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, 2003
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 000-50408
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
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 September 30, 2003 and 2002 5
Item 3. Statements of Changes in Net Assets Available for Benefits Years ended
September 30, 2003 and 2002 6
Notes to Financial Statements 7-15
Exhibits 16
Consent of Independent Auditors
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 PLAN FOR HOURLY-PAID
EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC.
March 23, 2004 By: /s/: Matthew J. Angello
---------------------------
Matthew J. Angello, Chairman of the Retirement Committee
3
Item 1
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 Plan for Hourly-Paid Employees of Armstrong World
Industries, Inc. as of September 30, 2003 and 2002 and the related statements of
changes in net assets available for benefits for the years then ended. 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.
As discussed in Note 1 to the financial statements, on December 6, 2000,
Armstrong World Industries, Inc., the Plan's sponsor, filed a voluntary petition
for relief under Chapter 11 of the U.S. Bankruptcy Code in order to use the
court-supervised reorganization process to achieve a resolution of its asbestos
liability.
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 Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. as of
September 30, 2003 and 2002 and the changes in net assets available for benefits
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
March 15, 2004
Philadelphia, Pennsylvania
4
Item 2
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets Available for Benefits
September 30, 2003 and 2002
September 30,
-----------------------------
2003 2002
------------ ------------
Assets:
Investments in master trust:
Cash equivalents:
Fidelity Retirement Money Market Portfolio $ 4,255,415 $ 1,285,046
Shares of registered investment companies:
Fidelity Magellan Fund 11,407,685 8,592,075
Fidelity Low-Priced Stock Fund 910,808 557,279
Fidelity OTC Portfolio 2,806,378 2,164,037
Fidelity Asset Manager Fund 1,372,776 1,387,574
Fidelity Asset Manager: Income Fund 102,951 112,187
Fidelity Asset Manager: Growth Fund 947,482 914,506
Fidelity Overseas Fund 429,915 147,730
MSIF Trust Value Portfolio 200,814 152,264
MSIF Trust Mid Cap Core Portfolio 997,078 749,714
Spartan US Equity Index Fund 5,874,445 5,212,768
MSIF Global Value Equity Portfolio 167,244 135,876
Fidelity Equity Income Fund 1,611,196 --
Fidelity Intermediate Bond Fund 2,602,281 --
Fidelity Freedom 2010 Fund 257,165 --
Fidelity Freedom 2020 Fund 90,330 --
Fidelity Freedom 2030 Fund 201,663 --
Fidelity Freedom 2040 Fund 1,840 --
Fidelity Freedom Income Fund 35,811 --
Interest in common/collective trusts:
Fidelity Managed Income Portfolio II, Class 3 45,869,311 --
Fixed income investment contracts:
Fidelity Interest Income Fund -- 46,376,129
Armstrong Holdings, Inc. Common Stock 1,224,221 1,259,667
Participant loans 2,327,631 1,750,836
------------ ------------
Total investments 83,694,440 70,797,688
------------ ------------
Net assets available for benefits $ 83,694,440 $ 70,797,688
============ ============
See accompanying notes to the financial statements.
5
Item 3
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Net Assets Available for Benefits
Years Ended September 30, 2003 and 2002
Year Ended September 30,
--------------------------
2003 2002
------------ ------------
Additions to net assets attributed to:
Employee contributions $ 4,811,799 $ 4,884,373
Employer contributions 335,654 --
Dividends 1,974,878 285,755
Interest on fixed income investments 581,640 2,542,282
Interest on loans 119,405 120,357
Net transfers from other employee benefit plans 8,291,088 --
Net appreciation in fair value of investments 4,983,185 --
------------ ------------
Total additions 21,097,649 7,832,767
------------ ------------
Reduction in net assets attributed to:
Benefits paid to participants 8,118,138 5,457,618
Deemed distributions of participant loans 82,759 29,053
Net depreciation in fair value of investments -- 6,011,496
Net transfers to other employee benefit plans -- 642,963
------------ ------------
Total reductions 8,200,897 12,141,130
------------ ------------
Net increase (decrease) 12,896,752 (4,308,363)
Net assets available for benefits:
Beginning of year 70,797,688 75,106,051
------------ ------------
End of year $ 83,694,440 $ 70,797,688
============ ============
See accompanying notes to the financial statements.
