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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



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                                                  |  | 000-50408             |  | 23-3033414                         
|(State or other jurisdiction ofincorporation or organization) |  | Commission filenumber |  | (I.R.S. EmployerIdentification 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 ofincorporation or organization) |  | Commission filenumber |  | (I.R.S. EmployerIdentification 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 is an accelerated filer (as defined in Rule
12b-2 of the Act).

Yes ̈No x



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 April 19, 2004 - 40,668,892.



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TABLE OF CONTENTS



|                               |  |                                                                                       |  |        
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | -------
|SECTION                        |  | PAGES                                                                                
|                               | 
|Cautionary Factors             |  | 3  5                                                                                
|                               | 
|PART I  FINANCIAL INFORMATION |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Condensed Consolidated Financial Statements                                           |  |        
|                               |  | Armstrong Holdings, Inc., and Subsidiaries                                            |  | 6  30 
|                               |  | Independent Accountants Review Report                                                |  | 31     
|                               |  | Armstrong World Industries, Inc., and Subsidiaries                                    |  | 32  56
|                               |  |                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 57  69
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 70     
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 70     
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 71     
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 71     
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 72  73
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  | 74  80
|                               | 
|Signatures                     |  | 81                                                                                   





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Cautionary Factors That May Affect Future Results



This report and other written reports and oral statements made from time to time by the company may contain cautionary or forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.



These statements can be identified by the use of words such as anticipate,
estimate, expect, project, intend, plan, believe, and other words of similar meaning. In particular, these include statements relating to intentions, beliefs or current
expectations concerning, among other things, future performance, results of operations, the outcome of contingencies such as legal proceedings, and financial conditions. Forward-looking statements give current expectations or forecasts of future
events. They do not relate strictly to historical or current facts.



Any or all
of the forward-looking statements made in this report and in any other public statements may turn out to be incorrect. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution you that actual future results of operations may vary materially from forward-looking statements. Any forward-looking statements made in this report speak only as of the date of such
statement. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. However, you should consult any further
disclosures we make on related subjects in Forms 10-Q, 8-K, 10-K or other reports filed with the Securities and Exchange Commission.



It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results. Some such
factors are:



Chapter 11



| | Factors relating to Armstrong World Industries, Inc.s (AWI) Chapter 11 Filing, such as: the possible disruption of relationships with creditors, customers,
suppliers and employees; the ultimate size of AWIs asbestos-related and other liabilities; the ability to confirm and implement a plan of reorganization; the availability of financing and refinancing for both AWI and its subsidiaries that are
not parties to its Chapter 11 Filing; legislation that might affect AWIs liabilities; and AWIs ability to comply with covenants in its debtor-in-possession credit facility (the DIP Facility).
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Factors relating to AWIs emergence from bankruptcy, such as emergence-related costs and AWIs debt service costs for debt to be issued pursuant to the plan of
reorganization. Debt service costs will affect net income and cash flow.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Covenants in the agreements governing our anticipated, emergence-related debt may impose restrictions that limit operating and financial flexibility.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------



Business Environment



| | Our business is cyclical in nature and is affected by the same economic factors that affect the residential, office, commercial and institutional renovation and construction
industries in general, such as the availability of credit, consumer confidence, changes in interest rates, governmental budgets and general economic conditions. Despite our efforts to foresee and plan for the effects of changes in these
circumstances, we cannot predict their impact with certainty. For example, economic weakness can lead customers to delay or cancel construction plans or could lead to further industry overcapacity. For more information on these matters, see the
discussion of Market Risk in Item 7A of our 2003 Form 10-K.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3



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| | The major markets for our products, particularly in the renovation and construction industries, are highly competitive. Business combinations among our competitors or suppliers
could affect our competitive position in any of our business units. Competition from foreign competitors who have lower cost structures than we have is a threat in the flooring business. Similarly, combinations or alliances among our major customers
could increase their purchasing power in dealing with us. If we should enter into one or more business combinations, our business, finances and capital structure could be affected.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The level of success of our new product introductions, as well as new patents, and those of our competitors will impact our competitive position.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | The extent to which we successfully achieve integration of and synergies from acquisitions as well as the impact of divestitures, plant closings, including the ability to derive
cost savings, and other unusual items that may result from evolving business strategies and organizational restructuring.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sales Environment



| | We have several key customers and the loss of one of these customers could affect our financial performance. Although builders, dealers and other retailers represent other channels
of distribution for our products, the loss of a significant portion of sales from a major customer would have a material adverse impact on our results of operations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Business decisions made by our major customers and business conditions that affect our major customers and distribution networks may adversely affect our business.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Increased retail trade consolidation, especially in markets such as the United States, could make us more dependent upon key retailers whose relative bargaining strength may
increase.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We are affected by changes in the policies and marketing strategies of our retail trade customers, such as inventory shifts or fluctuations, limitations on access to shelf space and
other conditions. Many of our customers, particularly major home center retailers, have engaged with us in continuous efforts to reduce their inventory levels and improve delivery fulfillment.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Profitability can be affected by changes over time in consumer preferences for one type of product versus another. This may create a shift in demand from products with higher
margins to those with lower margins or to products we do not sell.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



International



| | We face political, social and economic risks related to our international operations which can negatively affect our business, operating results, profitability and financial
condition. The risk of war and terrorism may adversely affect the economy and the demand for our products.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Various worldwide economic and political factors, such as changes in the competitive structures of the markets, credit risks in emerging markets, variations in residential and
commercial construction rates, and economic growth rates in various areas of the world in which we do business could affect the end-use markets for our products.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Profitability can be affected by margin erosion to the extent that sales shift to developing markets with lower profitability.
|- | ------------------------------------------------------------------------------------------------------------------------------



| | Changes in intellectual property legal protections and remedies, trade regulations, tariff classifications or duty rates, and procedures and actions affecting production, pricing
and marketing of products, intergovernmental disputes, possible nationalization and unstable governments and legal systems could impact our business.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Fluctuations in exchange rates can significantly affect our reported results from one period to the next. Tax inefficiencies and currency exchange controls in repatriating cash flow
from non-U.S. subsidiaries could adversely affect us.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Raw Materials and Sourced Products



| | The availability of raw materials, energy, water and sourced products due to changes in conditions that impact our suppliers, including environmental conditions, laws and
regulations, litigation involving our suppliers, transportation disruptions, force majeure events and/or business decisions made by our suppliers may have an adverse impact on our results of operations.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We purchase a significant amount of certain raw materials, such as lumber, veneers, PVC resin, plasticizers, mineral fibers and natural gas. Prices of these raw materials, as well
as transportation costs, can change dramatically and can have a significant adverse impact on our manufacturing costs.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Environmental and Safety Regulations



| | We are subject to a wide variety of increasingly complex and stringent federal, state and local laws and regulations. Changes in regulations that affect our business could lead to
significant, unforeseen expenditures.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Labor Contracts



| | A significant portion of our employees in production are represented under labor contracts, with a variety of unions both domestic and international, which are generally multi-year
in nature and expire at varying dates. Resolution of expiring contracts can never be assured and work stoppages are possible at plants with expired contacts. Should a work stoppage occur, it could have a significant effect to the results of
operations, at least during the period of the event.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Legal Claims



| | Claims of undetermined merit and amount have been asserted against us for various legal matters, including asbestos-related litigation and claims. We could face potential product
liability or warranty claims relating to products we manufacture or distribute. For more information on these matters, see the discussion of Legal Proceedings in Part II, Item 1 in this report.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART I  FINANCIAL INFORMATION



Item 1. Financial Statements



Armstrong Holdings, Inc., and Subsidiaries

Condensed Consolidated Statements of Earnings

(amounts in millions, except per share amounts)

Unaudited



|                                                                      |  |                             |       |   |      |   |       |  
|--------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                                      |  | Three Months EndedMarch 31, |      
|                                                                      |  | 2004                        |       |   | 2003 |  
|Net sales                                                             |  | $                           | 845.0 |   |      | $ | 774.9 |  
|Cost of goods sold                                                    |  |                             | 661.4 |   |      |   | 608.4 |  
|                                                                      |  |                             |       |   |      |   |       |  
|Gross profit                                                          |  |                             | 183.6 |   |      |   | 166.5 |  
|Selling, general and administrative expenses                          |  |                             | 148.4 |   |      |   | 157.3 |  
|Restructuring and reorganization charges, net                         |  |                             | 2.0   |   |      |   | 3.2   |  
|Equity (earnings) from affiliates, net                                |  |                             | (6.6  | ) |      |   | (5.3  | )
|                                                                      |  |                             |       |   |      |   |       |  
|Operating income                                                      |  |                             | 39.8  |   |      |   | 11.3  |  
|Interest expense (unrecorded contractual interest of $21.7 and $24.8) |  |                             | 2.2   |   |      |   | 2.8   |  
|Other non-operating expense                                           |  |                             | 1.9   |   |      |   | 1.3   |  
|Other non-operating (income)                                          |  |                             | (1.2  | ) |      |   | (0.8  | )
|Chapter 11 reorganization costs, net                                  |  |                             | 2.5   |   |      |   | 4.0   |  
|                                                                      |  |                             |       |   |      |   |       |  
|Earnings before income taxes                                          |  |                             | 34.4  |   |      |   | 4.0   |  
|Income tax expense                                                    |  |                             | 16.7  |   |      |   | 2.1   |  
|                                                                      |  |                             |       |   |      |   |       |  
|Net earnings                                                          |  | $                           | 17.7  |   |      | $ | 1.9   |  
|                                                                      |  |                             |       |   |      |   |       |  
|Net earnings per share of common stock:                               |  |                             |       |   |      |   |       |  
|Basic                                                                 |  | $                           | 0.44  |   |      | $ | 0.05  |  
|Diluted                                                               |  | $                           | 0.43  |   |      | $ | 0.05  |  
|Average number of common shares outstanding:                          |  |                             |       |   |      |   |       |  
|Basic                                                                 |  |                             | 40.5  |   |      |   | 40.5  |  
|Diluted                                                               |  |                             | 40.7  |   |      |   | 40.7  |  



See
accompanying notes to condensed consolidated financial statements beginning on page 10.



6



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Armstrong Holdings, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in millions, except share data)



|                                                                                                                     |  |                          |          |   |                   |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ----------------- | - | -------- | -
|                                                                                                                     |  | Unaudited March 31, 2004 |          |   | December 31, 2003 |  
|Assets                                                                                                               |  |                          |          |   |                   |   |          |  
|Current Assets:                                                                                                      |  |                          |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                            |  | $                        | 436.1    |   |                   | $ | 484.3    |  
|Accounts and notes receivable, net                                                                                   |  |                          | 388.4    |   |                   |   | 315.4    |  
|Inventories, net                                                                                                     |  |                          | 462.6    |   |                   |   | 454.4    |  
|Deferred income taxes                                                                                                |  |                          | 18.8     |   |                   |   | 19.2     |  
|Other current assets                                                                                                 |  |                          | 88.2     |   |                   |   | 85.5     |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total current assets                                                                                                 |  |                          | 1,394.1  |   |                   |   | 1,358.8  |  
|Property, plant and equipment, less accumulated depreciation and amortization of $1,440.4 and $1,434.8, respectively |  |                          | 1,243.0  |   |                   |   | 1,267.3  |  
|Insurance receivable for asbestos-related liabilities, noncurrent                                                    |  |                          | 95.1     |   |                   |   | 95.1     |  
|Prepaid pension costs                                                                                                |  |                          | 460.7    |   |                   |   | 455.1    |  
|Investment in affiliates                                                                                             |  |                          | 55.6     |   |                   |   | 48.9     |  
|Goodwill, net                                                                                                        |  |                          | 241.1    |   |                   |   | 244.1    |  
|Other intangibles, net                                                                                               |  |                          | 76.7     |   |                   |   | 79.0     |  
|Deferred income taxes, noncurrent                                                                                    |  |                          | 988.8    |   |                   |   | 988.3    |  
|Other noncurrent assets                                                                                              |  |                          | 111.0    |   |                   |   | 111.2    |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total assets                                                                                                         |  | $                        | 4,666.1  |   |                   | $ | 4,647.8  |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Liabilities and Shareholders Equity                                                                                 |  |                          |          |   |                   |   |          |  
|Current liabilities:                                                                                                 |  |                          |          |   |                   |   |          |  
|Short-term debt                                                                                                      |  | $                        | 8.8      |   |                   | $ | 3.9      |  
|Current installments of long-term debt                                                                               |  |                          | 7.8      |   |                   |   | 8.2      |  
|Accounts payable and accrued expenses                                                                                |  |                          | 359.0    |   |                   |   | 354.2    |  
|Income taxes                                                                                                         |  |                          | 42.1     |   |                   |   | 45.9     |  
|Deferred income taxes                                                                                                |  |                          | 3.3      |   |                   |   | 3.3      |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total current liabilities                                                                                            |  |                          | 421.0    |   |                   |   | 415.5    |  
|Liabilities subject to compromise                                                                                    |  |                          | 4,857.6  |   |                   |   | 4,858.5  |  
|Long-term debt, less current installments                                                                            |  |                          | 38.0     |   |                   |   | 39.4     |  
|Postretirement and postemployment benefit liabilities                                                                |  |                          | 263.4    |   |                   |   | 262.3    |  
|Pension benefit liabilities                                                                                          |  |                          | 212.5    |   |                   |   | 216.4    |  
|Other long-term liabilities                                                                                          |  |                          | 83.9     |   |                   |   | 81.2     |  
|Deferred income taxes                                                                                                |  |                          | 95.0     |   |                   |   | 95.0     |  
|Minority interest in subsidiaries                                                                                    |  |                          | 9.5      |   |                   |   | 9.7      |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total noncurrent liabilities                                                                                         |  |                          | 5,559.9  |   |                   |   | 5,562.5  |  
|Shareholders equity (deficit):                                                                                      |  |                          |          |   |                   |   |          |  
|Common stock, $1 par value per share Authorized 200 million shares; issued 51,878,910 shares                         |  |                          | 51.9     |   |                   |   | 51.9     |  
|Capital in excess of par value                                                                                       |  |                          | 167.9    |   |                   |   | 167.9    |  
|Reduction for ESOP loan guarantee                                                                                    |  |                          | (142.2   | ) |                   |   | (142.2   | )
|Accumulated deficit                                                                                                  |  |                          | (920.1   | ) |                   |   | (937.8   | )
|Accumulated other comprehensive income                                                                               |  |                          | 41.0     |   |                   |   | 43.3     |  
|Less common stock in treasury, at cost 2004 and 2003  11,210,018 shares                                             |  |                          | (513.3   | ) |                   |   | (513.3   | )
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total shareholders (deficit)                                                                                        |  |                          | (1,314.8 | ) |                   |   | (1,330.2 | )
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total liabilities and shareholders equity                                                                           |  | $                        | 4,666.1  |   |                   | $ | 4,647.8  |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  



See
accompanying notes to condensed consolidated financial statements beginning on page 10.



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Armstrong Holdings, Inc., and Subsidiaries

Condensed Consolidated Statements of Shareholders Equity

(amounts in millions,
except per share amounts)

Unaudited



|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|---------------------------------------------- |  | ---- | -------- | - | ---- | - | ---- | - |  | - | -------- | - |  | - | ---
|                                               |  | 2004 |          |   | 2003
|Common stock, $1 par value:                    |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | 51.9     |   |      |   |      |   |  | $ | 51.9     |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Capital in excess of par value:                |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | 167.9    |   |      |   |      |   |  | $ | 167.6    |   |  |   |    
|Stock issuances and other                      |  |      |         |   |      |   |      |   |  |   | 0.5      |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | 167.9    |   |      |   |      |   |  | $ | 168.1    |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Reduction for ESOP loan guarantee:             |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | (142.2   | ) |      |   |      |   |  | $ | (142.2   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Retained earnings (accumulated deficit):       |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | (937.8   | ) |      |   |      |   |  | $ | (898.5   | ) |  |   |    
|Net earnings for period                        |  |      | 17.7     |   |      | $ | 17.7 |   |  |   | 1.9      |   |  | $ | 1.9
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | (920.1   | ) |      |   |      |   |  | $ | (896.6   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Accumulated other comprehensive income (loss): |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | 43.3     |   |      |   |      |   |  | $ | (12.2    | ) |  |   |    
|Foreign currency translation adjustments       |  |      | (1.9     | ) |      |   |      |   |  |   | 5.9      |   |  |   |    
|Derivative (loss) gain, net                    |  |      | (0.5     | ) |      |   |      |   |  |   | 0.8      |   |  |   |    
|Minimum pension liability adjustments          |  |      | 0.1      |   |      |   |      |   |  |   | (0.2     | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Total other comprehensive income (loss)        |  |      | (2.3     | ) |      |   | (2.3 | ) |  |   | 6.5      |   |  |   | 6.5
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | 41.0     |   |      |   |      |   |  | $ | (5.7     | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Comprehensive income                           |  |      |          |   |      | $ | 15.4 |   |  |   |          |   |  | $ | 8.4
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Less treasury stock at cost:                   |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | (513.3   | ) |      |   |      |   |  | $ | (513.3   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Total shareholders (deficit)                  |  | $    | (1,314.8 | ) |      |   |      |   |  | $ | (1,337.8 | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    



See
accompanying notes to condensed consolidated financial statements beginning on page 10.



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Armstrong Holdings, Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

Unaudited



|                                                                                 |  |                             |       |   |      |   |       |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                 |  | Three Months EndedMarch 31, |      
|                                                                                 |  | 2004                        |       |   | 2003 |  
|Cash flows from operating activities:                                            |  |                             |       |   |      |   |       |  
|Net earnings                                                                     |  | $                           | 17.7  |   |      | $ | 1.9   |  
|Adjustments to reconcile net earnings to net cash used for operating activities: |  |                             |       |   |      |   |       |  
|Depreciation and amortization                                                    |  |                             | 34.9  |   |      |   | 35.2  |  
|Deferred income taxes                                                            |  |                             | 0.3   |   |      |   |      |  
|Equity (earnings) from affiliates, net                                           |  |                             | (6.6  | ) |      |   | (5.3  | )
|Chapter 11 reorganization costs, net                                             |  |                             | 2.5   |   |      |   | 4.0   |  
|Chapter 11 reorganization costs payments                                         |  |                             | (6.9  | ) |      |   | (6.6  | )
|Restructuring and reorganization charges, net of reversals                       |  |                             | 2.0   |   |      |   | 3.2   |  
|Restructuring and reorganization payments                                        |  |                             | (1.2  | ) |      |   | (0.6  | )
|Cash effect of hedging activities                                                |  |                             | 2.6   |   |      |   | (2.6  | )
|Increase (decrease) in cash from change in:                                      |  |                             |       |   |      |   |       |  
|Receivables                                                                      |  |                             | (75.6 | ) |      |   | (33.6 | )
|Inventories                                                                      |  |                             | (10.9 | ) |      |   | (31.3 | )
|Other current assets                                                             |  |                             | 0.3   |   |      |   | (4.4  | )
|Other noncurrent assets                                                          |  |                             | (6.9  | ) |      |   | (2.8  | )
|Accounts payable and accrued expenses                                            |  |                             | 12.6  |   |      |   | (6.2  | )
|Income taxes payable                                                             |  |                             | (3.8  | ) |      |   | (1.6  | )
|Other long-term liabilities                                                      |  |                             | 3.7   |   |      |   | (0.4  | )
|Other, net                                                                       |  |                             | (1.3  | ) |      |   | (2.7  | )
|                                                                                 |  |                             |       |   |      |   |       |  
|Net cash (used for) operating activities                                         |  |                             | (36.6 | ) |      |   | (53.8 | )
|                                                                                 |  |                             |       |   |      |   |       |  
|Cash flow from investing activities:                                             |  |                             |       |   |      |   |       |  
|Purchases of property, plant and equipment and computer software                 |  |                             | (16.7 | ) |      |   | (21.7 | )
|Distributions from equity affiliates                                             |  |                             |      |   |      |   | 3.0   |  
|Proceeds from the sale of assets                                                 |  |                             | 0.9   |   |      |   | 1.8   |  
|                                                                                 |  |                             |       |   |      |   |       |  
|Net cash (used for) investing activities                                         |  |                             | (15.8 | ) |      |   | (16.9 | )
|                                                                                 |  |                             |       |   |      |   |       |  
|Cash flows from financing activities:                                            |  |                             |       |   |      |   |       |  
|Increase/(decrease) in short-term debt, net                                      |  |                             | 5.1   |   |      |   | (4.9  | )
|Payments of long-term debt                                                       |  |                             | (0.7  | ) |      |   | (0.7  | )
|Other, net                                                                       |  |                             | (0.2  | ) |      |   | (0.1  | )
|                                                                                 |  |                             |       |   |      |   |       |  
|Net cash provided by (used for) financing activities                             |  |                             | 4.2   |   |      |   | (5.7  | )
|                                                                                 |  |                             |       |   |      |   |       |  
|Effect of exchange rate changes on cash and cash equivalents                     |  |                             |      |   |      |   | 1.1   |  
|                                                                                 |  |                             |       |   |      |   |       |  
|Net (decrease) in cash and cash equivalents                                      |  | $                           | (48.2 | ) |      | $ | (75.3 | )
|Cash and cash equivalents at beginning of year                                   |  |                             | 484.3 |   |      |   | 380.0 |  
|                                                                                 |  |                             |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                       |  | $                           | 436.1 |   |      | $ | 304.7 |  
|                                                                                 |  |                             |       |   |      |   |       |  



See
accompanying notes to condensed consolidated financial statements beginning on page 10.



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##### Table of Contents

Armstrong Holdings, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements



NOTE 1. BASIS OF PRESENTATION



Armstrong World Industries, Inc. (AWI) is a Pennsylvania corporation incorporated in 1891. Armstrong Holdings, Inc. is a Delaware corporation and the publicly
held parent holding company of AWI. Armstrong Holdings, Inc.s only significant asset and operation is its indirect ownership, through Armstrong Worldwide, Inc., of all of the capital stock of AWI. We include separate financial statements for
Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries in this report because both companies have public securities that are registered under the Securities Exchange Act of 1934. The difference between the financial statements of
Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries is primarily due to transactions that occurred in 2000 related to the formation of Armstrong Holdings, Inc. and to employee compensation-related stock activity. However,
there are no differences in the income statements presented in this report for Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries, and minimal differences in the remaining three financial statements of each entity. Due to the
lack of material differences in the financial statements, when we refer in this document to Armstrong Holdings, Inc. and its subsidiaries as AHI, Armstrong, we, us, and ourselves, we are
also effectively referring to AWI and its subsidiaries. We use the term AWI when we are referring solely to Armstrong World Industries, Inc.



The accounting policies used in preparing these statements are the same as those used in preparing AHIs condensed consolidated financial statements for the year
ended December 31, 2003, which includes the accounts of AHI and its majority-owned subsidiaries. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in
AHIs Form 10-K for the fiscal year ended December 31, 2003. 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, primarily due to the different level of sales in each quarter of the year and the possibility of changes in general economic conditions.



Operating results for the first quarter of 2004 and the corresponding period of 2003 included
in this report are unaudited. However, these condensed consolidated financial statements have been reviewed by independent public accountants in accordance with established professional standards and procedures for a limited review of interim
financial information. Certain prior year amounts have been reclassified to conform to the current year presentation.



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##### Table of Contents

Effective December 31, 2002, AHI adopted SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, which requires the following disclosure in annual and interim reports. The following table illustrates the effect on net income and earnings per share if AHI had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  |                             |      |      |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | ---- | - | ---- | -
|                                                                                                                                            |  | Three Months EndedMarch 31, |     
|(amounts in millions)                                                                                                                       |  | 2004                        |      | 2003 |  
|Net income, as reported                                                                                                                     |  | $                           | 17.7 |      | $ | 1.9  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                             |     |      |   | 0.1  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             |     |      |   | (0.1 | )
|                                                                                                                                            |  |                             |      |      |   |      |  
|Pro forma net income                                                                                                                        |  | $                           | 17.7 |      | $ | 1.9  |  
|                                                                                                                                            |  |                             |      |      |   |      |  
|Earnings per share:                                                                                                                         |  |                             |      |      |   |      |  
|Basic  as reported                                                                                                                         |  | $                           | 0.44 |      | $ | 0.05 |  
|Basic  pro forma                                                                                                                           |  | $                           | 0.44 |      | $ | 0.05 |  
|                                                                                                                                            |  |                            
|Diluted  as reported                                                                                                                       |  | $                           | 0.43 |      | $ | 0.05 |  
|Diluted  pro forma                                                                                                                         |  | $                           | 0.43 |      | $ | 0.05 |  



NOTE 2. CHAPTER 11 REORGANIZATION



Proceedings under Chapter 11



On December 6, 2000, AWI, the
major operating subsidiary of AHI, filed a voluntary petition for relief (the Filing) under Chapter 11 of the U.S. Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court) in order to use the court-supervised reorganization process to achieve a resolution of the AWIs asbestos-related liability. Also filing under Chapter 11 were two of AWIs wholly-owned subsidiaries, Nitram
Liquidators, Inc. (Nitram) and Desseaux Corporation of North America, Inc. (Desseaux). The Chapter 11 cases are being jointly administered under case number 00-4471 (the Chapter 11 Case). Shortly after its
commencement, the Chapter 11 Case was assigned to Judge Randall J. Newsome. His appointment as a visiting judge in the District of Delaware ended on December 31, 2003. On January 6, 2004, the Chapter 11 Case was reassigned to Judge Judith K.
Fitzgerald.



AHI and all of AWIs other direct and indirect subsidiaries,
including Armstrong Wood Products Inc. (formerly Triangle Pacific Corp.), WAVE (AWIs ceiling grid systems joint venture with Worthington Industries, Inc.), Armstrong Canada, and Armstrong DLW AG, were not a part of the Filing and accordingly,
except for any asbestos-related liability that also relates, directly or indirectly, to the pre-Filing activities of AWI, the liabilities, including asbestos-related liability if any, of such companies will not be resolved in AWIs Chapter 11
Case. See below under The Asbestos Personal Injury Trust and Note 11 under Asbestos-Related Litigation.



AWI is operating its business and managing its properties as a debtor-in-possession subject to the provisions of the Bankruptcy Code. Pursuant to the provisions of the
Bankruptcy Code, AWI is not permitted to pay any claims or obligations which arose prior to the Filing date (prepetition claims) unless specifically authorized by the Bankruptcy Court. Similarly, claimants may not enforce any claims against AWI that
arose prior to the date of the Filing unless specifically authorized by the Bankruptcy Court. In addition, as a debtor-in-possession, AWI has the right, subject to the Bankruptcy Courts approval, to assume or reject any executory contracts and
unexpired leases in existence at the date of the Filing. Some of these have been specifically assumed and others have been specifically rejected already in the course of the Chapter 11 Case. In the plan of reorganization which it has proposed, as
described below, AWI has indicated the other executory contracts and unexpired leases that it intends to assume or reject



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##### Table of Contents

upon consummation of the plan; any not specifically assumed under the plan will be rejected upon consummation of the plan. Parties having claims as a result
of the rejection of a contract may file claims with the Bankruptcy Court, which will be dealt with as part of the Chapter 11 Case.



Three creditors committees, one representing asbestos personal injury claimants (the Asbestos Personal Injury Claimants Committee), one
representing asbestos property damage claimants (the Asbestos Property Damage Committee), and the other representing other unsecured creditors (the Unsecured Creditors Committee), were appointed in the Chapter 11 Case.
In addition, an individual was appointed to represent the interests of future asbestos personal injury claimants (the Future Claimants Representative). In accordance with the provisions of the Bankruptcy Code, these parties have
the right to be heard on matters that come before the Bankruptcy Court in the Chapter 11 Case. Upon resolution of all asbestos property damage claims, the Asbestos Property Damage Committee was disbanded.



Plan of Reorganization



On November 4, 2002, AWI filed a Plan of Reorganization with the Bankruptcy Court. During
2003, AWI filed several amendments to the plan with the Bankruptcy Court, along with various exhibits. The Fourth Amended Plan of Reorganization, with certain exhibits, was filed on May 23, 2003 and, as so amended and as modified by modifications
filed with the Bankruptcy Court on October 17, 2003 and November 10, 2003, is referred to in this report as the POR. The POR provides for AWI to continue to conduct its existing lines of business with a reorganized capital structure
under which, among other things, its existing shares of stock will be cancelled and new common shares and notes will be issued to its unsecured creditors and to a trust, as further discussed below, to be established under the POR for the benefit of
AWIs current and future asbestos-related personal injury claimants, in full satisfaction of their claims against AWI. References in this report to reorganized Armstrong are to AWI as it would be reorganized under the POR, and its
subsidiaries collectively. The POR excludes AWIs Nitram and Desseaux subsidiaries, neither of which is material to Armstrong and which are pursuing separate resolutions of their Chapter 11 cases that are expected to result in the winding up of
their affairs.



