Armstrong Holdings unit interest cancellation prompts 'substantial tax losses'

By Caroline Salls

Pittsburgh, Oct. 22 - Armstrong Holdings, Inc. recorded "substantial tax losses" in the quarter ended Sept. 30 as a result of the cancellation of its interest in Armstrong World Industries, Inc., according to a 10-Q filed Monday with the Securities and Exchange Commission.

According to the 10-Q, Armstrong Holdings may be able to carry forward some of the "worthless stock" loss arising from the cancellation of the Armstrong World interest, and the loss may be used to offset interest income earned in 2007.

In addition, Armstrong Holdings said the valuation of the recognized gain on the proceeds from its $20 million tax election and refund rights settlement with Armstrong World Industries could be subject to change upon IRS review, leading to a possible adjusted cash tax expense.

In connection with its 2007 income tax liability, Armstrong Holdings said it requested a private letter ruling from the IRS that an ownership change has not occurred, which would allow it to offset its 2007 interest income by use of its loss carryforward from 2006, according to the 10-Q.

As a result of Armstrong Holdings' tax losses, the holding company said the Armstrong consolidated tax group was entitled to recover estimated tax payments made by Armstrong World to the IRS in 2006, and it had the ability to elect to carry back the group's tax losses either two or 10 years in order to recover taxes paid in those years.

The settlement with Armstrong World resolved disputes related to the use of the group's tax losses.

As previously reported, Armstrong World Industries' Chapter 11 plan called for the dissolution of the holding company.

Armstrong Holdings' board of directors approved the dissolution plan in May, and the shareholders approved it at a special meeting held July 18.

Under the dissolution plan, Armstrong Holdings said it expects to begin to distribute its net assets to shareholders in the fourth quarter.

Armstrong Holdings subsidiary Armstrong World Industries, a Lancaster, Pa., manufacturer of floors, ceilings and cabinets, emerged from bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Oct. 2, 2006.

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