FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______ to _________
Commission file numbers 1-2116 and 333-32530
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
(Full title of the Plan)
ARMSTRONG WORLD INDUSTRIES, INC.
ARMSTRONG HOLDINGS, INC.
2500 Columbia Avenue Lancaster, Pennsylvania 17604
(Name of issuer of the securities held pursuant to the Plan
and the address of its principal executive office)
1
Page No.
--------
Item 1. Independent Auditors' Report 4
----------------------------
Item 2. Statements of Net Assets Available for Benefits 5
-----------------------------------------------
September 30, 2001 and 2000
Item 3. Statements of Changes in Net Assets Available for Benefits 6
----------------------------------------------------------
Years ended September 30, 2001 and 2000
Notes to Financial Statements 7-15
Schedule H, line 4i - Schedule of Assets (Held at End of Year) 16
Exhibits
---------
Consent of Independent Auditors 17
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the committee constituting the administrator which administers the plan have
duly caused this annual report to be signed by the undersigned hereunto duly
authorized.
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
March 28, 2002 By: /s/: Matthew J. Angello
----------------------------
Matthew J. Angello Vice-Chairman of the Retirement Committee
3
Independent Auditors' Report
----------------------------
The Retirement Committee
Armstrong World Industries, Inc.:
We have audited the accompanying statements of net assets available for benefits
of the Retirement Savings and Stock Ownership Plan of Armstrong World
Industries, Inc. as of September 30, 2001 and 2000 and the related statements of
changes in net assets available for benefits for each of the years in the
two-year period ended September 30, 2001. These financial statements are the
responsibility of the plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Retirement
Savings and Stock Ownership Plan of Armstrong World Industries, Inc. as of
September 30, 2001 and 2000 and the changes in net assets available for benefits
for each of the years in the two-year period ended September 30, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements but is supplementary information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
March 26, 2002
Philadelphia, Pennsylvania
4
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets Available for Benefits
September 30, 2001 and 2000
September 30,
-------------
2001 2000
---- ----
Assets:
Investments in master trust:
Cash equivalents:
Fidelity Retirement Money Market Portfolio $ 4,879,049 $ 5,903,335
Shares of registered investment companies:
Fidelity Magellan Fund 66,064,766 99,533,958
Fidelity Low-Priced Stock Fund 2,245,552 1,139,349
Fidelity OTC Portfolio 11,979,688 29,287,077
Fidelity Asset Manager Fund 6,103,802 7,494,869
Fidelity Asset Manager: Income Fund 2,175,824 2,405,225
Fidelity Asset Manager: Growth Fund 7,937,297 10,448,524
Fidelity Overseas Fund 1,151,667 1,754,028
MAS Trust Value Portfolio 1,335,228 520,260
MAS Trust Mid Cap Value Portfolio 4,073,290 3,933,053
Spartan US Equity Index Fund 42,225,508 66,151,241
Morgan Stanley Global Value Equity Portfolio 1,607,319 1,407,849
Fixed income investment contracts:
Fidelity Interest Income Fund 122,306,844 122,783,409
Armstrong Common Stock 2,824,550 4,936,531
Participant loans 3,245,942 3,827,934
------------ ------------
280,156,326 361,526,642
Investments in employee stock ownership funds:
Cash equivalents 118,445 1,243,824
Allocated Armstrong Common Stock 7,772,629 32,441,075
Unallocated Armstrong Common Stock 5,218,532 27,932,759
------------ ------------
13,109,606 61,617,658
Employer contributions receivable -- 303,982
Interest receivable 351 6,030
------------ -------------
Total assets 293,266,283 423,454,312
------------ ------------
Liabilities:
Guaranteed ESOP notes 142,158,150 142,158,150
Loans due plan sponsor -- 39,864,575
Interest and tax penalty 15,458,029 --
Accrued interest 23,428,090 3,688,334
------------ ------------
Total liabilities 181,044,269 185,711,059
------------ ------------
Net assets available for benefits $112,222,014 $237,743,253
============ ============
See accompanying notes to the financial statements.
