<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
        OF 1934

                  For the quarterly period ended June 30, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                      For the transition period from        to
                                                     ------   ------

                            ARMSTRONG HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

             Pennsylvania                                        23-3033414
--------------------------------------------------------------------------------
(State or other jurisdiction of        Commission file       (I.R.S. Employer
incorporation or organization)             number            Identification No.)


P.O. Box 3001, Lancaster, Pennsylvania                              17604
--------------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code               (717) 397-0611
                                                   -----------------------------


                        ARMSTRONG WORLD INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

             Pennsylvania                  1-2116                23-0366390
--------------------------------------------------------------------------------
(State or other jurisdiction of        Commission file       (I.R.S. Employer
incorporation or organization)             number            Identification No.)

P.O. Box 3001, Lancaster, Pennsylvania                               17604
--------------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code              (717) 397-0611
                                                   -----------------------------

Armstrong World Industries, Inc. meets the conditions set forth in General
Instructions H(1)(a) and (b) of Form 10-Q and is therefore participating in the
filing of this form in the reduced disclosure format permitted by such
Instructions.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
                                                     Yes  X          No
                                                        ------         ------


Number of shares of Armstrong Holdings, Inc.'s common stock outstanding as of
July 31, 2000 - 40,489,940

                                       1
<PAGE>

                                                  Part I - Financial Information
                                                  ------------------------------

Item 1 - Financial Statements
-----------------------------

                   Armstrong Holdings, Inc., and Subsidiaries
                  Condensed Consolidated Statements of Earnings
                 (amounts in millions except for per-share data)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                  Three Months Ended            Six Months Ended
                                                                                       June 30                       June 30
                                                                                       -------                       -------
                                                                                   2000        1999             2000        1999
                                                                                  ------      ------           ------      ------
<S>                                                                              <C>         <C>            <C>         <C>
Net sales                                                                          $834.9      $827.3         $1,608.2    $1,600.1
Cost of goods sold                                                                  576.5       541.6          1,113.5     1,060.7
                                                                                  -------     -------          -------     -------
Gross profit                                                                        258.4       285.7            494.7       539.4

Selling, general and administrative expense                                         149.3       162.9            315.0       320.7
Charge for asbestos liability                                                       236.0           -            236.0           -
Goodwill amortization                                                                 6.2         6.0             12.3        12.1
Equity (earnings) from affiliates                                                    (4.5)       (4.0)            (9.2)       (7.9)
                                                                                  -------     -------          -------     -------
Operating income (loss)                                                            (128.6)      120.8            (59.4)      214.5

Interest expense                                                                     27.9        26.4             53.8        53.1
Other (income), net                                                                  (6.0)       (7.3)            (5.4)       (7.9)
                                                                                  -------     -------          -------     -------
Earnings (loss) from continuing operations before income taxes                     (150.5)      101.7           (107.8)      169.3
Income taxes (benefit)                                                              (49.3)       36.7            (32.6)       63.1
                                                                                  -------     -------          -------     -------

Earnings (loss) from continuing operations                                        ($101.2)      $65.0           ($75.2)     $106.2
                                                                                  -------     -------          -------     -------

Earnings from discontinued operations, net of
  tax of $1.1, $3.5, $3.2, and $6.7, respectively                                    $2.3        $7.8             $7.0       $14.9
Gain on sale of discontinued operations, net of
   tax of $41.9                                                                     106.4           -            106.4           -
                                                                                  -------     -------          -------     -------
Earnings from discontinued operations                                               108.7         7.8            113.4        14.9

Net earnings                                                                         $7.5       $72.8            $38.2      $121.1
                                                                                  =======     =======          =======     =======

Earnings (loss) per share of common stock, continuing operations:
  Basic                                                                            ($2.52)      $1.63           ($1.88)      $2.67
  Diluted                                                                          ($2.52)      $1.62           ($1.88)      $2.64

Earnings per share of common stock, earnings from discontinued operations:
  Basic                                                                             $0.06       $0.20            $0.17       $0.37
  Diluted                                                                           $0.06       $0.19            $0.17       $0.37

Earnings per share of common stock, gain on sale of discontinued operations:
  Basic                                                                             $2.65           -            $2.65           -
  Diluted                                                                           $2.64           -            $2.64           -

Net earnings per share of common stock:
  Basic                                                                             $0.19       $1.83            $0.95       $3.04
  Diluted                                                                           $0.19       $1.81            $0.95       $3.01

Average number of common shares outstanding:
  Basic                                                                              40.2        39.8             40.1        39.8
  Diluted                                                                            40.3        40.2             40.3        40.2
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 6.

                                       2
<PAGE>

                   Armstrong Holdings, Inc., and Subsidiaries
                      Condensed Consolidated Balance Sheets
                              (amounts in millions)
                                    Unaudited

<TABLE>
<CAPTION>
            Assets                                             June 30, 2000        December 31, 1999
            ------                                             -------------        -----------------
<S>                                                           <C>                   <C>
Current assets:
      Cash and cash equivalents                                $     10.6            $     26.6
      Accounts receivable less allowance
         for discounts and losses                                   485.4                 403.4
      Inventories:
           Finished goods                                           279.8                 257.9
           Work in process                                           41.9                  42.4
           Raw materials and supplies                               160.0                 154.6
                                                               ----------            ----------
              Total gross inventories                               481.7                 454.9
            Less LIFO and other reserves                             49.5                  48.0
                                                               ----------            ----------
              Total inventories                                     432.2                 406.9

      Deferred income taxes                                          53.6                  40.6
      Net assets of discontinued operations                           --                   93.5
      Other current assets                                           83.9                  86.7
                                                               ----------            ----------
              Total current assets                                1,065.7               1,057.7

Property, plant, and equipment                                    2,459.3               2,481.1
      Less accumulated depreciation and amortization              1,113.7               1,123.6
                                                               ----------            ----------
              Net property, plant and equipment                   1,345.6               1,357.5

Insurance for asbestos-related liabilities, noncurrent              236.1                 270.0
Investment in affiliates                                             35.6                  34.2
Goodwill, net                                                       911.9                 935.1
Other intangibles, net                                               55.2                  54.9
Other noncurrent assets                                             394.2                 374.4
                                                               ----------            ----------
              Total assets                                     $  4,044.3            $  4,083.8
                                                               ==========            ==========

      Liabilities and Shareholders' Equity
      ------------------------------------
Current liabilities:
      Short-term debt                                          $    112.1            $     64.7
      Current installments of long-term debt                         14.4                  36.1
      Accounts payable and accrued expenses                         607.7                 636.2
      Income taxes                                                   18.0                   2.1
                                                               ----------            ----------
              Total current liabilities                             752.2                 739.1

Long-term debt, less current installments                         1,281.9               1,412.9
Employee Stock Ownership Plan (ESOP) loan guarantee                 142.2                 155.3
Postretirement and postemployment benefit liabilities               247.2                 244.5
Pension benefit liabilities                                         156.3                 166.2
Asbestos-related long-term liabilities                              622.5                 506.5
Other long-term liabilities                                          99.9                 105.4
Deferred income taxes                                                48.1                  62.9
Minority interest in subsidiaries                                     7.3                  11.8
                                                               ----------            ----------
              Total noncurrent liabilities                        2,605.4               2,665.5

Shareholders' equity:
      Common stock                                                   51.9                  51.9
      Capital in excess of par value                                175.4                 176.4
      Reduction for ESOP loan guarantee                            (185.4)               (190.3)
      Retained earnings                                           1,196.5               1,196.2
      Accumulated other comprehensive loss                          (23.2)                (16.5)
      Treasury stock                                               (528.5)               (538.5)
                                                               ----------            ----------
              Total shareholders' equity                            686.7                 679.2
                                                               ----------            ----------

              Total liabilities and shareholders' equity       $  4,044.3            $  4,083.8
                                                               ==========            ==========
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 6.

                                       3
<PAGE>

                   Armstrong Holdings, Inc., and Subsidiaries
            Condensed Consolidated Statements of Shareholders' Equity
                              (amounts in millions)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                          2000                      1999
                                                                        --------                  --------
<S>                                                                    <C>        <C>            <C>        <C>
Common stock, $1 par value:
---------------------------
Balance at beginning of year & June 30                                  $   51.9                  $   51.9
                                                                        --------                  --------

Capital in excess of par value:
-------------------------------
Balance at beginning of year                                            $  176.4                  $  173.0
Stock issuances and other                                                    4.3                       2.2
Contribution of treasury stock to ESOP                                      (5.3)                        -
                                                                        --------                  --------
Balance at June 30                                                      $  175.4                  $  175.2
                                                                        --------                  --------

Reduction for ESOP loan guarantee:
----------------------------------
Balance at beginning of year                                            $ (190.3)                 $ (199.1)
Principal paid                                                              13.2                      11.2
Loans to ESOP                                                               (7.3)                     (0.8)
Contribution of treasury stock to ESOP                                      (4.1)                        -
Accrued compensation                                                         3.1                      (0.8)
                                                                        --------                  --------
Balance at June 30                                                      $ (185.4)                 $ (189.5)
                                                                        --------                  --------

Retained earnings:
------------------
Balance at beginning of year                                            $1,196.2                  $1,257.0
Net earnings                                                                38.2   $  38.2           121.1   $ 121.1
Tax benefit on dividends paid on
  unallocated common shares                                                  0.7                       0.9
                                                                        --------                  --------
  Total                                                                 $1,235.1                  $1,379.0
Less common stock dividends                                                 38.6                      38.4
                                                                        --------                  --------
Balance at June 30                                                      $1,196.5                  $1,340.6
                                                                        --------                  --------

Accumulated other comprehensive income (loss):
----------------------------------------------
Balance at beginning of year                                            $  (16.5)                 $  (25.4)
  Foreign currency translation adjustments and
     hedging activities                                                     (2.1)                     (5.0)
  Unrealized loss on available for sale securities                          (2.5)                        -
  Minimum pension liability adjustments                                     (2.1)                      1.3
                                                                        --------                  --------
 Total other comprehensive (loss)                                           (6.7)     (6.7)           (3.7)     (3.7)
                                                                        --------   -------        --------   -------
Balance at June 30                                                      $  (23.2)                 $  (29.1)
                                                                        --------                  --------

Comprehensive income (loss)                                                        $  31.5                   $ 117.4
---------------------------                                                        =======                   =======

Less treasury stock at cost:
----------------------------
Balance at beginning of year                                            $  538.5                  $  547.7
Stock purchases                                                                -                       0.7
Stock issuance activity, net                                                (0.6)                     (2.2)
Contribution of treasury stock to ESOP                                      (9.4)                        -
                                                                        --------                  --------
Balance at June 30                                                      $  528.5                  $  546.2
                                                                        --------                  --------

Total shareholders' equity                                              $  686.7                  $  802.9
                                                                        ========                  ========
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 6.

