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 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 August10, 1999
- ------------------- -----------------------------
Common 3,573,376 shares
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands of dollars)
July 3, December 31,
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,254 $ 59,505
Accounts receivable, net 42,172 33,551
Inventories 91,747 69,722
Prepaid expenses & other current assets 9,762 9,199
--------- ---------
TOTAL CURRENT ASSETS 183,935 171,977
Goodwill, net 21,910 22,332
Deferred income taxes 1,529 1,863
Other assets 16,111 16,097
Property, plant and equipment, net 127,281 123,770
--------- ---------
$ 350,766 $ 336,039
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,700
Accounts payable 27,423 $ 20,596
Accrued expenses 54,794 50,328
Current portion of long-term debt 3,140 4,305
--------- ---------
TOTAL CURRENT LIABILITIES 93,057 75,229
Long-term debt 110,999 114,101
Other liabilities 55,850 56,039
Noncontrolling interests 18,836 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 69,702 68,247
Accumulated other comprehensive loss (4,208) (4,906)
Less cost of shares in treasury (12,939) (11,573)
--------- ---------
72,024 71,237
--------- ---------
$ 350,766 $ 336,039
========= =========
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)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 104,002 $ 108,501 $ 210,989 $ 214,889
Interest and other income 1,471 1,100 1,955 1,348
--------- --------- --------- ---------
105,473 109,601 212,944 216,237
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold 71,740 74,147 146,290 148,957
Selling, general and administrative
expenses 28,122 27,652 55,649 54,844
Interest 2,388 2,098 4,791 4,213
--------- --------- --------- ---------
102,250 103,897 206,730 208,014
--------- --------- --------- ---------
EARNINGS BEFORE INCOME
TAXES AND NON-
CONTROLLING INTERESTS 3,223 5,704 6,214 8,223
Income taxes 1,287 2,231 2,464 3,192
Noncontrolling interests (604) (1,372) (960) (1,605)
--------- --------- --------- ---------
NET EARNINGS $ 1,332 $ 2,101 $ 2,790 $ 3,426
========= ========= ========= =========
Earnings per share:
Basic $ .37 $ .58 $ .77 $ .94
Diluted $ .36 $ .55 $ .75 $ .89
Dividends declared per common share $ .125 $ .10 $ .25 $ .20
</TABLE>
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)
<TABLE>
<CAPTION>
Six Months Ended
July 3, July 4,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,790 $ 3,426
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 7,891 7,647
Accounts and notes receivable (8,759) (15,332)
Inventories (22,172) (6,702)
Prepaid expenses and other current assets (827) 1,296
Accounts payable and accrued expenses 11,237 15,916
Noncontrolling interests 960 1,605
Other 143 (323)
-------- --------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES (8,737) 7,533
INVESTING ACTIVITIES
Investment in property, plant and equipment (10,551) (6,986)
Purchase of short-term investments (4,301) (11,700)
Maturities of short-term investments 4,301 9,500
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (10,551) (9,186)
FINANCING ACTIVITIES
Net short-term borrowings 7,700 1,500
Long-term borrowings 671
Payments on long-term debt (4,171) (1,156)
Purchase of treasury shares (3,356) (1)
Proceeds from exercise of stock options 54
Dividends paid (903) (728)
-------- --------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES (730) 340
Effect of foreign exchange 767 46
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (19,251) (1,267)
Cash and cash equivalents at beginning of period 59,505 19,306
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 40,254 $ 18,039
======== ========
</TABLE>
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 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 July 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 July 3, 1999 and December 31, 1998 consisted of the following (in
thousands):
July 3, December 31,
1999 1998
------- -------
Finished goods $68,117 $50,683
Work-in-process 10,891 9,201
Raw materials and supplies 12,739 9,838
------- -------
$91,747 $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
July 3, 1999
The following table presents total comprehensive income for the three months and
six months ended July 3, 1999 and July 4, 1998 (in thousands):
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $ 1,332 $ 2,101 $ 2,790 $ 3,426
Foreign currency translation
adjustments 365 (522) 698 (420)
------- ------- ------- -------
Total comprehensive income $ 1,697 $ 1,579 $ 3,488 $ 3,006
======= ======= ======= =======
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 3, 1999 and July 4, 1998
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator:
Net income $1,332 $2,101 $2,790 $3,426
