<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 September 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                  333-32530                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
October 31, 2000 - 40,863,840

                                       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       Nine Months Ended
                                                                                    September 30            September 30
                                                                                    ------------            ------------
                                                                                   2000       1999          2000      1999
                                                                                 -------    -------       -------   -------
<S>                                                                               <C>        <C>        <C>         <C>
Net sales                                                                         $835.6     $844.3     $2,443.8    $2,444.4
Cost of goods sold                                                                 595.9      554.0      1,709.4     1,614.7
                                                                                 -------    -------     --------    --------
Gross profit                                                                       239.7      290.3        734.4       829.7

Selling, general and administrative expense                                        154.8      159.7        469.8       480.4
Charge for asbestos liability                                                        -          -          236.0         -
Reorganization charges, net                                                         15.7        -           15.7         -
Goodwill amortization                                                                5.9        6.5         18.2        18.6
Equity (earnings) from affiliates                                                   (4.9)      (5.2)       (14.1)      (13.1)
                                                                                 -------    -------     --------    --------
Operating income                                                                    68.2      129.3          8.8       343.8

Interest expense                                                                    26.0       25.8         79.8        78.9
Other (income) expense, net                                                        (61.6)       3.4        (67.0)       (4.5)
                                                                                 -------    -------     --------    --------
Earnings (loss) from continuing operations before income taxes                     103.8      100.1         (4.0)      269.4
Income taxes (benefit)                                                              31.8       38.2         (0.8)      101.3
                                                                                 -------    -------     --------    --------

Earnings (loss) from continuing operations                                         $72.0      $61.9        ($3.2)     $168.1
                                                                                 -------    -------     --------    --------

Earnings from discontinued operations, net of
  tax of $0, $4.3, $3.2, and $11.0, respectively                                     -         $9.8         $7.0       $24.7
Gain on sale of discontinued operations, net of
   tax of $0.9, $0, $42.8 and $0 respectively                                       $2.3        -          108.7         -
                                                                                 -------    -------     --------    --------
Earnings from discontinued operations                                                2.3        9.8        115.7        24.7

Net earnings                                                                       $74.3      $71.7       $112.5      $192.8
                                                                                 =======    =======     ========    ========


Earnings (loss) per share of common stock, continuing operations:
  Basic                                                                             $1.79      $1.55       ($0.08)      $4.22
  Diluted                                                                           $1.77      $1.54       ($0.08)      $4.18

Earnings per share of common stock, discontinued operations:
  Basic                                                                              -         $0.25        $0.17       $0.62
  Diluted                                                                            -         $0.24        $0.17       $0.61

Earnings per share of common stock, gain on sale of discontinued operations:
  Basic                                                                             $0.06       -           $2.70        -
  Diluted                                                                           $0.06       -           $2.70        -

Net earnings per share of common stock:
  Basic                                                                             $1.84      $1.80        $2.80       $4.84
  Diluted                                                                           $1.83      $1.78        $2.80       $4.80

Average number of common shares outstanding:
  Basic                                                                              40.3       39.9         40.2        39.8
  Diluted                                                                            40.7       40.2         40.4        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)

<TABLE>
<CAPTION>
                                                                        Unaudited
             Assets                                                September 30, 2000    December 31, 1999
             ------                                                ------------------    -----------------
<S>                                                                       <C>                  <C>
Current assets:
       Cash and cash equivalents                                          $33.6                $26.6
       Accounts receivable less allowance
          for discounts and losses                                        479.6                403.4
       Inventories:
            Finished goods                                                263.4                257.9
            Work in process                                                54.4                 42.4
            Raw materials and supplies                                    162.5                154.6
                                                                       --------             --------
               Total gross inventories                                    480.3                454.9
             Less LIFO and other reserves                                  50.8                 48.0
                                                                       --------             --------
               Total inventories                                          429.5                406.9

       Deferred income taxes                                               55.7                 40.6
       Net assets of discontinued operations                                  -                 93.5
       Other current assets                                                84.1                 86.7
                                                                       --------             --------
               Total current assets                                     1,082.5              1,057.7

Property, plant, and equipment                                          2,365.6              2,481.1
       Less accumulated depreciation and amortization                   1,061.1              1,123.6
                                                                       --------             --------
               Net property, plant and equipment                        1,304.5              1,357.5

Insurance for asbestos-related liabilities, noncurrent                    236.1                270.0
Investment in affiliates                                                   35.6                 34.2
Goodwill, net                                                             890.5                935.1
Other intangibles, net                                                     55.8                 54.9
Other noncurrent assets                                                   427.2                374.4
                                                                       --------             --------
               Total assets                                            $4,032.2             $4,083.8
                                                                       ========             ========

       Liabilities and Shareholders' Equity
       ------------------------------------
Current liabilities:
       Short-term debt                                                    $24.0                $64.7
       Current installments of long-term debt                              14.8                 36.1
       Accounts payable and accrued expenses                              724.5                636.2
       Income taxes                                                        35.8                  2.1
                                                                       --------             --------
               Total current liabilities                                  799.1                739.1

Long-term debt, less current installments                               1,314.3              1,412.9
Employee Stock Ownership Plan (ESOP) loan guarantee                       142.2                155.3
Postretirement and postemployment benefit liabilities                     244.6                244.5
Pension benefit liabilities                                               147.1                166.2
Asbestos-related long-term liabilities                                    483.8                506.5
Other long-term liabilities                                                94.8                105.4
Deferred income taxes                                                      62.7                 62.9
Minority interest in subsidiaries                                           8.3                 11.8
                                                                       --------             --------
               Total noncurrent liabilities                             2,497.8              2,665.5

Shareholders' equity:
       Common stock                                                        51.9                 51.9
       Capital in excess of par value                                     166.9                176.4
       Reduction for ESOP loan guarantee                                 (180.5)              (190.3)
       Retained earnings                                                1,251.3              1,196.2
       Accumulated other comprehensive loss                               (35.7)               (16.5)
       Treasury stock                                                    (518.6)              (538.5)
                                                                       --------             --------
               Total shareholders' equity                                 735.3                679.2
                                                                       --------             --------

               Total liabilities and shareholders' equity              $4,032.2             $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>
Common stock, $1 par value:
---------------------------
Balance at beginning of year & September 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)                      5.9
Contribution of treasury stock to ESOP                                        (5.3)                       -
                                                                          --------                  --------
Balance at September 30                                                    $ 166.9                    $178.9
                                                                          --------                  --------

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                                                           8.0                       4.8
                                                                          --------                  --------
Balance at September 30                                                    $(180.5)                 $ (183.9)
                                                                          --------                  --------

Retained earnings:
------------------
Balance at beginning of year                                              $1,196.2                  $1,257.0
Net earnings                                                                 112.5    $112.5           192.8    $192.8
Tax benefit on dividends paid on
  unallocated common shares                                                    0.7                       1.4
                                                                          --------                  --------
  Total                                                                   $1,309.4                  $1,451.2
Less common stock dividends                                                   58.1                      57.7
                                                                          --------                  --------
Balance at September 30                                                   $1,251.3                  $1,393.5
                                                                          --------                  --------

Accumulated other comprehensive income (loss):
----------------------------------------------
Balance at beginning of year                                               $ (16.5)                  $ (25.4)
  Foreign currency translation adjustments and
     hedging activities                                                      (13.5)                      1.1
  Unrealized loss on available for sale securities                            (2.5)                        -
  Minimum pension liability adjustments                                       (3.2)                      3.0
                                                                          --------                  --------
 Total other comprehensive income (loss)                                     (19.2)    (19.2)            4.1       4.1
                                                                          --------   --------       --------   -------
Balance at September 30                                                    $ (35.7)                  $ (21.3)
                                                                          --------                  --------

Comprehensive income                                                                   $93.3                    $196.9
--------------------                                                                 =======                   =======

Less treasury stock at cost:
----------------------------
Balance at beginning of year                                               $ 538.5                    $547.7
Stock purchases                                                                1.4                       0.8
Stock issuance activity, net                                                 (11.9)                     (2.4)
Contribution of treasury stock to ESOP                                        (9.4)                       -
                                                                          --------                  --------
Balance at September 30                                                    $ 518.6                    $546.1
                                                                          --------                  --------

Total shareholders' equity                                                 $ 735.3                    $873.0
                                                                          ========                   =======
</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>
                                                                                                        Nine Months Ended
                                                                                                          September 30,
                                                                                                      2000             1999
                                                                                                      ----             ----
<S>                                                                                                   <C>              <C>
Cash flows from operating activities:
     Net earnings                                                                                     $112.5           $192.8
     Adjustments to reconcile net earnings to net cash
           provided by operating activities:
       Depreciation and amortization, continuing operations                                            125.7            117.2
       Depreciation and amortization, discontinued operations                                            3.9              7.7
       Gain on sale of businesses                                                                     (211.3)            (1.8)
       Deferred income taxes                                                                             1.6              3.3
       Equity earnings from affiliates                                                                 (14.1)           (13.1)
       Reorganization and restructuring payments                                                        (2.9)           (14.8)
       Payments for asbestos-related claims, net of recoveries                                        (131.0)           (52.4)
       Charge for asbestos liability                                                                   236.0                -
       Decrease in net assets of businesses held for sale                                               (0.3)            (3.7)
       Increase in net assets of discontinued operations                                                   -             (7.8)
Changes in operating assets and liabilities net of effects of reorganization,
     restructuring and dispositions:
       Increase in receivables                                                                         (67.5)           (86.9)
       (Increase)/decrease in inventories                                                              (30.2)             1.6
       (Increase)/decrease in other current assets                                                     (11.1)            44.8
       Increase in other noncurrent assets                                                             (44.0)           (55.7)
       Increase in accounts payable and accrued expenses                                                 4.9             73.1
       Increase in income taxes payable                                                                 29.1             85.5
       Increase/(decrease) in other long-term liabilities                                               (8.7)             9.0
       Other, net                                                                                       24.4             (5.0)
                                                                                                      ------           ------
Net cash provided by operating activities                                                               17.0            293.8
                                                                                                      ------           ------

Cash flows from investing activities:
     Purchases of property, plant and equipment, continuing operations                                (107.8)          (115.3)
     Purchases of property, plant and equipment, discontinued operations                                (2.8)            (5.6)
     Investment in computer software                                                                    (8.5)            (6.4)
     Acquisitions, net of cash acquired                                                                 (6.5)            (3.8)
     Distributions from equity affiliates                                                               11.1             10.7
     Proceeds from the sale of assets                                                                    3.3              3.5
     Proceeds from the sale of businesses                                                              329.3             87.6
     Other, net                                                                                            -             (0.2)
                                                                                                      ------           ------
Net cash provided by (used for) investing activities                                                   218.1            (29.5)
                                                                                                      ------           ------

