<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, 1998
----------------------------------------------------
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.
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)
<PAGE>
Page No.
-------
Item 1. Statements of Net Assets 4
------------------------
September 30, 1998 and 1997
Item 2. Statements of Changes in Plan Equity 7-10
------------------------------------
(a) Year ended September 30, 1998
(b) Year ended September 30, 1997
(c) Year ended September 30, 1996
Notes to Financial Statements 11-16
- -----------------------------
Item 3. Independent Auditors' Report 19
----------------------------
Exhibits
- --------
23. 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 18, 1999 By: /s/ Douglas L. Boles
---------------------------------------
Douglas L. Boles
Vice - Chairman of the Retirement Committee
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998
Retirement Savings Funds
----------------------------------------------------------------------------
Commingled Specialized Low-Priced Money Fixed Income
Equity Fund Equity Fund Stock Fund Market Fund Fund
----------- ----------- ---------- ----------- ----
<S> <C> <C> <C> <C> <C>
Assets:
Investments at fair value (note 4) $ 54,298,768 $ 70,514,675 $ 974,094 $ 6,694,202 $133,791,698
------------ ------------ ------------ ------------ ------------
Cash and short-term investments -- -- -- -- --
Employer contributions receivable -- -- -- -- --
Interest receivable -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total assets $ 54,298,768 $ 70,514,675 $ 974,094 $ 6,694,202 $133,791,698
------------ ------------ ------------ ------------ ------------
Liabilities:
Guaranteed ESOP notes (note 6) -- -- -- -- --
Due to/(from) other funds -- -- -- 3,530,318 --
Loans due plan sponsor (note 7) -- -- -- -- --
Accrued interest -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total liabilities -- -- -- 3,530,318 --
------------ ------------ ------------ ------------ ------------
Plan equity $ 54,298,768 $ 70,514,675 $ 974,094 $ 3,163,884 $133,791,698
============ ============ ============ ============ ============
<CAPTION>
--------------------------------------------------------------------------
Global Equity Armstrong Overseas "OTC" Asset
Portfolio Fund Stock Fund Fund Portfolio Fd. Manager Fund
-------------- ---------- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at fair value (note 4) $ 1,030,265 $ 10,340,697 $ 342,931 $ 10,301,519 $ 5,863,649
------------ ------------ ------------ ------------ ------------
Cash and short-term investments -- -- -- -- --
Employer contributions receivable -- -- -- -- --
Interest receivable -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total assets $ 1,030,265 $ 10,340,697 $ 342,931 $ 10,301,519 $ 5,863,649
------------ ------------ ------------ ------------ ------------
Liabilities:
Guaranteed ESOP notes (note 6) -- -- -- -- --
Due to/(from) other funds -- -- -- -- --
Loans due plan sponsor (note 7) -- -- -- -- --
Accrued interest -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total liabilities -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Plan equity $ 1,030,265 $ 10,340,697 $ 342,931 $ 10,301,519 $ 5,863,649
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Continued)
4
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets
1998, cont.