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share:
Weighted-average shares 3,584 3,639 3,616 3,638
Denominator for diluted earnings
per share:
Dilutive employee stock options 70 214 91 195
------ ------ ------ ------
Weighted-average shares and
assumed conversions 3,654 3,853 3,707 3,833
====== ====== ====== ======
Basic earnings per share $ .37 $ .58 $ .77 $ .94
====== ====== ====== ======
Diluted earnings per share $ .36 $ .55 $ .75 $ .89
====== ====== ====== ======
</TABLE>
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 3, 1999
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 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
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Revenues from external customers:
Flooring products $ 64,130 $ 69,565 $ 129,292 $ 133,172
Tape products 22,237 20,996 43,840 42,081
Jewelry 6,662 8,494 17,199 20,674
Canadian division 10,973 9,446 20,658 18,962
--------- --------- --------- ---------
Total revenues from external
customers 104,002 108,501 210,989 214,889
--------- --------- --------- ---------
Intersegment revenues:
Flooring products 177 185 402 453
Tape products 45 64 105 113
Jewelry
Canadian division 2,421 2,092 4,497 3,862
--------- --------- --------- ---------
Total intersegment revenues 2,643 2,341 5,004 4,428
--------- --------- --------- ---------
106,645 110,842 215,993 219,317
Reconciling items
Intersegment revenues (2,643) (2,341) (5,004) (4,428)
--------- --------- --------- ---------
Total consolidated revenues $ 104,002 $ 108,501 $ 210,989 $ 214,889
========= ========= ========= =========
</TABLE>
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 3, 1999
Note F - Industry Segments continued
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment profit (loss)
Flooring products $ 1,915 $ 4,166 $ 3,098 $ 4,838
Tape products 1,523 875 2,862 1,484
Jewelry (1,092) 11 (1,255) 776
Canadian division 1,183 953 2,034 1,771
------- ------- ------- -------
Total segment profit 3,529 6,005 6,739 8,869
Reconciling items
Corporate office loss (251) (240) (428) (552)
Intercompany profit (55) (61) (97) (94)
------- ------- ------- -------
Total consolidated earnings before
income taxes and other items $ 3,223 $ 5,704 $ 6,214 $ 8,223
======= ======= ======= =======
</TABLE>
July 3, Dec. 31,
1999 1998
---- ----
Segment assets
Flooring products $ 245,564 $ 231,865
Tape products 57,591 48,308
Jewelry 14,042 16,298
Canadian division 25,079 20,710
--------- ---------
Total segment assets 342,276 317,181
Reconciling items
Corporate office assets 27,519 29,446
Intersegment accounts receivable (18,780) (10,436)
Intersegment profit in inventory (249) (152)
--------- ---------
Total consolidated assets $ 350,766 $ 336,039
========= =========
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 3, 1999
Note G - Changes in Accounting Principles
Effective January 1, 1999, the Company adopted 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
July 3, 1999
Results of Operations
Net sales for the second quarter of 1999 were $104.0 million compared to $108.5
million for the second quarter of 1998, reflecting a decrease of $4.5 million or
4%. This sales decrease occurred at Congoleum Corporation ("Congoleum") and at
K&M Associates L.P. ("K&M") due to customer inventory reduction programs and at
Congoleum competitive pressures necessitated reductions in overall selling
prices.
Sales for the first six months of 1999 were $211.0 million compared to $214.9
million last year. Sales performance at Congoleum and K&M, as noted above,
accounts for the year-to-date decrease. Sales at ABI's tape and Canadian
operations reflect small sales increases over last year.
Interest and other income increased in the current quarter to $1.5 million from
$1.1 million in last year's second quarter and increased to $2.0 million for six
months this year from $1.4 million last year. The primary cause of this increase
in 1999 is higher interest income at Congoleum from having funds available to
invest during the period.
Cost of products sold as a percentage of net sales remained relatively unchanged
with the current quarter increasing to 69.0% from 68.3% in last year's second
quarter and for the six month period was 69.3% both years.
Selling, general and administrative expenses as a percentage of net sales in the
current quarter increased to 27.0% from 25.5% last year and for the current six
months increased to 26.4% from 25.5% and is primarily the result of lower sales
volume levels experienced in both the current quarter and six months with only
minor expense increases.
Interest expense in both the current quarter and six months reflects slight
increases compared to last year and is due to higher debt outstanding on both
ABI and Congoleum.