During 2003, the POR was submitted for a vote by AWIs
creditors for its approval. It was approved by each creditor class that was entitled to vote on the POR except the class of unsecured creditors. On November 17 and 18, 2003, the Bankruptcy Court held a hearing on confirmation of the Plan and on
December 19, 2003, issued proposed findings of fact and conclusions of law and a proposed order confirming the POR, notwithstanding the rejection of the POR by the class of unsecured creditors. On December 29, 2003, the Unsecured Creditors
Committee filed an objection to the Bankruptcy Courts proposed findings of fact and conclusions of law and the proposed order of confirmation of the POR. This objection remains pending with the U.S. District Court. Confirmation of the POR
requires action of the U.S. District Court, as well as the Bankruptcy Court, in accordance with the Bankruptcy Code. At this time, the District Court judge involved in the Chapter 11 Case has stayed all proceedings before him concerning the Chapter
11 Case. See Recent Developments and Next Steps in the Chapter 11 Process.



Disclosure Statement



In connection with the vote of creditors on the POR, AWI was required to prepare a disclosure statement concerning its business and the POR, including certain projected
financial information assuming an Effective Date of the POR as July 1, 2003, intended to demonstrate to the Bankruptcy Court the feasibility of the POR and AWIs ability to continue operations upon its emergence from Chapter 11. On May 30,
2003, the Bankruptcy Court approved the disclosure statement for distribution to parties in interest in the Chapter 11 Case. The projected financial information included in the disclosure statement was updated in certain respects by information
submitted to the Bankruptcy Court in connection with the Bankruptcy Courts November 2003 hearing on confirmation of the POR. The projected financial information was prepared for the limited purposes of consideration by the Bankruptcy Court,
creditors and other parties in interest in the Chapter 11 Case of matters pertinent to the case. As indicated in the disclosure statement, the projected financial information and various estimates of value therein provided should not be regarded as
representations or warranties by AWI, AHI or any other person. There is no assurance that any such projection or valuation will be realized. The projected financial information and estimates of value were prepared by AWI and its financial advisors
and have not been audited or reviewed by independent



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##### Table of Contents

accountants. The projections will not be updated on an ongoing basis. At the time they were prepared, the projections reflected numerous assumptions
concerning reorganized Armstrongs anticipated future performance and with respect to prevailing and anticipated market and economic conditions, which were and remain beyond our control and which may not materialize. Projections are inherently
subject to significant and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections may be wrong in a material respect. Actual results may vary significantly
from those contemplated by the projections.



Asbestos Personal Injury Trust



A principal feature of the POR
is the creation of a trust (the Asbestos P I Trust), pursuant to section 524(g) of the Bankruptcy Code, for the purpose of addressing AWIs personal injury (including wrongful death) asbestos-related liability. All present and
future asbestos-related personal injury claims against AWI, including contribution claims of co-defendants, arising directly or indirectly out of AWIs pre-Filing use of or other activities involving asbestos will be channeled to the Asbestos P
I Trust.



In accordance with the 524(g) injunction to be issued by
the District Court in connection with the confirmation of the POR, various entities will be protected from such present and future AWI asbestos-related personal injury claims. These entities include, among others, AWI as it will be reorganized, AHI,
AWIs subsidiaries and other affiliates (as defined in the POR), and their respective officers and directors. Upon emergence from Chapter 11, AWI will not have any responsibility for these claims (including claims against AWI based solely on
its ownership of a subsidiary or other affiliate), nor will it participate in their resolution.



However, although AWIs domestic and foreign subsidiaries and other affiliates will be protected parties, asbestos-related personal injury claims against them will be channeled to the Asbestos P I Trust only to
the extent such claims directly or indirectly relate to the pre-Filing manufacturing, installation, distribution or other activities of AWI, or AWIs ownership of the subsidiaries or affiliates (as distinguished from independent activities of
the subsidiaries or affiliates). See Note 11 under Asbestos-Related Litigation.



In addition, workers compensation claims brought against AWI or its subsidiaries or other affiliates will not be channeled to the Asbestos P I Trust and will remain subject to the workers compensation
process. Workers compensation law provides that the employer is responsible for evaluation, medical treatment and lost wages as a result of a job-related injury. Historically, workers compensation claims against AWI or its subsidiaries
have not been significant in number or amount, and AWI has continued to honor its obligations with respect to such claims during the Chapter 11 Case. Currently, AWI has only three pending workers compensation claims involving alleged asbestos
exposure.



There also is uncertainty as to proceedings, if any, brought in
certain foreign jurisdictions with respect to the effect of the 524(g) injunction in precluding the assertion in such jurisdictions of asbestos-related personal injury claims, proceedings related thereto or the enforcement of judgments rendered in
such proceedings.



Management believes neither AWI nor its subsidiaries or
other affiliates is subject to asbestos-related personal injury claims, material in amount to reorganized Armstrong, that would not be channeled to the Asbestos P I Trust.



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##### Table of Contents

Consideration to Be Distributed under the POR (unaudited)



The Asbestos P I Trust and the holders of allowed unsecured claims will share in the
following consideration to be distributed under the POR:



| |  | AWIs Available Cash, which is defined in the POR as:
| | - | -------------------------------------------------------



| |  | Cash available on the effective date of the POR after reserving up to $100 million (as determined by AWI) to fund ongoing operations and making provisions for certain required
payments under the POR,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Any cash drawn, at AWIs sole discretion, under a credit facility to be established as provided by the POR for the purpose of funding distributions under the POR, and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Certain insurance proceeds related to environmental matters
| | - | -----------------------------------------------------------



However, proceeds received under any private offering of debt securities and/or secured term loan borrowings made, as permitted by the POR, in connection
with consummation of the POR shall be excluded from the determination of Available Cash.



| |  | Plan Notes of AWI as further described below or net cash proceeds from any private offerings of debt securities issued in lieu thereof, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | Substantially all of the new common stock of AWI.
| | - | -------------------------------------------------



The total amount of Plan Notes will be the greater of (i) $1.125 billion less Available Cash and (ii) $775 million. However, AWI will use reasonable efforts to issue one
or more private offerings of debt securities on, or as soon as practicable after, the Effective Date. These offerings are to yield net proceeds at least equal to the amount of the Plan Notes prescribed by the Plan. If the private offerings are
successful, the Plan Notes would not be issued. If the offerings yield proceeds less than the amount of the Plan Notes prescribed by the Plan, Plan Notes equal to the difference will be issued. If only the Plan Notes are issued, reorganized
Armstrong expects to issue an aggregate amount of $775 million of Plan Notes. These Plan Notes will consist of (i) a tranche of notes with a seven-year maturity and a fixed interest rate, (ii) a tranche of notes with a ten-year maturity and a fixed
interest rate and (iii) a tranche of floating rate notes with a maturity of not less than five years, but no more than ten years, structured in a manner similar to, and as liquid as, marketable bank debt which satisfy the requirements of the POR and
are on terms and conditions that are satisfactory to AWI, the Asbestos Personal Injury Claimants Committee, and the Future Claimants Representative. To the extent Plan Notes of more than one type are issued, a pro rata share of each
tranche will be issued to the Asbestos P I Trust and the holders of unsecured claims.



The POR provides that unsecured creditors, other than convenience creditors described below, will receive their pro rata share of:



| |  | 34.43% of the new common stock of reorganized Armstrong,
| | - | --------------------------------------------------------



| |  | 34.43% of the first $1.05 billion of all the cash and Plan Notes to be distributed under the POR to unsecured creditors (other than convenience creditors) and the Asbestos P I
Trust, in the form of:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Up to $300 million of Available Cash and
| | - | ----------------------------------------



| |  | The balance in principal amount of Plan Notes or in net cash proceeds from any private offerings of debt securities made in lieu of issuing Plan Notes.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 60% of the next $50 million of Available Cash but, if such Available Cash is less than $50 million, then 60% of the balance in Plan Notes or in net cash proceeds from any private
offerings of debt securities made in lieu of issuing Plan Notes, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 34.43% of the remaining amount of any Available Cash and any Plan Notes up to the maximum amount of Plan Notes provided to be issued under the POR, or net cash proceeds from any
private offerings of debt securities made in lieu of issuing such Plan Notes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The remaining amount of new common stock of reorganized Armstrong, Available Cash and Plan Notes or net cash proceeds from any private offerings of debt securities made in lieu of issuing Plan Notes will be
distributed to the Asbestos P I Trust.



Under the POR, unsecured creditors
whose claims (other than claims on debt securities) are less than $10,000 or who elect to reduce their claims to $10,000 will be treated as convenience creditors and will receive payment of 75% of their allowed claim amount in cash
(which payments will reduce the amount of Available Cash).



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##### Table of Contents

Under the POR, the existing equity interests in AWI (including all of its outstanding shares of common stock) will be
cancelled. The POR provides for the distribution of warrants to purchase shares of reorganized Armstrong (the Warrants) to the holders of AWIs existing common stock. The terms of the Warrants are provided in an exhibit to the POR.
The Warrants:



| |  | would permit the purchase of 5% of the common stock of reorganized Armstrong on a fully diluted basis, upon exercise of all the Warrants;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | would be exercisable at any time during the seven years after the effective date of the POR; and
| | - | ------------------------------------------------------------------------------------------------



| |  | would permit the purchase of shares at an exercise price of $37.50, which is equal to 125% of the $30.00 per share equity value of reorganized Armstrong, as agreed among the
financial advisers for AWI, the Asbestos Personal Injury Claimants Committee, the Unsecured Creditors Committee, and the Future Claimants Representative, as set forth in the Bankruptcy Court-approved disclosure statement for the
POR (as further described below).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Whether any value will be
realized from the Warrants will depend on whether the market value of reorganized Armstrongs new common stock reaches a value in excess of the exercise price of the Warrants during the period that they may be exercised.



AHIs shareholders were not entitled to vote on the POR. However, AHIs
shareholders were sent the Disclosure Statement and POR. If the POR is implemented, the only value that will be available to AHI shareholders is their ratable share of the Warrants available upon the contemplated dissolution of AHI. See AHIs
Plan of Dissolution below.



Valuation of
Consideration to be Distributed under the POR (unaudited)



Based upon many
assumptions (see Disclosure Statement discussion above), to calculate the value of consideration to be distributed, AWI used $2.7 billion as the value of reorganized Armstrong. This is the mid-point of the range of estimated values of $2.4 billion
and $3.0 billion that was estimated by AWI and its financial advisors. AWIs estimated value of the consideration to be distributed under the POR to the Asbestos P I Trust, holders of allowed unsecured claims and AWIs existing common
stock, is:



| |  | New common stock at $30 a share, which is the approximate mid-point of the range of estimated values of $24.66 and $35.30 per share, assuming a distribution of 56.4 million shares
of new common stock to holders of unsecured claims and the Asbestos P I Trust;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Plan Notes in the aggregate principal amount of $775 million, that are worth their face value;
| | - | ----------------------------------------------------------------------------------------------



| |  | Available Cash of approximately $350 million that AWI expects to have; and
| | - | --------------------------------------------------------------------------



| |  | Warrants with an estimated value of between $35 million and $40 million.
| | - | ------------------------------------------------------------------------



The total value of the consideration to be distributed to the Asbestos P I Trust, other than rights under asbestos non-product liability insurance policies, has been
estimated to be approximately $1.8 billion, and the total value of consideration to be distributed to holders of allowed unsecured claims (other than convenience claims) has been estimated to be approximately $0.9 billion. Based upon the estimated
value of the POR consideration, and upon AWIs estimate that unsecured claims allowed by the Bankruptcy Court (other than convenience claims) will total approximately $1.65 billion, AWI estimated that holders of allowed unsecured claims (other
than convenience claims) will receive a recovery having a value equal to approximately 59.5% of their allowed claims.



AHIs Plan of Dissolution, Winding Up and Distribution (Plan of Dissolution)



In connection with the implementation of the POR, the Warrants will be issued to AHI (or a
wholly-owned subsidiary of AHI). The Board of Directors of AHI has determined that it is not practicable for AHI to continue in operation as an on-going business owning the Warrants, which will then be AHIs only asset. Accordingly, the Board
of Directors of AHI approved and recommended to AHI shareholders the Plan of Dissolution, whereby AHI will voluntarily dissolve and wind up its affairs in accordance with Pennsylvania law and, subject to completion of AHIs winding up
(including the satisfaction of any liabilities of AHI), distribute any remaining Warrants to the shareholders. At a special meeting of AHI shareholders held on January 7, 2004, the Plan of Dissolution was approved by the AHI shareholders. The POR
provides that AWI will pay the costs and expenses incurred in connection with administering AHIs Plan of Dissolution.



15



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##### Table of Contents

Recent Developments and Next Steps in the Chapter 11 Process



In order for the POR to be confirmed, the U.S. District Court must issue findings of fact
and conclusions of law in support of confirmation of the POR, enter or affirm an order confirming the POR and issue the 524(g) injunction which is part of the POR. In certain other companies asbestos-related Chapter 11 cases,
motions for recusal were filed in 2003 against U.S. District Court Judge Alfred M. Wolin, who is jointly administering with the Bankruptcy Court the asbestos-related issues in the Chapter 11 cases of five companies, including AWI. The Unsecured
Creditors Committee requested that in the event Judge Wolin is recused in the other cases, he also be recused in AWIs case. Judge Wolin has stayed further proceedings in all five cases before him, including AWIs Chapter 11 Case. On
February 2, 2004, Judge Wolin denied the motions for recusal. An appeal of Judge Wolins ruling is currently pending, and the U.S. Court of Appeals for the Third Circuit heard oral argument on the appeal on April 19, 2004. AWI is uncertain as
to the impact, if any, beyond the present delay in confirmation of the POR that the motions and appeal will have on AWIs Chapter 11 proceedings. When confirmation of the POR will be considered by the U.S. District Court is uncertain.



Common Stock and Debt Securities



As a result of AWI filing the Plan of Reorganization on November 4, 2002, the
New York Stock Exchange stopped trading on the Exchange of the common stock of AHI (traded under the ticker symbol ACK) and two debt securities of AWI (traded under the ticker symbols AKK and ACK 08). AHIs
common stock resumed trading in the over-the-counter (OTC) Bulletin Board under the ticker symbol ACKHQ and one of AWIs debt securities resumed trading under the ticker symbol AKKWQ.



Bar Date for Filing Claims



The Bankruptcy Court established August 31, 2001 as the bar date for all claims against AWI
except for asbestos-related personal injury claims and certain other specified claims. A bar date is the date by which claims against AWI must be filed if the claimants wish to participate in any distribution in the Chapter 11 Case. A bar date for
asbestos-related personal injury claims (other than claims for contribution, indemnification, or subrogation) has been rendered unnecessary under the terms of the POR, which defers the filings of such claims until the Asbestos P I Trust is
established to administer such claims.



Approximately 4,800 proofs of claim
(including late-filed claims) totaling approximately $6.3 billion, alleging a right to payment from AWI, were filed with the Bankruptcy Court in response to the August 31, 2001 bar date. The disposition of these claims under the POR is discussed
below. AWI continues the process of investigating and resolving these claims. The Bankruptcy Court will ultimately determine the claims and related liability amounts that will be allowed as part of the Chapter 11 process if the parties cannot agree.



In its ongoing review of the filed claims, AWI to date has objected to
approximately 2,100 claims totaling $2.4 billion. The Bankruptcy Court disallowed these claims with prejudice.



During the first six months of 2003, AWI settled all of the approximately 460 remaining property damage claims that alleged damages of $800 million, for approximately $9 million. Payments to claimants were made during
the third quarter of 2003 and were funded by insurance.



Approximately 1,100
proofs of claim totaling approximately $1.5 billion are pending with the Bankruptcy Court that are associated with asbestos-related personal injury litigation, including direct personal injury claims, claims by co-defendants for contribution and
indemnification, and claims relating to AWIs participation in the Center for Claims Resolution. As stated above, the bar date of August 31, 2001 did not apply to asbestos-related personal injury claims other than claims for contribution,
indemnification, or subrogation. The POR contemplates that all AWI asbestos-related personal injury claims, including claims for contribution, indemnification, or subrogation, will be addressed in the future pursuant to the procedures relating to
the Asbestos P I Trust developed in connection with the POR. See further discussion regarding AWIs liability for asbestos-related matters in Note 11.



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Approximately 1,200 claims totaling approximately $1.6 billion alleging a right to payment for financing, environmental,
trade debt and other claims remain. For these categories of claims, AWI has previously recorded approximately $1.6 billion in liabilities.



AWI has recorded liability amounts for claims that can be reasonably estimated and which it does not contest or believes are probable of being allowed by the Bankruptcy
Court. The final value of all the claims that will ultimately be allowed by the Bankruptcy Court is not known at this time. However, it is likely the value of the claims ultimately allowed by the Bankruptcy Court will be different than amounts
presently recorded by AWI. This difference could be material to AWIs financial position and the results of its operations. Management will continue to review the recorded liability in light of future developments in the Chapter 11 Case and
make changes to the recorded liability if and when it is appropriate.



Financing



AWIs current
debtor-in-possession credit facility (DIP Facility), which extends to December 8, 2004, constitutes a $75 million letter of credit facility. At AWIs request, the previous revolving loan feature was dropped since it had never been
used. As of March 31, 2004, AWI had approximately $25.0 million in letters of credit which were issued pursuant to the DIP Facility. As of March 31, 2004, AWI had $281.3 million of cash and cash equivalents, excluding cash held by its non-debtor
subsidiaries. AWI believes that cash on hand and generated from operations and dividends from its subsidiaries, together with subsidiary lines of credit and the DIP Facility, will be adequate to address its foreseeable liquidity needs. Obligations
under the DIP Facility, including reimbursement of draws under the letters of credit, if any, constitute superpriority administrative expense claims in the Chapter 11 Case.



Accounting Impact



AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP
90-7) provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. This guidance is implemented in the accompanying consolidated financial statements.



Pursuant to SOP 90-7, AWI is required to segregate pre-Filing liabilities that are subject to
compromise and report them separately on the balance sheet. See Note 4 for detail of the liabilities subject to compromise at March 31, 2004 and December 31, 2003. Liabilities that may be affected by a plan of reorganization are recorded at the
expected amount of the allowed claims, even if they may be settled for lesser amounts. Substantially all of AWIs pre-Filing debt, now in default, is recorded at face value and is classified within liabilities subject to compromise. Obligations
of AWI subsidiaries not covered by the Filing remain classified on the consolidated balance sheet based upon maturity date. AWIs estimated liability for asbestos-related personal injury claims is also recorded in liabilities subject to
compromise. See Note 11 for further discussion of AWIs asbestos liability.



Additional pre-Filing claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims.



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SOP 90-7 also requires separate reporting of all revenues, expenses, realized gains and losses, and provision for losses
related to the Filing as Chapter 11 reorganization costs, net. Accordingly, AWI recorded the following Chapter 11 reorganization activities during the first quarters of 2004 and 2003:



|                                                  |  |      |      |   |      |   |      |  
|------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|(amounts in millions)                             |  | 2004 |      |   | 2003 |  
|Professional fees                                 |  | $    | 3.3  |   |      | $ | 5.1  |  
|Interest income, post-Filing                      |  |      | (0.8 | ) |      |   | (0.9 | )
|Reductions to pre-Filing liabilities              |  |      |     |   |      |   | (0.3 | )
|Other expense directly related to bankruptcy, net |  |      |     |   |      |   | 0.1  |  
|                                                  |  |      |      |   |      |   |      |  
|Total Chapter 11 reorganization costs, net        |  | $    | 2.5  |   |      | $ | 4.0  |  
|                                                  |  |      |      |   |      |   |      |  



Professional fees represent legal and
financial advisory fees and expenses directly related to the Filing.



Interest
income is earned from short-term investments subsequent to the Filing.



Reductions to pre-Filing liabilities represent Bankruptcy Court approved settlements of prepetition liabilities.



As a result of the Filing, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as a debtor-in-possession, AWI may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements.



If and when the POR is confirmed and made effective, reorganized AWIs consolidated financial statements will change materially in amounts and classifications
through the implementation of the Fresh Start Accounting rules of SOP 90-7.



Conclusion



Although the POR has been
developed, implementation of the POR is subject to confirmation of the POR in accordance with the provisions of the Bankruptcy Code and satisfaction after consummation of certain conditions, as provided by the POR. AWI is unable to predict when and
if the POR will be confirmed. Therefore, the timing and terms of a resolution of the Chapter 11 Case remain uncertain.



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NOTE 3. SEGMENT RESULTS



|                                    |  |                             |         |   |                  |   |         |  
|----------------------------------- |  | --------------------------- | ------- | - | ---------------- | - | ------- | -
|                                    |  | Three Months EndedMarch 31, |        
|(amounts in millions)               |  | 2004                        |         |   | 2003             |  
|Net sales to external customers     |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 304.1   |   |                  | $ | 286.7   |  
|Wood Flooring                       |  |                             | 197.4   |   |                  |   | 167.2   |  
|Textiles and Sports Flooring        |  |                             | 62.3    |   |                  |   | 62.0    |  
|Building Products                   |  |                             | 230.0   |   |                  |   | 207.1   |  
|Cabinets                            |  |                             | 51.2    |   |                  |   | 51.9    |  
|                                    |  |                             |         |   |                  |   |         |  
|Total sales to external customers   |  | $                           | 845.0   |   |                  | $ | 774.9   |  
|                                    |  |                             |         |   |                  |   |         |  
|                                    | 
|                                    |  | Three Months EndedMarch 31, |        
|                                    |  | 2004                        |         |   | 2003             |  
|Segment operating income (loss)     |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 15.5    |   |                  | $ | 17.6    |  
|Wood Flooring                       |  |                             | 10.3    |   |                  |   | 2.2     |  
|Textiles and Sports Flooring        |  |                             | (1.9    | ) |                  |   | (6.0    | )
|Building Products                   |  |                             | 27.2    |   |                  |   | 17.8    |  
|Cabinets                            |  |                             | 0.6     |   |                  |   | (3.6    | )
|All Other                           |  |                             | 0.5     |   |                  |   | 0.4     |  
|                                    |  |                             |         |   |                  |   |         |  
|Total segment operating income      |  |                             | 52.2    |   |                  |   | 28.4    |  
|Unallocated Corporate (expense)     |  |                             | (12.4   | ) |                  |   | (17.1   | )
|                                    |  |                             |         |   |                  |   |         |  
|Total consolidated operating income |  | $                           | 39.8    |   |                  | $ | 11.3    |  
|                                    |  |                             |         |   |                  |   |         |  
|                                    |  |                            
|                                    |  | March 31,2004               |         |   | December 31,2003 |  
|Segment assets                      |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 942.2   |   |                  | $ | 915.3   |  
|Wood Flooring                       |  |                             | 602.4   |   |                  |   | 576.6   |  
|Textiles and Sports Flooring        |  |                             | 209.6   |   |                  |   | 207.1   |  
|Building Products                   |  |                             | 558.8   |   |                  |   | 551.5   |  
|Cabinets                            |  |                             | 101.6   |   |                  |   | 102.3   |  
|All Other                           |  |                             | 19.5    |   |                  |   | 18.8    |  
|                                    |  |                             |         |   |                  |   |         |  
|Total segment assets                |  |                             | 2,434.1 |   |                  |   | 2,371.6 |  
|Assets not assigned to segments     |  |                             | 2,232.0 |   |                  |   | 2,276.2 |  
|                                    |  |                             |         |   |                  |   |         |  
|Total consolidated assets           |  | $                           | 4,666.1 |   |                  | $ | 4,647.8 |  
|                                    |  |                             |         |   |                  |   |         |  



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NOTE 4. LIABILITIES SUBJECT TO COMPROMISE



As a result of AWIs Chapter 11 filing (see Note 2), pursuant to SOP 90-7, AWI is
required to segregate prepetition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims,
even if they may be settled for lesser amounts. Substantially all of AWIs prepetition debt, now in default, is recorded at face value and is classified within liabilities subject to compromise. Obligations of AHI subsidiaries not covered by
the Filing remain classified on the condensed consolidated balance sheet based upon maturity date. AWIs asbestos liability is also recorded in liabilities subject to compromise. See Note 2 for further discussion on how the Chapter 11 process
may address AWIs liabilities subject to compromise and Note 11 for further discussion of AWIs asbestos liability.



Liabilities subject to compromise at March 31, 2004 and December 31, 2003 are as follows:



|                                                |  |                |         |                   |   |        
|----------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|(amounts in millions)                           |  | March 31, 2004 |         | December 31, 2003
|Debt (at face value)(1)                         |  | $              | 1,388.6 |                   | $ | 1,388.6
|Asbestos-related liability                      |  |                | 3,190.6 |                   |   | 3,190.6
|Prepetition trade payables                      |  |                | 59.0    |                   |   | 58.9   
|Prepetition other payables and accrued interest |  |                | 61.7    |                   |   | 62.7   
|ESOP loan guarantee                             |  |                | 157.7   |                   |   | 157.7  
|                                                |  |                |         |                   |   |        
|Total liabilities subject to compromise         |  | $              | 4,857.6 |                   | $ | 4,858.5
|                                                |  |                |         |                   |   |        



| | (1) | In accordance with SOP 90-7, we did not record contractual interest expense on prepetition
debt after the Chapter 11 filing date. This unrecorded interest expense was $21.7 million in the first quarter of 2004 and $24.8 million in the first quarter of 2003.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additional prepetition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases,
or as a result of the allowance of contingent or disputed claims.



NOTE 5. INVENTORIES



|                             |  |                |       |   |                   |   |       |  
|---------------------------- |  | -------------- | ----- | - | ----------------- | - | ----- | -
|(amounts in millions)        |  | March 31, 2004 |       |   | December 31, 2003 |  
|Finished goods               |  | $              | 339.8 |   |                   | $ | 330.7 |  
|Goods in process             |  |                | 46.8  |   |                   |   | 40.6  |  
|Raw materials and supplies   |  |                | 163.6 |   |                   |   | 165.3 |  
|Less LIFO and other reserves |  |                | (87.6 | ) |                   |   | (82.2 | )
|                             |  |                |       |   |                   |   |       |  
|Total inventories, net       |  | $              | 462.6 |   |                   | $ | 454.4 |  
|                             |  |                |       |   |                   |   |       |  



NOTE 6. GOODWILL AND INTANGIBLE ASSETS



The following table
represents the changes in goodwill for the first quarter of 2004.



|                            |  |                |       |                    |   |      |             |  |               |   |  |   |      
|--------------------------- |  | -------------- | ----- | ------------------ | - | ---- | ----------- |  | ------------- | - |  | - | -----
|(amounts in millions)       |  | January 1,2004 |       | Adjustments,net(1) |   |      | Impairments |  | March 31,2004
|Goodwill by segment         |  |                |       |                    |   |      |             |  |               |   |  |   |      
|Resilient Flooring          |  | $              | 107.1 |                    | $ | (2.7 | )           |  | $             |  |  | $ | 104.4
|Wood Flooring               |  |                | 110.4 |                    |   |     |             |  |               |  |  |   | 110.4
|Building Products           |  |                | 14.0  |                    |   | (0.3 | )           |  |               |  |  |   | 13.7 
|Cabinets                    |  |                | 12.6  |                    |   |     |             |  |               |  |  |   | 12.6 
|                            |  |                |       |                    |   |      |             |  |               |   |  |   |      
|Total consolidated goodwill |  | $              | 244.1 |                    | $ | (3.0 | )           |  | $             |  |  | $ | 241.1
|                            |  |                |       |                    |   |      |             |  |               |   |  |   |      



|(1) | Primarily consists of the effects of foreign exchange.
|--- | ------------------------------------------------------



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The following table details amounts related to AHIs intangible assets as of March 31, 2004 and December 31, 2003.



|                              |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|----------------------------- |  | ------------------- | ----- | ----------------------- | - | ------------------- |  | ----------------------- | ----- |  | - | ----
|                              |  | March 31, 2004      |       | December 31, 2003      
|(amounts in millions)         |  | GrossCarryingAmount |       | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Amortized intangible assets   |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|Computer software             |  | $                   | 104.3 |                         | $ | 60.3                |  | $                       | 104.1 |  | $ | 57.7
|Land use rights and other     |  |                     | 4.4   |                         |   | 0.9                 |  |                         | 4.4   |  |   | 0.9 
|                              |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|Total                         |  | $                   | 108.7 |                         | $ | 61.2                |  | $                       | 108.5 |  | $ | 58.6
|                              |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|Unamortized intangible assets |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|Trademarks and brand names    |  | $                   | 29.2  |                         |   |                     |  | $                       | 29.1  |  |   |     
|                              |  |                     |       |                         |   |                     |  |                         |       |  |   |     
|Total intangible assets       |  | $                   | 137.9 |                         |   |                     |  | $                       | 137.6 |  |   |     
|                              |  |                     |       |                         |   |                     |  |                         |       |  |   |     



Aggregate Amortization Expense



|                                          |  |   |    
|----------------------------------------- |  | - | ---
|For the three months ended March 31, 2004 |  | $ | 3.8
|For the three months ended March 31, 2003 |  | $ | 4.0



NOTE 7. RESTRUCTURING AND OTHER ACTIONS



Net restructuring
charges of $2.0 million recorded in the first quarter of 2004 included charges of $2.4 million and reversals of $0.4 million. Substantially all of $2.4 million charges related to estimated severance benefits and related costs for approximately 130
employees in the Building Products manufacturing location in Hoogezand, The Netherlands. The closure of this facility is estimated to be complete by December 2004, subject to positive advice from the local works council. The production will be
transferred to another Building Products location in Münster, Germany and will result in a net reduction of approximately 72 positions. The $0.4 million of reversals comprised certain severance accruals that were no longer necessary in the
remaining accruals from the 2003 and 2002 charges in the Textiles and Sports Flooring ($0.2 million) and Resilient Flooring ($0.2 million) segments.



