<PAGE>
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, 1997
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -----------------------
Commission file number 1-2116
--------------------------------------------------------
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
(Full title of the Plan)
ARMSTRONG WORLD INDUSTRIES, INC.
Liberty and Charlotte Streets
Lancaster, Pennsylvania 17604
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE>
Page No.
--------
Item 1. Statements of Net Assets 4
------------------------
September 30, 1997 and 1996
Item 2. Statements of Changes in Plan Equity 5-7
------------------------------------
(a) Year ended September 30, 1997
(b) Year ended September 30, 1996
(c) Year ended September 30, 1995
Notes to Financial Statements 8-12
- -----------------------------
Item 3. Independent Auditors' Report 13
----------------------------
Exhibits
- --------
24. Consent of Independent Auditors
<PAGE>
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 23, 1998 By: /s/ George A. Lorch
--------------------------------------
George A. Lorch
Chairman of the Retirement Committee
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997
Retirement Savings Funds
-------------------------------------------------------------------------------------
Commingled Specialized Money Fixed Income Armstrong
Equity Fund Equity Fund Market Fund Fund Stock Fund
----------- ----------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Investments at fair value (note 4) $49,670,121 $67,994,282 $3,599,035 $131,000,677 $12,759,960
----------- ------------ ---------- ------------ -----------
Cash and short-term investments -- -- -- -- --
Employee contributions receivable -- -- -- -- --
Employer contributions receivable -- -- -- -- --
Dividends receivable -- -- -- -- --
Interest receivable -- -- -- -- --
-- -- -- -- --
----------- ------------ ---------- ------------ -----------
Total assets $49,670,121 $67,994,282 $3,599,035 $131,000,677 $12,759,960
----------- ----------- ---------- ------------ -----------
Liabilities:
- ------------
Guaranteed ESOP notes (note 6) -- -- -- -- --
Loans due plan sponsor (note 7) -- -- -- -- --
Accrued interest -- -- -- -- --
----------- ----------- ---------- ------------ -----------
Total Liabilities -- -- -- -- --
----------- ----------- ---------- ------------ -----------
Plan Equity $49,670,121 $67,994,282 $3,599,035 $131,000,677 $12,759,960
=========== =========== ========== ============ ===========
<CAPTION>
-------------------------------------------------------------------------------------
"OTC" Asset Asset Mgr. Asset Mgr. Loan
Portfolio Fd. Manager Fund Income Fund Growth Fund Portfolio Fund
------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Investments at fair value (note 4) $11,271,195 $5,482,241 $1,845,575 $8,693,409 $4,573,178
----------- ---------- ---------- ---------- ----------
Cash and short-term investments -- -- -- -- --
Employee contributions receivable -- -- -- -- --
Employer contributions receivable -- -- -- -- --
Dividends receivable -- -- -- -- --
Interest receivable -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Total assets $11,271,195 $5,482,241 $1,845,575 $8,693,409 $4,573,178
----------- ---------- ---------- ---------- ----------
Liabilities:
- ------------
Guaranteed ESOP notes (note 6) -- -- -- -- --
Loans due plan sponsor (note 7) -- -- -- -- --
Accrued interest -- -- -- -- --
-- -- -- -- --
----------- ---------- ---------- ---------- ----------
Total Liabilities -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Plan Equity $11,271,195 $5,482,241 $1,845,575 $8,693,409 $4,573,178
=========== ========== ========== ========== ==========
<CAPTION>
Stock Ownership Funds
--------------------------------
Allocated Unallocated Stock
Retirement Armstrong Armstrong Ownership
Savings Total Stock Fund Stock Fund Total Plan Total
------------- ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Investments at fair value (note 4) $296,889,673 $109,573,363 $215,901,751 $325,475,114 $622,364,787
------------ ------------ ------------ ------------ ------------
Cash and short-term investments -- 92,240 1,426,130 1,518,370 $1,518,370
