SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 Indentification No.)
Incorporation or organization)
57 River Street
Wellesley Hills, MA 02481-2097
(Address of Principal Executive Offices)
(781)237-6655
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
Common Stock, $.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
<PAGE>
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 16, 2000 was $22,325,000.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 16, 2000 was 3,517,386 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III. Portions of the proxy statement for the annual meeting of
stockholders to be held on May 9, 2000.
PART I
ITEM 1. BUSINESS
(a) General Development of Business. American Biltrite Inc. ("ABI") was
organized in 1908 and is a Delaware corporation. ABI operates domestically
directly through two businesses, the Tape Division and K&M Associates L.P., a
Rhode Island limited partnership ("K&M"), and conducts operations indirectly
through Congoleum Corporation ("Congoleum"), a company in which ABI owns a
controlling interest.
The Tape Division produces adhesive-coated, pressure-sensitive papers and films
used to protect material during handling or storage or to serve as a carrier for
transferring decals or die-cut lettering. The Division also produces pressure
sensitive tapes and adhesive products used for applications in the heating,
ventilating and air conditioning (HVAC), footwear, automotive and electrical and
electronic industries. The Division is the exclusive supplier of EPIC(TM) ink
jet printable digital imaging materials to the sign and screen print industries.
EPIC(TM) is manufactured by and is a trademark of Kimberly-Clark.
In 1995, ABI acquired a controlling interest in K&M, a national supplier,
distributor and servicer of a wide variety of adult, children's and specialty
items of fashion jewelry and related accessories. ABI, through wholly owned
subsidiaries, currently owns an aggregate 83% interest (7% as sole general
partner and 76% in limited partner interests) in K&M. K&M wholesales its
products to mass merchandisers and other major retailers. It also services
certain retail merchandisers' in-store operations in fashion jewelry and related
accessories departments by assisting retailers in managing inventory and
maintaining displays.
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At the beginning of 1995, ABI indirectly held an 8% limited partner interest in
K&M. During 1995 and in January of 1996, the Company acquired, through a series
of transactions by its wholly owned subsidiaries, an additional 67.25% in
limited partner interests and a 7% sole general partner interest in K&M for an
aggregate consideration of $15.5 million in cash, notes and ABI common stock. In
conjunction with these K&M transactions, a wholly owned subsidiary of ABI also
entered into agreements with the remaining limited partners of K&M which provide
the ABI subsidiary with the option to buy, and the limited partners the option
to sell, the limited partners' respective remaining interests in K&M for an
aggregate consideration calculated in accordance with a predetermined formula
which is based in part on such limited partner's capital account balance at the
time of sale. As of the date hereof, based on K&M capital account balances as of
December 31, 1999, the aggregate purchase price under the option agreements for
the remaining limited partner interests in K&M would be $3.4 million. See Note 4
of Notes to the Consolidated Financial Statements.
ABI owns a 53% equity interest in Congoleum Corporation ("Congoleum"), a leading
manufacturer of resilient floor tile and sheet vinyl flooring.
On February 8, 1995, Congoleum completed a public offering of 4,650,000 shares
of Class A Common Stock at $13 per share. The net proceeds of the offering,
together with certain other funds of Congoleum, were used to acquire a portion
of Congoleum's outstanding Class B Common Stock held by Hillside Industries
Incorporated. In conjunction with the transaction, ABI exchanged its then
existing shares of Class B Common Stock for 4,395,605 shares of a new series of
Class B Common Stock. The exchange of stock did not change the Company's 44%
equity ownership interest; however, the new shares represented 57% of the voting
power of the outstanding shares of Congoleum, giving ABI majority voting
control. The accounts of Congoleum have been consolidated with the financial
statements of ABI since 1995. During 1997 and 1998, Congoleum's Board of
Directors approved a plan to repurchase up to $15,000,000 of Congoleum's common
stock (Class A and Class B shares). Under the total plan, Congoleum has
repurchased $13,716,000 of common stock at fair market value. The effect of the
repurchase of shares was to increase ABI's ownership interest from 44% to 53%.
In addition, as of December 31, 1999, ABI's ownership of 4,395,605 shares of
Congoleum's Class B common stock represented 68% of the voting control of
Congoleum.
Outside the United States, in addition to international sales of Tape Division
products, the Division operates facilities in Belgium and Singapore where bulk
tape products are converted into various sizes, and a distribution facility in
Italy, to quickly respond to customer demands in the European and Asian markets.
Other international operations include: a wholly owned Canadian subsidiary
("ABI-Canada") which produces resilient floor tile, rubber tiles and Uni-Turf (a
vinyl-based floor covering for use in indoor sports facilities) under license
from ABI and industrial products (including conveyor belting, truck and trailer
splash guards and sheet rubber material); a 50% direct equity interest in a
Honduran producer of footwear components; and, through the Honduran corporation,
an indirect interest in a Guatemalan foam product manufacturer.
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For financial reporting purposes, as a result of the consolidation of the
accounts of Congoleum and K&M into the financial statements of ABI, ABI operates
in four industry segments: flooring products, tape products, jewelry and the
Canadian division which produces flooring and rubber products. See Note 15 of
Notes to the Consolidated Financial Statements, set forth in Item 8 below.
