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 March 31, 2002 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 May 1, 2002
------------------- --------------------------
Common 3,441,551 shares
FORM 10-Q
PART I. Item 1. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
March 31, December 31,
2002 2001
----------------------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 8,160 $ 16,804
Short-term investments 1,416
Accounts receivable, net 46,649 39,768
Inventories 95,020 93,923
Prepaid expenses & other current assets 15,049 19,368
-------- --------
TOTAL CURRENT ASSETS 164,878 171,279
Goodwill, net 11,300 23,773
Other assets 27,014 27,053
Property, plant and equipment, net 149,709 150,659
-------- --------
TOTAL ASSETS $352,901 $372,764
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,702 $ 28,501
Accrued expenses 42,627 48,253
Notes payable 13,825 11,646
Current portion of long-term debt 1,035 1,038
-------- --------
TOTAL CURRENT LIABILITIES 85,189 89,438
Long-term debt 124,881 125,123
Other liabilities 68,023 69,003
Noncontrolling interests 6,643 11,952
STOCKHOLDERS' EQUITY
Common stock, par value $0.01-authorized
15,000,000 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,548 19,548
Retained earnings 71,805 80,752
Accumulated other comprehensive loss (8,102) (7,966)
Less cost of shares in treasury (15,132) (15,132)
-------- --------
68,165 77,248
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $352,901 $372,764
======== ========
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
March 31,
2002 2001
------------------------
Net sales $102,420 $ 97,353
Interest and other income 790 321
-------- --------
103,210 97,674
-------- --------
Costs and expenses:
Cost of products sold 74,802 73,641
Selling, general and administrative expenses 27,384 27,216
Interest 2,706 2,514
-------- --------
104,892 103,371
-------- --------
LOSS BEFORE INCOME TAXES AND OTHER ITEMS (1,682) (5,697)
Credit for income tax benefit (639) (2,065)
Noncontrolling interests 268 1,641
-------- --------
NET LOSS BEFORE ACCOUNTING CHANGE (775) (1,991)
Cumulative effect of accounting change (7,742)
-------- --------
Net loss $ (8,517) $ (1,991)
======== ========
Net loss per common share before
cumulative effect of accounting
change, basic and diluted $ (.22) $ (.57)
Cumulative effect of accounting change (2.25)
-------- --------
Net loss per common share,
basic and diluted $ (2.47) $ (.57)
======== ========
Weighted average number of
common and equivalent
shares outstanding 3,442 3,489
======== ========
Dividends declared per common share $ .125 $ .125
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)
Three Months Ended
March 31,
2002 2001
---------------------
OPERATING ACTIVITIES
Net loss $(8,517) $ (1,991)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 4,358 4,938
Deferred income taxes 2,542 (2,193)
Cumulative effect of accounting change 7,742
Changes in operating assets and liabilities:
Accounts and notes receivable (6,887) (10,345)
Inventories (1,131) (5,375)
Prepaid expenses and other current assets 1,491 1,839
Accounts payable and accrued expenses (6,253) (397)
Noncontrolling interests (268) (1,641)
Other (1,244) (209)
------- --------
NET CASH USED BY OPERATING ACTIVITIES (8,167) (15,374)
INVESTING ACTIVITIES
Purchases of short-term investments (1,471)
Proceeds from sales of short-term investments 1,416 9,373
Investments in property, plant and equipment (3,322) (8,154)
Proceeds from sale of property, plant and
equipment 648
Purchase of additional partnership interests
in K&M (2,066)
------- --------
NET CASH USED BY INVESTING ACTIVITIES (1,906) (1,670)
FINANCING ACTIVITIES
Net short-term borrowings 2,189 12,191
Payments on long-term debt (245) (4,610)
Purchase of treasury shares (502)
Dividends paid (430) (436)
------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,514 6,643
Effect of foreign exchange rates changes on cash (85) 524
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (8,644) (9,877)
Cash and cash equivalents at beginning of period 16,804 16,859
------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 8,160 $ 6,982
======= ========
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
March 31, 2002
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 and the
cumulative effect of the change in accounting for goodwill) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. 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, 2001.
