FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 29, 2001 Commission File Number 1-4773
AMERICAN BILTRITE INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1701350
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
57 River Street
Wellesley Hills, Massachusetts 02481-2097
(Address of Principal Executive Offices)
(781) 237-6655
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date covered by this report.
Title of Each Class Outstanding at November 6, 2001
------------------- -------------------------------
Common 3,441,585 shares
FORM 10-Q
PART I. Item 1. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands of dollars)
September 29, December 31,
2001 2000
----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,098 $ 16,859
Short-term investments 2,704 12,097
Accounts receivable, net 56,533 45,378
Inventories 93,458 87,175
Prepaid expenses & other current assets 13,875 12,891
-------- --------
TOTAL CURRENT ASSETS 174,668 174,400
Goodwill, net 24,013 23,431
Other assets 21,761 22,374
Property, plant and equipment, net 150,080 144,197
-------- --------
TOTAL ASSETS $370,522 $364,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,370 $ 31,101
Accrued expenses 45,893 55,891
Notes payable 20,725 11,698
Current portion of long-term debt 98 3,713
-------- --------
TOTAL CURRENT LIABILITIES 96,086 102,403
Long-term debt 126,139 108,425
Other liabilities 59,209 59,868
Noncontrolling interests 12,670 14,159
STOCKHOLDERS' EQUITY
Common stock, par value $0.01-authorized
15,000,000 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,521 19,521
Retained earnings 78,398 79,663
Accumulated other comprehensive loss (6,415) (5,514)
Less cost of shares in treasury (15,132) (14,169)
-------- --------
76,418 79,547
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $370,522 $364,402
======== ========
See accompanying notes to consolidated condensed financial statements.
2
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---------------------------------------------------------------------------
Net sales $111,010 $112,685 $308,767 $317,528
Interest and other income 1,069 603 2,338 2,336
-------- -------- -------- --------
112,079 113,288 311,105 319,864
-------- -------- -------- --------
Costs and expenses:
Cost of products sold 77,633 79,676 223,339 227,563
Selling, general and administrative
expenses 26,339 24,610 81,027 79,809
Interest 2,831 2,361 8,075 6,800
-------- -------- -------- --------
106,803 106,647 312,441 314,172
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME
TAXES AND NON-CONTROLLING
INTERESTS 5,276 6,641 (1,336) 5,692
Provision (credit) for income taxes 1,894 2,408 (487) 2,064
Noncontrolling interests (680) (1,142) 880 797
-------- -------- -------- --------
NET EARNINGS $ 2,702 $ 3,091 $ 31 $ 4,425
======== ======== ======== ========
Earnings per share:
Basic $ .79 $ .88 $ .01 $ 1.26
Diluted $ .79 $ .87 $ .01 $ 1.25
Dividends declared per common share $ .125 $ .125 $ .375 $ .375
See accompanying notes to consolidated condensed financial statements.
3
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Nine Months Ended
September 29, September 30,
2001 2000
-----------------------------------
OPERATING ACTIVITIES
Net earnings $ 31 $ 4,425
Adjustments to reconcile net earnings to net cash
Provided (used) by operating activities:
Depreciation and amortization 14,433 12,945
Accounts and notes receivable (9,866) (16,169)
Inventories (3,851) 1,323
Prepaid expenses and other current assets 1,397 1,879
Deferred Taxes (1,166) (1,128)
Accounts payable and accrued expenses (11,528) (9,210)
Noncontrolling interests (880) (797)
Other (1,540) (190)
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (12,970) (6,922)
INVESTING ACTIVITIES
Investment in property, plant and equipment (20,412) (15,889)
Purchase of short-term investments (4,175) (17,535)
Maturities of short-term investments 13,568 25,534
Proceeds from sale of property, plant and equipment 648
Purchase of assets from Swank, Inc. (4,646)
Purchase of additional partnership interest in K&M (2,066) (1,407)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (17,083) (9,297)
FINANCING ACTIVITIES
Long-term borrowings 24,749
Payments on long-term debt (10,676) (3,059)
Net short-term borrowings 9,027 15,600
Purchase of treasury shares (1,066) (467)
Dividends paid (1,296) (1,319)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,738 10,755
Effect of foreign exchange 554 720
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (8,761) (4,744)
Cash and cash equivalents at beginning of period 16,859 27,285
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,098 $ 22,541
======== ========
See accompanying notes to consolidated condensed financial statements.