Employee contributions receivable -- -- 2,593,899 2,593,899 2,593,899
Employer contributions receivable -- -- 4,007,971 4,007,971 4,007,971
Dividends receivable -- 724,601 -- 724,601 724,601
Interest receivable -- 424 6,112 6,536 6,536
------------ ------------ ------------ ------------ ------------
Total assets $296,889,673 110,390,628 223,935,863 334,326,491 $631,216,164
------------ ----------- ----------- ----------- ------------
Liabilities:
- ------------
Guaranteed ESOP notes (note 6) -- -- 212,027,803 212,027,803 212,027,803
Loans due plan sponsor (note 7) -- -- 5,768,849 5,768,849 5,768,849
Accrued interest -- -- 5,413,818 5,413,818 5,413,818
------------ ----------- ----------- ----------- ------------
Total Liabilities -- -- 223,210,470 223,210,470 223,210,470
------------ ----------- ----------- ----------- ------------
Plan Equity $296,889,673 $110,390,628 $725,393 $111,116,021 $408,005,694
============ ============ ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1996
Retirement Savings Funds
----------------------------------------------------------------------------------
Commingled Specialized Money Fixed Income Armstrong
Equity Fund Equity Fund Market Fund Fund Stock Fund
----------- ----------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Investments in master trust
at fair value (note 4) $34,640,234 $55,239,099 $3,050,434 $126,067,031 $13,508,146
----------- ----------- ---------- ------------ -----------
Total assets $34,640,234 $55,239,099 $3,050,434 $126,067,031 $13,508,146
----------- ----------- ---------- ------------ -----------
Plan equity $34,640,234 $55,239,099 $3,050,434 $126,067,031 $13,508,146
=========== =========== ========== ============ ===========
<CAPTION>
----------------------------------------------------------------------------------
"OTC" Asset Asset Mgr. Asset Mgr. Loan
Portfolio Fd. Manager Fund Income Fund Growth Fund Portfolio Fund
------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
- ------
Investments in master trust
at fair value (note 4) $6,856,784 $4,441,622 $2,013,481 $6,417,103 $3,307,686
---------- ---------- ---------- ---------- ----------
Total assets $6,856,784 $4,441,622 $2,013,481 $6,417,103 $3,307,686
---------- ---------- ---------- ---------- ----------
Plan equity $6,856,784 $4,441,622 $2,013,481 $6,417,103 $3,307,686
========== ========== ========== ========== ==========
<CAPTION>
Stock Ownership Funds
-----------------------------------
Allocated Unallocated Stock
Retirement Armstrong Armstrong Ownership
Savings Total Stock Fund Stock Fund Total Plan Total
------------- ---------- ---------- ----- ----------
Assets:
- ------
Investments in master trust
at fair value (note 4) $255,541,620 -- -- -- 255,541,620
------------ ---------- ---------- ----------- -----------
Total assets $255,541,620 -- -- -- 255,541,620
------------ ---------- ---------- ----------- -----------
Plan equity $255,541,620 -- -- -- 255,541,620
============ ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997
Retirement Savings Funds
--------------------------------------------------------------------------------------
Commingled Specialized Money Fixed Income Armstrong
Equity Fund Equity Fund Market Fund Fund Stock Fund
----------- ----------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1996 $34,640,234 $55,239,099 $3,050,434 $126,067,031 $13,508,146
----------- ----------- ---------- ------------ -----------
Increases in plan equity:
Transfer of assets from
merged plan (note 2) -- -- -- -- --
Employee contributions 1,448,633 2,422,402 185,041 4,839,630 309,034
Employer contributions (note 5) -- -- -- -- --
Dividends 1,099,609 1,906,723 174,661 -- 337,876
Interest 42,834 80,789 9,512 8,241,884 11,661
Realized gain on
investments (note 4) 2,279,419 1,875,833 -- -- 1,001,249
Unrealized appreciation of
investments 10,806,762 14,653,771 -- -- 75,036
Loan activity, net (320,312) (301,064) (10,006) (438,400) (79,611)
----------- ----------- ---------- ------------ -----------
15,356,945 20,638,454 359,208 12,643,114 1,655,245
----------- ----------- ---------- ------------ -----------
Decreases in plan equity:
Interest expense (note 6) -- -- -- -- --
Benefits paid (note 8) (3,254,255) (3,933,969) (948,749) (13,298,177) (837,570)
