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 October 3, 1998 Commission File Number 1-4773
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American Biltrite Inc.
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(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 November 10, 1998
- --------------------------- ---------------------------------------------
Common Stock 3,646,988 shares
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands of dollars)
October 3, December 31,
1998 1997
---------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 50,289 $ 19,306
Short-term investments 3,300 7,900
Accounts receivable, net 42,972 30,254
Inventories 75,370 74,355
Prepaid expenses & other current assets 8,765 9,187
--------- ---------
TOTAL CURRENT ASSETS 180,696 141,002
Goodwill, net 22,604 23,421
Deferred income taxes 2,636 2,636
Other assets 13,413 12,171
Property, plant and equipment, net 123,186 120,456
--------- ---------
$ 342,535 $ 299,686
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 6,800 $ 5,500
Accounts payable 25,330 19,060
Accrued expenses 54,021 47,769
Current portion of long-term debt 4,307 1,156
--------- ---------
TOTAL CURRENT LIABILITIES 90,458 73,485
Long-term debt 114,100 93,253
Other liabilities 50,858 51,271
Non-controlling interests 18,716 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 64,988 60,924
Equity adjustment from translation (3,927) (2,759)
Minimum pension liability (546) (546)
Less cost of shares in treasury (11,581) (11,743)
--------- ---------
68,403 65,345
--------- ---------
$ 342,535 $ 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 Nine Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $ 110,681 $ 120,036 $ 325,570 $ 317,141
Interest and other income 1,416 383 2,764 1,890
--------- --------- --------- ---------
112,097 120,419 328,334 319,031
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold 75,280 81,616 224,237 218,773
Selling, general and
administrative expenses 26,227 26,713 81,071 78,943
Interest 2,364 2,386 6,577 7,160
--------- --------- --------- ---------
103,871 110,715 311,885 304,876
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 8,226 9,704 16,449 14,155
Provision for income taxes 3,212 3,663 6,404 5,436
Non-controlling interests (2,019) (1,221) (3,624) (2,968)
--------- --------- --------- ---------
Income before extra-
ordinary item 2,995 4,820 6,421 5,751
Extraordinary item - early
retirement of debt, net of
income tax benefit (1,174) (1,174)
--------- --------- --------- ---------
NET EARNINGS $ 1,821 $ 4,820 $ 5,247 $ 5,751
========= ========= ========= =========
Earnings per share:
Basic
Earnings before extraordinary
item $ .82 $ 1.33 $ 1.76 $ 1.58
Extraordinary item (.32) (.32)
--------- --------- --------- ---------
Net income $ .50 $ 1.33 $ 1.44 $ 1.58
========= ========= ========= =========
Diluted
Earnings before extraordinary
item $ .79 $ 1.31 $ 1.68 $ 1.55
Extraordinary item (.31) (.31)
--------- --------- --------- ---------
Net income $ .48 $ 1.31 $ 1.37 $ 1.55
========= ========= ========= =========
Dividends declared per
common share $ .125 $ .10 $ .325 $ .30
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)
Nine Months Ended
Oct. 3, Sept. 27,
1998 1997
-------- --------
OPERATING ACTIVITIES
Net earnings $ 5,247 $ 5,751
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation and amortization 11,458 11,030
Loss on early retirement of debt 3,809
Accounts and notes receivable (12,804) (15,692)
Inventories (1,235) (8,711)
Prepaid expenses and other current assets 466 1,423
Accounts payable 6,370 (2,878)
Accrued expenses 6,421 2,015
Non-controlling interests 2,384 2,968
Other (443) 1,339
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 21,673 (2,755)
INVESTING ACTIVITIES
Investment in property, plant & equipment (13,488) (18,175)
Purchase of short-term investments (15,000) (43,000)
Maturities of short-term investments 19,600 46,300
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (8,888) (14,875)
FINANCING ACTIVITIES
Net short-term borrowings 1,300 7,000
Long-term borrowings 101,728
Debt issuance costs (2,821)
Payments on long-term debt (77,787) (7,981)
Premium payments on early retirement of debt (2,563)
Purchase and retirement of Congoleum
Class B shares (1,005)
Purchase of treasury shares (1) (1,089)
Proceeds from exercise of stock options 163 88
Dividends paid (1,183) (1,090)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 18,836 (4,077)
Effect of foreign exchange (638) 473
-------- --------
INCREASE (DECREASE) IN CASH 30,983 (21,234)
Cash at beginning of period 19,306 33,658
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 50,289 $ 12,424
======== ========
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
October 3, 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 nine month period ended October 3,
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 October 3, 1998 and December 31, 1997 consisted of the
following: (in thousands)
October 3, December 31,
1998 1997
---------- ------------
Finished goods $ 52,822 $ 53,139
Work-in-process 11,245 9,422
Raw materials and supplies 11,303 11,794
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$ 75,370 $ 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
October 3, 1998
Note D - Long-Term Debt
On August 3, 1998, Congoleum Corporation ("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 were used to redeem all of the 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. The Indenture under which the notes were issued includes
certain restrictions on additional indebtedness and dividend payments.
The Senior Notes are redeemable at the option of Congoleum, in whole or in part,
at any time on or after August 1, 2003 at a predetermined redemption price
(ranging from 104% to 100%), plus accrued and unpaid interest to date of
redemption.
In connection with this offering, Congoleum recorded an extraordinary after-tax
charge of $2.4 million, ABI's share of this charge was $1.2 million ($.32 per
share), to write off debt issuance costs and premiums associated with the
repurchase of the 9% Senior Notes.