4
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements which
include the accounts of American Biltrite Inc. and its wholly-owned subsidiaries
("ABI") as well as entities over which it has voting control have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 29, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
Note B - Pending Adoption of Financial Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and
Other Intangible Assets." SFAS No. 141 applies to all business combinations
completed after June 30, 2001 and requires the use of the purchase method of
accounting. SFAS No. 141 also establishes new criteria for determining whether
intangible assets should be recognized separately from goodwill. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001; however, companies
with fiscal yeas beginning after March 15, 2001 may elect to adopt the statement
early. SFAS No. 142 provides that goodwill and intangible assets with indefinite
lives will not be amortized, but rather will be tested for impairment on an
annual basis. SFAS No. 141 is not expected to have a significant impact on the
results of operations or financial position of the Company. SFAS 142 will be
effective for the Company as of January 1, 2002. While the Company has not fully
evaluated the impact of adopting SFAS 142, adoption of this standard is expected
to result in the elimination of approximately $1.4 million of goodwill
amortization expense per year.
In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") was
issued. The Company will adopt SFAS No. 144 effective January 1, 2002 when
adoption is mandatory. Among other things, SFAS No. 144 significantly changes
the criteria that would have to be met to classify an asset as held-for-sale.
This statement supersedes Statement of Financial Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and the provisions of Accounting Principles Board Opinion 30, "Reporting the
Results of
5
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note B - Pending Adoption of Financial Accounting Standards (continued)
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" that
relate to reporting the effects of a disposal of a segment of a business. The
Company is currently assessing the impact of adopting SFAS No. 144 on its
consolidated financial statements.
Note C - Changes in Acounting Principles
In June 1998, FASB issued Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133, as
amended by SFAS 138), which requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The Company adopted SFAS 133 in the first quarter of fiscal 2001.
Adoption of this pronouncement had no effect on the Company's consolidated
financial position or results of operations.
Note D- Inventories
Inventories at September 29, 2001 and December 31, 2000 consisted of the
following (in thousands):
September 29, December 31,
2001 2000
------------------------------
Finished goods $66,619 $63,810
Work-in-process 12,075 9,764
Raw materials and supplies 14,764 13,601
------- -------
$93,458 $87,175
======= =======
Note E - Distributor Transition Costs
During the third quarter of 2000, Congoleum Corporation ("Congoleum"), a
consolidated majority owned subsidiary, announced the appointment of Mohawk
Industries, Inc. as a national distributor. At the same time, Congoleum
announced it was terminating its distribution arrangements with LDBrinkman &
Co., who had been its exclusive distributor in much of the southwestern United
States, accounting for 21% of Congoleum's sales in 1999. LDBrinkman & Co.
contested Congoleum's right to terminate its distributor agreement and the
matter went to arbitration in the fourth quarter of 2000. The parties signed a
final settlement agreement in February 2001.
6
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note E - Distributor Transition Costs (continued)
Congoleum recorded a charge of $7,717,000 in the fourth quarter of 2000 to
provide for the nonrecurring costs associated with the transition. Included in
this charge were certain costs incurred by Congoleum for establishing Mohawk as
a distributor. Congoleum also agreed to subsidize a portion of the costs of
merchandising materials for Mohawk such as samples and displays. Also, included
in the charge are certain termination payments to be made to LDBrinkman pursuant
to the terms of the settlement agreement. Congoleum re-evaluated its allowance
for doubtful accounts in light of this agreement and concluded it should be
reduced by $1,785,000, which was recorded as a credit to bad debt expense in the
fourth quarter of 2000.