Cash flows from financing activities:
     Decrease in short-term debt, net                                                                  (42.8)           (34.1)
     Issuance of long-term debt                                                                            -            200.0
     Payments of long-term debt                                                                       (127.2)          (347.6)
     Cash dividends paid                                                                               (58.1)           (57.7)
     Purchase of common stock for the treasury, net                                                     (1.4)            (0.8)
     Proceeds from exercised stock options                                                               0.1              1.2
     Other, net                                                                                          5.9             (0.3)
                                                                                                      ------           ------
Net cash used for financing activities                                                                (223.5)          (239.3)
                                                                                                      ------           ------

Effect of exchange rate changes on cash and cash equivalents                                            (4.6)            (0.1)
                                                                                                      -------          ------

Net increase in cash and cash equivalents                                                               $7.0            $24.9
Cash and cash equivalents at beginning of period                                                       $26.6            $38.2
                                                                                                     -------           ------

Cash and cash equivalents at end of period                                                             $33.6            $63.1
                                                                                                     =======          =======
</TABLE>

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

                                       5
<PAGE>

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

The accompanying consolidated 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 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 third quarters of the wood
products segment ended on September 30, 2000 and October 2, 1999. No events
occurred between September 30, 1999 and October 2, 1999 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
transaction resulted in an after tax gain of $106.4 million, or $2.64 per share
in Armstrong's second quarter. The after tax gain on sale of $2.3 million
recorded in the third quarter relates to certain accrual and post-closing
adjustments. Armstrong expects all post-closing adjustments to be finalized in
the fourth quarter of 2000.


Note 3. DIVESTITURES
--------------------

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. Ardex purchased substantially all of the assets and liabilities of IPG
including its shares of the W.W. Henry Company. The transaction resulted in a
gain of $59.9 million ($44.4 million after tax or $1.09 per share) and was
recorded in other income during the third quarter. The financial results of IPG
were reported as part of the floor coverings segment. The proceeds and gain are
subject to certain post-closing adjustments. Under the terms of the agreement
and 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. The agreement also calls for
price adjustments based upon changing market prices for raw materials, labor and
energy costs.



Note 4. ACQUISITIONS
--------------------

On May 18, 2000 Armstrong acquired privately-held Switzerland-based Gema
Holdings AG ("Gema"), 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. The acquisition has

                                       6
<PAGE>

been recorded under the purchase method of accounting. The purchase price has
been allocated to the assets acquired and the liabilities assumed based on the
estimated fair market value at the date of acquisition. The purchase price
allocation is preliminary. Pro-forma results of Gema have been omitted, as they
are not material.

Note 5. INDUSTRY SEGMENTS
-------------------------

During the third quarter, it was determined that the textiles and sports
flooring operating segment should be separately presented. Previously, this
segment was included as part of the floor coverings segment. Prior year amounts
have been restated for comparability.

<TABLE>
<CAPTION>
(amounts in millions)                                  Three months                         Nine months
                                                    ended September 30                  ended September 30
Net sales to external customers                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                              <C>               <C>            <C>               <C>
Floor coverings                                  $ 339.5           $ 351.3        $    974.5        $    986.2
Building products                                  214.1             200.0             594.8             571.8
Wood products                                      215.7             210.0             676.8             615.9
Textiles and sports flooring                        66.3              76.5             197.7             220.1
All other                                              -               6.5                 -              50.4
                                                 -------           -------        ----------        ----------
Total sales to external customers                $ 835.6           $ 844.3        $  2,443.8        $  2,444.4
                                                 =======           =======        ==========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                       Three months                         Nine months
                                                    ended September 30                  ended September 30
Segment operating income (loss)                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                              <C>               <C>            <C>               <C>
Floor coverings                                  $  35.2           $  70.1        $    108.2        $    169.8
Building products                                   35.4              34.4              92.3              95.1
Wood products                                       18.5              22.1              65.6              70.6
Textiles and sports flooring                        (2.6)              4.4               1.1              10.4
All other                                            0.4               0.8               0.5               5.9
                                                 -------           -------        ----------        ----------
Total segment operating income                      86.9             131.8             267.7             351.8
Charge for asbestos liability                          -                 -            (236.0)                -
Unallocated corporate (expense)                    (18.7)             (2.5)            (22.9)             (8.0)
                                                 -------           -------        ----------        ----------
Total consolidated operating income              $  68.2           $ 129.3        $      8.8        $    343.8
                                                 =======           =======        ==========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                   September 30       December 31
Segment assets                                                                         2000              1999
--------------                                                                         ----              ----
<S>                                                                                  <C>              <C>
Floor coverings                                                                    $   996.0          $1,071.4
Building products                                                                      544.6             535.1
Wood products                                                                        1,366.4           1,308.0
Textiles and sports flooring                                                           212.4             211.0
All other                                                                               16.1              16.0
                                                                                   ---------         ---------
Total segment assets                                                                 3,135.5           3,141.5
Assets not assigned to business units                                                  896.7             942.3
                                                                                   ---------         ---------
Total consolidated assets                                                          $ 4,032.2         $ 4,083.8
                                                                                   =========         =========
</TABLE>

Note 6. REORGANIZATION AND RESTRUCTURING ACTIVITIES
---------------------------------------------------

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

<TABLE>
<CAPTION>
                                        Beginning         Cash      Net Charges/                      Ending
(amounts in millions)                    balance        payments     (Reversals)      Other           balance
                                         -------        --------     -----------      -----           -------
<S>                                       <C>            <C>           <C>           <C>              <C>
2000                                      $12.1          ($2.9)        $15.7         ($1.0)           $ 23.9
1999                                       30.6          (14.8)            -          (0.1)             15.7
</TABLE>

A $17.0 million pre-tax reorganization charge was recorded in the third quarter
of 2000, of which $8.6 million related to severance and enhanced retirement
benefits for more than 180 positions (approximately 66% related to salaried
positions) within the European Flooring business. Reorganization actions include
staff reductions due to the elimination of administrative positions, the
consolidation and closing of sales offices in Europe and the closure of the Team
Valley, England commercial tile plant. The remaining portion of the
reorganization charge primarily related to the remaining payments on a
noncancelable operating lease for

                                       7
<PAGE>

an office facility in the U.S. The employees who occupied this office facility
are being relocated to the corporate headquarters.

Armstrong also recorded a $12.2 million charge to cost of goods sold in the
third quarter of 2000 for write-downs of inventory and production-line assets
that were not categorized as reorganization costs related to the European
reorganization efforts. The inventory write-downs were related to changes in
product offerings while the write-downs of production-line assets primarily
related to changes in production facilities and product offerings.

In addition, $1.3 million of the remaining accrual for the 1998 reorganization
was reversed, comprising certain severance accruals that were no longer
necessary as certain individuals remained employed by Armstrong. The amount in
"other" is primarily related to foreign currency translation.

Excluding the $17.0 million accrual related to the third quarter 2000
reorganization charge, most of the remaining balance at September 30, 2000
relates to a noncancelable operating lease.


Note 7. OTHER COMPREHENSIVE INCOME (LOSS)
-----------------------------------------

The related tax effects allocated to each component of other comprehensive
income (loss) for the nine months ended September 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                                               $(13.5)           -        $(13.5)
Unrealized loss on available for sale securities                           (2.5)           -          (2.5)
Minimum pension liability adjustment                                       (5.0)        $1.8          (3.2)
                                                                         -------        ----        -------
Other comprehensive income (loss)                                        $(21.0)        $1.8        $(19.2)
                                                                         =======        ====        =======
</TABLE>

<TABLE>
<CAPTION>
Note 8. SUPPLEMENTAL CASH FLOW INFORMATION
------------------------------------------
(amounts in millions)                                                                    Nine Months Ended
                                                                                           September 30
                                                                                        2000         1999
                                                                                        ----         ----
<S>                                                                                   <C>           <C>
Interest paid                                                                         $ 76.3        $ 74.9
Income taxes paid, net                                                                $ 11.1        $ 21.1
</TABLE>

Note 9. 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. Earnings per share components may not add due to rounding. The
diluted earnings per share components for the first nine months of 2000 use the
basic number of shares due to the loss on continuing operations.

Note 10. 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. During the first nine months of 2000, the Center for Claims Resolution
("Center") received and verified approximately 45,300 claims naming Armstrong as
a defendant compared to approximately 40,500 during the first nine months of
1999.

Armstrong is a defendant in approximately 173,000 pending personal injury claims
as of September 30, 2000. Approximately 85,000 (or 49%) of these claims are
covered under the Center's Strategic Settlement Program ("SSP") compared to 36%
SSP coverage of the December 31, 1999 pending claims.

Asbestos-Related Liability

                                       8
<PAGE>

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 reflected higher than anticipated claims and higher
average settlement costs for claims during the first half of 2000, primarily for
settlements outside of the Center's SSP.

In the third quarter of 2000, the number of filed claims was within the current
expectations but Armstrong's average cost to settle claims was higher than
anticipated. Armstrong will continue to study its experience to identify trends
and to assess their impact on the range of liability that is probable and
estimable. If additional study determines that current cost levels will
continue, an increase in the probable asbestos-related liability will be
necessary.

Armstrong's estimate of its asbestos-related liability that is probable and
estimable through 2006 ranges from $758.8 million to $1,363.3 million as of
September 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 $758.8 million as a liability in the condensed consolidated financial
statements in accordance with generally accepted accounting principles. Of this
amount, management expects to incur asbestos liability payments of approximately
$275.0 million over the next 12 months and has reflected such amount as a
current liability as of September 30, 2000. This compares to total liability
payments over the prior 12 months of $220.8 million.

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.

                                       9
<PAGE>

CODEFENDANT BANKRUPTCIES

Certain codefendant companies have filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code, including recent filings by Babcock & Wilcox,
Pittsburgh Corning and Owens Corning. As a consequence, litigation against them
(with some exceptions) has been stayed or restricted. However, Armstrong does
not expect to see a significant increase in the number of claims filed since it
has been named as a defendant in the majority of claims against these
co-defendants. Armstrong could see higher settlement demands from claimants as
the number of defendants in the litigation has decreased, but the Center plans
to negotiate to minimize any impact on settlement costs. Due to the
uncertainties involved, the long-term effect of these proceedings on the
litigation cannot be predicted and Armstrong believes it could be several months
before Armstrong receives the sufficient data to allow it to ascertain the
impact.