5
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Net Assets Available for Benefits
Years Ended September 30, 2001 and 2000
Year Ended September 30,
------------------------
2001 2000
---- ----
Additions to net assets attributed to:
Employee contributions $ 14,030,407 $ 19,030,119
Employer contributions, match 2,721,561 13,582,859
Employer contributions, loan forgiveness 39,864,575 --
------------- -------------
56,616,543 32,612,978
Dividends 7,014,324 24,586,821
Interest 7,766,751 7,827,032
Realized gain on investments, net -- 9,438,878
------------- -------------
14,781,075 41,852,731
------------- -------------
Total additions 71,397,618 74,465,709
------------- -------------
Reduction in net assets attributed to:
Benefits paid to participants 34,567,234 37,075,307
Interest expense 19,757,800 13,541,861
Interest and tax penalty 15,458,029 --
Realized loss on investments, net 4,117,739 --
Unrealized depreciation of investments 113,577,437 151,108,227
Transfers to other employee benefit plans 9,440,618 7,519,393
------------- -------------
Total reductions 196,918,857 209,244,788
------------- -------------
Net (decrease) (125,521,239) (134,779,079)
Net assets available for benefits:
Beginning of year 237,743,253 372,522,332
------------- -------------
End of year $ 112,222,014 $ 237,743,253
============= =============
See accompanying notes to the financial statements.
6
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Presentation
---------------------
The accompanying financial statements have been prepared on the accrual
basis.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimates recorded.
(b) Investments in Master Trust
---------------------------
The money market portfolio is stated at cost, which approximates fair
value. The interest income fund is comprised of guaranteed interest
rate contracts within the Master Trust which are fully benefit
responsive; and therefore are reflected at contract value plus credited
interest in the financial statements. The value of the participant
loans represents the unpaid principal of employee loans. The value of
all other investments is based on quoted market price.
Securities transactions are recognized on the settlement date (the date
on which payment for a buy or sell order is made or received), since
adjustment to a trade-date basis would not be material. Dividend income
is recorded on the ex-dividend date.
Realized gains and losses on investments are determined by the average
cost method.
Employee Stock Ownership Funds
------------------------------
Investments in the Employee Stock Ownership Funds represent shares of
Armstrong Holdings, Inc. common stock valued at quoted market price.
Cash equivalents are stated at cost, which approximates fair value.
(c) Expenses
--------
All legal, accounting and administrative expenses associated with Plan
operations are paid by Armstrong World Industries, Inc. ("Armstrong")
(2) Plan Description
----------------
The Retirement Savings and Stock Ownership Plan of Armstrong World
Industries, Inc. ("the Plan") is a defined-contribution plan established
for the purpose of providing participants a means for long-term savings
intended for the accumulation of retirement income. The Plan is comprised
of two parts--Retirement Savings Plan and Employee Stock Ownership Plan
(ESOP). Each part has its own set of participant accounts and investment
funds. On December 6, 2000 Armstrong filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code in Wilmington, DE in order to
use the court-supervised reorganization process to achieve a resolution of
its asbestos liability. On December 6, 2000 Armstrong filed a motion with
the bankruptcy court to allow Armstrong to continue making contributions to
the Plan. The motion was approved by the bankruptcy court. Management does
not anticipate that Armstrong's bankruptcy filing will have an adverse
impact on the operations of the Plan.
7
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(a) Retirement Savings
------------------
Separate balances are maintained for contributions made by or on behalf
of a participant. The balances in each fund reflect the participants'
contributions together with dividends, interest, other income, and
realized and unrealized gains and losses allocated thereon.
Each participant may have up to five accounts that make up the
participant's total balance:
Sheltered account - Participants may contribute from 1% to 15%
-----------------
of before-tax compensation as deferred compensation, as
permitted under Section 401(k) of the Internal Revenue Code.
Standard account - Participants may contribute from 1% to 10% of
----------------
after-tax compensation.