                                       4
<PAGE>

                   Armstrong Holdings, Inc., and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                              (amounts in millions)
                                    Unaudited
<TABLE>
<CAPTION>
                                                                                         Six Months Ended
                                                                                               June 30,
                                                                                        2000             1999
                                                                                        ----             ----
<S>                                                                                <C>               <C>
Cash flows from operating activities:
     Net earnings                                                                   $   38.2          $  121.1
     Adjustments to reconcile net earnings to net cash
           provided by operating activities:
       Depreciation and amortization, continuing operations                             79.4              78.2
       Depreciation and amortization, discontinued operations                            3.9               5.1
       Gain on sale of businesses                                                     (148.3)             (7.5)
       Deferred income taxes                                                           (14.1)              2.5
       Equity earnings from affiliates                                                  (9.2)             (7.9)
       Reorganization and restructuring payments                                        (2.2)            (12.8)
       Payments for asbestos-related claims, net of recoveries                         (67.3)            (17.0)
       Charge for asbestos liability                                                   236.0                 -
       Decrease in net assets of businesses held for sale                                2.2              13.3
       Increase in net assets of discontinued operations                                   -              (7.2)
Changes in operating assets and liabilities net of effects of reorganization,
     restructuring and dispositions:
       Increase in receivables                                                         (68.0)            (63.2)
       Increase in inventories                                                         (32.8)             (8.6)
       (Increase)/decrease in other current assets                                      (8.9)             15.9
       Increase in other noncurrent assets                                             (18.6)            (38.0)
       Increase/(decrease) in accounts payable and accrued expenses                    (47.3)              9.2
       Increase in income taxes payable                                                 12.0              58.4
       Increase/(decrease) in other long-term liabilities                               (3.2)             15.1
       Other, net                                                                        6.1              (7.7)
                                                                                    --------          --------
Net cash provided by (used for) operating activities                                   (42.1)            148.9
                                                                                    --------          --------

Cash flows from investing activities:
     Purchases of property, plant and equipment, continuing operations                 (65.8)            (69.8)
     Purchases of property, plant and equipment, discontinued operations                (2.8)             (3.2)
     Investment in computer software                                                    (5.5)             (5.2)
     Acquisitions, net of cash acquired                                                 (8.8)                -
     Distributions from equity affiliates                                                6.6               7.3
     Proceeds from the sale of assets                                                    3.1               3.4
     Proceeds from the sale of businesses                                              238.4              78.4
     Other, net                                                                            -              (0.2)
                                                                                    --------          --------
Net cash provided by investing activities                                              165.2              10.7
                                                                                    --------          --------
Cash flows from financing activities:
     Increase/(decrease) in short-term debt, net                                        50.2             (99.1)
     Payments of long-term debt                                                       (148.7)             (5.7)
     Cash dividends paid                                                               (38.6)            (38.4)
     Purchase of common stock for the treasury, net                                     (1.3)             (0.7)
     Proceeds from exercised stock options                                                 -               1.2
                                                                                    --------          --------
Net cash used for financing activities                                                (138.4)           (142.7)
                                                                                    --------          --------

Effect of exchange rate changes on cash and cash equivalents
                                                                                        (0.7)              1.8
                                                                                    --------          --------

Net increase (decrease) in cash and cash equivalents                               ($   16.0)         $   18.7
Cash and cash equivalents at beginning of period                                    $   26.6          $   38.2
                                                                                    --------          --------

Cash and cash equivalents at end of period                                          $   10.6          $   56.9
                                                                                    ========          ========
</TABLE>


See accompanying notes to the unaudited condensed consolidated financial
statements beginning on page 6.

                                       5
<PAGE>

Note 1. BASIS OF PRESENTATION
-----------------------------

The accompanying financial statements contain the financial results of Armstrong
Holdings, Inc. ("Armstrong"). Armstrong acquired the stock of Armstrong World
Industries, Inc. on May 1, 2000. An indirect holding in Armstrong World
Industries, Inc. makes up substantially all of the assets of Armstrong.
Financial statements of Armstrong World Industries, Inc., a wholly owned
subsidiary of Armstrong, are shown due to the existence of publicly-traded debt.
Since Armstrong was not a publicly traded company and had no substantial
operations prior to May 1, 2000, the 1999 results of operations and financial
condition of Armstrong World Industries, Inc. are used for comparative purposes.
See Note 12 for discussion of the financial statement differences between
Armstrong Holdings, Inc. and Armstrong World Industries, Inc.

Operating results for the second quarter of 2000, compared with the
corresponding period of 1999 included in this report, are unaudited. However,
these results have been reviewed by Armstrong's independent public accountants
in accordance with established professional standards and procedures for a
limited review of interim financial information. Armstrong completed the
previously announced sale of its Insulation Products segment on May 31, 2000
(see Note 2). Accordingly, the accompanying condensed consolidated financial
statements reflect this business as a discontinued operation and prior periods
have been restated.

The accounting policies used in preparing these statements are the same as those
used in preparing Armstrong's consolidated financial statements for the year
ended December 31, 1999. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in Armstrong's annual report and Form 10-K for the fiscal
year ended December 31, 1999. In the opinion of management, all adjustments of a
normal recurring nature have been included to provide a fair statement of the
results for the reporting periods presented. Quarterly results are not
necessarily indicative of annual earnings. The second quarters of the wood
products segment ended on July 1, 2000 and July 3, 1999. No events occurred
between June 30 and these dates materially affecting Armstrong's financial
position or results of operations.


Note 2. DISCONTINUED OPERATIONS
-------------------------------

On May 31, 2000, Armstrong completed its sale of all of the entities, assets and
certain liabilities comprising its Insulation Products segment to Orion
Einundvierzigste Beteiligungsgesellschaft Mbh, a subsidiary of the Dutch
investment firm Gilde Investment Management N.V. for $264 million. The
consideration included approximately $238 million cash and $40 million in notes
receivable. The notes receivable have been discounted to their fair market value
of approximately $26 million. The notes are generally collectible within eleven
years. Under certain circumstances, the notes could be paid at an earlier time.
The notes bear interest rates ranging from five percent to eight percent. The
transaction resulted in an after tax gain of $106.4 million, or $2.64 per share
in Armstrong's second quarter. The proceeds and gain are subject to certain
post-closing adjustments.


NOTE 3. ACQUISITIONS
--------------------

On May 18, 2000 Armstrong acquired privately-held Switzerland-based Gema
Holding AG, a leading manufacturer and installer of metal ceilings for $6
million plus certain contingent consideration based on future results over the
next three years. Gema, with annual sales of nearly $50 million, has two
manufacturing sites located in Austria and Switzerland and employs nearly 300
people. Armstrong has not yet finalized the allocation of purchase price to the
fair value of tangible and identifiable intangible assets acquired.

During the second quarter of 2000, Armstrong recorded adjustments that reduced
goodwill and certain liabilities by approximately $3.3 million related to its
1998 acquisition of DLW. These adjustments were related to resolution of pre-
acquisition tax contingencies and certain other matters.

                                       6
<PAGE>

<TABLE>
<CAPTION>

Note 4. INDUSTRY SEGMENTS
-------------------------
(amounts in millions)                                  Three months                         Six months
                                                       ended June 30                       ended June 30
Net sales to external customers                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                             <C>               <C>             <C>              <C>
Floor coverings                                  $ 397.9           $ 402.3         $   766.4        $    778.5
Building products                                  192.2             182.1             380.7             371.8
Wood products                                      244.8             218.9             461.1             405.9
All other                                              -              24.0                 -              43.9
                                                 -------           -------         ---------         ---------
Total sales to external customers                $ 834.9           $ 827.3         $ 1,608.2         $ 1,600.1
                                                 =======           =======         =========         =========
<CAPTION>
                                                       Three months                         Six months
                                                       ended June 30                       ended June 30
Segment operating income (loss)                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                             <C>               <C>             <C>               <C>
Floor coverings                                  $  47.0           $  59.0         $    76.7         $   105.7
Building products                                   31.2              31.0              56.9              60.7
Wood products                                       29.2              30.0              47.1              48.5
All other                                           (0.1)              3.2               0.1               5.1
                                                 -------           -------         ---------         ---------
Total segment operating income                     107.3             123.2             180.8             220.0
Charge for asbestos liability                     (236.0)                -            (236.0)                -
Unallocated corporate income (expense)               0.1              (2.4)             (4.2)             (5.5)
                                                 -------           -------         ---------         ---------
Total consolidated operating income (loss)       $(128.6)          $ 120.8         $   (59.4)        $   214.5
                                                 =======           =======         =========         =========
<CAPTION>
                                                                                      June 30         December 31
Segment assets                                                                         2000              1999
--------------                                                                         ----              ----
<S>                                                                                <C>               <C>
Floor coverings                                                                     $1,463.3          $1,477.6
Building products                                                                      513.4             535.1
Wood products                                                                        1,347.3           1,308.0
All other                                                                               16.1              16.0
                                                                                        ----          --------
Total segment assets                                                                 3,340.1           3,336.7
Assets not assigned to business units                                                  704.2             747.1
                                                                                       -----             -----
Total consolidated assets                                                          $ 4,044.3         $ 4,083.8
                                                                                   =========         =========
</TABLE>


Note 5. REORGANIZATION AND RESTRUCTURING ACTIVITIES
---------------------------------------------------

The following table summarizes activity in the reorganization and restructuring
accruals for the first six months of 2000 and 1999:

<TABLE>
<CAPTION>
                                        Beginning             Cash                                    Ending
(amounts in millions)                    balance            payments              Other               balance
                                         -------            --------              -----               -------
<S>                                      <C>                <C>                  <C>                  <C>
2000                                      $12.1               ($2.2)              ($0.6)               $ 9.3
1999                                       30.6               (12.8)               (0.3)                17.5
</TABLE>

The amount in "other" is primarily related to foreign currency translation.
Substantially all of the remaining balance at June 30, 2000 relates to
terminated employees with extended payouts, most of which will be paid during
2000, and a noncancelable operating lease.

                                       7
<PAGE>

Note 6. OTHER COMPREHENSIVE INCOME (LOSS)
-----------------------------------------

The related tax effects allocated to each component of other comprehensive
income (loss) for the six months ended June 30, 2000 are as follows.

<TABLE>
<CAPTION>
                                                                          Before                     Net of
                                                                            Tax          Tax           Tax
(amounts in millions)                                                     Amount       Benefit       Amount
                                                                          ------       -------       ------
<S>                                                                      <C>          <C>           <C>
Foreign currency translation adjustments
    and hedging activities                                                $(2.1)           -         $(2.1)
Unrealized loss on available for sale securities                           (2.5)           -          (2.5)
Minimum pension liability adjustment                                       (3.4)        $1.3          (2.1)
                                                                           -----        ----          -----
Other comprehensive income (loss)                                         $(8.0)        $1.3         $(6.7)
                                                                          ======        ====         ======
</TABLE>


Note 7. SUPPLEMENTAL CASH FLOW INFORMATION
------------------------------------------
(amounts in millions)                                         Six Months Ended
                                                                   June 30
                                                             2000         1999
                                                             ----         ----
Interest paid                                              $ 53.9        $ 51.1
Income taxes paid, net                                     $ 17.5        $ 11.1

See Note 2 for discussion of certain non-cash investing activities related to
the sale of Armstrong Insulation Products.


Note 8. EARNINGS (LOSS) PER SHARE
---------------------------------

The difference between the average number of basic and diluted common shares
outstanding is due to contingently issuable shares and the effect of dilutive
stock options. The earnings per share components for the second quarter and
first six months of 2000 do not add due to the anti-dilutive impact of the loss
from continuing operations.

Note 9. OVERVIEW OF ASBESTOS-RELATED LEGAL PROCEEDINGS
------------------------------------------------------

Personal Injury Litigation

Armstrong is involved in significant asbestos-related litigation which is
described more fully under the heading "Legal Proceedings" in Item 1 of Part II
of this report which should be read in conjunction with this discussion and
analysis. Armstrong is a defendant in approximately 176,000 pending personal
injury claims as of June 30, 2000. During the first six months of 2000, the
Center for Claims Resolution ("Center") received and verified approximately
30,000 claims naming Armstrong as a defendant compared to 29,300 during the
first six months of 1999.