Net income for the second quarter of 1999 was $1.3 million compared to $2.1
million last year and for the first six months of 1999 was $2.8 million compared
to $3.4 million last year. Operating results were positive at American
Biltrite's tape and Canadian operations in both the current quarter and six
months while profits were lower at Congoleum. K&M generated losses in the first
and second quarters this year compared to profits in 1998.
<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 3, 1999
Liquidity and Capital Resources
Cash and cash equivalents decreased $19.2 million for the six months ended July
3,1999 to $40.3 million. Working capital was $90.9 million, down from $96.7
million at year end 1998. The ratio of current assets to current liabilities at
July 3, 1999 was 2.0 and at December 31, 1998 was 2.3. Cash used by operations
was $8.7 million in the first six months of 1999 due primarily to increases in
inventory levels for new products and planned vacation shutdown of certain
plants in the third quarter.
Capital expenditures in the current six months were $10.6 million and
depreciation and amortization expense was $7.9 million. It is anticipated that
total year capital spending will be in the range of $24 to $26 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.
Cash requirements for capital expenditures, working capital, debt service and
the current authorization to repurchase $3.3 million of ABI's Common Stock and
$2.8 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. During the
six months ended July 3, 1999, ABI repurchased $1.4 million of its Common Stock
and Congoleum repurchased $2.0 million of its Common Stock.
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.
<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 3, 1999
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
June 1999, the Company has completed work on 91% 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.
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 $464 $399
Allocated payroll costs 457 538 251
Capital expenditures 120 415 191
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 $505 $774
Allocated payroll costs 74 300 255
Capital expenditures 244 470 382
<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 3, 1999
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 all locations and identified 21 devices which must be
modified or replaced at an estimated aggregate cost of $0.3 million. The Company
has replaced 10 of these devices and expects to complete modification or
replacement of the remaining 11 devices by the end of the third quarter of 1999.
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
July 3, 1999
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting of Stockholders held on May 5, 1999, the following
action was taken:
Four nominees were elected as Class III Directors who will hold office
until the Annual Meeting of Stockholders in 2002 and until their
successors are duly elected and qualify.
Witheld From
Name Votes For All Nominees
---- --------- ------------
Mark N. Kaplan 3,180,179 4,921
Natalie S. Marcus 3,179,949 5,151
William M. Marcus 3,180,459 4,641
Kenneth I. Watchmaker 3,180,159 4,941
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) American Biltrite Inc. Deferred Compensation Plan
(10.2) American Biltrite Inc. 1999 Stock Option Plan for Non-Employee
Directors
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended July 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: August 12, 1999 BY: /s/ Gilbert K. Gailius
-----------------------------
Gilbert K. Gailius
Vice President-Finance
AMERICAN BILTRITE INC.
DEFERRED COMPENSATION PLAN
(Effective June 1, 1999)
1. PURPOSE
American Biltrite Inc. (the "Company") hereby establishes the American
Biltrite Inc. Deferred Compensation Plan (the "Plan"), effective June 1, 1999
(the "Effective Date"). The purpose of the Plan is to provide an opportunity for
certain employees of the Company to elect to defer the receipt of compensation
payable by the Company on account of services rendered in the employ of the
Company ("Compensation"). The Plan is intended as a means of maximizing the
effectiveness and flexibility of compensation arrangements and as an aid in
attracting and retaining individuals of outstanding abilities for employment
with the Company. The Plan is to be offered to a select group of management or
highly compensated employees within the meanings of Sections 201(2), 301(3) and
401(9) of the Employee Retire ment Income Security Act of 1974, as amended.
2. COMMENCEMENT OF DEFERRALS
The Plan shall be effective with respect to Compensation paid for services
performed after July 1, 1999.
3. PLAN ADMINISTRATION
The Plan will be administered by Mark N. Kaplan and Gilbert Gailius (the
"Committee") or any additional or different persons as shall be selected by the
Board of Directors of the Company (the "Board"). Full power to implement,
interpret and construe the provisions of the Plan (including, without
limitation, the power to select and alter investment alternatives available
under the Plan) shall, except as otherwise provided in the Plan, be vested in
the Committee, which may adopt, alter, amend or revoke forms, guidelines, rules
and procedures for such purposes. No member of the Committee shall be liable to
any person for any action taken or omitted in connection with the interpretation
and administration of the Plan unless attributable to his own willful misconduct
or lack of good faith. The expense of administering the Plan shall be borne by
the Company and shall not be charged against amounts payable hereunder.