Rollover account - Participants may invest any untaxed amounts
----------------
rolled over from another tax-qualified, employer-sponsored plan.
Retirement savings match account - This account holds any cash
--------------------------------
match amount contributed by Armstrong beginning in December
2000. Armstrong contributed an amount equal to 50% of the
exchange contributions made by each participant during the stock
ownership allocation period ending December 13, 2000. Effective
for pay periods ending on or after March 1, 2001, Armstrong
contributes an amount equal to 50% of the first 6% of each
participant's sheltered account contributions. This account also
holds any amount contributed by Armstrong before cash matching
contributions were discontinued in 1990 (formerly referred to as
the Old Match account), prior to the reinstatement of the cash
match in December 2000.
Tax-deductible account (MIRA) - This account holds any
-----------------------------
contributions made to the Plan before January 1, 1987. No new
contributions can be made to this account.
Participants have an immediate 100% vested interest with respect to
their contributions and are fully vested with regard to any Armstrong
contributions in the retirement savings match account attributable to
matching contributions made before December 1, 2000. Participants have
a 100% vested interest in amounts contributed to their retirement
savings match account made on or after December 1, 2000 upon completion
of five years of service.
(b) Stock Ownership
---------------
The ESOP portion of the Plan has three accounts maintained for each
member for contributions and allocations of shares of Armstrong common
stock from the Unallocated Armstrong Common Stock Fund.
Participants who elect to reduce their before-tax compensation in
amounts ranging from 1% to 6% have these contributions credited to an
Exchange Account. Contributions to the Exchange Account were invested
in Armstrong common stock. The Plan matched a portion of the
contributions made to the Exchange Account with additional shares of
Armstrong common stock. The matching amounts were recorded in
participants' Match Accounts. The match percentage, either 50% or 75%,
was determined by the closing stock price on the last day of the
allocation period. For the allocation periods ended in December 1999
and June 2000 there was a 50% fixed match on employee Exchange Account
contributions. Effective December 1, 2000, all contributions and
allocations to the Exchange Account ceased.
8
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Eligible participants also received shares of Armstrong common stock in
their Equity Account. The Equity Account was intended to provide a
source of funds to replace certain retiree medical benefits which were
phased out in conjunction with the adoption of the ESOP. Effective
December 1, 2000, all allocations to the Equity Account ceased.
Participants have an immediate 100% vested interest in the full value
of their Exchange Account. Interest in the Equity and Match Accounts
vest after five years of service.
(3) Investments in Master Trust
---------------------------
(a) Retirement Savings Funds
------------------------
Assets are held in a Master Trust administered by Fidelity Management
Trust Co., as Trustee, and are segregated into fourteen investment
options.
The following is a brief description of the investment funds to which
Plan participants may elect to allocate their contributions.
Participants should refer to fund prospectuses for more complete
information regarding the investment funds.
1. Spartan US Equity Index Fund - This fund is principally a
portfolio of common stocks constructed and maintained with the
objective of providing investment results which approximate
the overall performance of the common stocks included in the
Standard & Poor's Composite Index of 500 stocks.
2. Fidelity Magellan Fund - This fund invests in common stocks of
companies having substantial growth prospects as determined by
independent investment managers.
3. Fidelity Low-Priced Stock Fund - This fund seeks capital
appreciation through investments primarily in U.S. and
foreign low-priced stocks that may be undervalued, overlooked
or out of favor.
4. Fidelity Retirement Money Market Portfolio - This fund invests
in short-term (less than one year maturity) fixed income
instruments such as U.S. Treasury Bills, bank certificates of
deposit, and high grade commercial paper.
