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 4, 1998 Commission File Number 1-4773
American Biltrite Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1701350
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
57 River Street Wellesley Hills, Massachusetts 02481-2097
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 781-237-6655
-----------------------------
None
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(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, 1998
- ---------------------------- -----------------------------------
Common Stock 3,639,508 shares
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands of dollars)
July 4, December 31,
1998 1997
-------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,039 $ 19,306
Short-term investments 10,100 7,900
Accounts receivable, net 45,451 30,254
Inventories 80,828 74,355
Prepaid expenses & other current assets 7,879 9,187
--------- ---------
TOTAL CURRENT ASSETS 162,297 141,002
Goodwill, net 22,877 23,421
Deferred income taxes 2,636 2,636
Other assets 12,141 12,171
Property, plant and equipment, net 120,378 120,456
--------- ---------
$ 320,329 $ 299,686
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,000 $ 5,500
Accounts payable 24,596 19,060
Accrued expenses 58,392 47,769
Current portion of long-term debt 4,223 1,156
--------- ---------
TOTAL CURRENT LIABILITIES 94,211 73,485
Long-term debt 89,696 93,253
Other liabilities 50,809 51,271
Non-controlling interests 17,937 16,332
STOCKHOLDERS' EQUITY
Common stock, par value $0.01-authorized
15,000,000 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,423 19,423
Retained earnings 63,622 60,924
Equity adjustment from translation (3,179) (2,759)
Minimum pension liability (546) (546)
Less cost of shares in treasury (11,690) (11,743)
--------- ---------
67,676 65,345
--------- ---------
$ 320,329 $ 299,686
========= =========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
($000)
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $ 108,501 $ 101,592 $ 214,889 $ 197,105
Interest and other income 1,100 936 1,348 1,507
--------- --------- --------- ---------
109,601 102,528 216,237 198,612
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold 74,147 70,214 148,957 137,157
Selling, general and
administrative expenses 27,652 26,671 54,844 52,230
Interest 2,098 2,255 4,213 4,774
--------- --------- --------- ---------
103,897 99,140 208,014 194,161
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES
AND NON-CONTROLLING
INTERESTS 5,704 3,388 8,223 4,451
Provision for income taxes 2,231 1,337 3,192 1,773
Non-controlling interests (1,372) (1,167) (1,605) (1,747)
--------- --------- --------- ---------
NET EARNINGS $ 2,101 $ 884 $ 3,426 $ 931
========= ========= ========= =========
Earnings per share:
Basic $ .58 $ .24 $ .94 $ .26
Diluted $ .55 $ .24 $ .89 $ .25
Dividends declared per
common share $ .10 $ .10 $ .20 $ .20
See accompanying notes to consolidated condensed financial statements.
<PAGE>
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
July 4, June 28,
1998 1997
-------- --------
OPERATING ACTIVITIES
Net earnings $ 3,426 $ 931
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation and amortization 7,647 7,412
Accounts and notes receivable (15,332) (6,702)
Inventories (6,702) (19,782)
Prepaid expenses and other current assets 1,296 2,256
Accounts payable and accrued expenses 15,916 3,068
Non-controlling interests 1,605 1,747
Other (323) 741
-------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 7,533 (10,329)
INVESTING ACTIVITIES
Investment in property, plant & equipment (6,986) (11,386)
Purchase of short-term investments (11,700) (28,800)
Maturities of short-term investments 9,500 21,700
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (9,186) (18,486)
FINANCING ACTIVITIES
Net short-term borrowings 1,500 6,750
Long-term borrowings 671
Payments on long-term debt (1,156) (1,981)
Purchase and retirement of Congoleum
Class B shares (1,005)
Purchase of treasury shares (1) (801)
Proceeds from exercise of stock options 54 88
Dividends paid (728) (726)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 340 2,325
Effect of foreign exchange 46 639
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (1,267) (25,851)
Cash and cash equivalents at beginning
of period 19,306 33,658
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 18,039 $ 7,807
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 4, 1998
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 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 4,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997.