Note E - 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 nine
months ended October 3, 1998 and September 27, 1997: (in thousands)
Three Months Ended Nine Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
------- ------- ------- -------
Net income $ 1,821 $ 4,820 $ 5,247 $ 5,751
Foreign translation
adjustments (748) (245) (1,168) (507)
------- ------- ------- -------
Comprehensive Income $ 1,073 $ 4,575 $ 4,079 $ 5,244
======= ======= ======= =======
<PAGE>
Form 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
October 3, 1998
Note F - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months and nine months ended October 3, 1998 and September
27, 1997: (in thousands, except per share amounts)
Three Months Ended Nine Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
------- --------- -------- ---------
Numerator:
Net income $1,821 $4,820 $5,247 $5,751
====== ====== ====== ======
Denominator:
Denominator for basic
earnings per share:
Weighted-average shares 3,643 3,635 3,640 3,632
Denominator for diluted
earnings per share:
Dilutive employee stock
options 163 31 184 82
------ ------ ------ ------
Weighted-average shares
and assumed conversions 3,806 3,666 3,824 3,714
====== ====== ====== ======
Basic earnings per share $ .50 $ 1.33 $ 1.44 $ 1.58
====== ====== ====== ======
Diluted earnings per share $ .48 $ 1.31 $ 1.37 $ 1.55
====== ====== ====== ======
Note G- 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
October 3, 1998
Results of Operations
Net sales for the third quarter of 1998 were $110.7 million compared to $120.0
million for the third quarter of 1997, reflecting a decrease of $9.3 million or
8%. Net sales for the third quarter of 1998 were lower than 1997 at all of the
Company's businesses, particularly at K&M Associates L.P. ("K&M"). Sales for the
third quarter of 1997 included the initial shipments to 1,700 new stores K&M
began servicing for a major customer.
Net sales for the first nine months of 1998 were $325.6 million, an increase of
$8.4 million or 3% over last year's sales of $317.1 million. The largest sales
increase occurred at Congoleum from higher sales to the manufactured housing and
home center channels. Sales were higher in 1998 at K&M and slightly lower at the
Tape and Canadian divisions.
Interest and other income increased in the current third quarter by $1 million
and by $.9 million for the first nine months of 1998. Higher interest and
royalty income at Congoleum and foreign exchange gains at ABI positively
affected results for both periods compared to last year.
Cost of products sold as a percentage of net sales in the 1998 third quarter
remained the same at 68.0% compared to last year and improved slightly to 68.9%
in 1998 from 69.0% in last year's first nine months.
Selling, general and administrative expenses as a percentage of net sales in the
current quarter increased to 23.7% from 22.3% last year. Expenditure levels for
the quarter were about the same as last year but sales were off $9.3 million as
noted above. Expense as a percentage of net sales for the nine months 1998 was
24.9%, the same as last year.
Interest expense in the current nine months is lower than last year resulting
from lower borrowing requirements at both ABI and K&M.
Income before extraordinary item for the third quarter of 1998 was $3.0 million
compared to $4.8 million last year. Congoleum's earnings were higher than last
year's third quarter but earnings were lower at ABI and K&M. For the nine months
1998, income before extraordinary item was $6.4 million compared to $5.8 million
last year. Earnings are higher in 1998 at Congoleum and the Canadian division,
but lower at K&M and the Tape division.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
October 3, 1998
As described in the Liquidity and Capital Resources section, Congoleum
refinanced its long-term debt during the quarter and recorded an extraordinary
after-tax charge of $2.4 million, ABI's share being $1.2 million or $.32 per
share for debt extinguishment costs in connection with this transaction.
Net income after extraordinary item for the third quarter of 1998 was $1.8
million compared with $4.8 million in the third quarter of 1997. Net income
after extraordinary item for the first nine months of 1998 was $5.3 million
compared with $5.6 million during the same period in 1997.
Liquidity and Capital Resources
Cash and cash equivalents, including short-term investments, increased $26.4
million for the nine months ended October 3, 1998 to $53.6 million. Working
capital was $90.2 million, up from $67.5 million at year end 1997. The ratio of
current assets to current liabilities at October 3, 1998 was 2.0 to 1.0 and at
December 31, 1997 was 1.9 to 1.0. Cash provided by operations was $21.7 million
for the first nine months of 1998 compared to $2.8 million cash used by
operations in the first nine months of last year.
Capital expenditures in the current nine months were $13.5 million. Depreciation
and amortization expense was $11.5 million. It is anticipated that total year
capital spending will be in the range of $20 to $22 million.
On August 3, 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 were
used to redeem all of the 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 recorded an extraordinary after-tax charge of $2.4
million in the third quarter of 1998, ABI's share of this charge was $1.2
million.
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.
<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
October 3, 1998
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 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
September 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 the first half of 1999. 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
existing funds, 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
October 3, 1998
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
October 3, 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: November 12, 1998 BY: /s/ Gilbert K. Gailius
------------------------------
Gilbert K. Gailius
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-03-1998
<CASH> 50,289
<SECURITIES> 3,300
<RECEIVABLES> 42,972
<ALLOWANCES> 0
<INVENTORY> 75,370
<CURRENT-ASSETS> 180,696
<PP&E> 123,186
<DEPRECIATION> 0
<TOTAL-ASSETS> 342,535
<CURRENT-LIABILITIES> 90,458
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 68,354
<TOTAL-LIABILITY-AND-EQUITY> 342,535
<SALES> 325,570
<TOTAL-REVENUES> 328,334
<CGS> 224,237
<TOTAL-COSTS> 311,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,577
<INCOME-PRETAX> 16,449
<INCOME-TAX> 6,404
<INCOME-CONTINUING> 6,421
<DISCONTINUED> 0
<EXTRAORDINARY> (1,174)
<CHANGES> 0
<NET-INCOME> 5,247
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.37
</TABLE>
