Armstrong World&Triangle Pacific Still on S&PWatch.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/8/98 --Standard & Poor's ratings on Armstrong World Industries Inc. and Triangle Pacific Corp. remain on CreditWatch, where they were placed June 15, 1998. The CreditWatch implications are negative for Armstrong and positive for Triangle Pacific (see table below).

The CreditWatch listing followed the announcement that Armstrong, a maker of vinyl flooring, ceilings, and industrial products, intends to acquire hardwood flooring manufacturer Triangle Pacific for a total of $1.15 billion in cash and assumed debt.

6 If the transaction is consummated as currently structured, Standard & Poor's will lower its corporate credit and senior unsecured debt ratings on Armstrong to single-'A'-minus from single-'A' and its commercial paper rating to 'A-2' from 'A-1'. The ratings on Triangle Pacific Corp.'s senior unsecured debt would be raised to single-'A'-minus from double-'B'-minus, and the outlook for all the ratings would be negative. The acquisition of Triangle Pacific would strengthen Armstrong's business profile by adding fast-growing hardwood flooring to its more mature vinyl line. It would also provide opportunities to pull new products through Armstrong's existing commercial channels in North America and through European distributors to be added with the planned acquisition of a controlling stake in DLW Aktiengesellschaft. DLW is a German-based manufacturer of textile, linoleum, and vinyl floor coverings.

Nevertheless, the $1.5 billion increase in debt required to finance the two acquisitions would significantly weaken credit protection measures. Pro forma for the acquisitions and the disposal of about half Armstrong's equity interest in Dal-Tile International Inc., debt to capital will climb to the mid-60% area from 39%. Funds from operations to debt will drop to about 20% from near 60%, and pre-tax interest coverage will decline to 4.0 to 5.0 times (x) from about 9.0x. The acquisitions will also dilute operating margins to between 17% and 18% initially, from over 20%. Once acquired operations are fully integrated, however, the company should be able to generate significant free operating cash flow. With no change in dividend policy anticipated and share repurchases suspended, excess cash is expected to be used primarily for debt reduction. This could be augmented with proceeds from the sale of non-core assets. As a result, within the next three years, debt to capital should improve to near 50%, funds from operations to debt to the 35% to 40% range, and pretax interest coverage to 5.0x to 6.0x, with gradual improvement in financial ratios expected thereafter. If the strengthening of credit protection measures is slowed by competitive market conditions, difficulty integrating the acquisitions, or additional debt-financed acquisitions, ratings could be lowered, Standard & Poor's said. -- CreditWire -0-

RATINGS REMAINING ON CREDITWATCH WITH NEGATIVE IMPLICATIONS

Armstrong World Industries Inc.
Corporate credit rating            A
Senior unsecured debt rating       A
Commercial paper                   A-1

RATINGS REMAINING ON CREDITWATCH WITH POSITIVE IMPLICATIONS

Triangle Pacific Corp.
Corporate credit rating            BB-
Senior unsecured debt rating       BB-


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