<PAGE>
4. ELIGIBILITY
Any officer or key employee of the Company to whom participation herein is
offered by the Committee (each, an "Executive") is eligible to participate in
the Plan. Any such Executive shall be a participant in the Plan (a
"Participant") as of the effective date of his or her first election to defer
Compensation in accordance with Section 5 hereof, and his or her status as a
Participant shall continue until the date of the last payment pursuant to
Section 7 hereof.
5. ELECTION TO DEFER; COMPANY CONTRIBUTIONS
(a) In General. Subject to the limitations set forth in Section 5(b), each
Executive as of the Effective Date (and each Executive first offered
participation in the Plan thereafter) shall be entitled to make irrevocable
elections during an annual enrollment period established by the Committee to
defer receipt of such amount of Compensation otherwise payable with respect to
periods after the date of such election. Such election shall continue in effect
for the period set forth therein until the Executive delivers to the Committee a
written revocation or modification of such election with respect to Compensation
that relates to services that are performed and compensation that is payable
thereafter. Compensation which has been deferred pursuant to a deferral election
shall be referred to hereinafter as "Deferred Compen sation."
(b) Manner of Election. Elections to defer receipt of Compensation shall
be made only during the annual enrollment period established by the Committee
and only with respect to between 10% and 100% of the Participant's annual bonus
and between 10% and 50% of the Participant's annual salary. Elections shall be
made in accordance with such rules and procedures as the Committee may
prescribe, pro vided that each such election to defer shall set forth the amount
to be deferred, expressed either as a stated dollar amount or as a percentage of
Compensation to be payable. Separate elections may be made with respect to
annual bonus and annual salary. Elections to defer Compensation shall be made
prior to the date any such Compensation is due to be paid in accordance with the
procedures adopted by the Committee.
(c) Designation of Beneficiary. Participants shall designate in writing,
in accordance with such rules and procedures as the Committee may prescribe, the
beneficiary or beneficiaries who are to receive the Participant's
2
<PAGE>
Deferred Compensa tion Account (as hereinafter defined) in the event of the
Participant's death.
(d) Company Contributions. The Company may, in its sole discretion, make
contributions to Plan with respect to one or more Participants. Any such
contributions shall be credited to the Participant's Deferred Compensation
Account and shall at all times be fully vested.
6. RECORDS AND CREDITING OF DEFERRED AMOUNTS
(a) In General. The Company shall credit to a memorandum account for the
benefit of the Participant (a "Deferred Compensation Account") the amount of any
Deferred Compensation as of the date such Compensation would otherwise have been
payable to the Participant.
(b) Valuation of Account. Each Participant's Deferred Compensation Account
shall be valued each December 31 and at such other times as the Committee may
deem necessary or advisable; it shall be increased by any Deferred Compensa tion
credited to the account, decreased by any distribution made to the Participant
from the account and credited with earnings or losses in accordance with the
invest ment alternatives made available from time to time by the Committee and
chosen by the Participant. Participants shall have the opportunity once each
calendar quarter to change the allocation of the Deferred Compensation Account
of the Participant among the investment alternatives made available by the
Committee. Such changes shall be made in accordance with such rules and
procedures as the Committee shall prescribe and shall be effective as of the
first day of the following calendar quarter. In addition, once each calendar
year, the Committee, in its sole discretion, shall have the right (but not the
obligation) to change the allocation of the Deferred Compensa tion Account of a
Participant among the available investment alternatives upon the request of such
Participant.
(c) Unsecured Obligations. The obligation of the Company to make payments
of amounts credited to the Participant's Deferred Compensation Account shall be
a general obligation of the Company, and such payment shall be made from general
assets and property of the Company. The Participant's relationship to the
Company under the Plan shall be only that of a general unsecured creditor, and
neither this Plan nor any agreement entered into hereunder or action taken
pursuant hereto shall create or be construed to create a trust or fiduciary
relationship of any kind.
3
<PAGE>
7. PAYMENT OF DEFERRED COMPENSATION ACCOUNT
(a) In General. No withdrawal or payment shall be made from the
Participant's Deferred Compensation Account except as provided in this Section
7. Except as provided in Sections 7(c), 7(d), 7(e) and 7(f) hereof, no
withdrawal or payment shall be made from the Deferred Compensation Account of
any Participant prior to July 1, 2004.
