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 June 30, 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 August 3, 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)
June 30, December 31,
2001 2000
--------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,496 $ 16,859
Short-term investments 1,471 12,097
Accounts receivable, net 39,924 45,378
Inventories 95,167 87,175
Prepaid expenses & other current assets 12,820 12,891
-------- --------
TOTAL CURRENT ASSETS 166,878 174,400
Goodwill, net 24,353 23,431
Other assets 21,597 22,374
Property, plant and equipment, net 149,835 144,197
-------- --------
TOTAL ASSETS $362,663 $364,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,226 $ 31,101
Accrued expenses 51,310 55,891
Notes payable 31,050 11,698
Current portion of long-term debt 3,094 3,713
-------- --------
TOTAL CURRENT LIABILITIES 112,680 102,403
Long-term debt 104,367 108,425
Other liabilities 58,818 59,868
Noncontrolling interests 11,920 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 76,126 79,663
Accumulated other comprehensive loss (5,683) (5,514)
Less cost of shares in treasury (15,132) (14,169)
-------- --------
74,878 79,547
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $362,663 $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 OPERATIONS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
------------------------------------------------
Net sales $98,060 $102,398 $197,757 $204,843
Interest and other income 948 1,068 1,269 1,733
------- -------- -------- --------
99,008 103,466 199,026 206,576
------- -------- -------- --------
Costs and expenses:
Cost of products sold 71,321 73,556 145,706 147,887
Selling, general and administrative
expenses 25,872 27,716 54,688 55,199
Interest 2,730 2,301 5,244 4,439
------- -------- -------- --------
99,923 103,573 205,638 207,525
------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND NONCONTROLLING
INTERESTS (915) (107) (6,612) (949)
Credit for income tax benefit (316) (41) (2,381) (344)
Noncontrolling interests (81) 1,050 1,560 1,939
------- -------- -------- --------
NET (LOSS) EARNINGS $ (680) $ 984 $ (2,671) $ 1,334
======= ======== ======== ========
(Loss) earnings per share:
Basic $ (.20) $ .28 $ (.77) $ .38
Diluted $ (.20) $ .28 $ (.77) $ .38
Dividends declared per common share $ .125 $ .125 $ .25 $ .25
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)
Six Months Ended
June 30, July 1,
2001 2000
---- ----
OPERATING ACTIVITIES
Net (loss) earnings $ (2,671) $ 1,334
Adjustments to reconcile net (loss) earnings to net cash
used by operating activities:
Depreciation and amortization 9,843 8,534
Deferred income taxes (1,832) (1,141)
Accounts and notes receivable 5,244 (12,952)
Inventories (8,376) (7,649)
Prepaid expenses and other current assets 2,342 1,461
Accounts payable and accrued expenses (9,138) (3,419)
Noncontrolling interests (1,560) (1,939)
Other (272) (253)
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (6,420) (16,024)
INVESTING ACTIVITIES
Purchase of short-term investments (1,471) (6,453)
Maturities of short-term investments 12,097 19,182
Investment in property, plant and equipment (15,389) (10,424)
Proceeds from sale of property, plant and equipment 648
Purchase of additional partnership interests in K&M (2,066) (1,381)
-------- --------
NET CASH (USED) PROVIDED BY INVESTING
ACTIVITIES (6,181) 924
FINANCING ACTIVITIES
Net short-term borrowings 19,284 14,500
Payments on long-term debt (4,642) (3,049)
Purchase of treasury shares (1,066) (466)
Dividends paid (866) (879)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 12,710 10,106
Effect of foreign exchange 528 327
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 637 (4,667)
Cash and cash equivalents at beginning of period 16,859 27,285
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 17,496 $ 22,618
======== ========
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
June 30, 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 June 30, 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 - Changes in Acounting Principles
In June 1998, the Financial Accounting Standards Board (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 C - Inventories
Inventories at June 30, 2001 and December 31, 2000 consisted of the following
(in thousands):
June 30, December 31,
2001 2000
------------------------
Finished goods $68,884 $63,810
Work-in-process 11,774 9,764
Raw materials and supplies 14,509 13,601
------- -------
$95,167 $87,175
======= =======
5
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note D - 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.
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. 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 has provided right-of-return provisions to LDBrinkman in the
termination agreement whereby LDBrinkman may return certain unsold inventory
purchased from Congoleum that meets minimum size and quality requirements.
Therefore, Congoleum has deferred the recognition of revenue for its estimate of
returns of inventory under this right-of-return agreement. Congoleum expects all
obligations under this provision to be satisfied by the end of the third quarter
of 2001.
Of the $7,717,000 in costs incurred during 2000, $2,180,000 remains unpaid as of
June 30, 2001. These amounts are anticipated to be paid by August 15, 2001.