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. 172,815 189,824 37,313 561,763 16,068
Interfund transfers, net 2,754,382 (4,139,126) 1,000,829 5,026,946 (1,581,929)
----------- ----------- ---------- ------------ -----------
(327,058) (7,883,271) 189,393 (7,709,468) (2,403,431)
----------- ----------- ---------- ------------ -----------
Plan equity at September 30, 1997 $49,670,121 $67,994,282 $3,599,035 $131,000,677 $12,759,960
=========== =========== ========== ============ ===========
<CAPTION>
1997
Retirement Savings Funds
---------------------------------------------------------------------------------
"OTC" Asset Asset Mgr. Asset Mgr. Loan
Portfolio Fd. Manager Fund Income Fund Growth Fund Portfolio Fund
------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1996 $6,856,784 $4,441,622 $2,013,481 $6,417,103 $3,307,686
---------- ---------- ---------- ---------- ----------
Increases in plan equity:
Transfer of assets from
merged plan (note 2) -- -- -- -- --
Employee contributions 830,339 354,321 75,979 550,098 --
Employer contributions (note 5) -- -- -- -- --
Dividends 669,044 381,885 138,153 564,099 --
Interest 23,517 8,241 1,758 12,728 --
Realized gain on
investments (note 4) 294,692 139,267 39,003 328,508 --
Unrealized appreciation of
investments 1,676,576 554,573 64,323 1,173,789 --
Loan activity, net (44,168) (60,049) (53,541) (49,297) 1,356,448
---------- ---------- ----------- ---------- ----------
3,450,000 1,378,238 265,675 2,579,925 1,356,448
---------- ---------- ----------- ---------- ----------
Decreases in plan equity:
Interest expense (note 6) -- -- -- -- --
Benefits paid (note 8) (927,481) (609,366) (378,699) (671,143) --
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. 6,529 99,141 -- (29,795) (90,956)
Interfund transfers, net 1,885,363 172,606 (54,882) 397,319 --
---------- ---------- ----------- ---------- ----------
964,411 (337,619) (433,581) (303,619) (90,956)
---------- ---------- ----------- ---------- ----------
Plan equity at September 30, 1997 $11,271,195 $5,482,241 $1,845,575 $8,693,409 $4,573,178
=========== ========== ========== ========== ==========
<CAPTION>
Stock Ownership Funds
-----------------------------------
Allocated Unallocated Stock
Retirement Armstrong Armstrong Ownership
Savings Total Stock Fund Stock Fund Total Plan Total
------------- ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1996 $255,541,620 $ -- $ -- $ -- $255,541,620
------------- ----------- ----------- ------------ ------------
Increases in plan equity:
Transfer of assets from
merged plan (note 2) -- 95,463,444 (7,571,201) 87,892,243 87,892,243
Employee contributions 11,015,477 -- 10,658,241 10,658,241 21,673,718
Employer contributions (note 5) -- -- 14,284,664 14,284,664 14,284,664
Dividends 5,272,050 2,617,192 5,695,451 8,312,643 13,584,693
Interest 8,432,924 15,837 103,014 118,851 8,551,775
Realized gain on
investments (note 4) 5,957,971 -- -- -- 5,957,971
Unrealized appreciation of
investments 29,004,830 7,651,796 15,092,486 22,744,282 51,749,112
Loan activity, net -- -- -- -- --
------------- ----------- ----------- ------------ ------------
59,683,252 105,748,269 38,262,655 144,010,924 203,694,176
------------- ----------- ----------- ------------ ------------
Decreases in plan equity:
Interest expense (note 6) -- -- (19,099,238) (19,099,238) (19,099,238)
Benefits paid (note 8) (24,859,409) (7,165,115) -- (7,165,115) (32,024,524)
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. 962,702 20,615 (1,089,657) (1,069,042) (106,340)
Interfund transfers, net 5,561,508 11,786,859 (17,348,367) (5,561,508) --
------------- ----------- ----------- ------------ ------------
(18,335,199) 4,642,359 (37,537,262) (32,894,903) (51,230,102)
------------- ----------- ----------- ------------ ------------
Plan equity at September 30, 1997 $296,889,673 $110,390,628 $725,393 $111,116,021 $408,005,694
============ ============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements (Continued)
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity, Continued
<TABLE>
<CAPTION>
1996
Commingled Specialized Money Fixed Income Armstrong "OTC"
Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd.