Certain amounts appearing in the prior year's consolidated condensed financial
statements have been reclassified to conform to the current year's
presentations.
Note B - Changes in Accounting Principles
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS
No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("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 provides that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment on an annual basis. Adoption of SFAS No. 141 did not
have an impact on the consolidated results of operations or financial position
of the Company. SFAS No. 142 was effective for the Company as of January 1,
2002. During the first quarter of 2002, the Company performed an impairment test
of goodwill and concluded that there was impairment of goodwill related to both
Congoleum and Janus Flooring. The Company compared the implied fair value of
their goodwill to the carrying value of goodwill. It was determined that based
on the fair value of both Congoleum and Janus Flooring, there should be no
goodwill recognized.
Congoleum recorded an impairment loss of $10.5 million during the first quarter
of 2002 based on this change in accounting principle. American Biltrite's share,
55%, in this impairment loss resulted in a charge of $5.8 million plus a charge
of $1.9 million for an impairment loss related to Janus Flooring goodwill for a
total charge of $7.7 million during the first quarter of 2002.
The impact of the adoption of SFAS No. 142 on the Company's consolidated
financial statements also resulted in the elimination of $350,000 of goodwill
amortization expense, or $.10 per share, for the three months ended March 31,
2002.
5
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note B - Changes in Accounting Principles (continued)
The following table reflects consolidated results adjusted as though the
Company's adoption of SFAS No. 142 occurred as of January 1, 2001:
(In thousands, except per share amounts)
For the Three Months Ended
March 31,
2002 2001
--------------------------
Net loss before cumulative effect of
accounting change:
As reported $(775) $(1,991)
Goodwill amortization -- 377
----- -------
As adjusted $(775) $(1,614)
===== =======
Basic earnings per share before cumulative
effect of accounting change:
As reported $(.22) $ (.57)
Goodwill amortization -- .11
----- -------
As adjusted $(.22) $ (.46)
===== =======
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") was issued. The Company adopted SFAS No. 144
effective January 1, 2002. 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 superseded 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 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. Adoption of this pronouncement did not have
an effect on the Company's consolidated financial position or results of
operations.
In November 2001, Emerging Issues Task Force (EITF) issue 01-09, "Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products" ("EITF 01-09"), was issued. The Company adopted EITF 01-09 effective
January 1, 2002 as required. This issue addresses the manner in which companies
account for sales incentives to their customers. The Company's current
accounting policies for the recognition of costs related to these programs,
which is to accrue for costs as benefits are earned by the Company's customers,
are already in accordance with the consensus reached in this issue. The Company
has reclassified amounts previously
6
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note B - Changes in Accounting Principles (continued)
recorded in selling, general and administrative expense as a reduction in sales.
The impact for the first quarter of 2002 and 2001 was a reduction of sales and
selling, general and administrative expenses of $1 million and $1.6 million,
respectively.
Note C - Inventories
Inventories at March 31, 2002 and December 31, 2001 consisted of the following
(in thousands):
March 31, December 31,
2002 2001
---------------------------
Finished goods $69,813 $69,527
Work-in-process 11,202 11,382
Raw materials and supplies 14,005 13,014
------- -------
$95,020 $93,923
======= =======
Note D - Commitments and Contingencies
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, product liability and other matters, as
more fully described in the following footnote. 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, the Company does not believe that these
matters, individually or in the aggregate, will have a material adverse effect
on its business or financial condition.
The Company records a liability for environmental remediation claims when it
becomes probable that the Company 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.
Liabilities of Congoleum comprise the substantial majority of the environmental
and other liabilities reported on the Company's balance sheet as shown in the
following table. Due to the relative magnitude and wide range of estimates of
these liabilities and due to the fact that recourse related to these liabilities
is limited to Congoleum, these matters are discussed separately following
matters for which American Biltrite has actual or potential liability.
7
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
ABI is a co-defendant with many other manufacturers and distributors of
asbestos-containing products in approximately 490 pending claims involving
approximately 1,426 individuals as of March 31, 2002. The claimants allege
personal injury from exposure to asbestos or asbestos-containing products.