A $3.2 million restructuring charge was recorded in the first quarter of 2003. The charge related to severance benefits for approximately 52 employees in the Textiles and
Sports Flooring ($2.3 million) and Resilient Flooring ($0.9 million) segments, as part of the restructuring plan to consolidate certain functions in the European flooring business.



The following table summarizes activity in the reorganization and restructuring accruals for the first three months of 2004 and 2003.



|                      |  |                  |      |              |   |      |         |  |           |     |  |       |      |   |               |   |      |   |  |   |     
|--------------------- |  | ---------------- | ---- | ------------ | - | ---- | ------- |  | --------- | --- |  | ----- | ---- | - | ------------- | - | ---- | - |  | - | ----
|(amounts in millions) |  | BeginningBalance |      | CashPayments |   |      | Charges |  | Reversals |     |  | Other |      |   | EndingBalance
|2004                  |  | $                | 10.0 |              | $ | (1.2 | )       |  | $         | 2.4 |  | $     | (0.4 | ) |               | $ | 0.1  |   |  | $ | 10.9
|2003                  |  |                  | 9.1  |              |   | (0.6 | )       |  |           | 3.2 |  |       |     |   |               |   | (0.2 | ) |  |   | 11.5



The amount in other for
2004 and 2003 is primarily related to foreign currency translation.



Substantially all of the remaining balance of the restructuring accrual as of March 31, 2004 relates to a noncancelable operating lease, which extends through 2017, and severance for terminated employees with extended payouts, the majority
of which will be paid by 2005.



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NOTE 8. PENSIONS



Following are the components of net periodic benefit costs:



|                                              |  |                             |       |   |      |   |       |  
|--------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                              |  | Three MonthsEnded March 31, |      
|(amounts in millions)                         |  | 2004                        |       |   | 2003 |  
|U.S. defined-benefit plans                    |  |                             |       |   |      |   |       |  
|Pension Benefits                              |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 5.8   |   |      | $ | 5.4   |  
|Interest cost on projected benefit obligation |  |                             | 22.8  |   |      |   | 22.9  |  
|Expected return on plan assets                |  |                             | (36.9 | ) |      |   | (36.1 | )
|Amortization of prior service cost            |  |                             | 4.3   |   |      |   | 4.5   |  
|Recognized net actuarial loss                 |  |                             | 0.4   |   |      |   | 0.4   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic pension (credit)                 |  | $                           | (3.6  | ) |      | $ | (2.9  | )
|                                              |  |                             |       |   |      |   |       |  
|Retiree Health and Life Insurance Benefits    |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 0.9   |   |      | $ | 0.8   |  
|Interest cost on projected benefit obligation |  |                             | 6.3   |   |      |   | 6.6   |  
|Amortization of prior service benefit         |  |                             | (1.4  | ) |      |   | (1.3  | )
|Recognized net actuarial loss                 |  |                             | 3.2   |   |      |   | 3.1   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic postretirement benefit cost      |  | $                           | 9.0   |   |      | $ | 9.2   |  
|                                              |  |                             |       |   |      |   |       |  
|                                              | 
|                                              |  | Three MonthsEnded March 31, |      
|(amounts in millions)                         |  | 2004                        |       |   | 2003 |  
|Non-U.S. defined-benefit plans                |  |                             |       |   |      |   |       |  
|Pension Benefits                              |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 2.5   |   |      | $ | 1.9   |  
|Interest cost on projected benefit obligation |  |                             | 5.3   |   |      |   | 4.4   |  
|Expected return on plan assets                |  |                             | (3.7  | ) |      |   | (2.9  | )
|Amortization of transition obligation         |  |                             |      |   |      |   | 0.1   |  
|Amortization of prior service cost            |  |                             | 0.1   |   |      |   | 0.1   |  
|Recognized net actuarial loss                 |  |                             | 0.1   |   |      |   | 0.1   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic pension cost                     |  | $                           | 4.3   |   |      | $ | 3.7   |  
|                                              |  |                             |       |   |      |   |       |  



Medicare Act



On December 8, 2003, the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (The Act) became law in the United States. The Act expands Medicare, primarily by adding a prescription drug benefit for Medicare-eligible participants starting in 2006. The Act provides
employers currently sponsoring prescription drug programs for Medicare-eligible participants with a range of options for coordinating with the new government-sponsored program. These options include supplementing the government program on a
secondary payor basis or accepting a direct subsidy from the government to support a portion of the cost of the employers program.



Pursuant to guidance from the FASB, we have chosen to defer recognition of the potential effects of the Act. Therefore, the retiree health obligations and costs reported
in the financial statements do not yet reflect any potential impact of the Act. FASB guidance, when issued, is likely to require the company to change previously reported information.



We will review our retiree health care strategy in light of the Act. We anticipate that our retiree health costs could be reduced in the
future.



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NOTE 9. PRODUCT WARRANTIES



We provide direct customer and end-user warranties for our products. These warranties cover
manufacturing defects that would prevent the product from performing in line with its intended and marketed use. Generally, the terms of these warranties range up to 25 years and provide for the repair or replacement of the defective product. We
collect and analyze warranty claims data with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and their respective sales and the amount of current sales. The following table
illustrates the activity for product warranties for the first quarters of 2004 and 2003:



|                                        |  |      |      |   |      |   |       |  
|--------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | -
|(amounts in millions)                   |  | 2004 |      |   | 2003 |  
|Balance at January 1                    |  | $    | 25.5 |   |      | $ | 22.3  |  
|Reductions for payments                 |  |      | (9.8 | ) |      |   | (10.6 | )
|Current year warranty accruals          |  |      | 9.5  |   |      |   | 10.5  |  
|Preexisting warranty accrual changes    |  |      | (0.2 | ) |      |   |      |  
|Effects of foreign exchange translation |  |      | (0.2 | ) |      |   | 0.3   |  
|                                        |  |      |      |   |      |   |       |  
|Balance at March 31                     |  | $    | 24.8 |   |      | $ | 22.5  |  
|                                        |  |      |      |   |      |   |       |  



NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION



|                       |  |                             |      |      |   |    
|---------------------- |  | --------------------------- | ---- | ---- | - | ---
|                       |  | Three MonthsEnded March 31,
|(amounts in millions)  |  | 2004                        |      | 2003
|Interest paid          |  | $                           | 0.4  |      | $ | 0.8
|Income taxes paid, net |  | $                           | 15.6 |      | $ | 5.4



NOTE 11. LITIGATION AND RELATED MATTERS



ASBESTOS-RELATED LITIGATION



Prior to
December 6, 2000, AWI, the major operating subsidiary of AHI, had been named as a defendant in personal injury cases and property damage cases related to asbestos-containing products. On December 6, 2000, AWI filed a voluntary petition for relief
(the Filing) under Chapter 11 of the U.S. Bankruptcy Code to use the court-supervised reorganization process to achieve a resolution of AWIs asbestos-related liability.



Two of AWIs domestic subsidiaries also commenced Chapter 11 proceedings at the time of the Filing. AHI and all of AWIs other
direct and indirect subsidiaries, including Armstrong Wood Products Inc. (formerly Triangle Pacific Corp.), WAVE (Armstrongs ceiling grid systems joint venture with Worthington Industries, Inc.), Armstrong Canada and Armstrong DLW AG were not
a part of the Filing and accordingly the liabilities, including asbestos-related liability if any, of such companies arising out of their own activities will not be resolved in AWIs Chapter 11 Case except for any asbestos-related liability
that also relates, directly or indirectly, to the pre-Filing activities of AWI.



Asbestos-Related Personal Injury Claims



Prior to the Filing, AWI was a member of the Center for Claims Resolution (the CCR), which handled the defense and settlement of asbestos-related personal
injury claims on behalf of its members. The CCR pursued broad-based settlements of asbestos-related personal injury claims under the Strategic Settlement Program (SSP) and had reached agreements with law firms that covered approximately
130,000 claims that named AWI as a defendant.



Due to the Filing, holders of
asbestos-related personal injury claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against AWI. In addition, AWI ceased making payments to the CCR with respect to asbestos-related personal injury
claims, including payments pursuant to the outstanding SSP agreements. A creditors committee representing the interests of asbestos-related personal injury claimants and an individual representing the interests of future claimants



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have been appointed in the Chapter 11 Case. AWIs present and future asbestos-related liability will be addressed in its Chapter 11 Case. See Note 2
regarding AWIs Chapter 11 proceeding.



During 2003, AWI and the other
parties in its Chapter 11 Case reached agreement on a plan of reorganization that addresses how all of AWIs pre-Filing liabilities are to be settled. Several amendments to the plan of reorganization were filed, culminating in the Fourth
Amended Plan of Reorganization filed with the Bankruptcy Court on May 23, 2003, which was modified by modifications filed with the Bankruptcy Court on October 17, 2003 and November 10, 2003, and is referred to in this report as the POR.
A principal feature of the POR is the creation of a trust (the Asbestos P I Trust), pursuant to section 524(g) of the Bankruptcy Code, for the purpose of addressing AWIs personal injury (including wrongful death) asbestos-related
liability. Pursuant to the POR, all present and future asbestos-related personal injury claims against AWI, including contribution claims of co-defendants, arising directly or indirectly out of AWIs pre-Filing use of or other activities
involving asbestos will be channeled to the Asbestos P I Trust. In accordance with the 524(g) injunction to be issued by the District Court in connection with the confirmation of the POR, various entities will be protected from such present and
future asbestos-related personal injury claims. These entities include, among others, AWI as it will be reorganized, AHI, AWIs subsidiaries and other affiliates (as defined in the POR), and their respective officers and directors. Upon
emergence from Chapter 11, AWI will not have any responsibility for these claims (including claims against AWI based solely on its ownership of a subsidiary or other affiliate), nor will it participate in their resolution.



However, although AWIs domestic and foreign subsidiaries and other affiliates will be
protected parties, asbestos-related personal injury claims against them will be channeled to the Asbestos P I Trust only to the extent such claims directly or indirectly relate to the manufacturing, installation, distribution or other activities of
AWI or are based solely on AWIs ownership of the subsidiaries or other affiliates (as distinguished from independent activities of the subsidiaries or affiliates). Currently, four asbestos-related personal injury litigations against
subsidiaries of AWI allegedly arising out of such independent activities are pending.



These claims will not be channeled to the Asbestos P I Trust under the POR inasmuch as they do not involve activities of AWI. The cases have multiple defendants. The subsidiaries deny liability and are aggressively defending the matters.
AWI has not recorded any liability for these matters. Management does not expect that any sum that may have to be paid in connection with these matters will be material to Armstrong.



In addition, workers compensation claims brought against AWI or its subsidiaries or other affiliates will not be channeled to the
Asbestos P I Trust and will remain subject to the workers compensation process. Historically, workers compensation claims against AWI and its subsidiaries have not been significant in number or amount and AWI has continued to honor its
obligations with respect to such claims during the Chapter 11 Case. Workers compensation law provides that the employer is responsible for evaluation, medical treatment and lost wages as a result of a job-related injury. Currently, AWI has
only three pending workers compensation claims involving alleged asbestos exposure.



There also is uncertainty as to proceedings, if any, brought in certain foreign jurisdictions with respect to the effect of the 524(g) injunction in precluding the assertion in such jurisdictions of asbestos-related
personal injury claims, proceedings related thereto or the enforcement of judgments rendered in such proceedings.



Management believes that neither AWI nor any of its subsidiaries or other affiliates is subject to any asbestos-related personal injury claims that would not be channeled
to the Asbestos P I Trust and that are of a magnitude that, individually or collectively, would be material to reorganized Armstrong.



Before the POR may be implemented, it must be confirmed by order of the Bankruptcy Court and the U.S. District Court. In addition, consummation of the POR is subject to
the satisfaction after confirmation of certain conditions, as provided by the POR. See Note 2 for discussion of recent developments and the next steps in AWIs Chapter 11 process. AWI is unable to predict when and if the POR will be confirmed



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and implemented. Therefore, the timing and terms of resolution of the Chapter 11 Case remain uncertain. As long as this uncertainty exists, future changes to
the recorded asbestos-related liability are possible and could be material to AWIs financial position and the results of its operations. Management will continue to review the recorded liability in light of future developments in the Chapter
11 Case and make changes to the recorded liability if and when it is appropriate.



Insurance Recovery Proceedings



A substantial portion of AWIs primary and remaining excess insurance asset is nonproducts (general liability) insurance for personal injury claims. AWI has entered
into settlements with a number of the carriers resolving its coverage issues. However, an alternative dispute resolution (ADR) procedure was commenced 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.



During 1999, AWI
received preliminary decisions in the initial phases of the trial proceeding of the ADR, which were generally favorable to AWI on a number of issues related to insurance coverage. However, during the first quarter of 2001, a new trial judge was
selected for the ADR. The new trial judge conducted hearings in 2001 and determined not to rehear matters decided by the previous judge. In the first quarter of 2002, the trial judge concluded the ADR trial proceeding with findings in favor of AWI
on substantially all key issues. Liberty Mutual, the only insurer that is still a party to the ADR, appealed that final judgment. Appellate argument was held on March 11, 2003. On July 30, 2003, the appellate arbitrators ruled that AWIs claims
against certain Liberty Mutual policies were barred by the statute of limitations. The ruling did not address the merits of any of the other issues Liberty Mutual raised in its appeal. Based on that unfavorable ruling, AWI concluded that insurance
assets of $73 million were no longer probable of recovery. AWI was also ordered to reimburse Liberty Mutual for certain costs and administration fees that Liberty Mutual incurred during the ADR. The amount of these costs and fees is unknown and AWI
is currently unable to estimate the amount. Based upon an AWI request, the appellate panel held a rehearing on November 21, 2003. In January 2004, the appellate panel upheld its initial ruling. On February 4, 2004, AWI filed a motion in the U.S.
District Court for the Eastern District of Pennsylvania to vacate the rulings of the appellate panel.



In July 2002, AWI filed a lawsuit against Liberty Mutual in the U.S. District Court for the Eastern District of Pennsylvania seeking, among other things, a declaratory judgment with respect to certain policy issues
not subject to binding ADR. The U.S. District Court has not yet set a schedule to hear this matter.



On June 13, 2003, the New Hampshire Insurance Department placed The Home Insurance Company (Home) under an order of liquidation. Less than $10 million of AWIs recorded insurance asset is based on
policies with Home, which management believes is probable of recovery. AWI intends to file a proof of claim against Home by the June 2004 deadline. It is uncertain when AWI will receive proceeds from Home under these insurance policies.



Insurance Asset



An insurance asset in respect of asbestos claims in the amount of $103.1 million was
recorded as of March 31, 2004 and December 31, 2003. Approximately $14 million of the total $103.1 million asset represents partial settlement for previous claims that 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 AWIs belief that insurance proceeds will be recovered in this amount, based upon AWIs success in insurance recoveries, 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 or litigation in our opinion. 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 (the former AWI insulation contracting subsidiary that was sold in August 1969
and which filed for relief under Chapter 11 of the Bankruptcy Code in September 2002) and the financial condition of the insurers, AWI may revise its estimate of probable insurance recoveries. Approximately $79 million of the $103.1 million asset is
determined from



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agreed coverage in place. Of the $103.1 million, $8.0 million has been recorded as a current asset as of March 31, 2004 reflecting managements estimate
of the minimum insurance payments to be received in the next 12 months.



Many
uncertainties remain in the insurance recovery process, therefore, AWI did not increase the estimated insurance recovery asset in the first quarters of 2004 and 2003.



Cash Flow Impact



As a result of the Chapter 11 Filing, AWI did not make any payments for asbestos-related personal injury claims in the first quarters of
2004 and 2003. Additionally, AWI did not receive any asbestos-related insurance recoveries during the first quarters of 2004 and 2003. During the pendency of the Chapter 11 Case, AWI does not expect to make any further cash payments for
asbestos-related claims, but AWI expects to continue to receive insurance proceeds under the terms of various settlement agreements. Management estimates that the timing of future cash recoveries of the recorded asset may extend beyond 10 years.



Potential Legislation



On April 6, 2004, S.2290 (Fairness in Asbestos Injury Resolution Act of 2004) was introduced
in the Senate. On April 22, 2004, proponents of the bill failed to obtain sufficient votes to pass a cloture motion to bring the bill to the Senate floor, which effectively stopped the bill from being considered. Since April 22, the Senate
leadership has agreed to a series of mediated negotiations to explore whether a compromise on the merits of the bill can be reached. There is uncertainty as to whether the current or any other proposal will become law, and what impact there might be
on AWIs asbestos liability and/or AWIs Chapter 11 Case. Prior efforts to enact asbestos legislation have not been successful.



Conclusion



Many uncertainties continue to exist about the matters impacting AWIs asbestos-related liability and insurance asset. These uncertainties include when and if the
POR will be confirmed by the U.S. District Court, the impact of any potential legislation, and the financial condition of AWIs insurance carriers. Additionally, if the POR is confirmed, AWI is unable to predict when it will be implemented.
Therefore, the timing and terms of resolution of the Chapter 11 Case remain uncertain. As long as this uncertainty exists, future changes to the recorded liability and insurance asset are possible and could be material to AWIs financial
position and the results of its operations. Management will continue to review the recorded liability and insurance asset in light of future developments in the Chapter 11 Case and make changes to the recorded amounts if and when it is appropriate.



ENVIRONMENTAL MATTERS



Environmental Expenditures



Most of our manufacturing and certain of our research facilities are affected by various
federal, state and local environmental requirements relating to the discharge of materials or the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at our operating facilities. As
a result of continuous changes in regulatory requirements, we cannot predict with certainty future expenditures associated with compliance with environmental requirements.



Environmental Remediation



Summary



We are involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and similar state
Superfund laws at approximately 26 sites. In most cases, we are one of many potentially responsible parties (PRPs) which have potential liability for the required investigation and remediation of each site and which, in some
cases, have agreed to jointly fund that required investigation and remediation. With regard to some sites, however, we dispute the liability, the proposed remedy or the proposed cost allocation among the PRPs. We may have rights of contribution or
reimbursement from other parties or coverage under applicable insurance policies.



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We have also been remediating environmental contamination resulting from past industrial activity at certain of our
former plant sites. Estimates of our future environmental liability at the Superfund sites and current or former plant sites are based on evaluations of currently available facts regarding each individual site and consider factors such as our
activities in conjunction with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund
sites, our 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 remediation. As a result, our estimated liability reflects only our expected share.
In determining the probability of contribution, we consider the solvency of the parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters. Additionally, the Chapter 11 Case also may affect
the ultimate amount of such contributions.



Effects of Chapter 11



Certain of AWIs environmental liabilities are subject to discharge
through its Chapter 11 Case while others are not. Those environmental obligations that AWI has with respect to property that it owns or operates are likely to be unaffected by the Chapter 11 Case. Therefore, AWI will be required to continue meeting
its on-going environmental compliance obligations at the properties that AWI owns and operates. AWI will also be required to address the effects of any contamination at those sites, even if the contamination predated Chapter 11 Filing. In addition,
AWI may be obligated to remedy the off-site impact of activities that occurred on the properties it owns and operates.



AWIs payments and remediation work on such sites for which AWI is a PRP is under review in light of the Chapter 11 Filing. The bar date for claims from the United
States Environmental Protection Agency (EPA) expired during the third quarter of 2003. AWI received an unliquidated proof of claim from the EPA.



Monetary claims with respect to properties that AWI does not own or operate (such as formerly owned sites, or landfills to which AWIs waste was taken) may be
discharged in AWIs Chapter 11 Case. Accordingly, claims brought by the federal or a state agency alleging that AWI should reimburse the claimant for money that it spent cleaning up a site which AWI does not own or operate would be subject to
discharge, provided the claimant received proper notice of the bankruptcy and bar date. The same would be true for monetary claims by private parties, such as other PRPs with respect to multiple party sites. Under the POR, the Superfund sites at
which AWI is alleged to be a PRP are being treated as unsecured liabilities subject to compromise. Other Superfund sites relate to entities that are not part of AWIs Chapter 11 Case and therefore will not be discharged.



In addition to the right to sue for reimbursement of the money it spends, CERCLA also gives
the federal government the right to sue for an injunction compelling a defendant to perform a cleanup. Several state statutes give similar injunctive rights to those States. Bankruptcy law is unsettled as to whether these injunctive rights are
dischargeable or not. Thus, according to some cases, while a governmental agencys right to require AWI to reimburse it for the costs of cleaning up a site may be dischargeable, the same government agencys right to compel us to spend our
money cleaning up the same site may not be, even though the financial impact to AWI would be the same in both instances.



AWIs strategy has been to try to resolve as many of its environmental liabilities through its Chapter 11 Case as possible. AWI has been negotiating with the
Department of Justice and the EPA to reach a global environmental settlement on approximately 30 sites. AWI has asked the federal government to agree, as it did in other settlements with debtors in their bankruptcies, to covenant not to sue us for
either monetary or injunctive relief, in exchange for an allowed claim amount in the bankruptcy with respect to known claims concerning sites that AWI does not own or operate. Under the proposed settlement, AWI would have contribution protection
under CERCLA with respect to private party claims. In addition, AWI would have the benefit of the discharge as to monetary claims. At this point, the parties are still in the process of negotiating the settlement.



If no global settlement is reached, AWI anticipates that it will ask the Bankruptcy Court to
determine the amount of the EPA proof of claim and grant a discharge. At that time, the government may seek to have



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the amount of its claim determined as the total cost of cleanup under a theory of joint and several liability, not just AWIs share. As discussed above,
although the governments right to monetary relief is subject to discharge, there is uncertainty in the law as to whether the governments right to injunctive relief would also be subject to discharge.



Specific Events



In 2001, the EPA notified AWI that it may be a PRP at the Peterson Puritan site. However, AWI did not learn that the EPA may consider it a
substantial contributor of waste to the site until July 2003. At which time, the EPA notified AWI of the EPAs estimate of the sites future cleanup costs, with its assessment of AWIs share of the costs being a range of $17.8 million
to $26.2 million. Subsequently, AWI presented information to the EPA indicating that AWIs share should be much lower. Presently, the parties are continuing to negotiate. The EPA has not initiated any formal proceedings against AWI with respect
to this site, other than sending information requests to AWI and filing a proof of claim in AWIs Chapter 11 Case. AWI continues to review this matter but disputes the assessment. As discussed above (Effects of Chapter 11), management is
currently in discussions with the Department of Justice and the EPA to reach a global environmental settlement, which would resolve the proof of claim against AWI, including this site.



AWI is subject to a unilateral order by the Oregon Department of Environmental Quality (DEQ) to conduct a remedial investigation
and feasibility study and any necessary remedial design and action at its St. Helens, Oregon facility, as well as the adjacent Scappoose Bay. AWI has denied liability for Scappoose Bay, but has cooperated with the DEQ regarding its owned property.
Other potentially responsible parties who are not yet subject to orders by the DEQ include former site owners Owens Corning (OC) and Kaiser Gypsum Company, Inc. (Kaiser). AWI has entered into an agreement with Kaiser for the
sharing of costs and responsibilities with respect to the remedial investigation, feasibility study and remedy selection at the site. OC has entered into a settlement with the DEQ. Pursuant to the settlement, OC has made a lump sum payment to the
DEQ in exchange for contribution protection (including protection against common law and statutory contribution claims by AWI against OC) and a covenant not to sue. AWI has negotiated with the DEQ as to how these funds will be made available for the
investigation and remediation of the site. AWI has recorded an environmental liability with respect to the investigation and feasibility study at its St. Helens facility, but not for Scappoose Bay because AWI continues to dispute
responsibility for contamination of Scappoose Bay.



Summary of Financial
Position



Liabilities of $22.0 million and $21.2 million at March 31, 2004
and December 31, 2003, respectively, were for potential environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made. Where existing data is sufficient to estimate the liability,
that estimate has been used; where only a range of probable liabilities 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
site, these liabilities are reviewed to reflect additional information as it becomes available. Due to the Chapter 11 Filing, $12.8 million of the March 31, 2004 and December 31, 2003 environmental liabilities are classified as prepetition
liabilities subject to compromise. As a general rule, the Chapter 11 process does not preserve company assets for such prepetition liabilities.



The estimated liabilities above 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 condensed consolidated financial statements and are either available through settlement or anticipated to be recovered through negotiation or litigation. The amount of the recorded asset for estimated recoveries was $2.4 million and
$2.5 million at March 31, 2004 and December 31, 2003, respectively.



Actual
costs to be incurred at identified sites may vary from our estimates. Based on our current knowledge of the identified sites, we believe that any sum we may have to pay in connection with environmental matters in excess of the amounts noted above
would not have a material adverse effect on our financial condition, or liquidity, although the recording of future costs may be material to earnings in such future period.



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PATENT INFRINGEMENT CLAIMS



We are a defendant in two related lawsuits claiming patent infringement related to some of
our laminate products. The plaintiffs have claimed unspecified monetary damages. We are being defended and indemnified by our supplier for all costs and potential damages related to the litigation.



FORMER EMPLOYEES CLAIM



Former Armstrong employees that were separated from the company in two business divestitures
in 2000 brought two purported class actions against the Retirement Committee of AWI, certain current and former members of the Retirement Committee, the Retirement Savings and Stock Ownership Plan (RSSOP), AHI and the trustee bank of the RSSOP.
Plaintiffs alleged breach of Employee Retirement Income Security Act (ERISA) fiduciary duties and other violations of ERISA pertaining to losses in their RSSOP accounts, which were invested in Armstrong common stock.



An agreement was reached to settle this matter. Contributors to the settlement were AWI, its
insurer and the trustee bank of the RSSOP. The full amount of the settlement was allocated in December 2003 among approximately 370 former employees. AWIs portion of the settlement is $1.0 million, which will be treated as convenience claims
in the Chapter 11 Case. The settlement was approved by the Bankruptcy Court on March 31, 2003 and by the United States District Court (Eastern District of PA) on June 16, 2003. Based upon the Bankruptcy Courts approval of the settlement, AWI
recorded a $1.0 million charge in the first quarter of 2003 as an other non-operating expense.



DEPARTMENT OF LABOR SETTLEMENT



Subsequent to an audit by the United States Department of Labor (DOL), we were informed that the DOL was challenging the validity of the use of certain
contributions, in the approximate aggregate amount of $33.4 million, to fund debt payments made by the Armstrong Employee Stock Ownership Plan (ESOP), as provided for by that plan. We reached a settlement with the DOL to resolve this
matter with a funding to the ESOP of $1.5 million, which was distributed to plan participants in accordance with terms of the agreement in February 2004. Insurance and third parties funded $0.9 million of the settlement. Both the accrual of $1.5
million expense and $0.9 million insurance receivable was recorded in the third quarter of 2003 as a SG&A expense.



OTHER CLAIMS



Additionally, we are involved in various other claims and legal actions involving product liability, patent infringement, distributor termination, employment law issues
and other actions arising in the ordinary course of business. While complete assurance cannot be given to the outcome of these claims, we do not expect that any sum that may have to be paid in connection with these matters will have a materially
adverse effect on our consolidated financial position or liquidity, however it could be material to the results of operations in the particular period in which a matter is resolved.



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



The difference between the condensed consolidated financial statements is primarily due to stock activity and intercompany transactions.



|NOTE 13. | EARNINGS PER SHARE
|-------- | ------------------



The difference between the average number of basic and diluted common shares outstanding is due to contingently issuable shares. Earnings per share components may not add due to rounding.



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|NOTE 14. | SUBSEQUENT EVENT
|-------- | ----------------



On April 23, 2004, a key U.S. supplier of PVC resins to Armstrong had a substantial portion of one of its plants destroyed in an explosion. PVC resins are a key raw material for manufacturing vinyl flooring, and this
plant represented a sizeable portion of the capacity for these resins in the U.S. We are trying to secure alternative sources of supply of the resins. We are also evaluating product formulation changes that would reduce the use of the resins.
However, temporary disruption in manufacturing certain vinyl flooring products may occur. The costs of raw materials and of producing the reformulated products may rise. These factors may have a material impact on future results of operations.
During the first quarter of 2004, sales of the products affected by this event amounted to approximately $167 million. At this time, we are unsure of the timing of a resolution and the actual impact of this event on our operations.



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Independent Accountants Review Report



The
Board of Directors and Shareholders

Armstrong Holdings, Inc.:



We have reviewed the accompanying condensed consolidated balance sheet of Armstrong Holdings, Inc., and subsidiaries (the Company) as of March 31, 2004, and
the related condensed consolidated statements of earnings for the three-month periods ended March 31, 2004 and 2003, and the related condensed consolidated statements of cash flows and shareholders equity for the three-month periods ended
March 31, 2004 and 2003. 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 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 accounting principles generally accepted in the United States of America.



