended by shareholders of the Company. Such recommendations should
be made in writing, should include a statement of the recommended nominee's
qualifications and should be addressed to the Committee at the address of the
Company. Actual nominations must be made in accordance with the procedures set
forth in the Company's bylaws, a copy of which may be obtained upon written
request to the Secretary of the Company. The Committee reviews matters of
nonemployee directors' compensation and administers the Restricted Stock Plan
for Non-Employee Directors and focuses on the Company's policies on
environmental matters, health, safety, EEO and other diversity issues.
DIRECTORS' AND EXECUTIVE OFFICERS' SECURITY OWNERSHIP
The following tabulation shows the amount of all Armstrong stock-based
holdings beneficially owned directly or indirectly by the Company's directors
(and nominees), the named individuals set forth in Table 1 on page 11 and all
the directors and executive officers as a group as of December 31, 1997. Except
as otherwise noted below, in each instance the nature of beneficial ownership
consists of sole voting and investment power.
<TABLE>
<CAPTION>
Common Stock and Stock-Based Holdings
Stock Options Total Beneficial Deferred
Name Stock/2/ Exercisable Within 60 Days Ownership Stock Units/3/
- ---- ----- -------------------------- --------- -----------
<S> <C> <C> <C> <C>
H. Jesse Arnelle 723 -- 723 709
Van C. Campbell 1,500 -- 1,500 2,803
Donald C. Clark 918 -- 918 1,107
E. Allen Deaver 41,762 89,770 131,532 11,695
John A. Krol/1/ -- -- -- --
David M. LeVan/1/ -- -- -- --
George A. Lorch 87,608 157,080 244,688 13,635
James E. Marley 1,764 -- 1,764 3,049
Marc R. Olivie 6,395 12,000 18,395 1,089
David W. Raisbeck 201 -- 201 256
Frank A. Riddick III 21,372 50,120 71,492 815
J. Phillip Samper 2,791 -- 2,791 508
Robert J. Shannon, Jr. 12,778 22,806 35,584 3,520
Jerre L. Stead 3,398 -- 3,398 1,045
Directors, nominees and
executive officers as a group 254,870 426,987 681,857 40,930
(21 persons)
</TABLE>
/1/ Effective February 23, 1998, John A. Krol and David M. LeVan each received
200 shares under the Company's Restricted Stock Plan for Non-Employee Directors.
7
<PAGE>
/2/ Includes the following shares held by each nonemployee director under the
Company's Restricted Stock Plan for Non-Employee Directors as to which each
director has voting but not investment power and which shares are subject to
forfeiture in certain events: H. Jesse Arnelle--700; Van C. Campbell--1,300;
Donald C. Clark--700; James E. Marley--1,400; David W. Raisbeck--200; J. Phillip
Samper--1,400; and Jerre L. Stead--1,200.
The amounts also include shares of Common Stock which may be deemed to be
beneficially owned through the employee stock ownership accounts of the
Company's Retirement Savings and Stock Ownership Plan ("RSSOP") as follows:
George A. Lorch--1,638; E. Allen Deaver--1,776; Frank A. Riddick III--263; Marc
R. Olivie--213; Robert J. Shannon, Jr.--759; and executive officers as a
group--8,743. Each of the named individuals and each member of the group has
shared voting power and no investment power with respect to the shares of Common
Stock which may be deemed to be allocated to them under the RSSOP. The ownership
of each such individual and all the current directors and executive officers as
a group represents less than 1% of the outstanding shares in the RSSOP stock
ownership accounts.
Also included are the indirectly owned shares held in the RSSOP retirement
savings accounts of the following individuals: George A. Lorch--730; E. Allen
Deaver--604; Robert J. Shannon, Jr.--198; and in the case of Mr. Lorch, the 63
shares owned jointly by Mr. Lorch with his wife, as to which he holds shared
voting and investment power; and in the case of Jerre L. Stead, the 100 shares
owned jointly by Mr. Stead with his wife, as to which he holds shared voting and
investment power.
With respect to executive officers other than the named individuals, the group
amount includes the 191 shares held jointly with family members, as to which
voting and investment power is shared, and 567 shares owned indirectly through
the retirement savings accounts of the RSSOP.
/3/ Includes phantom shares of Company Stock held in the Stock Subaccount under
the Armstrong Deferred Compensation Plan. The phantom shares of Company Stock
are evidenced by a bookkeeping entry and participants have no voting or
investment power.
The ownership shown under the "Total Beneficial Ownership" column for each
director represents less than 1% of the shares of Common Stock outstanding on
December 31, 1997. All current directors and executive officers as a group
beneficially own 1.7% of the shares of Common Stock outstanding on December 31,
1997.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Management Development and Compensation Committee is responsible for
establishing the Company's overall philosophy and policies governing the
compensation programs for management personnel. The competitiveness of the
Armstrong executive compensation program is assessed by comparing the total
value of the program elements (base salary, annual incentive, long-term
incentives, employee benefits and perquisites) to that of a selected group of 18
other leading manufacturing companies with comparable sales revenue.
Executive Compensation Principles and Philosophy--The design of the executive
- ------------------------------------------------
compensation program is based on the principles that (1) the level and mixture
of compensation opportunity be sufficient to attract, retain and motivate the
caliber of executive talent vital to the Company's continued success, (2)
incentive compensation be at risk and conditional on the attainment of
performance goals that are directly related to increasing the long-term value of
the Company and achieving superior levels of total shareholder return, and (3)
individual senior managers be required to own specified amounts of Armstrong
Common Stock to ensure an ownership stake and enhance the alignment of their
personal interests with shareholder interests.
Annual Compensation--Base salaries are administered on a "pay for performance"
- -------------------
philosophy. Each year, the Chairman and Chief Executive Officer (CEO) prepares a
salary plan for selected Company officers that, among other things, takes into
account their performance and contributions. The proposed salary plan is
reviewed by the Committee and, subject to agreed-upon modification, approved for
the officers of the Company. The Committee recommends to the Board of Directors
for approval the annual base salary compensation of all officers who are
directors of the Company.