Activity related to asbestos claims was as follows:
Three Months Ended Year Ended
March 31, 2002 December 31, 2001
-------------- -----------------
Beginning claims 464 330
New claims 37 189
Settlements (3) (15)
Dismissals (8) (40)
--- ---
Ending claims 490 464
=== ===
ABI reported in its December 31, 2001 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. ABI also reported that it
received notice by the present owner of a former ABI plant with regard to notice
by the Maine Department of Environmental Protection to clean up a dumpsite.
There have been no new developments relating to these sites during the three
month period ended March 31, 2002.
With regard to the Olin Corporation ("Olin") site in Wilmington, MA, including
the three month period ending March 31, 2002, ABI has paid Olin $1.65 million.
ABI has been invoiced by Olin for $152,000 for the period October 1, 2001 to
December 31, 2001. Olin has estimated that the response cost for all of 2002
will be approximately $2.5 million with ABI's allocated share being $340,000.
ABI has estimated that beyond 2002 the response costs will be in the range of
$16.3 million to $28.5 million. As of March 31, 2002 ABI has estimated its share
of potential liability for Olin to be in the range of $2.3 million to $4 million
before any recoveries from insurance.
ABI has been named by the United States Environmental Protection Agency ("EPA")
as a PRP along with seven other PRPs with respect to three neighborhood sites
("Sites") in Atlanta, Georgia where properties within the boundaries of the
Sites contain lead in the surface soil in concentrations that exceed EPA's
residential lead screening level. The EPA has requested that ABI sign an
administrative consent order. ABI is reviewing the EPA notification letter and
the administrative consent order while assessing its responsibility with respect
to the Sites.
8
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
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 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 may factors, including the volume of
material contributed to the site, the number of other PRPs 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. The PRP group at this site is
made up of 51 companies, substantially all of which are financially solvent. 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 PRPs group estimates that future costs of groundwater
remediation, based on engineering and consultant studies conducted, would be
approximately $26 million. Congoleum's proportionate share, based on waste
disposed at the site, was estimated to be approximately 6.1%.
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.
9
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
Congoleum is one of many defendants in approximately 9,089 pending claims
(including workers' compensation cases) involving approximately 27,410
individuals as of March 31, 2002, alleging personal injury from exposure to
asbestos or asbestos-containing products. There were 6,563 claims at December
31, 2001 that involved approximately 23,139 individuals. Activity related to
asbestos claims was as follows:
Three Months Ended Year Ended
March 31, 2002 December 31, 2001
-------------- -----------------
Beginning claims 6,563 1,754
New claims 2,790 5,048
Settlements (18) (40)
Dismissals (246) (199)
----- -----
Ending claims 9,089 6,563
===== =====
The total indemnity costs incurred to settle claims during the three months
ended March 31, 2002 and twelve months ended December 31, 2001 were $0.6 million
and $1.1 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 March 31, 2002, Congoleum has
incurred asbestos-related claims of $12.0 million, to resolve claims of over
33,000 claimants, substantially all of which have been paid by Congoleum's
insurance carriers. The average indemnity cost per resolved claimant is $360.
Over 99% of claims incurred by Congoleum have settled, on average, for amounts
less than $100 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 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.
10
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
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, is likely to have a
negative impact on 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.
Congoleum periodically updates 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 facts and circumstances indicate a possible
change in amount. As a result of Congoleum's analysis, Congoleum has determined
that its range of probable and estimable undiscounted losses for
asbestos-related claims through the year 2049 is $53.3 million to $195.6 million
before considering insurance recoveries. 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 $53.3 million in accordance with accounting
principles generally accepted in the United States.
During the period that Congoleum produced asbestos-containing products,
Congoleum purchased primary and excess insurance policies providing in excess of
$1 billion coverage for bodily injury asbestos claims. To date, substantially
all claims and defense costs have been paid through primary insurance coverage.