We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Armstrong
Holdings, Inc., and subsidiaries as of December 31, 2003, 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 25, 2004, we
expressed an unqualified opinion on those consolidated financial statements. Our report dated February 25, 2004 contains an explanatory paragraph that states that three of the Companys domestic subsidiaries, including Armstrong World
Industries, Inc., the Companys major operating subsidiary, filed separate voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court on December 6, 2000, and that the filing under
Chapter 11 and the increased uncertainty regarding the Companys potential asbestos liability raise substantial doubt about the Companys ability to continue as a going concern. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ KPMG LLP



Philadelphia, Pennsylvania

April 28, 2004



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Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Earnings

(amounts in millions, except per share amounts)

Unaudited



|                                                                      |  |                              |       |   |      |   |       |  
|--------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                      |  | Three Months Ended March 31, |      
|                                                                      |  | 2004                         |       |   | 2003 |  
|Net sales                                                             |  | $                            | 845.0 |   |      | $ | 774.9 |  
|Cost of goods sold                                                    |  |                              | 661.4 |   |      |   | 608.4 |  
|                                                                      |  |                              |       |   |      |   |       |  
|Gross profit                                                          |  |                              | 183.6 |   |      |   | 166.5 |  
|Selling, general and administrative expenses                          |  |                              | 148.4 |   |      |   | 157.3 |  
|Restructuring and reorganization charges, net                         |  |                              | 2.0   |   |      |   | 3.2   |  
|Equity (earnings) from affiliates, net                                |  |                              | (6.6  | ) |      |   | (5.3  | )
|                                                                      |  |                              |       |   |      |   |       |  
|Operating income                                                      |  |                              | 39.8  |   |      |   | 11.3  |  
|Interest expense (unrecorded contractual interest of $21.7 and $24.8) |  |                              | 2.2   |   |      |   | 2.8   |  
|Other non-operating expense                                           |  |                              | 1.9   |   |      |   | 1.3   |  
|Other non-operating (income)                                          |  |                              | (1.2  | ) |      |   | (0.8  | )
|Chapter 11 reorganization costs, net                                  |  |                              | 2.5   |   |      |   | 4.0   |  
|                                                                      |  |                              |       |   |      |   |       |  
|Earnings before income taxes                                          |  |                              | 34.4  |   |      |   | 4.0   |  
|Income tax expense                                                    |  |                              | 16.7  |   |      |   | 2.1   |  
|                                                                      |  |                              |       |   |      |   |       |  
|Net earnings                                                          |  | $                            | 17.7  |   |      | $ | 1.9   |  
|                                                                      |  |                              |       |   |      |   |       |  



See
accompanying notes to condensed consolidated financial statements beginning on page 36.



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Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in millions, except share data)



|                                                                                                                     |  |                          |          |   |                   |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ----------------- | - | -------- | -
|                                                                                                                     |  | Unaudited March 31, 2004 |          |   | December 31, 2003 |  
|Assets                                                                                                               |  |                          |          |   |                   |   |          |  
|Current Assets:                                                                                                      |  |                          |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                            |  | $                        | 436.1    |   |                   | $ | 484.3    |  
|Accounts and notes receivable, net                                                                                   |  |                          | 388.4    |   |                   |   | 315.4    |  
|Inventories, net                                                                                                     |  |                          | 462.6    |   |                   |   | 454.4    |  
|Deferred income taxes                                                                                                |  |                          | 18.8     |   |                   |   | 19.2     |  
|Other current assets                                                                                                 |  |                          | 88.2     |   |                   |   | 85.5     |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total current assets                                                                                                 |  |                          | 1,394.1  |   |                   |   | 1,358.8  |  
|Property, plant and equipment, less accumulated depreciation and amortization of $1,440.4 and $1,434.8, respectively |  |                          | 1,243.0  |   |                   |   | 1,267.3  |  
|Insurance receivable for asbestos-related liabilities, noncurrent                                                    |  |                          | 95.1     |   |                   |   | 95.1     |  
|Prepaid pension costs                                                                                                |  |                          | 460.7    |   |                   |   | 455.1    |  
|Investment in affiliates                                                                                             |  |                          | 55.6     |   |                   |   | 48.9     |  
|Goodwill, net                                                                                                        |  |                          | 241.1    |   |                   |   | 244.1    |  
|Other intangibles, net                                                                                               |  |                          | 76.7     |   |                   |   | 79.0     |  
|Deferred income taxes, noncurrent                                                                                    |  |                          | 988.8    |   |                   |   | 988.3    |  
|Other noncurrent assets                                                                                              |  |                          | 111.0    |   |                   |   | 111.2    |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total assets                                                                                                         |  | $                        | 4,666.1  |   |                   | $ | 4,647.8  |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Liabilities and Shareholders Equity                                                                                 |  |                          |          |   |                   |   |          |  
|Current liabilities:                                                                                                 |  |                          |          |   |                   |   |          |  
|Short-term debt                                                                                                      |  | $                        | 8.8      |   |                   | $ | 3.9      |  
|Current installments of long-term debt                                                                               |  |                          | 7.8      |   |                   |   | 8.2      |  
|Accounts payable and accrued expenses                                                                                |  |                          | 359.0    |   |                   |   | 354.2    |  
|Short-term amounts due to affiliates                                                                                 |  |                          | 9.8      |   |                   |   | 10.0     |  
|Income taxes                                                                                                         |  |                          | 42.1     |   |                   |   | 45.9     |  
|Deferred income taxes                                                                                                |  |                          | 3.3      |   |                   |   | 3.3      |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total current liabilities                                                                                            |  |                          | 430.8    |   |                   |   | 425.5    |  
|Liabilities subject to compromise                                                                                    |  |                          | 4,862.3  |   |                   |   | 4,863.2  |  
|Long-term debt, less current installments                                                                            |  |                          | 38.0     |   |                   |   | 39.4     |  
|Postretirement and postemployment benefit liabilities                                                                |  |                          | 263.4    |   |                   |   | 262.3    |  
|Pension benefit liabilities                                                                                          |  |                          | 212.5    |   |                   |   | 216.4    |  
|Other long-term liabilities                                                                                          |  |                          | 83.9     |   |                   |   | 81.2     |  
|Deferred income taxes                                                                                                |  |                          | 95.1     |   |                   |   | 95.1     |  
|Minority interest in subsidiaries                                                                                    |  |                          | 9.5      |   |                   |   | 9.7      |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total noncurrent liabilities                                                                                         |  |                          | 5,564.7  |   |                   |   | 5,567.3  |  
|Shareholders equity (deficit):                                                                                      |  |                          |          |   |                   |   |          |  
|Common stock, $1 par value per share Authorized 200 million shares; issued 51,878,910 shares                         |  |                          | 51.9     |   |                   |   | 51.9     |  
|Capital in excess of par value                                                                                       |  |                          | 172.9    |   |                   |   | 172.7    |  
|Reduction for ESOP loan guarantee                                                                                    |  |                          | (142.2   | ) |                   |   | (142.2   | )
|Accumulated deficit                                                                                                  |  |                          | (924.5   | ) |                   |   | (942.2   | )
|Accumulated other comprehensive income                                                                               |  |                          | 41.0     |   |                   |   | 43.3     |  
|Less common stock in treasury, at cost 2004 and 2003  11,393,170 shares                                             |  |                          | (528.5   | ) |                   |   | (528.5   | )
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total shareholders (deficit)                                                                                        |  |                          | (1,329.4 | ) |                   |   | (1,345.0 | )
|                                                                                                                     |  |                          |          |   |                   |   |          |  
|Total liabilities and shareholders equity                                                                           |  | $                        | 4,666.1  |   |                   | $ | 4,647.8  |  
|                                                                                                                     |  |                          |          |   |                   |   |          |  



See
accompanying notes to condensed consolidated financial statements beginning on page 36.



33



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Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Shareholders Equity

(amounts in millions,
except per share amounts)

Unaudited



|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|---------------------------------------------- |  | ---- | -------- | - | ---- | - | ---- | - |  | - | -------- | - |  | - | ---
|                                               |  | 2004 |          |   | 2003
|Common stock, $1 par value:                    |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | 51.9     |   |      |   |      |   |  | $ | 51.9     |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Capital in excess of par value:                |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | 172.7    |   |      |   |      |   |  | $ | 172.9    |   |  |   |    
|Stock issuances and other                      |  |      | 0.2      |   |      |   |      |   |  |   |         |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | 172.9    |   |      |   |      |   |  | $ | 172.9    |   |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Reduction for ESOP loan guarantee:             |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | (142.2   | ) |      |   |      |   |  | $ | (142.2   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Retained earnings (accumulated deficit):       |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | (942.2   | ) |      |   |      |   |  | $ | (902.9   | ) |  |   |    
|Net earnings for period                        |  |      | 17.7     |   |      | $ | 17.7 |   |  |   | 1.9      |   |  | $ | 1.9
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | (924.5   | ) |      |   |      |   |  | $ | (901.0   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Accumulated other comprehensive income (loss): |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year                   |  | $    | 43.3     |   |      |   |      |   |  | $ | (12.2    | ) |  |   |    
|Foreign currency translation adjustments       |  |      | (1.9     | ) |      |   |      |   |  |   | 5.9      |   |  |   |    
|Derivative (loss) gain, net                    |  |      | (0.5     | ) |      |   |      |   |  |   | 0.8      |   |  |   |    
|Minimum pension liability adjustments          |  |      | 0.1      |   |      |   |      |   |  |   | (0.2     | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Total other comprehensive income (loss)        |  |      | (2.3     | ) |      |   | (2.3 | ) |  |   | 6.5      |   |  |   | 6.5
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at March 31                            |  | $    | 41.0     |   |      |   |      |   |  | $ | (5.7     | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Comprehensive income                           |  |      |          |   |      | $ | 15.4 |   |  |   |          |   |  | $ | 8.4
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Less treasury stock at cost:                   |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Balance at beginning of year and March 31      |  | $    | (528.5   | ) |      |   |      |   |  | $ | (528.5   | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    
|Total shareholders (deficit)                  |  | $    | (1,329.4 | ) |      |   |      |   |  | $ | (1,352.6 | ) |  |   |    
|                                               |  |      |          |   |      |   |      |   |  |   |          |   |  |   |    



See
accompanying notes to condensed consolidated financial statements beginning on page 36.



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##### Table of Contents

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

Unaudited



|                                                                                 |  |                              |       |   |      |   |       |  
|-------------------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                 |  | Three Months Ended March 31, |      
|                                                                                 |  | 2004                         |       |   | 2003 |  
|Cash flows from operating activities:                                            |  |                              |       |   |      |   |       |  
|Net earnings                                                                     |  | $                            | 17.7  |   |      | $ | 1.9   |  
|Adjustments to reconcile net earnings to net cash used for operating activities: |  |                              |       |   |      |   |       |  
|Depreciation and amortization                                                    |  |                              | 34.9  |   |      |   | 35.2  |  
|Deferred income taxes                                                            |  |                              | 0.3   |   |      |   |      |  
|Equity (earnings) from affiliates, net                                           |  |                              | (6.6  | ) |      |   | (5.3  | )
|Chapter 11 reorganization costs, net                                             |  |                              | 2.5   |   |      |   | 4.0   |  
|Chapter 11 reorganization costs payments                                         |  |                              | (6.9  | ) |      |   | (6.6  | )
|Restructuring and reorganization charges, net of reversals                       |  |                              | 2.0   |   |      |   | 3.2   |  
|Restructuring and reorganization payments                                        |  |                              | (1.2  | ) |      |   | (0.6  | )
|Cash effect of hedging activities                                                |  |                              | 2.6   |   |      |   | (2.6  | )
|Increase (decrease) in cash from change in:                                      |  |                              |       |   |      |   |       |  
|Receivables                                                                      |  |                              | (75.6 | ) |      |   | (33.6 | )
|Inventories                                                                      |  |                              | (10.9 | ) |      |   | (31.3 | )
|Other current assets                                                             |  |                              | 0.3   |   |      |   | (4.4  | )
|Other noncurrent assets                                                          |  |                              | (6.9  | ) |      |   | (2.8  | )
|Accounts payable and accrued expenses                                            |  |                              | 12.6  |   |      |   | (6.2  | )
|Income taxes payable                                                             |  |                              | (3.8  | ) |      |   | (1.7  | )
|Other long-term liabilities                                                      |  |                              | 3.7   |   |      |   | (0.4  | )
|Other, net                                                                       |  |                              | (1.3  | ) |      |   | (2.6  | )
|                                                                                 |  |                              |       |   |      |   |       |  
|Net cash (used for) operating activities                                         |  |                              | (36.6 | ) |      |   | (53.8 | )
|                                                                                 |  |                              |       |   |      |   |       |  
|Cash flow from investing activities:                                             |  |                              |       |   |      |   |       |  
|Purchases of property, plant and equipment and computer software                 |  |                              | (16.7 | ) |      |   | (21.7 | )
|Distributions from equity affiliates                                             |  |                              |      |   |      |   | 3.0   |  
|Proceeds from the sale of assets                                                 |  |                              | 0.9   |   |      |   | 1.8   |  
|                                                                                 |  |                              |       |   |      |   |       |  
|Net cash (used for) investing activities                                         |  |                              | (15.8 | ) |      |   | (16.9 | )
|                                                                                 |  |                              |       |   |      |   |       |  
|Cash flows from financing activities:                                            |  |                              |       |   |      |   |       |  
|Increase/(decrease) in short-term debt, net                                      |  |                              | 5.1   |   |      |   | (4.9  | )
|Payments of long-term debt                                                       |  |                              | (0.7  | ) |      |   | (0.7  | )
|Other, net                                                                       |  |                              | (0.2  | ) |      |   | (0.1  | )
|                                                                                 |  |                              |       |   |      |   |       |  
|Net cash provided by (used for) financing activities                             |  |                              | 4.2   |   |      |   | (5.7  | )
|                                                                                 |  |                              |       |   |      |   |       |  
|Effect of exchange rate changes on cash and cash equivalents                     |  |                              |      |   |      |   | 1.1   |  
|                                                                                 |  |                              |       |   |      |   |       |  
|Net (decrease) in cash and cash equivalents                                      |  | $                            | (48.2 | ) |      | $ | (75.3 | )
|Cash and cash equivalents at beginning of year                                   |  |                              | 484.3 |   |      |   | 380.0 |  
|                                                                                 |  |                              |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                       |  | $                            | 436.1 |   |      | $ | 304.7 |  
|                                                                                 |  |                              |       |   |      |   |       |  



See
accompanying notes to condensed consolidated financial statements beginning on page 36.



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##### Table of Contents

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements



NOTE 1. BASIS OF PRESENTATION



Armstrong World Industries, Inc. (AWI) is a Pennsylvania corporation incorporated in 1891. Armstrong Holdings, Inc. is a Delaware corporation and the publicly
held parent holding company of AWI. Armstrong Holdings, Inc.s only significant asset and operation is its indirect ownership, through Armstrong Worldwide, Inc., of all of the capital stock of AWI. We include separate financial statements for
Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries in this report because both companies have public securities that are registered under the Securities Exchange Act of 1934. The difference between the financial statements of
Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries is primarily due to transactions that occurred in 2000 related to the formation of Armstrong Holdings, Inc. and to employee compensation-related stock activity. However,
there are no differences in the income statements presented in this report for Armstrong Holdings, Inc. and its subsidiaries and AWI and its subsidiaries, and minimal differences in the remaining three financial statements of each entity. Due to the
lack of material differences in the financial statements, when we refer in this document to Armstrong Holdings, Inc. and its subsidiaries as AHI, Armstrong, we, us, and ourselves, we are
also effectively referring to AWI and its subsidiaries. We use the term AWI when we are referring solely to Armstrong World Industries, Inc.



The accounting policies used in preparing these statements are the same as those used in preparing AHIs condensed consolidated financial statements for the year
ended December 31, 2003, which includes the accounts of AHI and its majority-owned subsidiaries. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in
AHIs Form 10-K for the fiscal year ended December 31, 2003. 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, primarily due to the different level of sales in each quarter of the year and the possibility of changes in general economic conditions.



Operating results for the first quarter of 2004 and the corresponding period of 2003 included
in this report are unaudited. However, these condensed consolidated financial statements have been reviewed by independent public accountants in accordance with established professional standards and procedures for a limited review of interim
financial information. Certain prior year amounts have been reclassified to conform to the current year presentation.



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##### Table of Contents

Effective December 31, 2002, AHI adopted SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, which requires the following disclosure in annual and interim reports. The following table illustrates the effect on net income if AHI had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  |                             |      |      |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | ---- | - | ---- | -
|                                                                                                                                            |  | Three MonthsEnded March 31, |     
|(amounts in millions)                                                                                                                       |  | 2004                        |      | 2003 |  
|Net income, as reported                                                                                                                     |  | $                           | 17.7 |      | $ | 1.9  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                             |     |      |   | 0.1  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             |     |      |   | (0.1 | )
|                                                                                                                                            |  |                             |      |      |   |      |  
|Pro forma net income                                                                                                                        |  | $                           | 17.7 |      | $ | 1.9  |  
|                                                                                                                                            |  |                             |      |      |   |      |  



NOTE 2. CHAPTER 11 REORGANIZATION



Proceedings under Chapter 11



On December 6, 2000, AWI, the
major operating subsidiary of AHI, filed a voluntary petition for relief (the Filing) under Chapter 11 of the U.S. Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court) in order to use the court-supervised reorganization process to achieve a resolution of the AWIs asbestos-related liability. Also filing under Chapter 11 were two of AWIs wholly-owned subsidiaries, Nitram
Liquidators, Inc. (Nitram) and Desseaux Corporation of North America, Inc. (Desseaux). The Chapter 11 cases are being jointly administered under case number 00-4471 (the Chapter 11 Case). Shortly after its
commencement, the Chapter 11 Case was assigned to Judge Randall J. Newsome. His appointment as a visiting judge in the District of Delaware ended on December 31, 2003. On January 6, 2004, the Chapter 11 Case was reassigned to Judge Judith K.
Fitzgerald.



AHI and all of AWIs other direct and indirect subsidiaries,
including Armstrong Wood Products Inc. (formerly Triangle Pacific Corp.), WAVE (AWIs ceiling grid systems joint venture with Worthington Industries, Inc.), Armstrong Canada, and Armstrong DLW AG, were not a part of the Filing and accordingly,
except for any asbestos-related liability that also relates, directly or indirectly, to the pre-Filing activities of AWI, the liabilities, including asbestos-related liability if any, of such companies will not be resolved in AWIs Chapter 11
Case. See below under The Asbestos Personal Injury Trust and Note 11 under Asbestos-Related Litigation.



AWI is operating its business and managing its properties as a debtor-in-possession subject to the provisions of the Bankruptcy Code. Pursuant to the provisions of the
Bankruptcy Code, AWI is not permitted to pay any claims or obligations which arose prior to the Filing date (prepetition claims) unless specifically authorized by the Bankruptcy Court. Similarly, claimants may not enforce any claims against AWI that
arose prior to the date of the Filing unless specifically authorized by the Bankruptcy Court. In addition, as a debtor-in-possession, AWI has the right, subject to the Bankruptcy Courts approval, to assume or reject any executory contracts and
unexpired leases in existence at the date of the Filing. Some of these have been specifically assumed and others have been specifically rejected already in the course of the Chapter 11 Case. In the plan of reorganization which it has proposed, as
described below, AWI has indicated the other executory contracts and unexpired leases that it intends to assume or reject upon consummation of the plan; any not specifically assumed under the plan will be rejected upon consummation of the plan.
Parties having claims as a result of the rejection of a contract may file claims with the Bankruptcy Court, which will be dealt with as part of the Chapter 11 Case.



Three creditors committees, one representing asbestos personal injury claimants (the Asbestos Personal Injury Claimants
Committee), one representing asbestos property damage claimants (the Asbestos



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##### Table of Contents

Property Damage Committee), and the other representing other unsecured creditors (the Unsecured Creditors Committee), were appointed
in the Chapter 11 Case. In addition, an individual was appointed to represent the interests of future asbestos personal injury claimants (the Future Claimants Representative). In accordance with the provisions of the Bankruptcy
Code, these parties have the right to be heard on matters that come before the Bankruptcy Court in the Chapter 11 Case. Upon resolution of all asbestos property damage claims, the Asbestos Property Damage Committee was disbanded.



Plan of Reorganization



On November 4, 2002, AWI filed a Plan of Reorganization with the Bankruptcy Court. During
2003, AWI filed several amendments to the plan with the Bankruptcy Court, along with various exhibits. The Fourth Amended Plan of Reorganization, with certain exhibits, was filed on May 23, 2003 and, as so amended and as modified by modifications
filed with the Bankruptcy Court on October 17, 2003 and November 10, 2003, is referred to in this report as the POR. The POR provides for AWI to continue to conduct its existing lines of business with a reorganized capital structure
under which, among other things, its existing shares of stock will be cancelled and new common shares and notes will be issued to its unsecured creditors and to a trust, as further discussed below, to be established under the POR for the benefit of
AWIs current and future asbestos-related personal injury claimants, in full satisfaction of their claims against AWI. References in this report to reorganized Armstrong are to AWI as it would be reorganized under the POR, and its
subsidiaries collectively. The POR excludes AWIs Nitram and Desseaux subsidiaries, neither of which is material to Armstrong and which are pursuing separate resolutions of their Chapter 11 cases that are expected to result in the winding up of
their affairs.



During 2003, the POR was submitted for a vote by AWIs
creditors for its approval. It was approved by each creditor class that was entitled to vote on the POR except the class of unsecured creditors. On November 17 and 18, 2003, the Bankruptcy Court held a hearing on confirmation of the Plan and on
December 19, 2003, issued proposed findings of fact and conclusions of law and a proposed order confirming the POR, notwithstanding the rejection of the POR by the class of unsecured creditors. On December 29, 2003, the Unsecured Creditors
Committee filed an objection to the Bankruptcy Courts proposed findings of fact and conclusions of law and the proposed order of confirmation of the POR. This objection remains pending with the U.S. District Court. Confirmation of the POR
requires action of the U.S. District Court, as well as the Bankruptcy Court, in accordance with the Bankruptcy Code. At this time, the District Court judge involved in the Chapter 11 Case has stayed all proceedings before him concerning the Chapter
11 Case. See Recent Developments and Next Steps in the Chapter 11 Process.



Disclosure Statement



In connection with the vote of creditors on the POR, AWI was required to prepare a disclosure statement concerning its business and the POR, including certain projected
financial information assuming an Effective Date of the POR as July 1, 2003, intended to demonstrate to the Bankruptcy Court the feasibility of the POR and AWIs ability to continue operations upon its emergence from Chapter 11. On May 30,
2003, the Bankruptcy Court approved the disclosure statement for distribution to parties in interest in the Chapter 11 Case. The projected financial information included in the disclosure statement was updated in certain respects by information
submitted to the Bankruptcy Court in connection with the Bankruptcy Courts November 2003 hearing on confirmation of the POR. The projected financial information was prepared for the limited purposes of consideration by the Bankruptcy Court,
creditors and other parties in interest in the Chapter 11 Case of matters pertinent to the case. As indicated in the disclosure statement, the projected financial information and various estimates of value therein provided should not be regarded as
representations or warranties by AWI, AHI or any other person. There is no assurance that any such projection or valuation will be realized. The projected financial information and estimates of value were prepared by AWI and its financial advisors
and have not been audited or reviewed by independent accountants. The projections will not be updated on an ongoing basis. At the time they were prepared, the projections reflected numerous assumptions concerning reorganized Armstrongs
anticipated future performance and with respect to prevailing and anticipated market and economic conditions, which were and remain beyond our control and which may not materialize. Projections are inherently subject to significant and numerous
uncertainties and to a wide variety of significant business, economic and



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##### Table of Contents

competitive risks and the assumptions underlying the projections may be wrong in a material respect. Actual results may vary significantly from those
contemplated by the projections.



Asbestos
Personal Injury Trust



A principal feature of the POR is the creation of a
trust (the Asbestos P I Trust), pursuant to section 524(g) of the Bankruptcy Code, for the purpose of addressing AWIs personal injury (including wrongful death) asbestos-related liability. All present and future asbestos-related
personal injury claims against AWI, including contribution claims of co-defendants, arising directly or indirectly out of AWIs pre-Filing use of or other activities involving asbestos will be channeled to the Asbestos P I Trust.



In accordance with the 524(g) injunction to be issued by the District Court in
connection with the confirmation of the POR, various entities will be protected from such present and future AWI asbestos-related personal injury claims. These entities include, among others, AWI as it will be reorganized, AHI, AWIs
subsidiaries and other affiliates (as defined in the POR), and their respective officers and directors. Upon emergence from Chapter 11, AWI will not have any responsibility for these claims (including claims against AWI based solely on its ownership
of a subsidiary or other affiliate), nor will it participate in their resolution.



However, although AWIs domestic and foreign subsidiaries and other affiliates will be protected parties, asbestos-related personal injury claims against them will be channeled to the Asbestos P I Trust only to the extent such claims
directly or indirectly relate to the pre-Filing manufacturing, installation, distribution or other activities of AWI, or AWIs ownership of the subsidiaries or affiliates (as distinguished from independent activities of the subsidiaries or
affiliates). See Note 11 under Asbestos-Related Litigation.



In
addition, workers compensation claims brought against AWI or its subsidiaries or other affiliates will not be channeled to the Asbestos P I Trust and will remain subject to the workers compensation process. Workers compensation law
provides that the employer is responsible for evaluation, medical treatment and lost wages as a result of a job-related injury. Historically, workers compensation claims against AWI or its subsidiaries have not been significant in number or
amount, and AWI has continued to honor its obligations with respect to such claims during the Chapter 11 Case. Currently, AWI has only three pending workers compensation claims involving alleged asbestos exposure.



There also is uncertainty as to proceedings, if any, brought in certain foreign jurisdictions
with respect to the effect of the 524(g) injunction in precluding the assertion in such jurisdictions of asbestos-related personal injury claims, proceedings related thereto or the enforcement of judgments rendered in such proceedings.



Management believes neither AWI nor its subsidiaries or other affiliates is subject to
asbestos-related personal injury claims, material in amount to reorganized Armstrong, that would not be channeled to the Asbestos P I Trust.



39



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##### Table of Contents

Consideration to Be Distributed under the POR (unaudited)



The Asbestos P I Trust and the holders of allowed unsecured claims will share in the
following consideration to be distributed under the POR:



| |  | AWIs Available Cash, which is defined in the POR as:
| | - | -------------------------------------------------------



| |  | Cash available on the effective date of the POR after reserving up to $100 million (as determined by AWI) to fund ongoing operations and making provisions for certain required
payments under the POR,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Any cash drawn, at AWIs sole discretion, under a credit facility to be established as provided by the POR for the purpose of funding distributions under the POR, and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Certain insurance proceeds related to environmental matters
| | - | -----------------------------------------------------------



However, proceeds received under any private offering of debt securities and/or secured term loan borrowings made, as permitted by the POR, in connection
with consummation of the POR shall be excluded from the determination of Available Cash.



| |  | Plan Notes of AWI as further described below or net cash proceeds from any private offerings of debt securities issued in lieu thereof, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | Substantially all of the new common stock of AWI.
| | - | -------------------------------------------------



The total amount of Plan Notes will be the greater of (i) $1.125 billion less Available Cash and (ii) $775 million. However, AWI will use reasonable efforts to issue one
or more private offerings of debt securities on, or as soon as practicable after, the Effective Date. These offerings are to yield net proceeds at least equal to the amount of the Plan Notes prescribed by the Plan. If the private offerings are
successful, the Plan Notes would not be issued. If the offerings yield proceeds less than the amount of the Plan Notes prescribed by the Plan, Plan Notes equal to the difference will be issued. If only the Plan Notes are issued, reorganized
Armstrong expects to issue an aggregate amount of $775 million of Plan Notes. These Plan Notes will consist of (i) a tranche of notes with a seven-year maturity and a fixed interest rate, (ii) a tranche of notes with a ten-year maturity and a fixed
interest rate and (iii) a tranche of floating rate notes with a maturity of not less than five years, but no more than ten years, structured in a manner similar to, and as liquid as, marketable bank debt which satisfy the requirements of the POR and
are on terms and conditions that are satisfactory to AWI, the Asbestos Personal Injury Claimants Committee, and the Future Claimants Representative. To the extent Plan Notes of more than one type are issued, a pro rata share of each
tranche will be issued to the Asbestos P I Trust and the holders of unsecured claims.



The POR provides that unsecured creditors, other than convenience creditors described below, will receive their pro rata share of:



| |  | 34.43% of the new common stock of reorganized Armstrong,
| | - | --------------------------------------------------------



| |  | 34.43% of the first $1.05 billion of all the cash and Plan Notes to be distributed under the POR to unsecured creditors (other than convenience creditors) and the Asbestos P I
Trust, in the form of:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Up to $300 million of Available Cash and
| | - | ----------------------------------------



| |  | The balance in principal amount of Plan Notes or in net cash proceeds from any private offerings of debt securities made in lieu of issuing Plan Notes.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 60% of the next $50 million of Available Cash but, if such Available Cash is less than $50 million, then 60% of the balance in Plan Notes or in net cash proceeds from any private
offerings of debt securities made in lieu of issuing Plan Notes, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 34.43% of the remaining amount of any Available Cash and any Plan Notes up to the maximum amount of Plan Notes provided to be issued under the POR, or net cash proceeds from any
private offerings of debt securities made in lieu of issuing such Plan Notes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The remaining amount of new common stock of reorganized Armstrong, Available Cash and Plan Notes or net cash proceeds from any private offerings of debt securities made in lieu of issuing Plan Notes will be
distributed to the Asbestos P I Trust.