----------- ----------- ----------- ---- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Plan equity at October 1, 1995 $26,008,895 $53,822,126 $ 2,863,787 $119,173,404 $ 9,957,012 $3,998,454
----------- ----------- ----------- ------------ ----------- ----------
Increases in plan equity:
Employee contributions 1,304,166 3,271,882 3,249,141 3,759,748 263,346 92,828
Dividends 824,216 10,899,654 150,409 -- 274,227 676,518
Interest 30,692 73,870 5,326 7,376,774 9,598 9,354
Realized gain on investments
(note 4) 1,356,135 1,682,172 -- -- 598,743 173,665
Transfers (to) from other
employee benefit plans (note 3) 917,764 (486,370) (2,722,959) 5,740,701 2,510,969 54,286
Loan activity, net (127,242) 9,945 (51,300) 199,025 30,537 30,924
----------- ----------- ----------- ------------ ----------- ----------
4,306,001 15,451,153 630,617 17,076,248 3,687,420 1,537,575
----------- ----------- ----------- ------------ ----------- ----------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments 3,201,122 (10,982,140) -- -- 733,682 49,322
Benefits paid (note 8) (1,417,320) (2,135,340) (305,283) (7,011,691) (569,160) (178,186)
interfund transfers, net 2,541,536 (916,700) (138,687) (3,170,930) (300,808) 1,449,619
----------- ----------- ----------- ------------ ----------- ----------
4,325,338 (14,034,180) (443,970) (10,182,621) (136,286) 1,320,755
----------- ----------- ----------- ------------ ----------- ----------
Plan equity at September 30, 1996 $34,640,234 $55,239,099 $ 3,050,434 $126,067,031 $13,508,146 $6,855,784
=========== =========== =========== ============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
Asset Asset Mgr. Asset Mgr. Loan
Manager Fund Income Fund Growth Fund Portfolio Fund Total
------------ ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1995 $4,171,934 $1,465,384 $5,380,158 $3,408,962 $230,250,116
----------- ---------- ---------- ------------ ------------
Increases in plan equity:
Employee contributions 294,053 69,892 517,010 -- 13,322,066
Dividends 149,553 92,269 77,215 -- 13,144,061
Interest 6,424 3,161 8,596 -- 7,524,065
Realized gain on investments
(note 4) 84,274 17,013 141,202 -- 4,053,204
Transfers (to) from other
employee benefit plans (note 3) 41,971 256,953 (272,357) (21,076) 6,019,882
Loan activity, net (4,895) 11,757 (18,551) (80,200) --
----------- ----------- ----------- ------------ ------------
571,380 451,045 453,115 (101,276) 44,063,278
----------- ----------- ----------- ------------ ------------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments 188,800 11,409 457,253 -- (6,340,552)
Benefits paid (note 8) (464,192) (170,707) (179,343) -- (12,431,222)
interfund transfers, net (26,300) 256,350 305,920 -- --
----------- ----------- ----------- ------------ ------------
(301,692) 97,052 583,830 -- (18,771,774)
----------- ----------- ----------- ------------ ------------
Plan equity at September 30, 1996 $4,441,622 $2,013,481 $6,417,103 $3,307,686 $255,541,620
=========== =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements (Continued)
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity, Continued
<TABLE>
<CAPTION>
1995
Commingled Specialized Money Fixed Income Armstrong "OTC"
Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd.
----------- ----------- ----------- ---- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Plan equity at October 1, 1994 $20,074,514 $40,885,939 $2,364,783 $108,691,987 $7,203,780 $2,199,833
----------- ----------- ---------- ------------ ---------- ----------
Increases in plan equity:
Employee contributions 1,190,525 3,475,590 215,540 4,790,964 295,226 375,257
Dividends 587,101 199,906 138,765 -- 245,705 96,677
Interest 33,291 67,892 8,112 7,591,186 12,946 6,544
Realized gain(loss) on
investments (note 4) 662,728 1,499,516 -- -- 217,271 98,150
Unrealized appreciation of
investments 4,621,828 13,524,954 -- -- 2,038,938 795,420
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. (9,748) 158,001 6,943 58,530 25,829 41,124
Loan activity, net (222,751) (15,988) (10,923) 40,829 31,056 36,106
----------- ----------- ---------- ------------ ---------- ----------
6,862,974 18,909,871 358,438 12,481,509 2,866,971 1,449,278
----------- ----------- ---------- ------------ ---------- ----------
Decreases in plan equity:
Benefit paid (note 8) (1,149,156) (1,965,434) (121,127) (5,546,200) (207,166) (323,260)
Interfund transfers, net 220,563 (4,008,250) 261,693 3,546,108 93,427 672,603
----------- ----------- ---------- ------------ ---------- ----------
(928,593) (5,973,684) 140,566 (2,000,092) (113,739) 349,343
----------- ----------- ---------- ------------ ---------- ----------
