<PAGE>
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 July 1, 1995 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
incorporation or organization) Identification No.)
57 River Street Wellesley Hills, Massachusetts 02181
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 617-237-6655
------------------------------
None
--------------------------------------------------------------------------------
(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.
Class Outstanding at August 10, 1995
-------------------------------- -----------------------------------
Common Stock, no par value 3,606,534 shares
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
($000)
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,919 $ 4,883
Short-term investments 12,500 4,295
Accounts receivable, net 43,310 12,664
Inventories 93,970 19,304
Deferred income taxes 4,936 1,798
Prepaid expenses & other current assets 2,202 1,391
-------- --------
TOTAL CURRENT ASSETS 176,837 44,335
Property, plant and equipment, net 100,176 26,801
Investments in associated companies 1,100 10,228
Goodwill, net 22,900
Deferred income taxes 16,274
Other assets 9,811 1,440
-------- --------
$327,098 $ 82,804
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 16,000
Accounts payable 27,409 $ 8,692
Accrued expenses 46,125 8,016
Income taxes payable 3,552 1,144
Current portion of long-term debt 5,968 2,094
-------- --------
TOTAL CURRENT LIABILITIES 99,054 19,946
Long-term debt 97,307 2,094
Pensions 14,766 2,582
Deferred income taxes 15,979 3,296
Accrued postretirement benefit obligation 10,755
Other liabilities 20,693 765
Interests attributable to outside parties 11,830
STOCKHOLDERS' EQUITY
Common stock 18,997 18,997
Retained earnings 50,874 49,644
Equity adjustment from translation (2,041) (2,437)
Less cost of shares in treasury (11,116) (12,083)
-------- --------
56,714 54,121
-------- --------
$327,098 $ 82,804
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
($000)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales $101,289 $ 27,823 $ 190,980 $ 52,545
Interest and other income 1,175 765 3,442 892
------- ------- -------- --------
102,464 28,588 194,422 53,437
------- ------- -------- --------
Costs and expenses:
Cost of products sold 69,559 19,930 131,721 37,835
Selling, general and
administrative expenses 23,089 5,869 44,768 11,446
Interest 2,789 173 4,945 332
------- ------ ------- ------
95,437 25,972 181,434 49,613
------- ------ ------- ------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 7,027 2,616 12,988 3,824
Provision for income taxes 3,118 1,007 5,649 1,472
Interests attributable to
outside parties (1,782) (3,193)
Equity in income of joint
venture 2,022 2,727
-------- ------- ------- -------
NET EARNINGS $ 2,127 $ 3,631 $ 4,146 $ 5,079
======== ======= ======= ========
Earnings per share:
Primary $ .56 $ .97 $ 1.09 $ 1.35
Fully diluted $ .56 $ .96 $ 1.09 $ 1.35
Dividends declared per
common share $ .0875 $ .0375 $ .15 $ .05625
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
($000)
<TABLE>
<CAPTION>
Six Months Ended
July 1, July 2,
1995 1994
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 4,146 $ 5,079
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 5,894 1,315
Equity in earnings of joint venture (2,727)
Accounts and notes receivable (5,328) (2,105)
Inventories (16,431) (880)
Prepaid expenses and other assets 430 (179)
Accounts payable and accrued expenses 616 2,208
Interests attributable to outside parties 3,193
Other 915 380
-------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (6,565) 3,091
INVESTING ACTIVITIES
Business acquisitions, net of cash acquired (5,274)
Capital expenditures (4,645) (3,368)
Sale of short-term investments 15,795
Preferred stock redemption 5,000
Preferred stock dividends 404
-------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 5,876 2,036
FINANCING ACTIVITIES
Payment of long-term debt (52) (37)
Payment of Congoleum equity offering costs (870)
Net proceeds from Congoleum equity offering 56,219
Purchase of Congoleum Class B shares (60,450)
Short-term borrowings 16,000 (1,000)
Repayments of loans from affiliates (5,400)
K&M capital transactions (3,569) 288
Dividends paid (539) (200)
-------- -------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 1,339 (949)
Effect of foreign exchange (432) (380)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 218 3,798
Cash at beginning of period (including
Congoleum Corporation in 1995) 19,701 8,528
-------- -------
CASH AT END OF PERIOD $ 19,919 $ 12,326
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 1, 1995
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") and for 1995, Congoleum Corporation, over which the Company obtained
voting control in 1995, and K&M Associates L.P. (see Note C) have been prepared
in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 six month period ended July 1,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995. 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, 1994.