8
<PAGE>
The Company's primary annual incentive plan is the Management Achievement Plan.
A participant can earn cash awards in relation to the attainment of corporate
and business unit goals. A specific weighting is assigned to each of these
achievement segments where such segments are applicable. Each participant has a
targeted annual incentive award which is expressed as a percentage of base
salary earnings and varies with the participant's level of responsibility.
Economic Value Added (EVA(R))/1/ serves as the Company's principal financial
measure and is the basis for determining awards under the Management Achievement
Plan. EVA(R) equals the dollar amount arrived at by taking net operating profit
after taxes and subtracting a charge for the use of the capital needed to
generate that profit. For the corporate and business unit achievement segments,
there are threshold levels of EVA(R) performance below which no incentive awards
are paid. For the corporate and major business segments, there are no caps or
maximum award limits so there will be incremental awards for higher levels of
EVA(R) achievement. For 1997, the incentive awards for the Chairman and CEO, the
Executive Vice President, and the Senior Vice President, Finance and Chief
Financial Officer were based entirely on corporate EVA(R) achievement. The
incentive awards for all other executive officers were based solely on corporate
and/or business unit EVA(R) goal achievement.
The Management Achievement Plan has been structured so that the level of cash
compensation (base salary plus annual bonus) will exceed the median level of
cash compensation for the selected group of companies when high levels of
corporate, business unit and individual performance are achieved. Conversely,
when the Company and business units fall short of established targets, the level
of cash compensation will fall below the median level of cash compensation for
the selected group.
Long-Term Incentive Compensation--The Company's 1993 Long-Term Stock Incentive
- --------------------------------
Plan provides for the grant of stock options, performance restricted shares, and
restricted stock awards. Each year, the Committee reviews and, where
appropriate, authorizes long-term incentive grants under the plan. Restricted
stock awards are made to key employees for purposes of special recognition and
employment retention.
In 1997, stock options were granted at the fair market value of the stock on the
date of the grant. The number of stock options granted to the executive officers
named in the Summary Compensation Table shown on page 11 was substantially
reduced in recognition that each executive received twice the normal grant
amount in 1996. In determining the number of stock options granted to
management, the Committee took into account: position levels, the targeted
amounts of the long-term incentive award for selected participants, and other
factors determined to be relevant such as individual performance, employment
retention and the number of shares available for issuance under the plan. If the
stock price increases significantly, participants stand to realize commensurate
rewards and the opportunity to increase their stock ownership positions by
exercising their options.
Performance restricted share grants were made to a limited group of selected
senior executives. None of the executive officers named in the Summary
Compensation Table received performance restricted share grants in 1997 since
each received twice the normal grant amount in 1996. The Committee considered
position levels, the targeted amounts of the long-term incentive award,
individual performance, employment retention and the number of shares available
for issuance under the plan in determining the number of performance restricted
shares to grant to those receiving grants. Grants made in 1997 are rights to
earn shares of Armstrong Common Stock if the Company's total shareholder return
performance over the three-year period of 1997 through 1999 meets specific goals
established by the Committee. The number of performance restricted shares
earned, if any, will be based on Armstrong's relative total shareholder return
compared to that of 12 companies in the Peer Group Index selected by the
Committee (referenced in footnote 2 on page 14). Shares earned will be subject
to a one-year restriction period commencing January 1, 2000.
Stock Ownership Guidelines--Early in 1995, the Company adopted stock ownership
- --------------------------
guidelines for the top 70 senior executives. These guidelines establish minimum
levels of Armstrong stock ownership (including deferred stock units) that
executives are expected to meet within five years of notification, ranging from
a value equal to one times base salary for lower level executives to four times
base salary for the CEO. These ownership guidelines are intended to ensure that
senior executives will have a
- -----
/1/ EVA(R) is a registered trademark of Stern Stewart & Co.
9
<PAGE>
significant ownership stake in the Company while providing an added incentive
for the executives to focus on long-term shareholder value creation. In the
third year of measurement, Messrs. Lorch, Deaver, Riddick and Shannon have
satisfied their respective minimum levels of stock ownership. More than half of
the other executive officers have also met the minimum ownership guidelines.
Tax Deductibility Under Section 162(m)--The Committee's intention is that all
performance-based compensation be deductible for federal income tax purposes. It
is the opinion of the Company that annual incentive payments under the
Management Achievement Plan and all outstanding stock option grants and grants
of performance restricted shares will qualify as performance-based compensation
under Internal Revenue Code Section 162(m).
CEO Compensation--Under Mr. Lorch's leadership, the Armstrong organization
- ----------------
achieved the following during 1997:
. Posted record earnings per share from continuing businesses (excluding
the earnings impact of Dal-Tile special charges). Fourteen business units had
record sales and eleven units had record profits.
. Earned in excess of the Company's cost of capital for the fourth consecutive
year.
. Announced a 10% increase in the annual dividend rate from $1.60 to $1.76
per share.
. Reached a repurchase level of approximately 3,661,000 shares under the
5.5 million share repurchase programs.
. From a business operations perspective:
--Launched the Corporate Transformation and Shared Services Project which
will provide Armstrong and its businesses with significantly improved
processes, policies, systems and the right organization structure in order
to execute corporate strategies and achieve the four non-negotiable
business strategies.
--Implemented a formalized human resource development planning process to
provide a systematic approach for improving the Company's human resource
capabilities. These improved capabilities will be achieved through ongoing
assessment, learning, development and leadership succession.
--Established numerous safety records at a variety of locations including an
achievement of five million man hours worked without a lost time injury at
the Macon, Georgia plant.