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 September 30, 2000. Approximately
$27.7 million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total recorded asset, approximately $75.8 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, the final determination of coverage
shared with ACandS and the financial condition of the insurers, Armstrong may
revise its estimate of probable insurance recoveries. 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.

Conclusion

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. These uncertainties include the number of future claims
to be filed, the cost to settle claims in the future, which may be influenced by
factors including, but not limited to, the financial viability of other
defendants, the impact of any potential legislation and the ability of the
Center to achieve future SSP agreements, and the impact of the ADR proceedings
on the insurance asset. 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. Armstrong believes that potential future charges may be
material to the periods in which they are taken. See further discussion of
Liquidity and Capital Resources in Note 13.

Note 11. - ENVIRONMENTAL LIABILITIES
------------------------------------

Liabilities of $14.8 million and $14.7 million were recorded at September 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 may be material to
earnings in such future period.


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

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

Note 13 - LIQUIDITY AND CAPITAL RESOURCES
-----------------------------------------

                                       10
<PAGE>

As of September 30, 2000, Armstrong had no outstanding borrowings under
Armstrong World Industries, Inc.'s $450 million credit facility that expires in
October 2003 or under Armstrong World Industries, Inc.'s $450 million, 364 day
credit facility that expired on October 19, 2000. These lines have been in
support of commercial paper issuances. The outstanding amount of commercial
paper at September 30, 2000 was $352.6 million.

On October 5, 2000, Owens Corning voluntarily filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. This filing has had a significant effect
on Armstrong's liquidity. In early October, Armstrong was in discussions to
obtain a 364 day credit facility of up to $400 million, with the intention of
completing the new facility prior to the October 19, 2000 expiration of the
existing $450 million, 364 day credit facility. Whereas indications from
participant banks led Armstrong to believe the facility would be fully
subscribed, following the Owens Corning filing the potential participants in the
new credit facility decided to reevaluate their credit exposures to Armstrong,
primarily due to Armstrong's asbestos liability. Agreement was not reached on
terms for a new facility. Subsequently the $450 million, 364 day credit facility
expired on October 19, 2000.

On October 25, 2000, both Standard & Poor's and Moody's Investors Services
downgraded Armstrong's long term debt ratings to BBB- and Baa3 and short term
debt ratings to A-3 and P-3, respectively, citing the reduction in committed
credit facilities, prospects for weaker operating performance and continued
uncertainty surrounding the asbestos liability, owing to among other things, the
Owens Corning bankruptcy filing. Both agencies indicated the potential for
additional downgrades which could result from, among other things, the inability
to increase untapped committed borrowing capacity, significant increases in the
cash flow required to service the asbestos liability, or deteriorating operating
performance. Since October 25, 2000, Armstrong stopped issuing commercial paper
and began to draw on its $450 million credit facility that expires in October
2003. As of November 14, 2000, the $450 million credit facility was fully drawn,
approximately $83 million of commercial paper was outstanding and Armstrong had
approximately $127 million of cash on deposit. The remaining outstanding
commercial paper will mature by November 22, 2000.

Armstrong will face liquidity pressures in the near future. Such pressures will
be exacerbated should certain events occur. Specifically, should Armstrong's
long term debt ratings be further downgraded by both Standard & Poor's and
Moody's, holders of Employee Stock Ownership Plan bonds totaling $142.2 million
as of September 30, 2000 would have the right to require Armstrong to redeem
them under the terms of the Note Purchase Agreement dated June 19, 1989 for
8.43% Series A Guaranteed Serial ESOP Notes due 1989-2001 and 9.00% Series B
Guaranteed Serial ESOP Notes due 2000-2004. As of November 14, 2000, Armstrong
was not in violation of any debt covenants. The $450 million credit facility
that expires in 2003 contains customary events of default, including failure to
make payments, failure to meet other material obligations within specific time
periods and the acceleration of other material indebtedness. In addition, should
Armstrong World Indutstires, Inc.'s consolidated net worth decline by more than
$180.6 million from its September 30, 2000 balance, Armstrong would violate the
minimum consolidated net worth covenant of the $450 million credit facility. Any
event of default could result in the acceleration of the maturity of the
facility. Other factors could also influence Armstrong's liquidity. The outlook
for Armstrong World Industries, Inc.'s asbestos liability cash payments is
highly uncertain. See Part II, Item I "Legal Proceedings" for additional
information concerning asbestos litigation. Unforeseen deterioration in expected
earnings or working capital requirements would also negatively impact liquidity.

On October 30, 2000, Armstrong's Board of Directors elected to suspend the
quarterly cash dividend payment with the intent to increase financial
flexibility. Armstrong has acted to reduce working capital and capital
expenditures and is currently evaluating other alternatives to increase
liquidity, which include, among other things, selling non-core assets and
businesses, obtaining secured financing, and selling receivables. Armstrong
believes that sufficient incremental credit will be available to prevent a
liquidity crisis in the next few months but it is unclear whether obtaining such
incremental credit would be in the best interests of Armstrong. If Armstrong
does not obtain sufficient additional liquidity in the next few months,
Armstrong will have to consider seeking protection under the U.S. Bankruptcy
Code.

                                      11
<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 September 30, 2000, and the related condensed
consolidated statements of earnings for the three and nine-month periods ended
September 30, 2000 and 1999, and the condensed consolidated statements of cash
flows and shareholders' equity for the nine-month periods ended September 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
November 14, 2000


                                      12
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                Three Months Ended          Nine Months Ended
                                                                                  September 30                September 30
                                                                                  ------------                ------------
                                                                                 2000        1999            2000        1999
                                                                                 ----        ----            ----        ----
<S>                                                                             <C>         <C>           <C>         <C>
Net sales                                                                       $835.6      $844.3        $2,443.8    $2,444.4
Cost of goods sold                                                               595.9       554.0         1,709.4     1,614.7
                                                                                ------      ------        --------    --------
Gross profit                                                                     239.7       290.3           734.4       829.7

Selling, general and administrative expense                                      154.8       159.7           469.3       480.4
Charge for asbestos liability                                                        -           -           236.0           -
Reorganization charges, net                                                       15.7           -            15.7           -
Goodwill amortization                                                              5.9         6.5            18.2        18.6
Equity (earnings) from affiliates                                                 (4.9)       (5.2)          (14.1)      (13.1)
                                                                                ------      ------        --------    --------
Operating income                                                                  68.2       129.3             9.3       343.8

Interest expense                                                                  26.0        25.8            79.8        78.9
Other (income) expense, net                                                      (61.6)        3.4           (67.0)       (4.5)
                                                                                ------      ------        --------    --------
Earnings (loss) from continuing operations before income taxes                   103.8       100.1            (3.5)      269.4
Income taxes (benefit)                                                            31.8        38.2            (0.6)      101.3
                                                                                ------      ------        --------    --------

Earnings (loss) from continuing operations                                       $72.0       $61.9           ($2.9)     $168.1
                                                                                ------      ------        --------    --------
Earnings from discontinued operations, net of
  tax of $0, $4.3, $3.2, and $11.0, respectively                                     -        $9.8            $7.0       $24.7
Gain on sale of discontinued operations, net of
   tax of $0.9, $0, $42.8 and $0 respectively                                     $2.3           -           108.7           -
                                                                                ------      ------        --------    --------
Earnings from discontinued operations                                              2.3         9.8           115.7        24.7

Net earnings                                                                     $74.3       $71.7          $112.8      $192.8
                                                                                ======      ======        ========    ========
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 17.

                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Unaudited
            Assets                                                   September 30, 2000     December 31, 1999
            ------                                                   ------------------     -----------------
<S>                                                                        <C>                    <C>
Current assets:
      Cash and cash equivalents                                            $33.6                  $26.6
      Accounts receivable less allowance
         for discounts and losses                                          479.6                  403.4
      Inventories:
           Finished goods                                                  263.4                  257.9
           Work in process                                                  54.4                   42.4
           Raw materials and supplies                                      162.5                  154.6
                                                                        --------               --------
              Total gross inventories                                      480.3                  454.9
            Less LIFO and other reserves                                    50.8                   48.0
                                                                        --------               --------
              Total inventories                                            429.5                  406.9

      Deferred income taxes                                                 55.7                   40.6
      Net assets of discontinued operations                                    -                   93.5
      Other current assets                                                  84.1                   86.7
                                                                        --------               --------
              Total current assets                                       1,082.5                1,057.7

Property, plant, and equipment                                           2,365.6                2,481.1
      Less accumulated depreciation and amortization                     1,061.1                1,123.6
                                                                        --------               --------
              Net property, plant and equipment                          1,304.5                1,357.5

Insurance for asbestos-related liabilities, noncurrent                     236.1                  270.0
Investment in affiliates                                                    35.6                   34.2
Goodwill, net                                                              890.5                  935.1
Other intangibles, net                                                      55.8                   54.9
Other noncurrent assets                                                    427.2                  374.4
                                                                        --------               --------
              Total assets                                              $4,032.2               $4,083.8
                                                                        ========               ========

      Liabilities and Shareholders' Equity
      ------------------------------------
Current liabilities:
      Short-term debt                                                      $24.0                  $64.7
      Current installments of long-term debt                                14.8                   36.1
      Accounts payable and accrued expenses                                724.5                  636.2
      Income taxes                                                          35.8                    2.1
                                                                        --------               --------
              Total current liabilities                                    799.1                  739.1

Long-term debt, less current installments                                1,314.3                1,412.9
Long-term amounts payable to parent company                                  4.7                      -
Employee Stock Ownership Plan (ESOP) loan guarantee                        142.2                  155.3
Postretirement and postemployment benefit liabilities                      244.6                  244.5
Pension benefit liabilities                                                147.1                  166.2
Asbestos-related long-term liabilities                                     483.8                  506.5
Other long-term liabilities                                                 94.8                  105.4
Deferred income taxes                                                       62.7                   62.9
Minority interest in subsidiaries                                            8.3                   11.8
                                                                        --------               --------
              Total noncurrent liabilities                               2,502.5                2,665.5

Shareholders' equity:
      Common stock                                                          51.9                   51.9
      Capital in excess of par value                                       175.8                  176.4
      Reduction for ESOP loan guarantee                                   (180.5)                (190.3)
      Retained earnings                                                  1,247.6                1,196.2
      Accumulated other comprehensive loss                                 (35.7)                 (16.5)
      Treasury stock                                                      (528.5)                (538.5)
                                                                        --------               --------
              Total shareholders' equity                                   730.6                  679.2
                                                                        --------               --------

              Total liabilities and shareholders' equity                $4,032.2               $4,083.8
                                                                        ========               ========
</TABLE>


See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 17.