5. Fidelity Interest Income Fund - Prior to May 15, 2001,
contributions to this fund were invested in the general
accounts of insurance companies and were credited at
contracted interest rates. Invested principal and accumulated
interest amounts were guaranteed against loss by the insurance
company. Crediting interest rates were reset periodically
during the plan year. At September 30, 2001, the interest
rates ranged between 4.22% and 10.62%. At September 30,
2000, the interest rates ranged between 4.73% and 7.58%. The
average yields at September 30, 2001 and September 30, 2000,
were 7.31% and 6.25%, respectively. Beginning May 15, 2001,
contributions to this fund are invested in the Fidelity
Managed Income Portfolio II (MIPII) fund. Fidelity is
transferring all existing participant monies in the Interest
Income Fund to the MIPII fund as contracts mature or are
liquidated. Fidelity expects this action to be completed by
the end of 2002. MIPII is a commingled pool of the Fidelity
Group Trust for 401(k) plans which is comprised of
high-quality fixed income investment contracts.
6. Morgan Stanley Global Value Equity Portfolio - This fund
invests in a diversified selection of stocks throughout the
world, after a detailed analysis by local country investment
experts. It seeks to increase the value of the investment over
the long term through growth of capital.
9
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
7. Armstrong Common Stock - Amounts invested in this fund, along
with dividend earnings thereon, are invested in Armstrong
common stock. Common stock shares held by the fund at
September 30, 2001 and 2000 were 1,034,634 and 413,514,
respectively. On May 1, 2000, Armstrong Holdings, Inc.
acquired the stock of Armstrong World Industries, Inc. An
indirect holding in Armstrong World Industries, Inc. makes up
substantially all of the assets of Armstrong Holdings, Inc. As
of December 19, 2000, the Plan was amended to eliminate this
investment option effective with contributions made on or
after December 27, 2000 and transfers processed on or after
January 1, 2001.
8. Fidelity Overseas Fund - This fund invests in securities of
issuers whose principal business activities are outside the
U.S. Investments may include common stock and securities
convertible into common stock, as well as debt instruments.
9. Fidelity OTC Portfolio - This fund invests in securities
traded in the over-the-counter securities market with the
objective of maximizing capital appreciation. Over-the-counter
securities include common and preferred stocks, securities
convertible into common stock, warrants, and debt instruments.
10. Fidelity Asset Manager Fund - This is an asset allocation fund
which invests in a portfolio of stocks, bonds, and short-term
instruments. The fund has a balanced investment strategy with
a goal of high total return with reduced risk over the long
term.
11. Fidelity Asset Manager: Income Fund - This is an asset
allocation fund which invests in a diversified portfolio of
stocks, bonds, and short-term instruments. The fund has an
investment strategy focusing on bonds and short-term
instruments to achieve a high level of current income and
capital preservation.
12. Fidelity Asset Manager: Growth Fund - This is an asset
allocation fund invested in a diversified mix of stocks,
bonds, and short-term instruments. The fund's investment
strategy is an aggressive one emphasizing stocks with the goal
of maximum total return over the long term.
13. MAS Trust Mid Cap Value Portfolio - This fund invests in
undervalued common stocks of mid-sized companies with a strong
potential for increase in share price. It seeks to provide
above-average long-term returns.
14. MAS Trust Value Portfolio - This fund seeks to provide above
average long-term returns by investing mostly in common stocks
of large companies that are considered undervalued.
Participant loans represent the unpaid principal balances of loans made
by Plan participants in accordance with established loan provision
guidelines.