Note E - 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.
6
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note E - Commitments and Contingencies (continued)
ABI is a co-defendant with many other manufacturers and distributors of
asbestos-containing products in approximately 460 pending claims involving
approximately 1,405 individuals as of June 30, 2001. The claimants allege
personal injury from exposure to asbestos or asbestos-containing products.
Activity related to asbestos claims was as follows:
Six Months Ended Year Ended
June 30, 2001 December 31, 2000
------------- -----------------
Beginning claims 330 63
New claims 145 298
Settlements (8) (11)
Dismissals (7) (20)
--- ---
Ending claims 460 330
=== ===
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 quarter ended June 30, 2001.
With regard to the Olin Corporation ("Olin") site in Wilmington, MA, during the
six month period ending June 30, 2001, ABI has paid Olin $483,000 for the period
from June 1, 2000 to December 31, 2000 and $267,000 for the period January 1,
2001 to March 31, 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 June 30, 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
7
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note E - Commitments and Contingencies (continued)
such future costs and timing of payments are indeterminable due to such unknown
factors as the 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 potentially responsible party ("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 proceeding 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 disposal at the site,
Congoleum's share was estimated to be approximately 5.5%. At June 30, 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.
8
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
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 Congoleum.
Congoleum is one of many defendants in approximately 4,007 pending claims
(including workers' compensation cases) involving approximately 18,305
individuals as of June 30, 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:
Six Months Ended Year ended
June 30, 2001 December 31, 2000
------------- -----------------
Beginning claims 1,754 670
New claims 2,336 1,302
Settlements (23) (76)
Dismissals (60) (142)
----- -----
Ending claims 4,007 1,754
===== =====
The total indemnity costs incurred to settle claims during the six months ending
June 30, 2001 and twelve months ending December 31, 2000 were $0.8 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 June 30, 2001, Congoleum has incurred
asbestos-related claims of $11.1 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 $332. Over 99% of claims
incurred by Congoleum have settled, on average, for amounts less than $101 per
claimant.
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
9
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
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. 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.
10
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note E - Commitments and Contingencies (continued)
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 June 30, 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 June 30, 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.
Note F - Comprehensive Income
The following table presents total comprehensive income for the three months and
six months ended June 30, 2001 and July 1, 2000 (in thousands):
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Net (loss) earnings $(680) $ 984 $(2,671) $1,334
Foreign currency translation adjustments 839 (405) (169) (493)
----- ----- ------- ------
Total comprehensive income (loss) $ 159 $ 579 $(2,840) $ 841
===== ===== ======= ======
11
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note G - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months and six months ended June 30, 2001 and July 1, 2000
(in thousands, except per share amounts):
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net (loss) earnings $ (680) $ 984 $(2,671) $1,334
======= ====== ======= ======
Denominator:
Denominator for basic earnings per share:
Weighted-average shares 3,449 3,517 3,469 3,519
Denominator for diluted earnings
per share:
Dilutive employee stock options 24 24
------- ------ ------- ------
Weighted-average shares and
assumed conversions 3,449 3,541 3,469 3,543
======= ====== ======= ======
Basic (loss) earnings per share $ (.20) $ .28 $ (.77) $ .38
======= ====== ======= ======
Diluted (loss) earnings per share $ (.20) $ .28 $ (.77) $ .38
======= ====== ======= ======
12
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note H - 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
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 the mass merchandiser markets. 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 Six Months Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Revenues
Revenues from external customers:
Flooring products $ 57,227 $ 55,169 $111,991 $111,925
Tape products 21,491 24,825 44,126 47,790
Jewelry 8,934 9,869 19,691 20,204
Canadian division 10,408 12,535 21,949 24,924
-------- -------- -------- --------
Total revenues from external
customers 98,060 102,398 197,757 204,843
-------- -------- -------- --------
Intersegment revenues:
Flooring products 78 94 189 205
Tape products 42 4 70 85
Jewelry
Canadian division 2,285 1,558 4,110 3,082
-------- -------- -------- --------
Total intersegment revenues 2,405 1,656 4,369 3,372
-------- -------- -------- --------
100,465 104,054 202,126 208,215
Reconciling items
Intersegment revenues (2,405) (1,656) (4,369) (3,372)
-------- -------- -------- --------
Total consolidated revenues $ 98,060 $102,398 $197,757 $204,843
======== ======== ======== ========
13
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note H - Industry Segments (continued)
(In thousands) Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---- ---- ---- ----
Segment (loss) profit
Flooring products $ 62 $(2,891) $(6,036) $(5,961)
Tape products (70) 2,127 551 3,587
Jewelry (99) 19 (216) (50)
Canadian division (93) 1,085 480 2,256
------ ------- ------- -------
Total segment (loss) profit (200) 340 (5,221) (168)
Reconciling items
Corporate office loss (604) (422) (1,280) (795)
Intercompany profit (111) (25) (111) 14
------ ------- ------- -------
Total consolidated loss before
income taxes and other items $ (915) $ (107) $(6,612) $ (949)
====== ======= ======= =======
June 30, Dec. 31,
2001 2000
---- ----
Segment assets
Flooring products $237,459 $244,574
Tape products 67,730 53,724
Jewelry 17,573 19,193
Canadian division 30,170 29,858
-------- --------
Total segment assets 352,932 347,349
Reconciling items
Corporate office assets 33,238 30,163
Intersegment accounts receivable (23,277) (12,991)
Intersegment profit in inventory (230) (119)
-------- --------
Total consolidated assets $362,663 $364,402
======== ========
Tape product segment assets increased from $53,724 to $67,730 due to capital
expenditures and seasonal increases in inventories and intersegment accounts.