--Expanded international business presence through:
* Swedish commercial flooring and soft fiber ceiling manufacturing joint
ventures;
* alliance with Serbian manufacturer for supply of residential flooring
products for Eastern Europe;
* acquisition of minority interest in a Polish floor covering distributor;
and
* purchase by WAVE, our ceiling grid system joint venture with Worthington
Industries, Inc., of a Spanish manufacturer and the opening of plants in
Shanghai, China, and Teesside, England.
. Received the following recognition:
--Lowe's President's Award for Supplier of the Year from a field of over
2,000 vendors.
--Voted Best Overall Manufacturer and recipient of the first annual Floor
Covering News Award of Excellence.
--Awards from regulatory bodies to a number of manufacturing locations
around the world for environmental excellence.
These business and financial achievements were among the factors that caused the
Committee to approve the 1997 compensation as displayed in the Summary
Compensation Table on page 11.
The Chairman and CEO's total direct compensation opportunity at target has been
established such that less than 30% of the total direct compensation opportunity
will be fixed and represented by base salary earnings. The remainder will be
performance-based, comprised of an annual cash incentive opportunity under the
Management Achievement Plan and a stock-based long-term incentive opportunity
under the 1993 Long-Term Stock Incentive Plan.
Management Development and Compensation Committee
Jerre L. Stead, Chairman
Donald C. Clark
J. Phillip Samper
10
<PAGE>
EXECUTIVE OFFICERS' COMPENSATION
The following table shows the compensation received by the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company (the "Named Executives") for services to the Company and its
subsidiaries during the last three fiscal years:
TABLE 1: SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------------------------------------
Awards Payouts
---------------------------------------
Other Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Award(s) SARs Payouts sation
Principal Position Year ($) ($) ($)/2/ ($)/4/ (#) ($) ($)/6/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G. A. Lorch 1997 682,500 1,161,956 - 0 18,000 183,437/5/ 66,892
Chairman and 1996 622,500 1,154,738 - 0 70,880 0 63,004
Chief Executive Officer 1995 587,500 929,425 - 3,137,500/3/ 276,500/3/ 772,334 22,807
- ------------------------------------------------------------------------------------------------------------------------------------
E. A. Deaver 1997 481,200 710,011 - 406,700 0 0 123,903
Executive Vice President 1996 457,800 788,561 - 0 40,000 0 113,455
1995 433,350 636,592 - 0 15,200 772,334 23,921
- ------------------------------------------------------------------------------------------------------------------------------------
F. A. Riddick III 1997 330,000 449,460 - 0 6,000 49,634/5/ 14,613
Senior Vice President, Finance 1996 291,000 462,690 - 598,750 68,120 0 6,279
and Chief Financial Officer 1995 208,954/1/ 259,731 88,982 534,750 30,000 0 194
- ------------------------------------------------------------------------------------------------------------------------------------
M. R. Olivie 1997 309,000 406,011 70,411 0 6,000 0 17,490
President, Worldwide 1996 64,231/1/ 200,000 59,316 393,000 50,000 0 587
Building Products Operations
- ------------------------------------------------------------------------------------------------------------------------------------
R. J. Shannon, Jr. 1997 312,000 311,758 - 0 11,000 0 23,491
President, Worldwide 1996 238,300 271,036 - 369,250 35,500 0 19,716
Floor Products Operations 1995 211,600 158,731 - 91,750 0 384,508 1,685
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Mr. Riddick's employment with the Company commenced March 15, 1995. Mr.
Olivie's employment commenced October 15, 1996.
/2/ Except for income related to Mr. Riddick and Mr. Olivie, the aggregate value
does not exceed the lesser of $50,000 or 10% of shown salary and bonus. Mr.
Riddick's relocation income was $88,982 for 1995 and Mr. Olivie's relocation
income was $59,131 for 1996 and $62,500 for 1997. In addition, Mr. Olivie
received a $400,000 interest-free bridging loan from the Company pursuant to the
Company's household relocation policy. The loan was outstanding for a six-month
period during 1997 and has been repaid.
/3/ On December 18, 1995, the Board of Directors made a special long-term
incentive award to Mr. Lorch consisting of 50,000 shares of restricted stock and
250,000 stock options. These awards were made in recognition of Mr. Lorch's
outstanding performance as Chairman and CEO, and to serve to retain his
employment with the Company for at least the next five years. The shares of
restricted stock vest and become free of restrictions in one-third installments
at three, four and five years from the date of the award. The stock options
become exercisable in one-third installments at three, four and five years from
the date of the grant. The shares of restricted stock vest and the stock options
become exercisable upon a change in control of the Company.
/4/ The number and value of all shares of restricted stock held by each of the
Named Executives as of December 31, 1997, which includes performance restricted
shares earned under the 1993 and 1995 grants and performance restricted shares
that can be earned under the 1996 grant, were as follows: George A.
Lorch--80,231 ($5,997,267); E. Allen Deaver--25,187 ($1,882,728); Frank A.
Riddick III--23,816 ($1,780,246); Marc R. Olivie--9,182 ($686,355); and Robert
J. Shannon, Jr.--13,486 ($1,008,079). In order to earn the performance
restricted shares granted in 1996, the Company's total shareholder return for
the three-year period ending in 1998 must meet specific goals established by the
Management Development and Compensation Committee. During the performance
period, participants are credited with dividend equivalents which are used to
grant additional performance restricted shares that are subject to the same
performance requirements and the same terms and conditions. Mr. Deaver received
a restricted stock award of 5,600 shares of Common Stock in recognition of his
contributions to the Company's financial results over the past few years. All
restrictions lapse upon a change in control of the Company.
11
<PAGE>
/5/ Performance restricted shares earned pursuant to the 1995 grant which are
restricted for three years: George A. Lorch--2,454 shares and Frank A. Riddick
III--664 shares.
/6/ The amounts include the above-market interest credited to each named
individual's Armstrong Deferred Compensation Plan account: George A. Lorch--
$28,841; E. Allen Deaver--$34,153; Frank A. Riddick III--$1,088; and Robert J.