                                       14
<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 & September 30                                  $   51.9                  $   51.9
                                                                             ---------                 ---------

Capital in excess of par value:
------------------------------
Balance at beginning of year                                                 $  176.4                  $  173.0
Stock issuances and other                                                         4.7                       5.9
Contribution of treasury stock to ESOP                                           (5.3)                       -
                                                                             ---------                 ---------
Balance at September 30                                                      $  175.8                  $  178.9
                                                                             ---------                 ---------

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                                                              8.0                       4.8
                                                                             ---------                 ---------
Balance at September 30                                                      $ (180.5)                 $ (183.9)
                                                                             ---------                 ---------

Retained earnings:
-----------------
Balance at beginning of year                                                 $1,196.2                  $1,257.0
Net earnings                                                                    112.8     $112.8          192.8    $ 192.8
Tax benefit on dividends paid on
  unallocated common shares                                                       0.7                       1.4
                                                                             ---------                 ---------
  Total                                                                      $1,309.7                  $1,451.2
Less rights redemptions                                                           2.0                         -
Less common stock dividends                                                      60.1                      57.7
                                                                             ---------                 ---------
Balance at September 30                                                      $1,247.6                  $1,393.5
                                                                             ---------                 ---------

Accumulated other comprehensive income (loss):
---------------------------------------------
Balance at beginning of year                                                 $  (16.5)                 $  (25.4)
  Foreign currency translation adjustments and
     hedging activities                                                         (13.5)                      1.1
  Unrealized loss on available for sale securities                               (2.5)                        -
  Minimum pension liability adjustments                                          (3.2)                      3.0
                                                                             ---------                 ---------
 Total other comprehensive income (loss)                                        (19.2)      (19.2)          4.1        4.1
                                                                             ---------    -------      ---------   -------
Balance at September 30                                                      $  (35.7)                 $  (21.3)
                                                                             ---------                 ---------

Comprehensive income                                                                      $  93.6                  $ 196.9
--------------------                                                                      =======                  =======

Less treasury stock at cost:
---------------------------
Balance at beginning of year                                                 $  538.5                  $  547.7
Stock purchases                                                                     -                       0.8
Stock issuance activity, net                                                     (0.6)                     (2.4)
Contribution of treasury stock to ESOP                                           (9.4)                        -
                                                                             ---------                 ---------
Balance at September 30                                                      $  528.5                  $  546.1
                                                                             ---------                 ---------

Total shareholders' equity                                                   $  730.6                  $  873.0
                                                                             ========                  ========
</TABLE>



See accompanying footnotes to the unaudited condensed consolidated financial
statements beginning on page 17.

                                       15
<PAGE>

               Armstrong World Industries, Inc., and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                              (amounts in millions)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                                       Nine Months Ended
                                                                                                         September 30,
                                                                                                       2000         1999
                                                                                                       ----         ----
<S>                                                                                                   <C>          <C>
Cash flows from operating activities:
     Net earnings                                                                                     $112.8       $192.8
     Adjustments to reconcile net earnings to net cash
           provided by operating activities:
       Depreciation and amortization, continuing operations                                            125.7        117.2
       Depreciation and amortization, discontinued operations                                            3.9          7.7
       Gain on sale of businesses                                                                     (211.3)        (1.8)
       Deferred income taxes                                                                             1.6          3.3
       Equity earnings from affiliates                                                                 (14.1)       (13.1)
       Reorganization and restructuring payments                                                        (2.9)       (14.8)
       Payments for asbestos-related claims, net of recoveries                                        (131.0)       (52.4)
       Charge for asbestos liability                                                                   236.0            -
       Decrease in net assets of businesses held for sale                                               (0.3)        (3.7)
       Increase in net assets of discontinued operations                                                   -         (7.8)
Changes in operating assets and liabilities net of effects of reorganization,
     restructuring and dispositions:
       Increase in receivables                                                                         (67.5)       (86.9)
       (Increase)/decrease in inventories                                                              (30.2)         1.6
       (Increase)/decrease in other current assets                                                     (11.1)        44.8
       Increase in other noncurrent assets                                                             (44.0)       (55.7)
       Increase in accounts payable and accrued expenses                                                 4.9         73.1
       Increase in income taxes payable                                                                 29.1         85.5
       Increase/(decrease) in other long-term liabilities                                               (8.7)         9.0
       Other, net                                                                                       24.1         (5.0)
                                                                                                      ------       ------
Net cash provided by operating activities                                                               17.0        293.8
                                                                                                      ------       ------

Cash flows from investing activities:
     Purchases of property, plant and equipment, continuing operations                                (107.8)      (115.3)
     Purchases of property, plant and equipment, discontinued operations                                (2.8)        (5.6)
     Investment in computer software                                                                    (8.5)        (6.4)
     Acquisitions, net of cash acquired                                                                 (6.5)        (3.8)
     Distributions from equity affiliates                                                               11.1         10.7
     Proceeds from the sale of assets                                                                    3.3          3.5
     Proceeds from the sale of businesses                                                              329.3         87.6
     Other, net                                                                                            -         (0.2)
                                                                                                      ------       ------
Net cash provided by (used for) investing activities                                                   218.1        (29.5)
                                                                                                      ------       ------

Cash flows from financing activities:
     Decrease in short-term debt, net                                                                  (42.8)       (34.1)
     Issuance of long-term debt                                                                            -        200.0
     Payments of long-term debt                                                                       (127.2)      (347.6)
     Cash dividends paid                                                                               (58.1)       (57.7)
     Purchase of common stock for the treasury, net                                                     (1.4)        (0.8)
     Proceeds from exercised stock options                                                               0.1          1.2
     Other, net                                                                                          5.9         (0.3)
                                                                                                      ------       ------
Net cash used for financing activities                                                                (223.5)      (239.3)
                                                                                                      ------       ------

Effect of exchange rate changes on cash and cash equivalents                                            (4.6)        (0.1)
                                                                                                      ------       ------

Net increase in cash and cash equivalents                                                               $7.0        $24.9
Cash and cash equivalents at beginning of period                                                       $26.6        $38.2
                                                                                                      ------       ------

Cash and cash equivalents at end of period                                                             $33.6        $63.1
                                                                                                      ======       ======
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements beginning on page 17.

                                       16
<PAGE>

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

The accompanying consolidated financial statements contain the financial results
of Armstrong World Industries, Inc. ("Armstrong"). Armstrong Holdings, Inc.
acquired the stock of Armstrong on May 1, 2000. An indirect holding in Armstrong
makes up substantially all of the assets of Armstrong Holdings, Inc. Financial
statements of Armstrong, a wholly owned subsidiary of Armstrong Holdings, Inc.,
are shown due to the existence of publicly-traded debt. See Note 11 for
discussion of the financial statement differences between Armstrong Holdings,
Inc. and Armstrong World Industries, Inc.

Operating results of 2000, compared with the corresponding period of 1999
included in this report, are unaudited.

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 third quarters of the wood
products segment ended on September 30, 2000 and October 2, 1999. No events
occurred between September 30, 1999 and October 2, 1999 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
transaction resulted in an after tax gain of $106.4 million, or $2.64 per share
in Armstrong's second quarter. The after tax gain on sale of $2.3 million
recorded in the third quarter relates to certain accrual and post-closing
adjustments. Armstrong expects all post-closing adjustments to be finalized in
the fourth quarter of 2000.


Note 3. DIVESTITURES
--------------------

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. Ardex purchased substantially all of the assets and liabilities of IPG
including its shares of the W.W. Henry Company. The transaction resulted in a
gain of $59.9 million ($44.4 million after tax or $1.09 per share) and was
recorded in other income during the third quarter. The financial results of IPG
were reported as part of the floor coverings segment. The proceeds and gain are
subject to certain post-closing adjustments. Under the terms of the agreement
and 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. The agreement also calls for
price adjustments based upon changing market prices for raw materials, labor and
energy costs.



Note 4. ACQUISITIONS
--------------------

On May 18, 2000 Armstrong acquired privately-held Switzerland-based Gema
Holdings AG ("Gema"), 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. The acquisition has been recorded under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and the
liabilities assumed based on the estimated fair market value at the date of
acquisition. The purchase price allocation is preliminary. Pro-forma results of
Gema have been omitted, as they are not material.

                                       17
<PAGE>

Note 5. INDUSTRY SEGMENTS
-------------------------

During the third quarter, it was determined that the textiles and sports
flooring operating segment should be separately presented. Previously, this
segment was included as part of the floor coverings segment. Prior year amounts
have been restated for comparability.