Asbestos-Related Liability

In continually evaluating its estimated asbestos-related liability, Armstrong
reviews, among other things, its recent and historical settlement amounts, the
incidence of past and recent claims, the mix of the injuries and occupations of
the plaintiffs, the number of cases pending against it and the status and
results of broad-based settlement discussions. Based on this review, Armstrong
has estimated its share of liability to defend and resolve probable
asbestos-related personal injury claims. This estimate is highly uncertain due
to the limitations of the available data and the difficulty of forecasting with
any certainty the numerous variables that can affect the range of the liability.
Armstrong will continue to study the variables in light of additional
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.

                                       8
<PAGE>

In the second quarter of 2000, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $236.0 million. The increase
in the estimated liability reflects higher than anticipated claims and higher
average settlement costs for claims during 2000, primarily for recent
settlements outside of the Center's Strategic Settlement Program ("SSP").
Further, although we expect the number of claims to decrease in future years, we
now expect that the total number of claims received will be higher than
previously anticipated. Armstrong's estimation of its asbestos-related
liability that is probable and estimable through 2006 ranges from $822.5 million
to $1,427.0 million as of June 30, 2000. The range of probable and estimable
liability reflects uncertainty in the number of future claims that will be filed
and the cost to settle those claims, which may be influenced by a number of
factors, including the outcome of the ongoing broad-based settlement
negotiations, the cost to settle claims outside the broad-based settlement
program and Armstrong's overall effective share of the Center's liabilities.
Armstrong has concluded that no amount within that range is more likely than any
other, and therefore has reflected $822.5 million as a liability in the
consolidated financial statements in accordance with generally accepted
accounting principles. Of this amount, management expects to incur asbestos
liability payments of approximately $200.0 million over the next 12 months and
has reflected such amount as a current liability.

The Center is involved in numerous legal proceedings with a former member of the
Center related to the former member's refusal to pay its share of certain
settlements concluded by the Center while that company was a member. In
addition, another Center member has terminated its membership due to exhaustion
of the assets of its claims trust. This member has also asserted that it is
entitled to reductions of certain payments. While the Center believes the member
is not entitled to any adjustment, the impact if any on the timing of cash flows
or amount of recorded liability is uncertain. In estimating its recorded
liability, Armstrong has not anticipated unfavorable outcomes resulting from the
legal proceedings or any increases in Armstrong's share liability stemming from
the termination of these former Center members. Armstrong's share of liability
could increase should there be any negative developments related to these
matters.

Armstrong's estimated range of liability is primarily based on known claims and
an estimate of future claims that are likely to occur and can be reasonably
estimated through 2006. Accordingly, substantially all of the range discussed
above, and as recorded by Armstrong, comprises management's best estimate of
claims expected to be filed within the forthcoming 6 years. For claims that may
be filed beyond 2006, management believes that the level of uncertainty is too
great to provide for reasonable estimation of the number of future claims, the
nature of such claims, or the cost to resolve them. Accordingly, it is
reasonably possible that the total exposure to personal injury claims may be
greater than the estimated range of liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.

Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences occur, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability.

Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.

Insurance Asset

As with its estimated asbestos related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $268.3 million is recorded as of June 30, 2000. Approximately $27.7
million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total amount, approximately $67.1 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.50%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide such coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. Such insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the ADR process that is in the trial phase of
binding arbitration. Depending on further progress of the ADR, activities such
as settlement discussions with insurance carriers party to the ADR and those not
party to the ADR and the final determination of coverage shared with ACandS,
Armstrong may revise its estimate and additional insurance assets may be
recorded in a future period. Of the $268.3 million asset, $32.2 million has been
recorded as a current asset reflecting management's

                                       9
<PAGE>

estimate of the minimum insurance payments to be received in the next 12 months.
However, the actual amount of payments to be received in the next 12 months
could increase dependent upon the nature and result of settlement discussions.
Management estimates that the timing of future cash payments for the remainder
of the recorded asset may extend beyond 10 years.


NOTE 10. - ENVIRONMENTAL LIABILITIES
------------------------------------

Liabilities of $15.4 million and $14.7 million were recorded at June 30, 2000
and December 31, 1999, respectively, for potential environmental liabilities
that Armstrong considers probable and for which a reasonable estimate of the
probable liability could be made. Where existing data is sufficient to estimate
the amount of the liability, that estimate has been used; where only a range of
probable liability is available and no amount within that range is more likely
than any other, the lower end of the range has been used. As assessments and
remediation activities progress at each individual site, these liabilities are
reviewed to reflect additional information as it becomes available.

The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.

Actual costs to be incurred at identified sites in the future may vary from
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition or liquidity, although the
recording of future costs may be material to earnings in such future period.


NOTE 11. - SUBSEQUENT EVENTS
----------------------------

On July 31, 2000, Armstrong completed the sale of its Installation Products
Group ("IPG") to subsidiaries of the German company Ardex GmbH, for $86 million
in cash, subject to certain post-closing adjustments. Ardex purchased
substantially all of the assets and liabilities of IPG including its shares of
W.W. Henry Company. The transaction will be recorded in the third quarter. Under
the terms of a related supply agreement, Armstrong will purchase some of its
installation products needs from Ardex for an initial term of eight years,
subject to certain minimums for the first five years after the sale.

On August 8, 2000, Armstrong announced that Michael D. Lockhart would succeed
George A. Lorch as chairman and chief executive officer, effective immediately.
Additionally, Frank A. Riddick, Armstrong's former chief financial officer who
was promoted to chief operating officer in March, assumed the additional title
of president. Mr. Lorch was appointed chairman emeritus and will remain on the
Board of Directors through the December 2000 meeting.


NOTE 12 - DIFFERENCES BETWEEN ARMSTRONG HOLDINGS AND ARMSTRONG WORLD
--------------------------------------------------------------------
          INDUSTRIES, INC.
          ----------------

The difference between the financial statements is primarily due to transactions
related to the formation of Armstrong Holdings, Inc.

                                      10
<PAGE>

               Armstrong World Industries, Inc., and Subsidiaries
                  Condensed Consolidated Statements of Earnings
                 (amounts in millions except for per-share data)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                 Three Months Ended            Six Months Ended
                                                                                       June 30                      June 30
                                                                                       -------                      -------
                                                                                   2000        1999            2000         1999
                                                                                  ------      ------        --------      -------
<S>                                                                               <C>         <C>           <C>          <C>
Net sales                                                                         $834.9      $827.3        $1,608.2     $1,600.1
Cost of goods sold                                                                 576.5       541.6         1,113.5      1,060.7
                                                                                  ------      ------        --------      -------
Gross profit                                                                       258.4       285.7           494.7        539.4

Selling, general and administrative expense                                        148.8       162.9           314.5        320.7
Charge for asbestos liability                                                      236.0           -           236.0            -
Goodwill amortization                                                                6.2         6.0            12.3         12.1
Equity (earnings) from affiliates                                                   (4.5)       (4.0)           (9.2)        (7.9)
                                                                                  ------      ------        --------      -------
Operating income (loss)                                                           (128.1)      120.8           (58.9)       214.5

Interest expense                                                                    27.9        26.4            53.8         53.1
Other (income), net                                                                 (6.0)       (7.3)           (5.4)        (7.9)
                                                                                  ------      ------        --------      -------
Earnings (loss) from continuing operations before income taxes                    (150.0)      101.7          (107.3)       169.3
Income taxes (benefit)                                                             (49.1)       36.7           (32.4)        63.1
                                                                                  ------      ------        --------      -------

Earnings (loss) from continuing operations                                       ($100.9)      $65.0          ($74.9)      $106.2
                                                                                  ------      ------        --------      -------

Earnings from discontinued operations, net of
  tax of $1.1, $3.5, $3.2, and $6.7, respectively                                   $2.3        $7.8            $7.0        $14.9
Gain on sale of discontinued operations, net of
   tax of $41.9                                                                    106.4           -           106.4            -
                                                                                  ------      ------        --------      -------
Earnings from discontinued operations                                              108.7         7.8           113.4         14.9

Net earnings                                                                        $7.8       $72.8           $38.5       $121.1
                                                                                  ======      ======        ========      =======
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 15.

                                      11
<PAGE>

               Armstrong World Industries, Inc., and Subsidiaries
                      Condensed Consolidated Balance Sheets
                              (amounts in millions)
                                    Unaudited

<TABLE>
<CAPTION>
           Assets                                                     June 30, 2000     December 31, 1999
           ------                                                     -------------     -----------------
<S>                                                                   <C>               <C>
Current assets:
      Cash and cash equivalents                                            $10.6               $26.6
      Accounts receivable less allowance
         for discounts and losses                                          485.4               403.4
      Inventories:
           Finished goods                                                  279.8               257.9
           Work in process                                                  41.9                42.4
           Raw materials and supplies                                      160.0               154.6
                                                                       ---------            --------
              Total gross inventories                                      481.7               454.9
            Less LIFO and other reserves                                    49.5                48.0
                                                                       ---------            --------
              Total inventories                                            432.2               406.9

      Deferred income taxes                                                 53.6                40.6
      Net assets of discontinued operations                                    -                93.5
      Other current assets                                                  83.9                86.7
                                                                       ---------            --------
              Total current assets                                       1,065.7             1,057.7

Property, plant, and equipment                                           2,459.3             2,481.1
      Less accumulated depreciation and amortization                     1,113.7             1,123.6
                                                                       ---------            --------
              Net property, plant and equipment                          1,345.6             1,357.5

Insurance for asbestos-related liabilities, noncurrent                     236.1               270.0
Investment in affiliates                                                    35.6                34.2
Goodwill, net                                                              911.9               935.1
Other intangibles, net                                                      55.2                54.9
Other noncurrent assets                                                    394.2               374.4
                                                                       ---------            --------
              Total assets                                              $4,044.3            $4,083.8
                                                                       =========            ========

      Liabilities and Shareholders' Equity
Current liabilities:
      Short-term debt                                                     $112.1               $64.7
      Current installments of long-term debt                                14.4                36.1
      Accounts payable and accrued expenses                                607.4               636.2
      Income taxes                                                          18.6                 2.1
                                                                       ---------            --------
              Total current liabilities                                    752.5               739.1

Long-term debt, less current installments                                1,281.9             1,412.9
Long-term amounts payable to parent company                                  1.5                   -
Employee Stock Ownership Plan (ESOP) loan guarantee                        142.2               155.3
Postretirement and postemployment benefit liabilities                      247.2               244.5
Pension benefit liabilities                                                156.3               166.2
Asbestos-related long-term liabilities                                     622.5               506.5
Other long-term liabilities                                                 99.9               105.4
Deferred income taxes                                                       48.1                62.9
Minority interest in subsidiaries                                            7.3                11.8
                                                                       ---------            --------
              Total noncurrent liabilities                               2,606.9             2,665.5

Shareholders' equity:
      Common stock                                                          51.9                51.9
      Capital in excess of par value                                       175.3               176.4
      Reduction for ESOP loan guarantee                                   (185.4)             (190.3)
      Retained earnings                                                  1,194.8             1,196.2
      Accumulated other comprehensive loss                                 (23.2)              (16.5)
      Treasury stock                                                      (528.5)             (538.5)
                                                                       ---------            --------
              Total shareholders' equity                                   684.9               679.2
                                                                       ---------            --------

              Total liabilities and shareholders' equity                $4,044.3            $4,083.8
                                                                       =========            ========
</TABLE>

See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 15.

