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 April 3, 1999 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 10, 1999
- ------------------- ---------------------------
Common 3,583,376 shares
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands of dollars)
April 3, December 31,
1999 1998
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,673 $ 59,505
Accounts receivable, net 48,423 33,551
Inventories 79,819 69,722
Prepaid expenses & other current assets 8,818 9,199
-------- --------
TOTAL CURRENT ASSETS 180,733 171,977
Goodwill, net 22,060 22,332
Deferred income taxes 1,863 1,863
Other assets 16,146 16,097
Property, plant and equipment, net 123,979 123,770
-------- --------
$344,781 $336,039
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,950
Accounts payable 26,731 $ 20,596
Accrued expenses 52,207 50,328
Current portion of long-term debt 3,143 4,305
-------- --------
TOTAL CURRENT LIABILITIES 87,031 75,229
Long-term debt 111,020 114,101
Other liabilities 56,059 56,039
Noncontrolling interests 18,456 19,433
STOCKHOLDERS' EQUITY
Common stock, par value $0.01-authorized
15,000,00 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,423 19,423
Retained earnings 68,893 68,247
Accumulated other comprehensive loss (4,573) (4,906)
Less cost of shares in treasury (11,574) (11,573)
-------- --------
72,215 71,237
-------- --------
$344,781 $336,039
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands of dollars)
Three Months Ended
April 3, April 4,
1999 1998
-------- --------
Net sales $106,987 $106,388
Interest and other income 484 248
-------- --------
107,471 106,636
Costs and expenses:
Cost of products sold 74,550 74,810
Selling, general and administrative
expenses 27,527 27,192
Interest 2,403 2,115
-------- --------
104,480 104,117
-------- --------
EARNINGS BEFORE INCOME TAXES AND
NONCONTROLLING INTERESTS 2,991 2,519
Income taxes 1,177 961
Noncontrolling interests (356) (233)
-------- --------
NET EARNINGS $ 1,458 $ 1,325
======== ========
Earnings per share:
Basic $ .40 $ .36
======== ========
Diluted $ .39 $ .35
======== ========
Dividends declared per common share $ .125 $ .10
======== ========
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)
Three Months Ended
April 3, April 4,
1999 1998
-------- --------
OPERATING ACTIVITIES
Net earnings $ 1,458 $ 1,325
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization 4,006 3,812
Accounts and notes receivable (15,017) (17,625)
Inventories (10,279) (2,947)
Prepaid expenses and other current assets 206 1,515
Accounts payable and accrued expenses 7,994 4,782
Noncontrolling interests 356 233
Other 20 215
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (11,256) (8,690)
INVESTING ACTIVITIES
Investment in property, plant and equipment (3,762) (2,784)
Purchase of short-term investments (9,200)
Maturities of short-term investments 7,900
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (3,762) (4,084)
FINANCING ACTIVITIES
Net short-term borrowings 4,950 4,800
Payments on long-term debt (4,243) (1,156)
Purchase of treasury shares (1,689)
Proceeds from exercise of stock options 13
Dividends paid (456) (364)
-------- --------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES (1,438) 3,293
Effect of foreign exchange 624 175
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (15,832) (9,306)
Cash and cash equivalents at beginning of period 59,505 19,306
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $ 43,673 $ 10,000
======== ========
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
April 3, 1999
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 three month period ended April 3,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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, 1998.
Note B - Inventories
Inventory at April 3, 1999 and December 31, 1998 consisted of the following (in
thousands):
April 3, December 31,
1999 1998
------- -------
Finished goods $58,721 $50,683
Work-in-process 9,625 9,201
Raw materials and supplies 11,473 9,838
------- -------
$79,819 $69,722
======= =======
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.
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.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 3, 1999
During the first quarter of 1999 and 1998, total comprehensive income amounted
to $1,791,000 and $1,427,000, respectively.