<TABLE>
<CAPTION>
Retirement Savings Funds
--------------------------------------------------------------------------------
Asset Mgr. Asset Mgr. Mid Cap Value Value Loan
Income Fund Growth Fund Portfolio Fund Portfolio Fund Portfolio Fund
----------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at fair value (note 4) $ 3,062,879 $ 9,250,957 $ 1,979,431 $ 494,143 $ 5,025,880
------------- ------------- ------------- ------------- -------------
Cash and short-term investments -- -- -- -- --
Employer contributions receivable -- -- -- -- --
Interest receivable -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total assets $ 3,062,879 $ 9,250,957 $ 1,979,431 $ 494,143 $ 5,025,880
------------- ------------- ------------- ------------- -------------
Liabilities:
Guaranteed ESOP notes (note 6) -- -- -- -- --
Due to/(from) other funds -- -- -- -- --
Loans due plan sponsor (note 7) -- -- -- -- --
Accrued interest -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total liabilities -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Plan equity $ 3,062,879 $ 9,250,957 $ 1,979,431 $ 494,143 $ 5,025,880
============= ============= ============= ============= =============
<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) $ 313,965,788 $ 97,351,544 $ 155,048,402 $ 252,399,946 $ 566,365,734
------------- ------------- ------------- ------------- -------------
Cash and short-term investments -- 97,491 1,400,098 1,497,589 $ 1,497,589
Employer contributions receivable -- -- 3,766,886 3,766,886 3,766,886
Interest receivable -- 576 6,142 6,718 6,718
------------- ------------- ------------- ------------- -------------
Total assets $ 313,965,788 $ 97,449,611 $ 160,221,528 $ 257,671,139 $ 571,636,927
------------- ------------- ------------- ------------- -------------
Liabilities:
Guaranteed ESOP notes (note 6) -- -- 190,538,204 190,538,204 190,538,204
Due to/(from) other funds 3,530,318 (878,427) (2,651,891) (3,530,318) --
Loans due plan sponsor (note 7) -- -- 14,971,603 14,971,603 14,971,603
Accrued interest -- -- 4,851,306 4,851,306 4,851,306
------------- ------------- ------------- ------------- -------------
Total liabilities 3,530,318 (878,427) 207,709,222 206,830,795 210,361,113
------------- ------------- ------------- ------------- -------------
Plan equity $ 310,435,470 $ 98,328,038 ($ 47,487,694) $ 50,840,344 $ 361,275,814
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Continued)
5
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Net Assets
1997
<TABLE>
<CAPTION>
Retirement Savings Funds
--------------------------------------------------------------------------------------------
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>
Assets:
Investments at fair value (note 4) $ 49,670,121 $ 67,994,282 $ 3,599,035 $131,000,677 $ 12,759,960 $ 11,271,195
------------ ------------ ------------ ------------ ------------ ------------
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 $ 11,271,195
------------ ------------ ------------ ------------ ------------ ------------
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 $ 11,271,195
============ ============ ============ ============ ============ ============
<CAPTION>
Retirement Savings Funds
---------------------------------------------------------
Asset Asset Mgr. Asset Mgr. Loan
Manager Fund Income Fund Growth Fund Portfolio Fund
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Assets:
Investments at fair value (note 4) $ 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 $ 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 $ 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>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity
Years Ended September 30, 1998, 1997 and 1996
1998
<TABLE>
<CAPTION>
Retirement Savings Funds
---------------------------------------------------------------------------------
Commingled Specialized Low-Priced Money Fixed Income
Equity Fund Equity Fund Stock Fund Market Fund Fund
----------- ----------- ---------- ----------- ----
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1997 $ 49,670,121 $ 67,994,282 $ -- $ 3,599,035 $ 131,000,677
------------- ------------- ------------- ------------- -------------
Increases in plan equity:
Employee contributions 1,781,261 2,876,825 34,741 151,728 4,691,190
Employer contributions (note 5) -- -- -- -- --
Dividends 1,512,438 4,917,540 69,227 160,014 --