(b) Payment Event. The value of a Participant's Deferred Compensation
Account shall be payable at the election of the Participant (made at the time
the Participant's initial deferral election is made) in substantially equal
annual install ments over either 10 or 15 years commencing on either the date on
which the Participant attains age 65 or the date on which the Participant
retires from the Company.
(c) In-Service Distribution. Each Participant shall be entitled to
receive, upon such Participant's written request, distribution of his or her
entire Deferred Compensation Account in a single lump-sum amount. Upon the
payment of such an in-service distribution, any such Participant shall forfeit
10% of his or her entire Deferred Compensation Account and shall be ineligible
to participate in the Plan for the 36-month period following such distribution.
In no event will a Participant receive more than one such in-service
distribution.
(d) Acceleration for Hardship. The Committee in its sole discretion may
accelerate payments of amounts credited to a Participant's Deferred Compensation
Account if requested to do so and if the requirements of this paragraph 7(d) are
met. Such acceleration may occur only in the event of unforeseeable financial
emergency or severe hardship from one or more recent events beyond the control
of the Partici pant and is limited to the amount deemed by the Committee to be
reasonably necessary to satisfy the emergency or hardship.
(e) Death or Disability of Participant. In the event that a Participant
shall die at any time prior to the full distribution of his or her Deferred
Compensation Account, the unpaid balance of the Participant's Deferred
Compensation Account shall be paid, in a single lump-sum amount, to the
Participant's designated benefi ciary or beneficiaries. In the event that a
Participant becomes disabled (as defined by the Committee) prior to the
termination of his or her employment with the Company, his or her Deferred
Compensation Account shall be distributed in ten equal annual installments (as
described above) commencing on the later of (i) July 1, 2004 or
4
<PAGE>
(ii) the date of the Participant's termination of employment from the Company
for such disability.
(f) Distribution on Taxation. Notwithstanding anything in the Plan to the
contrary, in the event that any income taxes become payable by a Participant
with respect to Deferred Compensation, such Participant shall be paid, in a
single lump-sum amount, the entire taxable portion of the Participant's Deferred
Compensation Account.
8. EFFECT OF CHANGE IN CONTROL OF THE COMPANY
In the event of a change in control (as defined below), the entire unpaid
balance of each Deferred Compensation Account then maintained by the Company
shall be paid in a single lump sum amount to the Participant no later than the
date of such change in control. "Change in control" means a change in control of
the Company which will be deemed to have occurred if:
(a) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than an
Exempt Person (as defined below), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding voting securities;
(b) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other than
a di rector designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (a), (c) or (d) of this
Section 8 whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved cease for any reason to constitute at least a majority thereof;
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or
5
<PAGE>
parent entity) 50% or more of the combined voting power of the voting securities
of the Company or such surviving or parent entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined), other than an Exempt Person, acquired 50% or
more of the combined voting power of the Com pany's then outstanding voting
securities; or
(d) the stockholders of the Company approve a plan of complete liquida
tion of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets (or any transaction having a
similar effect).
For purposes of the foregoing, "Exempt Person" means (i) the Company, (ii)
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, (iii) any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock, par value $.01 per share, of the Company or (iv)
any person or group of persons who, immediately prior to the adoption of this
Plan, owned more than 50% of the combined voting power of the Company's then
outstanding voting securi ties.
9. NON-ASSIGNABILITY
No right to receive payments under the provisions of this Plan shall be
transferrable or assignable by a Participant, except by will or by the laws of
descent and distribution.
10. BINDING PROVISIONS
All of the provisions of this Plan shall be binding upon all persons who
shall be entitled to any benefits hereunder and their heirs and personal
representatives. The Plan shall be binding upon and inure to the benefit of the
Company, its succes sors and assigns and the Participant and his heirs,
executors, administrators and legal representatives.
11. INCAPACITY
If the Committee shall find that any person to whom any amount is payable
under the Plan is unable to care for his or her affairs because of illness or
accident, or is a minor, any payment due (unless a prior claim therefor shall
have been made by a duly appointed guardian,
6
<PAGE>
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Committee to have
incurred expense for such person otherwise entitled to payment, in such manner
and proportions as the Committee may determine. Any such payment shall be a
complete discharge of the liabilities of the Company for that payment under the
Plan.