Congoleum provided right-of-return provisions to LDBrinkman in the termination
agreement whereby LDBrinkman could return certain unsold inventory purchased
from Congoleum that met minimum size and quality requirements. Therefore,
Congoleum deferred the recognition of revenue for its estimate of returns of
inventory under this right-of-return agreement. All of Congoleum's obligations
under this provision have been satisfied as of September 29, 2001, and the final
resolution of this matter did not have a material impact on the Company's
results of operations for the three or the nine months ended September 29, 2001.
Note F - Commitments and Contingencies
In the ordinary course of its business, ABI and Congoleum become involved in
lawsuits, administrative proceedings, product liability and other matters, as
more fully described below. In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts, and the matters may remain
unresolved for several years. On the basis of information furnished by counsel
and others, management does not believe that these matters, individually or in
the aggregate, will have a material adverse effect on their business or
financial condition.
American Biltrite Inc.
ABI records a liability for environmental remediation claims when it becomes
probable that ABI will incur costs relating to a clean-up program or will have
to make claim payments and the costs or payments can be reasonably estimated. As
assessments are revised and clean-up programs progress, these liabilities are
adjusted to reflect such revisions and progress.
ABI is a co-defendant with many other manufacturers and distributors of
asbestos-containing products in approximately 463 pending claims involving
approximately 1,410 individuals as of September 29, 2001. The claimants allege
personal injury from exposure to asbestos or asbestos-containing products.
Activity related to asbestos claims was as follows:
7
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note F - Commitments and Contingencies (continued)
Nine Months Ended Year Ended
September 29, 2001 December 31, 2000
------------------ -----------------
Beginning claims 330 63
New claims 169 298
Settlements (13) (11)
Dismissals (23) (20)
--- ---
Ending claims 463 330
=== ===
ABI reported in its December 31, 2000 Form 10-K that it has been named as a
Potentially Responsible Party ("PRP") within the meaning of the Federal
Comprehensive Environmental Response Compensation and Liability Act, as amended,
with respect to two sites in two separate states. There have been no new
developments relating to these sites during the three and nine month period
ended September 29, 2001.
With regard to the Olin Corporation ("Olin") site in Wilmington, MA, during the
nine month period ending September 29, 2001, ABI has paid Olin $483,000 for the
period from June 1, 2000 to December 31, 2000 and $272,000 for the period
January 1, 2001 to March 31, 2001 and ABI has been invoiced by Olin $281,000 for
the period April 1, 2001 to June 1, 2001. Olin has estimated that the response
cost for all of 2001 will be $6 million with ABI's allocated share being
$814,000. ABI, in discussion with Olin, has estimated that beyond 2001 the
response costs will be in the range of $16.3 million to $29 million. As of
September 29, 2001, ABI has estimated its share of potential liability for Olin
to be in the range of $3.3 million to $5 million before any recoveries from
insurance.
Congoleum Corporation
Congoleum is subject to federal, state and local environmental laws and
regulations, and certain legal and administrative claims are pending or have
been asserted against Congoleum. Among these claims, Congoleum is a named party
in several actions associated with waste disposal sites, asbestos-related claims
and general liability claims. These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites and certain of Congoleum's owned and previously
owned facilities. The contingencies also include claims for personal injury
and/or property damage. The exact amount of such future costs and timing of
payments are indeterminable due to such unknown factors as the
8
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note F - Commitments and Contingencies (continued)
magnitude of clean-up costs, the timing and extent of the remedial actions that
may be required, the determination of Congoleum's liability in proportion to
other potentially responsible parties and the extent to which costs may be
recoverable from insurance.
Congoleum records a liability for environmental remediation, asbestos-related
claim costs and general liability claims when a clean-up program or claim
payment becomes probable and the costs can be reasonably estimated. As
assessments and clean-ups progress, these liabilities are adjusted based upon
progress in determining the timing and extent of remedial actions and the
related costs and damages. The extent and amounts of the liabilities can change
substantially due to factors such as the nature or extent of contamination,
changes in remedial requirements and technological improvements. The recorded
liabilities are not discounted for delays in future payments and are not reduced
by the amount of estimated insurance recoveries. Such estimated insurance
recoveries are considered probable of recovery.