<TABLE>
<CAPTION>
(amounts in millions)                                  Three months                         Nine months
                                                    ended September 30                  ended September 30
Net sales to external customers                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                              <C>               <C>             <C>               <C>
Floor coverings                                  $ 339.5           $ 351.3         $   974.5         $   986.2
Building products                                  214.1             200.0             594.8             571.8
Wood products                                      215.7             210.0             676.8             615.9
Textiles and sports flooring                        66.3              76.5             197.7             220.1
All other                                              -               6.5                 -              50.4
                                                 -------           -------         ---------         ---------
Total sales to external customers                $ 835.6           $ 844.3         $ 2,443.8         $ 2,444.4
                                                 =======           =======         =========         =========

<CAPTION>
                                                       Three months                         Nine months
                                                    ended September 30                  ended September 30
Segment operating income (loss)                    2000              1999              2000              1999
-------------------------------                    ----              ----              ----              ----
<S>                                              <C>               <C>             <C>               <C>
Floor coverings                                  $  35.2           $  70.1         $   108.2         $   169.8
Building products                                   35.4              34.4              92.3              95.1
Wood products                                       18.5              22.1              65.6              70.6
Textiles and sports flooring                        (2.6)              4.4               1.1              10.4
All other                                            0.4               0.8               0.5               5.9
                                                 -------           -------         ---------         ---------
Total segment operating income                      86.9             131.8             267.7             351.8
Charge for asbestos liability                          -                 -            (236.0)                -
Unallocated corporate (expense)                    (18.7)             (2.5)            (22.4)             (8.0)
                                                 -------           -------         ---------         ---------
Total consolidated operating income              $  68.2           $ 129.3         $     9.3         $   343.8
                                                 =======           =======         =========         =========

<CAPTION>
                                                                                   September 30       December 31
Segment assets                                                                         2000              1999
--------------                                                                         ----              ----
<S>                                                                                <C>               <C>
Floor coverings                                                                    $   996.0         $ 1,071.4
Building products                                                                      544.6             535.1
Wood products                                                                        1,366.4           1,308.0
Textiles and sports flooring                                                           212.4             211.0
All other                                                                               16.1              16.0
                                                                                   ---------         ---------
Total segment assets                                                                 3,135.5           3,141.5
Assets not assigned to business units                                                  896.7             942.3
                                                                                   ---------         ---------
Total consolidated assets                                                          $ 4,032.2         $ 4,083.8
                                                                                   =========         =========
</TABLE>


Note 6. REORGANIZATION AND RESTRUCTURING ACTIVITIES
---------------------------------------------------

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

<TABLE>
<CAPTION>
                                        Beginning         Cash      Net Charges/                      Ending
(amounts in millions)                    balance        payments     (Reversals)      Other           balance
                                         -------        --------     -----------      -----           -------
<S>                                       <C>            <C>           <C>           <C>              <C>
2000                                      $12.1          ($2.9)        $15.7         ($1.0)           $ 23.9
1999                                       30.6          (14.8)          -            (0.1)             15.7
</TABLE>

A $17.0 million pre-tax reorganization charge was recorded in the third quarter
of 2000, of which $8.6 million related to severance and enhanced retirement
benefits for more than 180 positions (approximately 66% related to salaried
positions) within the European Flooring business. Reorganization actions include
staff reductions due to the elimination of administrative positions, the
consolidation and closing of sales offices in Europe and the closure of the Team
Valley, England commercial tile plant. The remaining portion of the
reorganization charge primarily related to remaining payments on a noncancelable
operating lease for an office facility in the U.S. The employees who occupied
this office facility are being relocated to the corporate headquarters.

Armstrong also recorded a $12.2 million charge to cost of goods sold in the
third quarter of 2000 for write-downs of inventory and production-line assets
that were not categorized as reorganization costs related to

                                       18
<PAGE>

the European reorganization efforts. The inventory write-downs were related to
changes in product offerings while the write-downs of production-line assets
primarily related to changes in production facilities and product offerings.

In addition, $1.3 million of the remaining accrual for the 1998 reorganization
charge was reversed, comprising certain severance accruals that were no longer
necessary as certain individuals remained employed by Armstrong. The amount in
"other" is primarily related to foreign currency translation.

Excluding the $17.0 million accrual related to the third quarter 2000
reorganization charge, most of the remaining balance at September 30, 2000
relates to a noncancelable operating lease.


Note 7. OTHER COMPREHENSIVE INCOME (LOSS)
-----------------------------------------

The related tax effects allocated to each component of other comprehensive
income (loss) for the nine months ended September 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                                               $(13.5)           -        $(13.5)
Unrealized loss on available for sale securities                           (2.5)           -          (2.5)
Minimum pension liability adjustment                                       (5.0)        $1.8          (3.2)
                                                                         -------        ----        -------
Other comprehensive income (loss)                                        $(21.0)        $1.8        $(19.2)
                                                                         =======        ====        =======
</TABLE>


<TABLE>
<CAPTION>
Note 8. SUPPLEMENTAL CASH FLOW INFORMATION
------------------------------------------
(amounts in millions)                                                                    Nine Months Ended
                                                                                           September 30
                                                                                        2000         1999
                                                                                        ----         ----
<S>                                                                                   <C>           <C>
Interest paid                                                                         $ 76.3        $ 74.9
Income taxes paid, net                                                                $ 11.1        $ 21.1
</TABLE>


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. During the first nine months of 2000, the Center for Claims Resolution
("Center") received and verified approximately 45,300 claims naming Armstrong as
a defendant compared to approximately 40,500 during the first nine months of
1999.

Armstrong is a defendant in approximately 173,000 pending personal injury claims
as of September 30, 2000. Approximately 85,000 (or 49%) of these claims are
covered under the Center's Strategic Settlement Program ("SSP") compared to 36%
SSP coverage of the December 31, 1999 pending claims.

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.

                                       19
<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 reflected higher than anticipated claims and higher
average settlement costs for claims during the first half of 2000, primarily for
settlements outside of the Center's SSP.

In the third quarter of 2000, the number of filed claims was within the current
expectations but Armstrong's average cost to settle claims was higher than
anticipated. Armstrong will continue to study its experience to identify trends
and to assess their impact on the range of liability that is probable and
estimable. If additional study determines that current cost levels will
continue, an increase in the probable asbestos-related liability will be
necessary.

Armstrong's estimate of its asbestos-related liability that is probable and
estimable through 2006 ranges from $758.8 million to $1,363.3 million as of
September 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 $758.8 million as a liability in the condensed consolidated financial
statements in accordance with generally accepted accounting principles. Of this
amount, management expects to incur asbestos liability payments of approximately
$275.0 million over the next 12 months and has reflected such amount as a
current liability as of September 30, 2000. This compares to total liability
payments over the prior 12 months of $220.8 million.

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.

CODEFENDANT BANKRUPTCIES

Certain codefendant companies have filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code, including recent filings by Babcock & Wilcox,
Pittsburgh Corning and Owens Corning. As a consequence, litigation against them
(with some exceptions) has been stayed or restricted. However, Armstrong does
not expect to see a significant increase in the number of claims filed since it
has been named as a defendant in the majority of claims against these
co-defendants. Armstrong could see higher settlement demands from claimants as
the number of defendants in the litigation has decreased, but the Center plans
to negotiate to minimize any impact on settlement costs. Due to the
uncertainties involved, the

                                       20
<PAGE>

long-term effect of these proceedings on the litigation cannot be predicted and
Armstrong believes it could be several months before Armstrong receives the
sufficient data to allow it to ascertain the impact.

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 September 30, 2000. Approximately
$27.7 million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total recorded asset, approximately $75.8 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, the final determination of coverage
shared with ACandS and the financial condition of the insurers, Armstrong may
revise its estimate of probable insurance recoveries. 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.

Conclusion

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. These uncertainties include the number of future claims
to be filed, the cost to settle claims in the future, which may be influenced by
factors including, but not limited to, the financial viability of other
defendants, the impact of any potential legislation and the ability of the
Center to achieve future SSP agreements, and the impact of the ADR proceedings
on the insurance asset. 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. Armstrong believes that potential future charges may be
material to the periods in which they are taken. See further discussion of
Liquidity and Capital Resources in Note 12.

Note 10. - ENVIRONMENTAL LIABILITIES
------------------------------------

Liabilities of $14.8 million and $14.7 million were recorded at September 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 may be material to
earnings in such future period.


Note 11 - DIFFERENCES BETWEEN ARMSTRONG HOLDINGS INC. AND ARMSTRONG WORLD
--------------------------------------------------------------------------
          INDUSTRIES, INC.
          ----------------

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


Note 12 - LIQUIDITY AND CAPITAL RESOURCES
-----------------------------------------

As of September 30, 2000, Armstrong had no outstanding borrowings under
Armstrong World Industries Inc.'s $450 million credit facility that expires in
October 2003 or under Armstrong World Industries Inc.'s $450 million, 364 day
credit facility that expired on October 19, 2000. These lines have been in
support of commercial paper issuances. The outstanding amount of commercial
paper at September 30, 2000 was $352.6 million.

On October 5, 2000, Owens Corning voluntarily filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. This filing has had a significant effect
on Armstrong's liquidity. In early October, Armstrong was in discussions to
obtain a 364 day credit facility of up to $400 million, with the intention of

                                       21
<PAGE>

completing the new facility prior to the October 19, 2000 expiration of the
existing $450 million, 364 day credit facility. Whereas indications from
participant banks led Armstrong to believe the facility would be fully
subscribed, following the Owens Corning filing the potential participants in the
new credit facility decided to reevaluate their credit exposures to Armstrong,
primarily due to Armstrong's asbestos liability. Agreement was not reached on
terms for a new facility. Subsequently the $450 million, 364 day credit facility
expired on October 19, 2000.

On October 25, 2000, both Standard & Poor's and Moody's Investors Services
downgraded Armstrong's long term debt ratings to BBB- and Baa3 and short term
debt ratings to A-3 and P-3, respectively, citing the reduction in committed
credit facilities, prospects for weaker operating performance and continued
uncertainty surrounding the asbestos liability, owing to among other things, the
Owens Corning bankruptcy filing. Both agencies indicated the potential for
additional downgrades which could result from, among other things, the inability
to increase untapped committed borrowing capacity, significant increases in the
cash flow required to service the asbestos liability, or deteriorating operating
performance. Since October 25, 2000, Armstrong stopped issuing commercial paper
and began to draw on its $450 million credit facility that expires in October
2003. As of November 14, 2000, the $450 million credit facility was fully drawn,
approximately $83 million of commercial paper was outstanding and Armstrong had
approximately $127 million of cash on deposit. The remaining outstanding
commercial paper will mature by November 22, 2000.

Armstrong will face liquidity pressures in the near future. Such pressures will
be exacerbated should certain events occur. Specifically, should Armstrong's
long term debt ratings be further downgraded by both Standard & Poor's and
Moody's, holders of Employee Stock Ownership Plan bonds totaling $142.2 million
as of September 30, 2000 would have the right to require Armstrong to redeem
them under the terms of the Note Purchase Agreement dated June 19, 1989 for
8.43% Series A Guaranteed Serial ESOP Notes due 1989-2001 and 9.00% Series B
Guaranteed Serial ESOP Notes due 2000-2004. As of November 14, 2000, Armstrong
was not in violation of any debt covenants. The $450 million credit facility
that expires in 2003 contains customary events of default, including failure to
make payments, failure to meet other material obligations within specific time
periods and the acceleration of other material indebtedness. In addition, should
Armstrong World Industries, Inc.'s consolidated net worth decline by more than
$180.6 million from its September 30, 2000 balance, Armstrong would violate the
minimum consolidated net worth covenant of the $450 million credit facility. Any
event of default could result in the acceleration of the maturity of the
facility. Other factors could also influence Armstrong's liquidity. The outlook
for Armstrong's asbestos liability cash payments is highly uncertain. See Part
II, Item I "Legal Proceedings" for additional information concerning asbestos
litigation. Unforeseen deterioration in expected earnings or working capital
requirements would also negatively impact liquidity.