10
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
The following table presents the cost and estimated fair values of the
investments in securities of the Master Trust at September 30, 2001 and
2000:
September 30, 2001 September 30, 2000 Unrealized
------------------ ------------------
Investment Cost Fair Value Cost Fair Value Depreciation
---------- ---- ---------- ---- ---------- ------------
Spartan US Equity
Index Fund $ 29,120,662 $ 42,225,508 $ 31,484,347 $ 66,151,241 $(21,562,048)
Fidelity Magellan Fund 62,092,013 66,064,766 64,330,330 99,533,958 (31,230,875)
Fidelity Low-Priced
Stock Fund 2,367,175 2,245,552 1,245,060 1,139,349 (15,912)
Fidelity Retirement
Money Market Portfolio 4,879,049 4,879,049 5,903,335 5,903,335 --
Fidelity Interest Income
Fund 122,306,844 122,306,844 122,783,409 122,783,409 --
Morgan Stanley Global
Value Equity Portfolio 2,046,026 1,607,319 1,615,085 1,407,849 (231,471)
Armstrong Common Stock 12,972,047 2,824,550 13,567,354 4,936,531 (1,516,674)
Fidelity Overseas Fund 1,872,018 1,151,667 1,795,013 1,754,028 (679,366)
Fidelity OTC Portfolio 22,271,603 11,979,688 23,502,042 29,287,077 (16,076,950)
Fidelity Asset Manager
Fund 7,018,659 6,103,802 6,701,296 7,494,869 (1,708,430)
Fidelity Asset Manager:
Income Fund 2,324,843 2,175,824 2,349,147 2,405,225 (205,097)
Fidelity Asset Manager:
Growth Fund 9,884,670 7,937,297 8,803,204 10,448,524 (3,592,693)
MAS Trust Mid Cap
Value Portfolio 5,116,628 4,073,290 3,411,543 3,933,053 (1,564,848)
MAS Trust Value
Portfolio 1,488,243 1,335,228 640,932 520,260 (32,343)
Participant loans 3,245,942 3,245,942 3,827,934 3,827,934 --
------------ ------------ ------------ ------------ ------------
$289,006,422 $280,156,326 $291,960,031 $361,526,642 $(78,416,707)
============ ============ ============ ============ ============
The amounts of realized gain (loss) on investments in securities of the
Master Trust for the years ended September 30, 2001 and 2000 are
presented below:
Aggregate Aggregate Realized
2001 Proceeds Cost Gain (Loss)
---- -------- ---- -----------
Spartan US Equity Index Fund $11,935,773 $ 7,376,840 $4,558,933
Fidelity Magellan Fund 14,268,626 11,960,101 2,308,525
Fidelity Low-Priced Stock Fund 522,670 522,638 32
Morgan Stanley Global Equity Portfolio 200,642 229,963 (29,321)
Armstrong Common Stock 557,240 2,185,165 (1,627,925)
Fidelity Overseas Fund 455,406 559,356 (103,950)
Fidelity OTC Portfolio 4,489,893 5,714,683 (1,224,790)
Fidelity Asset Manager Fund 1,335,063 1,394,997 (59,934)
Fidelity Asset Manager: Income Fund 410,352 421,450 (11,098)
Fidelity Asset Manager: Growth Fund 1,375,058 1,471,186 (96,128)
MAS Mid Cap Value Portfolio 849,208 913,193 (63,985)
MAS Value Portfolio 183,664 182,350 1,314
----------- ----------- ----------
$36,583,595 $32,931,922 $3,651,673
=========== =========== ==========
11
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Aggregate Aggregate Realized
2000 Proceeds Cost Gain (Loss)
---- -------- ---- -----------
Spartan US Equity Index Fund $14,686,180 $ 8,372,340 $ 6,313,840
Fidelity Magellan Fund 16,009,985 10,996,590 5,013,395
Fidelity Low-Priced Stock Fund 525,811 571,013 (45,202)
Morgan Stanley Global Value Equity Portfolio 466,681 520,227 (53,546)
Armstrong Common Stock 8,467,302 9,141,524 (674,222)
Fidelity Overseas Fund 402,420 363,012 39,408
Fidelity OTC Portfolio 5,414,601 3,785,200 1,629,401
Fidelity Asset Manager Fund 1,099,660 1,032,503 67,157
Fidelity Asset Manager: Income Fund 721,606 710,618 10,988
Fidelity Asset Manager: Growth Fund 1,804,247 1,605,335 198,912
MAS Trust Mid Cap Value Portfolio 662,169 626,808 35,361
MAS Trust Value Portfolio 220,591 279,160 (58,569)
----------- ----------- -----------
$50,481,253 $38,004,330 $12,476,923
=========== =========== ===========
(b) Stock Ownership Funds
---------------------
According to the terms of the trust agreement between Mellon Bank, N.A.
through January 31, 2000 and JPMorgan Chase Bank, formerly Chase
Manhattan Bank, ("the Trustee"), beginning February 1, 2000, and
Armstrong World Industries, Inc., the Trustee manages a trust fund that
has been created under the Plan and has been granted authority to
purchase and sell Armstrong common stock as is necessary to administer
the Plan in accordance with its terms.