Note E - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended April 3, 1999 and April 4, 1998 (in thousands,
except per share amounts):
Three Months Ended
April 3, April 4,
1999 1998
------ ------
Numerator:
Net income $1,458 $1,325
Denominator:
Denominator for basic earnings per share:
Weighted-average shares 3,646 3,637
Denominator for diluted
earnings per share:
Dilutive employee stock options 113 176
------ ------
Weighted-average shares and
assumed conversions 3,759 3,813
====== ======
Basic earnings per share $ .40 $ .36
====== ======
Diluted earnings per share $ .39 $ .35
====== ======
Note F - 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 represents the Company's flooring products segment, which manufactures
vinyl and vinyl composition floor coverings with distribution primarily through
floor covering distributors, retailers and contractors for commercial and
residential use. The tape products segment consists of two production facilities
in the United States and finishing and sales facilities in Belgium and
Singapore. The
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 3, 1999
tape products segment manufactures paper, film, HVAC, electrical, shoe and other
tape products for use in industrial and automotive markets. The jewelry segment
reflects the results of K&M Associates L.P., a national costume jewelry supplier
to the mass merchandiser markets. The Company's Canadian division produces
flooring, rubber products, including materials used by footwear manufacturers,
and other industrial products.
Segment Profit and Assets Three Months Ended
- ------------------------- April 3, April 4,
(In thousands) 1999 1998
--------- ---------
Revenues
Revenues from external customers:
Flooring products $ 65,162 $ 63,607
Tape products 21,603 21,085
Jewelry 10,537 12,180
Canadian division 9,685 9,516
--------- ---------
Total revenues from external
customers 106,987 106,388
--------- ---------
Intersegment revenues:
Flooring products 225 268
Tape products 60 49
Jewelry
Canadian division 2,076 1,770
--------- ---------
Total intersegment revenues 2,361 2,087
--------- ---------
109,348 108,475
Reconciling items
Intersegment revenues (2,361) (2,087)
--------- ---------
Total consolidated revenues $ 106,987 $ 106,388
========= =========
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 3, 1999
Note F - Industry Segments continued
Three Months Ended
April 3, April 4,
(In thousands) 1999 1998
------- -------
Segment profit (loss)
Flooring products $ 1,183 $ 672
Tape products 1,339 609
Jewelry (163) 765
Canadian division 851 818
------- -------
Total segment profit 3,210 2,864
Reconciling items
Corporate office loss (177) (312)
Intercompany profit (42) (33)
------- -------
Total consolidated earnings before
income taxes and other items $ 2,991 $ 2,519
======= =======
April 3, April 4,
1999 1998
------- -------
Segment assets
Flooring products $238,448 $201,468
Tape products 56,711 54,033
Jewelry 18,053 22,898
Canadian division 22,853 22,152
-------- --------
Total segment assets 336,065 300,551
Reconciling items
Corporate office assets 27,294 29,086
Intersegment accounts receivable (18,384) (19,855)
Intersegment profit in inventory (194) (126)
-------- --------
Total consolidated assets $344,781 $309,656
======== ========
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 3, 1999
Note G - Changes in Accounting Principles
Effective January 1, 1999, the Company adopted the Accounting Standards
Executive Committee of the AICPA Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." This
Statement requires certain costs of internally developed software to be
capitalized for years beginning after December 15, 1998. The adoption of this
SOP did not have a material impact on the Company's financial statements.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 3, 1999
Results of Operations
Net sales for the first quarter of 1999 were $107.0 million compared to $106.4
million for the first quarter of 1998. Sales for 1999 at K&M Associates L.P.
("K&M") were a little lower than in 1998. Sales for 1999 at all other locations
were higher than in 1998.
Interest and other income increased in the current quarter to $.5 million from
$.2 million in last year's first quarter. The primary cause of this increase in
1999 is higher interest income at Congoleum Corporation ("Congoleum") from
having funds available to invest during the quarter.
Cost of products sold as a percentage of sales improved to 69.7% in the current
quarter compared to 70.3% during the first quarter of 1998. This improvement in
cost of sales resulted from lower raw material costs and higher manufacturing
productivity.
Selling, general and administrative expenses as a percentage of net sales
remained unchanged at 25.7% in the current quarter compared to 25.6% during the
first quarter of 1998.
Net income for the first quarter of 1999 was $1,458,000 compared to $1,325,000
in last year's first quarter. All businesses of the Company generated higher
profits in the current quarter compared to last year's first quarter except K&M
which experienced a small loss in the current quarter.
Liquidity and Capital Resources
Cash and cash equivalents declined $15.8 million for the three months ended
April 3, 1999 to $43.7 million. Working capital was $93.7 million, down from
$96.7 million at year end 1998. The ratio of current assets to current
liabilities at April 3, 1999 was 2.1 and at December 31, 1998 was 2.3. Cash used
by operations was $11.3 million for 1999's first quarter and consists mainly of
the seasonal increase in receivables and inventory.