Congoleum is named, together with a large number (in most cases, hundreds) of
other companies, as a PRP in pending proceedings under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), as amended,
and similar state laws. In two instances, although not named as a PRP, Congoleum
has received a request for information. These pending proceedings currently
relate to seven disposal sites in New Jersey, Pennsylvania, Maryland,
Connecticut and Delaware in which recovery from generators of hazardous
substances is sought for the cost of cleaning up the contaminated waste sites.
Congoleum's ultimate liability in connection with those sites depends on many
factors, including the volume of material contributed to the site, the number of
other PRP's and their financial viability, the remediation methods and
technology to be used and the extent to which costs may be recoverable from
insurance. However, under CERCLA, and certain other laws, as a PRP, Congoleum
can be held jointly and severally liable for all environmental costs associated
with a site.
The most significant exposure to which Congoleum has been named a PRP relates to
a recycling facility site in Elkton, Maryland. Two removal actions were
substantially complete as of December 31, 1998, however the groundwater
remediation phase has not begun and the remedial investigation/feasibility study
related to the groundwater remediation has not been approved. The PRP group is
comprised of approximately 50 companies, substantially all of which are
financially solvent. This group has estimated that future costs of groundwater
remediation would be approximately $26 million. Based on waste allocations
amongst members of the PRP group in proportion to waste disposed at the site,
Congoleum's share was estimated to be approximately
9
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note F - Commitments and Contingencies (continued)
5.5%. At September 29, 2001, Congoleum believes its probable liability, which
has been recorded in other liabilities, based on present facts and
circumstances, to be approximately $1.5 million. A corresponding insurance
receivable of $1.2 million has been recorded in other noncurrent assets. No
other PRP sites are material on an individual basis.
Congoleum also accrues remediation costs for certain of Congoleum's owned
facilities on an undiscounted basis. Estimated total cleanup costs, including
capital outlays and future maintenance costs for soil and groundwater
remediation are primarily based on engineering studies.
Although the outcome of these matters could result in significant expenses or
judgments, management does not believe based on present facts and circumstances
that their disposition will have a material adverse effect on the financial
position of the Company.
Congoleum is one of many defendants in approximately 4,792 pending claims
(including workers' compensation cases) involving approximately 20,502
individuals as of September 29, 2001, alleging personal injury from exposure to
asbestos or asbestos-containing products. There were 1,754 claims at December
31, 2000 that involved approximately 12,079 individuals. Activity related to
asbestos claims was as follows:
Nine Months Ended Year ended
September 29, 2001 December 31, 2000
------------------ -----------------
Beginning claims 1,754 670
New claims 3,216 1,302
Settlements (42) (76)
Dismissals (136) (142)
----- -----
Ending claims 4,792 1,754
===== =====
The total indemnity costs incurred to settle claims during the nine months
ending September 29, 2001 and twelve months ending December 31, 2000 were $1.0
million and $3.9 million, respectively, which were paid by Congoleum's insurance
carriers, as were the related defense costs. Costs per claim vary depending on a
number of factors, including the nature of the alleged exposure and the
jurisdiction where the claim was litigated. As of September 29, 2001, Congoleum
has incurred asbestos-related claims of $11.3 million, to resolve claims of over
33,000 claimants, all of which have been paid by Congoleum's insurance carriers.
The average indemnity cost per resolved claimant is $338. Over 99% of claims
incurred by Congoleum have settled, on average, for amounts less than $93 per
claimant.
10
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note F - Commitments and Contingencies (continued)
Nearly all claims allege that various diseases were caused by exposure to
asbestos-containing products, including sheet vinyl and resilient tile
manufactured by Congoleum (or, in the workers' compensation cases, exposure to
asbestos in the course of employment with Congoleum). Congoleum discontinued the
manufacture of asbestos-containing sheet vinyl products in 1983 and
asbestos-containing tile products in 1974. In general, governmental authorities
have determined that asbestos-containing sheet and tile products are nonfriable
(i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. Congoleum has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.
