Armstrong Asks Court to Renew Incentive Programs

Lancaster, PA, August 26--Armstrong World Industries on Monday asked a U.S. Bankruptcy Court to renew two incentive-bonus programs for its top management. The bonuses, worth a maximum of nearly $30 million combined according to the company, are needed to motivate and retain hundreds of key managers, according to a report in the Lancaster New Era. "Simply stated, these employees are central to (Armstrong's) operations and absolutely vital to the reorganization effort," the company says. Armstrong says it needs the court's blessing so the company can continue to take a tax deduction for the bonuses. In the past, Armstrong shareholders approved the bonuses, thereby allowing Armstrong to take the deduction. But that action, last taken in 2000, was valid for only five years. Now, with Armstrong no longer holding shareholders meetings because of its bankruptcy, the company says seeking shareholder approval would be "impractical" and insufficient. Armstrong notes that in other, similar cases, the Internal Revenue Service has accepted the court's blessing in lieu of shareholder action. The bid for continued bonuses comes less than a year after Armstrong unveiled substantial cutbacks to its work force. These include eliminating 450 jobs at its Liberty Street floor plant, cutting 240 office jobs nationwide, including 70 at its Columbia Avenue headquarters, and trimming other operations. Meanwhile, Armstrong continues to struggle financially. In the second quarter, for instance, operating profits slid 41 percent (excluding a special charge in the comparable 2004 quarter). In its 24-page filing, Armstrong asks the court to approve a renewal of two existing incentive programs: The "Management Achievement Plan," worth 15 to 125 percent of a manager's base salary, if the corporation and the manager's business unit hit certain annual financial goals. Armstrong did not specify the number of managers eligible for this bonus. The number was not immediately available from the firm. Armstrong could pay up to $12.7 million in "Management Achievement Plan" bonuses this year, assuming the firm and its business units hit their 2005 goals. The "Long-Term Incentive Plan," worth 12 to 337.5 percent of base salary, if the corporation, and in some cases the manager's business unit and the manager himself, hits certain two-year goals. Armstrong said about 250 managers are eligible for this bonus. This could amount to $16.4 million in "Long-Term Incentive Plan" payouts in 2007, if performance goals are hit in the 2005-2006 period. Armstrong, which entered bankruptcy in December 2000 to resolve a blizzard of asbestos-injury lawsuits, had expected to emerge from bankruptcy as early as mid-2003. But as its reorganization plan trudged through the approval process, it ran into repeated delays. Then last February, a district judge rejected it, keeping Armstrong in bankruptcy. The plan details which categories of creditors would be repaid what percentages, and how those payments would be funded by creating a new Armstrong corporation and new stock. Armstrong also had figured on using the new stock to fund management bonuses, as it had before the bankruptcy. But now the company is stuck indefinitely in bankruptcy, as it appeals the judge's ruling and talks to creditors about ways to revise its plan. That means there's no new stock to fund the bonuses and it's unclear when there might be. So Armstrong wants to renew the current cash-based programs. With the rejection on its plan, Armstrong "faces an uncertain future and the possibility of losing key management personnel because of the prospect of a prolonged bankruptcy case," the company says. The incentive programs are separate from Armstrong's management retention bonus, which rewards managers annually for staying with the company.

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