At September 30, 2001, the investment in Armstrong common stock
represents 4,758,667 shares, valued at a quoted market price of $2.73.
There are 2,847,117 shares held in the Allocated Armstrong Stock Fund
and 1,911,550 shares held in the Unallocated Armstrong Stock Fund.
During 2001, aggregate proceeds on sales were $25,479,943, aggregate
costs were $33,249,355, and the realized loss was $7,769,412. Losses of
$3,038,045 were realized during 2000.
(4) Armstrong Contributions
-----------------------
Armstrong was obligated to make semi-annual contributions in cash or
Armstrong stock to the Stock Ownership Funds, on June 15 and December 15 of
each year, which when aggregated with all exchange contributions, dividends
received by the Trustee on the common stock held by the Trust, and trust
earnings, was at least equal to the amount necessary to enable the Trustee
to pay currently maturing obligations under the Guaranteed ESOP notes (Note
6). The contributions from Armstrong on December 15, 1999 and June 15, 2000
included 199,053 and 237,500 shares, respectively, of Armstrong common
stock contributed directly to allocated accounts. The December 15, 2000
match was made in cash instead of in Armstrong stock. Beginning in March
2001, Armstrong matches in cash 50% of the first 6% of each employee's
before-tax contribution into the Sheltered Account. In 2001 Armstrong also
made a non-cash contribution of $39,864,575 by forgiving loans which were
due from the ESOP to Armstrong. See Note 6 for further discussion.
(5) Employee ESOP Contributions and Dividends
-----------------------------------------
Employee ESOP contributions made during the year and dividends paid on
Allocated Armstrong Stock are initially deposited into the Fidelity
Retirement Money Market Portfolio until the next semi-annual allocation
date, at which time they are contributed to the ESOP. During the time in
the Fidelity Retirement Money Market Portfolio, these funds earn interest.
At September 30, 2001 and 2000, the amounts in the Fidelity Retirement
Money Market Portfolio to be contributed to the ESOP were $0 and
$3,553,389, respectively.
12
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(6) Guaranteed ESOP Notes and Loans Due Plan Sponsor
------------------------------------------------
The shares of Armstrong common stock held in the Plan's Stock Ownership
Accounts were purchased from Armstrong from the proceeds of the sale of
Guaranteed ESOP notes in a total principal amount of $270,000,000 in 1989.
Armstrong guaranteed the payment of principal and interest on the notes.
The notes were scheduled to be repaid in semi-annual installments with
interest per annum at 8.35% on the Series A Guaranteed Serial ESOP Notes
due 1989-2001 and 8.92% on the Series B Guaranteed Serial ESOP notes due
2001-2004. At September 30, 2000, the principal amounts of the Guaranteed
ESOP notes for Series A and Series B were $22,115,150 and $120,043,000,
respectively. On November 22, 2000, Armstrong failed to repay $50,000,000
in commercial paper that was due. As a result, the Plan's remaining
principal balance of $142,158,150 and unpaid interest became immediately
payable along with a $15,458,029 interest and tax penalty. As discussed in
Note 2, Armstrong filed a voluntary petition for relief under Chapter 11 of
the U.S. Bankruptcy Code on December 6, 2000. On December 15, 2000, the
Plan failed to make the scheduled principal and interest payment and, in
light of Armstrong's Chapter 11 filing, Armstrong was not permitted to
comply with its guarantee to pay such amounts. Subsequent to December 15,
2000, no debt service payments have been made and interest on unpaid
principal, interest, and penalty accrues at contractual gross-up interest
rates, 10.61% for the Series A notes and 11.32% for the Series B notes,
plus 2% as stipulated in the ESOP notes. After Armstrong's Chapter 11
filing, such interest amounts are not recorded on Armstrong's financial
statements. None of the Plan's assets have been pledged as collateral for
the Guaranteed ESOP notes.