On October 30, 2000, Armstrong's Board of Directors elected to suspend the
quarterly cash dividend payment with the intent to increase financial
flexibility. Armstrong has acted to reduce working capital and capital
expenditures and is currently evaluating other alternatives to increase
liquidity, which include, among other things, selling non-core assets and
businesses, obtaining secured financing, and selling receivables. Armstrong
believes that sufficient incremental credit will be available to prevent a
liquidity crisis in the next few months but it is unclear whether obtaining such
incremental credit would be in the best interests of Armstrong. If Armstrong
does not obtain sufficient additional liquidity in the next few months,
Armstrong will have to consider seeking protection under the U.S. Bankruptcy
Code.

                                       22
<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 1, 2 and 12 to the 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 $33.6 million at September 30, 2000. Working
capital was $283.4 million as of September 30, 2000, $35.2 million lower than
the $318.6 million recorded at the end of 1999. The ratio of current assets to
current liabilities was 1.35 to 1 as of September 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 third quarter of 2000. At September 30, 2000, long-term debt of $1,314.3
million, or 58.9 percent of total capital, compared with $1,412.9 million, or
60.2 percent of total capital, at the end of 1999. At September 30, 2000, and
December 31, 1999, the ratios of total debt (including Armstrong's guarantee of
the ESOP loan) as a percent of total capital were 67.0 percent and 71.1 percent,
respectively. The decrease in long-term debt was primarily due to the receipt of
proceeds from the divestitures of the Insulation Products segment and the
Installation Products Group, (which was part of the floor coverings segment)
which was used to pay outstanding debt.

As shown on the condensed Consolidated Statements of Cash Flows (see page 5),
net cash provided by operating activities for the nine months ended September
30, 2000, was $17.0 million compared with $293.8 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 changes in working
capital.

Net cash provided by investing activities was $218.1 million for the nine months
ended September 30, 2000, compared with net cash used for investing activities
of $29.5 million for the nine months ended September 30, 1999. The increase was
primarily due to proceeds from the sale of the Insulation Products segment and
the Installation Products Group.

Net cash used for financing activities was $223.5 million for the nine months
ended September 30, 2000 compared with $239.3 million for the nine months ended
September 30, 1999. The decrease was primarily due to the $170.0 million net
decrease in debt during 2000 compared to the $181.7 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. During 2000, Armstrong sold its
Insulation Products segment and its Installation Products while reorganizing its
European flooring business. Armstrong is also currently in divestiture
discussions and evaluations related to its textiles and sports flooring products
segment.

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

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. During the first nine months of 2000, the Center for Claims Resolution
("Center") received and verified approximately 45,300 claims naming Armstrong as
a defendant compared to approximately 40,500 during the first nine months of
1999.

Armstrong is a defendant in approximately 173,000 pending personal injury claims
as of September 30, 2000. Approximately 85,000 (or 49%) of these claims are
covered under the Center's Strategic Settlement Program ("SSP") compared to 36%
SSP coverage of the December 31, 1999 pending claims.

Armstrong continues to seek broad-based settlements of claims through the
Center. To date, the Center has reached SSP agreements with law firms that cover
approximately 130,000 claims that name Armstrong as a defendant, including
agreements with 16 law firms covering approximately 36,000 claims during the
first nine months of 2000. Some of these claims have already been paid, some are
currently pending and some 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

                                      23
<PAGE>

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. For some agreements, the
component of the agreement that covers future claims is subject to
re-negotiation if members leave the Center. As discussed later, several Center
members departed in 2000 and the Center is currently in discussions with
plaintiff law firms to address the treatment of future claims. Although it is
early in the negotiation process, it is possible that the re-negotiation of
these agreements could lead to an increase in the asbestos liability.
Negotiations with additional law firms engaged in asbestos-related litigation
that could resolve additional 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.

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 reflected higher than anticipated claims and higher
average settlement costs for claims during the first half of 2000, primarily for
settlements outside of the Center's SSP.

In the third quarter of 2000, the number of filed claims was within the current
expectations but Armstrong's average cost to settle claims was higher than
anticipated. Armstrong will continue to study its experience to identify trends
and to assess their impact on the range of liability that is probable and
estimable. If additional study determines that current cost levels will
continue, an increase in the probable asbestos-related liability will be
necessary.

Armstrong's estimate of its asbestos-related liability that is probable and
estimable through 2006 ranges from $758.8 million to $1,363.3 million as of
September 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 $758.8 million as a liability in the condensed consolidated financial
statements in accordance with generally accepted accounting principles. Of this
amount, management expects to incur asbestos liability payments of approximately
$275.0 million over the next 12 months and has reflected such amount as a
current liability as of September 30, 2000. This compares to total liability
payments over the prior 12 months of $220.8 million.

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

                                      24
<PAGE>

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.

Collateral Requirements

As of September 30, 2000, Armstrong had secured $56.2 million of future claim
payments with a surety bond to meet minimum collateral requirements established
by the Center. On October 27, 2000, the insurance company that underwrote the
surety bond informed Armstrong and the Center of its intention not to renew the
surety bond effective February 28, 2001. Armstrong is assessing its alternatives
relative to the terminated bond. Alternatives include replacing the bond with
another insurance company, purchasing a letter of credit from a financial
institution, posting cash as collateral or negotiating with the Center to waive
the collateral requirement.

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. Armstrong has entered into settlements with
a number of the carriers resolving its coverage issues. However, 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. However, during the third
quarter of 2000, it was determined that a new trial judge should be selected for
the ADR. That process is underway but a new trial judge has not yet been
selected. Armstrong is uncertain at this time as to the impact, if any, this
change will have on the preliminary decisions of the initial phases of the ADR.
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.

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 September 30, 2000. Approximately
$27.7 million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total recorded asset, approximately $75.8 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, the final determination of coverage shared
with ACandS and the financial condition of the insurers, Armstrong may revise
its estimate of probable insurance recoveries. 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 $158.7 million for asbestos related claims in the first nine
months of 2000 compared to $111.1 million in the first nine months of 1999.
Armstrong currently expects to pay between $243.0 million and $251.0 million for
asbestos related claims in 2000 compared to $173.0 million in 1999. Armstrong
received $27.7 million in asbestos-related insurance recoveries during the first
nine months of 2000 compared to $58.7 million during the first nine months of
1999. Armstrong does not anticipate any additional insurance proceeds during the
fourth quarter of 2000 and did not receive any insurance proceeds during the
fourth quarter of 1999. Therefore, Armstrong currently expects to pay
approximately $140.0 million to $145.0 million for asbestos related claims and
expenses in 2000, net of expected insurance recoveries and taxes, compared to
$74.3 million in 1999.

Conclusion

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. These uncertainties include the number of future claims
to be filed, the cost to settle claims in the future, which may be influenced by
factors including, but not limited to, the financial viability of other
defendants, the impact of any potential legislation and the ability of the
Center to achieve future SSP agreements, and the impact of the ADR proceedings
on the insurance asset. 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. Armstrong believes that potential future charges may be
material to the periods in which they are taken. See further discussion of
Liquidity and Capital Resources below.

                                      25
<PAGE>

Liquidity and Capital Resources
-------------------------------

As of September 30, 2000, Armstrong had no outstanding borrowings under
Armstrong World Industries, Inc.'s $450 million credit facility that expires in
October 2003 or under Armstrong World Industries, Inc.'s $450 million, 364 day
credit facility that expired on October 19, 2000. These lines have been in
support of commercial paper issuances. The outstanding amount of commercial
paper at September 30, 2000 was $352.6 million.

On October 5, 2000, Owens Corning voluntarily filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. This filing has had a significant effect
on Armstrong's liquidity. In early October, Armstrong was in discussions to
obtain a 364 day credit facility of up to $400 million, with the intention of
completing the new facility prior to the October 19, 2000 expiration of the
existing $450 million, 364 day credit facility. Whereas indications from
participant banks led Armstrong to believe the facility would be fully
subscribed, following the Owens Corning filing the potential participants in the
new credit facility decided to reevaluate their credit exposures to Armstrong,
primarily due to Armstrong's asbestos liability. Agreement was not reached on
terms for a new facility. Subsequently the $450 million, 364 day credit facility
expired on October 19, 2000.

On October 25, 2000, both Standard & Poor's and Moody's Investors Services
downgraded Armstrong's long term debt ratings to BBB- and Baa3 and short term
debt ratings to A-3 and P-3, respectively, citing the reduction in committed
credit facilities, prospects for weaker operating performance and continued
uncertainty surrounding the asbestos liability, owing to among other things, the
Owens Corning bankruptcy filing. Both agencies indicated the potential for
additional downgrades which could result from, among other things, the inability
to increase untapped committed borrowing capacity, significant increases in the
cash flow required to service the asbestos liability, or deteriorating operating
performance. Since October 25, 2000, Armstrong stopped issuing commercial paper
and began to draw on its $450 million credit facility that expires in October
2003. As of November 14, 2000, the $450 million credit facility was fully drawn,
approximately $83 million of commercial paper was outstanding and Armstrong had
approximately $127 million of cash on deposit. The remaining outstanding
commercial paper will mature by November 22, 2000.

Armstrong will face liquidity pressures in the near future. Such
pressures will be exacerbated should certain events occur. Specifically, should
Armstrong's long term debt ratings be further downgraded by both Standard &
Poor's and Moody's, holders of Employee Stock Ownership Plan bonds totaling
$142.2 million as of September 30, 2000 would have the right to require
Armstrong to redeem them under the terms of the Note Purchase Agreement dated
June 19, 1989 for 8.43% Series A Guaranteed Serial ESOP Notes due 1989-2001 and
9.00% Series B Guaranteed Serial ESOP Notes due 2000-2004. As of November 14,
2000, Armstrong was not in violation of any debt covenants. The $450 million
credit facility that expires in 2003 contains customary events of default,
including failure to make payments, failure to meet other material obligations
within specific time periods and the acceleration of other material
indebtedness. In addition, should Armstrong's World Industries, Inc.'s
consolidated net worth decline by more than $180.6 million from its September
30, 2000 balance, Armstrong would violate the minimum consolidated net worth
covenant of the $450 million credit facility. Any envent of default could result
in the acceleration of the maturity of the facility. Other factors could also
influence Armstrong's liquidity. The outlook for Armstrong's asbestos liability
cash payments is highly uncertain. See Part II, Item I "Legal Proceedings" for
additional information concerning asbestos litigation. Unforeseen deterioration
in expected earnings or working capital requirements would also negatively
impact liquidity.