                                      12
<PAGE>

               Armstrong World Industries, Inc., and Subsidiaries
            Condensed Consolidated Statements of Shareholders' Equity
                              (amounts in millions)
                                    Unaudited

<TABLE>
<CAPTION>
                                                            2000                      1999
                                                         --------                  --------
<S>                                                      <C>                       <C>
Common stock, $1 par value:
Balance at beginning of year & June 30                    $  51.9                    $ 51.9
                                                         --------                  --------

Capital in excess of par value:
Balance at beginning of year                              $ 176.4                    $173.0
Stock issuances and other                                     4.2                       2.2
Contribution of treasury stock to ESOP                       (5.3)                       -
                                                         --------                  --------
Balance at June 30                                        $ 175.3                    $175.2
                                                         --------                  --------

Reduction for ESOP loan guarantee:
Balance at beginning of year                              $(190.3)                 $ (199.1)
Principal paid                                               13.2                      11.2
Loans to ESOP                                                (7.3)                     (0.8)
Contribution of treasury stock to ESOP                       (4.1)                        -
Accrued compensation                                          3.1                      (0.8)
                                                         --------                  --------
Balance at June 30                                        $(185.4)                 $ (189.5)
                                                         --------                  --------

Retained earnings:
Balance at beginning of year                             $1,196.2                  $1,257.0
Net earnings                                                 38.5     $38.5           121.1    $121.1
Tax benefit on dividends paid on
  unallocated common shares                                   0.7                       0.9
                                                         --------                  --------
  Total                                                  $1,235.4                  $1,379.0
Less rights redemptions                                       2.0                         -
Less common stock dividends                                  38.6                      38.4
                                                         --------                  --------
Balance at June 30                                       $1,194.8                  $1,340.6
                                                         --------                  --------

Accumulated other comprehensive income (loss):
Balance at beginning of year                              $ (16.5)                  $ (25.4)
  Foreign currency translation adjustments and
     hedging activities                                      (2.1)                     (5.0)
  Unrealized loss on available for sale securities           (2.5)                        -
  Minimum pension liability adjustments                      (2.1)                      1.3
                                                         --------                  --------
 Total other comprehensive (loss)                            (6.7)     (6.7)           (3.7)     (3.7)
                                                         --------    ------        --------    ------
Balance at June 30                                        $ (23.2)                  $ (29.1)
                                                         --------                  --------

Comprehensive income (loss)                                           $31.8                    $117.4
---------------------------                                          ======                    ======

Less treasury stock at cost:
Balance at beginning of year                              $ 538.5                    $547.7
Stock purchases                                                 -                       0.7
Stock issuance activity, net                                 (0.6)                     (2.2)
Contribution of treasury stock to ESOP                       (9.4)                       -
                                                         --------                  --------
Balance at June 30                                        $ 528.5                    $546.2
                                                         --------                  --------

Total shareholders' equity                                $ 684.9                    $802.9
                                                         ========                   =======
</TABLE>

See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 15.

                                      13
<PAGE>

               Armstrong World Industries, Inc., and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                               (amounts in millions)
                                    Unaudited
<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                            June 30,
                                                                                       2000             1999
                                                                                      ------           ------
<S>                                                                                    <C>             <C>
Cash flows from operating activities:
     Net earnings                                                                      $38.5           $121.1
     Adjustments to reconcile net earnings to net cash
           provided by operating activities:
       Depreciation and amortization, continuing operations                             79.4             78.2
       Depreciation and amortization, discontinued operations                            3.9              5.1
       Gain on sale of businesses                                                     (148.3)            (7.5)
       Deferred income taxes                                                           (14.1)             2.5
       Equity earnings from affiliates                                                  (9.2)            (7.9)
       Reorganization and restructuring payments                                        (2.2)           (12.8)
       Payments for asbestos-related claims, net of recoveries                         (67.3)           (17.0)
       Charge for asbestos liability                                                   236.0                -
       Decrease in net assets of businesses held for sale                                2.2             13.3
       Increase in net assets of discontinued operations                                   -             (7.2)
Changes in operating assets and liabilities net of effects of reorganization,
     restructuring and dispositions:
       Increase in receivables                                                         (68.0)           (63.2)
       Increase in inventories                                                         (32.8)            (8.6)
       (Increase)/decrease in other current assets                                      (8.9)            15.9
       Increase in other noncurrent assets                                             (18.6)           (38.0)
       Increase/(decrease) in accounts payable and accrued expenses                    (47.3)             9.2
       Increase in income taxes payable                                                 11.8             58.4
       Increase/(decrease) in other long-term liabilities                               (3.3)            15.1
       Other, net                                                                        6.1             (7.7)
                                                                                      ------           ------
Net cash provided by (used for) operating activities                                   (42.1)           148.9
                                                                                      ------           ------

Cash flows from investing activities:
     Purchases of property, plant and equipment, continuing operations                 (65.8)           (69.8)
     Purchases of property, plant and equipment, discontinued operations                (2.8)            (3.2)
     Investment in computer software                                                    (5.5)            (5.2)
     Acquisitions, net of cash acquired                                                 (8.8)               -
     Distributions from equity affiliates                                                6.6              7.3
     Proceeds from the sale of assets                                                    3.1              3.4
     Proceeds from the sale of businesses                                              238.4             78.4
     Other, net                                                                           -              (0.2)
                                                                                      ------           ------
Net cash provided by investing activities                                              165.2             10.7
                                                                                      ------           ------

Cash flows from financing activities:
     Increase/(decrease) in short-term debt, net                                        50.2            (99.1)
     Payments of long-term debt                                                       (148.7)            (5.7)
     Cash dividends paid                                                               (38.6)           (38.4)
     Purchase of common stock for the treasury, net                                     (1.3)            (0.7)
     Proceeds from exercised stock options                                                -               1.2
                                                                                      ------           ------
Net cash used for financing activities                                                (138.4)          (142.7)
                                                                                      ------           ------

Effect of exchange rate changes on cash and cash equivalents                            (0.7)             1.8
                                                                                      ------           ------

Net increase (decrease) in cash and cash equivalents                                  ($16.0)           $18.7
Cash and cash equivalents at beginning of period                                       $26.6            $38.2
                                                                                      ------           ------

Cash and cash equivalents at end of period                                             $10.6            $56.9
                                                                                      ======           ======
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements beginning on page 15.

                                      14
<PAGE>

Note 1. BASIS OF PRESENTATION
-----------------------------

The accompanying financial statements contain the financial results of Armstrong
World Industries, Inc. ("Armstrong"). Financial statements of Armstrong, a
wholly owned subsidiary of Armstrong Holdings, Inc., are shown due to the
existence of publicly-traded debt. See Note 12 for discussion of the financial
statement differences between Armstrong Holdings, Inc. and Armstrong World
Industries, Inc.

Operating results for the second quarter of 2000, compared with the
corresponding period of 1999 included in this report, are unaudited. However,
these results have been reviewed by Armstrong's independent public accountants
in accordance with established professional standards and procedures for a
limited review of interim financial information. Armstrong completed the
previously announced sale of its Insulation Products segment on May 31, 2000
(see Note 2). Accordingly, the accompanying condensed consolidated financial
statements reflect this business as a discontinued operation and prior periods
have been restated.

The accounting policies used in preparing these statements are the same as those
used in preparing Armstrong's consolidated financial statements for the year
ended December 31, 1999. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in Armstrong's annual report and Form 10-K for the fiscal
year ended December 31, 1999. In the opinion of management, all adjustments of a
normal recurring nature have been included to provide a fair statement of the
results for the reporting periods presented. Quarterly results are not
necessarily indicative of annual earnings. The second quarters of the wood
products segment ended on July 1, 2000 and July 3, 1999. No events occurred
between June 30 and these dates materially affecting Armstrong's financial
position or results of operations.


Note 2. DISCONTINUED OPERATIONS
-------------------------------

On May 31, 2000, Armstrong completed its sale of all of the entities, assets and
certain liabilities comprising its Insulation Products segment to Orion
Einundvierzigste Beteiligungsgesellschaft Mbh, a subsidiary of the Dutch
investment firm Gilde Investment Management N.V. for $264 million. The
consideration included approximately $238 million cash and $40 million in notes
receivable. The notes receivable have been discounted to their fair market value
of approximately $26 million. The notes are generally collectible within eleven
years. Under certain circumstances, the notes could be paid at an earlier time.
The notes bear interest rates ranging from five percent to eight percent. The
transaction resulted in an after tax gain of $106.4 million, or $2.64 per share
in Armstrong's second quarter. The proceeds and gain are subject to certain
post-closing adjustments.


NOTE 3. ACQUISITIONS
--------------------

On May 18, 2000 Armstrong acquired privately-held Switzerland-based Gema
Holding AG, a leading manufacturer and installer of metal ceilings for $6
million plus certain contingent consideration based on future results over the
next three years. Gema, with annual sales of nearly $50 million, has two
manufacturing sites located in Austria and Switzerland and employs nearly 300
people. Armstrong has not yet finalized the allocation of purchase price to the
fair value of tangible and identifiable intangible assets acquired.

During the second quarter of 2000, Armstrong recorded adjustments that reduced
goodwill and certain liabilities by approximately $3.3 million related to its
1998 acquisition of DLW. These adjustments were related to resolution of pre-
acquisition tax contingencies and certain other matters.

                                      15
<PAGE>

Note 4. INDUSTRY SEGMENTS
-------------------------

<TABLE>
<CAPTION>
(amounts in millions)                                  Three months                         Six months
                                                       ended June 30                       ended June 30
Net sales to external customers                    2000              1999              2000              1999
-------------------------------                  -------           -------         ---------         ---------
<S>                                              <C>               <C>            <C>               <C>
Floor coverings                                  $ 397.9           $ 402.3        $    766.4        $    778.5
Building products                                  192.2             182.1             380.7             371.8
Wood products                                      244.8             218.9             461.1             405.9
All other                                           -                 24.0            -                   43.9
                                                 -------           -------         ---------         ---------
Total sales to external customers                $ 834.9           $ 827.3         $ 1,608.2         $ 1,600.1
                                                 =======           =======         =========         =========
</TABLE>

<TABLE>
<CAPTION>
                                                       Three months                         Six months
                                                       ended June 30                       ended June 30
Segment operating income (loss)                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                            <C>                  <C>              <C>              <C>
Floor coverings                                $    47.0            $ 59.0           $  76.7          $  105.7
Building products                                   31.2              31.0              56.9              60.7
Wood products                                       29.2              30.0              47.1              48.5
All other                                           (0.1)              3.2               0.1               5.1
                                               ----------          -------          ---------         --------
Total segment operating income                     107.3             123.2             180.8             220.0
Charge for asbestos liability                     (236.0)            -                (236.0)             -
Unallocated corporate income (expense)               0.6              (2.4)             (3.7)             (5.5)
                                               ----------          -------          ---------         --------
Total consolidated operating income (loss)     $  (128.1)          $ 120.8          $  (58.9)         $  214.5
                                               ==========          =======          =========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                     June 30         December 31
Segment assets                                                                         2000              1999
--------------                                                                         ----              ----
<S>                                                                                 <C>               <C>
Floor coverings                                                                     $1,463.3          $1,477.6
Building products                                                                      513.4             535.1
Wood products                                                                        1,347.3           1,308.0
All other                                                                               16.1              16.0
                                                                                   ---------         ---------
Total segment assets                                                                 3,340.1           3,336.7
Assets not assigned to business units                                                  704.2             747.1
                                                                                   ---------         ---------
Total consolidated assets                                                          $ 4,044.3         $ 4,083.8
                                                                                   =========         =========
</TABLE>


Note 5. REORGANIZATION AND RESTRUCTURING ACTIVITIES
---------------------------------------------------

The following table summarizes activity in the reorganization and restructuring
accruals for the first six months of 2000 and 1999:

<TABLE>
<CAPTION>
<S>
                                        Beginning             Cash                                    Ending
(amounts in millions)                    balance            payments              Other               balance
                                         -------            --------              -----               -------
<C>                                       <C>                 <C>                 <C>                  <C>
2000                                      $12.1               ($2.2)              ($0.6)               $ 9.3
1999                                       30.6               (12.8)               (0.3)                17.5
</TABLE>

The amount in "other" is primarily related to foreign currency translation.
Substantially all of the remaining balance at June 30, 2000 relates to
terminated employees with extended payouts, most of which will be paid during
2000, and a noncancelable operating lease.