Interest 53,332 113,382 1,161 11,092 8,387,160
Realized gain on investments
(note 4) 2,348,060 2,099,843 (4,726) -- --
Loan activity, net (108,394) (225,496) 2,011 (59,585) (289,184)
------------- ------------- ------------- ------------- -------------
5,586,697 9,782,094 102,414 263,249 12,789,166
------------- ------------- ------------- ------------- -------------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments 506,298 (3,735,515) (252,360) -- --
Interest expense (note 6) -- -- -- -- --
Benefits paid (note 8) (1,979,685) (3,109,811) (38,706) (529,778) (9,405,402)
Transfers (to) from other
employee benefit plans (63,821) (78,298) -- 102,676 (88,920)
Interfund transfers, net 579,158 (338,077) 1,162,746 (271,298) (503,823)
------------- ------------- ------------- ------------- -------------
(958,050) (7,261,701) 871,680 (698,400) (9,998,145)
------------- ------------- ------------- ------------- -------------
Plan equity at September 30,1998 $ 54,298,768 $ 70,514,675 $ 974,094 $ 3,163,884 $ 133,791,698
============= ============= ============= ============= =============
<CAPTION>
Retirement Savings Funds
----------------------------------------------------------------------------------
Global Equity Armstrong Overseas "OTC" Asset
Portfolio Fund Stock Fund Fund Portfolio Fd. Manager Fund
-------------- ---------- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1997 $ -- $ 12,759,960 $ -- $ 11,271,195 $ 5,482,241
------------- ------------- ------------- ------------- -------------
Increases in plan equity:
Employee contributions 59,023 301,195 54,590 798,973 356,571
Employer contributions (note 5) -- -- -- -- --
Dividends 9,986 336,481 -- 1,114,299 540,381
Interest 1,160 25,667 42 30,611 12,278
Realized gain on investments
(note 4) (7,267) 896,302 (430) 429,228 161,338
Loan activity, net 7,315 (125,026) (1,998) 60,910 3,818
------------- ------------- ------------- ------------- -------------
70,217 1,434,619 52,204 2,434,021 1,074,386
------------- ------------- ------------- ------------- -------------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments (186,389) (3,059,684) (67,266) (1,781,970) (385,777)
Interest expense (note 6) -- -- -- -- --
Benefits paid (note 8) (32,902) (532,048) (32,806) (569,531) (375,092)
Transfers (to) from other
employee benefit plans -- 14,601 -- (4,183) 3,960
Interfund transfers, net 1,179,339 (276,751) 390,799 (1,048,013) 63,931
------------- ------------- ------------- ------------- -------------
960,048 (3,853,882) 290,727 (3,403,697) (692,978)
------------- ------------- ------------- ------------- -------------
Plan equity at September 30,1998 $ 1,030,265 $ 10,340,697 $ 342,931 $ 10,301,519 $ 5,863,649
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Conitnued)
7
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity
1998, cont.
<TABLE>
<CAPTION>
Retirement Savings Funds
------------------------------------------------------------------------------------------------
Asset Mgr. Asset Mgr. Mid Cap Value Value Loan Retirement
Income Fund Growth Fund Portfolio Fund Portfolio Fund Portfolio Fund Savings Total
----------- ----------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Plan equity at October 1, 1997 $ 1,845,575 $ 8,693,409 $-- $-- $ 4,573,178 $ 296,889,673
------------- ------------- ------------- ------------- ------------- -------------
Increases in plan equity:
Employee contributions 102,569 741,991 102,445 34,784 -- 12,087,886
Employer contributions (note 5) -- -- -- -- -- --
Dividends 157,492 948,499 -- 3,023 -- 9,769,380
Interest 2,140 16,402 3,086 600 -- 8,658,113
Realized gain on investments
(note 4) 20,399 254,594 (9,309) (2,660) -- 6,185,372
Loan activity, net (3,455) 14,855 8,317 3,810 712,102 --
------------- ------------- ------------- ------------- ------------- -------------
279,145 1,976,341 104,539 39,557 712,102 36,700,751
------------- ------------- ------------- ------------- ------------- -------------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments (1,976) (756,694) (369,575) (139,299) -- (10,230,207)
Interest expense (note 6) -- -- -- -- -- --
Benefits paid (note 8) (158,100) (261,976) (58,230) (32,243) -- (17,116,310)
Transfers (to) from other
employee benefit plans -- (158,057) -- -- (259,400) (531,442)
Interfund transfers, net 1,098,235 (242,066) 2,302,697 626,128 -- 4,723,005
------------- ------------- ------------- ------------- ------------- -------------