At March 31, 2002, Congoleum had $2.0 million in remaining primary insurance
coverage for bodily injury asbestos claims. Once all primary coverage is
exhausted, Congoleum expects defense and indemnity costs to be covered by its
excess insurance policies. However, it is likely that Congoleum will share in
these costs. The first layer of excess insurance policies provides for $135
million in coverage. Of this layer, approximately 25% to 33% (depending on the
method used to allocate losses) was underwritten by carriers who are presently
insolvent. Congoleum anticipates that it will have to pay some or all of the
portion of costs for resolving asbestos-related claims that are allocable to
such insolvent carriers, and that it may, in turn, be able to recover a portion
of such payments from the estates or insurance guaranty funds responsible for
the obligations of these carriers.
11
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
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 the financial viability of
some of the insurance companies, the method in which losses will be allocated to
the various insurance policies and the years covered by those policies, how
legal and other loss handling costs will be covered by the insurance policies,
and interpretation of the effect on coverage of various policy terms and limits
and their interrelationships. Congoleum has filed suit regarding insurance
coverage issues against certain of its primary insurance carriers, the carriers
comprising its first layer of excess insurance, state guaranty funds
representing insolvent carriers, and its insurance brokers and has begun
settlement negotiations with several of these parties.
Congoleum has determined, based on its review of its insurance policies and the
advice of legal counsel, that approximately $42.5 million of the estimated $53.3
million gross liability is probable of recovery. This determination was made
after considering the terms of the available insurance coverage, the financial
viability of the insurance companies and the status of negotiations with its
carriers. Congoleum further believes that the criteria, as defined by accounting
principles generally accepted in the United States, to offset the estimated
gross liability with a portion of the probable insurance recovery, equal to
$35.5 million, have been met. The balance of the estimated gross liability of
$17.8 million has been reflected in the balance sheet as a long-term liability
as of December 31, 2001 and March 31, 2002. Congoleum has also recorded in the
balance sheet an insurance receivable of $9.6 million that represents an
estimate of probable insurance recoveries that do not qualify for offsetting
against the gross liability and for the probable insurance settlement of
disputed insurance coverage, which is currently estimated to be $2.5 million.
This insurance receivable has been recorded in other long-term assets as of
December 31, 2001 and March 31, 2002.
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. Additionally, since Congoleum
has recorded an amount representing the low end of the range of exposure for
asbestos-related claims, it is possible that over time another amount within
12
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note D - Commitments and Contingencies (continued)
the range will be a better estimate of the actual losses. Although the
resolution of these claims is anticipated to take decades, amounts recorded for
the liability are not discounted, and the effect on results of operations in any
given year from a revision to these estimates could be material. Congoleum does
not believe, however, that asbestos-related claims will have a material adverse
effect on its financial position or liquidity.
Note E - Comprehensive Income
The following table presents total comprehensive loss for the three months
ended March 31, 2002 and 2001 (in thousands):
Three Months Ended
March 31,
2002 2001
------------------
Net loss $(8,517) $(1,991)
Foreign currency translation adjustments (136) (1,008)
------- -------
Total comprehensive loss $(8,653) $(2,999)
======= =======
Note F - Loss Per Share
Loss per share is calculated by dividing net loss by the weighted average number
of shares of common stock outstanding.
Note G - 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. The Company's Canadian division produces
flooring, rubber products, including materials used by footwear manufacturers,
and other industrial products.
