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 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.
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Item 1. Independent Auditors' Report 4
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Item 2. Statements of Net Assets Available for Benefits 5
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September 30, 2001 and 2000
Item 3. Statements of Changes in Net Assets Available for Benefits 6
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Years ended September 30, 2001 and 2000
Notes to Financial Statements 7-13
Exhibits 14
---------
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 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 Plan for Hourly-Paid Employees 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 Plan for Hourly-Paid Employees 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.
/s/ KPMG LLP
March 26, 2002
Philadelphia, Pennsylvania
4
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
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 $ 902,855 $ 592,567
Shares of registered investment companies:
Fidelity Magellan Fund 11,483,915 16,757,223
Fidelity Low-Priced Stock Fund 423,584 184,893
Fidelity OTC Portfolio 2,289,230 5,881,696
Fidelity Asset Manager Fund 1,566,442 1,915,567
Fidelity Asset Manager: Income Fund 101,970 88,486
Fidelity Asset Manager: Growth Fund 1,101,686 1,437,981
Fidelity Overseas Fund 170,977 263,589
MAS Trust Value Portfolio 185,428 74,232
MAS Trust Mid Cap Value Portfolio 836,655 923,750
Spartan US Equity Index Fund 6,870,637 10,101,077
Morgan Stanley Global Value Equity Portfolio 191,294 178,385
Fixed income investment contracts:
Fidelity Interest Income Fund 44,649,881 43,114,542
Armstrong Common Stock 2,714,567 3,997,425
Participant loans 1,616,930 1,527,799
----------- -----------
Total investments 75,106,051 87,039,212
----------- -----------
Net assets available for benefits $75,106,051 $87,039,212
=========== ===========
See accompanying notes to the financial statements.
5
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, 2001 and 2000
Year Ended September 30,
------------------------
2001 2000
---- ----
Additions to net assets attributed to:
Contributions $ 5,052,363 $ 5,266,582
Dividends 1,188,280 3,129,975
Interest 2,820,305 2,703,533
Realized gain on investments, net -- 2,414,334
------------ ------------
Total additions 9,060,948 13,514,424
------------ ------------
Reduction in net assets attributed to:
Benefits paid to participants 5,934,994 8,082,951
Realized loss on investments, net 110,277 --
Unrealized depreciation of investments 14,934,836 5,677,831
Transfers to other employee benefit plans 14,002 5,998,592
------------ ------------
Total reductions 20,994,109 19,759,374
------------ ------------
Net decrease (11,933,161) (6,244,950)
Net assets available for benefits:
Beginning of year 87,039,212 93,284,162
------------ ------------
End of year $ 75,106,051 $ 87,039,212
============ ============
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) 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. Certain prior year amounts have been reclassified to conform
to the current presentation.
(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.
(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 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 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.
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.
7
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Rollover account - Participants may invest any untaxed amounts rolled
----------------
over from another tax-qualified, employer-sponsored plan.
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.
Old Match account - This account holds any amount contributed by
-----------------
Armstrong before matching contributions were discontinued. No new
contributions are being made to this account.
Participants have an immediate 100% vested interest with respect to their
contributions and are fully vested with regard to any previously made
matching Armstrong contributions.
(3) Investments in Master Trust
---------------------------
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. Credited 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.
8
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
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.
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 994,347 and 334,849, 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 the Armstrong
Common Stock Fund as an 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.