                                      16
<PAGE>

Note 6. OTHER COMPREHENSIVE INCOME (LOSS)
-----------------------------------------

The related tax effects allocated to each component of other comprehensive
income (loss) for the six months ended June 30, 2000 are as follows.

                                                  Before                 Net of
                                                    Tax        Tax         Tax
(amounts in millions)                             Amount     Benefit     Amount
                                                  ------     -------     ------
Foreign currency translation adjustments
    and hedging activities                        $(2.1)         -       $(2.1)
Unrealized loss on available for sale securities   (2.5)         -        (2.5)
Minimum pension liability adjustment               (3.4)      $1.3        (2.1)
                                                   -----      ----        -----
Other comprehensive income (loss)                 $(8.0)      $1.3       $(6.7)
                                                  ======      ====       ======

Note 7. SUPPLEMENTAL CASH FLOW INFORMATION
------------------------------------------
(amounts in millions)                                          Six Months Ended
                                                                    June 30
                                                              2000          1999
                                                            ------        ------
Interest paid                                               $ 53.9        $ 51.1
Income taxes paid, net                                      $ 17.5        $ 11.1

See Note 2 for discussion of certain non-cash investing activities related to
the sale of Armstrong Insulation Products.


Note 8. EARNINGS (LOSS) PER SHARE
---------------------------------

The difference between the average number of basic and diluted common shares
outstanding is due to contingently issuable shares and the effect of dilutive
stock options. The earnings per share components for the second quarter and
first six months of 2000 do not add due to the anti-dilutive impact of the loss
from continuing operations.


Note 9. OVERVIEW OF ASBESTOS-RELATED LEGAL PROCEEDINGS
------------------------------------------------------

Personal Injury Litigation

Armstrong is involved in significant asbestos-related litigation which is
described more fully under the heading "Legal Proceedings" in Item 1 of Part II
of this report which should be read in conjunction with this discussion and
analysis. Armstrong is a defendant in approximately 176,000 pending personal
injury claims as of June 30, 2000. During the first six months of 2000, the
Center for Claims Resolution ("Center") received and verified approximately
30,000 claims naming Armstrong as a defendant compared to 29,300 during the
first six months of 1999.

Asbestos-Related Liability

In continually evaluating its estimated asbestos-related liability, Armstrong
reviews, among other things, its recent and historical settlement amounts, the
incidence of past and recent claims, the mix of the injuries and occupations of
the plaintiffs, the number of cases pending against it and the status and
results of broad-based settlement discussions. Based on this review, Armstrong
has estimated its share of liability to defend and resolve probable
asbestos-related personal injury claims. This estimate is highly uncertain due
to the limitations of the available data and the difficulty of forecasting with
any certainty the numerous variables that can affect the range of the liability.
Armstrong will continue to study the variables in light of additional
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.

                                      17
<PAGE>

In the second quarter of 2000, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $236.0 million. The increase
in the estimated liability reflects higher than anticipated claims and higher
average settlement costs for claims during 2000, primarily for recent
settlements outside of the Center's Strategic Settlement Program ("SSP").
Further, although we expect the number of claims to decrease in future years, we
now expect that the total number of claims received will be higher than
previously anticipated. Armstrong's estimation of its asbestos-related liability
that is probable and estimable through 2006 ranges from $822.5 million to
$1,427.0 million as of June 30, 2000. The range of probable and estimable
liability reflects uncertainty in the number of future claims that will be filed
and the cost to settle those claims, which may be influenced by a number of
factors, including the outcome of the ongoing broad-based settlement
negotiations, the cost to settle claims outside the broad-based settlement
program and Armstrong's overall effective share of the Center's liabilities.
Armstrong has concluded that no amount within that range is more likely than any
other, and therefore has reflected $822.5 million as a liability in the
consolidated financial statements in accordance with generally accepted
accounting principles. Of this amount, management expects to incur asbestos
liability payments of approximately $200.0 million over the next 12 months and
has reflected such amount as a current liability.

The Center is involved in numerous legal proceedings with a former member of the
Center related to the former member's refusal to pay its share of certain
settlements concluded by the Center while that company was a member. In
addition, another Center member has terminated its membership due to exhaustion
of the assets of its claims trust. This member has also asserted that it is
entitled to reductions of certain payments. While the Center believes the member
is not entitled to any adjustment, the impact if any on the timing of cash flows
or amount of recorded liability is uncertain. In estimating its recorded
liability, Armstrong has not anticipated unfavorable outcomes resulting from the
legal proceedings or any increases in Armstrong's share of liability stemming
from the termination of these former Center members. Armstrong's share of
liability could increase should there be any negative developments related to
these matters.

Armstrong's estimated range of liability is primarily based on known claims and
an estimate of future claims that are likely to occur and can be reasonably
estimated through 2006. Accordingly, substantially all of the range discussed
above, and as recorded by Armstrong, comprises management's best estimate of
claims expected to be filed within the forthcoming 6 years. For claims that may
be filed beyond 2006, management believes that the level of uncertainty is too
great to provide for reasonable estimation of the number of future claims, the
nature of such claims, or the cost to resolve them. Accordingly, it is
reasonably possible that the total exposure to personal injury claims may be
greater than the estimated range of liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.

Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences occur, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability.

Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.

Insurance Asset

As with its estimated asbestos related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $268.3 million is recorded as of June 30, 2000. Approximately $27.7
million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total amount, approximately $67.1 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.50%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide such coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. Such insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the ADR process that is in the trial phase of
binding arbitration. Depending on further progress of the ADR, activities
such as settlement discussions with insurance carriers party to the ADR and
those not party to the ADR and the final determination of coverage shared with
ACandS, Armstrong may revise its estimate and additional insurance assets may
be recorded in a future period. Of the $268.3 million asset, $32.2 million has
been recorded as a current asset reflecting management's

                                      18
<PAGE>

estimate of the minimum insurance payments to be received in the next 12 months.
However, the actual amount of payments to be received in the next 12 months
could increase dependent upon the nature and result of settlement discussions.
Management estimates that the timing of future cash payments for the remainder
of the recorded asset may extend beyond 10 years.


NOTE 10. - ENVIRONMENTAL LIABILITIES
------------------------------------

Liabilities of $15.4 million and $14.7 million were recorded at June 30, 2000
and December 31, 1999, respectively, for potential environmental liabilities
that Armstrong considers probable and for which a reasonable estimate of the
probable liability could be made. Where existing data is sufficient to estimate
the amount of the liability, that estimate has been used; where only a range of
probable liability is available and no amount within that range is more likely
than any other, the lower end of the range has been used. As assessments and
remediation activities progress at each individual site, these liabilities are
reviewed to reflect additional information as it becomes available.

The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.

Actual costs to be incurred at identified sites in the future may vary from
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition or liquidity, although the
recording of future costs may be material to earnings in such future period.

NOTE 11. - SUBSEQUENT EVENTS
----------------------------

On July 31, 2000, Armstrong completed the sale of its Installation Products
Group ("IPG") to subsidiaries of the German company Ardex GmbH, for $86 million
in cash, subject to certain post-closing adjustments. Ardex purchased
substantially all of the assets and liabilities of IPG including its shares of
W.W. Henry Company. The transaction will be recorded in the third quarter. Under
the terms of a related supply agreement, Armstrong will purchase some of its
installation products needs from Ardex for an initial term of eight years,
subject to certain minimums for the first five years after the sale.

On August 8, 2000, Armstrong announced that Michael D. Lockhart would succeed
George A. Lorch as chairman and chief executive officer, effective immediately.
Additionally, Frank A. Riddick, Armstrong's former chief financial officer who
was promoted to chief operating officer in March, assumed the additional title
of president. Mr. Lorch was appointed chairman emeritus and will remain on the
Board of Directors through the December 2000 meeting.


NOTE 12 - DIFFERENCES BETWEEN ARMSTRONG HOLDINGS AND ARMSTRONG WORLD INDUSTRIES,
--------------------------------------------------------------------------------
          INC.
          ----

The difference between the financial statements is primarily due to transactions
related to the formation of Armstrong Holdings, Inc.

                                      19
<PAGE>

                       Independent Auditors' Review Report
                       -----------------------------------

The Board of Directors and Shareholders of
Armstrong Holdings, Inc.:

We have reviewed the condensed consolidated balance sheet of Armstrong Holdings,
Inc., and subsidiaries as of June 30, 2000, and the related condensed
consolidated statements of earnings for the three and six-month periods ended
June 30, 2000 and 1999, and the condensed consolidated statements of cash flows
and shareholders' equity for the six-month periods ended June 30, 2000 and 1999.
These condensed consolidated financial statements are the responsibility of the
Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Armstrong World Industries, Inc.,
and subsidiaries as of December 31, 1999, and the related consolidated
statements of earnings, cash flows and shareholders' equity for the year then
ended (not presented herein); and in our report dated February 2, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.


KPMG LLP



Philadelphia, Pennsylvania
August 11, 2000

                                      20
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
     of Operations

The following discussion and analysis correspond to Armstrong Holdings, Inc. See
Notes 2 and 12 to unaudited condensed consolidated financial statements for
further discussion.

Financial Condition
-------------------

As shown on the condensed Consolidated Balance Sheets (see page 3), Armstrong
had cash and cash equivalents of $10.6 million at June 30, 2000. Working capital
was $313.5 million as of June 30, 2000, $5.1 million lower than the $318.6
million recorded at the end of 1999. The ratio of current assets to current
liabilities was 1.42 to 1 as of June 30, 2000, compared with 1.43 to 1 as of
December 31, 1999.

Long-term debt, excluding Armstrong's guarantee of an ESOP loan, decreased in
the second quarter of 2000. At June 30, 2000, long-term debt of $1,281.9
million, or 57.3 percent of total capital, compared with $1,412.9 million, or
60.2 percent of total capital, at the end of 1999. At June 30, 2000, and
December 31, 1999 ratios of total debt (including Armstrong's guarantee of the
ESOP loan) as a percent of total capital were 69.3 percent and 71.1 percent,
respectively. The decrease in long-term debt was due to the receipt of proceeds
from the sale of Armstrong Insulation Products which was used to pay outstanding
debt.

As shown on the condensed Consolidated Statements of Cash Flows (see page 5),
net cash used for operating activities for the six months ended June 30, 2000,
was $42.1 million compared with net cash provided by operating activities of
$148.9 million for the comparable period in 1999. The decrease was primarily due
to several items including lower net income, higher net payments for asbestos
claims and decreases in accounts payable and accrued expenses.

Net cash provided by investing activities was $165.2 million for the six months
ended June 30, 2000, compared with $10.7 million for the six months ended June
30, 1999. The increase was primarily due to proceeds from the sale of the
Insulation Products business.

Net cash used for financing activities was $138.4 million for the six months
ended June 30, 2000 compared with $142.7 million for the six months ended June
30, 1999. The decrease was primarily due to the $98.5 million net decrease in
debt during 2000 compared to the $104.8 million net decrease in debt during
1999.