6
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements
(1) Plan Description
The Retirement Savings Plan for Hourly-Paid Employees of Armstrong World
Industries, Inc. ("the Plan") is a defined contribution plan established
for the purpose of providing eligible hourly-paid employees a means for
long-term savings intended for the accumulation of retirement income. On
December 6, 2000, Armstrong World Industries, Inc. ("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. Management does
not anticipate that Armstrong's bankruptcy filing will have an adverse
impact on the operations of the Plan. See Note 9 for further discussion of
Chapter 11 events.
On October 17, 2002, Armstrong's Retirement Committee unanimously passed a
resolution to merge the Armstrong Wood Products Non-Union Hourly Employees
401(k) Plan and the Hartco Flooring Co. Bargaining Employees' Retirement
Savings Plan, and portions of the Hartco Flooring Co. Retirement Savings
Plan and the Robbins Hardwood Flooring, Inc. Employees' Retirement Savings
Plan, into the Plan. Effective December 20, 2002, plan assets of $8.7
million were transferred into the Plan.
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 seven accounts that make up the
participant's total balance:
Sheltered account - The Plan was amended effective April 1, 2002 to
allow participants to contribute from 1% to 40% of pretax compensation
as deferred compensation, as permitted under Section 401(k) of the
Internal Revenue Code. Prior to April 1, 2002, participants could
contribute from 1% to 15% of pretax compensation.
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. The Plan was
amended to expand the permissible sources of rollover contributions
beginning January 1, 2003 to include qualified annuity contracts,
tax-deferred annuity plans, governmental deferred compensation plans,
and individual retirement arrangements.
Age 50 catch-up account - The Plan was amended effective January 1,
2003 to allow participants who are age 50 or older to make "catch-up"
contributions, subject to the annual limits on catch-up contributions
specified in the Internal Revenue Code.
Company match account - For certain participants who are employed by
Armstrong Wood Products, Inc., 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 1989
and 1990, depending upon the participant's work location (formerly
referred to as the Old Match account).
AWP profit sharing account - This account holds discretionary and
non-discretionary profit sharing money contributed by Armstrong for
certain employees.
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.
7
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Participants have an immediate 100% vested interest with respect to their
contributions. Participants hired prior to and actively employed on January
1, 2003 are fully vested with regard to any Armstrong contributions.
Participants hired on or after January 1, 2003 are fully vested in any
Armstrong contributions after three years of service. Participants who were
former participants in the Armstrong Wood Products Non-Union Hourly
Employees 401(k) Plan, the Hartco Flooring Co. Bargaining Employees'
Retirement Savings Plan, the Hartco Flooring Co. Retirement Savings Plan
and the Robbins Hardwood Flooring, Inc. Employees' Retirement Savings Plan
but were not actively employed on January 1, 2003 will become vested based
upon the requirements of those predecessor plans (maximum vesting period of
five years).
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis except for interest income on participant loans, which
is recorded when received.
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 and managed income portfolios are stated at cost,
which approximates fair value. 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. Interest income on
participant loans is recorded when received.
Deemed distributions occur when active participants default on their
loans. Their loans are in default due to failure to make the required
repayments or their loans mature and have not been repaid in full.
(c) Expenses
All legal, accounting and administrative expenses associated with Plan
operations are paid by Armstrong.
(3) Investments in Master Trust
Assets are held in a Master Trust administered by Fidelity Management Trust
Co., as Trustee, and are segregated into twenty-one 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.