On October 30, 2000, Armstrong's Board of Directors elected to suspend the
quarterly cash dividend payment with the intent to increase financial
flexibility. Armstrong has acted to reduce working capital and capital
expenditures and is currently evaluating other alternatives to increase
liquidity, which include, among other things, selling non-core assets and
businesses, obtaining secured financing, and selling receivables. Armstrong
believes that sufficient incremental credit will be available to prevent a
liquidity crisis in the next few months but it is unclear whether obtaining such
incremental credit would be in the best interests of Armstrong. If Armstrong
does not obtain sufficient additional liquidity in the next few months,
Armstrong will have to consider seeking protection under the U.S. Bankruptcy
Code.


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

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

Third-quarter net sales of $835.6 million from continuing operations were 1.0%
lower than in the third quarter of 1999. Included in the third quarter of 1999
were sales from the textile products business which was sold on September 30,
1999. Excluding the impact of the 1999 divestiture and the impact of unfavorable
foreign currency translation, sales increased 3.2%. Building products sales
increased 7.1% driven primarily by the second quarter 2000 acquisition of our
European metal ceilings subsidiary, Gema. Wood products sales

                                      26
<PAGE>

increased 2.7%. Sales in the floor coverings and textile and sports flooring
products segments decreased 3.4% and 13.3%, respectively, due mainly to lower
unfavorable foreign currency translation in Europe.

Third-quarter 2000 earnings from continuing operations were $72.0 million or
$1.77 per diluted share. This included a pre-tax gain of $59.9 million from the
sale of the Installation Products Group ("IPG"), which was part of the floor
coverings segment.

The third quarter of 2000 included a pre-tax reorganization charge of $17.0
million, of which $8.6 million related to severance and enhanced retirement
benefits for more than 180 positions within the European Flooring business.
Reorganization actions included staff reductions due to the elimination of
administrative positions, the consolidation and closing of sales offices in
Europe and the closure of the Team Valley, England commercial tile plant. The
remaining portion of the reorganization charge primarily related to remaining
payments on a noncancelable operating lease for an office facility in the U.S.
The employees who occupied this office facility are being relocated to the
corporate headquarters. In addition, $1.3 million of the remaining accrual for
the 1998 reorganization charge was reversed, comprising certain severance
accruals that were no longer necessary as certain individuals remained employed
by Armstrong.

Armstrong also recorded a $12.2 million charge to cost of goods sold in the
third quarter of 2000 for write-downs of inventory and production-line assets
that were not categorized as reorganization costs related to the European
reorganization efforts. The inventory write-downs were related to changes in
product offerings while the write-downs of production-line assets primarily
related to changes in production facilities and product offerings.


In addition, Armstrong recorded $11.2 million within SG&A expense for CEO and
management transition costs during the third quarter of 2000. The components of
this amount included hiring a new CEO, expenses related to the departure of the
prior CEO, covenant agreements related to non-compete arrangements and other
management transition costs. There will also be approximately $7.6 million of
costs in the fourth quarter of 2000 related to settlements of certain benefit
plan obligations for former executive employees.

Armstrong also recorded $2.3 million within SG&A expense for fixed asset
impairments related to the decision to vacate office space in the U.S.

Excluding these items discussed above, earnings from continuing operations for
the third quarter of 2000 would have been $54.8 million, or $1.35 per diluted
share. Third quarter 1999 earnings from continuing operations were $61.9
million, or $1.54 per diluted share. This included a $5.7 million pre-tax loss
from the sale of the textile products business and a $2.6 million pre-tax gain
from proceeds from the demutualization of an insurance company with whom the
Company has company-owned life insurance policies. Excluding these items,
earnings from continuing operations for the third quarter of 1999 would have
been $62.9 million, or $1.56 per diluted share.

The cost of goods sold in the third quarter was 71.3 percent of net sales
compared to 65.6 percent of net sales in the third quarter of 1999. Excluding
$12.2 million of expenses associated with the third quarter 2000 reorganization
of the European flooring business and a $3.6 million insurance settlement
received in 1999 for past product claims, cost of goods sold increased from
66.0% of sales in 1999 to 69.9% of sales in 2000. Higher raw material costs
primarily in floor coverings and wood products and higher energy costs in
building products were the primary drivers of the increase.

Third-quarter 2000 SG&A expenses were 18.5 percent of net sales compared to 18.9
percent of net sales in last year's third quarter. The percentage decrease is
primarily due to lower incentive bonus accruals and lower selling expense
partially offset by CEO and management transition costs, expenses related to the
reorganization of European flooring business and asset write-downs related to
the decision to vacate office space in Lancaster, PA.

Interest expense of $26.0 million was $0.2 million higher than the amount
recorded in the third quarter of 1999 principally due to higher interest rates
partially offset by lower outstanding debt.

Net sales for the first nine months of 2000 were $2,443.8 million, essentially
similar to last year's net sales of $2,444.4 million. Excluding the impact of
the 1999 divestitures and the impact of foreign exchange rate translation, sales
increased 5.2%.

A loss from continuing operations of $3.2 million was recorded for the first
nine months of 2000. Excluding the third quarter 2000 items described above
(gain on the sale of IPG, costs associated with the reorganization of the
European flooring business and CEO and management transition costs), the second

                                      27
<PAGE>

quarter 2000 asbestos charge and a second quarter demutualization gain, earnings
from continuing operations for the first nine months of 2000 would have been
$129.6 million, or $3.21 per diluted share. Earnings from continuing operations
for the first nine months of 1999 were $168.1 million, or $4.18 per diluted
share. Excluding the loss from the sale of the textile products business, a
third quarter 1999 demutualization gain and the gain on the sale of a 65%
interest in Armstrong Industrial Specialities, Inc., earnings from continuing
operations for the first nine months of 1999 would have been $161.6 million, or
$4.02 per diluted share.

The effective tax rate from continuing operations for the third quarter was
30.6% versus 38.2% for the third quarter of 1999. Excluding the impact of the
gain on sale of Installation Products, the reorganization charge and other
related expenses in 2000 and the loss from the sale of textile products business
in 1999, the third quarter effective tax rate decreased from 38.1% to 36.1%
primarily due to increased foreign tax credit utilization.

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

Floor coverings net sales were $339.5 million and $351.3 million in the third
quarter of 2000 and 1999, respectively. Sales in the Americas decreased 0.4%
versus prior year. European sales of $64.9 million were 19.6% 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 8.2% below last year.
Pacific area sales increased 5.2% versus 1999. Operating income of $35.2 million
was 10.4% of sales compared to $70.1 million in the third quarter of 1999, or
20.0% of sales. Excluding expenses associated with reorganizing the European
business, other management changes, and $3.6 million received in 1999 for an
insurance settlement for past product claims, operating income was $56.7 million
or 14.7% below 1999. Operating margin excluding these expenses decreased from
18.9% to 16.7%. The operating margin reduction was driven primarily by higher
manufacturing costs, principally higher raw material and production costs for
the new ToughGuard product, lower volume in the Americas, and weaker volume and
prices in Europe.

Building products net sales of $214.1 million increased from $200.0 million in
the third quarter of 1999. Excluding the impact of foreign currency translation,
sales increased 10.8%. Americas sales increased 2.1% driven primarily by higher
sales in the U.S. commercial channel. In Europe, sales increased 18.3% primarily
due to incremental sales from Gema, our metal ceilings subsidiary acquired
during the second quarter of 2000, and increased sales to emerging markets.
Pacific area sales increased 3.5% versus 1999. Operating income increased $1.0
million to $35.4 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 17.2% to 16.5%.

Wood products net sales of $215.7 million in the third quarter of 2000 compared
to net sales of $210.0 million in 1999. Cabinet sales decreased 5.7% due to
lower volume. Wood flooring sales increased 5.7% versus 1999 driven primarily by
volume growth and improved pricing. Operating margins declined from 10.5% to
8.6% primarily driven by higher lumber costs which are relatively unchanged
since the first quarter of 2000 but 10.6% above last year.

Textiles and sports flooring products net sales of $66.3 million in the third
quarter of 2000 were 13.3% lower than last year. Excluding the impact of
unfavorable foreign currency translation, sales increased 2.3% driven by volume
growth primarily in the sports flooring business. An operating loss of $2.6
million was incurred compared to operating income of $4.4 million in 1999.
Excluding the impact of expenses associated with European reorganization and
management changes, the operating loss was $0.6 million or $5.0 million lower
than 1999. The operating income reduction was driven mainly by less favorable
mix of products sold, increased manufacturing and SG&A expense and unfavorable
foreign currency translation which more than offset the impact of volume growth.

In the all other segment, sales and operating margin were down $6.5 million and
$0.4 million, respectively due to the absence of the textile products business
which was sold in the third quarter of 1999.

Unallocated corporate expense for the third quarter of 2000 of $18.7 million
increased $16.2 million versus 1999. Excluding $19.7 million in expenses related
to the CEO transition and other management changes and the decision to vacate an
office facility in the U.S., unallocated corporate expense decreased $3.5
million primarily due to lower incentive compensation expense.

                                      28
<PAGE>

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

The Securities and Exchange Commission ("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 FAS 133 and also
addresses a limited number of issues causing implementation difficulties in
applying FAS 133. Armstrong has formed a team to identify and implement the
appropriate systems and processes to adopt these statements effective January 1,
2001. The statements provide for the recognition of a cumulative adjustment for
an accounting change, as of the date of adoption. The effects of these
statements on Armstrong's financial position or results of operations have not
yet been determined.

In October 2000, the FASB issued Statement No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities ("FAS
140"), a replacement of FASB SFAS No. 125." This statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement is effective March 2001. Armstrong
is evaluating the effects of implementation, if any, on its financial
statements.


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 liquidity, 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 ability to secure sufficient additional financial flexibility and
          liquidity
     .    our asbestos-related and any other litigation
     .    downgrade in our credit rating
     .    greater than expected working capital requirements
     .    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.

                                      29
<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 World Industries, Inc. is a defendant in personal injury claims and
property damage claims related to asbestos containing products. In the
discussion in this Item, "Armstrong" means Armstrong World Industries, Inc.

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.