Note B - Inventories
Inventory at July 4, 1998 and December 31, 1997 consisted of the
following: (in thousands)
July 4, December 31,
1998 1997
-------- ------------
Finished goods $ 56,866 $ 53,139
Work-in-process 11,489 9,422
Raw materials and supplies 12,473 11,794
-------- --------
$ 80,828 $ 74,355
======== ========
Note C - Commitments and Contingencies
ABI has recorded what it believes are adequate provisions for environmental
remediation and product-related liabilities. While the Company believes that its
estimate of the future amount of these liabilities is reasonable, the ultimate
outcome of these matters cannot be determined.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 4, 1998
Note D - Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income.
The following table presents Comprehensive Income for the three months and
six months ended July 4, 1998 and June 28, 1997: (in thousands)
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------- ------ ------- ------
Comprehensive Income $ 1,579 $ 850 $ 3,006 $ 669
======= ====== ======= ======
Note E - 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 July 4, 1998 and June 28, 1997:
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------- ------- ------- -------
Numerator:
Net income $ 2,101 $ 884 $ 3,426 $ 931
======= ======= ======= =======
Denominator:
Denominator for basic
earnings per share:
Weighted-average shares 3,639 3,631 3,638 3,631
Denominator for diluted
earnings per share:
Dilutive employee stock
options 214 102 195 107
------- ------- ------- -------
Weighted-average shares
and assumed conversions 3,853 3,733 3,833 3,738
======= ======= ======= =======
Basic earnings per share $ .58 $ .24 $ .94 $ .26
======= ======= ======= =======
Diluted earnings per share $ .55 $ .24 $ .89 $ .25
======= ======= ======= =======
Note F- Reclassifications
For comparative purposes, certain prior years' amounts have been reclassified to
conform to the current year presentation.
<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 4, 1998
Results of Operations
Net sales for the second quarter of 1998 were $108.5 million compared to $101.6
million for the second quarter of 1997, reflecting an increase of $6.9 million
or 7%. This sales increase was generated primarily by Congoleum Corporation
("Congoleum") and by K&M Associates L.P. ("K&M"). Congoleum's improvement in
1998 is attributable to additional sales to the home center channel, higher
sales to the manufactured housing sector, and sales of recently introduced
products. K&M's increased sales are from servicing 1,700 additional stores for a
major customer beginning in the middle of 1997.
Sales for the first six months of 1998 were $214.9 million compared to $197.1
million last year. Sales performance at Congoleum and K&M, as outlined above,
accounts for the largest portion of the year-to-date increase. Sales at ABI's
tape and Canadian operations reflect small sales increases over last year.
Cost of products sold as a percentage of net sales remained relatively unchanged
with the current quarter decreasing to 68.3% from 69.1% in last year's second
quarter and for the six month period decreasing to 69.3% from 69.6% last year.
Selling, general and administrative expenses as a percentage of net sales in the
current quarter decreased to 25.5% from 26.3% last year and for the current six
months decreased to 25.5% from 26.5% and is primarily the result of higher sales
volume levels experienced in both the current quarter and six months which more
than offset related expense increases.
Interest expense in both the current quarter and six months reflects reductions
from last year and is due to lower debt outstanding on both ABI and Congoleum.
Net income for the second quarter of 1998 was $2.1 million compared to $.9 last
year and for the first six months of 1998 was $3.4 million compared to $.9
million last year. All businesses of the Company were profitable during the
current quarter and six months, particularly at K&M where operations were
profitable this year compared to last year when they experienced significant
losses during the first and second quarters.
<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 4, 1998
Liquidity and Capital Resources
Cash and cash equivalents, including short-term investments, increased $.9
million for the six months ended July 4, 1998 to $28.1 million. Working capital
was $68.1 million, up from $67.5 million at year end 1997. The ratio of current
assets to current liabilities at July 4, 1998 was 1.7 and at December 31, 1997
was 1.9. Cash provided by operations was $7.5 million in the first six months of
1998.