Shannon, Jr.--$2,314. The amounts also include the imputed income for Group Life
Insurance in excess of $50,000: Marc R. Olivie--$68. The amounts also include
vested amounts in the RSSOP for members' Equity and Match Accounts: George A.
Lorch--$2,060; E. Allen Deaver--$5,056; Frank A. Riddick III--$8,281; Marc R.
Olivie--$6,781; and Robert J. Shannon, Jr.--$8,451. The amounts also include the
present value costs of the Company's portion of 1997 premiums for split-dollar
life insurance: George A. Lorch--$35,991; E. Allen Deaver--$84,694; Frank A.
Riddick III--$5,244; Marc R. Olivie--$10,641; and Robert J. Shannon, Jr.--
$12,726. As a condition of participation in the split-dollar life insurance
program, the Named Executives waived future participation in the Company-paid
group term life insurance program.
Change in Control Agreements--The Company has entered into agreements with a
- ----------------------------
small group of senior officers, including the Named Executives, to provide
certain severance benefits in the event the officer is involuntarily terminated
or terminates for good reason as defined in the agreement within two years
following a change in control of the Company. The purpose of the agreements is
to foster the continued employment of key officers by allowing them to focus
attention on their assigned responsibilities without distraction in the event of
circumstances arising from the possibility of a change in control of the
Company. The agreement has an automatic renewal feature such that the terms will
continue in effect unless either the Company or the officer elects not to extend
the agreement. For purposes of these agreements, change in control has been
defined to include: (1) acquisition by a person (excluding certain qualified
owners) of beneficial ownership of 20% or more of the Company's Common Stock,
(2) change in the composition of the Board of Directors such that existing Board
members and their approved successors do not constitute a majority of the Board,
(3) consummation of a merger or consolidation of the Company unless shareholders
of voting securities immediately prior to such merger or consolidation continue
to hold 662/3% or more of the voting securities of the resulting entity, and (4)
shareholder approval of a liquidation or dissolution of the Company or sale of
all or substantially all of the Company's assets.
Circumstances triggering payment of specified benefits include: (1) involuntary
termination of employment for reasons other than cause, death or disability or,
(2) voluntary termination by the officer for good reason where there are
significant changes in the nature of employment including reduction in
compensation, changes in responsibility or relocation of the place of
employment. Severance benefits under the agreements include: (1) a lump sum
severance payment equal to three times the sum of (a) the officer's annual base
salary, and (b) the officer's highest annual bonus earned in the three years
prior to termination or prior to change in control, (2) continuation of life,
disability, accident and health insurance benefits for three years following
termination, (3) payment of remaining premium payments for split-dollar life
insurance policies, (4) enhanced retirement benefits payable as a lump sum, (5)
full reimbursement for the payment of excise taxes, and (6) payment of legal
fees in connection with a good faith dispute involving the agreement.
Severance Pay Plan for Salaried Employees--The Company's Severance Pay Plan for
- -----------------------------------------
Salaried Employees, adopted in 1990, is designed to cushion the effects of
unemployment for those salaried employees whose employment is terminated on
action initiated by the Company under certain conditions. All parent Company
salaried employees, including the Named Executives, are eligible for severance
pay if they are terminated by the Company and are not otherwise excluded from
the receipt of such benefits for reasons set forth in the Plan. No employee is
eligible for severance pay where the reason for termination is: (1) voluntary
separation, (2) in connection with the sale of a plant, unit, division or
subsidiary and the employee accepts employment with the successor organization,
or (3) due to a decision by the employee not to accept the offer of a similar
position with comparable compensation in the same geographic area made by the
Company or the successor organization. The amount of the severance pay that an
eligible employee may receive is based on the employee's length of service,
reason for termination and cash compensation level in accordance with a schedule
ranging from a minimum of two weeks' pay to a present maximum of 78 weeks' pay.
Subject to certain limitations, benefits may be paid by salary continuation or
lump-sum payments or a combination of periodic and lump-sum payments. The
Severance Pay Committee has the right to depart from the severance pay schedule
where related factors justify an upward or downward adjustment in the level of
benefits. In no event may the severance benefit exceed 104 weeks' pay.
12
<PAGE>
TABLE 2: OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options during 1997 under the Company's 1993 Long-Term Stock Incentive Plan
("the Plan") to each of the Named Executives:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------------------
Securities Percent Of
Underlying Total Options/
Options/SARs SARs Granted Exercise Or Grant Date
Granted/1/ To Employees Base Price Expiration Present Value/2/
Name (#) In Fiscal Year ($/share) Date ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
G. A. Lorch 18,000 6.3 69.875 02/23/07 235,260
E. A. Deaver -- -- -- -- --
F. A. Riddick III 6,000 2.1 69.875 02/23/07 78,420
M. R. Olivie 6,000 2.1 69.875 02/23/07 78,420
R. J. Shannon, Jr. 11,000 3.8 69.875 02/23/07 143,770
- --------------------------------------------------------------------------------------------
</TABLE>
/1/With certain exceptions for death or disability and defined change in control
events, most options become exercisable in equal installments at one, two and
three years from the date of grant. All stock options become exercisable
immediately upon a change in control of the Company.
/2/In accordance with Securities and Exchange Commission rules, the estimated
grant date present values were determined using the Black-Scholes model. The
material assumptions and adjustments incorporated in the model include: an
option term of five years, volatility of 19%, dividend yield of 2.46%, a
risk-free interest rate of 6.21%, and a reduction of 16% to reflect the
probability that the above stock options will be forfeited prior to the
expiration date. The ultimate value of the options will depend on the future
market price of the Company's stock which cannot be forecast with reasonable
accuracy.