Congoleum regularly evaluates its estimated liability to defend and resolve
current and reasonably anticipated future asbestos-related claims. It reviews,
among other things, recent and historical settlement and trial results, the
incidence of past and recent claims, the number of cases pending against it, and
asbestos litigation developments that may impact the exposure of Congoleum. One
such development, the declarations of bankruptcy by several companies that are
typically lead defendants in asbestos-related cases, may have negatively
impacted Congoleum's claim experience. The estimates developed are highly
uncertain due to the limitations of the available data and the difficulty of
forecasting the numerous variables that can affect the range of the liability.
During the fourth quarter of fiscal 2000, Congoleum updated its evaluation of
the range of potential defense and indemnity costs for asbestos-related
liabilities and the insurance coverage in place to cover these costs. As a
result of Congoleum's analysis, Congoleum has determined that its range of
probable and estimable losses for asbestos-related claims through the year 2049
is $35.1 million to $161.3 million before considering the effects of insurance
recoveries and before discounting to present value. As discussed previously, it
is very difficult to forecast a liability for Congoleum's ultimate exposure for
asbestos-related claims as there are multiple variables that can affect the
timing, severity, and quantity of claims. Therefore, Congoleum has concluded
that no amount within that range is more likely than any other, and therefore
has determined that the amount of the gross liability it should record for
asbestos-related claims is equal to $35.1 million in accordance with accounting
principles generally accepted in the United States.
For a majority of the period that Congoleum produced asbestos-containing
products, Congoleum purchased primary and excess insurance policies that cover
bodily injury asbestos claims.
11
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note F - Commitments and Contingencies (continued)
Congoleum believes that it has in excess of $1 billion primary and excess
insurance coverage available as of December 31, 2000 to cover asbestos-related
claims. To date, all claims and defense costs have been paid through insurance
coverage, and Congoleum anticipates that insurance coverage will continue to
cover these costs in the forseeable future.
The same factors that affect developing forecasts of potential defense and
indemnity costs for asbestos-related liabilities also affect estimates of the
total amount of insurance that is probable of recovery, as do a number of
additional factors. These additional factors include possible uncertainties
regarding the legal sufficiency of insurance claims or solvency of insurance
carriers, the method in which losses will be allocated to the various insurance
policies and the years covered by those policies, and how legal and other loss
handling costs will be covered by the insurance policies.
Congoleum has determined, based on its review of its insurance policies and the
advice of legal counsel, that approximately $20 million of the estimated $35
million gross liability is highly probable of recovery. This determination was
made after considering the terms of the available insurance coverage and the
financial viability of the insurance companies. Congoleum believes that the
criteria to offset the estimated gross liability with this probable insurance
recovery, as defined by accounting principles generally accepted in the United
States, have been met. The balance of the estimated gross liability of $15
million has been reflected in the balance sheet as a long-term liability as of
December 31, 2000 and September 29, 2001. Congoleum has also recorded in the
balance sheet an insurance receivable of $7 million that represents an estimate
of probable insurance recoveries that do not qualify for offsetting against the
gross liability. This insurance receivable has been recorded in other long-term
assets as of December 31, 2000 and September 29, 2001.
Since many uncertainties exist surrounding asbestos litigation, Congoleum will
continue to evaluate its asbestos-related estimated liability and corresponding
estimated insurance assets as well as the underlying assumptions used to derive
these amounts. It is reasonably possible that Congoleum's total exposure to
asbestos-related claims may be greater than the recorded liability and that
insurance recoveries may be less than the recorded asset. These uncertainties
may result in Congoleum incurring future charges to income to adjust the
carrying value of recorded liabilities and assets. Congoleum does not believe,
however, that asbestos-related claims will have a material adverse effect on its
financial position or liquidity.