Armstrong is regularly evaluating its various business units and may from time
to time dispose of, or restructure, those units. On May 31, 2000, Armstrong
completed its sale of all of the entities, assets and certain liabilities
comprising its Insulation Products segment to Orion Einundvierzigste
Beteiligungsgesellschaft Mbh, a subsidiary of the Dutch investment firm Gilde
Investment Management N.V. for $264 million. The consideration included $238
million cash and $40 million in notes receivable. The notes receivable were
discounted to their fair market value of approximately $26 million. The
transaction resulted in an after tax gain of $106.4 million, or $2.64 per share
in Armstrong's second quarter. The proceeds and gain are subject to certain
post-closing adjustments. On July 31, 2000, Armstrong completed the sale of its
Installation Products Group ("IPG") to subsidiaries of the German company Ardex
GmbH, for $86 million in cash, subject to certain post-closing adjustments.
Ardex purchased substantially all of the assets and liabilities of IPG including
its shares of W.W. Henry Company. The transaction will be recorded in the third
quarter. Under the terms of a related supply agreement, Armstrong will purchase
some of its installation products needs from Ardex for an initial term of eight
years, subject to certain minimums for the first five years after the sale.
Armstrong is also currently in divestiture discussions and evaluations related
to its European carpet business.

Asbestos-Related Litigation
---------------------------

Armstrong is involved in significant asbestos-related litigation which is
described more fully under the heading "Legal Proceedings" in Item 1 of Part II
of this report which should be read in conjunction with this discussion and
analysis. Armstrong is a defendant in approximately 176,000 pending personal
injury claims as of June 30, 2000. During the first six months of 2000, the
Center for Claims Resolution ("Center") received and verified approximately
30,000 claims naming Armstrong as a defendant compared to 29,300 during the
first six months of 1999.

                                      21
<PAGE>

Armstrong continues to seek broad-based settlements of claims through the
Center. To date, the Center has reached agreements with several law firms that
cover approximately 115,000 claims (or 53% of current claims) some of which are
currently pending and some of which have yet to be filed. These agreements
typically provide for multiyear payments for settlement of current claims and
establish specific medical and other criteria for the settlement of future
claims as well as annual limits on the number of claims that can be filed by
these firms. These agreements also establish fixed settlement values for
different asbestos-related medical conditions which are subject to periodic
re-negotiation over a period of 2 to 5 years. The plaintiff law firms are
required to recommend settlements to their clients although future claimants are
not legally obligated to accept the settlements. These agreements also provide
for nominal payments to future claimants who are unimpaired but who are eligible
for additional compensation if they develop a more serious asbestos-related
illness. The Center can terminate an agreement with an individual law firm if a
significant number of that firm's clients elect not to participate under the
agreement. Negotiations with additional law firms engaged in asbestos-related
litigation that would resolve a substantial portion of the remaining pending
claims are ongoing. The ultimate success and timing of those negotiations is
uncertain.

In continually evaluating its estimated asbestos-related liability, Armstrong
reviews, among other things, its recent and historical settlement amounts, the
incidence of past and recent claims, the mix of the injuries and occupations of
the plaintiffs, the number of cases pending against it and the status and
results of broad-based settlement discussions. Based on this review, Armstrong
has estimated its share of liability to defend and resolve probable
asbestos-related personal injury claims. This estimate is highly uncertain due
to the limitations of the available data and the difficulty of forecasting with
any certainty the numerous variables that can affect the range of the liability.
Armstrong will continue to study the variables in light of additional
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.

In the second quarter of 2000, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $236.0 million. The increase
in the estimated liability reflects higher than anticipated claims and higher
average settlement costs for claims during 2000, primarily for recent
settlements outside of the Center's Strategic Settlement Program ("SSP").
Further, although we expect the number of claims to decrease in future years, we
now expect that the total number of claims received will be higher than
previously anticipated. Armstrong's estimation of its asbestos-related
liability that is probable and estimable through 2006 ranges from $822.5 million
to $1,427.0 million as of June 30, 2000. The range of probable and estimable
liability reflects uncertainty in the number of future claims that will be filed
and the cost to settle those claims, which may be influenced by a number of
factors, including the outcome of the ongoing broad-based settlement
negotiations, the cost to settle claims outside the broad-based settlement
program and Armstrong's overall effective share of the Center's liabilities.
Armstrong has concluded that no amount within that range is more likely than any
other, and therefore has reflected $822.5 million as a liability in the
consolidated financial statements in accordance with generally accepted
accounting principles. Of this amount, management expects to incur asbestos
liability payments of approximately $200.0 million over the next 12 months and
has reflected such amount as a current liability.

The Center is involved in numerous legal proceedings with a former member of the
Center related to the former member's refusal to pay its share of certain
settlements concluded by the Center while that company was a member. In
addition, another Center member has terminated its membership due to exhaustion
of the assets of its claims trust. This member has also asserted that it is
entitled to reductions of certain payments. While the Center believes the member
is not entitled to any adjustment, the impact if any on the timing of cash flows
or amount of recorded liability is uncertain. In estimating its recorded
liability, Armstrong has not anticipated unfavorable outcomes resulting from the
legal proceedings or any increase in Armstrong's share of liability stemming
from the termination of these former Center members. Armstrong's share of
liability could increase should there be any negative developments related to
these matters.

Armstrong's estimated range of liability is primarily based on known claims and
an estimate of future claims that are likely to occur and can be reasonably
estimated through 2006. Accordingly, substantially all of the range discussed
above, and as recorded by Armstrong, comprises management's best estimate of
claims expected to be filed within the forthcoming 6 years. For claims that may
be filed beyond 2006, management believes that the level of uncertainty is too
great to provide for reasonable estimation of the number of future claims, the
nature of such claims, or the cost to resolve them. Accordingly, it is
reasonably possible that the total exposure to personal injury claims may be
greater than the estimated range of liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.

Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are

                                      22
<PAGE>

unsuccessful or if unfavorable claims experiences occur, significant changes in
the assumptions used in the estimate of Armstrong's liability may result. Those
changes, if any, could lead to increases in the recorded liability.

Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.

As with its estimated asbestos related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $268.3 million is recorded as of June 30, 2000. Approximately $27.7
million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total amount, approximately $67.1 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.50%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide such coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. Such insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the ADR process that is in the trial phase of
binding arbitration. Depending on further progress of the ADR, activities
such as settlement discussions with insurance carriers party to the ADR and
those not party to the ADR and the final determination of coverage shared with
ACandS, Armstrong may revise its estimate and additional insurance assets may
be recorded in a future period. Of the $268.3 million asset, $32.2 million has
been recorded as a current asset reflecting management's estimate of the minimum
insurance payments to be received in the next 12 months. However, the actual
amount of payments to be received in the next 12 months could increase dependent
upon the nature and result of settlement discussions. Management estimates that
the timing of future cash payments for the remainder of the recorded asset may
extend beyond 10 years.

Armstrong paid $95.0 million for asbestos related claims in the first six months
of 2000 compared to $74.8 million in the first six months of 1999. Armstrong
received $27.7 million in asbestos-related insurance recoveries during the first
six months of 2000 compared to $57.8 million during the first six months of
1999. Armstrong currently expects to pay approximately $125.0 million to $135.0
million for asbestos related claims and expenses in 2000, net of expected
insurance recoveries and taxes.

While some successful broad-based settlements have been reached with plaintiff
law firms, Armstrong is uncertain as to the timing and number of any additional
settlements to be reached.

Since many uncertainties exist surrounding asbestos litigation, Armstrong will
continue to evaluate its asbestos related estimated liability and corresponding
estimated insurance recoveries asset as well as the underlying assumptions used
to record these amounts. The recorded liability and asset reflect management's
best estimate of probable amounts based on current information. However, it is
reasonably possible that Armstrong's total exposure to personal injury claims
may be greater than the recorded liability and accordingly future charges to
income may be necessary. While Armstrong believes that potential future charges
may be material to the periods in which they are taken, Armstrong does not
believe the charges will have a material adverse effect on its financial
position or liquidity.

                                      23
<PAGE>

Consolidated Results
--------------------

The following discussions of consolidated results are on a continuing operations
basis.

Second-quarter net sales of $834.9 million from continuing operations were 0.9%
higher than in the second quarter of 1999. Included in the second quarter of
1999 were sales from Armstrong Industrial Specialties, Inc. and the Textile
products businesses, which were sold in the second and third quarters of last
year, respectively. Excluding the impact of the 1999 divestitures and the impact
of foreign exchange rate translation, sales increased 6.6%. Wood products sales
increased 11.8%. Floor coverings sales decreased 1.1% as strong sales growth in
the Americas was offset by lower sales in Europe. Building products sales
increased 5.5% led by a strong sales performance in the North American market.

Second-quarter loss from continuing operations was $101.2 million compared to
1999's second-quarter earnings from continuing operations of $65.0 million. A
$236.0 million non-cash pre-tax charge for an increase in the estimate of
probable liability for asbestos-related claims was recorded in the second
quarter of 2000 and resulted in an after-tax net earnings impact of $153.4
million or $3.81 per share. The second-quarter 2000 results also include a
pre-tax gain of $5.2 million or $0.08 per share from the demutualization of an
insurance company with whom Armstrong has company-owned life insurance policies,
which was recorded in other income. Excluding the asbestos charge and the
demutualization gain, earnings from continuing operations for the second quarter
of 2000 would have been $48.8 million, or $1.21 per diluted share. The
second-quarter 1999 results include an after-tax gain of $7.5 million from the
sale of 65 percent of the Company's interest in Armstrong Industrial
Specialties, Inc. ("AISI") that was recorded in other income. Excluding this
gain on divestiture, earnings from continuing operations for the second quarter
of 1999 would have been $57.5 million, or $1.43 per diluted share.

The cost of goods sold in the second quarter was 69.0 percent of net sales
compared to 65.5 percent of net sales in the second quarter of 1999. This
increase was driven primarily by higher raw material expenses, primarily in
floor coverings and wood products and higher energy costs in building products.
We currently do not expect any significant changes to our significant raw
material or energy prices for the remainder of 2000. Cost of goods sold in 1999
included a change in employee compensation policies that resulted in a $5.0
million benefit, partially offset by $3.3 million of costs associated with
changes in the production location for some product lines.

Second-quarter 2000 SG&A expenses were 17.9 percent of net sales compared to
19.7 percent of net sales in last year's second quarter. The percentage decrease
is primarily due to lower incentive bonus accruals and 1999 post-acquisition
integration expenses related to the 1998 acquisitions of Triangle Pacific and
DLW.

Interest expense of $27.9 million was $1.5 million higher than the amount
recorded in the second quarter of 1999 principally due to higher interest rates.

First-half 2000 net sales were $1,608.2 million, 0.5 percent higher than last
year's first-half net sales of $1,600.1 million. Excluding the impact of the
1999 divestitures and the impact of foreign exchange rate translation, sales
increased 6.2%.

The first-half loss from continuing operations of $75.2 million compared to
1999's first-half earnings from continuing operations of $106.2 million.
Excluding the asbestos charge and the demutualization gain, earnings from
continuing operations for the first half of 2000 would have been $74.8 million,
or $1.86 per diluted share. Excluding the gain on divestiture of AISI, earnings
from continuing operations for the first half of 1999 would have been $98.7
million, or $2.46 per diluted share.

Excluding the impact of the asbestos charge in 2000 and the gain from the sale
of 65% of Armstrong Industrial Specialties, Inc. in 1999, Armstrong's effective
tax rate for continuing businesses was 39 percent for the second quarter and
first half of 2000 and 1999.

Weak results from European operations have negatively impacted second quarter
2000 results and Armstrong anticipates this condition continuing through the
remainder of the year.