12. CONTINUED EMPLOYMENT
Nothing contained herein shall be construed as conferring upon the Partici
pant the right to continue in the employ of the Company in any capacity.
13. CONTROLLING LAW
The Plan shall be construed in accordance with and governed by the laws of
the State of Delaware.
14. AMENDMENT AND TERMINATION
The Company intends the Plan to be permanent, but reserves the right at
any time to modify, amend or terminate the Plan; provided, that, the Company
shall not cancel, reduce or otherwise adversely affect the amount of benefits of
any Participant as of the date of any such modification, amendment or
termination without the written consent of the Participant.
7
AMERICAN BILTRITE INC.
1999 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Section 1. General Purpose of Plan; Definitions.
The name of this plan is the American Biltrite Inc. 1999 Stock
Option Plan for Non-Employee Directors (the "Plan"). The purpose of the Plan is
to enable the Company (as defined below) to compensate non-employee members of
the Board (as defined below) and to provide incentives to such members, which
incentives are linked directly to increases in stockholder value and will
therefore inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(c) "Committee" means the Compensation Committee of the Board, or
any other committee the Board may subsequently appoint to administer the Plan.
The Committee shall be composed entirely of directors who meet the
qualifications referred to in Section 2 of the Plan. If at any time no Committee
shall be in office, then the functions of the Committee specified in the Plan
shall be exercised by the Board.
(d) "Company" means American Biltrite Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
(e) "Fair Market Value" shall mean, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the
closing sale price per share of Stock on the national securities exchange on
which the Stock is principally traded for the last preceding date
<PAGE>
on which there was a sale of such Stock on such exchange, or (ii) if the shares
of Stock are then traded in an over-the-counter market, the average of the
closing bid and asked prices for the shares of Stock in such over-the-counter
market for the last preceding date on which there was a sale of such Stock in
such market, or (iii) if the shares of Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as the
Committee, in its sole discretion, shall determine.
(f) "Nonqualified Stock Option" means any Stock Option that is not
an "incentive stock option" within the meaning of Section 422 of the Code.
(g) "Plan" has the meaning set forth in the first paragraph hereof.
(h) "Securities Act" means the Securities Act of 1933, as amended.
(i) "Stock" means the Company's presently authorized Common Stock,
par value $0.01 per share, except as this definition may be modified pursuant to
Section 3 hereunder to include shares which are substituted for, or represent
adjustments to, the Company's Common Stock, par value $0.01 per share, or other
Stock.
(j) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
Section 2. Administration.
The Plan shall be administered by a Committee of not less than two
persons, who shall be appointed by the Board and who shall serve at the pleasure
of the Board.
Section 3. Stock Subject to Plan; Substitutions and Adjustments
The total number of shares of Stock reserved and available for
issuance under the Plan shall be 50,000. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
In the event of any merger, reorganization, consolidation,
recapitaliza tion, Stock dividend or other change in corporate structure
affecting the Stock, a substi tution or adjustment shall be made in (a) the
aggregate number and kind of shares reserved and available for issuance under
the
2
<PAGE>
Plan and (b) the number and option price of shares subject to outstanding Stock
Options granted under the Plan as may be determined by the Committee, provided
that the number of shares subject to any award shall always be a whole number.
Section 4. Eligibility.
Each non-employee member of the Board shall receive Nonqualified
Stock Options in accordance with the provisions of Section 5.
Section 5. Stock Options.
(a) Stock Options shall be granted in the following manner:
i) On July 1, 1999, each non-employee member of the Board
shall be granted a Nonqualified Stock Option to purchase 1,000 shares of Stock;
ii) On each July 1 thereafter during the term of the Plan,
each non-employee member of the Board shall be granted a Nonqualified Stock
Option to purchase 500 shares of Stock; and
iii) Each new non-employee member of the Board who has not
previously been a non-employee member of the Board during the term of the Plan
shall be granted, on the date he or she is elected to the Board during the term
of the Plan, a Nonqualified Stock Option to purchase 1,000 shares of Stock.