12
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note G - Long-Term Debt
During the third quarter of 2001, ABI entered into a Note Purchase and Private
Shelf Agreement with Prudential Insurance Company ("Pru Agreement"). Under the
terms of this agreement, ABI borrowed $20 million and used the proceeds to
retire existing long-term and revolving debt. The new notes bear interest at
8.16%, reducing to 7.91% if certain improvements in debt to EBITDA, (as defined)
ratios are attained. Principal is repayable in five annual $4,000,000
installments beginning August 28, 2006. The Pru Agreement contains certain
covenants which include maintenance of minimum current ratio and fixed charge
coverage ratios and net worth levels and maximum debt levels and debt to EBITDA
ratios. It also includes restrictions on certain payments including dividends,
as defined.
During the third quarter of 2001, the Company also entered into a new revolving
credit agreement. This agreement provides for borrowings of up to $30 million
through September 28, 2004, with interest varying based upon the Company's
leverage ratio (as defined). This agreement provides for a commitment fee based
on the average daily unused portion of the commitment which varies depending on
the leverage ratio. This agreement also requires meeting certain tests with
respect to debt to EBITDA, fixed charge coverage, current ratio, and net worth
levels, and includes restrictions on certain payments including dividends and
limitations on capital expenditures.
Note H - Comprehensive Income
The following table presents total comprehensive income for the three months and
nine months ended September 29, 2001 and September 30, 2000 (in thousands):
Three Months Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
Net earnings $2,702 $3,091 $ 31 $4,425
Foreign currency translation adjustments (732) (298) (901) (791)
------ ------ ----- ------
Total comprehensive income (loss) $1,970 $2,793 $(870) $3,634
====== ====== ===== ======
13
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note I - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months and nine months ended September 29, 2001 and
September 30, 2000 (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net income $2,702 $3,091 $ 31 $4,425
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share:
Weighted-average shares 3,442 3,517 3,460 3,518
Denominator for diluted earnings
per share:
Dilutive employee stock options 21 23
------ ------
Weighted-average shares and
Assumed conversions 3,442 3,538 3,460 3,541
====== ====== ====== ======
Basic earnings per share $ .79 $ .88 $ .01 $ 1.26
====== ====== ====== ======
Diluted earnings per share $ .79 $ .87 $ .01 $ 1.25
====== ====== ====== ======
Note J - Industry Segments
Description of Products and Services
The Company has four reportable segments: flooring products, tape products,
jewelry and a Canadian division which produces flooring and rubber products.
Congoleum, which manufactures vinyl and vinyl composition floor coverings with
distribution primarily through floor covering distributors, retailers and
contractors for commercial and residential use, represents the majority of the
Company's flooring products segment. During 2000, the Company acquired Janus
Flooring Corporation, which has been included in the flooring products segment
14
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note J - Industry Segments (continued)
effective October 12, 2000. The tape products segment consists of two production
facilities in the United States and finishing and sales facilities in Belgium,
Singapore and Italy. The tape products segment manufactures paper, film, HVAC,
electrical, shoe and other tape products for use in industrial and automotive
markets. The jewelry segment reflects the results of K&M Associates L.P., a
national costume jewelry supplier to mass merchandiser and department stores.
The Company's Canadian division produces flooring, rubber products, including
materials used by footwear manufacturers, and other industrial products.
