Plan includes control shift

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Since 1982, asbestos lawsuits have crushed more than two-dozen manufacturers and transferred ownership of billions of dollars in corporate assets.
Now, it is the turn of Armstrong World Industries Inc., one of Central Pennsylvania’s largest public companies, to bow to a similar power shift.
This week, the Manor Township, Lancaster County-based manufacturer revealed the broad outlines of a reorganization plan that, if adopted, would lift the company out of bankruptcy, hand over majority control to new owners and install a new board of directors.
The plan, which requires court and creditor approval, also calls for an internal reorganization of Armstrong World and the dissolution of its parent company, Armstrong Holdings Inc.
The approval process could last six to nine months, said Michael Lockhart, Armstrong’s chairman and chief executive officer. “But, obviously, there’s broad agreement on the plan. Otherwise, we wouldn’t be filing.”
The reorganized company hasn’t been named, but Lockhart said he would like it to include the word Armstrong, a recognized brand in flooring, ceilings and cabinets.
The reorganization plan emerged nearly two years after Armstrong World succumbed to Chapter 11 bankruptcy protection. The company filed in December 2000 to escape a flood of litigation from people exposed to asbestos, a cancer-causing substance that the company stopped using three decades ago. The company’s liability could surpass $2 billion.
Like other companies plunged into bankruptcy by asbestos claims, Armstrong is moving from Chapter 11 to 524(g), a section of the U.S. Bankruptcy Code that will absolve the company from future liability.
Absolution comes at the price of control, however. Under 524(g), corporate ownership shifts to an asbestos trust that sorts through asbestos claims and pays them off over time. It has happened to more than two-dozen companies since the 1982 bankruptcy of Colorado-based manufacturer Johns Manville Corp.
Armstrong World will be no exception.
“We want something that the financial markets will accept as being final,” Lockhart said. “And the 524(g), today, is the only way to do that.”
Under Armstrong’s reorganization plan, an asbestos trust will own roughly two-thirds of the manufacturer. Trust officials and other creditors will appoint a new board, which may or may not include existing board members, Lockhart said.
The trust will use the Armstrong debt it holds and the cash it receives to pay off claims. In the short term, the trust is unlikely to raise cash by selling the company, Lockhart said. However, he couldn’t rule out the long-term possibility.
Other companies owned by asbestos trusts have been sold or dismembered over the years.
Johns Manville, for instance, once employed 30,000 people. Today, the manufacturer employs about 9,700 people. Since February 2001, it has been owned by Nebraska-based Berkshire Hathaway Inc., whose chairman is billionaire investor Warren Buffett.
For Armstrong, bankruptcy provided a debt-free interlude to invest in new products, new marketing and new product displays. Once freed from bankruptcy, the company could face a sharper focus on its earnings, Lockhart said.
Profits fell in the second quarter of 2002 to $27.7 million, down from $32.1 million for the same period last year, according to regulatory filings.
New shareholders will want to see the numbers turn up, Lockhart said.
The reorganized company, he emphasized, will be “reporting earnings to a completely unforgiving investment community.”