938,159 (1,418,793) 1,874,892 454,586 (259,400) (23,154,954)
------------- ------------- ------------- ------------- ------------- -------------
Plan equity at September 30,1998 $ 3,062,879 $ 9,250,957 $ 1,979,431 $ 494,143 $ 5,025,880 $ 310,435,470
============= ============= ============= ============= ============= =============
<CAPTION>
Stock Ownership Funds
-----------------------------
Allocated Unallocated Stock
Armstrong Armstrong Ownership
Stock Fund Stock Fund Total Plan Total
---------- ---------- ----- ----------
<S> <C> <C> <C> <C>
Plan equity at October 1, 1997 $ 110,390,628 $ 725,393 $ 111,116,021 $ 408,005,694
------------- ------------- ------------- -------------
Increases in plan equity:
Employee contributions -- 9,707,517 9,707,517 21,795,403
Employer contributions (note 5) -- 11,562,987 11,562,987 11,562,987
Dividends 3,326,468 5,617,353 8,943,821 18,713,201
Interest 5,290 129,561 134,851 8,792,964
Realized gain on investments
(note 4) (62,604) -- (62,604) 6,122,768
Loan activity, net -- -- -- --
------------- ------------- ------------- -------------
3,269,154 27,017,418 30,286,572 66,987,323
------------- ------------- ------------- -------------
Decreases in plan equity:
Unrealized appreciation
(depreciation) of investments (24,615,461) (36,286,100) (60,901,561) (71,131,768)
Interest expense (note 6) -- (17,398,000) (17,398,000) (17,398,000)
Benefits paid (note 8) (7,539,683) -- (7,539,683) (24,655,993)
Transfers (to) from other
employee benefit plans -- -- -- (531,442)
Interfund transfers, net 16,823,400 (21,546,405) (4,723,005) --
------------- ------------- ------------- -------------
(15,331,744) (75,230,505) (90,562,249) (113,717,203)
------------- ------------- ------------- -------------
Plan equity at September 30,1998 $ 98,328,038 ($ 47,487,694) $ 50,840,344 $ 361,275,814
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Continued)
8
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity
1997
<TABLE>
<CAPTION>
Retirement Savings Funds
--------------------------------------------------------------------------------------------
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, 1996 $ 34,640,234 $ 55,239,099 $ 3,050,434 $ 126,067,031 $ 13,508,146 $ 6,856,784
------------- ------------- ------------- ------------- ------------- -------------
Increases in plan equity:
Transfer of assets from
merged plan (note 2) -- -- -- -- -- --
Employee contributions 1,448,633 2,422,402 185,041 4,839,630 309,034 830,339
Employer contributions (note 5) -- -- -- -- -- --
Dividends 1,099,609 1,906,723 174,661 -- 337,876 669,044
Interest 42,834 80,789 9,512 8,241,884 11,661 23,517
Realized gain on investments
(note 4) 2,279,419 1,875,833 -- -- 1,001,249 294,692
Unrealized appreciation of
investments 10,806,762 14,653,771 -- -- 75,036 1,676,576
Loan activity, net (320,312) (301,064) (10,006) (438,400) (79,611) (44,168)
------------- ------------- ------------- ------------- ------------- -------------
15,356,945 20,638,454 359,208 12,643,114 1,655,245 3,450,000
------------- ------------- ------------- ------------- ------------- -------------
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) (927,481)
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. 172,815 189,824 37,313 561,763 16,068 6,529
Interfund transfers, net 2,754,382 (4,139,126) 1,100,829 5,026,946 (1,581,929) 1,885,363
------------- ------------- ------------- ------------- ------------- -------------
(327,058) (7,883,271) 189,393 (7,709,468) (2,403,431) 964,411
------------- ------------- ------------- ------------- ------------- -------------
Plan equity at September 30,1997 $ 49,670,121 $ 67,994,282 $ 3,599,035 $ 131,000,677 $ 12,759,960 $ 11,271,195
============= ============= ============= ============= ============= =============
<CAPTION>
-------------------------------------------------------------------------------
Asset Asset Mgr. Asset Mgr. Loan Retirement
Manager Fund Income Fund Growth Fund Portfolio Fund Savings Total
------------ ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Plan equity at October 1, 1996 $ 4,441,622 $ 2,013,481 $ 6,417,103 $ 3,307,686 $ 255,541,620
------------- ------------- ------------- ------------- -------------
Increases in plan equity:
Transfer of assets from
merged plan (note 2) -- -- -- -- --
Employee contributions 354,321 75,979 550,098 -- 11,015,477