Plan equity at September 30, 1995 $26,008,895 $53,822,126 $2,863,787 $119,173,404 $9,957,012 $3,998,454
=========== =========== ========== ============ ========== ==========
<CAPTION>
1995
Asset Asset Mgr. Asset Mgr. Loan
Manager Fund Income Fund Growth Fund Portfolio Fund Total
------------ ----------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1994 $3,488,114 $1,766,979 $4,767,677 $3,159,183 $194,602,789
---------- ---------- ---------- ---------- ------------
Increases in plan equity:
Employee contributions 358,667 101,319 722,517 -- 11,525,605
Dividends 135,937 66,120 131,133 -- 1,601,345
Interest 6,061 1,980 10,696 -- 7,738,708
Realized gain(loss) on
investments (note 4) (41,279) (21,983) (21,443) -- 2,392,960
Unrealized appreciation of
investments 282,885 120,617 400,690 -- 21,785,332
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. (3,017) -- -- 44,668 332,330
Loan activity, net (29,030) (41,574) 7,164 205,111 --
---------- ---------- ---------- ---------- ------------
710,224 226,479 1,250,757 249,779 45,366,280
---------- ---------- ----------- ---------- ------------
Decreases in plan equity:
Benefit paid (note 8) (100,933) (140,007) (165,670) -- (9,718,953)
Interfund transfers, net 74,529 (388,067) (472,606) -- --
---------- ---------- ---------- ---------- ------------
(26,404) (528,074) (638,276) -- (9,718,953)
---------- ---------- ---------- ---------- ------------
Plan equity at September 30, 1995 $4,171,934 $1,465,384 $5,380,158 $3,408,962 $230,250,116
========== ========== ========== ========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
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 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 fair value of the commingled equity, specialized equity,
over-the-counter portfolio, and Asset Manager funds is based on the
underlying market value of the investments. The money market fund is
stated at cost which approximates fair value. The fixed income fund is
comprised of guaranteed interest rate contracts which are fully benefit
responsive, and therefore are reflected at contract value plus credited
interest in the financial statements. The value of the Armstrong stock
fund is based on quoted market price. The value of the loan portfolio
fund represents the unpaid principal of employee loans.
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.
Stock Ownership Funds
---------------------
Investments in the Stock Ownership Funds represent shares of Armstrong
common stock valued at quoted market price.
(c) Expenses
--------
All legal, accounting and administrative expenses associated with Plan
operations are paid by the Company.
(2) Plan Redesign
-------------
On May 29, 1996, the Board of Directors of Armstrong World Industries, Inc.
(the Company), approved the restructuring of the Armstrong World
Industries, Inc., Employee Stock Ownership Plan (ESOP). The ESOP was merged
into the Retirement Savings Plan for Salaried Employees of Armstrong World
Industries, Inc. (Salaried RSP). In addition, the Salaried RSP was renamed
the Retirement Savings and Stock Ownership Plan of Armstrong World
Industries, Inc. (the Plan). The effective date of the merger was
October 1, 1996.
(3) Plan Description
----------------
The Plan is a defined-contribution plan established for the purpose of
providing participants with a means for long-term savings intended for the
accumulation of retirement income in addition to that provided under other
retirement plans maintained for the benefit of employees. The Plan is
comprised of two parts--Retirement Savings and Stock Ownership. Each part
has its own set of participant accounts and investment funds.
(a) Retirement Savings
------------------
The Retirement Savings Accounts allow participants to make
contributions to the Plan in each of the following methods:
1. Up to 15% of their before-tax compensation, as deferred
compensation as permitted under Section 401(k) of the Internal
Revenue Code.
2. Up to 10% of their after-tax compensation.
Separate accounts are maintained for contributions made by or on behalf
of a participant. The accounts reflect the participants' contributions
together with dividends, interest, other income, and realized and
unrealized gains and losses allocated thereon. Participants have an
immediate 100 percent vested interest with respect to their
contributions and are fully vested with regard to any previously made
matching company contributions.
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
Plan participants did include salaried employees of Thomasville
Furniture Industries, Inc. On December 29, 1995, Armstrong World
Industries, Inc., sold Thomasville Furniture to Interco Incorporated.