Industry Segment Results
------------------------

                                      24
<PAGE>

Floor coverings net sales were $397.9 million and $402.3 million in the second
quarter of 2000 and 1999, respectively. Sales in the Americas increased 5.2%
over prior year as sales of both residential and commercial products increased.
European sales of $132.9 million were 9.7% below 1999 levels as a result of
unfavorable foreign exchange rate translation, lower prices and a less favorable
mix driven by continued market weakness. Excluding the effects of foreign
exchange rate translation, sales in Europe were 0.9% above last year. Pacific
area sales decreased 1.1% versus 1999. Operating income of $47.0 million was
11.8% of sales compared to $59.0 million in the second quarter of 1999, or 14.7%
of sales. The operating margin reduction was driven primarily by higher
manufacturing costs, principally higher raw material and energy costs, and
weaker volume and price in Europe driven by competitive pressure and continued
weak construction activity. The 1999 operating income included a change in
employee compensation policies which resulted in a $3.0 million benefit,
offset by $3.3 million of costs associated with changes in the production
location for some product lines.

Building products net sales of $192.2 million increased from $182.1 million in
the second quarter of 1999. Americas sales increased 5.5% driven primarily by
higher sales in the U.S. commercial channel and Latin America. In Europe, sales
increased 2.4% primarily due to incremental sales from Gema, our metal ceilings
subsidiary acquired during the second quarter of 2000, increased sales to
emerging markets and a more favorable mix of products. Pacific area sales
increased 4.7% versus 1999. Operating income increased $0.2 million to $31.2
million as improved volume and increased price in the Americas was largely
offset by higher manufacturing expense including raw materials and energy.
Overall operating margins decreased from 17.0% to 16.2%. The 1999 operating
income included a change in employee compensation policies which resulted in a
$2.0 million benefit.

Wood products net sales of $244.8 million in the second quarter of 2000 compared
to net sales of $218.9 million in 1999. Cabinet sales grew 9.3% due to higher
volume. Wood flooring sales increased 12.6% versus 1999 driven primarily by
volume growth and improved pricing. Operating margins declined from 13.7% to
11.9% primarily driven by higher lumber costs which were about even with the
first quarter of 2000 but 20% above last year.

In the all other segment, sales and operating margin were down $24.0 million and
$3.3 million, respectively due to the absence of the Armstrong Industrial
Specialties and Textile Products businesses which were sold in the second and
third quarters of 1999, respectively.

The results of the Insulation Products segment have been shown as a discontinued
business. Earnings from the Insulation business were $2.3 million in the second
quarter of 2000 and the after tax gain on the sale was $106.4 million.


Recent Accounting Pronouncements
--------------------------------

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 (FIN 44) "Accounting for Certain Transactions involving Stock
Compensation--an interpretation of APB Opinion No. 25." Among other issues, FIN
44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB
25) regarding (a) the definition of employee for purposes of applying APB 25,
(b) the criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The provisions of FIN 44
that affect Armstrong are to be applied on a prospective basis effective July 1,
2000. Armstrong does not expect FIN 44 to have a material impact on its results
of operations or financial condition.

The Securities and Exchange Commission (the "SEC") has issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, as
amended on June 26, 2000. SAB No. 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
and is effective beginning in the fourth quarter of 2000. Armstrong is
evaluating the effects of implementation, if any, on its financial statements.

In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities ("FAS 138"), an amendment of FASB Statement No. 133 ("FAS 133"). FAS
138 amends some accounting and reporting standards contained in

                                      25
<PAGE>

FAS 133 and also addresses a limited number of issues causing implementation
difficulties in applying FAS 133. Armstrong will adopt the requirements of FAS
138 concurrently with the adoption of FAS 133. The effects of FAS 133 and FAS
138 on Armstrong's financial position or results of operations has not yet been
determined.



Cautionary Statements About Future Results
------------------------------------------

This discussion is provided under the Private Securities Litigation Reform Act
of 1995. Our disclosures in reports here and in other public comments contain
forward-looking statements. These statements provide our expectations or
forecasts of future events and can be identified by the use of words such as
"anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
"outlook," and others of similar meaning in discussions of future operating or
financial performance. In particular, these include statements relating to
future earnings per share, dividends, financial results, operating results,
prospective products, future performance of current products, future sales or
expenses, and the outcome of contingencies such as legal proceedings.

Any of these forward-looking statements may turn out to be wrong. Actual future
results may vary materially. Consequently, no forward-looking statement can be
guaranteed.

Many factors could cause our actual results to differ materially from those
expected. These factors include:

     .    our asbestos-related and any other litigation discussed in our filings
          with the SEC
     .    variations in raw material and energy costs, and our success in
          achieving manufacturing efficiencies and price increases,
     .    our success in introducing new products,
     .    product and price competition caused by factors such as worldwide
          excess industry capacity,
     .    interest, foreign exchange and effective tax rates
     .    integration of our acquisitions,
     .    business combinations among competitors and suppliers,
     .    the strength of domestic and foreign end-use markets and improved
          efficiencies in the European flooring market, and
     .    impacts to international operations caused by changes in intellectual
          property protections and trade regulations, and the political climate
          in emerging markets.

This should not be considered to be a complete list of all risks and
uncertainties that might affect our future results. We undertake no obligation
to update any forward-looking statement. Related disclosures in our most recent
report on Form 10-K, in our reports on Form 10-Q and any further disclosures in
subsequent 10-Q, 8-K and 10-K reports should also be consulted.

                                      26
<PAGE>

                           Part II - Other Information
                           ---------------------------

Item 1.  Legal Proceedings
-------  -----------------

ASBESTOS-RELATED LITIGATION
---------------------------

The following is a summary update of asbestos-related litigation; see Note 26 to
the financial statements of Armstrong's 1999 Form 10-K filing for additional
information.

Armstrong is a defendant in personal injury claims and property damage claims
related to asbestos containing products.

PERSONAL INJURY CLAIMS

Nearly all claims seek general and punitive damages arising from alleged
exposures, at various times, from World War II onward, to asbestos-containing
products. Claims against Armstrong, which can involve allegations of negligence,
strict liability, breach of warranty and conspiracy, primarily relate to
Armstrong's involvement with asbestos-containing insulation products. Armstrong
discontinued the sale of all such insulation products in 1969. In addition,
other Armstrong products, such as gasket materials, have been named in some
litigation. Claims may arise many years after first exposure to asbestos in
light of the long latency period (up to 40 years) for asbestos-related injury.
Product identification and determining exposure periods are difficult and
uncertain. Armstrong believes that many current plaintiffs are unimpaired.
Armstrong is involved in all stages of claims resolution and litigation,
including individual trials, consolidated trials and appeals.

Armstrong is a defendant in approximately 176,000 pending personal injury claims
as of June 30, 2000. During the first six months of 2000, the Center for Claims
Resolution ("Center") received and verified approximately 30,000 claims naming
Armstrong as a defendant compared to 29,300 during the first six months of 1999.

Armstrong continues to seek broad-based settlements of claims through the
Center. To date, the Center has reached agreements with law firms that cover
approximately 115,000 claims (or 53% of current claims) some of which are
currently pending and some of which have yet to be filed. These agreements
typically provide for multiyear payments for settlement of current claims and
establish specific medical and other criteria for the settlement of future
claims as well as annual limits on the number of claims that can be filed by
these firms. These agreements also establish fixed settlement values for
different asbestos-related medical conditions which are subject to periodic
re-negotiation over a period of 2 to 5 years. The plaintiff law firms are
required to recommend settlements to their clients although future claimants are
not legally obligated to accept the settlements. These agreements also provide
for nominal payments to future claimants who are unimpaired but who are eligible
for additional compensation if they develop a more serious asbestos-related
illness. The Center can terminate an agreement with an individual law firm if a
significant number of that firm's clients elect not to participate under the
agreement. Negotiations with additional law firms engaged in asbestos-related
litigation that would resolve a substantial portion of the remaining pending
claims are ongoing. The ultimate success and timing of those negotiations is
uncertain.

Asbestos-Related Liability

In continually evaluating its estimated asbestos-related liability, Armstrong
reviews, among other things, its recent and historical settlement amounts, the
incidence of past and recent claims, the mix of the injuries and occupations of
the plaintiffs, the number of cases pending against it and the status and
results of broad-based settlement discussions. Based on this review, Armstrong
has estimated its share of liability to defend and resolve probable
asbestos-related personal injury claims. This estimate is highly uncertain due
to the limitations of the available data and the difficulty of forecasting with
any certainty the numerous variables that can affect the range of the liability.
Armstrong will continue to study the variables in light of additional
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.

                                       27
<PAGE>
In the second quarter of 2000, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $236.0 million. The increase
in the estimated liability reflects higher than anticipated claims and higher
average settlement costs for claims during 2000, primarily for recent
settlements outside of the Center's Strategic Settlement Program ("SSP").
Further, although we expect the number of claims to decrease in future years, we
now expect that the total number of claims received will be higher than
previously anticipated. Armstrong's estimation of its asbestos-related liability
that is probable and estimable through 2006 ranges from $822.5 million to
$1,427.0 million as of June 30, 2000. The range of probable and estimable
liability reflects uncertainty in the number of future claims that will be filed
and the cost to settle those claims, which may be influenced by a number of
factors, including the outcome of the ongoing broad-based settlement
negotiations, the cost to settle claims outside the broad-based settlement
program and Armstrong's overall effective share of the Center's liabilities.
Armstrong has concluded that no amount within that range is more likely than any
other, and therefore has reflected $822.5 million as a liability in the
consolidated financial statements in accordance with generally accepted
accounting principles. Of this amount, management expects to incur asbestos
liability payments of approximately $200.0 million over the next 12 months and
has reflected such amount as a current liability.

The Center is involved in numerous legal proceedings with a former member of the
Center related to the former member's refusal to pay its share of certain
settlements concluded by the Center while that company was a member. In
addition, another Center member has terminated its membership due to exhaustion
of the assets of its claims trust. This member has also asserted that it is
entitled to reductions of certain payments. While the Center believes the member
is not entitled to any adjustment, the impact if any, on the timing of cash
flows or amount of recorded liability is uncertain. In estimating its recorded
liabililty. Armstrong has not anticipated unfavorable outcomes resulting from
the legal proceedings or any increases in Armstrong's share of liability
stemming from the termination of these former Center members. Armstrong's share
of liability could increase should there be any negative developments related to
these matters.

Armstrong's estimated range of liability is primarily based on known claims and
an estimate of future claims that are likely to occur and can be reasonably
estimated through 2006. Accordingly, substantially all of the range discussed
above, and as recorded by Armstrong, comprises management's best estimate of
claims expected to be filed within the forthcoming 6 years. For claims that may
be filed beyond 2006, management believes that the level of uncertainty is too
great to provide for reasonable estimation of the number of future claims, the
nature of such claims, or the cost to resolve them. Accordingly, it is
reasonably possible that the total exposure to personal injury claims may be
greater than the estimated range of liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.

Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences occur, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability.

Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.

COLLATERAL REQUIREMENTS

                                       28
<PAGE>

As of June 30, 2000, Armstrong has secured $53.9 million of future claim
payments with a surety bond to meet minimum collateral requirements established
by the Center.

PROPERTY DAMAGE LITIGATION

Armstrong is also one of many defendants in seven pending claims as of June 30,
2000, that were filed by public and private building owners. These cases present
allegations of damage to the plaintiff's buildings caused by asbestos-containing
products and generally seek compensatory and punitive damages and equitable
relief, including reimbursement of expenditures for removal and replacement of
such products. In the second quarter of 2000, Armstrong was served with a
lawsuit seeking class certification of Texas residents who own
asbestos-containing products. This case includes allegations that Armstrong
asbestos-containing products caused damage to buildings and generally seeks
compensatory damages and equitable relief, including testing, reimbursement for
removal and diminution of property value. Armstrong vigorously denies
the validity of the allegations against it in these claims and believes that any
costs will be covered by insurance. These claims are not handled by the Center.