TABLE 3: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information regarding the exercise of stock
options during 1997 and the unexercised options held as of the end of 1997 by
each of the Named Executives:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Securities
Value Underlying Unexercised Value Of Unexercised
Shares Realized Options/SARs In-The-Money Options/
Acquired (market price At Fiscal Year-End SARs At Fiscal Year-End
On at exercise less (#) ($)
Exercise exercise price) --------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
G. A. Lorch 2,500 65,313 115,640 303,440 3,258,008 3,614,920
E. A. Deaver 8,470 266,424 69,770 20,000 1,962,639 297,500
F. A. Riddick III 0 0 39,060 65,060 982,268 907,768
M. R. Olivie 0 0 10,000 46,000 92,500 399,250
R. J. Shannon, Jr. 520 18,200 13,890 41,250 444,901 503,594
- ---------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return/1/
Among Armstrong Common Stock, the S&P 500 Index and a Peer Group Index
The following graph compares the cumulative total return, including
reinvestment of dividends, among the Company's Common Stock, a broad equity
market index and a peer group index:
[LINE GRAPH APPEARS HERE]
Date Armstrong World Industries, Inc. Peer Group Index/2/ S&P 500
- ---- -------------------------------- ------------------- -------
1992 100 100 100
1993 173 133 110
1994 128 115 112
1995 212 146 153
1996 244 173 189
1997 269 208 252
/1/Assumes $100 invested on December 31, 1992, in Company Common Stock or index
including reinvestment of dividends. Fiscal year ending December 31.
/2/Is composed of companies which as a group reflects the Company's mix of
residential, nonresidential and international end-use markets. The peer group
includes American Standard Cos., Inc., Black & Decker Corp., Masco Corp., Newell
Co., Owens-Corning Fiberglas Corp., PPG Industries, Inc., Premark International,
Inc., Shaw Industries, Inc., Sherwin-Williams Co., Stanley Works, USG Corp. and
Whirlpool Corp.
RETIREMENT INCOME PLAN BENEFITS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under the Company's Retirement
Income Plan, which is a qualified defined benefit pension plan, as well as under
the Company's Retirement Benefit Equity Plan, which is a partially funded,
nonqualified supplemental pension plan that provides benefits that would
otherwise be denied participants by reason of certain Internal Revenue Code
limitations on qualified plan benefits. The amounts shown in Table 4 are based
on compensation that is covered under the plans and years of service with the
Company and its subsidiaries.
14
<PAGE>
TABLE 4: ANNUAL RETIREMENT BENEFIT BASED ON SERVICE
Average Final
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
- ------------ -------- -------- -------- -------- -------- --------
$ 400,000 $ 91,000 $121,000 $151,000 $181,000 $ 211,000 $ 235,000
600,000 137,000 183,000 228,000 274,000 319,000 355,000
800,000 184,000 245,000 306,000 367,000 428,000 476,000
1,000,000 230,000 307,000 383,000 460,000 536,000 596,000
1,200,000 277,000 369,000 461,000 553,000 645,000 717,000
1,400,000 323,000 431,000 538,000 646,000 753,000 837,000
1,600,000 370,000 493,000 616,000 739,000 862,000 958,000
1,800,000 416,000 555,000 693,000 832,000 970,000 1,078,000
2,000,000 463,000 617,000 771,000 925,000 1,079,000 1,199,000
2,200,000 509,000 679,000 848,000 1,018,000 1,187,000 1,319,000
A participant's compensation covered by the Company's pension plan is the
average of his or her annual compensation (as reported under the columns
captioned "Salary" and "Bonus" in the Summary Compensation Table) in the three
best-paid years in the 10 years prior to retirement. The 1997 annual covered
compensation and estimated years of service under the Plan for each of the Named
Executives were as follows: George A. Lorch--$1,837,238 (34.5 years); E. Allen
Deaver--$1,269,761 (37.5 years); Frank A. Riddick III--$792,690 (17.8 years);
Marc R. Olivie--$409,000 (21.2 years); and Robert J. Shannon, Jr.--$583,036
(27.5 years). Benefits shown assume retirement in 1997 and are computed as a
straight life annuity beginning at age 65 and are not subject to deduction for
Social Security or other offsets. Mr. Riddick's and Mr. Olivie's estimated years
of service include 15 and 20 years, respectively, of prior service credit
awarded under a provision of the Retirement Benefit Equity Plan. The Armstrong
retirement benefit will be reduced by the value of any defined benefit pension
payable by previous employers for the respective period of the prior service
credit.
If the Retirement Income Plan is terminated within five years following a
change in control of the Company, any Plan assets remaining after satisfying
Plan liabilities are first to be applied to increase retirement income to
employees, including the Named Executives, up to an amount that they would have
been eligible to receive under the Plan assuming, on an actuarial basis, they
continued employment until retirement. In the event a salaried member is
terminated other than for cause or resigns for good reason, in each case as
defined in the Plan, within two years following a change in control of the
Company, then such members with at least 10 years of service and at least 50
years of age would be eligible for early retirement without certain normal
reductions applying and with the addition of certain Social Security replacement
benefits; such members with 15 or more years of service also would receive
credit under the Plan for an additional five years of service. The Retirement
Benefit Equity Plan provides for certain restrictions on amendment or
termination of the Plan following a change in control of the Company and
provides for payment either by the Company or from an established and funded
Retirement Benefit Equity Trust, a nonqualified trust under which assets are
held to provide for the payment of benefits under the Retirement Benefit Equity
Plan.
15
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth each person or entity who may be deemed to
have beneficial ownership of more than 5% of the outstanding Common Stock of the
Company as of December 31, 1997, based upon information furnished to the
Company:
Amount and Nature of Percent of Class
Name and Address of Beneficial Owner Beneficial Ownership Outstanding/1/
- ------------------------------------ -------------------- -----------
Mellon Bank Corporation 4,198,044/2/ 10.46%
One Mellon Bank Center
Pittsburgh, PA 15258
Loomis, Sayles & Company, L.P. 2,878,346/3/ 7.17%
One Financial Center
Boston, MA 02111
/1/ In accordance with applicable rules of the Securities and Exchange
Commission, this percentage is based upon the total 40,119,400 shares of Common
Stock that were outstanding on December 31, 1997.