Refinancing loans from Armstrong were used to ensure that the number of
shares allocated during a semi-annual allocation period was equal to the
sum of participants' exchange, equity and match shares. At September 30,
2000, there were 11 loans outstanding totaling $39,864,575. In July 2001,
Armstrong forgave these outstanding loans, resulting in a non-cash employer
contribution to the Plan of $39,864,575.
The sources of cash used to repay the Plan's debt were employee
contributions, employer contributions, and dividends on unallocated shares.
Currently, there are no employee or employer contributions being made to
the ESOP portion of the Plan. In addition, Armstrong has not declared any
dividends since July 2000.
(7) Benefits
--------
(a) Retirement Savings Accounts
---------------------------
Under terms of the Plan, a participant (or a beneficiary) is eligible
for benefits upon retirement, termination of employment, or death
before retirement. Disbursement of the total amount credited to a
participant's account is payable (i) in a lump sum or (ii) in the case
of retirement, in such other manner as requested by the participant and
approved by the Plan Administrator.
In addition, an active employee may elect to withdraw all or any part
of his account attributable to after-tax contributions. Before reaching
age 59 1/2, an active employee may withdraw his pretax contributions
from the Sheltered Account, provided he can demonstrate financial
hardship. Such employee shall be ineligible to make contributions for a
12-month period. An active employee may elect to withdraw all or any
portion of his account balance in the Tax-Deductible (MIRA) and
Rollover Accounts.
Under the rules of the Plan, the participant may borrow up to the
lessor of 50% of his balance or $50,000. The money borrowed must come
from the Sheltered, Rollover, Standard, or Retirement Savings Match
Accounts. The amount of the loan is transferred to a Loan Reserve
pledged as security for the loan and is evidenced by a promissory note
payable to the Plan. Interest rates are determined periodically by the
Retirement Committee in accordance with prevailing interest rates. The
loans are reflected in the Loan Portfolio investment fund. Loan
repayments are made by payroll deductions or in a manner agreed to by
the employee and the Plan Administrator.
13
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(b) Stock Ownership Accounts
------------------------
Upon death or any other separation from service from Armstrong,
participants are entitled to receive a distribution of their vested
account balances. Distributions are in the form of a lump sum cash
payment or, upon request, Armstrong common stock.
(8) Obligation for Benefits
-----------------------
All the funds of the Plan are held by investing institutions appointed by
Armstrong under a trust agreement or investment contract. Benefits under
the Plan are payable only out of these funds. Armstrong has no legal
obligation to make any direct payment of benefits accrued under the Plan.
Except as may be provided in an investment contract, neither Armstrong nor
any investing institution guarantees the funds of the Plan against any
loss or depreciation or guarantees the payment of any benefit thereunder.
Although Armstrong has not expressed any intent to terminate the Plan, it
may do so at any time. In case of termination or partial termination, the
total amount in each employee's account will be distributed as the Plan
Administrator directs.
(9) Eligibility
-----------
All employees of Armstrong or of any participating affiliated Armstrong
are eligible to participate in the Plan except for foreign nationals,
leased employees, and those employees in a collective bargaining unit
unless the collective bargaining agent for that unit agrees to coverage
under the Plan. Eligible participants who leave Armstrong and are later
reemployed, can resume participation in the Plan on the date of rehire.
(10) Diversification
---------------
Effective January 1, 1997, Plan participants who meet certain age and
service requirements were granted the ability to diversify specified
portions of their ESOP account balances in any combination of the other
investment funds available for Retirement Savings Account balances, except
for the Fidelity Retirement Money Market Portfolio. As of December 19,
2000, the Plan was amended to allow all participants, regardless of age
and vested status, to fully diversify their ESOP accounts.