Note B - Inventories
--------------------
Inventory at July 1, 1995 and December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
-------- ------------
<S> <C> <C>
($000)
Finished goods $66,866 $ 7,608
Work-in-process 15,212 5,791
Raw materials and supplies 11,892 5,905
------- -------
$93,970 $19,304
======= =======
</TABLE>
Note C - Investments in Affiliated Companies
--------------------------------------------
On February 8, 1995, Congoleum Corporation completed a public offering of
4,650,000 shares of Class A Common Stock at $13 per share and implemented a Plan
of Repurchase, pursuant to which its two-tiered holding company ownership
structure was eliminated through the merger of Congoleum Holdings with and into
Congoleum Corporation, with Congoleum Corporation as the surviving corporation.
The net proceeds of the offering, together with certain other funds of
Congoleum, were used to acquire a portion of Congoleum's outstanding Class B
Common Stock held by Hillside Industries Incorporated. In conjunction with the
transaction, ABI exchanged its shares of Class B Common Stock for 4,395,605
shares of a new series of Class B Common Stock. The exchange of stock did not
change the Company's 44% ownership, however, the new shares represent 57% of the
voting shares of Congoleum, giving ABI majority voting control. Accordingly,
Congoleum's assets, liabilities, results of operations and cash flows have been
consolidated in the financial statements of ABI, using Congoleum's historical
cost, as if voting control was obtained on January 1, 1995. In connection with
Congoleum's stock issuance and
5
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 1, 1995
Note C - Investments in Affiliated Companies (continued)
-------------------------------------------------------
repurchase, ABI charged $2,377,000 to retained earnings to reflect the reduction
in the equity of Congoleum. In 1994, the investment in Congoleum was accounted
for using the equity method.
On May 4, 1995, ABI indirectly acquired an aggregate 57.5% interest in K&M
Associates L.P., a Rhode Island limited partnership ("K&M"), in which ABI
indirectly has held a limited partnership interest since 1983. K&M is a business
engaged in the sale, distribution and servicing of costume jewelry and other
related accessories. Prior to May 4, 1995, ABI indirectly held an 8% limited
partnership interest in K&M.
The following table depicts the calculation of ABI's purchase price, excess of
purchase price over the book value of the acquired assets, and the preliminary
allocation to the acquired assets. The determination of the fair market value of
the acquired assets and the allocation of the purchase price to both tangible
and intangible assets are currently being performed and may vary from values
presented below.
Excess of purchase price over the book value of the acquired assets is
calculated as follows: (The book value of acquired assets set forth below
represents the product of the book value of the assets as recorded by K&M as of
March 31, 1995 and 57.5%, the percentage of K&M's partnership interest acquired
by ABI in these transactions.)
<TABLE>
<CAPTION>
(in thousands):
<S> <C>
Total consideration paid by ABI $ 12,680
Transaction costs 256
Assumed liabilities of K&M 8,075
-------
Total purchase price 21,011
Book value of the acquired assets of
K&M as of March 31, 1995 11,614
-------
Excess of purchase price over the book
value of the acquired assets $ 9,397
=======
Allocation of purchase price:
Cash $ 522
Accounts receivable 4,403
Inventories 6,264
Other current assets 75
Equipment 330
Other assets 20
Goodwill 9,397
-------
$ 21,011
=======
Total consideration paid by ABI consisted of:
Cash $ 6,015
Notes issued 5,724
Common Stock 941
-------
$ 12,680
=======
</TABLE>
6
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 1, 1995
Note C - Investments in Affiliated Companies (continued)
-------------------------------------------------------
ABI also completed certain other immaterial business acquisitions in conjunction
with the K&M acquisition.
ABI issued $15 million in short-term notes payable to banks in conjunction with
the K&M transaction.
Following are the pro forma unaudited results of operations for the six months
ended July 1, 1995 and July 2, 1994 which give effect to the change in voting
control over Congoleum and the acquisition of K&M interests as if the
transactions had occurred on January 1, 1994. The pro forma financial
information is presented for informational purposes and is not necessarily
indicative of either the results of operations that would have occurred had the
change in voting control and acquisition occurred at the beginning of the period
presented or the future results of operations.