8
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
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 Managed Income Portfolio II, Class 3 - Prior to May 15, 2001,
contributions to the Fidelity Interest Income 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, 2002, the
interest rates ranged between 3.25% and 6.82%. The average yield at
September 30, 2002 was 4.98%. Beginning May 15, 2001, contributions to this
fund are invested in shares of Fidelity Managed Income Portfolio II
(MIPII). As existing insurance contracts matured or were liquidated, the
Fidelity Interest Income Fund used the proceeds to purchase shares of
MIPII. As of January 2, 2003, all insurance contracts had matured or were
liquidated, the Fidelity Interest Income Fund was dissolved, and the Plan
began investing directly in the Fidelity MIPII Fund. 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. MSIF Global Value Equity Portfolio - This fund invests in a diversified
selection of stocks throughout the world. It seeks to increase the value of
the investment over the long term through growth of capital.
7. Armstrong Holdings, Inc. Common Stock - Amounts invested in this fund,
along with dividend earnings thereon, are invested in Armstrong Holdings,
Inc. common stock. Common stock shares held by the fund at September 30,
2003 and 2002 were 816,147 and 933,032, 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 that invests
in a diversified 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 that
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. MSIF Trust Mid Cap Core 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.
9
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
14. MSIF 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.
15. Fidelity Equity Income Fund - This fund has a primary objective of seeking
reasonable income levels by investing at least 80% of total assets in
income producing equity securities, which tends to lead to investments in
large cap "value" stocks. The fund may also invest in other types of equity
securities and debt securities, including lower-quality debt securities.
The fund seeks a yield that exceeds the yield of the securities comprising
the Standard & Poor's 500 Index.
16. Fidelity Intermediate Bond Fund - This fund has a primary objective of
seeking high current income by investing in U.S. dollar-dominated
investment grade debt securities with maturities between three to ten
years. The Lehman Brothers Intermediate Government/Corporate Bond Index is
used as a guide in structuring the fund and selecting the investments.
17. Fidelity Freedom 2010 Fund - This fund seeks high total return by investing
in a combination of Fidelity equity, fixed-income, and money market funds
using a moderate asset allocation strategy designed for investors expecting
to retire around the year 2010.
18. Fidelity Freedom 2020 Fund - This fund seeks high total return by investing
in a combination of Fidelity equity, fixed-income, and money market funds
using a moderate asset allocation strategy designed for investors expecting
to retire around the year 2020.
19. Fidelity Freedom 2030 Fund - This fund seeks high total return by investing
in a combination of Fidelity equity, fixed-income, and money market funds
using a moderate asset allocation strategy designed for investors expecting
to retire around the year 2030.
20. Fidelity Freedom 2040 Fund - This fund seeks high total return by investing
in a combination of Fidelity equity, fixed-income, and money market funds
using a moderate asset allocation strategy designed for investors expecting
to retire around the year 2040.
21. Fidelity Freedom Income Fund - This fund seeks high current income and, as
a secondary objective, capital appreciation. The fund invests in a
combination of Fidelity equity, fixed-income, and money market funds using
a moderate allocation strategy designed for investors already in
retirement.
Participant loans represent the unpaid principal balances of loans to Plan
participants in accordance with established loan provision guidelines. At
September 30, 2003, the interest rates ranged between 4.00% and 11.50%. At
September 30, 2002, the interest rates ranged between 4.75% and 9.50%.
On June 25, 2002, the Plan was amended to add the Fidelity Equity Income Fund,
the Fidelity Intermediate Bond Fund, and the Fidelity Freedom Funds as
investment options effective January 1, 2003. In addition, the Asset Manager
Funds are no longer offered with respect to contributions made or transfers
requested on or after January 1, 2003. Any contribution election on December 31,
2002 to invest in one of the Asset Manager Funds was changed to a corresponding
Fidelity Freedom Fund on January 1, 2003. Any balances in the Asset Manager
Funds as of December 31, 2003 were also transferred to a corresponding Fidelity
Freedom Fund on December 31, 2003.