Under the POR, unsecured creditors
whose claims (other than claims on debt securities) are less than $10,000 or who elect to reduce their claims to $10,000 will be treated as convenience creditors and will receive payment of 75% of their allowed claim amount in cash
(which payments will reduce the amount of Available Cash).



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Under the POR, the existing equity interests in AWI (including all of its outstanding shares of common stock) will be
cancelled. The POR provides for the distribution of warrants to purchase shares of reorganized Armstrong (the Warrants) to the holders of AWIs existing common stock. The terms of the Warrants are provided in an exhibit to the POR.
The Warrants:



| |  | would permit the purchase of 5% of the common stock of reorganized Armstrong on a fully diluted basis, upon exercise of all the Warrants;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | would be exercisable at any time during the seven years after the effective date of the POR; and
| | - | ------------------------------------------------------------------------------------------------



| |  | would permit the purchase of shares at an exercise price of $37.50, which is equal to 125% of the $30.00 per share equity value of reorganized Armstrong, as agreed among the
financial advisers for AWI, the Asbestos Personal Injury Claimants Committee, the Unsecured Creditors Committee, and the Future Claimants Representative, as set forth in the Bankruptcy Court-approved disclosure statement for the
POR (as further described below).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Whether any value will be
realized from the Warrants will depend on whether the market value of reorganized Armstrongs new common stock reaches a value in excess of the exercise price of the Warrants during the period that they may be exercised.



AHIs shareholders were not entitled to vote on the POR. However, AHIs
shareholders were sent the Disclosure Statement and POR. If the POR is implemented, the only value that will be available to AHI shareholders is their ratable share of the Warrants available upon the contemplated dissolution of AHI. See AHIs
Plan of Dissolution below.



Valuation of
Consideration to be Distributed under the POR (unaudited)



Based upon many
assumptions (see Disclosure Statement discussion above), to calculate the value of consideration to be distributed, AWI used $2.7 billion as the value of reorganized Armstrong. This is the mid-point of the range of estimated values of $2.4 billion
and $3.0 billion that was estimated by AWI and its financial advisors. AWIs estimated value of the consideration to be distributed under the POR to the Asbestos P I Trust, holders of allowed unsecured claims and AWIs existing common
stock, is:



| |  | New common stock at $30 a share, which is the approximate mid-point of the range of estimated values of $24.66 and $35.30 per share, assuming a distribution of 56.4 million shares
of new common stock to holders of unsecured claims and the Asbestos P I Trust;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Plan Notes in the aggregate principal amount of $775 million, that are worth their face value;
| | - | ----------------------------------------------------------------------------------------------



| |  | Available Cash of approximately $350 million that AWI expects to have; and
| | - | --------------------------------------------------------------------------



| |  | Warrants with an estimated value of between $35 million and $40 million.
| | - | ------------------------------------------------------------------------



The total value of the consideration to be distributed to the Asbestos P I Trust, other than rights under asbestos non-product liability insurance policies, has been
estimated to be approximately $1.8 billion, and the total value of consideration to be distributed to holders of allowed unsecured claims (other than convenience claims) has been estimated to be approximately $0.9 billion. Based upon the estimated
value of the POR consideration, and upon AWIs estimate that unsecured claims allowed by the Bankruptcy Court (other than convenience claims) will total approximately $1.65 billion, AWI estimated that holders of allowed unsecured claims (other
than convenience claims) will receive a recovery having a value equal to approximately 59.5% of their allowed claims.



AHIs Plan of Dissolution, Winding Up and Distribution (Plan of Dissolution)



In connection with the implementation of the POR, the Warrants will be issued to AHI (or a
wholly-owned subsidiary of AHI). The Board of Directors of AHI has determined that it is not practicable for AHI to continue in operation as an on-going business owning the Warrants, which will then be AHIs only asset. Accordingly, the Board
of Directors of AHI approved and recommended to AHI shareholders the Plan of Dissolution, whereby AHI will voluntarily dissolve and wind up its affairs in accordance with Pennsylvania law and, subject to completion of AHIs winding up
(including the satisfaction of any liabilities of AHI), distribute any remaining Warrants to the shareholders. At a special meeting of AHI shareholders held on January 7, 2004, the Plan of Dissolution was approved by the AHI shareholders. The POR
provides that AWI will pay the costs and expenses incurred in connection with administering AHIs Plan of Dissolution.



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Recent Developments and Next Steps in the Chapter 11 Process



In order for the POR to be confirmed, the U.S. District Court must issue findings of fact
and conclusions of law in support of confirmation of the POR, enter or affirm an order confirming the POR and issue the 524(g) injunction which is part of the POR. In certain other companies asbestos-related Chapter 11 cases,
motions for recusal were filed in 2003 against U.S. District Court Judge Alfred M. Wolin, who is jointly administering with the Bankruptcy Court the asbestos-related issues in the Chapter 11 cases of five companies, including AWI. The Unsecured
Creditors Committee requested that in the event Judge Wolin is recused in the other cases, he also be recused in AWIs case. Judge Wolin has stayed further proceedings in all five cases before him, including AWIs Chapter 11 Case. On
February 2, 2004, Judge Wolin denied the motions for recusal. An appeal of Judge Wolins ruling is currently pending, and the U.S. Court of Appeals for the Third Circuit heard oral argument on the appeal on April 19, 2004. AWI is uncertain as
to the impact, if any, beyond the present delay in confirmation of the POR that the motions and appeal will have on AWIs Chapter 11 proceedings. When confirmation of the POR will be considered by the U.S. District Court is uncertain.



Common Stock and Debt Securities



As a result of AWI filing the Plan of Reorganization on November 4, 2002, the
New York Stock Exchange stopped trading on the Exchange of the common stock of AHI (traded under the ticker symbol ACK) and two debt securities of AWI (traded under the ticker symbols AKK and ACK 08). AHIs
common stock resumed trading in the over-the-counter (OTC) Bulletin Board under the ticker symbol ACKHQ and one of AWIs debt securities resumed trading under the ticker symbol AKKWQ.



Bar Date for Filing Claims



The Bankruptcy Court established August 31, 2001 as the bar date for all claims against AWI
except for asbestos-related personal injury claims and certain other specified claims. A bar date is the date by which claims against AWI must be filed if the claimants wish to participate in any distribution in the Chapter 11 Case. A bar date for
asbestos-related personal injury claims (other than claims for contribution, indemnification, or subrogation) has been rendered unnecessary under the terms of the POR, which defers the filings of such claims until the Asbestos P I Trust is
established to administer such claims.



Approximately 4,800 proofs of claim
(including late-filed claims) totaling approximately $6.3 billion, alleging a right to payment from AWI, were filed with the Bankruptcy Court in response to the August 31, 2001 bar date. The disposition of these claims under the POR is discussed
below. AWI continues the process of investigating and resolving these claims. The Bankruptcy Court will ultimately determine the claims and related liability amounts that will be allowed as part of the Chapter 11 process if the parties cannot agree.



In its ongoing review of the filed claims, AWI to date has objected to
approximately 2,100 claims totaling $2.4 billion. The Bankruptcy Court disallowed these claims with prejudice.



During the first six months of 2003, AWI settled all of the approximately 460 remaining property damage claims that alleged damages of $800 million, for approximately $9 million. Payments to claimants were made during
the third quarter of 2003 and were funded by insurance.



Approximately 1,100
proofs of claim totaling approximately $1.5 billion are pending with the Bankruptcy Court that are associated with asbestos-related personal injury litigation, including direct personal injury claims, claims by co-defendants for contribution and
indemnification, and claims relating to AWIs participation in the Center for Claims Resolution. As stated above, the bar date of August 31, 2001 did not apply to asbestos-related personal injury claims other than claims for contribution,
indemnification, or subrogation. The POR contemplates that all AWI asbestos-related personal injury claims, including claims for contribution, indemnification, or subrogation, will be addressed in the future pursuant to the procedures relating to
the Asbestos P I Trust developed in connection with the POR. See further discussion regarding AWIs liability for asbestos-related matters in Note 11.



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##### Table of Contents

Approximately 1,200 claims totaling approximately $1.6 billion alleging a right to payment for financing, environmental,
trade debt and other claims remain. For these categories of claims, AWI has previously recorded approximately $1.6 billion in liabilities.



AWI has recorded liability amounts for claims that can be reasonably estimated and which it does not contest or believes are probable of being allowed by the Bankruptcy
Court. The final value of all the claims that will ultimately be allowed by the Bankruptcy Court is not known at this time. However, it is likely the value of the claims ultimately allowed by the Bankruptcy Court will be different than amounts
presently recorded by AWI. This difference could be material to AWIs financial position and the results of its operations. Management will continue to review the recorded liability in light of future developments in the Chapter 11 Case and
make changes to the recorded liability if and when it is appropriate.



Financing



AWIs current
debtor-in-possession credit facility (DIP Facility), which extends to December 8, 2004, constitutes a $75 million letter of credit facility. At AWIs request, the previous revolving loan feature was dropped since it had never been
used. As of March 31, 2004, AWI had approximately $25.0 million in letters of credit which were issued pursuant to the DIP Facility. As of March 31, 2004, AWI had $281.3 million of cash and cash equivalents, excluding cash held by its non-debtor
subsidiaries. AWI believes that cash on hand and generated from operations and dividends from its subsidiaries, together with subsidiary lines of credit and the DIP Facility, will be adequate to address its foreseeable liquidity needs. Obligations
under the DIP Facility, including reimbursement of draws under the letters of credit, if any, constitute superpriority administrative expense claims in the Chapter 11 Case.



Accounting Impact



AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP
90-7) provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. This guidance is implemented in the accompanying consolidated financial statements.



Pursuant to SOP 90-7, AWI is required to segregate pre-Filing liabilities that are subject to
compromise and report them separately on the balance sheet. See Note 4 for detail of the liabilities subject to compromise at March 31, 2004 and December 31, 2003. Liabilities that may be affected by a plan of reorganization are recorded at the
expected amount of the allowed claims, even if they may be settled for lesser amounts. Substantially all of AWIs pre-Filing debt, now in default, is recorded at face value and is classified within liabilities subject to compromise. Obligations
of AWI subsidiaries not covered by the Filing remain classified on the consolidated balance sheet based upon maturity date. AWIs estimated liability for asbestos-related personal injury claims is also recorded in liabilities subject to
compromise. See Note 11 for further discussion of AWIs asbestos liability.



Additional pre-Filing claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims.



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##### Table of Contents

SOP 90-7 also requires separate reporting of all revenues, expenses, realized gains and losses, and provision for losses
related to the Filing as Chapter 11 reorganization costs, net. Accordingly, AWI recorded the following Chapter 11 reorganization activities during the first quarters of 2004 and 2003:



|                                                  |  |      |      |   |      |   |      |  
|------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|(amounts in millions)                             |  | 2004 |      |   | 2003 |  
|Professional fees                                 |  | $    | 3.3  |   |      | $ | 5.1  |  
|Interest income, post-Filing                      |  |      | (0.8 | ) |      |   | (0.9 | )
|Reductions to pre-Filing liabilities              |  |      |     |   |      |   | (0.3 | )
|Other expense directly related to bankruptcy, net |  |      |     |   |      |   | 0.1  |  
|                                                  |  |      |      |   |      |   |      |  
|Total Chapter 11 reorganization costs, net        |  | $    | 2.5  |   |      | $ | 4.0  |  
|                                                  |  |      |      |   |      |   |      |  



Professional fees represent legal and
financial advisory fees and expenses directly related to the Filing.



Interest
income is earned from short-term investments subsequent to the Filing.



Reductions to pre-Filing liabilities represent Bankruptcy Court approved settlements of prepetition liabilities.



As a result of the Filing, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as a debtor-in-possession, AWI may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements.



If and when the POR is confirmed and made effective, reorganized AWIs consolidated financial statements will change materially in amounts and classifications
through the implementation of the Fresh Start Accounting rules of SOP 90-7.



Conclusion



Although the POR has been
developed, implementation of the POR is subject to confirmation of the POR in accordance with the provisions of the Bankruptcy Code and satisfaction after consummation of certain conditions, as provided by the POR. AWI is unable to predict when and
if the POR will be confirmed. Therefore, the timing and terms of a resolution of the Chapter 11 Case remain uncertain.



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NOTE 3. SEGMENT RESULTS



|                                    |  |                             |         |   |                  |   |         |  
|----------------------------------- |  | --------------------------- | ------- | - | ---------------- | - | ------- | -
|                                    |  | Three Months EndedMarch 31, |        
|(amounts in millions)               |  | 2004                        |         |   | 2003             |  
|Net sales to external customers     |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 304.1   |   |                  | $ | 286.7   |  
|Wood Flooring                       |  |                             | 197.4   |   |                  |   | 167.2   |  
|Textiles and Sports Flooring        |  |                             | 62.3    |   |                  |   | 62.0    |  
|Building Products                   |  |                             | 230.0   |   |                  |   | 207.1   |  
|Cabinets                            |  |                             | 51.2    |   |                  |   | 51.9    |  
|                                    |  |                             |         |   |                  |   |         |  
|Total sales to external customers   |  | $                           | 845.0   |   |                  | $ | 774.9   |  
|                                    |  |                             |         |   |                  |   |         |  
|                                    | 
|                                    |  | Three Months EndedMarch 31, |        
|                                    |  | 2004                        |         |   | 2003             |  
|Segment operating income (loss)     |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 15.5    |   |                  | $ | 17.6    |  
|Wood Flooring                       |  |                             | 10.3    |   |                  |   | 2.2     |  
|Textiles and Sports Flooring        |  |                             | (1.9    | ) |                  |   | (6.0    | )
|Building Products                   |  |                             | 27.2    |   |                  |   | 17.8    |  
|Cabinets                            |  |                             | 0.6     |   |                  |   | (3.6    | )
|All Other                           |  |                             | 0.5     |   |                  |   | 0.4     |  
|                                    |  |                             |         |   |                  |   |         |  
|Total segment operating income      |  |                             | 52.2    |   |                  |   | 28.4    |  
|Unallocated Corporate (expense)     |  |                             | (12.4   | ) |                  |   | (17.1   | )
|                                    |  |                             |         |   |                  |   |         |  
|Total consolidated operating income |  | $                           | 39.8    |   |                  | $ | 11.3    |  
|                                    |  |                             |         |   |                  |   |         |  
|                                    |  |                            
|                                    |  | March 31,2004               |         |   | December 31,2003 |  
|Segment assets                      |  |                             |         |   |                  |   |         |  
|Resilient Flooring                  |  | $                           | 942.2   |   |                  | $ | 915.3   |  
|Wood Flooring                       |  |                             | 602.4   |   |                  |   | 576.6   |  
|Textiles and Sports Flooring        |  |                             | 209.6   |   |                  |   | 207.1   |  
|Building Products                   |  |                             | 558.8   |   |                  |   | 551.5   |  
|Cabinets                            |  |                             | 101.6   |   |                  |   | 102.3   |  
|All Other                           |  |                             | 19.5    |   |                  |   | 18.8    |  
|                                    |  |                             |         |   |                  |   |         |  
|Total segment assets                |  |                             | 2,434.1 |   |                  |   | 2,371.6 |  
|Assets not assigned to segments     |  |                             | 2,232.0 |   |                  |   | 2,276.2 |  
|                                    |  |                             |         |   |                  |   |         |  
|Total consolidated assets           |  | $                           | 4,666.1 |   |                  | $ | 4,647.8 |  
|                                    |  |                             |         |   |                  |   |         |  



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NOTE 4. LIABILITIES SUBJECT TO COMPROMISE



As a result of AWIs Chapter 11 filing (see Note 2), pursuant to SOP 90-7, AWI is
required to segregate prepetition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims,
even if they may be settled for lesser amounts. Substantially all of AWIs prepetition debt, now in default, is recorded at face value and is classified within liabilities subject to compromise. Obligations of AHI subsidiaries not covered by
the Filing remain classified on the condensed consolidated balance sheet based upon maturity date. AWIs asbestos liability is also recorded in liabilities subject to compromise. See Note 2 for further discussion on how the Chapter 11 process
may address AWIs liabilities subject to compromise and Note 11 for further discussion of AWIs asbestos liability.



Liabilities subject to compromise at March 31, 2004 and December 31, 2003 are as follows:



|                                                |  |               |         |                  |   |        
|----------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|(amounts in millions)                           |  | March 31,2004 |         | December 31,2003
|Debt (at face value)(1)                         |  | $             | 1,388.6 |                  | $ | 1,388.6
|Asbestos-related liability                      |  |               | 3,190.6 |                  |   | 3,190.6
|Prepetition trade payables                      |  |               | 59.0    |                  |   | 58.9   
|Prepetition other payables and accrued interest |  |               | 61.7    |                  |   | 62.7   
|Amounts due to affiliates                       |  |               | 4.7     |                  |   | 4.7    
|ESOP loan guarantee                             |  |               | 157.7   |                  |   | 157.7  
|                                                |  |               |         |                  |   |        
|Total liabilities subject to compromise         |  | $             | 4,862.3 |                  | $ | 4,863.2
|                                                |  |               |         |                  |   |        



| | (1) | In accordance with SOP 90-7, we did not record contractual interest expense on prepetition
debt after the Chapter 11 filing date. This unrecorded interest expense was $21.7 million in the first quarter of 2004 and $24.8 million in the first quarter of 2003.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additional prepetition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases,
or as a result of the allowance of contingent or disputed claims.



NOTE 5. INVENTORIES



|                             |  |               |       |   |                  |   |       |  
|---------------------------- |  | ------------- | ----- | - | ---------------- | - | ----- | -
|(amounts in millions)        |  | March 31,2004 |       |   | December 31,2003 |  
|Finished goods               |  | $             | 339.8 |   |                  | $ | 330.7 |  
|Goods in process             |  |               | 46.8  |   |                  |   | 40.6  |  
|Raw materials and supplies   |  |               | 163.6 |   |                  |   | 165.3 |  
|Less LIFO and other reserves |  |               | (87.6 | ) |                  |   | (82.2 | )
|                             |  |               |       |   |                  |   |       |  
|Total inventories, net       |  | $             | 462.6 |   |                  | $ | 454.4 |  
|                             |  |               |       |   |                  |   |       |  



NOTE 6. GOODWILL AND INTANGIBLE ASSETS



The following table
represents the changes in goodwill for the first quarter of 2004.



|                            |  |                |       |                     |   |      |             |  |               |   |  |   |      
|--------------------------- |  | -------------- | ----- | ------------------- | - | ---- | ----------- |  | ------------- | - |  | - | -----
|(amounts in millions)       |  | January 1,2004 |       | Adjustments, net(1) |   |      | Impairments |  | March 31,2004
|Goodwill by segment         |  |                |       |                     |   |      |             |  |               |   |  |   |      
|Resilient Flooring          |  | $              | 107.1 |                     | $ | (2.7 | )           |  | $             |  |  | $ | 104.4
|Wood Flooring               |  |                | 110.4 |                     |   |     |             |  |               |  |  |   | 110.4
|Building Products           |  |                | 14.0  |                     |   | (0.3 | )           |  |               |  |  |   | 13.7 
|Cabinets                    |  |                | 12.6  |                     |   |     |             |  |               |  |  |   | 12.6 
|                            |  |                |       |                     |   |      |             |  |               |   |  |   |      
|Total consolidated goodwill |  | $              | 244.1 |                     | $ | (3.0 | )           |  | $             |  |  | $ | 241.1
|                            |  |                |       |                     |   |      |             |  |               |   |  |   |      



|(1) | Primarily consists of the effects of foreign exchange.
|--- | ------------------------------------------------------



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The following table details amounts related to AHIs intangible assets as of March 31, 2004 and December 31, 2003.



|                              |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|----------------------------- |  | -------------------- | ----- | ----------------------- | - | -------------------- |  | ----------------------- | ----- |  | - | ----
|                              |  | March 31, 2004       |       | December 31, 2003      
|(amounts in millions)         |  | Gross CarryingAmount |       | AccumulatedAmortization |   | Gross CarryingAmount |  | AccumulatedAmortization
|Amortized intangible assets   |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|Computer software             |  | $                    | 104.3 |                         | $ | 60.3                 |  | $                       | 104.1 |  | $ | 57.7
|Land use rights and other     |  |                      | 4.4   |                         |   | 0.9                  |  |                         | 4.4   |  |   | 0.9 
|                              |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|Total                         |  | $                    | 108.7 |                         | $ | 61.2                 |  | $                       | 108.5 |  | $ | 58.6
|                              |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|Unamortized intangible assets |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|Trademarks and brand names    |  | $                    | 29.2  |                         |   |                      |  | $                       | 29.1  |  |   |     
|                              |  |                      |       |                         |   |                      |  |                         |       |  |   |     
|Total intangible assets       |  | $                    | 137.9 |                         |   |                      |  | $                       | 137.6 |  |   |     
|                              |  |                      |       |                         |   |                      |  |                         |       |  |   |     



Aggregate Amortization Expense



|                                          |  |   |    
|----------------------------------------- |  | - | ---
|For the three months ended March 31, 2004 |  | $ | 3.8
|For the three months ended March 31, 2003 |  | $ | 4.0



NOTE 7. RESTRUCTURING AND OTHER ACTIONS



Net restructuring
charges of $2.0 million recorded in the first quarter of 2004 included charges of $2.4 million and reversals of $0.4 million. Substantially all of $2.4 million charges related to estimated severance benefits and related costs for approximately 130
employees in the Building Products manufacturing location in Hoogezand, The Netherlands. The closure of this facility is estimated to be complete by December 2004, subject to positive advice from the local works council. The production will be
transferred to another Building Products location in Münster, Germany and will result in a net reduction of approximately 72 positions. The $0.4 million of reversals comprised certain severance accruals that were no longer necessary in the
remaining accruals from the 2003 and 2002 charges in the Textiles and Sports Flooring ($0.2 million) and Resilient Flooring ($0.2 million) segments.



A $3.2 million restructuring charge was recorded in the first quarter of 2003. The charge related to severance benefits for approximately 52 employees in the Textiles and
Sports Flooring ($2.3 million) and Resilient Flooring ($0.9 million) segments, as part of the restructuring plan to consolidate certain functions in the European flooring business.



The following table summarizes activity in the reorganization and restructuring accruals for the first three months of 2004 and 2003.



|                      |  |                  |      |              |   |      |         |  |           |     |  |       |      |   |               |   |      |   |  |   |     
|--------------------- |  | ---------------- | ---- | ------------ | - | ---- | ------- |  | --------- | --- |  | ----- | ---- | - | ------------- | - | ---- | - |  | - | ----
|(amounts in millions) |  | BeginningBalance |      | CashPayments |   |      | Charges |  | Reversals |     |  | Other |      |   | EndingBalance
|2004                  |  | $                | 10.0 |              | $ | (1.2 | )       |  | $         | 2.4 |  | $     | (0.4 | ) |               | $ | 0.1  |   |  | $ | 10.9
|2003                  |  |                  | 9.1  |              |   | (0.6 | )       |  |           | 3.2 |  |       |     |   |               |   | (0.2 | ) |  |   | 11.5



The amount in other for
2004 and 2003 is primarily related to foreign currency translation.



Substantially all of the remaining balance of the restructuring accrual as of March 31, 2004 relates to a noncancelable operating lease, which extends through 2017, and severance for terminated employees with extended payouts, the majority
of which will be paid by 2005.



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NOTE 8. PENSIONS



Following are the components of net periodic benefit costs:



|                                              |  |                             |       |   |      |   |       |  
|--------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                              |  | Three MonthsEnded March 31, |      
|(amounts in millions)                         |  | 2004                        |       |   | 2003 |  
|U.S. defined-benefit plans                    |  |                             |       |   |      |   |       |  
|Pension Benefits                              |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 5.8   |   |      | $ | 5.4   |  
|Interest cost on projected benefit obligation |  |                             | 22.8  |   |      |   | 22.9  |  
|Expected return on plan assets                |  |                             | (36.9 | ) |      |   | (36.1 | )
|Amortization of prior service cost            |  |                             | 4.3   |   |      |   | 4.5   |  
|Recognized net actuarial loss                 |  |                             | 0.4   |   |      |   | 0.4   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic pension (credit)                 |  | $                           | (3.6  | ) |      | $ | (2.9  | )
|                                              |  |                             |       |   |      |   |       |  
|Retiree Health and Life Insurance Benefits    |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 0.9   |   |      | $ | 0.8   |  
|Interest cost on projected benefit obligation |  |                             | 6.3   |   |      |   | 6.6   |  
|Amortization of prior service benefit         |  |                             | (1.4  | ) |      |   | (1.3  | )
|Recognized net actuarial loss                 |  |                             | 3.2   |   |      |   | 3.1   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic postretirement benefit cost      |  | $                           | 9.0   |   |      | $ | 9.2   |  
|                                              |  |                             |       |   |      |   |       |  
|                                              | 
|                                              |  | Three MonthsEnded March 31, |      
|(amounts in millions)                         |  | 2004                        |       |   | 2003 |  
|Non-U.S. defined-benefit plans                |  |                             |       |   |      |   |       |  
|Pension Benefits                              |  |                             |       |   |      |   |       |  
|Service cost of benefits earned               |  | $                           | 2.5   |   |      | $ | 1.9   |  
|Interest cost on projected benefit obligation |  |                             | 5.3   |   |      |   | 4.4   |  
|Expected return on plan assets                |  |                             | (3.7  | ) |      |   | (2.9  | )
|Amortization of transition obligation         |  |                             |      |   |      |   | 0.1   |  
|Amortization of prior service cost            |  |                             | 0.1   |   |      |   | 0.1   |  
|Recognized net actuarial loss                 |  |                             | 0.1   |   |      |   | 0.1   |  
|                                              |  |                             |       |   |      |   |       |  
|Net periodic pension cost                     |  | $                           | 4.3   |   |      | $ | 3.7   |  
|                                              |  |                             |       |   |      |   |       |  



Medicare Act



On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (The Act) became law in the United States. The Act expands Medicare, primarily by adding a prescription drug benefit for Medicare-eligible participants starting in 2006. The Act provides employers currently sponsoring prescription
drug programs for Medicare-eligible participants with a range of options for coordinating with the new government-sponsored program. These options include supplementing the government program on a secondary payor basis or accepting a direct subsidy
from the government to support a portion of the cost of the employers program.



Pursuant to guidance from the FASB, we have chosen to defer recognition of the potential effects of the Act. Therefore, the retiree health obligations and costs reported in the financial statements do not yet reflect any potential impact of
the Act. FASB guidance, when issued, is likely to require the company to change previously reported information.



We will review our retiree health care strategy in light of the Act. We anticipate that our retiree health costs could be reduced in the future.



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NOTE 9. PRODUCT WARRANTIES



We provide direct customer and end-user warranties for our products. These warranties cover
manufacturing defects that would prevent the product from performing in line with its intended and marketed use. Generally, the terms of these warranties range up to 25 years and provide for the repair or replacement of the defective product. We
collect and analyze warranty claims data with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and their respective sales and the amount of current sales. The following table
illustrates the activity for product warranties for the first quarters of 2004 and 2003:



|                                        |  |      |      |   |      |   |       |  
|--------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | -
|(amounts in millions)                   |  | 2004 |      |   | 2003 |  
|Balance at January 1                    |  | $    | 25.5 |   |      | $ | 22.3  |  
|Reductions for payments                 |  |      | (9.8 | ) |      |   | (10.6 | )
|Current year warranty accruals          |  |      | 9.5  |   |      |   | 10.5  |  
|Preexisting warranty accrual changes    |  |      | (0.2 | ) |      |   |      |  
|Effects of foreign exchange translation |  |      | (0.2 | ) |      |   | 0.3   |  
|                                        |  |      |      |   |      |   |       |  
|Balance at March 31                     |  | $    | 24.8 |   |      | $ | 22.5  |  
|                                        |  |      |      |   |      |   |       |  



NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION



|                       |  |                             |      |      |   |    
|---------------------- |  | --------------------------- | ---- | ---- | - | ---
|                       |  | Three Months EndedMarch 31,
|(amounts in millions)  |  | 2004                        |      | 2003
|Interest paid          |  | $                           | 0.4  |      | $ | 0.8
|Income taxes paid, net |  | $                           | 15.6 |      | $ | 5.4



NOTE 11. LITIGATION AND RELATED MATTERS ASBESTOS-RELATED LITIGATION



Prior to December 6, 2000, AWI, the major operating subsidiary of AHI, had been named as a defendant in personal injury cases and property damage cases related to asbestos-containing products. On December 6, 2000, AWI filed a voluntary
petition for relief (the Filing) under Chapter 11 of the U.S. Bankruptcy Code to use the court-supervised reorganization process to achieve a resolution of AWIs asbestos-related liability.