Employer contributions (note 5) -- -- -- -- --
Dividends 381,885 138,153 564,099 -- 5,272,050
Interest 8,241 1,758 12,728 -- 8,432,924
Realized gain on investments
(note 4) 139,267 39,003 328,508 -- 5,957,971
Unrealized appreciation of
investments 554,573 64,323 1,173,789 -- 29,004,830
Loan activity, net (60,049) (53,541) (49,297) 1,356,448 --
------------- ------------- ------------- ------------- -------------
1,378,238 265,675 2,579,925 1,356,448 59,683,252
------------- ------------- ------------- ------------- -------------
Decreases in plan equity:
Interest expense (note 6) -- -- -- -- --
Benefits paid (note 8) (609,366) (378,699) (671,143) -- (24,859,409)
Transfers (to) from other
employee benefit plans of
Armstrong World Industries, Inc. 99,141 -- (29,795) (90,956) 962,702
Interfund transfers, net 172,606 (54,882) 397,319 -- 5,561,508
------------- ------------- ------------- ------------- -------------
(337,619) (433,581) (303,619) (90,956) (18,335,199)
------------- ------------- ------------- ------------- -------------
Plan equity at September 30,1997 $ 5,482,241 $ 1,845,575 $ 8,693,409 $ 4,573,178 $ 296,889,673
============= ============= ============= ============= =============
<CAPTION>
Stock Ownership Funds
-----------------------------
Allocated Unallocated Stock
Armstrong Armstrong Ownership
Stock Fund Stock Fund Total Plan Total
---------- ---------- ----- ----------
<S> <C> <C> <C> <C>
Plan equity at October 1, 1996
$ -- $ -- $ -- $ 255,541,620
------------- ------------- ------------- -------------
Increases in plan equity:
Transfer of assets from
merged plan (note 2)
Employee contributions 95,463,444 (7,571,201) 87,892,243 87,892,243
Employer contributions (note 5) -- 10,658,241 10,658,241 21,673,718
Dividends -- 14,284,664 14,284,664 14,284,664
Interest 2,617,192 5,695,451 8,312,643 13,584,693
15,837 103,014 118,851 8,551,775
Realized gain on investments
(note 4)
Unrealized appreciation of -- -- -- 5,957,971
investments
Loan activity, net 7,651,796 15,092,486 22,744,282 51,749,112
-- -- -- --
------------- ------------- ------------- -------------
105,748,269 38,262,655 144,010,924 203,694,176
------------- ------------- ------------- -------------
Decreases in plan equity:
Interest expense (note 6)
Benefits paid (note 8) -- (19,099,238) (19,099,238) (19,099,238)
Transfers (to) from other (7,165,115) -- (7,165,115) (32,024,524)
employee benefit plans of
Armstrong World Industries, Inc.
Interfund transfers, net 20,615 (1,089,657) (1,069,042) (106,340)
11,786,859 (17,348,367) (5,561,508) --
------------- ------------- ------------- -------------
4,642,359 (37,537,262) (32,894,903) (51,230,102)
------------- ------------- ------------- -------------
Plan equity at September 30,1997
$ 110,390,628 $ 725,393 $ 111,116,021 $ 408,005,694
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Continued)
9
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Statements of Changes in Plan Equity, Continued
1996
<TABLE>
<CAPTION>
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 3,759,748 263,346 592,828
Dividends 824,216 10,899,654 150,409 -- 274,227 676,518
Interest 30,962 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 $ 6,856,784
============= ============= ============= ============= ============= =============
<CAPTION>
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>
The accompanying notes are an integral part of the financial statements.
10
<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, low-priced
stock, global equity portfolio, overseas, "OTC" portfolio, Asset
Manager, Asset Manager income, Asset Manager growth, mid cap value
portfolio and value portfolio 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 Armstrong World Industries, Inc. (the Company)
(2) Plan Redesign
-------------
On May 29, 1996, the Board of Directors of 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. In addition, a portion of
the assets and liabilities of the Retirement Savings Plan for Hourly-Paid
Employees of Armstrong World Industries, Inc. were transferred to the Plan
for hourly employees not represented by a collective bargaining agent and
for Mobile Plant hourly employees represented by a collective bargaining
agent, effective 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.
11
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
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.