<TABLE>
<CAPTION>
Six Months Ended
Pro Forma
July 1, July 2,
1995 1994
-------- --------
<S> <C> <C>
($000)
Net sales $ 198,705 $ 196,933
Net income 3,974 4,924
Primary and fully diluted earnings
per common share 1.04 1.30
</TABLE>
Note D - Commitments and Contingencies
--------------------------------------
ABI and Congoleum have recorded what they believe are adequate provisions for
their respective environmental remediation and product-related liabilities,
including for Congoleum, provisions for testing for potential remediation of
conditions at its own facilities. While each company believes that its estimate
of the future amount of these liabilities is reasonable, and that the costs of
these liabilities will be paid over a period of several years, the timing and
amount of such payments may differ significantly from the companies'
assumptions.
7
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
July 1, 1995
Results of Operations
---------------------
The comments that follow compare the second quarter and six months of 1995
results of operations with the same periods of 1994. In the second quarter of
1995, ABI is reporting the financial results of K&M for the first time. In the
second quarter and six months of 1995 the financial results of Congoleum are
also included. In both periods in 1994, the financial results of K&M and
Congoleum are not included. See Note C of the Notes to Consolidated Condensed
Financial Statements which outlines our investments in these affiliated
companies.
Net sales for the 1995 second quarter were $101.3 million compared to $27.8
million last year, an increase of $73.5 million. For the current six months, net
sales are $191.0 million compared to $52.5 million last year, an increase of
$138.5 million.
The following table illustrates the various components of net sales for each
period:
<TABLE>
<CAPTION>
(Dollars in Millions)
Second Quarter Six Months
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
ABI and K&M $ 35.5 $ 27.8 $ 63.6 $ 52.5
Congoleum 68.7 131.9
Intercompany
eliminations (2.9) (4.5)
------ ------ ------ -----
Total $ 101.3 $ 27.8 $ 191.0 $ 52.5
====== ====== ====== =====
</TABLE>
Net sales for ABI for the 1995 second quarter and six months were ahead of last
year due to volume increases together with nominal selling price increases at
both Tape operations and the Canadian division with the exception in the second
quarter where the Moorestown operation reflected a small volume decrease due to
competitive pressures. At Congoleum, 1995 second quarter and six month results
benefited from sales of new products and increased sales of products to the
manufactured housing segment. These increases helped to offset sales declines in
mid to low priced
8
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
July 1, 1995
residential product lines, reflecting a general weakness in floor covering
demand. At K&M, sales were lower than historical levels due to a downturn in
retail business where retailers are keeping inventory levels down as a result of
the decrease in consumer demand.
Interest and other income increased by $0.4 million in the current quarter and
by $2.6 million in the current six months over last year. Increase in interest
income at Congoleum was the major reason for the increase in the current
quarter. For the current six months, Congoleum generated $0.7 million in
interest income and $0.9 million in royalty income. At ABI, $0.9 million was
recognized in the first quarter from an incentive payment made by Hillside
Industries to ABI in consideration of ABI's agreement to enter into the
transaction contemplated by Congoleum's initial public offering of Common Stock
in February 1995.
Cost of products sold as a percentage of sales in the current quarter decreased
to 68.7% from 71.6% last year and for the current six months decreased to 69.0%
from 72.0% last year. Gross margins on products sold at both Congoleum and K&M
are higher than those historically reported for ABI, this being the reason for
the consolidated improvement in cost of products sold. At both ABI and
Congoleum, gross margins were depressed in both current periods due to
substantial increases in raw material costs and intense price competition which
prevented both companies from recovering cost increases in the form of increased
selling prices.
Selling, general and administrative expenses as a percentage of sales in the
current quarter increased to 22.8% from 21.1% last year and for the current six
months increased to 23.4% from 21.8% last year. The principal reason for the
increase in both current periods is the impact of expenses at K&M where these
expenses historically have been over 35% of sales. Based on the low sales
performance of K&M experienced currently, these expenses adversely affected the
consolidated percentages. Excluding K&M from the calculation, these expense
percentages would be equal to last year for both periods.
Interest expense increased to $2.8 million in the current quarter from $0.2
million last year and increased to $4.9 million in the current six months from
$0.3 million last year. Congoleum's
9
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
July 1, 1995
interest expense was $2.0 million in the current quarter and $4.0 million in the
current first six months. Interest expense at K&M was $0.2 million in the
current quarter. At ABI, interest expense was $0.6 million for the current
quarter compared to $0.2 million last year and $0.7 million in the current first
six months compared to $0.3 million last year. The increase at ABI is mainly due
to increased borrowings to finance the acquisition of the additional partnership
interest in K&M.