/2/ Mellon Bank, N.A., a subsidiary of Mellon Bank Corporation, is the trustee
of the employee stock ownership portion of Armstrong's Retirement Savings and
Stock Ownership Plan (the "RSSOP"). In that capacity, Mellon Bank, N.A., may be
deemed to be the beneficial owner of, and has shared voting power and sole
investment power with respect to 3,219,387 shares of Common Stock, or 8.02% of
the Common Stock outstanding. Under the RSSOP, shares of Common Stock are
allocated to a participant's account and are voted by Mellon Bank, N.A., in
accordance with the participant's direction. Unallocated shares and allocated
shares for which the trustee does not receive directions are voted by the
trustee in the same proportion as the directed shares are voted. Under the
RSSOP, in the event of a tender offer for the stock in the RSSOP, the trustee is
required to tender unallocated shares in the same proportion that allocated
shares are tendered. Mellon Bank, N.A., disclaims beneficial ownership of all
shares of Common Stock that have been allocated to the individual accounts of
employee participants in the RSSOP for which directions have been received and
followed. Mellon Bank Corporation and its affiliates, Boston Safe Deposit and
Trust Company, Mellon Trust of California, Mellon Bank, N.A., Mellon Capital
Management Corporation, Mellon Equity Associates, The Dreyfus Corporation,
Boston Group Holdings, Inc., The Boston Company, Inc., and MBC Investment
Corporation, may be deemed to beneficially own an additional 945,338 shares of
Common Stock, or 2.36% of the Common Stock outstanding, in various fiduciary
capacities, as to which shares Mellon Bank Corporation and its affiliates
exercise sole voting power with respect to 912,448 shares, shared voting power
with respect to 32,890 shares, sole investment power with respect to 859,486
shares and shared investment power with respect to 48,622 shares.
/3/ Loomis, Sayles & Company, L.P. ("Loomis, Sayles"), an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, may be
deemed to beneficially own 2,878,346 shares of Common Stock, or 7.17% of the
Common Stock outstanding, as to which shares Loomis, Sayles exercises sole
voting power with respect to 1,369,390 shares, shared voting power with respect
to 750 shares and shared investment power with respect to 2,878,346 shares.
Loomis, Sayles has asserted that none of its clients has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, Common Stock that relates to more than 5% of the Common Stock outstanding.
CONFIDENTIAL VOTING POLICY
In July 1997, the Board adopted a new confidential voting policy. All
proxies, ballots and voting tabulations that identify how shareholders voted
shall be kept confidential. To implement this policy, the Company shall engage
independent vote tabulators and independent judges of election, who are not
employees of the Company. This policy shall not apply (i) when disclosure is
mandated by law or is necessary in connection with a claim involving the
Company, (ii) when disclosure is expressly requested or permitted by a
shareholder, or (iii) during the course of a contested proxy solicitation.
Shareholders' comments on proxy cards and ballots shall be conveyed to the
Company in a manner that protects the confidentiality of the vote.
16
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the Company's Audit
Committee, appointed KPMG Peat Marwick LLP, independent certified public
accountants, as auditors of the Company's financial statements for 1997. The
Board of Directors at its February 23, 1998, meeting selected KPMG Peat Marwick
LLP as auditors for 1998.
A representative of KPMG Peat Marwick LLP will be present at the 1998
Annual Meeting to respond to appropriate questions and to make a statement if
that representative so desires.
1999 SHAREHOLDER PROPOSALS AND NOMINATING PROCEDURES
Proposals of shareholders intended for inclusion in the Company's proxy
statement relating to the 1999 Annual Meeting must be received at the Company's
Principal Executive Offices (please address to the attention of Deborah K. Owen,
Secretary) not later than November 16, 1998. Any such proposal must comply with
Rule 14a-8 of Regulation 14A of the proxy rules of the Securities and Exchange
Commission.
The bylaws of the Company require that nominations for a director to be
elected at the 1999 Annual Meeting, other than those made by the Board, be
submitted to the Secretary of the Company not later than January 27, 1999. The
bylaws also require that notice of such nominations contain certain information
regarding the nominee and certain information regarding the nominating
shareholder. Any shareholder may obtain a copy of the applicable bylaw from the
Secretary of the Company upon written request.
OTHER MATTERS
The Board of Directors of the Company is not aware that any matter other
than those listed in the notice of meeting is to be presented for action at the
meeting. If any of the Board's nominees is unavailable for election as a
director or if any other matter should properly come before the meeting, it is
intended that votes will be cast pursuant to the proxy in respect thereto in
accordance with the best judgment of the person or persons acting as proxies.
Any shareholder who executes and returns the proxy may revoke the same at
any time before it is exercised by filing with the Secretary of the Company
written notice of such revocation or a duly executed proxy bearing a later date,
or by attending the meeting and voting in person. Attendance at the meeting will
not in and of itself constitute revocation of a proxy. Abstentions and broker
nonvotes on any matter submitted to the shareholders for approval have the
effect of votes against such matter since, under the Company's bylaws, the
affirmative vote of at least a majority of the votes present and entitled to
vote at the meeting, in person or by proxy, is necessary for approval of the
matter. Broker nonvotes as to any matter are shares held by nominees which are
present and voted at the meeting on matters as to which the nominee has
discretionary authority but which are not voted on the matter in question
because the nominee does not have discretionary voting authority as to such
matter.