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
their account balances were transferred 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
=============
In 1996, there was also a transfer into the Plan in the amount 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. Finally in 1996, 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
contributions credited to an Exchange Account. Contributions to the
Exchange Account are invested in Company common stock. The Plan matches
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. The match percentage, either
50% or 75%, is determined by the closing stock price on the last day of
the allocation period. For allocation periods ended in December of
1996, June of 1997, and December of 1997, a 75% fixed match was in
place on employee Exchange Account contributions. For the allocation
period ended in June of 1998, there was a 50% fixed match 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.
12
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(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 fourteen investment
options: a commingled equity mutual fund (Fidelity U.S. Equity Index
Portfolio), a specialized equity mutual fund (Fidelity Magellan), a
low-priced stock fund (Fidelity Low-Priced Stock Fund), a money market
mutual fund (Fidelity Retirement Money Market Portfolio), a fixed
income fund (Interest Income Fund), a global equity mutual fund (Morgan
Stanley Institutional Fund, Inc. - Global Equity Portfolio), an
Armstrong stock fund, an overseas fund (Fidelity Overseas Fund) , an
"OTC" mutual fund (Over-the-counter Portfolio), three Asset Manager
mutual funds (Fidelity Asset Manager Fund, Fidelity Asset Manager:
Income Fund, and Fidelity Asset Manager: Growth Fund), and two
value-oriented mutual funds (Miller, Anderson & Sherrard, LLP Value
Portfolio and Miller, Anderson & Sherrard, LLP Mid Cap Value
Portfolio). The Plan utilizes the Trustee and associated investment
managers to direct investment activity. The Plan participates in all
fourteen investment alternatives.
The following is a description of the investment funds to which Plan
participants can elect to allocate their contributions. Participants
should refer to fund prospectuses for more complete information
regarding the investment funds.
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, 1998,
there were 1,730 active participants in this investment fund.
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, 1998, there
were 2,314 active participants in this investment fund.
3. Low-Priced Stock Fund - This fund seeks capital appreciation
through investments in mainly U.S. and foreign low-priced stocks
that may be undervalued, overlooked or out of favor. At September
30, 1998, there were 126 active participants in this investment
fund.
4. 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, 1998, there were 6,033 active
participants in this investment fund.
5. Fixed Income Fund - Contributions to this fund are invested in
the general accounts of insurance companies and are credited at
contracted interest rates. Invested principal and accumulated
interest amounts are guaranteed against loss by the insurance
company. Crediting interest rates are reset periodically during
the plan year. At September 30, 1998, the interest rates ranged
between 5.45% and 8.26%. At September 30, 1997, the interest
rates ranged between 5.53% and 8.26%. The average yields for the
plan years ended September 30, 1998 and September 30, 1997, were
6.22% and 6.20%, respectively. The fair value of the contracts
approximate cost. At September 30, 1998, there were 3,783 active
participants in this investment fund.
6. Global 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. At September 30, 1998, there were 145 active
participants in this investment fund.
7. Armstrong Stock Fund - Amounts invested in this fund, along with
dividend earnings thereon, are invested in Armstrong common
stock. At September 30, 1998, there were 5,900 active
participants in this investment fund. Common stock shares held by
the fund at September 30, 1998 and 1997 were 193,284 and 190,268,
respectively.
8. 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. At September 30, 1998, there
were 52 active participants in this investment fund.
13
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
9. 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,
1998, there were 809 active participants in this investment fund.
10. 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,
1998, there were 404 active participants in this investment fund.
11. Asset Manager - Income Fund - 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. At September
30, 1998, there were 163 active participants in this investment
fund.
12. 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, 1998, there were 648 active
participants in this investment fund.
13. 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. At September 30, 1998, there were 223 active
participants in this investment fund.
14. 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. At September 30, 1998,
there were 78 active participants in this 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, 1998, there were 789 loans
outstanding.