10
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
The following table presents the estimated fair values of the investments of the
Master Trust at September 30, 2003 and 2002:
Investment September 30, 2003 September 30, 2002
---------- ------------------ ------------------
Spartan US Equity Index Fund $ 5,874,445 $ 5,212,768
Fidelity Magellan Fund 11,407,685 8,592,075
Fidelity Low-Priced Stock Fund 910,808 557,279
Fidelity Retirement Money Market Portfolio 4,255,415 1,285,046
Fidelity Managed Income Portfolio II, Class 3 45,869,311 --
Fidelity Interest Income Fund -- 46,376,129
MSIF Global Value Equity Portfolio 167,244 135,876
Armstrong Holdings, Inc. Common Stock 1,224,221 1,259,667
Fidelity Overseas Fund 429,915 147,730
Fidelity OTC Portfolio 2,806,378 2,164,037
Fidelity Asset Manager Fund 1,372,776 1,387,574
Fidelity Asset Manager: Income Fund 102,951 112,187
Fidelity Asset Manager: Growth Fund 947,482 914,506
MSIF Trust Mid Cap Core Portfolio 997,078 749,714
MSIF Trust Value Portfolio 200,814 152,264
Fidelity Equity Income Fund 1,611,196 --
Fidelity Intermediate Bond Fund 2,602,281 --
Fidelity Freedom 2010 Fund 257,165 --
Fidelity Freedom 2020 Fund 90,330 --
Fidelity Freedom 2030 Fund 201,663 --
Fidelity Freedom 2040 Fund 1,840 --
Fidelity Freedom Income Fund 35,811 --
Participant Loans 2,327,631 1,750,836
------------------ ------------------
Total investment in Master Trust $83,694,440 $70,797,688
================== ==================
The amounts of net appreciation (depreciation) in fair value of investments of
the Master Trust for the years ended September 30, 2003 and 2002 are presented
below:
Investment 2003 2002
---------- ---------- -----------
Spartan US Equity Index Fund $1,123,606 $(1,481,997)
Fidelity Magellan Fund 1,814,826 (2,444,865)
Fidelity Low-Priced Stock Fund 173,823 (6,426)
MSIF Global Value Equity Portfolio 21,782 (31,673)
Armstrong Holdings, Inc. Common Stock 153,363 (1,196,399)
Fidelity Overseas Fund 84,369 (24,084)
Fidelity OTC Portfolio 742,640 (200,601)
Fidelity Asset Manager Fund 210,022 (189,410)
Fidelity Asset Manager: Income Fund 11,419 (5,906)
Fidelity Asset Manager: Growth Fund 159,490 (177,555)
MSIF Trust Mid Cap Core Portfolio 246,677 (200,181)
MSIF Trust Value Portfolio 41,623 (52,399)
Fidelity Equity Income Fund 152,517 --
Fidelity Intermediate Bond Fund 23,749 --
Fidelity Freedom 2010 Fund 16,804 --
Fidelity Freedom 2020 Fund 7,473 --
Fidelity Freedom 2030 Fund (2,176) --
Fidelity Freedom 2040 Fund 140 --
Fidelity Freedom Income Fund 1,038 --
---------- -----------
Total net appreciation (depreciation) $4,983,185 $(6,011,496)
========== ===========
11
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(4) Benefits
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,
partial disbursements are allowed.
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.
On June 25, 2002, the Plan was amended with respect to hardship withdrawals
made after December 31, 2002 to reduce the contribution suspension period
to a 6-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 vested balance or $50,000. The money borrowed must come from the
Sheltered, Age 50 catch-up, Company match, AWP profit sharing, Rollover, or
Standard 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.
(5) 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 hereunder.
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.
(6) Eligibility
Most hourly employees of Armstrong or any participating affiliated company
which adopts this plan are eligible to participate. This includes hourly
employees in a collective bargaining unit where 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.
(7) Federal Income Taxes
The Internal Revenue Service issued its latest determination letter on
November 25, 2003, which stated that the Plan and its underlying trust
qualify under the applicable provisions of the Internal Revenue Code and
therefore are 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.