The Company will pay the expense in connection with printing, assembling
and mailing the notice of meeting, this proxy statement and the accompanying
form of proxy. In addition to the use of mails, proxies may be solicited by
directors, officers and other employees of the Company, personally or by
telephone or telefax. The Company may request persons holding stock in their
names or in the names of nominees to send proxy material to and obtain proxies
from their principals and will reimburse such persons for their expenses in so
doing. The Company has retained the services of Morrow & Co., a professional
soliciting organization, to assist in soliciting proxies from brokerage houses,
custodians, nominees and other fiduciaries. The fees and expenses of that firm
for their services in connection with such solicitation are not expected to
exceed $17,000.
UPON WRITTEN REQUEST BY ANY SHAREHOLDER TO DEBORAH K. OWEN, SENIOR VICE
PRESIDENT, SECRETARY AND GENERAL COUNSEL, ARMSTRONG WORLD INDUSTRIES, INC.,
LIBERTY AND CHARLOTTE STREETS, P. O. BOX 3001, LANCASTER, PENNSYLVANIA 17604, A
COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K WILL BE PROVIDED WITHOUT
CHARGE.
March 16, 1998
17
<PAGE>
[LOGO OF ARMSTRONG APPEARS HERE]
Printed in the United States of America
<PAGE>
[LOGO OF ARMSTRONG WORLD INDUSTRIES, INC. APPEARS HERE]
ARMSTRONG WORLD INDUSTRIES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
George A. Lorch and Frank A. Riddick III and Deborah K. Owen, or any one or more
of them, with power of substitution in each, are hereby authorized to represent
the undersigned at the Annual Meeting of the Shareholders of Armstrong World
Industries, Inc., to be held at the principal office of the Company, Armstrong
House North, in Lancaster, Pennsylvania, on Monday, April 27, 1998, at 10:00
a.m. local time, and at any postponement or adjournment thereof, and thereat to
vote, as indicated below, the same number of shares as the undersigned would be
entitled to vote if then personally present including shares, if any, credited
to the undersigned's account under the Company's shareholder dividend
reinvestment plan.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER; IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
- FOLD AND DETACH HERE -
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
The Board of Directors recommends a vote FOR
<S> <C>
ELECTION OF TWO DIRECTORS FOR TERMS TO EXPIRE IN 2000. NOMINEES: John A. Krol, David W. Raisbeck
FOR all nominees listed WITHHOLD AUTHORITY To withhold authority to vote for any individual nominee,
(except as marked to the to vote for write the nominee's name below.
contrary to right all nominees
[_] [_] __________________________________________________________________
ELECTION OF THREE DIRECTORS FOR TERMS TO EXPIRE IN 2001. NOMINEES: David M. LeVan, James E. Marley, Jerre L. Stead
FOR all nominees listed WITHHOLD AUTHORITY To withhold authority to vote for any individual nominee,
(except as marked to the to vote for write the nominee's name below.
contrary to right all nominees
[_] [_] ___________________________________________________________________
WILL
ATTEND
If you plan to attend the Annual Meeting, [_]
please mark the Will Attend block. An
admission ticket will be mailed to you.
In their discretion, the Proxies are authorized
to vote upon such other business as may
properly come before the meeting or any
postponement or adjournment thereof. If
necessary, cumulative voting rights will be
exercised to secure the election of as many as
possible of the Board of Directors' nominees.
Please mark, sign (exactly as name(s) appears
below), date and mail this card promptly in the
postage prepaid return envelope provided. Executors,
administrators, trustees, attorneys, guardians,
etc. should so indicate when signing.
Signature ____________________________________ Signature _______________________________________ Date ______________, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
<PAGE>
[LOGO OF ARMSTRONG APPEARS HERE]
March 1998
PLEASE HELP US "RECYCLE THE READERSHIP" OF THE ANNUAL REPORT
Dear Armstrong Employee Shareholder:
We'd like your help again this year.
By limiting the quantity of annual reports we print, we can hold the line on
costs, but we also want to ensure an adequate supply for the thousands of
requests we get each year.
If it's your custom to read through Armstrong's annual report, and discard it,
you can help us keep our inventory at a safe level by returning it to us in good
condition when you're through with it. (In fact, you may be among those
employees who receive more than one copy because of unavoidable duplicate
mailings by the trustees of our employee shareholder accounts.)
If you're located outside Lancaster, we suggest that you return them to the
employee relations personnel mananger for your location for bulk collection. If
you're in the Lancaster area, you may send your copies directly in the company
mail to:
Corporate Relations
Room 103E
Armstrong House North
Lancaster, PA 17604
Many thanks!
Corporate Relations
- Please fold and detach card at perforation before mailing -
THIS PARTICIPANT'S DIRECTION WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER; IF NO DIRECTION IS MADE, IF THIS
CARD IS NOT SIGNED, OR IF THE CARD IS NOT RECEIVED BY APRIL 21, 1998, THE SHARES
OVER WHICH YOU HAVE VOTING CONTROL WILL BE VOTED IN THE SAME PROPORTION AS THOSE
SHARES FOR WHICH THE TRUSTEE RECEIVES DIRECTION.
Please vote by filling in the appropriate boxes below.
If you plan to attend the Annual Meeting, please mark the Will Attend block. An
admission ticket will be mailed to you. WILL ATTEND [_]
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTION OF TWO DIRECTORS FOR TERMS TO EXPIRE IN 2000. FOR all nominees WITHHOLD
NOMINEES: John A. Krol and David W. Ralabeck listed (except as [_] AUTHORITY [_]
To withhold authority to vote for any individual nominee, marked to the to vote for all
write the nominee's name below. contrary below) nominees
______________________________________________________________
ELECTION OF THREE DIRECTORS FOR TERMS TO EXPIRE IN 2001. FOR all nominees WITHHOLD
NOMINEES: David M. LeVan, James E. Marley and Jerre L. Stead listed (except as [_] AUTHORITY [_]
To withhold authority to vote for any individual nominee, marked to the to vote for all
write the nominee's name below. contrary below) nominees
_____________________________________________________________
</TABLE>
- -------------------------------------------------------------------------------
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any postponement or adjournment
thereof. If necessary, cumulative voting rights will be exercised to secure the
election of as many as possible of the Board of Directors' nominees.