The following table presents the cost and estimated fair values of the
investments in securities of the Master Trust at September 30, 1998
and 1997:
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------ ------------------
Investment Cost Fair Value Cost Fair Value
---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Commingled equity $30,965,142 $54,298,768 $26,842,793 $49,670,121
Specialized equity 53,733,116 70,514,675 47,477,208 67,994,282
Low-priced stock 1,226,454 974,094 - -
Money market 6,694,202 6,694,202 3,599,035 3,599,035
Fixed income 133,791,698 133,791,698 131,000,677 131,000,677
Global equity portfolio 1,216,654 1,030,265 - -
Armstrong stock 8,381,834 10,340,697 7,741,413 12,759,960
Overseas 410,197 342,931 - -
OTC portfolio 9,668,586 10,301,519 8,856,292 11,271,195
Asset manager 5,385,573 5,863,649 4,618,388 5,482,241
Asset manager income 2,936,801 3,062,879 1,717,521 1,845,575
Asset manager growth 8,057,265 9,250,957 6,743,023 8,693,409
Mid cap value portfolio 2,349,006 1,979,431 - -
Value portfolio 633,442 494,143 - -
Loan portfolio 5,025,880 5,025,880 4,573,178 4,573,178
--------- --------- --------- ---------
$270,475,850 $313,965,788 $243,169,528 $296,889,673
============ ============ ============ ============
</TABLE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
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, 1998, 1997, and 1996 are
presented below:
<TABLE>
<CAPTION>
Aggregate Aggregate Realized
--------- --------- --------
1998 Proceeds Cost Gain (Loss)
---- -------- ---- -----------
<S> <C> <C> <C>
Commingled equity 6,375,852 4,027,792 2,348,060
Specialized equity 8,249,869 6,150,026 2,099,843
Low-priced stock 79,015 83,741 (4,726)
Global equity portfolio 116,139 123,406 (7,267)
Armstrong stock 2,084,876 1,188,574 896,302
Overseas 40,318 40,748 (430)
OTC portfolio 3,285,757 2,856,529 429,228
Asset manager 1,459,750 1,298,412 161,338
Asset manager income 726,059 705,660 20,399
Asset manager growth 1,965,174 1,710,580 254,594
Mid cap value portfolio 192,264 201,573 (9,309)
Value portfolio 55,756 58,416 (2,660)
------ ------ -------
$24,630,829 $18,445,457 $6,185,372
=========== =========== ==========
1997
----
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
=========== =========== ==========
</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, 1998, the investment in Company common stock
represents 4,717,756 shares, valued at a quoted market price of $53.50.
There are 1,819,655 shares held in the Allocated Armstrong Stock Fund
and 2,898,101 shares held in the Unallocated Armstrong Stock Fund.
During 1998, aggregate proceeds were $2,257,893, aggregate costs were
$2,320,497, and the realized loss was $62,604. No gains or losses were
realized during 1996 and 1997.
(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.
(Note 6)
14
<PAGE>
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(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.
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, 1998, the Guaranteed ESOP notes for Series A and Series B
were $70,495,204 and $120,043,000, respectively. 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: 1999 - $23,103,053; 2000 -
$25,277,000; 2001 - $22,115,150; 2002 - $34,442,000; 2003 - $39,816,000.
(7) Loans Due Plan Sponsor
----------------------
As part of the redesign of the Plan as discussed in note 2, the Company
filed a Private Letter Ruling request with the Internal Revenue Service on
May 20, 1996. The request sought IRS approval to allow for refinancing
loans from the Company to the Plan to permit the extension of the share
allocation time period. On October 31, 1996, the Company received a
favorable ruling from the IRS. A refinancing loan is used to ensure that
the number of shares allocated during a semi-annual allocation period is
equal to the sum of participants' exchange, equity and match shares. At
September 30, 1998, there were six loans outstanding totaling $14,971,603.
(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, an active employee may elect to withdraw all or any part
of his account attributable to his 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. A Tax-Deductible (MIRA)
Account holds any contributions made to the Plan before January 1,
1987. No new contributions may be made to this account.
Under the rules of the Plan, the active employee may borrow the lessor
of 50% or his vested account balance or $50,000. The money borrowed
must come from the Retirement Savings Sheltered, Rollover, and Standard
Accounts. Before-tax contributions are made to the Sheltered Account
and after-tax contributions are made to the Standard Account. 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 thereunder.