14
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note I - Pending Adoption of Financial Accounting Standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") and SFAS No. 142. 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.
15
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
June 30, 2001
Results of Operations
Net sales for the second quarter of 2001 were $98.1 million compared to $102.4
million in the second quarter of 2000, a decrease of $4.3 million or 4.2%. Net
sales for the six months of 2001 were $197.8 million, down $7.1 million or 3.5%
from the first half of 2000. Weak economic conditions caused revenues to decline
in all segments except flooring. Year to date flooring segment sales are
essentially flat as sales by Janus have offset declines in sales by Congoleum to
the manufactured housing industry.
Cost of products sold as a percentage of net sales was 72.7% in the second
quarter of 2001 versus 71.8% in the second quarter of 2000. This increase is due
to lower manufacturing volumes and to a lesser extent, a competitive price
environment. These same factors caused cost of products sold in the first six
months of 2001 to increase to 73.7% from 72.2% one year earlier.
Selling, general and administrative expenses as a percentage of sales were 26.4%
in the second quarter of 2001 compared to 27.1% in the second quarter of 2000,
reflecting aggressive cost reduction initiatives undertaken in response to the
economy, particularly at Congoleum. For the six months ended June 30, 2001,
selling, general and administrative expenses as a percentage of sales were
27.7%, up from 26.9% in the first half of 2000, as the largest expense
reductions did not occur until late in the first quarter of 2001.
Interest expense for the three and six months ended June 30, 2001 increased from
comparable year earlier periods due to higher borrowings, primarily related to
the Janus acquisition, and a decrease in the portion of interest capitalized in
connection with capital projects. These factors were partly offset by lower
interest rates.
For the three months ended June 30, 2001, the Company had a net loss of $.7
million versus net earnings of $1.0 million in the same period one year earlier.
All segments except flooring reported losses this year versus income last year.
Flooring showed a slight profit versus a large loss last year. For the first six
months of 2001, the net loss was $2.7 million versus net earnings of $1.3
million in the year earlier period, with all segments reporting weaker results
as a result of the economy.
Liquidity and Capital Resources
Cash and cash equivalents, including short term investments, declined $10.0
million in the first six months of 2001 to $19.0 million, compared with a
decline of $17.4 million in the first six months of 2000. The higher use of cash
was due to increased capital expenditures, lower net income, and higher payments
of accrued expenses, partly offset by increased collections of accounts
receivable.
16
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2001
Working capital at June 30, 2001 was $54.2 million, down from $72.0 million at
December 31, 2000. The ratio of current assets to current liabilities at June
30, 2001 was 1.5, down from 1.7 at December 31, 2000.
Capital expenditures in the first half of 2001 were $15.4 million. It is
anticipated that capital spending for the full year 2001 will be in the range of
$25 - $26 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 $41.6 million and at Congoleum are $20.0 million. During
the first half of 2001, ABI repurchased $1.1 million of its Common Stock.
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 June 30, 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 June 30, 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.
17
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
June 30, 2001
The Company does not currently use derivative financial instruments, derivative
commodity instruments or other financial instruments to manage its exposure to
changes in interest rates, foreign currency exchange rates, commodity prices or
equity prices.
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting of Stockholders held on May 8, 2001, the following
action was taken:
Three nominees were elected as Class II Directors who will hold office
until the Annual Meeting of Stockholders in 2004 and until their
successors are duly elected and qualify.
Witheld From
Name Votes For All Nominees
John C. Garrels III 3,113,554 12,805
James S. Marcus 3,113,354 13,005
Roger S. Marcus 3,113,354 13,005
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended June
30, 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: August 10, 2001 BY: /s/ Howard N. Feist III
----------------------------
Howard N. Feist III
Vice President-Finance
18