- -------------------------------------------------------------------------------
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
<PAGE>
FIDELITY INSTITUTIONAL RETIREMENT SERVICES CO. ------------
P.O. BOX 9107 BULK RATE
HINGHAM, MA 02043-9107 U.S. POSTAGE
PAID
PROXY
TABULATOR
------------
- Please fold and detach card at perforation before mailing -
ARMSTRONG RETIREMENT SAVINGS PLAN PARTICIPANT'S DIRECTION
[LOGO OF ARMSTRONG WORLD INDUSTRIES, INC. APPEARS HERE]
TO: FIDELITY MANAGEMENT TRUST CO., TRUSTEE UNDER THE RETIREMENT SAVINGS PLANS OF
ARMSTRONG WORLD INDUSTRIES, INC.
In connection with the proxy materials I received relating to the Annual Meeting
of Shareholders of Armstrong World Industries, Inc., to be held on Monday, April
27, 1998, I direct that you execute a proxy in the form solicited by the Board
of Directors of Armstrong World Industries, Inc. with respect to all shares of
Common Stock as to which I have the right to give voting directions under the
Retirement Savings Plan for Hourly-Paid Employees of Armstrong World Industries,
Inc. and the Retirement Savings Armstrong Stock Fund of the Retirement Savings
and Stock Ownership Plan of Armstrong World Industries, Inc. as follows. I
understand you will hold these directions strictly confidential.
Date ___________________________, 1998
Please mark, sign (exactly as name appears at left),
date and mail this card promptly in the postage prepaid
return envelope provided.
-------------------------------------------------------
-------------------------------------------------------
Signature
THIS PARTICIPANT'S DIRECTION IS CONTINUED ON THE
REVERSE SIDE.
<PAGE>
[LOGO OF ARMSTRONG APPEARS HERE]
STOCK OWNERSHIP ARMSTRONG STOCK FUND PARTICIPANT'S DIRECTION
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
TO: MELLON BANK, N.A., TRUSTEE FOR THE STOCK OWNERSHIP ARMSTRONG STOCK FUND OF
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN OF ARMSTRONG WORLD
INDUSTRIES, INC.
In connection with the proxy materials I received relating to the Annual Meeting
of Shareholders of Armstrong World Industries, Inc. to be held on Monday, April
27, 1998, I direct that you execute a proxy in this form solicited by the Board
of Directors of Armstrong World Industries, Inc. with respect to all shares of
Common Stock to which I have the right to give voting directions under the Stock
Ownership Armstrong Stock Fund of the Retirement Savings and Stock Ownership
Plan of Armstrong World Industries, Inc., as follows. I understand you will hold
these directions strictly confidential.
THIS PARTICIPANT'S DIRECTION WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER; IF NO DIRECTION IS MADE, THIS
PARTICIPANT'S DIRECTION WILL BE VOTED FOR THE LISTED NOMINEES IN THE ELECTION OF
DIRECTORS. IF THIS CARD IS NOT RECEIVED BY THE TRUSTEE BY THE CLOSE OF BUSINESS
ON APRIL 21, 1998, THE SHARES OVER WHICH YOU HAVE VOTING CONTROL WILL BE VOTED
IN THE SAME PROPORTION AS THOSE SHARES FOR WHICH THE TRUSTEE RECEIVES DIRECTION.
THIS PARTICIPANT'S DIRECTION IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
. FOLD AND DETACH HERE .
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
The Board of Directors recommends a vote FOR
<S> <C>
ELECTION OF TWO DIRECTORS FOR TERMS TO EXPIRE IN 2000. NOMINEES: John A. Krol, David W. Raisbeck
FOR all nominees listed WITHHOLD AUTHORITY To withhold authority to vote for any individual nominee, write the
(except as marked to the to vote for nominee's name below.
contrary to right) all nominees
[_] [_] __________________________________________________________________________
ELECTION OF THREE DIRECTORS FOR TERMS TO EXPIRE IN 2001. NOMINEES: David M. LeVan, James E. Marley, Jerre L. Stead
FOR all nominees listed WITHHOLD AUTHORITY To withhold authority to vote for any individual nominee, write the
(except as marked to the to vote for nominee's name below.
contrary to right) all nominees
[_] [_] __________________________________________________________________________
WILL
ATTEND
If you plan to attend the Annual Meeting, [_]
please mark the Will Attend block. An
admission ticket will be mailed to you.
In their discretion, the Proxies are authorized
to vote upon such other business as may
properly come before the meeting or any
postponement or adjournment thereof. If
necessary, cumulative voting rights will be
exercised to secure the election of as many as
possible of the Board of Director's nominees.
Please mark, sign (exactly as name(s) appears
below), date and mail this card promptly in the
postage prepaid return envelope provided.
Signature __________________________________________________________________ Date _______________________________________, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
[LOGO OF ARMSTRONG WORLD INDUSTRIES, INC. APPEARS HERE]
March 1998
PLEASE HELP US
"RECYCLE THE READERSHIP"
OF THE ANNUAL REPORT
Dear Armstrong Employee Shareholder:
We'd like your help again this year.
By limiting the quantity of annual reports we print, we can hold the line on
costs, but we also want to ensure an adequate supply for the thousands of
requests we get each year.
If it's your custom to read through Armstrong's annual report, then discard it,
you can help us keep our inventory at a safe level by returning it to us in good
condition when you're through with it. (In fact, you may be among those
employees who receive more than one copy because of unavoidable duplicate
mailings by the trustees of our employee shareholder accounts.)
If you're located outside Lancaster, we suggest you return them to the employee
relations/personnel manager for your location for bulk collection. If you're in
the Lancaster area, you may send your copies directly in the company mail to:
Corporate Relations
Room 103E
Armstrong House North
Lancaster, PA 17604
Many thanks!
Corporate Relations