(11) Litigation
----------
About 350 former Armstrong employees that were separated in two
divestitures in 2000 have brought a purported class action against the
Retirement Committee of Armstrong World Industries, Inc., named and
unnamed members of the Retirement Committee, and the Plan. The case is
pending in the United States District Court (Eastern District of PA). A
similar proof of claim has been filed against Armstrong in its Chapter 11
case. Plaintiffs allege breach of Employee Retirement Income Security Act
(ERISA) fiduciary duties and other violations of ERISA pertaining to
losses in their Plan accounts, which were invested in Armstrong common
stock. Losses are alleged to be in the range of several million dollars.
Armstrong believes there are strong substantive defenses to the
allegations.
(12) Federal Income Taxes
--------------------
By a letter dated April 21, 1998, the Internal Revenue Service has
determined and informed Armstrong that the Plan qualifies under the
applicable provisions of the Internal Revenue Code and is therefore exempt
from federal income taxes. The Plan has been amended since receiving the
determination letter. In the opinion of the Plan administrator and the
Plan's qualified tax adviser, the Plan is currently designed and being
operated in compliance with the applicable requirements of the Internal
Revenue Code. Therefore, they believe that the Plan is qualified and the
related trust is tax-exempt as of the financial statement date.
14
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(13) Master Trust Agreement
----------------------
Effective October 1, 1990, the Plan established a Master Trust Agreement
with Fidelity Management Trust Company. Under the Master Trust Agreement,
the Plan assets held by Fidelity Management Trust Company are commingled
and invested with the assets of the Retirement Savings Plan for Hourly-Paid
Employees of Armstrong World Industries, Inc., the Bonus Replacement
Retirement Plan of Armstrong World Industries, Inc., the Triangle Pacific
Corp. Salaried Employees' Profit Sharing Plan, the Triangle Pacific Corp.
Non-union Hourly 401(k) Plan, the Robbins Hardwood Flooring Inc. Employees'
Retirement Savings Plan, the Hartco Flooring Co. Bargaining Employees
Retirement Savings Plan, and the Hartco Flooring Co. Retirement Savings
Plan. Separate accounting for each plan under the Master Trust Agreement is
provided by Fidelity Management Trust Company. The Plan has an undivided
interest in the assets of this trust, and ownership is represented by
proportionate dollar interest. The following summarizes the financial
information of the Master Trust at September 30, 2001 and 2000:
September 30, 2001 September 30, 2000
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
Cash equivalents $ 14,645,669 $ 14,645,669 $ 15,477,286 $ 15,477,286
Armstrong Common Stock 26,915,537 6,368,209 26,493,157 10,181,553
Registered investment companies 202,308,085 199,406,910 202,786,119 297,113,053
Fixed income investment contracts 167,338,355 167,338,355 166,384,012 166,384,012
Participant loans 5,692,396 5,692,396 6,140,006 6,140,006
------------ ------------ ------------ ------------
Total investments in Master Trust $416,900,042 $393,451,539 $417,280,580 $495,295,910
============ ============ ============ ============
Plan's interest in Master Trust $289,006,422 $280,156,326 $291,960,031 $361,526,642
Plan's percentage in Master Trust 69.3% 71.2% 70.0% 73.0%
During 2001 and 2000, the Master Trust's investments (including investments
bought, sold, and held during the year) appreciated in value as follows:
2001 2000
---- ----
Net appreciation (depreciation) in Master
Trust ($98,225,088) $ 9,258,013
Allocated net appreciation (depreciation) in
Master Trust ($74,765,034) $12,282,354
During 2001 and 2000, interest and dividends were as follows:
2001 2000
---- ----
Interest and dividends in Master Trust $21,020,196 $32,031,519
Allocated interest and dividends from
investment in Master Trust $16,079,551 $22,804,637
All of the above information was certified as complete and accurate by the
trustee at September 30, 2001 and 2000 and for the years then ended.
15
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
September 30, 2001
Description of Investment Cost Fair Value
-------------------------------------------------------------------------------
Unallocated Armstrong Common Stock $91,276,513 $5,218,532
Allocated Armstrong Common Stock $121,646,262 $7,772,629
Investments in Master Trust $289,006,422 $280,156,326
16