Capital expenditures in the current first quarter were $3.8 million and
depreciation and amortization expense was $4.0 million. It is anticipated that
total year capital spending will be in the range of $24 to $26 million.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 3, 1999
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.
Cash requirements for capital expenditures, working capital, debt service and
the current authorization to repurchase $4.7 million of ABI's Common Stock and
$3.1 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 $35.0 million and at Congoleum are $30.0 million.
In 1996, the Company began the initial planning of a comprehensive initiative to
address the impact of the Year 2000 on its information and equipment systems.
The Company organized a Year 2000 oversight team to develop a strategy of
evaluation, implementation, testing and contingency planning to address the
Company's Year 2000 readiness. The evaluation phase involved performing a
complete, company-wide inventory to identify all internal, general purpose and
production hardware and software systems, as well any embedded logic devices
used to control equipment or facilities, that required modification to become
Year 2000 compliant. In addition to the Company's internal assessment, the
Company communicated with all its distributors and all key third party suppliers
of goods and services to determine their states of Year 2000 readiness,
implementation of Year 2000 compliant systems and related contingency plans.
In the second quarter of 1997, the Company began the implementation and testing
phase of replacing or modifying system hardware, software and devices. As of
March 1999, the Company has completed work on 85% of the systems identified as
requiring modification. The Company anticipates that substantially all of its
systems will be Year 2000 compliant by the beginning of the fourth quarter of
1999.
Costs directly associated with achieving Year 2000 compliance, including
modifying computer software or converting to new programs, consist of payments
to third parties as well as an allocation of the payroll and benefits of its
employees based on the amount of their time devoted to this activity. These
costs are expensed as incurred. Costs for new hardware are capitalized in
accordance with the Company's fixed asset policy, and any equipment retired is
written off.
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 3, 1999
The following table summarizes the Company's direct Year 2000 compliance
expenditures (actual and planned) by year:
(In thousands) 1997 1998 1999
---- ---- ----
Expenses paid to third parties $307 $462 $376
Allocated payroll costs 457 533 251
Capital expenditures 120 415 196
In addition to work undertaken explicitly to achieve Year 2000 compliance, the
Company has replaced or upgraded a number of systems in the ordinary course of
business where the replacement or upgrade will, in addition to its primary
benefits, also provide Year 2000 compliance. These costs are either capitalized
or expensed in accordance with generally accepted accounting principles. The
following table summarizes the Company's actual or planned expenditures on
systems improvements undertaken for reasons unrelated to the Year 2000, but also
serving to achieve Year 2000 compliance:
(In thousands) 1997 1998 1999
---- ---- ----
Expenses paid to third parties $118 $473 $780
Allocated payroll costs 74 279 198
Capital expenditures 244 470 382
The costs of achieving Year 2000 compliance, and of improving the Company's
systems, are being funded through operating cash flow. With respect to embedded
logic devices used to monitor or control equipment or facilities, the Company
has completed a survey of allocations and identified 21 devices which must be
modified or replaced. The Company expects to complete modification or
replacement of these devices by the end of the third quarter of 1999 at an
estimated aggregate cost of $0.3 million.
Although the Company believes it has taken all of the necessary steps to ensure
that the Company will be Year 2000 compliant, there can be no assurances that
the Company will be able to complete all of the modifications in the required
time frame, that all third parties will be Year 2000 compliant, or that
unforeseen Year 2000 issues will not arise. Management currently believes the
worst case scenario with any reasonable probability is that a small number of
vendors, who are not critical to the operation of the Company's business, will
be unable to supply materials for a short time after January 1, 2000, and that
minor additional systems modifications not identified during evaluation or
testing will be identified and corrected in a matter of days. The Company does
not anticipate any disruption of service to its customers.
The Company is currently preparing contingency plans for the various potential
disruptions that could occur in spite of its own efforts and representations
from its distributors and suppliers.
<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
April 3, 1999
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
April 3, 1999.
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 12, 1999 BY: /s/ Gilbert K. Gailius
-----------------------
Gilbert K. Gailius
Vice President-Finance
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<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<CASH> 43,673
<SECURITIES> 0
<RECEIVABLES> 48,423
<ALLOWANCES> 0
<INVENTORY> 79,819
<CURRENT-ASSETS> 180,733
<PP&E> 123,979
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0
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<COMMON> 46
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<SALES> 106,987
<TOTAL-REVENUES> 107,471
<CGS> 74,550
<TOTAL-COSTS> 104,480
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<INCOME-TAX> 1,177
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