The agreement of sale required Interco to establish a savings plan for
Thomasville employees comparable to those it maintains for its other
employees. Interco's successor plan became effective as of April 1,
1996. The salaried Thomasville participants of the Plan were allowed to
make contributions to the Plan through March 31, 1996, at which time
they were given the option to transfer their account balances to the
Interco plan. The following table presents the transfers made by
investment type:
Commingled equity $1,694,425
Specialized equity 4,219,230
Money market 2,944,518
Fixed income 6,658,481
OTC portfolio 455,336
Asset manager 308,114
Asset manager income 136,902
Asset manager growth 601,858
-------------
$17,018,864
-------------
Offsetting the above transfer from the Plan was the transfer to the
Plan of $19,621,290 from the Retirement Savings Plan for Hourly-Paid
Employees of Armstrong World Industries, Inc. This transfer represents
the inclusion in the Plan of participant account balances for all
hourly employees eligible for participation in the Company's Employee
Stock Ownership Plan. Additionally, the Plan had funds transferred in
from the American Olean Salaried Retirement Savings Plan of $3,417,456.
(b) Stock Ownership
---------------
The Plan has three Stock Ownership Accounts maintained for each member
for contributions and allocations of shares of Company common stock
from the Unallocated Armstrong Common Stock Fund.
Participants who elect to reduce their before-tax compensation in
amounts ranging from one percent to six percent have these exchange
contributions credited to an Exchange Account. Contributions to the
Exchange Account are invested in Company common stock. Under the
redesigned and amended Plan, provisions of the Plan call for a matching
of a portion of the contributions made to the Exchange Account with
additional shares of Company common stock. The matching amounts are
recorded in participants' Match Accounts. For allocation periods ending
in December of 1996, June of 1997, and December of 1997, a 75% fixed
match is in place on employee Exchange Account contributions.
Eligible participants also receive shares of Company common stock in
their Equity Account. The Equity Account is 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.
Participants have an immediate 100 percent vested interest in the full
value of their Exchange Account. Interest in the Equity and Match
Accounts vest after five years of service.
(4) Investments
-----------
(a) Retirement Savings Funds
------------------------
Assets are held in a Master Trust administered by Fidelity Management
Trust Co., as Trustee, and are segregated into nine investment options:
a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio),
a specialized equity mutual fund (Fidelity Magellan), a money market
mutual fund (Fidelity Return Money Market Portfolio), three Asset
Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio
Fund), a fixed income fund, and an Armstrong stock fund. The Plan
utilizes the Trustee and associated investment managers to direct
investment activity. The Plan participates in all nine investment
alternatives.
The following is a description of the investment funds to which Plan
participants can elect to allocate their contributions.
1. Commingled Equity 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. At September 30, 1997, there were
1,632 active participants in this investment fund.
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
2. Specialized Equity Fund - This fund invests in common stocks of
companies having substantial growth prospects as determined by
independent investment managers. At September 30, 1997, there were
2,204 active participants in this investment fund.
3. Money Market Fund - 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. At September 30, 1997, there were 6,097 active participants
in this investment fund.
4. Fixed Income Fund - Contributions to this fund are invested in the
general accounts of insurance companies and are credited at
contracted interest rates. At September 30, 1997, the interest
rates ranged between 5.53% and 8.26%. Invested principal and
accumulated interest amounts are guaranteed against loss by the
insurance company. At September 30, 1997, there were 3,925 active
participants in this investment fund.
5. Armstrong Stock Fund - Amounts invested in this fund, along with
dividend earnings thereon, are invested in Armstrong common stock.
At September 30, 1997, there were 2,197 active participants in
this investment fund. Common stock shares held by the fund at
September 30, 1997 and 1996 were 190,268 and 216,563,
respectively.
6. OTC Portfolio Fund - 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. At September 30,
1997, there were 769 active participants in this investment fund.
7. Asset Manager Fund - 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. At September 30,
1997, there were 374 active participants in this investment fund.
8. Asset Manager Income Fund - An asset allocation fund which invests
in a diversified portfolio of stocks, bonds, and short-term
instruments. The fund has a conservative investment strategy
focusing on bonds and short-term instruments to achieve a high
level of current income and capital preservation. At September 30,
1997, there were 132 active participants in this investment fund.
9. Asset Manager Growth Fund - 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. At
September 30, 1997, there were 601 active participants in this
investment fund.
The Loan Portfolio Fund represents the unpaid principal balances of loans made
by Plan participants in accordance with established loan provision guidelines.