During the first nine months of 2000, the Center for Claims Resolution
("Center") received and verified approximately 45,300 claims naming Armstrong as
a defendant compared to approximately 40,500 during the first nine months of
1999.

Armstrong is a defendant in approximately 173,000 pending personal injury claims
as of September 30, 2000. Approximately 85,000 (or 49%) of these claims are
covered under the Center's Strategic Settlement Program ("SSP") compared to 36%
SSP coverage of the December 31, 1999 pending claims.

Armstrong continues to seek broad-based settlements of claims through the
Center. To date, the Center has reached SSP agreements with law firms that cover
approximately 130,000 claims that name Armstrong as a defendant, including
agreements with 16 law firms covering approximately 36,000 claims during the
first nine months of 2000. Some of these claims have already been paid, some are
currently pending and some 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. For some agreements, the
component of the agreement that covers future claims is subject to
re-negotiation if members leave the Center. As discussed later, several Center
members departed in 2000 and the Center is currently in discussions with
plaintiff law firms to address the treatment of future claims. Although it is
early in the negotiation process, it is possible that the re-negotiation of
these agreements could lead to an increase in the asbestos liability.
Negotiations with additional law firms engaged in asbestos-related litigation
that could resolve additional 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

                                      30
<PAGE>

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 reflected higher than anticipated claims and higher
average settlement costs for claims during the first half of 2000, primarily for
settlements outside of the Center's SSP.

In the third quarter of 2000, the number of filed claims was within the current
expectations but Armstrong's average cost to settle claims was higher than
anticipated. Armstrong will continue to study its experience to identify trends
and to assess their impact on the range of liability that is probable and
estimable. If additional study determines that current cost levels will
continue, an increase in the probable asbestos-related liability will be
necessary.

Armstrong's estimate of its asbestos-related liability that is probable and
estimable through 2006 ranges from $758.8 million to $1,363.3 million as of
September 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 $758.8 million as a liability in the condensed consolidated financial
statements in accordance with generally accepted accounting principles. Of this
amount, management expects to incur asbestos liability payments of approximately
$275.0 million over the next 12 months and has reflected such amount as a
current liability as of September 30, 2000. This compares to total liability
payments over the prior 12 months of $220.8 million.

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.

CODEFENDANT BANKRUPTCIES

Certain codefendant companies have filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code, including recent filings by Babcock & Wilcox,
Pittsburgh Corning and Owens Corning. As a consequence, litigation against them
(with some exceptions) has been stayed or restricted. However, Armstrong does
not expect to see a significant increase in the number of claims filed since it
has been named as a defendant in the majority of claims against these
co-defendants. Armstrong could see higher

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<PAGE>

settlement demands from claimants as the number of defendants in the litigation
has decreased, but the Center plans to negotiate to minimize any impact on
settlement costs. Due to the uncertainties involved, the long-term effect of
these proceedings on the litigation cannot be predicted and Armstrong believes
it could be several months before Armstrong receives the sufficient data to
allow it to ascertain the impact.

COLLATERAL REQUIREMENTS

As of September 30, 2000, Armstrong had secured $56.2 million of future claim
payments with a surety bond to meet minimum collateral requirements established
by the Center. On October 27, 2000, the insurance company that underwrote the
surety bond informed Armstrong and the Center of its intention not to renew the
surety bond effective February 28, 2001. Armstrong is assessing its alternatives
relative to the terminated bond. Alternatives include replacing the bond with
another insurance company, purchasing a letter of credit from a financial
institution, posting cash as collateral or negotiating with the Center to waive
the collateral requirement.

Property Damage Litigation

Armstrong is also one of many defendants in seven pending property damage claims
as of September 30, 2000, that were filed by public and private building owners.
These cases present allegations of damage to the plaintiffs' 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 handled directly
by Armstrong and not 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. Armstrong has entered into settlements with
a number of the carriers resolving its coverage issues. However, 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. However, during the third
quarter of 2000, it was determined that a new trial judge should be selected for
the ADR. That process is underway but a new trial judge has not yet been
selected.

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<PAGE>

Armstrong is uncertain at this time as to the impact, if any, this change will
have on the preliminary decisions of the initial phases of the ADR. 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.

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 September 30, 2000. Approximately
$27.7 million was received in the second quarter of 2000 pursuant to existing
settlements. Of the total recorded asset, approximately $75.8 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, the final determination of coverage shared
with ACandS and the financial condition of the insurers, Armstrong may revise
its estimate of probable insurance recoveries. 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 $158.7 million for asbestos related claims in the first nine
months of 2000 compared to $111.1 million in the first nine months of 1999.
Armstrong currently expects to pay between $243.0 million and $251.0 million for
asbestos related claims in 2000 compared to $173.0 million in 1999. Armstrong
received $27.7 million in asbestos-related insurance recoveries during the first
nine months of 2000 compared to $58.7 million during the first nine months of
1999. Armstrong does not anticipate any additional insurance proceeds during the
fourth quarter of 2000 and did not receive any insurance proceeds during the
fourth quarter of 1999. Therefore, Armstrong currently expects to pay
approximately $140.0 million to $145.0 million for asbestos related claims and
expenses in 2000, net of expected insurance recoveries and taxes, compared to
$74.3 million in 1999.

Conclusion
          -

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. These uncertainties include the number of future claims
to be filed, the cost to settle claims in the future, which may be influenced by
factors including, but not limited to, the financial viability of other
defendants, the impact of any potential legislation and the ability of the
Center to achieve future SSP agreements, and the impact of the ADR proceedings
on the insurance asset. 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. Armstrong believes that potential future charges may be
material to the periods in which they are taken. See further discussion in the
Liquidity and Capital Resources section of Management's Discussion and Analysis.


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.

                                      33
<PAGE>

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.

Liabilities of $14.8 million were recorded at September 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 may be material to
earnings in such future period.

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<PAGE>

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. 4(a)       Note Purchase Agreement dated June 19, 1989 for 8.43% Series
                    A Guaranteed Serial ESOP Notes due 1989-2001 and 9.00%
                    Series B Guaranteed Serial ESOP Notes due 2000-2004 for the
                    Armstrong World Industries, Inc. Employee Stock Ownership
                    Plan ("Share in Success Plan") Trust, with Armstrong World
                    Industries, Inc., as guarantor.
     No. 10(a)      Employment Agreement between Armstrong Holdings, Inc. and
                    Michael D. Lockhart, dated August 7, 2000
     No. 10(b)      Employment Agreement between Armstrong Holdings, Inc. and
                    Frank A. Riddick, dated August 7, 2000
     No. 10(c)      Amended and Restated Employment and Consulting Agreement
                    between Armstrong Holdings, Inc., Armstrong World
                    Industries, Inc. and George A. Lorch, dated August 7, 2000
                    and as amended October 30, 2000
     No. 10(d)      Stock Option Surrender Agreement between Armstrong Holdings,
                    Inc. and George A. Lorch, dated September 25, 2000
     No. 10(e)      Change in Control Agreement between Armstrong Holdings, Inc.
                    and Michael D. Lockhart, dated August 7, 2000
     No. 10(f)      Indemnification Agreement between Armstrong Holdings, Inc.
                    and Michael D. Lockhart, dated August 7, 2000
     No. 10(g)      Management Services Agreement between Armstrong Holdings,
                    Inc. and Armstrong World Industries, Inc., dated August 7,
                    2000
     No. 10(h)      Armstrong Holdings, Inc. Stock Award Plan is incorporate by
                    reference herein from Armstrong Holdings, Inc.'s
                    registration statement on Form S-8 filed August 16, 2000,
                    wherein in appeared as Exhibit 4.1.
     No. 10(i)      Terms of Restricted Stock for Stock Option Exchange Program
                    Offered to Employees and Schedule of Participating Executive
                    Officers.
     No. 15         Letter re Unaudited Interim Financial Information
     No. 27         Financial Data Schedules

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

          On July 31, 2000, the registrants filed reports on form 8-K reporting
          Armstrong Holdings, Inc.'s sales and profits for the second quarter of
          2000.

          On July 21, 2000, the registrants filed reports on form 8-K discussing
          the sale of Armstrong World Industries, Inc.'s Installation Products
          Group to subsidiaries of the German company Ardex GmbH.

                                      35
<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/ John N. Rigas
                                 -----------------------------------------------
                                 John N. Rigas, Senior Vice President,
                                 Secretary and General Counsel

                           By:    /s/ William C. Rodruan
                                 -----------------------------------------------
                                 William C. Rodruan, Vice President and
                                 Controller (Principal Accounting Officer)


Date:  November 14, 2000

<PAGE>

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

No. 4(a)       Note Purchase Agreement dated June 19, 1989 for 8.43% Series A
               Guaranteed Serial ESOP Notes due 1989-2001 and 9.00% Series B
               Guaranteed Serial ESOP Notes due 2000-2004 for the Armstrong
               World Industries, Inc. Employee Stock Ownership Plan ("Share in
               Success Plan") Trust, with Armstrong World Industries, Inc., as
               guarantor

No. 10(a)      Employment Agreement between Armstrong Holdings, Inc. and Michael
               D. Lockhart, dated August 7, 2000

No. 10(b)      Employment Agreement between Armstrong Holdings, Inc. and Frank
               A. Riddick, dated August 7, 2000

No. 10(c)      Amended and Restated Employment and Consulting Agreement between
               Armstrong Holdings, Inc., Armstrong World Industries, Inc. and
               George A. Lorch, dated August 7, 2000 and as amended October 30,
               2000

No. 10(d)      Stock Option Surrender Agreement between Armstrong Holdings, Inc.
               and George A. Lorch, dated September 25, 2000

No. 10(e)      Change in Control Agreement between Armstrong Holdings, Inc. and
               Michael D. Lockhart, dated August 7, 2000

No. 10(f)      Indemnification Agreement between Armstrong Holdings, Inc. and
               Michael D. Lockhart, dated August 7, 2000

No. 10(g)      Management Services Agreement between Armstrong Holdings, Inc.
               and Armstrong World Industries, Inc., dated August 7, 2000

No. 10(h)      Armstrong Holdings, Inc. Stock Award Plan is incorporate by
               reference herein from Armstrong Holdings, Inc.'s registration
               statement on Form S-8 filed August 16, 2000, wherein in appeared
               as Exhibit 4.1.

No. 10(i)      Terms of Restricted Stock for Stock Option Exchange Program
               Offered to Employees and Schedule of Participating Executive
               Officers

No. 15         Letter re: Unaudited Interim Financial Information

No. 27         Financial Data Schedules