Segment Profit and Assets
(In thousands) Three Months Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues
Revenues from external customers:
Flooring products $ 59,173 $ 60,891 $171,164 $172,816
Tape products 20,508 24,053 64,634 71,843
Jewelry 21,894 15,061 41,585 35,265
Canadian division 9,435 12,680 31,384 37,604
-------- -------- -------- --------
Total revenues from external
Customers 111,010 112,685 308,767 317,528
-------- -------- -------- --------
Intersegment revenues:
Flooring products 70 88 259 293
Tape products 24 22 94 107
Jewelry
Canadian division 1,662 1,210 5,772 4,292
-------- -------- -------- --------
Total intersegment revenues 1,756 1,320 6,125 4,692
-------- -------- -------- --------
112,766 114,005 314,892 322,220
Reconciling items
Intersegment revenues (1,756) (1,320) (6,125) (4,692)
-------- -------- -------- --------
Total consolidated revenues $111,010 $112,685 $308,767 $317,528
======== ======== ======== ========
15
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note J - Industry Segments (continued)
(In thousands) Three Months Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
Segment profit (loss)
Flooring products $1,452 $2,651 $(4,584) $(3,310)
Tape products 542 1,591 1,093 5,178
Jewelry 3,750 1,797 3,534 1,747
Canadian division (97) 989 383 3,245
------ ------ ------- -------
Total segment profit 5,647 7,028 426 6,860
Reconciling items
Corporate office loss (394) (419) (1,674) (1,214)
------ ------ ------- -------
Intercompany profit 23 32 (88) 46
Total consolidated earnings
(loss) before income taxes and
other items $5,276 $6,641 $(1,336) $ 5,692
====== ====== ======= =======
September 29, December 31,
2001 2000
---- ----
Segment assets
Flooring products $228,283 $244,574
Tape products 66,388 53,724
Jewelry 33,386 19,193
Canadian division 32,486 29,858
-------- --------
Total segment assets 360,543 347,349
Reconciling items
Corporate office assets 33,028 30,163
Intersegment accounts receivable (22,842) (12,991)
Intersegment profit in inventory (207) (119)
-------- --------
Total consolidated assets $370,522 $364,402
======== ========
Tape product segment assets increased from $53,724 to $66,388 due to capital
expenditures and seasonal increases in inventories and intersegment accounts.
Jewelry product segment assets increased from $19,193 to $33,386 due to seasonal
increases in accounts receivable and inventories and the acquisition of Swank,
Inc. assets.
16
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 29, 2001
Note K - Acquisition
On July 23, 2001, the Company's K&M Associates L.P. operation acquired certain
inventory and receivables from the women's costume jewelry business of Swank,
Inc. for a purchase price of $4.6 million. The Company also entered into or
assumed license agreements with Anne Klein, Anne Klein II and Guess? associated
with the product lines acquired.
17
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 29, 2001
Results of Operations
Net sales for the third quarter of 2001 were $111.0 million compared to $112.7
million in the third quarter of 2000, a decrease of $1.7 million or 1.5%. Net
sales for the first nine months of 2001 were $308.8 million, down $8.7 million
or 2.8% from the first nine months of 2000. Weak economic conditions have
resulted in lower revenues in all segments except jewelry. Approximately half
the increase in jewelry segment revenues for the quarter and year-to-date are
due to sales of women's costume jewelry product lines acquired in July 2001,
while the balance of the increase reflects sales of new product designs. The
decrease in flooring product sales was partially offset by the acquisition of
Janus Flooring in the fourth quarter of 2001; excluding Janus, flooring revenues
declined 4.9% for the quarter and 3.8% for the first nine months of 2001.
Gross profits as a percentage of net sales was 30.1% in the third quarter of
2001 versus 29.3% in the third quarter of 2000. This increase was due to the
higher proportion of jewelry segment revenues in the sales mix, which have
relatively higher gross profit margins, together with improvements in
manufacturing efficiency in the flooring segment. These factors more than offset
the lower gross profit margins in the remaining segments resulting from lower
sales and production levels. Gross profits as a percentage of net sales for the
first nine months of 2001 were 27.7% compared to 28.3% in the first nine months
of 2000. This is due to lower manufacturing volumes and the competitive pricing
environment experienced in the first half of the year.
Selling, general and administrative expenses as a percentage of net sales were
23.7% in the third quarter of 2001 compared to 21.8% in the third quarter of
2000. For the first nine months of 2001, selling, general and administrative
expenses as a percentage of net sales were 26.2% versus 25.1% for the first nine
months of 2000. The increase for the three and nine month periods is due to
lower sales, higher expenses for marketing, and a greater proportion of jewelry
in the sales mix.
Interest expense for the three and nine months ended September 29, 2001 was
above comparable year earlier levels due to higher borrowings, primarily related
to the Janus acquisition, and a decrease in the portion of interest expense
capitalized in connection with capital projects.