9
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
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 $ 5,033,441 $ 6,870,637 $ 5,156,912 $10,101,077 $ (3,106,969)
Fidelity Magellan Fund 11,656,449 11,483,915 11,662,740 16,757,223 (5,267,017)
Fidelity Low-Priced Stock Fund 445,556 423,584 198,294 184,893 (8,571)
Fidelity Retirement Money Market
Portfolio 902,855 902,855 592,567 592,567 --
Fidelity Interest Income Fund 44,649,881 44,649,881 43,114,542 43,114,542 --
Morgan Stanley Global Value Equity
Portfolio 234,975 191,294 197,830 178,385 (24,236)
Armstrong Common Stock 11,426,377 2,714,567 10,584,649 3,997,425 (2,124,586)
Fidelity Overseas Fund 277,175 170,977 270,400 263,589 (99,387)
Fidelity OTC Portfolio 4,485,797 2,289,230 5,064,281 5,881,696 (3,013,982)
Fidelity Asset Manager Fund 1,847,278 1,566,442 1,755,347 1,915,567 (441,056)
Fidelity Asset Manager: Income Fund 109,957 101,970 87,755 88,486 (8,718)
Fidelity Asset Manager: Growth Fund 1,405,392 1,101,686 1,246,616 1,437,981 (495,071)
MAS Trust Mid Cap Value Portfolio 1,050,841 836,655 795,898 923,750 (342,038)
MAS Trust Value Portfolio 200,484 185,428 86,083 74,232 (3,205)
Participant Loans 1,616,930 1,616,930 1,527,799 1,527,799 --
----------- ----------- ----------- ----------- ------------
$85,343,388 $75,106,051 $82,341,713 $87,039,212 $(14,934,836)
=========== =========== =========== =========== ============
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 $1,331,382 $ 887,568 $ 443,814
Fidelity Magellan Fund 2,824,345 2,485,706 338,639
Fidelity Low-Priced Stock Fund 255,501 257,052 (1,551)
Morgan Stanley Global Value Equity Portfolio 52,190 60,637 (8,447)
Armstrong Common Stock 270,321 703,152 (432,831)
Fidelity Overseas Fund 50,362 67,065 (16,703)
Fidelity OTC Portfolio 1,683,376 2,087,735 (404,359)
Fidelity Asset Manager Fund 206,615 210,882 (4,267)
Fidelity Asset Manager: Income Fund 15,626 16,036 (410)
Fidelity Asset Manager: Growth Fund 203,767 207,745 (3,978)
MAS Trust Mid Cap Value Portfolio 746,921 764,219 (17,298)
MAS Trust Value Portfolio 52,135 55,021 (2,886)
---------- ---------- ---------
$7,692,541 $7,802,818 $(110,277)
========== ========== =========
10
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Aggregate Aggregate Realized
2000 Proceeds Cost Gain (Loss)
---- -------- ---- -----------
Spartan US Equity Index Fund $ 3,057,257 $ 1,812,427 $1,244,830
Fidelity Magellan Fund 4,951,037 3,722,653 1,228,384
Fidelity Low-Priced Stock Fund 74,439 81,231 (6,792)
Morgan Stanley Global Value Equity Portfolio 120,949 138,397 (17,448)
Armstrong Common Stock 6,810,023 7,473,466 (663,443)
Fidelity Overseas Fund 178,675 176,732 1,943
Fidelity OTC Portfolio 6,203,083 5,636,775 566,308
Fidelity Asset Manager Fund 254,768 231,503 23,265
Fidelity Asset Manager: Income Fund 163,104 161,826 1,278
Fidelity Asset Manager: Growth Fund 453,796 421,167 32,629
MAS Trust Mid Cap Value Portfolio 266,519 252,286 14,233
MAS Trust Value portfolio 59,092 69,945 (10,853)
----------- ----------- ----------
$22,592,742 $20,178,408 $2,414,334
=========== =========== ==========
(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, 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, 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.
11
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(6) Eligibility
-----------
All hourly employees of Armstrong or of any participating affiliated
company which adopts this plan are eligible to participate if bargained for
by the employees' collective bargaining unit. Eligible participants who
leave Armstrong and are later reemployed can resume participation in the
Plan on the date of rehire.
(7) Federal Income Taxes
--------------------
By a letter dated February 13, 1996, 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.
(8) 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 and Stock Ownership
Plan 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 Employees 401(k) Plan, the Hartco Flooring Co. Retirement
Savings Plan, the Hartco Flooring Co. Bargaining Employees' Retirement
Savings Plan, and the Robbins Hardwood Flooring, Inc. Employees' 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 $ 85,343,388 $ 75,106,051 $ 82,341,713 $ 87,039,212
Plan's percentage in Master Trust 20.5% 19.1% 19.7% 17.6%
During 2001 and 2000, the Master Trust's investments (including investments
bought, sold, and held during the year) appreciated (depreciated) in value as
follows:
2001 2000
---- ----
Net appreciation (depreciation) in Master Trust ($98,225,088) $9,258,013
Allocated net (depreciation) in Master Trust ($15,045,113) ($3,263,497)
12
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
During 2001 and 2000, interest and dividends in the Master Trust 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 $ 4,008,585 $ 5,833,508
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.
13