Capital expenditures in the current six months were $7.0 million. Depreciation
and amortization expense was $7.6 million. It is anticipated that total year
capital spending will be in the range of $25 to $27 million.
On July 31, 1998, Congoleum issued $100 million of 8 5/8% Senior Notes maturing
August 1, 2008 priced at 99.505 to yield 8.70%. Proceeds of the offering will be
used to redeem all of Congoleum's 9% Senior Notes, including accrued interest
and prepayment premium, to pay certain fees and expenses in connection with the
offering, and for working capital and general corporate purposes. In connection
with this offering, Congoleum will record an extraordinary after-tax charge of
$2.3 million during the third quarter of 1998. American Biltrite's share of this
extraordinary after-tax charge during the third quarter will be $1.1 million
($.30 per share). A more complete description of the terms of the Congoleum
Senior Note offering is set forth in Congoleum's 10-Q for the second quarter of
1998 filed on August 13, 1998 with the Securities and Exchange Commission
together with copies of the Indenture and Registration Rights Agreement.
The Company has established a reserve for product related liabilities and an
environmental reserve against which the costs of administration and remediation
are and will be charged. Since legal proceedings tend to be unpredictable and
costly, resolution of an environmental proceeding could possibly be material to
the results of operations or cash flow for a particular quarterly or annual
reporting period.
The Company has completed an assessment of the steps it believes will be
necessary for its existing and planned data processing systems and equipment to
operate properly when confronted with dates beginning in the year 2000. A plan
has been developed which identifies the systems affected and the steps that will
be required to assure year 2000 compliance. The Company's existing plan to
improve operations by replacing or upgrading systems in the
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
July 4, 1998
ordinary course of business during 1998 and 1999 will have the additional
benefit of providing year 2000 compliance in many instances. The resources
required to make the remaining systems compliant have been estimated and are
being provided by a combination of existing employees and outside contractors.
The Company has retained or believes it will be able to retain the necessary
employees and outside resources to accomplish this, and that the cost to achieve
compliance will not be material to the Company's financial position, liquidity
or results of operations. As of June 1998, the Company has completed converting
61% of the systems identified as requiring modification. The timing and resource
requirements to date have been consistent with the Company's plan, and the
Company anticipates that all of its mission-critical systems will be year 2000
compliant by the end of 1998. However, if any governmental agencies, key
customers or key suppliers are unable to make the necessary computer system
changes on a timely basis, such inability could negatively impact the Company's
results of operations.
Cash requirements for capital expenditures, working capital, debt service and
the current authorization to repurchase $4.7 million of ABI's Common Stock and
$.4 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 $34.0 million and at Congoleum are $30.0 million.
<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
July 4, 1998
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting of Stockholders held on May 14, 1998, the following
action was taken:
Three nominees were elected as Class II Directors who will hold office
until the Annual Meeting of Stockholders in 2001 and until their
successors are duly elected and qualify.
Witheld From
Name Votes For All Nominees
---- --------- ------------
John C. Garrels, 3rd 3,231,289 4,933
James S. Marcus 3,231,059 5,163
Roger S. Marcus 3,231,089 3,133
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 July 4,
1998.
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 13, 1998 BY:
--------------------------
Gilbert K. Gailius
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-04-1998
<CASH> 18,039
<SECURITIES> 10,100
<RECEIVABLES> 45,451
<ALLOWANCES> 0
<INVENTORY> 80,828
<CURRENT-ASSETS> 162,297
<PP&E> 120,378
<DEPRECIATION> 0
<TOTAL-ASSETS> 320,329
<CURRENT-LIABILITIES> 94,211
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 67,676
<TOTAL-LIABILITY-AND-EQUITY> 320,329
<SALES> 214,889
<TOTAL-REVENUES> 216,237
<CGS> 148,957
<TOTAL-COSTS> 208,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,213
<INCOME-PRETAX> 8,223
<INCOME-TAX> 3,192
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,426
<EPS-PRIMARY> .94
<EPS-DILUTED> .89
</TABLE>