For the three months ended September 29, 2001, the Company had net earnings of
$2.7 million compared with net earnings of $3.1 million in the same period one
year earlier. Profitability decreased in all segments except jewelry, with the
Canadian division showing a small loss. For the first nine months of 2001 net
earnings were $31 thousand versus $4.4 million in the first nine months of 2000.
Flooring products loss increased, and Tape and Canadian profit declined, more
than offsetting the improved profitability in jewelry.
18
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 29, 2001
Liquidity and Capital Resources
Cash and cash equivalents, including short term investments, declined $18.2
million in the first nine months of 2001 to $10.8 million, compared with a
decline of $12.7 million in the first nine months of 2000. In addition, the
Company borrowed $23.1 million (net of repayments) in the first nine months of
2001, compared with $12.5 million in the first nine months of 2000. The higher
use of cash in 2001 was due to increased capital expenditures, lower net income,
increased working capital, and the acquisition of the inventory and receivables
of Swank, Inc.'s women's costume jewelry business.
Working capital at September 29, 2001 was $78.6 million, up from $72.0 million
at December 31, 2000. The ratio of current assets to current liabilities at
September 29, 2001 was 1.8, up from 1.7 at December 31, 2000.
Capital expenditures in the first nine months of 2001 were $20.4 million. It is
anticipated that capital spending for the full year 2001 will be in the range of
$26 - $27 million.
The Company has recorded provisions which it believes are adequate for
environmental remediation and product-related liabilities, including provisions
for testing for potential remediation of conditions at its own facilities. While
the Company believes its estimate of the future amount of these liabilities is
reasonable, that such amounts will not have a material adverse effect on the
financial position of the Company and that they will be paid over a period of
three to ten years, the actual timing and amount of such payments may differ
significantly from the Company's assumptions. Although the effect of future
government regulation could have a significant effect on the Company's costs,
the Company is not aware of any pending legislation which could have a material
adverse effect on its results of operations or financial position. There can be
no assurances that such costs could be passed along to its customers.
Cash requirements for capital expenditures, working capital, debt service and
the current authorization to repurchase $3.0 million of ABI's Common Stock and
$5.3 million of Congoleum's Common Stock are expected to be financed from
operating activities and borrowings under existing bank lines of credit, which
at ABI are presently $36.5 million and at Congoleum are $20.0 million. During
the first nine months of 2001, ABI repurchased $1.1 million of its Common Stock.
19
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 29, 2001
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to changes in prevailing market interest rates affecting
the return on its investments but does not consider this interest rate market
risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in highly liquid debt instruments with
strong credit ratings and short-term (less than one year) maturities. The
carrying amount of these investments approximates fair value due to the
short-term maturities. Substantially all of the Company's outstanding long-term
debt as of September 29, 2001 consisted of indebtedness with a fixed rate of
interest, which is not subject to change based upon changes in prevailing market
interest rates.
The Company operates internationally, principally in Canada, Europe and the Far
East, giving rise to exposure to market risks from changes in foreign exchange
rates. Foreign currency exchange rate movements also affect the Company's
competitive position, as exchange rate changes may affect business practices
and/or pricing strategies of non-U.S. based competitors. For foreign currency
exposures existing at September 29, 2001, a 10% unfavorable movement in currency
exchange rates in the near term would not materially affect ABI's consolidated
operating results, financial position or cash flows.
20
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
September 29, 2001
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Any instrument defining the rights of holders of unregistered long-term
debt of American Biltrite Inc. that does not authorize the issuance of
debt securities in excess of 10 percent of the total assets of American
Biltrite Inc. and its subsidiaries on a consolidated basis is not filed as
an exhibit to this Report. American Biltrite Inc. agrees to furnish a copy
of each such instrument to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 29, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BILTRITE INC.
----------------------
(Registrant)
Date: November 9, 2001 BY: /s/ Howard N. Feist III
-----------------------
Howard N. Feist III
Vice President-Finance
21