INSURANCE COVERAGE

During relevant time periods, Armstrong purchased primary and excess insurance
policies providing coverage for personal injury claims and property damage
claims. Certain policies also provide coverage to ACandS, Inc., a former
subsidiary of Armstrong. Armstrong and ACandS agreed to share certain coverage
on a first-come first-served basis and to reserve for ACandS a certain amount of
excess coverage.

Wellington Agreement

In 1985, Armstrong and 52 other companies (asbestos defendants and insurers)
signed the Wellington Agreement. This Agreement settled disputes concerning
personal injury insurance coverage with signatory carriers. It provides broad
coverage for both defense and indemnity and applies to both products hazard and
nonproducts (general liability) coverages. Armstrong has resolved most
asbestos-related personal injury products hazard coverage matters with its
solvent carriers through the Wellington Agreement or other settlements.

Insurance Recovery Proceedings

A substantial portion of Armstrong's primary and excess remaining insurance
asset is nonproducts (general liability) insurance for personal injury claims,
including among others, those that involve alleged exposure during Armstrong's
installation of asbestos materials. An alternative dispute resolution ("ADR")
procedure under the Wellington Agreement is under way against certain carriers
to determine the percentage of resolved and unresolved claims that are
nonproducts claims, to establish the entitlement to such coverage and to
determine whether and how much reinstatement of prematurely exhausted products
hazard insurance is warranted. The nonproducts coverage potentially available is
substantial and includes defense costs in addition to limits. The carriers have
raised various defenses, including waiver, laches, statutes of limitations and
contractual defenses. One primary carrier alleges that it is no longer bound by
the Wellington Agreement, and another alleges that Armstrong agreed to limit its
claims for nonproducts coverage against that carrier when the Wellington
Agreement was signed. The ADR process is in the trial phase of binding
arbitration. One insurer has taken the position that it is entitled to litigate
in court certain issues in the ADR proceeding. During 1999, Armstrong received
preliminary decisions in the initial phases of the trial proceeding of the ADR
which were generally favorable to Armstrong on a number of issues related to
insurance coverage. Because of the continuing ADR process and the possibilities
for appeal on certain matters, Armstrong has not yet completely determined the
financial implications of the decisions. Armstrong has entered into settlements
with a number of the carriers resolving its coverage issues.

Other proceedings against non-Wellington carriers may become necessary.

Insurance Asset

As with its estimated asbestos related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $268.3 million is recorded as of June 30, 2000.

                                       29
<PAGE>

Approximately $27.7 million was received in the second quarter of 2000 pursuant
to existing settlements. Of the total amount, approximately $67.1 million
represents partial settlement for previous claims which will be paid in a fixed
and determinable flow and is reported at its net present value discounted at
6.50%. The total amount recorded reflects Armstrong's belief in the availability
of insurance in this amount, based upon Armstrong's success in insurance
recoveries, recent settlement agreements that provide such coverage, the
nonproducts recoveries by other companies and the opinion of outside counsel.
Such insurance is either available through settlement or probable of recovery
through negotiation, litigation or resolution of the ADR process that is in the
trial phase of binding arbitration. Depending on further progress of the ADR,
activities such as settlement discussions with insurance carriers party to the
ADR and those not party to the ADR and the final determination of coverage
shared with ACandS, Armstrong may revise its estimate and additional insurance
assets may be recorded in a future period. Of the $268.3 million asset, $32.2
million has been recorded as a current asset reflecting management's estimate of
the minimum insurance payments to be received in the next 12 months. However,
the actual amount of payments to be received in the next 12 months could
increase dependent upon the nature and result of settlement discussions.
Management estimates that the timing of future cash payments for the remainder
of the recorded asset may extend beyond 10 years.

CASH FLOW IMPACT

Armstrong paid $95.0 million for asbestos related claims in the first six months
of 2000 compared to $74.8 million in the first six months of 1999. Armstrong
received $27.7 million in asbestos-related insurance recoveries during the first
six months of 2000 compared to $57.8 million during the first six months of
1999. Armstrong currently expects to pay approximately $125.0 million to $135.0
million for asbestos related claims and expenses in 2000, net of expected
insurance recoveries and taxes.

CONCLUSION

While some successful broad-based settlements have been reached with plaintiff
law firms, Armstrong is uncertain as to the timing and number of any additional
settlements to be reached.

Since many uncertainties exist surrounding asbestos litigation, Armstrong will
continue to evaluate its asbestos related estimated liability and corresponding
estimated insurance recoveries asset as well as the underlying assumptions used
to record these amounts. The recorded liability and asset reflect management's
best estimate of probable amounts based on current information. However, it is
reasonably possible that Armstrong's total exposure to personal injury claims
may be greater than the recorded liability and accordingly future charges to
income may be necessary. While Armstrong believes that potential future charges
may be material to the periods in which they are taken, Armstrong does not
believe the charges will have a material adverse effect on its financial
position or liquidity.

ENVIRONMENTAL MATTERS
---------------------

Armstrong's operations are subject to federal, state, local and foreign
environmental laws and regulations. As with many industrial companies, Armstrong
is currently involved in proceedings under the Comprehensive Environmental
Response, Compensation and Liability Act ("Superfund"), and similar state laws
at approximately 22 sites. In most cases, Armstrong is one of many potentially
responsible parties ("PRPs") who have voluntarily agreed to jointly fund the
required investigation and remediation of each site. With regard to some sites,
however, Armstrong disputes the liability, the proposed remedy or the proposed
cost allocation among the PRPs. Armstrong may also have rights of contribution
or reimbursement from other parties or coverage under applicable insurance
policies. Armstrong is also remediating environmental contamination resulting
from past industrial activity at certain of its current and former plant sites.

Estimates of future liability are based on an evaluation of currently available
facts regarding each individual site and consider factors including existing
technology, presently enacted laws and regulations and prior Armstrong
experience in remediation of contaminated sites. Although current law may impose
joint and several liability on all parties at any Superfund site, Armstrong's
contribution to the remediation of these sites is expected to be limited by the
number of other companies also identified as potentially liable for site costs.
As a result, Armstrong's estimated liability reflects only Armstrong's expected
share. In determining the probability of contribution, Armstrong considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters.

                                       30
<PAGE>

Liabilities of $15.4 million were recorded at June 30, 2000 for potential
environmental liabilities that Armstrong considers probable and for which a
reasonable estimate of the probable liability could be made. Where existing data
is sufficient to estimate the amount of the liability, that estimate has been
used; where only a range of probable liability is available and no amount within
that range is more likely than any other, the lower end of the range has been
used. As assessments and remediation activities progress at each individual
site, these liabilities are reviewed to reflect additional information as it
becomes available.

The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.

Actual costs to be incurred at identified sites in the future may vary from
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition or liquidity although the
recording of future costs may be material to earnings in such future period.

                                       31
<PAGE>

Item 4. - Submission of Matters to a Vote of the Security Holders
------    -------------------------------------------------------

The Company held its annual meeting of shareholders on May 1, 2000. The vote on
each matter presented to the shareholders was as follows:

     1.   Election of Directors

                                                  For                Withheld
                                                  ---                --------
      Class of 2003:
         Van C. Campbell                       31,974,611             399,349
         John A. Krol                          31,976,340             399,349
         David W. Raisbeck                     31,974,209             399,349

In addition, each of the following directors continued in office after the
meeting: H. Jesse Arnelle, Donald C. Clark, Judith R. Haberkorn, David M. LeVan,
George A. Lorch, James E. Marley and Jerre L. Stead.


     2.   Approval of three terms of Armstrong's Management Achievement Plan

                   For                  Against               Abstain
                   ---                  -------               -------
                 30,727,846             2,990,123              456,192


     3.   Establishment of a Holding Company

                   For                  Against               Abstain
                   ---                  -------               -------
                 31,561,655             2,142,553              470,064



Item 6. -  Exhibits and Reports on Form 8-K

     (a)  The following exhibits are filed as a part of the Quarterly Report on
          Form 10-Q:

     Exhibits

     No. 3(a)      Armstrong Holdings, Inc.'s Amended and Restated Articles of
                   Incorporation are incorporated herein by reference from
                   Exhibit 3.1(i) to Armstrong Holdings, Inc.'s Current Report
                   on Form 8-K dated May 9, 2000.
     No. 3(b)      Armstrong Holdings, Inc.'s Amended and Restated Bylaws are
                   incorporated herein by reference from Attachment 2 to Exhibit
                   A of the prospectus/proxy statement which is part of
                   Armstrong Holdings, Inc.'s Amendment No.1 to the Registration
                   Statement on Form S-4 filed on March 22, 2000 (File No.
                   333-32530).
     No. 3(c)      Copy of Armstrong World Industries, Inc.'s Amended and
                   Restated Bylaws.
     No. 10(iii)a  Form of Indemnification Agreement between Armstrong Holdings,
                   Inc. and certain of its Directors and Officers, together
                   with a schedule identifying those Directors and Officers
     No. 10(iii)b  Form of Indemnification Agreement between Armstrong World
                   Industries, Inc. and certain of its Directors and Officers,
                   together with a schedule identifying those Directors and
                   Officers
     No. 15        Letter re Unaudited Interim Financial Information
     No. 27        Financial Data Schedule

     (b)  The following reports on Form 8-K were filed during the second quarter
          of 2000.

          On May 9, 2000, the registrants filed reports on form 8-K discussing
          the formation of Armstrong Holdings, Inc.

          On May 12, 2000, Armstrong World Industries, Inc. filed a report on
          form 8-K discussing the sale of Armstrong Insulation Products to Orion
          Einundvierzigste Beteiligungsgesellschaft Mbh, a subsidiary of the
          Dutch investment firm Gilde Investment Management N.V.

                                       32
<PAGE>

                                   Signatures
                                   ----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       Armstrong Holdings, Inc.
                                       Armstrong World Industries, Inc.



                                 By:    /s/  Deborah K. Owen
                                       ----------------------------------------
                                       Deborah K. Owen, Senior Vice President,
                                       Secretary and General Counsel


                                 By:    /s/ William C. Rodruan
                                       ----------------------------------------

                                       William C. Rodruan, Vice President and
                                       Controller (Principal Accounting Officer)


Date:  August 11, 2000

                                       33
<PAGE>

                                  Exhibit Index
                                  -------------

Exhibit No.
-----------

No. 3(a)       Armstrong Holdings, Inc.'s Amended and Restated Articles of
               Incorporation are incorporated herein by reference from Exhibit
               3.1(i) to Armstrong Holdings, Inc.'s Current Report on Form 8-K
               dated May 9, 2000.
No. 3(b)       Armstrong Holdings, Inc.'s Amended and Restated Bylaws are
               incorporated herein by reference from Attachment 2 to Exhibit A
               of the prospectus/proxy statement which is part of Armstrong
               Holdings, Inc.'s Amendment No. 1 to the Registration Statement
               on Form S-4 filed on March 22, 2000 (File No. 333-32530).
No. 3(c)       Copy of Armstrong World Industries, Inc.'s Amended and Restated
               Bylaws.
No. 10(iii)a   Form of Indemnification Agreement between Armstrong Holdings,
               Inc. and certain of its Directors and Officers, together with a
               schedule identifying those Directors and Officers

No. 10(iii)b   Form of Indemnification Agreement between Armstrong World
               Industries, Inc. and certain of its Directors and Officers,
               together with a schedule identifying those Directors and Officers

No. 15         Letter re: Unaudited Interim Financial Information

No. 27         Financial Data Schedule