At September 30, 1997, there were 745 loans outstanding.
The following table presents the cost and fair values of the
investments in securities of the Master Trust at September 30, 1997 and
1996:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
Investment Cost Fair Value Cost Fair Value
---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Commingled equity $26,842,793 $49,670,121 $22,619,668 $34,640,234
Specialized equity 47,477,208 67,994,282 49,375,796 55,239,099
Money market 3,599,035 3,599,035 3,050,434 3,050,434
Fixed income 131,000,677 131,000,677 126,067,031 126,067,031
Armstrong stock 7,741,413 12,759,960 8,564,634 13,508,146
OTC portfolio 8,856,292 11,271,195 6,118,457 6,856,784
Asset manager income 4,618,388 5,482,241 4,132,342 4,441,622
Asset manager growth 1,717,521 1,845,575 1,949,750 2,013,481
Asset manager 6,743,023 8,693,409 5,640,506 6,417,103
Loan portfolio 4,573,178 4,573,178 3,307,686 3,307,686
------------ ------------ ------------ ------------
$243,169,528 $296,889,673 $230,826,304 $255,541,620
============ ============ ============ ============
</TABLE>
<PAGE>
RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
The amounts of realized gain (loss) on investments in securities of the
Master Trust for the years ended September 30, 1997, 1996, and 1995 are
presented below:
<TABLE>
<CAPTION>
Aggregate Aggregate Realized
1997 Proceeds Cost Gain (Loss)
---- -------- ---- -----------
<S> <C> <C> <C>
Commingled equity $6,505,385 $4,225,966 $2,279,419
Specialized equity 11,158,875 9,283,042 1,875,833
Armstrong stock 2,710,271 1,709,022 1,001,249
OTC portfolio 2,909,644 2,614,952 294,692
Asset manager 1,711,591 1,572,324 139,267
Asset manager income 1,363,736 1,324,733 39,003
Asset manager growth 2,653,318 2,324,810 328,508
----------- ----------- ----------
$29,012,820 $23,054,849 $5,957,971
=========== =========== ==========
1996
----
Commingled equity $2,623,858 $1,267,723 $1,356,135
Specialized equity 7,504,239 5,822,067 1,682,172
Armstrong stock 1,651,243 1,052,500 598,743
OTC portfolio 1,498,007 1,324,342 173,665
Asset manager 1,784,344 1,700,070 84,274
Asset manager income 819,155 802,142 17,013
Asset manager growth 1,598,514 1,457,312 141,202
----------- ----------- ----------
$17,479,360 $13,426,156 $4,053,204
=========== =========== ==========
1995
----
Commingled equity $2,529,266 $1,866,538 $662,728
Specialized equity 8,283,037 6,783,521 1,499,516
Armstrong stock 925,502 708,231 217,271
OTC portfolio 773,079 674,929 98,150
Asset manager 1,252,539 1,293,818 (41,279)
Asset manager income 982,479 1,004,462 (21,983)
Asset manager growth 1,575,135 1,596,578 (21,443)
----------- ----------- ----------
$16,321,037 $13,928,077 $2,392,960
=========== =========== ==========
</TABLE>
(b) Stock Ownership Funds
---------------------
According to the terms of the trust agreement between Mellon Bank,
N.A., the Trustee, 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 Company common stock as is
necessary to administer the Plan in accordance with its terms.
At September 30, 1997, the investment in Company common stock
represents 4,853,274 shares, valued at a quoted market price of
$67.063. There are 1,633,887 shares held in the Allocated Armstrong
Stock Fund and 3,219,387 shares held in the Unallocated Armstrong Stock
Fund.
(5) Company Contributions
---------------------
The Company is obligated to make semi-annual contributions in cash or
Company 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, is at least equal to the amount necessary to enable the Trustee
to pay currently maturing obligations under the Guaranteed ESOP notes.
(6) Guaranteed ESOP Notes
---------------------
The shares of Company common stock held in the Plan's Stock Ownership
Accounts were purchased from the Company from the proceeds of the sale of
Guaranteed ESOP notes in a total principal amount of $270,000,000 in 1989.
The Company has guaranteed the payment of principal and interest on the
notes.
<PAGE>
RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
The notes must 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, 1997, the Guaranteed ESOP notes for Series A and Series B
were $91,984,803 and $120,043,000, respectively. The scheduled amortization
of the notes for the next five fiscal years is as follows: 1998 -
$17,908,000; 1999 - $21,392,000; 2000 - $25,277,000; 2001 - $28,961,403;
2002 - $34,442,000.