(b) Stock Options granted under the Plan shall be subject to the
terms and conditions set forth below.
i) The exercise price per share of Stock purchasable under
such Stock Options shall be 100% of the Fair Market Value of the Stock on the
date of grant.
ii) Such options shall be exercisable commencing on the date
which is 6 months after the date of grant by payment in full of the exercise
price in cash, certified or cashier's check or delivery of Stock certificates
endorsed in blank or accompanied by executed stock powers with signatures
guaranteed by a national bank or trust company or a member of a national
securities exchange. For these purposes, the Stock shall be valued at the Fair
Market Value on the date of exercise. Payment of the exercise price with
certificates evidencing shares of Stock as
3
<PAGE>
provided above shall not increase the number of shares available for the grant
of Stock Options under the Plan.
iii) Each Stock Option shall cease to be exercisable on the
date that is ten years following the date of grant.
iv) The aggregate number of shares of Stock that may be
granted to any non-employee member of the Board pursuant to the Plan may not
exceed 50,000 shares.
v) No Stock Options shall be transferable by the recipient
otherwise than by will or by the laws of descent and distribution, and all Stock
Options shall be exercisable, during the recipient's lifetime, only by the
recipient or the recipi ent's guardian or legal representative.
(c) Each recipient of a Stock Option shall enter into a stock option
agree ment with the Company, which agreement shall set forth, among other
things, the exercise price of the option, the term of the option and provisions
regarding exercisability of the option granted thereunder, which provisions
shall not be inconsis tent with the terms set forth herein.
Section 6. Amendment and Termination.
The Board may amend, alter, modify or discontinue the Plan at any
time, provided that the Board may not amend or alter the provisions of the Plan
relating to the amount, price and timing of awards more than once every six
months, other than to comport with changes in the Code, or the rules thereunder,
or the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
Section 7. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a recipient by the
Company, nothing contained herein shall give any such recipient any rights that
are greater than those of a general creditor of the Company.
Section 8. General Provisions.
(a) The Plan and the rights of all persons claiming hereunder shall
be construed and determined in
4
<PAGE>
accordance with the laws of the State of Delaware without giving effect to the
choice of laws principles thereof.
(b) The obligation of the Company to sell or deliver shares with
respect to Stock Options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appro priate by the Committee. Moreover,
each Stock Option is subject to the requirement that, if at any time the
Committee determines, in its absolute discretion, that the listing, registration
or qualification of shares issuable pursuant to a Stock Option is required by
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of a Stock Option, or the
issuance of shares thereunder, no Stock Options shall be granted or shares
issued, in whole or in part, unless such listing, registration, qualification,
consent or approval has been effected or obtained, free of any conditions, as
acceptable to the Committee. In the event that the issuance or disposition of
shares acquired pursuant to a Stock Option is not covered by a then current
registra tion statement under the Securities Act and is not otherwise exempt
from such registra tion, such shares shall be restricted against transfer to the
extent required by the Securities Act or regulations thereunder, and the
Committee may require the holder of a Stock Option receiving shares pursuant to
that Stock Option, as a condition precedent to receipt of such shares, to make
such representations as the Committee deems appropri ate, including without
limitation a representation to the Company in writing that the shares acquired
by such Stock Option holder are acquired for investment only and not with a view
to distribution.
(b) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any member of the Board any right to continued
membership on such Board.
(c) Each recipient of a Stock Option shall, no later than the date
as of which the value of a Stock Option first becomes includible in the gross
income of such recipient for federal income tax purposes, pay to the Company, or
make arrangements satisfactory to the Committee regarding
5
<PAGE>
payment of, any federal, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the recipient.
(d) No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made
in good faith with respect to the Plan, and all members of the Board or the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and protected
by the Company in respect of any such action, determination or interpretation.
Section 9. Effective Date of Plan.
The Plan shall be effective on the date it is adopted by the Board.
Section 10. Term of Plan.
No Stock Option shall be granted pursuant to the Plan on or after
the tenth anniversary of the effective date of the Plan, but Stock Options
previously granted may extend beyond that date.
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<CASH> 40,254
<SECURITIES> 0
<RECEIVABLES> 42,172
<ALLOWANCES> 0
<INVENTORY> 91,747
<CURRENT-ASSETS> 183,935
<PP&E> 127,281
<DEPRECIATION> 0
<TOTAL-ASSETS> 350,766
<CURRENT-LIABILITIES> 93,057
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 71,978
<TOTAL-LIABILITY-AND-EQUITY> 350,766
<SALES> 210,989
<TOTAL-REVENUES> 212,944
<CGS> 146,290
<TOTAL-COSTS> 206,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,791
<INCOME-PRETAX> 6,214
<INCOME-TAX> 2,464
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,790
<EPS-BASIC> .77
<EPS-DILUTED> .75
</TABLE>