Two of AWIs domestic subsidiaries also commenced Chapter 11 proceedings at the time of
the Filing. AHI and all of AWIs other direct and indirect subsidiaries, including Armstrong Wood Products Inc. (formerly Triangle Pacific Corp.), WAVE (Armstrongs ceiling grid systems joint venture with Worthington Industries, Inc.),
Armstrong Canada and Armstrong DLW AG were not a part of the Filing and accordingly the liabilities, including asbestos-related liability if any, of such companies arising out of their own activities will not be resolved in AWIs Chapter 11
Case except for any asbestos-related liability that also relates, directly or indirectly, to the pre-Filing activities of AWI.



Asbestos-Related Personal Injury Claims



Prior to the Filing, AWI was a member of the Center for Claims Resolution (the CCR), which handled the defense and settlement of asbestos-related personal
injury claims on behalf of its members. The CCR pursued broad-based settlements of asbestos-related personal injury claims under the Strategic Settlement Program (SSP) and had reached agreements with law firms that covered approximately
130,000 claims that named AWI as a defendant.



Due to the Filing, holders of
asbestos-related personal injury claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against AWI. In addition, AWI ceased making payments to the CCR with respect to asbestos-related personal injury
claims, including payments pursuant to the outstanding SSP agreements. A creditors committee representing the interests of asbestos-related personal injury claimants and an individual representing the interests of future claimants



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have been appointed in the Chapter 11 Case. AWIs present and future asbestos-related liability will be addressed in its Chapter 11 Case. See Note 2
regarding AWIs Chapter 11 proceeding.



During 2003, AWI and the other
parties in its Chapter 11 Case reached agreement on a plan of reorganization that addresses how all of AWIs pre-Filing liabilities are to be settled. Several amendments to the plan of reorganization were filed, culminating in the Fourth
Amended Plan of Reorganization filed with the Bankruptcy Court on May 23, 2003, which was modified by modifications filed with the Bankruptcy Court on October 17, 2003 and November 10, 2003, and is referred to in this report as the POR.
A principal feature of the POR is the creation of a trust (the Asbestos P I Trust), pursuant to section 524(g) of the Bankruptcy Code, for the purpose of addressing AWIs personal injury (including wrongful death) asbestos-related
liability. Pursuant to the POR, all present and future asbestos-related personal injury claims against AWI, including contribution claims of co-defendants, arising directly or indirectly out of AWIs pre-Filing use of or other activities
involving asbestos will be channeled to the Asbestos P I Trust. In accordance with the 524(g) injunction to be issued by the District Court in connection with the confirmation of the POR, various entities will be protected from such present and
future asbestos-related personal injury claims. These entities include, among others, AWI as it will be reorganized, AHI, AWIs subsidiaries and other affiliates (as defined in the POR), and their respective officers and directors. Upon
emergence from Chapter 11, AWI will not have any responsibility for these claims (including claims against AWI based solely on its ownership of a subsidiary or other affiliate), nor will it participate in their resolution.



However, although AWIs domestic and foreign subsidiaries and other affiliates will be
protected parties, asbestos-related personal injury claims against them will be channeled to the Asbestos P I Trust only to the extent such claims directly or indirectly relate to the manufacturing, installation, distribution or other activities of
AWI or are based solely on AWIs ownership of the subsidiaries or other affiliates (as distinguished from independent activities of the subsidiaries or affiliates). Currently, four asbestos-related personal injury litigations against
subsidiaries of AWI allegedly arising out of such independent activities are pending.



These claims will not be channeled to the Asbestos P I Trust under the POR inasmuch as they do not involve activities of AWI. The cases have multiple defendants. The subsidiaries deny liability and are aggressively defending the matters.
AWI has not recorded any liability for these matters. Management does not expect that any sum that may have to be paid in connection with these matters will be material to Armstrong.



In addition, workers compensation claims brought against AWI or its subsidiaries or other affiliates will not be channeled to the
Asbestos P I Trust and will remain subject to the workers compensation process. Historically, workers compensation claims against AWI and its subsidiaries have not been significant in number or amount and AWI has continued to honor its
obligations with respect to such claims during the Chapter 11 Case. Workers compensation law provides that the employer is responsible for evaluation, medical treatment and lost wages as a result of a job-related injury. Currently, AWI has
only three pending workers compensation claims involving alleged asbestos exposure.



There also is uncertainty as to proceedings, if any, brought in certain foreign jurisdictions with respect to the effect of the 524(g) injunction in precluding the assertion in such jurisdictions of asbestos-related
personal injury claims, proceedings related thereto or the enforcement of judgments rendered in such proceedings.



Management believes that neither AWI nor any of its subsidiaries or other affiliates is subject to any asbestos-related personal injury claims that would not be channeled
to the Asbestos P I Trust and that are of a magnitude that, individually or collectively, would be material to reorganized Armstrong.



Before the POR may be implemented, it must be confirmed by order of the Bankruptcy Court and the U.S. District Court. In addition, consummation of the POR is subject to
the satisfaction after confirmation of certain conditions, as provided by the POR. See Note 2 for discussion of recent developments and the next steps in AWIs Chapter 11 process. AWI is unable to predict when and if the POR will be confirmed



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and implemented. Therefore, the timing and terms of resolution of the Chapter 11 Case remain uncertain. As long as this uncertainty exists, future changes to
the recorded asbestos-related liability are possible and could be material to AWIs financial position and the results of its operations. Management will continue to review the recorded liability in light of future developments in the Chapter
11 Case and make changes to the recorded liability if and when it is appropriate.



Insurance Recovery Proceedings



A substantial portion of AWIs primary and remaining excess insurance asset is nonproducts (general liability) insurance for personal injury claims. AWI has entered
into settlements with a number of the carriers resolving its coverage issues. However, an alternative dispute resolution (ADR) procedure was commenced 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.



During 1999, AWI
received preliminary decisions in the initial phases of the trial proceeding of the ADR, which were generally favorable to AWI on a number of issues related to insurance coverage. However, during the first quarter of 2001, a new trial judge was
selected for the ADR. The new trial judge conducted hearings in 2001 and determined not to rehear matters decided by the previous judge. In the first quarter of 2002, the trial judge concluded the ADR trial proceeding with findings in favor of AWI
on substantially all key issues. Liberty Mutual, the only insurer that is still a party to the ADR, appealed that final judgment. Appellate argument was held on March 11, 2003. On July 30, 2003, the appellate arbitrators ruled that AWIs claims
against certain Liberty Mutual policies were barred by the statute of limitations. The ruling did not address the merits of any of the other issues Liberty Mutual raised in its appeal. Based on that unfavorable ruling, AWI concluded that insurance
assets of $73 million were no longer probable of recovery. AWI was also ordered to reimburse Liberty Mutual for certain costs and administration fees that Liberty Mutual incurred during the ADR. The amount of these costs and fees is unknown and AWI
is currently unable to estimate the amount. Based upon an AWI request, the appellate panel held a rehearing on November 21, 2003. In January 2004, the appellate panel upheld its initial ruling. On February 4, 2004, AWI filed a motion in the U.S.
District Court for the Eastern District of Pennsylvania to vacate the rulings of the appellate panel.



In July 2002, AWI filed a lawsuit against Liberty Mutual in the U.S. District Court for the Eastern District of Pennsylvania seeking, among other things, a declaratory judgment with respect to certain policy issues
not subject to binding ADR. The U.S. District Court has not yet set a schedule to hear this matter.



On June 13, 2003, the New Hampshire Insurance Department placed The Home Insurance Company (Home) under an order of liquidation. Less than $10 million of AWIs recorded insurance asset is based on
policies with Home, which management believes is probable of recovery. AWI intends to file a proof of claim against Home by the June 2004 deadline. It is uncertain when AWI will receive proceeds from Home under these insurance policies.



Insurance Asset



An insurance asset in respect of asbestos claims in the amount of $103.1 million was
recorded as of March 31, 2004 and December 31, 2003. Approximately $14 million of the total $103.1 million asset represents partial settlement for previous claims that 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 AWIs belief that insurance proceeds will be recovered in this amount, based upon AWIs success in insurance recoveries, 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 or litigation in our opinion. 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 (the former AWI insulation contracting subsidiary that was sold in August 1969
and which filed for relief under Chapter 11 of the Bankruptcy Code in September 2002) and the financial condition of the insurers, AWI may revise its estimate of probable insurance recoveries. Approximately $79 million of the $103.1 million asset is
determined from



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agreed coverage in place. Of the $103.1 million, $8.0 million has been recorded as a current asset as of March 31, 2004 reflecting managements estimate
of the minimum insurance payments to be received in the next 12 months.



Many
uncertainties remain in the insurance recovery process, therefore, AWI did not increase the estimated insurance recovery asset in the first quarters of 2004 and 2003.



Cash Flow Impact



As a result of the Chapter 11 Filing, AWI did not make any payments for asbestos-related personal injury claims in the first quarters of
2004 and 2003. Additionally, AWI did not receive any asbestos-related insurance recoveries during the first quarters of 2004 and 2003. During the pendency of the Chapter 11 Case, AWI does not expect to make any further cash payments for
asbestos-related claims, but AWI expects to continue to receive insurance proceeds under the terms of various settlement agreements. Management estimates that the timing of future cash recoveries of the recorded asset may extend beyond 10 years.



Potential Legislation



On April 6, 2004, S.2290 (Fairness in Asbestos Injury Resolution Act of 2004) was introduced
in the Senate. On April 22, 2004, proponents of the bill failed to obtain sufficient votes to pass a cloture motion to bring the bill to the Senate floor, which effectively stopped the bill from being considered. Since April 22, the Senate
leadership has agreed to a series of mediated negotiations to explore whether a compromise on the merits of the bill can be reached. There is uncertainty as to whether the current or any other proposal will become law, and what impact there might be
on AWIs asbestos liability and/or AWIs Chapter 11 Case. Prior efforts to enact asbestos legislation have not been successful.



Conclusion



Many uncertainties continue to exist about the matters impacting AWIs asbestos-related liability and insurance asset. These uncertainties include when and if the
POR will be confirmed by the U.S. District Court, the impact of any potential legislation, and the financial condition of AWIs insurance carriers. Additionally, if the POR is confirmed, AWI is unable to predict when it will be implemented.
Therefore, the timing and terms of resolution of the Chapter 11 Case remain uncertain. As long as this uncertainty exists, future changes to the recorded liability and insurance asset are possible and could be material to AWIs financial
position and the results of its operations. Management will continue to review the recorded liability and insurance asset in light of future developments in the Chapter 11 Case and make changes to the recorded amounts if and when it is appropriate.



ENVIRONMENTAL MATTERS



Environmental Expenditures



Most of our manufacturing and certain of our research facilities are affected by various
federal, state and local environmental requirements relating to the discharge of materials or the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at our operating facilities. As
a result of continuous changes in regulatory requirements, we cannot predict with certainty future expenditures associated with compliance with environmental requirements.



Environmental Remediation



Summary



We are involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and similar state
Superfund laws at approximately 26 sites. In most cases, we are one of many potentially responsible parties (PRPs) which have potential liability for the required investigation and remediation of each site and which, in some
cases, have agreed to jointly fund that required investigation and remediation. With regard to some sites, however, we dispute the liability, the proposed remedy or the proposed cost allocation among the PRPs. We may have rights of contribution or
reimbursement from other parties or coverage under applicable insurance policies.



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We have also been remediating environmental contamination resulting from past industrial activity at certain of our
former plant sites. Estimates of our future environmental liability at the Superfund sites and current or former plant sites are based on evaluations of currently available facts regarding each individual site and consider factors such as our
activities in conjunction with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund
sites, our 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 remediation. As a result, our estimated liability reflects only our expected share.
In determining the probability of contribution, we consider the solvency of the parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters. Additionally, the Chapter 11 Case also may affect
the ultimate amount of such contributions.



Effects of Chapter 11



Certain of AWIs environmental liabilities are subject to discharge
through its Chapter 11 Case while others are not. Those environmental obligations that AWI has with respect to property that it owns or operates are likely to be unaffected by the Chapter 11 Case. Therefore, AWI will be required to continue meeting
its on-going environmental compliance obligations at the properties that AWI owns and operates. AWI will also be required to address the effects of any contamination at those sites, even if the contamination predated Chapter 11 Filing. In addition,
AWI may be obligated to remedy the off-site impact of activities that occurred on the properties it owns and operates.



AWIs payments and remediation work on such sites for which AWI is a PRP is under review in light of the Chapter 11 Filing. The bar date for claims from the United
States Environmental Protection Agency (EPA) expired during the third quarter of 2003. AWI received an unliquidated proof of claim from the EPA.



Monetary claims with respect to properties that AWI does not own or operate (such as formerly owned sites, or landfills to which AWIs waste was taken) may be
discharged in AWIs Chapter 11 Case. Accordingly, claims brought by the federal or a state agency alleging that AWI should reimburse the claimant for money that it spent cleaning up a site which AWI does not own or operate would be subject to
discharge, provided the claimant received proper notice of the bankruptcy and bar date. The same would be true for monetary claims by private parties, such as other PRPs with respect to multiple party sites. Under the POR, the Superfund sites at
which AWI is alleged to be a PRP are being treated as unsecured liabilities subject to compromise. Other Superfund sites relate to entities that are not part of AWIs Chapter 11 Case and therefore will not be discharged.



In addition to the right to sue for reimbursement of the money it spends, CERCLA also gives
the federal government the right to sue for an injunction compelling a defendant to perform a cleanup. Several state statutes give similar injunctive rights to those States. Bankruptcy law is unsettled as to whether these injunctive rights are
dischargeable or not. Thus, according to some cases, while a governmental agencys right to require AWI to reimburse it for the costs of cleaning up a site may be dischargeable, the same government agencys right to compel us to spend our
money cleaning up the same site may not be, even though the financial impact to AWI would be the same in both instances.



AWIs strategy has been to try to resolve as many of its environmental liabilities through its Chapter 11 Case as possible. AWI has been negotiating with the
Department of Justice and the EPA to reach a global environmental settlement on approximately 30 sites. AWI has asked the federal government to agree, as it did in other settlements with debtors in their bankruptcies, to covenant not to sue us for
either monetary or injunctive relief, in exchange for an allowed claim amount in the bankruptcy with respect to known claims concerning sites that AWI does not own or operate. Under the proposed settlement, AWI would have contribution protection
under CERCLA with respect to private party claims. In addition, AWI would have the benefit of the discharge as to monetary claims. At this point, the parties are still in the process of negotiating the settlement.



If no global settlement is reached, AWI anticipates that it will ask the Bankruptcy Court to
determine the amount of the EPA proof of claim and grant a discharge. At that time, the government may seek to have



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the amount of its claim determined as the total cost of cleanup under a theory of joint and several liability, not just AWIs share. As discussed above,
although the governments right to monetary relief is subject to discharge, there is uncertainty in the law as to whether the governments right to injunctive relief would also be subject to discharge.



Specific Events



In 2001, the EPA notified AWI that it may be a PRP at the Peterson Puritan site. However, AWI did not learn that the EPA may consider it a
substantial contributor of waste to the site until July 2003. At which time, the EPA notified AWI of the EPAs estimate of the sites future cleanup costs, with its assessment of AWIs share of the costs being a range of $17.8 million
to $26.2 million. Subsequently, AWI presented information to the EPA indicating that AWIs share should be much lower. Presently, the parties are continuing to negotiate. The EPA has not initiated any formal proceedings against AWI with respect
to this site, other than sending information requests to AWI and filing a proof of claim in AWIs Chapter 11 Case. AWI continues to review this matter but disputes the assessment. As discussed above (Effects of Chapter 11), management is
currently in discussions with the Department of Justice and the EPA to reach a global environmental settlement, which would resolve the proof of claim against AWI, including this site.



AWI is subject to a unilateral order by the Oregon Department of Environmental Quality (DEQ) to conduct a remedial investigation
and feasibility study and any necessary remedial design and action at its St. Helens, Oregon facility, as well as the adjacent Scappoose Bay. AWI has denied liability for Scappoose Bay, but has cooperated with the DEQ regarding its owned property.
Other potentially responsible parties who are not yet subject to orders by the DEQ include former site owners Owens Corning (OC) and Kaiser Gypsum Company, Inc. (Kaiser). AWI has entered into an agreement with Kaiser for the
sharing of costs and responsibilities with respect to the remedial investigation, feasibility study and remedy selection at the site. OC has entered into a settlement with the DEQ. Pursuant to the settlement, OC has made a lump sum payment to the
DEQ in exchange for contribution protection (including protection against common law and statutory contribution claims by AWI against OC) and a covenant not to sue. AWI has negotiated with the DEQ as to how these funds will be made available for the
investigation and remediation of the site. AWI has recorded an environmental liability with respect to the investigation and feasibility study at its St. Helens facility, but not for Scappoose Bay because AWI continues to dispute
responsibility for contamination of Scappoose Bay.



Summary of Financial
Position



Liabilities of $22.0 million and $21.2 million at March 31, 2004
and December 31, 2003, respectively, were for potential environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made. Where existing data is sufficient to estimate the liability,
that estimate has been used; where only a range of probable liabilities 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
site, these liabilities are reviewed to reflect additional information as it becomes available. Due to the Chapter 11 Filing, $12.8 million of the March 31, 2004 and December 31, 2003 environmental liabilities are classified as prepetition
liabilities subject to compromise. As a general rule, the Chapter 11 process does not preserve company assets for such prepetition liabilities.



The estimated liabilities above 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 condensed consolidated financial statements and are either available through settlement or anticipated to be recovered through negotiation or litigation. The amount of the recorded asset for estimated recoveries was $2.4 million and
$2.5 million at March 31, 2004 and December 31, 2003, respectively.



Actual
costs to be incurred at identified sites may vary from our estimates. Based on our current knowledge of the identified sites, we believe that any sum we may have to pay in connection with environmental matters in excess of the amounts noted above
would not have a material adverse effect on our financial condition, or liquidity, although the recording of future costs may be material to earnings in such future period.



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PATENT INFRINGEMENT CLAIMS



We are a defendant in two related lawsuits claiming patent infringement related to some of
our laminate products. The plaintiffs have claimed unspecified monetary damages. We are being defended and indemnified by our supplier for all costs and potential damages related to the litigation.



FORMER EMPLOYEES CLAIM



Former Armstrong employees that were separated from the company in two business divestitures
in 2000 brought two purported class actions against the Retirement Committee of AWI, certain current and former members of the Retirement Committee, the Retirement Savings and Stock Ownership Plan (RSSOP), AHI and the trustee bank of the RSSOP.
Plaintiffs alleged breach of Employee Retirement Income Security Act (ERISA) fiduciary duties and other violations of ERISA pertaining to losses in their RSSOP accounts, which were invested in Armstrong common stock.



An agreement was reached to settle this matter. Contributors to the settlement were AWI, its
insurer and the trustee bank of the RSSOP. The full amount of the settlement was allocated in December 2003 among approximately 370 former employees. AWIs portion of the settlement is $1.0 million, which will be treated as convenience claims
in the Chapter 11 Case. The settlement was approved by the Bankruptcy Court on March 31, 2003 and by the United States District Court (Eastern District of PA) on June 16, 2003. Based upon the Bankruptcy Courts approval of the settlement, AWI
recorded a $1.0 million charge in the first quarter of 2003 as an other non-operating expense.



DEPARTMENT OF LABOR SETTLEMENT



Subsequent to an audit by the United States Department of Labor (DOL), we were informed that the DOL was challenging the validity of the use of certain
contributions, in the approximate aggregate amount of $33.4 million, to fund debt payments made by the Armstrong Employee Stock Ownership Plan (ESOP), as provided for by that plan. We reached a settlement with the DOL to resolve this
matter with a funding to the ESOP of $1.5 million, which was distributed to plan participants in accordance with terms of the agreement in February 2004. Insurance and third parties funded $0.9 million of the settlement. Both the accrual of $1.5
million expense and $0.9 million insurance receivable was recorded in the third quarter of 2003 as a SG&A expense.



OTHER CLAIMS



Additionally, we are involved in various other claims and legal actions involving product liability, patent infringement, distributor termination, employment law issues
and other actions arising in the ordinary course of business. While complete assurance cannot be given to the outcome of these claims, we do not expect that any sum that may have to be paid in connection with these matters will have a materially
adverse effect on our consolidated financial position or liquidity, however it could be material to the results of operations in the particular period in which a matter is resolved.



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



The difference between the condensed consolidated financial statements is primarily due to stock activity and intercompany transactions.



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NOTE 13. SUBSEQUENT EVENT



On April 23, 2004, a key U.S. supplier of PVC resins to Armstrong had a substantial portion
of one of its plants destroyed in an explosion. PVC resins are a key raw material for manufacturing vinyl flooring, and this plant represented a sizeable portion of the capacity for these resins in the U.S. We are trying to secure alternative
sources of supply of the resins. We are also evaluating product formulation changes that would reduce the use of the resins. However, temporary disruption in manufacturing certain vinyl flooring products may occur. The costs of raw materials and of
producing the reformulated products may rise. These factors may have a material impact on future results of operations. During the first quarter of 2004, sales of the products affected by this event amounted to approximately $167 million. At this
time, we are unsure of the timing of a resolution and the actual impact of this event on our operations.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Armstrong World Industries, Inc. (AWI) is a Pennsylvania corporation incorporated in 1891. Armstrong Holdings, Inc. is a
Delaware corporation and the publicly held parent holding company of AWI. Armstrong Holdings, Inc.s only significant asset and operation is its indirect ownership, through Armstrong Worldwide, Inc., of all of the capital stock of AWI. The
following discussion and analysis pertains to both Armstrong Holdings, Inc. and its subsidiaries and Armstrong World Industries and its subsidiaries due to the lack of material differences in the financial statements, as explained in Note 1 of the
Condensed Consolidated Financial Statements. Due to the lack of material differences in the financial statements, when we refer in this document to Armstrong Holdings, Inc. and its subsidiaries as AHI, Armstrong,
we, us, and ourselves, we are also effectively referring to AWI and its subsidiaries. We use the term AWI when we are referring solely to Armstrong World Industries, Inc.



References to performance excluding the translation effect of changes in foreign exchange
rates are non-GAAP measures. We believe that this information improves the comparability of business performance by excluding the impacts of changes in foreign exchange rates when translating comparable foreign currency amounts. We calculate the
translation effect of foreign exchange rates by applying the current years foreign exchange rates to the equivalent periods foreign currency amounts as reported in the prior year.



This discussion should be read in conjunction with the financial statements and the
accompanying notes included elsewhere in this Form 10-Q. It contains forward-looking statements based on our current expectations, which are inherently subject to risks and uncertainties. Actual results and the timing of certain events may differ
significantly from those referred to in such forward-looking statements. We undertake no obligation beyond what is required under applicable securities law to publicly update or revise any forward-looking statement to reflect current or future
events or circumstances, including those set forth in the section entitled Cautionary Factors and elsewhere in this Form 10-Q.



We maintain a Web site at http://www.armstrong.com. Information contained on our website is not incorporated into this document. Annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports and other information about us are available free of charge through this website as soon as reasonably practicable after the reports are electronically filed with the
Securities and Exchange Commission (SEC).



Overview



We are a leading global producer of flooring products and ceiling systems
for use primarily in the construction and renovation of residential, commercial and institutional buildings. Through our United States (U.S.) operations and U.S. and international subsidiaries, we design, manufacture and sell flooring
products (resilient, wood, carpeting and sports flooring) and ceiling systems (primarily mineral fiber, fiberglass and metal), around the world. We also design, manufacture and sell kitchen and bathroom cabinets in the U.S. We own and operate 44
manufacturing plants in 12 countries, including 26 plants located throughout the United States. Through WAVE, our joint venture with Worthington Industries, Inc., we also have an interest in 8 additional plants in 5 countries that produce suspension
system (grid) products for our ceiling systems.



Our business strategy focuses
on product innovation, product quality and customer service. In our businesses, these factors are the primary determinants of market share gain or loss. Our objective is to ensure that anyone buying a floor or ceiling can find an Armstrong product
that meets their needs. Our cabinet strategy is more focused  on stock cabinets in select geographic markets. In these segments, we have the same objectives: high quality, good customer service and products that meet our customers needs.
Our markets are very competitive, which limits our pricing flexibility. This requires that we increase our productivity each year  both in our plants and in our administration of the businesses.



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On December 6, 2000, AWI filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the Bankruptcy Court) in order to use the court-supervised reorganization process to achieve a resolution of its asbestos liability. Also filing under Chapter 11 were two of
AWIs wholly-owned subsidiaries, Nitram Liquidators, Inc. and Desseaux Corporation of North America, Inc. The Chapter 11 cases are being jointly administered under case number 00-4471 (the Chapter 11 Case). AWI is operating its
business and managing its properties as a debtor-in-possession subject to the provisions of the Bankruptcy Code. See Note 2 of the Condensed Consolidated Financial Statements for information on the Chapter 11 Case and Note 11 of the Condensed
Consolidated Financial Statements for information on asbestos litigation.



Reportable Segments



Resilient Flooring  produces
a broad range of floor coverings for homes and commercial and institutional buildings. Resilient Flooring products include vinyl sheet, vinyl tile, linoleum flooring and luxury vinyl tile. In addition, our Resilient Flooring segment sources and
sells laminate flooring products, adhesives, installation and maintenance materials and accessories, and has recently introduced ceramic tile products. Resilient Flooring products are offered in a wide variety of types, designs, and colors, and
provide ease of installation and reduced maintenance (no-wax). We sell these products to wholesalers, large home centers, retailers, contractors, and to the manufactured homes industry.



Wood Flooring  produces wood flooring products for use in new residential
construction and renovation, with some commercial applications in stores, restaurants and high-end offices. The product offering includes solid wood (pre-finished or unfinished) and engineered wood floors in various wood species (with oak being the
primary species of choice). Virtually all of our Wood Floorings sales are in North America. Our Wood Flooring products are generally sold to independent wholesale flooring distributors and large home centers under the brand names Bruce®, Hartco® and Robbins®.



Textiles and Sports Flooring (TSF)  produces carpeting and sports flooring products that are sold mainly in Europe. Carpeting products consist
principally of carpet tiles and broadloom used in commercial applications and in the leisure and travel industry. Sports flooring products include artificial turf and other sports surfaces. Our TSF products are sold primarily through retailers,
contractors, distributors and other industrial businesses.



Building
Products  produces suspended mineral fiber, soft fiber and metal ceiling systems for use in commercial, institutional and residential settings. In addition, our Building Products segment sources and sells wood ceiling systems. The products
are available in numerous colors, performance characteristics and designs, and offer attributes such as acoustical control, rated fire protection, and aesthetic appeal. Commercial ceiling materials and accessories are sold to ceiling systems
contractors and to resale distributors. Residential ceiling products are sold through wholesalers and retailers (including large home centers), primarily in North America. Suspension system (grid) products manufactured by WAVE are sold by both
Armstrong and the WAVE joint venture.



Cabinets  produces kitchen
and bathroom cabinetry and related products, which are used primarily in the U.S. residential new construction and renovation markets. Through our system of company-owned and independent distribution centers and through direct sales to builders, our
Cabinets segment provides design, fabrication and installation services to single and multi-family homebuilders, remodelers and consumers under the brand names Armstrong, Bruce®, and IXL®.



We also
report on two other segments, All Other (which relates to a corporate equity investment) and Unallocated Corporate Expense.



See Note 3 of the Condensed Consolidated Financial Statements for additional financial information on our reportable segments.