(7) Loans Due Plan Sponsor
----------------------
The redesign of the Plan, as discussed in note 2, does not guarantee that
all Stock Ownership Account shares available during an allocation period
will be equal to the number of shares actually allocated to participants'
accounts. The number of shares actually allocated during an allocation
period is the sum of participants' exchange, equity, and match shares.
During the Plan year ended September 30, 1997, the Plan was amended to
provide for the extension of the time period during which Stock Ownership
Account shares can be allocated to plan participants beyond June 2004 by
authorizing loans from the Company to the Plan. At September 30, 1997,
there were three loans outstanding totaling $5,768,849.
(8) 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, a participant may
elect to withdraw all or any part of his account attributable to his
contributions.
If the amount of a withdrawal exceeds the amount of contributions made
by the participant and not previously withdrawn, the participant shall
be ineligible to make contributions for a specified period, except that
a participant may elect to withdraw all or any portion of his account
attributable to tax deductible contributions.
Under the rules of the Plan, the participant may borrow up to 90
percent of his account, other than amounts attributable to tax
deductible contributions or amounts invested in the Armstrong Stock
Fund, with the approval of the Plan Administrator. 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 Savings Plan
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.
(b) Stock Ownership Accounts
------------------------
Upon death or any other separation from service from the Company,
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, Company common stock.
(9) Obligation for Benefits
-----------------------
All the funds of the Plan are held by investing institutions appointed by
the Company under a trust agreement or investment contract. Benefits under
the Plan are payable only out of these funds. The Company 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 the Company
nor any investing institution guarantees the funds of the Plan against any
loss or depreciation or guarantees the payment of any benefit hereunder.
Although the Company 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.
(10) Eligibility
-----------
All regular full-time employees of the Company or of any participating
affiliated company 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 the Company and are later reemployed, can
resume participation in the Plan on the date of rehire.
<PAGE>
RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(11) Diversification
---------------
Effective January 1, 1997, Plan participants who meet certain age and
service requirements were granted the ability to diversify specified
portions of their Stock Ownership Account balances in any combination of
the other investment funds available for Retirement Savings Account
balances, except for the Fidelity Retirement Money Market Portfolio. Assets
diversified out of the Stock Ownership Account cannot be returned into the
fund at a later date.
(12) Federal Income Taxes
--------------------
By a letter dated December 12, 1997, the Internal Revenue Service has
determined and informed the Company that the Plan qualifies under the
applicable provisions of the Internal Revenue Code and is therefore exempt
from federal income taxes.
<PAGE>
Independent Auditors' Report
----------------------------
The Retirement Committee
Armstrong World Industries, Inc.:
We have audited the accompanying statements of net assets of the Retirement
Savings and Stock Ownership Plan of Armstrong World Industries, Inc.(formerly
the Retirement Savings Plan for Salaried Employees of Armstrong World
Industries, Inc.) as of September 30, 1997 and 1996 and the related statements
of changes in plan equity for each of the years in the three-year period ended
September 30, 1997. 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 generally accepted auditing
standards. 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 financial position of the Retirement Savings and
Stock Ownership Plan of Armstrong World Industries, Inc. as of September 30,
1997 and 1996 and the changes in its plan equity for each of the years in the
three-year period ended September 30, 1997, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statements of
net assets and the statements of changes in plan equity is presented for
purposes of additional analysis rather than to present the net assets and
changes in plan equity of each fund. The fund information 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.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
March 23, 1998
<PAGE>
EXHIBIT INDEX
24 Consent of Independent Auditors
<PAGE>
Consent of Independent Auditors
-------------------------------
The Retirement Committee
Armstrong World Industries, Inc.:
We consent to incorporation by reference in Registration Statement No. 33-18996
on Form S-8 of Armstrong World Industries, Inc. of our report dated March 23,
1998, relating to the statements of net assets of the Retirement Savings and
Stock Ownership Plan of Armstrong World Industries, Inc. (formerly the
Retirement Savings Plan for Salaried Employees of Armstrong World Industries,
Inc.) as of September 30, 1997 and 1996 and the related statements of changes in
plan equity for each of the years in the three-year period ended September 30,
1997, which report is included herein.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
March 23, 1998