13
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note G - Industry Segments (continued)
Three Months Ended
March 31,
2002 2001
-----------------------
(In thousands)
Revenues
Revenues from external customers:
Flooring products $ 59,891 $53,164
Tape products 19,270 22,635
Jewelry 14,448 10,013
Canadian division 8,811 11,541
-------- -------
Total revenues from external customers 102,420 97,353
-------- -------
Intersegment revenues:
Flooring products 90 111
Tape products 38 28
Jewelry
Canadian division 3,005 1,825
-------- -------
Total intersegment revenues 3,133 1,964
-------- -------
105,553 99,317
Reconciling items
Intersegment revenues (3,133) (1,964)
-------- -------
Total consolidated revenues $102,420 $97,353
======== =======
14
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
Note G - Industry Segments (continued)
Three Months Ended
March 31,
2002 2001
-----------------------
(In thousands)
Segment (loss) profit
Flooring products $(1,528) $(6,098)
Tape products 45 621
Jewelry 146 (117)
Canadian division 196 573
------- -------
Total segment loss (1,141) (5,021)
Reconciling items
Corporate items (507) (695)
Intercompany profit (loss) (34) 19
------- -------
Total consolidated loss before income
taxes and other items $(1,682) $(5,697)
======= =======
March 31, December 31,
2002 2001
------------------------
Segment assets
Flooring products $223,529 $238,885
Tape products 61,842 57,417
Jewelry 23,898 27,809
Canadian division 33,473 32,660
-------- --------
Total segment assets 342,742 356,771
Reconciling items
Corporate items 32,804 30,043
Intersegment accounts receivable (22,420) (13,859)
Intersegment profit in inventory (225) (191)
-------- --------
Total consolidated assets $352,901 $372,764
======== ========
The decrease in Flooring segment assets is primarily due to the write-off of
goodwill during the first quarter of 2002; see Note B.
15
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2002
Results of Operations
Net sales for the first quarter of 2002 were $102.4 million compared to $97.4
million for the first quarter of 2001, an increase of $5 million or 5.2%.
Flooring segment revenue increased $6.7 million or 12.7% primarily as a result
of sales of new products, initial shipments to a major home center chain, and
higher sales to the manufactured housing industry. Jewelry segment revenue
increased $4.4 million or 44.3% primarily as a result of sales of licensed
product lines which were acquired in July of 2001. Revenues in the Tape and
Canadian divisions declined 14.9% and 23.7% respectively as economic weakness,
particularly in business spending, hurt demand for these operations' products.
Cost of products sold as a percentage of sales decreased to 73.0% in the first
quarter of 2002 from 75.6% in the first quarter of 2001. This improvement was
due to lower costs in the flooring segment (resulting from increased volume) and
a greater proportion of higher margin jewelry sales in the overall mix. These
factors offset lower margins at the Tape and Canadian divisions caused by their
lower sales volume.
Selling, general and administrative expenses in the first quarter of 2002 were
$27.4 million, or 26.7% of sales, compared with $27.2 million, or 28% of sales,
in the same period one year earlier. The increase in selling, general, and
administrative expenses was due to costs related to the licensed jewelry product
lines acquired in July 2001. These costs more than offset expense reductions at
the Tape and Canadian divisions.
Interest and other income in the first quarter of 2002 was up $.5 million from
the first quarter of 2001 primarily due to increased foreign currency gains.
The net loss before accounting change for the first quarter of 2002 was $0.8
million compared to a net loss of $2.0 million one year earlier primarily as a
result of improved results in the flooring segment.
Liquidity and Capital Resources
Cash and cash equivalents, including short term investments, declined $10.1
million in the first quarter of 2002 to $8.2 million, compared with a decline of
$17.8 million in the first quarter of 2001. The lower use of cash was primarily
due to lower capital expenditures and lower increases in receivables and
inventory, partially offset by higher reductions of payables and accrued
expenses. Working capital at March 31, 2002 was $79.7 million, down from $81.8
million at December 31, 2001. The ratio of current assets to current liabilities
at March 31, 2002 was 1.9, essentially unchanged from December 31, 2001.
Capital expenditures in the first quarter of 2002 were $3.3 million. It is
anticipated that capital spending for the full year 2002 will be in the range of
$15 - $17 million.
16
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2002
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 consolidated 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 $.9 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
are presently $66.3 million. At March 31, 2002, $11 million was outstanding
under these lines.
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. The substantial majority of the Company's outstanding
long-term debt as of March 31, 2002 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 March 31, 2002, 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.
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.
17
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
March 31, 2002
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 March
31, 2002.
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: May 9, 2002 BY: /s/ Howard N. Feist III
-----------------------
Howard N. Feist III
Vice President-Finance
18