12
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(8) Master Trust Agreement
The Plan established a Master Trust Agreement with Fidelity Management
Trust Company whereby the Plan assets are commingled and invested with the
assets of the Retirement Savings and Stock Ownership Plan of Armstrong
World Industries, Inc. and the Bonus Replacement Retirement Plan of
Armstrong World Industries, Inc. Prior to December 20, 2002, the assets
were also commingled with the assets of the Armstrong Wood Products
Salaried Employees' Profit Sharing Plan, the Armstrong Wood Products
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
maintained. 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, 2003 and 2002:
September 30, 2003 September 30, 2002
----------------------------- -----------------------------
Cost Fair Value Cost Fair Value
------------- ------------- ------------- -------------
Cash equivalents $ 16,785,399 $ 16,785,399 $ 16,510,231 $ 16,510,231
Armstrong Holdings, Inc. Common Stock 21,913,297 2,679,635 25,269,658 2,905,155
Investment in registered investment companies 198,165,001 201,621,042 204,702,712 164,805,422
Fixed income investment contracts -- -- 176,543,179 176,543,179
Investment in common/collective trusts 181,386,980 181,386,980 -- --
Participant loans 6,443,352 6,443,352 6,163,258 6,163,258
------------- ------------- ------------- -------------
Total investments in Master Trust $ 424,694,029 $ 408,916,408 $ 429,189,038 $ 366,927,245
============= ============= ============= =============
Plan's interest in Master Trust $ 92,654,651 $ 83,694,440 $ 86,502,543 $ 70,797,688
Plan's percentage in Master Trust 21.8% 20.5% 20.2% 19.3%
During 2003 and 2002, the Master Trust's investments (including investments
bought, sold, and held during the year) appreciated (depreciated) in value
as follows:
2003 2002
----------- -----------
Net appreciation (depreciation) in Master Trust $35,812,595 ($41,014,128)
Allocated net appreciation (depreciation) in Master Trust $ 4,983,185 ($6,011,496)
During 2003 and 2002, interest and dividends in the Master Trust were as
follows:
2003 2002
----------- -----------
Interest and dividends in Master Trust $11,252,478 $12,841,359
Allocated interest and dividends from investment in Master Trust $ 2,675,923 $ 2,948,394
All of the above information was certified as complete and accurate by the
trustee at September 30, 2003 and 2002 and for the years then ended.
(9) Chapter 11 Reorganization of Armstrong
Plan of Reorganization
On November 4, 2002, Armstrong filed a Plan of Reorganization with the
United States Bankruptcy Court for the District of Delaware ("the
Bankruptcy Court"). During 2003, Armstrong 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, it is referred
to in this report as the "POR"). During 2003, the POR was submitted for a
vote by Armstrong'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
13
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
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, Armstrong 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 Armstrong'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 Armstrong 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 Armstrong 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 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.
Consideration to be Distributed under the POR (unaudited)
Under the POR, the existing equity interests in Armstrong (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 Armstrong's existing common
stock. The terms of the Warrants are provided in an exhibit to the POR.
Generally, 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. It is expected that warrants held
inside the Plan will not be exercisable to purchase the common stock of
reorganized Armstrong. Warrants held in the Plan may be sold by
participants, with the monies reinvested among any of the investment funds
available in the Plan. 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. Armstrong Holdings
Inc.'s ("AHI") shareholders were not entitled to vote on the POR. However,
AHI's shareholders were sent the Disclosure Statement and the 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.
14
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Armstrong Holdings, Inc'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 Armstrong will pay the costs and
expenses incurred in connection with administering AHI's Plan of
Dissolution.
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 Armstrong. The Unsecured
Creditors' Committee requested that in the event Judge Wolin is recused in
the other cases, he also be recused in Armstrong's case. Judge Wolin has
stayed further proceedings in all five cases before him, including
Armstrong'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, with oral argument before the U.S. Court of Appeals for the Third
Circuit scheduled for April 19, 2004. Armstrong 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 Armstrong's Chapter 11 proceedings, and
when confirmation of the POR will be considered by the U.S. District Court
is uncertain.
Common Stock
As a result of Armstrong filing the POR on November 4, 2002, the New York
Stock Exchange stopped trading on the Exchange of the common stock of
Armstrong Holdings, Inc. (traded under the ticker symbol "ACK"). Armstrong
Holdings, Inc.'s common stock resumed trading in the over-the-counter (OTC)
Bulletin Board under the ticker symbol "ACKHQ."
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. Armstrong 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.
15