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Financial highlights for the first quarter of 2004:



|                             |  |                             |       |   |             |   |       |                                           |  |           |   |  |           |  
|---------------------------- |  | --------------------------- | ----- | - | ----------- | - | ----- | ----------------------------------------- |  | --------- | - |  | --------- | -
|                             |  | (amounts in millions)       |       |   | Favorable   |  
|                             |  | Three MonthsEnded March 31, |       |   | As Reported |   |       | Excluding Effectsof ForeignExchange Rates | 
|                             |  | 2004                        |       |   | 2003        |   |       |                                          
|Total Consolidated Net Sales |  | $                           | 845.0 |   |             | $ | 774.9 |                                           |  | 9.0       | % |  | 4.4       | %
|Operating Income             |  | $                           | 39.8  |   |             | $ | 11.3  |                                           |  | Favorable |   |  | Favorable |  
|(Use) of cash                |  | $                           | (48.2 | ) |             | $ | (75.3 | )                                         |  | Favorable |   |  | Favorable |  



In the first quarter of 2004:



| |  | We experienced strong demand for our products in the North American residential and commercial markets.
| | - | -------------------------------------------------------------------------------------------------------



| |  | Our sales performance in Europe was mixed, but generally down from the prior year. Sales of Resilient Flooring and TSF products were especially impacted by the German economy.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We incurred cost increases for some of our essential raw materials, particularly for lumber.
| | - | --------------------------------------------------------------------------------------------



| |  | We benefited from the cost reduction initiatives, implemented in prior years, through reduced operating costs.
| | - | --------------------------------------------------------------------------------------------------------------



Factors Affecting Revenues



Markets. We compete in building material markets around the world. The majority of
our sales opportunity is in the North American and European markets. During the first quarter of 2004, these markets experienced the following:



| |  | In the North American residential market, housing activity remained strong. As a result of construction starting on approximately 1.85 million housing units in 2003, compared to
approximately 1.7 million in 2002, U.S. single family housing completions in the first quarter of 2004 were approximately 10% higher than in the first quarter of 2003 (our products tend to be installed towards the latter stages of the housing
construction process). Housing starts in the first quarter of 2004 declined approximately 4% from fourth quarter 2003 levels but increased approximately 10% from the first quarter of 2003.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sales of existing homes totaled approximately 6.1 million homes in 2003,
compared to approximately 5.6 million homes in 2002, and were especially strong during the August to October months. Allowing for the usual lag period of several months for renovation-related expenditures, this three month peak of activity helped
U.S. retail sales of building materials in the first quarter of 2004 increase significantly over sales levels in the first quarter of 2003.



| |  | The North American commercial market grew. Two indicators of renovation opportunity: the dollar value of large renovation projects and total office employment, reported increases
compared to the first quarter of 2003. Other indicators, such as private investment in new non-residential structures, the value of large commercial additions, and new commercial construction starts have also shown favorable trends.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The increased demand for steel and a shortage of coke created a steel shortage in the U.S. An extended
steel shortage could cause U.S. construction starts to be delayed or postponed, which could reduce our commercial sales. To-date, sales of our commercial products have not been impacted by the shortage. The steel shortage has increased raw material
costs for our WAVE joint venture. This increase has been largely offset by price increases.



| |  | We experienced weaker markets in Western Europe, especially in Germany. This has adversely impacted both price and volume. Germany is a very important market for Resilient Flooring
and Textiles and Sports Flooring; it is not as important for Building Products.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Quality and Customer Service. Our quality and customer service are critical components of our total value proposition. In the first quarter of 2004, we experienced the following:



| |  | One of our U.S. distributors of resilient and wood flooring products incurred significant order, shipment and invoice processing problems after converting to a new computer system.
These problems caused customer service issues for independent retailers and home centers. In April, the distributor resolved its problems. We believe that our financial results in future periods will not be materially affected by these problems.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We experienced a surge in orders for solid wood flooring products in the fourth quarter of 2003, and incoming orders in the first quarter of 2004 were substantially higher than
those received in the first quarter of 2003. Our performance in fulfilling these orders has been less than satisfactory. We are increasing capacity and our lumber inventory, and expect to return to normal customer service performance levels in the
third quarter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In a broad industry competition, we were recognized with Best Service awards from National Floor Trends in the categories of Wood Flooring, Resilient Flooring and
Training Programs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For us, a key measure of quality is a safe workplace environment. Our initiatives have continued to reduced injuries. OSHA recordable injuries have been reduced significantly in the
first quarter compared to the same period last year, reflecting a 46% improvement, to an OSHA rate of 2.3 . Similarly, the reduction in lost time injuries reflects a 63% improvement, to an OSHA rate of 0.4. These results are on almost eight million
hours worked globally during each of the periods.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pricing
Initiatives. In the second, third and fourth quarters of 2003, increased costs for raw materials, labor and labor-related expenses, energy and other areas caused us to increase prices. These initiatives increased net sales in the first quarter
2004 compared to the first quarter of 2003. The most significant pricing actions were:



| |  | In Resilient Flooring, we implemented price increases for selected U.S. commercial products in July 2003. We also implemented an increase on selected U.S. residential products in
November 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Wood Flooring, we implemented a price increase on solid wood products in April 2003. We also announced increases on solid wood products that became effective in November 2003 and
January 2004.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Building Products, a price increase was announced for most commercial acoustical ceiling products in the North American markets, effective July 1, 2003. Price increases on
certain products to our large home center customers in the U.S. were implemented in August and September of 2003. We also increased prices for certain U.S. residential-oriented products sold through distribution in July 2003. An additional increase
for most commercial products was announced in the fourth quarter of 2003, which became effective January 1, 2004.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | In Cabinets, we announced price increases in September 2003 to our retail customers and our builder and distributor customers.
| | - | ------------------------------------------------------------------------------------------------------------------------------



During the first four months of 2004, the most significant pricing actions were:



| |  | In Resilient Flooring, we announced a price increase in April for commercial vinyl composition tile products, to be effective later in the second quarter.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Wood Flooring, we announced a price increase in April for selected solid hardwood products, to be effective later in the second quarter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Building Products, a price increase was announced in April for most commercial acoustical ceiling products in the U.S. market, to be effective July 1, 2004.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



In certain cases, price increases actually realized were less
than the announced price increases because we had to adjust to competitive actions and changing market conditions. Also during the first quarter of 2004, we made several price concessions for certain products in some of our segments and geographic
regions, again to respond to competitive conditions.



The pricing actions
described above increased consolidated net sales in the first quarter of 2004 approximately $13 million, when compared to the first quarter of 2003.



Factors Affecting Operating Costs



Operating Expenses. Our operating expenses consist of direct production (principally raw materials, labor and energy) and manufacturing overhead costs, costs to
purchase sourced products and selling, general and administrative expenses (SG&A).



Our most important commodities are lumber and veneers, PVC, backings for various flooring products and plasticizers. We also consume large quantities of energy in our manufacturing processes, in particular natural gas
in our mineral fiber ceilings manufacturing process. Fluctuations in the prices of these components of our production processes are generally beyond our control and have a direct impact on our financial results. In the first quarter of 2004, we
experienced the following:



| |  | Prices for hardwood lumber increased from the second quarter of 2003 through the first quarter of 2004, as the availability of lumber for flooring decreased due to poor weather
conditions for timbering and reductions in industry saw mill capacity, while demand for the lumber (for flooring and other products such as railroad ties and pallets) remained strong. Our cost for acquiring lumber in the first quarter of 2004 was
approximately $13 million greater than in the first quarter of 2003. Lumber costs for the year 2004 are likely to exceed those in 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | PVC is a widely used oil-based raw material. We experience cost pressures on PVC when energy prices increase and when industrial demand for the material increases. The PVC resins
and film prices increased by approximately $1.4 million in the first quarter of 2004 compared to the first quarter of 2003. We believe the cost for such oil-based raw materials will continue to increase during 2004.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Costs for natural gas have increased significantly over the past several years. In the first quarter of 2004, we incurred approximately $0.6 million of additional costs for natural
gas compared to the first quarter of 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Production wages and
non-production salaries increased approximately $6 million in the first quarter of 2004, compared to the first quarter of 2003.



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Cost Reduction Initiatives. During 2003, we implemented several manufacturing and organizational changes to
improve our cost structure and enhance our competitive position. Specifically:



| |  | We ceased production of our residential stencil vinyl flooring product line in the third quarter.
| | - | -------------------------------------------------------------------------------------------------



| |  | We closed two Wood Flooring facilities that manufactured engineered wood floors, one in each of the third and fourth quarters, consolidating their production volume into another
Wood Flooring facility.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We closed a Textiles and Sports Flooring plant in The Netherlands in the third quarter.
| | - | ---------------------------------------------------------------------------------------



| |  | We consolidated several sales, operational and administrative support organizations throughout our company. This consolidation included integrating our U.S. Resilient Flooring and
Wood Flooring organizations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We incurred $4.7 million in
costs during the first quarter of 2003 for implementing these initiatives, as follows:



First Quarter 2003 Expenses for Cost Reduction Initiatives



|                           |  |      |     |               |   |               |  |   |    
|-------------------------- |  | ---- | --- | ------------- | - | ------------- |  | - | ---
|(amounts in millions)      |  | SG&A |     | Restructuring |   | TotalExpenses
|Resilient Flooring         |  | $    | 0.1 |               | $ | 0.9           |  | $ | 1.0
|Wood Flooring              |  |      | 0.7 |               |   |               |  |   | 0.7
|Textiles & Sports Flooring |  |      |     |               |   | 2.3           |  |   | 2.3
|Corporate Unallocated      |  |      | 0.7 |               |   |               |  |   | 0.7
|                           |  |      |     |               |   |               |  |   |    
|Total Consolidated         |  | $    | 1.5 |               | $ | 3.2           |  | $ | 4.7
|                           |  |      |     |               |   |               |  |   |    



During the first quarter of 2004, we
announced that we will cease production at our Building Products plant in The Netherlands by the end of 2004, subject to positive advice from the local works council. We recorded costs of $3.0 million in the first quarter of 2004 for this action, of
which $2.3 million was recorded as restructuring (for estimated severances) and $0.7 million was recorded as cost of goods sold (primarily for accelerated depreciation).



Factors Affecting Cash Flow



Historically, excluding the cash demands for asbestos-related claims in 2000 and prior years, we typically generate positive cash flow during a calendar year from our
operating activities. The amount of cash generated in any year, or in the quarters of any year, is dependent on a number of factors, including the amount of operating profit generated and the amount of working capital (such as inventory, receivables
and payables) required to operate our businesses. We typically invest in property, plant & equipment (PP&E) and computer software throughout a calendar year.



During the first quarter of 2004, our cash and cash equivalents balance decreased by $48.2 million, compared to a $75.3 million decrease
during the same period of 2003. The year-to-year improvement was due primarily to less cash used in operating activities, with $36.6 million used in 2004 and $53.8 million used in 2003. Increases in receivables and inventories accounted for the
majority of the cash used in operating activities in both years. We benefited from increased net earnings and additional accounts payable and accrued expenses in 2004, compared to 2003. Cash increased by $9.9 million from the year-to-year change in
financing activities, primarily due to certain subsidiaries that are not participating in our Chapter 11 Case borrowing $5.1 million in short-term debt in 2004 while they reduced borrowings by $4.9 million in 2003.



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Employee Relations



As of March 31, 2004, we had approximately 15,000 full-time and part-time employees worldwide, compared to approximately 16,400 employees as
of March 31, 2003. The decrease in employment was primarily caused by our implementing the above mentioned cost reduction initiatives.



As of the date of this filing, approximately 330 employees at one plant are working under an expired contract. The timing of resolution is uncertain, and a work stoppage
at this location is possible. A work stoppage could have a significant effect on the results of operations during the period of the event.



RESULTS OF OPERATIONS



Unless otherwise indicated, net sales in these results of operations are reported based upon the location where the sale was made.



FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003



CONSOLIDATED RESULTS



|                             |  |                             |       |   |                         |   |       |                                              |  |           |   |  |           |   
|---------------------------- |  | --------------------------- | ----- | - | ----------------------- | - | ----- | -------------------------------------------- |  | --------- | - |  | --------- | --
|                             |  | (amounts in millions)       |       |   | Favorable/(Unfavorable) |  
|                             |  | Three MonthsEnded March 31, |       |   | AsReported              |   |       | Excluding Effectsof ForeignExchange Rates(1) | 
|                             |  | 2004                        |       |   | 2003                    |   |       |                                             
|Net Sales:                   |  |                             |       |   |                         |   |       |                                              |  |           |   |  |           |   
|Americas                     |  | $                           | 618.3 |   |                         | $ | 567.8 |                                              |  | 8.9       | % |  | 8.3       | % 
|Europe                       |  |                             | 204.4 |   |                         |   | 189.6 |                                              |  | 7.8       | % |  | (6.8      | )%
|Pacific                      |  |                             | 22.3  |   |                         |   | 17.5  |                                              |  | 27.4      | % |  | 14.4      | % 
|                             |  |                             |       |   |                         |   |       |                                              |  |           |   |  |           |   
|Total Consolidated Net Sales |  | $                           | 845.0 |   |                         | $ | 774.9 |                                              |  | 9.0       | % |  | 4.4       | % 
|Operating Income             |  | $                           | 39.8  |   |                         | $ | 11.3  |                                              |  | Favorable |   |  | Favorable |   
|Operating Income Margin      |  |                             | 4.7   | % |                         |   | 1.5   | %                                            |  |           |   |  |           |   



|(1) | Excludes favorable foreign exchange rate effect in translation of $34.6 million on net sales
and $0.7 million on operating income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



Excluding the translation
effect of changes in foreign exchange rates, net sales in the Americas increased by over 8%, primarily from increased demand of our products in both the residential and commercial markets. Resilient Flooring, Wood Flooring and Building Products each
experienced unit volume growth for the quarter.



Excluding the translation
effect of changes in foreign exchange rates, net sales in the European markets declined by approximately 7%, primarily as a result of the weak economic conditions in selected selling markets. Excluding the translation effect of changes in foreign
exchange rates, net sales in the Pacific area increased by over 14%, primarily as a result of stronger sales in China.



Cost of goods sold in the first quarter of 2004 was 78.3% of net sales, compared to 78.5% in the same period of 2003. The 0.2 percentage point decrease was primarily due
to the favorable impacts of the above-mentioned cost reduction initiatives, partially offset by increased raw material and labor costs. Additionally, we recorded $0.7 million of costs in 2004 as a result of announcing our intentions to cease
production at the Building Products manufacturing location in Hoogezand, The Netherlands by the end of December 2004, subject to positive advice from the local works council.



SG&A expenses in the first quarter of 2004 were $148.4 million, or 17.6% of net sales compared to $157.3 million, or 20.3% of net sales
in the first quarter of 2003. Excluding the translation effect of changes in foreign exchange rates of $9.1 million, SG&A expenses in the first quarter of 2004 declined by $18.0 million from first quarter 2003 SG&A expenses, primarily as a
result of the cost reduction initiatives described above.



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We recorded a net restructuring charge of $2.0 million in the first quarter of 2004, primarily due to plans to cease
production at the Building Products manufacturing location in Hoogezand, The Netherlands by the end of December 2004, subject to positive advice from the local works council. This action is being taken as we have excess production capacity in the
European mineral and soft fiber ceiling industry. It is planned that the production will be transferred to another Building Products location in Münster, Germany and will result in a net reduction of approximately 72 positions. We expect to
incur approximately $15 million of additional charges related to this plant closure during the remainder of 2004 for accelerated depreciation of equipment, plant closure activities, transition costs for shifting production capabilities to another
European facility and severances. This cost reduction initiative is expected to result in $7.6 million in annual savings. In the first quarter of 2003, we recorded a restructuring charge of $3.2 million. The charge related to severance benefits for
approximately 52 employees in the Textiles and Sports Flooring and Resilient Flooring segments, as part of the restructuring plan to consolidate certain functions in the European flooring business.



Equity earnings from affiliates, primarily from our WAVE joint venture, was $6.6 million in
the first quarter of 2004, as compared to $5.3 million in the same period of 2003.



Operating income of $39.8 million in the first quarter of 2004 compared to operating income of $11.3 million in 2003.



Interest expense was $2.2 million in the first quarter of 2004, compared to $2.8 million in 2003. The decrease in interest expense is due primarily to interest rate
differentials for foreign currency hedging activity. In accordance with SOP 90-7, we did not record contractual interest expense on prepetition debt after the Chapter 11 filing date. This unrecorded interest expense was $21.7 million in the first
quarter of 2004 and $24.8 million in the same period of 2003.



Other
non-operating expense of $1.9 million in the first quarter of 2004 was $0.6 million higher than the $1.3 million expense recorded in 2003, primarily due to increasing our environmental and other long-term liabilities, which were both related to
previous divestitures. Offsetting these increases was a $1 million charge recorded in 2003 for settling a claim from former employees.



Other non-operating income in the first quarter of 2004 was $1.2 million compared to $0.8 million in 2003.



Chapter 11 reorganization costs, net in the first quarter of 2004 were $2.5 million, which was $1.5 million less than the $4.0 million
amount recorded in 2003. The decrease is primarily due to less professional fees.



The effective tax rate for the first quarter of 2004 was 48.5% versus 52.5% for 2003. The decreased tax rate was primarily due to lower overall state tax expense, partially offset by higher foreign tax caused by increased valuation
allowances provided against net operating loss carryforwards.



Net income of
$17.7 million was recorded for the first quarter of 2004, compared to net income of $1.9 million for 2003.



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##### Table of Contents

REPORTABLE SEGMENT RESULTS



Resilient Flooring



|                        |  |                             |       |   |                         |   |       |                                              |  |       |    |  |       |   
|----------------------- |  | --------------------------- | ----- | - | ----------------------- | - | ----- | -------------------------------------------- |  | ----- | -- |  | ----- | --
|                        |  | (amounts in millions)       |       |   | Favorable/(Unfavorable) |  
|                        |  | Three MonthsEnded March 31, |       |   | As Reported             |   |       | Excluding Effectsof ForeignExchange Rates(1) | 
|                        |  | 2004                        |       |   | 2003                    |   |       |                                             
|Net Sales:              |  |                             |       |   |                         |   |       |                                              |  |       |    |  |       |   
|Americas                |  | $                           | 235.0 |   |                         | $ | 225.5 |                                              |  | 4.2   | %  |  | 3.5   | % 
|Europe                  |  |                             | 57.2  |   |                         |   | 52.3  |                                              |  | 9.4   | %  |  | (5.5  | )%
|Pacific                 |  |                             | 11.9  |   |                         |   | 8.9   |                                              |  | 33.7  | %  |  | 16.7  | % 
|                        |  |                             |       |   |                         |   |       |                                              |  |       |    |  |       |   
|Total Segment Net Sales |  | $                           | 304.1 |   |                         | $ | 286.7 |                                              |  | 6.1   | %  |  | 2.1   | % 
|Operating Income        |  | $                           | 15.5  |   |                         | $ | 17.6  |                                              |  | (11.9 | )% |  | (13.9 | )%
|Operating Income Margin |  |                             | 5.1   | % |                         |   | 6.1   | %                                            |  |       |    |  |       |   



|(1) | Excludes favorable foreign exchange rate effect in translation of $11.1 million on net sales
and $0.4 million on operating income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



Net sales in the Americas
increased approximately 4%. Sales of our vinyl products to the commercial market increased by approximately 10%, primarily due to a July 2003 price increase on certain vinyl sheet products, new product introductions and from sales of higher priced
tile products. Sales of our vinyl products to the residential market increased by approximately 3%, primarily due to increased volume. Laminate sales decreased approximately 2%, primarily from new product introductions favorably impacting sales in
the first quarter of 2003.



Excluding the translation effect of changes in
foreign exchange rates, net sales in Europe decreased by approximately 6%. Significant market weakness in certain key countries, principally Germany, accounted for the decrease. Excluding the translation effect of changes in foreign exchange rates
of $1.3 million, net sales in the Pacific area increased by $1.7 million.



Operating income in the first quarter of 2004 declined from the same period 2003, due to lower sales in Western European markets, increased costs to purchase PVC, wage and salary inflation increases and certain European manufacturing
inefficiencies.



Wood Flooring



|                           |  |                             |       |   |           |   |       |   |  |           |  
|-------------------------- |  | --------------------------- | ----- | - | --------- | - | ----- | - |  | --------- | -
|                           |  | (amounts in millions)       |       |   |           |  
|                           |  | Three Months EndedMarch 31, |       |   | Favorable |  
|                           |  | 2004                        |       |   | 2003      |   |      
|Total Segment Net Sales(1) |  | $                           | 197.4 |   |           | $ | 167.2 |   |  | 18.1      | %
|Operating Income           |  | $                           | 10.3  |   |           | $ | 2.2   |   |  | Favorable |  
|Operating Income Margin    |  |                             | 5.2   | % |           |   | 1.3   | % |  |           |  



|(1) | Virtually all Wood Flooring products are sold in the Americas, primarily in the U.S.
|--- | ------------------------------------------------------------------------------------



Net sales in the first quarter of 2004 increased by $30.2
million. Units sold of pre-finished solid and engineered floors increased by approximately 16% and 6%, respectively, primarily from the strong U.S. new home construction market. Net sales were also positively impacted by the price increases
implemented on the solid wood flooring products (see Overview  Factors Affecting Revenues).



Operating income increased by $8.1 million, primarily due to the sales volume gains, and lower manufacturing overhead costs resulting from the previously described cost reduction initiatives. In the first quarter of
2004, higher lumber costs offset substantially all of the benefits realized from higher selling prices.



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##### Table of Contents

Textiles and Sports Flooring (TSF)





|                        |  |                             |      |    |                         |   |      |                                              |  |      |   |  |       |   
|----------------------- |  | --------------------------- | ---- | -- | ----------------------- | - | ---- | -------------------------------------------- |  | ---- | - |  | ----- | --
|                        |  | (amounts in millions)       |      |    | Favorable/(Unfavorable) |  
|                        |  | Three Months EndedMarch 31, |      |    | As Reported             |   |      | Excluding Effectsof ForeignExchange Rates(1) | 
|                        |  | 2004                        |      |    | 2003                    |   |      |                                             
|Total Segment Net Sales |  | $                           | 62.3 |    |                         | $ | 62.0 |                                              |  | 0.5  | % |  | (14.1 | )%
|Operating (Loss)        |  | $                           | (1.9 | )  |                         | $ | (6.0 | )                                            |  | 68.3 | % |  | 72.9  | % 
|Operating (Loss) Margin |  |                             | (3.0 | )% |                         |   | (9.7 | )%                                           |  |      |   |  |       |   



|(1) | Excludes favorable foreign exchange rate effect in translation of $10.5 million on net sales
and $1.0 million on operating income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



Excluding the translation
effect of changes in foreign exchange rates, net sales decreased by approximately 14%, primarily from volume declines in our carpet products, due to weak economic conditions in our primary markets, and lower prices to meet competitive pressures.



An operating loss in the first quarter of 2004 was less than the loss in the
same period of 2003, primarily due to reduced manufacturing overhead and SG&A costs resulting from the previously described cost reduction initiatives. Additionally, TSF recorded a $2.3 million restructuring charge in the first quarter of 2003,
compared to a net reversal of $0.1 million for restructuring activities in 2004.



Building Products



|                        |  |                             |       |   |                         |   |       |                                              |  |      |   |  |      |   
|----------------------- |  | --------------------------- | ----- | - | ----------------------- | - | ----- | -------------------------------------------- |  | ---- | - |  | ---- | --
|                        |  | (amounts in millions)       |       |   | Favorable/(Unfavorable) |  
|                        |  | Three Months EndedMarch 31, |       |   | As Reported             |   |       | Excluding Effectsof ForeignExchange Rates(1) | 
|                        |  | 2004                        |       |   | 2003                    |   |       |                                             
|Net Sales:              |  |                             |       |   |                         |   |       |                                              |  |      |   |  |      |   
|Americas                |  | $                           | 135.6 |   |                         | $ | 124.3 |                                              |  | 9.1  | % |  | 7.9  | % 
|Europe                  |  |                             | 84.0  |   |                         |   | 74.2  |                                              |  | 13.2 | % |  | (1.2 | )%
|Pacific                 |  |                             | 10.4  |   |                         |   | 8.6   |                                              |  | 20.9 | % |  | 11.8 | % 
|                        |  |                             |       |   |                         |   |       |                                              |  |      |   |  |      |   
|Total Segment Net Sales |  | $                           | 230.0 |   |                         | $ | 207.1 |                                              |  | 11.1 | % |  | 4.5  | % 
|Operating Income        |  | $                           | 27.2  |   |                         | $ | 17.8  |                                              |  | 52.8 | % |  | 40.9 | % 
|Operating Income Margin |  |                             | 11.8  | % |                         |   | 8.6   | %                                            |  |      |   |  |      |   



|(1) | Excludes favorable foreign exchange rate effect in translation of $12.9 million on net sales
and $1.5 million on operating income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



Excluding the translation
effect of changes in foreign exchange rates, net sales in the Americas increased by almost 8%. Unit volume to the U.S. Commercial markets increased by approximately 9%, primarily due to market conditions. Net sales also benefited from the July 2003
and January 2004 price increases. Offsetting these gains was lower sales of products for the residential market.



Excluding the translation effect of changes in foreign exchange rates, net sales in Europe declined by approximately 1% from 2003. The volume of mineral fiber product
sold to Western European countries declined by approximately 4%, primarily due to lower commercial market activity. Meanwhile, volume sold to the emerging markets of Eastern Europe (primarily Russia) increased by approximately 5%, due to
construction growth in these markets. Products sold to the emerging markets tend to have lower margin than products sold in Western Europe. Excluding the translation effect of changes in foreign exchange rates, net sales of metal ceilings increased
by approximately 8%, primarily from growth in certain countries.



Excluding the
translation effect of changes in foreign exchange rates, net sales in the Pacific area increased by $1.1 million due to strong activity in the China, Southeast Asia and Australian markets.



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Excluding the translation effect of changes in foreign exchange rates, operating income increased by $7.9 million,
primarily due to the improved sales activity in the Americas, favorable production efficiencies and higher equity earnings from our WAVE joint venture. Partially offsetting these gains were costs associated with the cost reduction initiative in The
Netherlands and increased energy costs.



Cabinets



|                                 |  |                             |      |   |                          |   |      |    |  |           |   
|-------------------------------- |  | --------------------------- | ---- | - | ------------------------ | - | ---- | -- |  | --------- | --
|                                 |  | (amounts in millions)       |      |   |                          |  
|                                 |  | Three Months EndedMarch 31, |      |   | Favorable/ (Unfavorable) |  
|                                 |  | 2004                        |      |   | 2003                     |   |     
|Total Segment Net Sales(1)       |  | $                           | 51.2 |   |                          | $ | 51.9 |    |  | (1.3      | )%
|Operating Income / (Loss)        |  | $                           | 0.6  |   |                          | $ | (3.6 | )  |  | Favorable |   
|Operating Income / (Loss) Margin |  |                             | 1.2  | % |                          |   | (6.9 | )% |  |           |   



|(1) | All Cabinet products are sold in the Americas, primarily in the U.S.
|--- | --------------------------------------------------------------------



Net sales in the first quarter of 2004 decreased from the same
period in 2003, primarily due to lower sales at company-owned distribution centers. Operating results improved by $4.2 million from the first quarter of 2003 to the same period of 2004, primarily due to selling price increases, and lower
manufacturing overhead and SG&A costs, partially offset by sales volume declines.



All Other



The All Other segment contributed operating income of $0.5 million and $0.4 million for the first quarters of 2004 and 2003, respectively, reflecting the equity in
earnings from the investment in Interface Solutions, Inc.



Unallocated Corporate Expense



Unallocated corporate expense of $12.4 million in the first quarter of 2004 decreased from $17.1 million in 2003. This decrease was primarily due to lower administrative expenses, an increase in our U.S. pension credit of approximately $0.7
million and reduced costs for incentive programs.



FINANCIAL CONDITION
AND LIQUIDITY



Cash Flow



As shown on the Condensed Consolidated Statements of Cash Flows, our cash and
cash equivalents balance decreased by $48.2 million in the first quarter of 2004, compared to a $75.3 million decrease in 2003.



Operating activities in the first quarter of 2004 used $36.6 million of net cash, compared to using $53.8 million in the same period of 2003. Net earnings of $17.7
million in 2004 were $15.8 million higher than net earnings in 2003. We had a greater increase in accounts receivable in 2004, compared to 2003, primarily due to the rise in sales and selected changes in terms of sale to meet competition. We had a
smaller increase in inventories in 2004, compared to 2003, primarily due to increased sales. Also in operating assets and liabilities, we had an increase in accounts payable and accrued expenses in 2004, compared to a decrease in 2003, primarily due
to increased accruals for incentive compensation.



Net cash used for investing
activities was $15.8 million in the first quarter of 2004, compared to $16.9 million in 2003. While we invested $5.0 million less in 2004 in purchases of property, plant, equipment and software, we also received $3.9 million less in distributions
from our equity affiliates and from sale of assets.



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Net cash totaling $4.2 million was provided by our financing activities in the first quarter of 2004, compared to $5.7
million used in the same period of 2003. The year-to-year change of $9.9 million was primarily due to certain subsidiaries that are not participating in our Chapter 11 Case borrowing $5.1 million in short-term debt in 2004, while in 2003 they
reduced borrowings by $4.9 million.



Balance Sheet and Liquidity



Changes in significant balance
sheet accounts and groups of accounts from December 31, 2003 to March 31, 2004 are as follows:



|                                                    |  |                |         |                  |   |                      |  |   |       |  
|--------------------------------------------------- |  | -------------- | ------- | ---------------- | - | -------------------- |  | - | ----- | -
|(amounts in millions)                               |  | March 31, 2004 |         | December 31,2003 |   | Increase/ (Decrease) | 
|Cash and cash equivalents                           |  | $              | 436.1   |                  | $ | 484.3                |  | $ | (48.2 | )
|Current assets, excluding cash and cash equivalents |  |                | 958.0   |                  |   | 874.5                |  |   | 83.5  |  
|                                                    |  |                |         |                  |   |                      |  |   |       |  
|Current assets                                      |  | $              | 1,394.1 |                  | $ | 1,358.8              |  | $ | 35.3  |  
|                                                    |  |                |         |                  |   |                      |  |   |       |  



The decrease in cash and cash
equivalents was described above (see Cash Flow). The increase in current assets, excluding cash and cash equivalents was primarily due to the increase in receivable and inventory balances described above.



|                                                                                       |  |               |         |                  |   |            |  |   |       |  
|-------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | ---------- |  | - | ----- | -
|(amounts in millions)                                                                  |  | March 31,2004 |         | December 31,2003 |   | (Decrease) | 
|Property, plant and equipment, less accumulated depreciation and amortization (PP&E) |  | $             | 1,243.0 |                  | $ | 1,267.3    |  | $ | (24.3 | )



The decrease in PP&E was primarily
due to expenditures in the first quarter of 2004 being less than depreciation and amortization.