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.
15
<PAGE>
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Notes to Financial Statements, (Continued)
(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.
(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
the other investment funds available for Retirement Savings Account
balances, except for the Fidelity Retirement Money Market Portfolio.
(12) Federal Income Taxes
--------------------
By a letter dated April 21, 1998, 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.
(13) Master Trust Agreement
----------------------
Effective October 1, 1990, the Plan established a Master Trust
Agreement with Fidelity Management Trust Company. Under the Master
Trust Agreement, the Plan assets held by Fidelity Management Trust
Company are commingled and invested with the assets of the Retirement
Savings Plan for Hourly-Paid Employees of Armstrong World Industries,
Inc. 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, 1998 and
1997:
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Money market fund 7,277,128 7,277,128 4,332,728 4,332,728
Armstrong common stock fund 15,494,806 18,779,265 13,793,357 22,471,238
Registered investment companies 137,463,217 184,878,481 111,940,786 167,806,037
Fixed income insurance contracts 180,069,533 180,069,533 176,728,629 176,728,629
Loan portfolio 7,298,722 7,298,722 6,869,084 6,869,084
--------- --------- --------- ---------
Total investments in Master Trust 347,603,406 398,303,129 313,664,584 378,207,716
=========== =========== =========== ===========
Plan's interest in Master Trust 270,475,850 313,965,788 243,169,528 296,889,673
Plan's percentage in Master
Trust 77.8% 78.8% 77.5% 78.5%
</TABLE>
During 1998 and 1997, the Plan's investments (including investments bought,
sold, and held during the year) appreciated in value as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net appreciation (depreciation) in fair value of investments
in the Fidelity Management Trust
Company Master Trust (6,524,510) 40,903,095
Allocated net appreciation (depreciation) in fair value of
investments in the Master Trust (4,044,835) 34,962,801
During 1998 and 1997, interest and dividends were as follows:
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest and dividends in Fidelity
Management Trust Company
Master Trust 23,337,613 17,683,902
Allocated interest and dividends from
investment in Master Trust 18,427,493 13,704,974
</TABLE>
All of the above information was certified by the trustee at September 30, 1998
and 1997 and for the years then ended.
16
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Line 27A - Schedule of Assets Held for Investment Purposes
September 30, 1998
Description of Investment Cost Current Value
- -------------------------------------------------------------------------------
Unallocated Armstrong Stock Fund $138,384,323 $155,048,402
Allocated Armstrong Stock Fund $80,838,060 $97,351,544
Investment in Master Trust $270,475,850 $313,965,788
17
<PAGE>
THE RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
OF ARMSTRONG WORLD INDUSTRIES, INC.
Line 27D - Schedule of Reportable Transactions
September 30, 1998
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
Identity of Description Purchase Selling Cost of Current Value of Net Gain
Party Involved of Asset Price Price Asset Asset on Trans. Date or (Loss)
- -------------- -------- ----- ----- ----- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
*No transactions are reportable for the plan year ended, September 30, 1998.
18
<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. as of
September 30, 1998 and 1997 and the related statements of changes in plan equity
for each of the years in the three-year period ended September 30, 1998. 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,
1998 and 1997 and the changes in plan equity for each of the years in the
three-year period ended September 30, 1998, 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 supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the plan's management. 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 supplemental schedules and
fund information have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
KPMG LLP
Philadelphia, PA
March 11, 1999
19
<PAGE>
EXHIBIT INDEX
23 Consent of Independent Auditors
<PAGE>
Consent of Independent Auditors
-------------------------------
The Retirement Committee
Armstrong World Industries, Inc.:
We consent to incorporation by reference in the Registration Statement No. 33-
18996 on Form S-8 of Armstrong World Industries, Inc. of our report dated
March 11, 1999, relating to the statements of net assets of The Retirement
Savings and Stock Ownership Plan of Armstrong World Industries, Inc. as of
September 30, 1998 and 1997 and the related statements of changes in plan equity
for each of the years in the three-year period ended September 30, 1998, which
report is included herein.
KPMG LLP
Philadelphia, PA
March 11, 1999