The effective income tax rate for the six months of 1995 increased to 43.5% from
38.5% in the prior year, mainly due to the inclusion in income tax expense of
deferred taxes provided for the undistributed earnings of Congoleum. In 1994,
such deferred taxes were classified in "equity in earnings of joint venture."
The effective income tax rate for the second quarter increased to 44.4% from
38.5% in the prior year, principally for the reason described above.
Liquidity and Capital Resources
-------------------------------
The ratio of current assets to current liabilities was 1.8 to 1 at the end of
the 1995 second quarter. At December 31, 1994, ABI's current ratio was 2.2 to 1
and Congoleum's was 2.0 to 1. The decrease in the current ratio is due mainly to
an increase in short-term debt to finance the acquisition of K&M. Long-term debt
at the end of the current quarter was $103.3 million, of which $90.0 million
pertains to Congoleum and has no recourse to ABI. Long-term debt increased $9.1
million in the current quarter due to the K&M acquisition. Net cash used by
operating activities in the first six months of 1995 amounted to $6.6 million.
Normal seasonal increases in receivables and inventory are the main reasons for
this cash use in the current period. During the first six months of 1995, the
Company invested $4.6 million in new plant and equipment and depreciation and
amortization expense was $5.9 million. Cash requirements for capital
expenditures, working capital, debt service and the current authorization of
$7.2 million to purchase ABI common stock, are expected to be financed from
funds presently available and from existing lines of credit which at ABI are
presently $25.0 million and at Congoleum are $30.0 million.
10
<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
July 1, 1995
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
The following exhibit is included herein:
(11) Statement re: computation of earnings per share
(b) Reports on Form 8-K
-------------------
A report on Form 8-K dated May 4, 1995 was filed by the Company with the
Securities and Exchange Commission on May 17, 1995 and amended by the
Company by a report on Form 8-K/A filed with the Securities and Exchange
Commission on July 18, 1995 (File No. 1-4773). The Company indirectly
acquired an aggregate 57.5% interest in K&M Associates L.P., a Rhode
Island limited partnership in which the Company indirectly has held a
limited partnership interest since 1983.
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 11, 1995 BY: /s/ Gilbert K. Gailius
---------------------------
Gilbert K. Gailius
Vice President-Finance
11
<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
July 1, 1995
Item 6. Exhibits
------------------
(11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- -------- -------- ---------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 3,595 3,560 3,583 3,559
Net effect of dilutive
stock options-based on
the treasury stock method
using average market price 221 198 234 194
------- ------- ------- --------
Totals 3,816 3,758 3,817 3,753
======= ======= ======= ========
Net income $ 2,127 $ 3,631 $ 4,146 $ 5,079
======= ======= ======= ========
Per share amount $ .56 $ .97 $ 1.09 $ 1.35
======= ======= ======= ========
Fully diluted:
Average shares outstanding 3,595 3,560 3,583 3,559
Net effect of dilutive
stock options-based on
the treasury stock method
using quarter-end market
price 221 217 234 205
------- ------- ------- --------
Totals 3,816 3,777 3,817 3,764
======= ======= ======= ========
Net income $ 2,127 $ 3,631 $ 4,146 $ 5,079
======= ======= ======= ========
Per share amount $ .56 $ .96 $ 1.09 $ 1.35
======= ======= ======= ========
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTIANS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-02-1995 JAN-01-1995
<PERIOD-END> JUL-01-1995 JUL-01-1995
<CASH> 19,919 19,919
<SECURITIES> 12,500 12,500
<RECEIVABLES> 43,310 43,310
<ALLOWANCES> 0 0
<INVENTORY> 93,970 93,970
<CURRENT-ASSETS> 176,837 176,837
<PP&E> 100,176 100,176
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 327,098 327,098
<CURRENT-LIABILITIES> 99,054 99,054
<BONDS> 0 0
<COMMON> 18,997 18,997
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 327,098 327,098
<SALES> 101,289 190,980
<TOTAL-REVENUES> 102,464 194,422
<CGS> 69,559 131,721
<TOTAL-COSTS> 69,559 131,721
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,789 4,945
<INCOME-PRETAX> 7,027 12,988
<INCOME-TAX> 3,118 5,649
<INCOME-CONTINUING> 2,127 4,146
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,127 4,146
<EPS-PRIMARY> 0.56 1.09
<EPS-DILUTED> 0.56 1.09
</TABLE>