DIP Facility



AWI has a $75 million debtor-in-possession credit facility that currently is limited to issuances of letters of credit. This facility is scheduled to mature on December
8, 2004. Obligations to reimburse drawings under the letters of credit constitute a super-priority administrative expense claim in the Chapter 11 Case. There were no outstanding borrowings under the DIP Credit Facility as of March 31, 2004 or
December 31, 2003 but, as of March 31, 2004 and December 31, 2003, AWI had $25.0 million and $22.8 million, respectively, in letters of credit outstanding that were issued pursuant to the DIP Credit Facility. The DIP Credit Facility also contains
several covenants including, among other things, limits on asset sales and capital expenditures and a required ratio of debt to cash flow. We are in compliance with all of the DIP Facility covenants. The covenants have not impaired our operating
ability. In connection with implementation of the POR, we expect to replace this facility with a new facility that would provide reorganized Armstrong with greater borrowing capacity and which will have debt covenants yet to be negotiated. In the
event the POR has not been implemented by December 8, 2004, we will pursue a third extension of the facility.



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Liquidity



Our liquidity needs for operations vary throughout the year. We retain lines of credit to facilitate our seasonal needs, if required. For
certain international operations, we had lines of credit of $45.7 million at March 31, 2004, of which $19.2 million was used and $26.5 million was available. However, these lines of credit are uncommitted, and poor operating results or credit
concerns at the related foreign subsidiaries could result in the lines being withdrawn by the lenders. One credit provider has indicated they wish us to seek alternative financing for a credit line equivalent to approximately $6 million by the
fourth quarter of 2004. The credit line is not in violation of any covenants. We believe that we will be able to obtain replacement financing. Additionally, we have letter of credit issuance capabilities under the DIP facility (described above). We
believe that cash on hand and generated from operations, together with lines of credit and the DIP facility, will be adequate to address our foreseeable liquidity needs in the normal course of business operations and for scheduled non-filer debt
obligations. Cash and liquidity needs will change significantly at the time of emergence, the timing of which remains uncertain. AWIs POR provides a plan to meet these requirements (see Note 2  Proceedings Under Chapter 11).



ACQUISITIONS AND DISPOSITIONS



There were no significant acquisition or disposition activities in the first
quarters of 2004 and 2003.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures and Market Risk
|------- | --------------------------------------------------------



For information regarding our exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in AHIs 2003
Form 10-K filing. There have been no significant changes in our financial instruments or market risk exposures from the amounts and descriptions disclosed therein.



|Item 4. | Controls and Procedures
|------- | -----------------------



(a) Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term disclosure controls and procedures to
mean a companys controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our
chief executive officer and our chief financial officer, as of the end of the period covered by this report, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and
forms.



(b) Changes in Internal Control Over Financial Reporting. No
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION



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



See Note 11 of the Condensed Consolidated Financial Statements for a full description of our legal proceedings.



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



At a special meeting on January 7, 2004, shareholders of Armstrong Holdings, Inc. voted to approve a Plan of Dissolution for that company. The dissolution will occur
following AWIs Chapter 11 Plan of Reorganization (POR) becoming effective.



See AHIs Plan of Dissolution in Note 2 of the Condensed Consolidated Financial Statements for a description of the dissolution.



The holders of 22,468,250 shares of common stock were represented at the January 7, 2004 meeting, which constituted over 55% of the outstanding shares. These shares were
voted as follows on the proposal for dissolution:



|          |  |           
|--------- |  | ----------
|FOR -     |  | 17,183,055
|AGAINST - |  | 4,818,280 



The balance of the shares represented
(about 466,900) abstained.



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##### Table of Contents

|Item 5. | Other Information
|------- | -----------------



(a) Principal Accounting Services



Audit Committee Administration of the Engagement



The Audit Committee of Armstrong Holdings, Inc.s Board of Directors recently appointed KPMG LLP as our independent auditor for 2004,
following a review of KPMGs independence by the Committee. Previously, the Audit Committee adopted a policy and procedures that require pre-approval by them of any services provided by the firm that serves as our independent auditor. Per the
policy, management cannot engage the independent auditor for any services without the Audit Committees pre-approval. Further, the Audit Committee delegates to the Committee chair the authority to pre-approve services not exceeding 5% of the
total audit fees for the year for purposes of handling emergency needs, with a report to the full Committee of such approvals at its next meeting. The policy and procedures comply with Section 10A(i) of the Securities Exchange Act of 1934.



(b) Procedures for Recommendation of Nominees to the Board of Directors



Armstrong Holdings, Inc.s Board of Directors has established three
permanent committees. These are the Nominating and Governance Committee, the Management Development and Compensation Committee, and the Audit Committee. A description of each Committee and its charter are available on our Corporate Governance web
pages at www.armstrong.com under About Armstrong  Corporate Governance. Members of each Committee are required to meet the independence standard prescribed in Armstrongs Corporate Governance Principles, and the
standard prescribed by NASDAQ in order to remain eligible for a committee.



The
charter of the Nominating and Governance Committee delegates to the Committee responsibility for identifying and evaluating director candidates, evaluating the performance of the Board, overseeing director independence and related-party
relationships, and directing new director orientation and ongoing director education.



Policy Regarding Consideration of Director Candidates



In February, the Nominating and Governance Committee charter as well as Armstrongs Corporate Governance Principles were amended. These
Principles along with the charters of the Board Committees are part of the framework for the governance of the Company, and are available on Armstrongs Corporate Governance web pages mentioned above.



Also in February, the Nominating and Governance Committee approved a Process for
Evaluation of Director Candidates which is included as Exhibit 99.1 to this report. Shareholders who wish to suggest an individual for service on the Board of Directors are requested to review that Process and the Qualifications for
Armstrong Directors and Position Description for an Armstrong Director which are available at that same website and are included in this report as Exhibits 99.2 and 99.3.



Submitting Recommendations for Director Candidates



Shareholders are requested to submit any suggestions for Board candidates by
mail to: Armstrong Holdings, Inc., Attention: Corporate Secretary, P. O. Box 3001, Lancaster, PA 17604, or by e-mail at the address specified on the Corporate Governance web pages mentioned above.



In your letter or e-mail, please supply this information:



| |  | The full name, address, education and professional experience of the individual and why you believe this person will be a good director.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | The consent of the individual to be considered and to serve if elected.
| | - | -----------------------------------------------------------------------



| |  | The individuals assessment of their qualifications and independence under SEC, NASDAQ, and Articles II and III of Armstrongs Corporate Governance Principles.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The number of shares of Armstrong stock and the amount of Armstrong bonds held by the individual, and by the person(s) supporting the individual.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



You may be contacted for further information to assist the Committee evaluation.



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Summary of Director Candidate Evaluation Process



The Companys process for evaluating Board candidates is noted above. All director
candidates, whether suggested by shareholders or otherwise, are evaluated under that same general process. Each evaluation process ultimately follows its own unique path, but the basic elements are the same. It entails consideration of broad
composition issues, such as the alignment of Board competence with the Companys business and strategy. The Boards objective is to assemble a matrix of individuals (the number is established under Company governance documents) who
possess, in the aggregate, the skills and background needed on the Board, having due consideration for the nature of the Companys operations and the qualities of its management. Independence, meaning the ability to serve the interests of the
Company and its shareholders without compromise, is required of every director. In addition, the Company (under the Armstrong Corporate Governance Principles) and NASDAQ have each established more rigorous objective independence criteria that a
substantial majority of the Board are required to meet. The Armstrong Corporate Governance Principles also spell out other important qualifications for Board members.



The Nominating and Governance Committee begins an evaluation with a vision of the profile of the desired Board. Then, individual qualities
and specific desired background, skills, experience, and competencies are considered. Candidates interest is assessed and they supply personal and professional background information, and cooperate to verify their education, professional
record and personal history. They are screened against criteria the Committee establishes periodically for open or upcoming positions. Those candidates that are judged best qualified are interviewed by the Nominating Committee, the Chairman and, as
the process proceeds, other Board members. Nominating Committee members discuss candidates and make a recommendation to the Board, which makes the final decision.



Although all suggestions are considered, shareholders are encouraged to submit suggested candidates as soon as possible to allow them the
fullest consideration. This allows them to be properly researched, broadly evaluated and carefully weighed against other candidates in time for the Nominating Committee to make its recommendations to the Board. See the related instructions on our
Corporate Governance web pages for more information.



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



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



Exhibits



|         |  |                                                                                                                                                                                                                                                                                                                                                               
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|No. 2(a) |  | Armstrong World Industries, Inc.s Fourth Amended Plan of Reorganization submitted to the Bankruptcy Court for the District of Delaware, and as modified by modifications filed with the
Bankruptcy Court on October 17, 2003 and November 10, 2003 is incorporated by reference from the 2003 Annual Report on Form 10-K wherein it appeared as Exhibit 2(a).
|         | 
|No 2(b)  |  | Armstrong World Industries, Inc.s Disclosure Statement submitted to the U.S. District Court for the District of Delaware is incorporated by reference from the Current Report filed on
Form 8-K on May 23, 2003.                                                                                                                                             
|         | 
|No. 2(c) |  | Certain Exhibits to Armstrong World Industries, Inc.s Fourth Amended Plan of Reorganization submitted to the U.S. District Court for the District of Delaware are incorporated by
reference from the Current Report filed on Form 8-K on September 8, 2003.                                                                                                  
|         | 
|No. 2(d) |  | Armstrong World Industries, Inc.s Revised Projected Financial Information submitted to the U.S. Bankruptcy Court for the District of Delaware, constituting Exhibit C to the Disclosure
Statement, is incorporated by reference from the Current Report filed on Form 8-K on November 20, 2003 wherein it appeared as Exhibit 99.1.                          
|         | 
|No. 2(e) |  | Armstrong Holdings, Inc. Plan of Dissolution, Winding Up and Distribution is incorporated by reference from Exhibit A to the Proxy Statement of Armstrong Holdings, Inc. filed on October 16,
2003.                                                                                                                                                           
|         | 
|No. 3(a) |  | Armstrong Holdings, Inc.s Amended and Restated Articles of Incorporation are incorporated by reference from Exhibit 3.1(i) to Armstrong Holdings, Inc.s Report on Form 8-K dated
May 9, 2000.                                                                                                                                                               
|         | 
|No. 3(b) |  | Armstrong Holdings, Inc.s Bylaws, effective May 1, 2000 are incorporated by reference from the 2000 Annual Report on Form 10-K wherein they appear as Exhibit 3(b).                                                                                                                                                                                          
|         | 
|No. 3(c) |  | Armstrong World Industries, Inc.s restated Articles of Incorporation, as amended, are incorporated by reference from Armstrong World Industries, Inc.s 1994 Annual Report on Form
10-K wherein they appear as Exhibit 3(b).                                                                                                                                 
|         | 
|No. 3(d) |  | Armstrong World Industries, Inc.s Bylaws as amended November 9, 2000 are incorporated by reference from the 2000 Annual Report on Form 10-K wherein they appear as Exhibit
3(d).                                                                                                                                                                             
|         | 
|No. 4(a) |  | Armstrong Holdings, Inc.s Shareholder Summary of Rights to Purchase Preferred Stock dated as of March, 14, 2000 is incorporated by reference from Armstrong Holdings, Inc.s
registration statement on Form 8-K dated May 9, 2000, wherein it appeared as Exhibit 99.2.                                                                                      
|         | 
|No. 4(b) |  | Armstrong World Industries, Inc.s Retirement Savings and Stock Ownership Plan effective as of October 1, 1996, as amended April 12, 2001 is incorporated by reference from Armstrong
World Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, wherein it appeared as Exhibit 4.*                                          



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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|No. 4(c) |  | Armstrong World Industries, Inc.s $450,000,000 Credit Agreement (5-year) dated as of October 29, 1998, among Armstrong World Industries, Inc., The Chase Manhattan Bank, as
administrative agent, and the banks listed therein, is incorporated by reference from Armstrong World Industries, Inc.s 1998 Annual Report on Form 10-K, wherein it appeared as Exhibit 4(f).                                                                                                                                                                                    
|         | 
|No. 4(d) |  | Armstrong World Industries, Inc.s Indenture, dated as of August 6, 1996, between Armstrong World Industries, Inc. and The Chase Manhattan Bank, formerly known as Chemical Bank, as
successor to Mellon Bank, N.A., as Trustee, is incorporated by reference from Armstrong World Industries, Inc.s registration statement on Form S-3/A dated August 14, 1996, wherein it appeared as Exhibit 4.1.                                                                                                                                                          
|         | 
|No 4(e)  |  | Instrument of Resignation, Appointment and Acceptance dated as of December 1, 2000 among Armstrong World Industries, Inc., The Chase Manhattan Bank and Wells Fargo Bank Minnesota, National
Association, regarding Armstrong World Industries, Inc.s Indenture, dated as of August 6, 1996, between Armstrong World Industries, Inc. and The Chase Manhattan Bank, formerly known as Chemical Bank, as successor to Mellon Bank, N.A., as
Trustee, is incorporated by reference from the 2000 Annual Report on Form 10-K wherein they appear as Exhibit 4(e).
|         | 
|No. 4(f) |  | Copy of portions of Armstrong World Industries, Inc.s Board of Directors Pricing Committees resolutions establishing the terms and conditions of $200,000,000 of 6.35% Senior
Notes Due 2003 and $150,000,000 of 6 1/2% Senior Notes Due 2005, is incorporated by reference from Armstrong World Industries, Inc.s 1998 Annual Report on Form 10-K, wherein it appeared as Exhibit 4(h).                                                                                                                                                                   
|         | 
|No. 4(g) |  | Copy of portions of Armstrong World Industries, Inc.s Board of Directors Pricing Committees resolutions establishing the terms and conditions of $180,000,000 of 7.45% Senior
Quarterly Interest Bonds Due 2038, is incorporated by reference from Armstrong World Industries, Inc.s 1998 Annual Report on Form 10-K, wherein it appeared as Exhibit 4(i).                                                                                                                                                                                                 
|         | 
|No. 4(h) |  | 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 is incorporated by reference from Armstrong Holdings, Inc. and Armstrong World Industries, Inc.s
registration statement on Form 10-Q for the quarter ended September 30, 2000, wherein it appeared as Exhibit 4(a).       
|         | 
|No. 4(i) |  | Armstrong World Industries, Inc.s $300,000,000 Revolving Credit and Guarantee Agreement dated December 6, 2000, between Armstrong World Industries, Inc. and The Chase Manhattan Bank and
the banks referenced therein; the First Amendment to this Agreement, dated February 2, 2001; and the Amendment Letter to this Agreement, dated February 28, 2001, are incorporated by reference from the 2000 Annual Report on Form 10-K wherein they
appear as Exhibit 4(i).                                                                                       
|         | 
|         |  | Armstrong Holdings, Inc. and Armstrong World Industries, Inc. agree to furnish to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the
registrants and their subsidiaries which are not filed herewith in accordance with applicable rules of the Commission because the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrants and their
subsidiaries on a consolidated basis.                                                                      



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|No. 4(j)       |  | Amendment to Armstrong World Industries, Inc.s Debtor in Possession Credit Facility dated October 31, 2003 is incorporated by reference from the 2003 Annual Report on Form 10-K wherein
it appeared as Exhibit 4(j).                                                                                                                                                                                                                                                                                 
|               | 
|No. 4(k)       |  | Indenture, dated as of March 15, 1988, between Armstrong World Industries, Inc. and Morgan Guaranty Trust Company of New York, as Trustee, as to which The First National Bank of Chicago is
successor trustee, (relating to Armstrong World Industries, Inc.s $125 million 9-3/4% Debentures due 2008 and Series A Medium Term Notes) is incorporated by reference from Armstrong World Industries, Inc.s 1995 Annual Report on Form 10-K
wherein it appeared as Exhibit 4(c). (SEC File No. 1-2116)
|               | 
|No. 4(l)       |  | Senior Indenture dated as of December 23, 1998 between Armstrong World Industries, Inc. and First National Bank of Chicago, as Trustee, is incorporated by reference from Armstrong World
Industries, Inc.s Registration Statement on Form S-3 (File No. 333-74501) dated March 16, 1999, wherein it appeared as Exhibit 4.3.                                                                                                                                                                         
|               | 
|No. 4(m)       |  | Global Note representing $200 million of 7.45% Senior Notes due 2029 is incorporated by reference from Armstrong World Industries, Inc.s Report on Form 8-K which was filed with the
Commission on May 29, 1999, wherein it appeared as Exhibit 4.2.                                                                                                                                                                                                                                                  
|               | 
|No. 4(n)       |  | Agreement and Plan of Merger, dated as of June 30, 1999 by and among AISI Acquisition Corp. and Armstrong World Industries, Inc. and Armstrong Industrial Specialties, Inc. is incorporated by
reference from Armstrong World Industries, Inc.s Report on Form 8-K filed on July 14, 1999, wherein it appeared as Exhibit 1.                                                                                                                                                                          
|               | 
|No. 10(i)(a)   |  | Armstrong World Industries, Inc.s Agreement Concerning Asbestos-Related Claims dated June 19, 1985, (the Wellington Agreement) among Armstrong World Industries, Inc. and
other companies is incorporated by reference from Armstrong World Industries, Inc.s 1997 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(a). (SEC File No. 1-2116)                                                                                                                                       
|               | 
|No. 10(i)(b)   |  | Producer Agreement concerning Center for Claims Resolution, as amended, among Armstrong World Industries, Inc. and other companies is incorporated by reference from Armstrong World
Industries, Inc.s 1999 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(b).                                                                                                                                                                                                                       
|               | 
|No. 10(iii)(a) |  | Armstrong World Industries, Inc.s Long Term Stock Incentive Plan is incorporated by reference from Armstrong World Industries, Inc.s 1998 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(j). *                                                                                                                                                                                                                                                                                    
|               | 
|No. 10(iii)(b) |  | Armstrong World Industries, Inc.s Directors Retirement Income Plan, as amended, is incorporated by reference from Armstrong World Industries, Inc.s 1996 Annual Report on
Form 10-K wherein it appeared as Exhibit 10(iii)(c).* (SEC File No. 1-2116)                                                                                                                                                                                                                                               
|               | 
|No. 10(iii)(c) |  | Armstrong World Industries, Inc. and Armstrong Holdings, Inc.s Management Achievement Plan for Key Executives, as amended February 26, 2001, is incorporated by reference from the 2000
Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(d). *                                                                                                                                                                                                                                       
|               | 
|No. 10(iii)(d) |  | Armstrong World Industries, Inc.s Retirement Benefit Equity Plan (formerly known as the Excess Benefit Plan), as amended January 1, 2000, is incorporated by reference from Armstrong
World Industries, Inc.s 1999 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(e).*                                                                                                                                                                                                            



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|No. 10(iii)(e) |  | Armstrong Holdings, Inc.s Deferred Compensation Plan, as amended May 1, 2000, is incorporated by reference from the 2000 Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(f).*                                                                                                                                                                                                                                                                                                                                             
|               | 
|No. 10(iii)(f) |  | Armstrong World Industries, Inc.s Employment Protection Plan for Salaried Employees of Armstrong World Industries, Inc., as amended, is incorporated by reference from Armstrong World
Industries, Inc.s 1994 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(g). * (SEC File No. 1-2116)                                                                                                                                                                                                                                
|               | 
|No. 10(iii)(g) |  | Armstrong World Industries, Inc.s Restricted Stock Plan For Non-employee Directors, as amended, is incorporated by reference from Armstrong World Industries, Inc.s 1996 Annual
Report on Form 10-K wherein it appeared as Exhibit 10(iii)(h). * (SEC File No. 1-2116)                                                                                                                                                                                                                                                                     
|               | 
|No. 10(iii)(h) |  | Armstrong World Industries, Inc.s Severance Pay Plan for Salaried Employees, as amended January 1, 2003, is incorporated by reference from the 2003 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(h).*                                                                                                                                                                                                                                                                                                                  
|               | 
|No. 10(iii)(i) |  | Armstrong World Industries, Inc.s 1999 Long Term Stock Incentive Plan is incorporated by reference from Armstrong World Industries, Inc.s 1999 Annual Report on Form 10-K wherein
it appeared as Exhibit 10(iii)(j).*                                                                                                                                                                                                                                                                                                                      
|               | 
|No. 10(iii)(j) |  | Form of Change in Control Agreement between Armstrong World Industries, Inc. and certain of its officers is incorporated herein by reference from the 2000 Annual Report on Form 10-K wherein
they appear as Exhibit 10(iii)(k), together with a schedule identifying those executives and the material differences among the agreements to which each executive is a party is incorporated by reference from the 2003 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(iii)(j). *                                               
|               | 
|No. 10(iii)(k) |  | Change in Control Agreement between Armstrong Holdings, Inc. and Michael D. Lockhart, dated August 7, 2000 is incorporated by reference from Armstrong Holdings, Inc. and Armstrong World
Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, wherein it appeared as Exhibit 10(e). *                                                                                                                                                                                                                 
|               | 
|No. 10(iii)(l) |  | Form of Indemnification Agreement between Armstrong Holdings, Inc., Armstrong World Industries, Inc. and Messrs. Arnelle, Campbell, Krol, Marley, Stead and Ms. Owades, is incorporated by
reference from Armstrong Holdings, Inc. and Armstrong World Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, wherein it appeared as Exhibit 10(iii)(a). *                                                                                                                                                    
|               | 
|No. 10(iii)(m) |  | Form of Indemnification Agreement between Armstrong Holdings, Inc. and certain of its Directors and Officers dated October 20, 2000 is incorporated by reference from the 2000 Annual Report on
Form 10-K wherein they appear as Exhibit 10(iii)(o), together with a schedule identifying those Directors and Officers and the material differences among the agreements to which each executive is a party is incorporated by reference from the 2003
Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(m).*                
|               | 
|No. 10(iii)(n) |  | Form of Indemnification Agreement between Armstrong World Industries, Inc. and certain of its Directors and Officers is incorporated herein by reference from the 2000 Annual Report on Form
10-K wherein they appear as Exhibit 10(iii)(p), together with a schedule dated October 20, 2000, identifying those Directors and Officers and the material differences among the agreements to which each executive is a party is incorporated by
reference from the 2003 Annual Report on From 10-K where it appeared as Exhibit 10 (iii)(n). *



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|               |  |                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|No. 10(iii)(o) |  | Form of Indemnification Agreement between Armstrong Holdings, Inc. and M. Edward Sellers, dated May 1, 2001 is incorporated herein by reference from the 2001 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(iii)(s).*                                                                                                      
|               | 
|No. 10(iii)(p) |  | Form of Indemnification Agreement between Armstrong World Industries, Inc. and Leonard A. Campanaro, David E. Gordon and Barry M. Sullivan, is incorporated by reference from Armstrong World
Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, wherein it appeared as Exhibit 10.*              
|               | 
|No. 10(iii)(q) |  | Form of Indemnification Agreement between Armstrong Holdings, Inc. and Armstrong World Industries, Inc. and Ms. Ruth M. Owades and Mr. John J. Roberts is incorporated by reference from the
2003 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(q).*                                                                  
|               | 
|No. 10(iii)(r) |  | Armstrong World Industries, Inc.s Bonus Replacement Retirement Plan, dated as of January 1, 1998, as amended, is incorporated by reference from Armstrong World Industries, Inc.s
1998 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(m). *                                                                          
|               | 
|No. 10(iii)(s) |  | Employment Agreement between Armstrong Holdings, Inc. and Michael D. Lockhart dated August 7, 2000 is incorporated by reference from Armstrong Holdings, Inc. and Armstrong World Industries,
Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 wherein it appeared as Exhibit 10(a). *                       
|               | 
|No. 10(iii)(t) |  | Amendment to August 7, 2000 Employment Agreement between Armstrong Holdings, Inc. and Michael D. Lockhart is incorporated by reference from Armstrong Holdings, Inc. and Armstrong World
Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, wherein it appeared as Exhibit 10. *                      
|               | 
|No. 10(iii)(u) |  | Order Authorizing and Approving Retention Program for Key Employees and Approving Assumption of Executory Contracts dated April 18, 2001 is incorporated by reference from the 2001 Annual
Report of Form 10-K wherein it appeared as Exhibit 10(iii)(u).                                                                                 
|               | 
|No. 10(iii)(v) |  | Armstrong Holdings, Inc.s Stock Award Plan is incorporated by reference from Armstrong Holdings, Inc.s registration statement on Form S-8 filed August 16, 2000, wherein it
appeared as Exhibit 4.1. *                                                                                                                                  
|               | 
|No. 10(iii)(w) |  | Terms of Restricted Stock for Stock Option Exchange Program Offered to Employees and Schedule of Participating Officers is incorporated by reference from Armstrong Holdings, Inc. and
Armstrong World Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 wherein it appeared as Exhibit 10(i). *  
|               | 
|No. 10(iii)(x) |  | Management Services Agreement between Armstrong Holdings, Inc. and Armstrong World Industries, Inc., dated August 7, 2000 is incorporated by reference from Armstrong Holdings, Inc. and
Armstrong World Industries, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 wherein it appeared as Exhibit 10(g). *
|               | 
|No. 10(iii)(y) |  | Agreement between Armstrong Holdings, Inc. and Armstrong World Industries, Inc. and Triangle Pacific Corp. dated November 14, 2000 is incorporated by reference from the 2000 Annual Report on
Form 10-K wherein they appear as Exhibit 10(iii)(bb). *                                                                                    
|               | 
|No. 10(iii)(z) |  | Form of Amendment of Restricted Stock Award Agreements between AHI and the following executive officers: M.D. Lockhart, M.J. Angello, S.J. Senkowski and W.C. Rodruan dated July 22, 2002 is
incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 wherein it appeared as Exhibit 10.          



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|                |  |                                                                                                                                                                                                                                                                       
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                | 
|No. 10(iii)(aa) |  | Settlement and Release Agreement between Armstrong Holdings, Inc., Armstrong Worldwide, Inc. and Armstrong World Industries, Inc. dated May 9, 2003 is incorporated by reference from the 2003
Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(aa).*
|                | 
|No. 14          |  | The Code of Business Conduct and the Code of Ethics for Financial Professionals are available through Armstrongs internet web site at www.armstrong.com.                                                                                                             
|                | 
|No. 15          |  | Awareness Letter from Independent Auditors.                                                                                                                                                                                                                           
|                | 
|No. 31.1        |  | Certification of Principal Executive Officer of Armstrong Holdings, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                                                           
|                | 
|No. 31.2        |  | Certification of Principal Financial Officer of Armstrong Holdings, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                                                           
|                | 
|No. 31.3        |  | Certification of Principal Executive Officer of Armstrong World Industries, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                   
|                | 
|No. 31.4        |  | Certification of Principal Financial Officer of Armstrong World Industries, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                   
|                | 
|No. 32.1        |  | Certification of Chief Executive Officer of Armstrong Holdings, Inc. and Armstrong World Industries, Inc. pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                   
|                | 
|No. 32.2        |  | Certification of Chief Financial Officer of Armstrong Holdings, Inc. and Armstrong World Industries, Inc. pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                   
|                | 
|No. 99.1        |  | Armstrong Process for Evaluation of Director Candidates.                                                                                                                                                                                                              
|                | 
|No. 99.2        |  | Armstrong Director Responsibilities and Qualifications                                                                                                                                                                                                                
|                | 
|No. 99.3        |  | Position Description for an Armstrong Director.                                                                                                                                                                                                                       



|* | Compensatory Plan or Management Contract
|- | ----------------------------------------



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(b) The following Current Reports were filed on Form 8-K since the fourth quarter of 2003.



| | 1) | On March 5, 2004, a Current Report was filed under Item 12 of Form 8-K related to a press release dated March 4, 2004, regarding financial results for fiscal quarter ended December
31, 2003.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | On April 2, 2004, a Current Report was filed under Item 5 of Form 8-K related to a press release of the same date announcing the retirement of two directors of Armstrong Holdings,
Inc.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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/ Leonard A. CampanaroLeonard A. Campanaro, Senior Vice President and Chief Financial Officer




By:

/s/ John N. RigasJohn N. Rigas, Senior Vice President, Secretary and General Counsel




By:

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




Date: April 29, 2004



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                    
|            | 
|No. 15      |  | Awareness Letter from Independent Auditors.                                                                                                                                                                        
|            | 
|No. 31.1    |  | Certification of Principal Executive Officer of Armstrong Holdings, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.        
|            | 
|No. 31.2    |  | Certification of Principal Financial Officer of Armstrong Holdings, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.        
|            | 
|No. 31.3    |  | Certification of Principal Executive Officer of Armstrong World Industries, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|            | 
|No. 31.4    |  | Certification of Principal Financial Officer of Armstrong World Industries, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|            | 
|No. 32.1    |  | Certification of Chief Executive Officer of Armstrong Holdings, Inc. and Armstrong World Industries, Inc. pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|            | 
|No. 32.2    |  | Certification of Chief Financial Officer of Armstrong Holdings, Inc. and Armstrong World Industries, Inc. pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|            | 
|No. 99.1    |  | Armstrong Process for Evaluation of Director Candidates.                                                                                                                                                           
|            | 
|No. 99.2    |  | Armstrong Director Responsibilities and Qualifications                                                                                                                                                             
|            | 
|No. 99.3    |  | Position Description for an Armstrong Director.