(b) Financial Information about Industry Segments. Business segment
information is in Note 15 of Notes to the Consolidated Financial Statements, set
forth in Item 8 below.
(c) Narrative Description of Business.
Marketing, Distribution and Sales. The Tape Division's protective papers and
films are sold domestically and throughout the world, principally through
distributors, but also directly to certain manufacturers. Other tape products
are marketed through the division's own sales force and by sales representatives
and distributors throughout the world. ABI's Belgian, Italian and Singapore
facilities sell these products throughout Europe and the Far East.
The business and operations of the Tape Division do not experience seasonal
variations, and neither this division nor the industry in which it operates has
any unusual practices with respect to working capital.
The products of K&M are sold domestically through its own direct sales force
and, indirectly, through a wholly owned subsidiary and through third-party sales
representatives. K&M's business and operations experience seasonal variations.
In general, fashion jewelry supply, distribution and service businesses respond
to the seasonal demands of mass merchandisers and other major retailers, which
typically peak in preparation for end-of-year holiday shopping. Accordingly,
K&M's working capital needs tend to be greatest in the second and third fiscal
quarters, while its revenues tend to be greater toward the end of each fiscal
year, especially in the latter part of the third quarter and the first half of
the fourth quarter.
ABI-Canada's floor tile and rubber tile products are marketed in Canada and the
United States, principally through distributors and to commercial installers.
Uni-Turf is marketed in Canada and internationally through distributors.
ABI-Canada's industrial products are marketed in Canada and the United States
through distributors and also directly to certain large end-users and original
equipment manufacturers.
Congoleum currently sells its products through approximately 23 distributors
providing approximately 82 distribution points in the United States and Canada,
as well as directly to a limited number of mass market retailers. Congoleum
considers its distribution network to be very important to maintaining
competitive position. While most of its distributors have marketed Congoleum's
products for many years, replacements are necessary periodically to maintain the
strength of the distribution network. Although Congoleum has more than one
distributor in some of its distribution territories and actively manages its
credit exposure to its customers, the loss of a major customer could have a
materially adverse impact on Congoleum's sales, at least until a suitable
replacement is in place. The sales pattern for Congoleum's products is seasonal,
with peaks in retail sales typically occurring during March/April/May and
September/October. Orders are generally shipped as soon as a truckload quantity
has been accumulated, and backorders can be canceled without penalty.
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ABI owns 50% of Compania Hulera Sula, S.A. de C.V. ("Hulera Sula"), a Honduran
corporation, which produces soles, heels, molded soles and heels, sandals and
other footwear products under license from ABI and markets such products in
certain Central American countries. Hulera Sula owns 100% of Hulera
Sacatepequez, S.A., a Guatemalan corporation which manufactures and markets
products in Guatemala similar to those of Hulera Sula. Fomtex, S.A., a
Guatemalan corporation 60% owned by Hulera Sula, manufactures and markets foam
mattresses, beds and other foam products for sale in the Central American
market.
Working Capital and Cash Flow. In general, ABI's working capital requirements
are not affected by accelerated delivery requirements of major customers or by
obtaining a continuous allotment of raw material from suppliers. ABI does not
provide special rights for customers to return merchandise and does not provide
special seasonal or extended terms to its customers. K&M does provide
pre-approved allowances in the form of markdowns and return authorizations for
end of season merchandise in their service stores.
Congoleum produces goods for inventory and sells on credit to customers.
Generally, Congoleum's distributors carry inventory as needed to meet local or
rapid delivery requirements. Credit sales are typically subject to a discount if
paid within terms.
Raw Materials. Basically, all of ABI's products are internally designed and
engineered. Generally, the raw materials required by ABI for its manufacturing
operations are available from multiple sources; however, ABI does purchase some
of its raw materials from a single source or supplier. Any significant delay in
or disruption of the supply of raw materials could substantially increase ABI's
cost of materials, require product reformulation or require qualification of new
suppliers, any one or more of which could materially adversely affect the
business, operations or financial condition of ABI. ABI's subsidiary, Congoleum,
does not have readily available alternative sources of supply for specific
designs of transfer print paper, which are produced utilizing print cylinders
engraved to Congoleum's specifications. Although no loss of this source of
supply is anticipated, replacement could take a considerable period of time and
interrupt production of certain products. Congoleum maintains a raw material
inventory and has an ongoing program to develop new sources which will provide
continuity of supply for its raw material requirements.
Competition. All businesses in which ABI is engaged are highly competitive.
ABI's tape products compete with some of the largest fully integrated rubber and
plastic companies, as well as smaller producers. Included among their
competitors are Minnesota Mining & Manufacturing Company, Fasson, Dupont Kansai
and R-Tape. ABI-Canada's flooring products compete with those of other
manufacturers of rubber and vinyl floor tiles and with all other types of floor
covering. ABI-Canada competes with Armstrong World Industries, Inc., V.P.I. and
Nora Rubber Flooring and with other manufacturers of alternate floor covering
products. In the rubber products category, ABI-Canada has several competitors,
principally among them being Garlock, Sealing Technologies and West America
Rubber Company.
The market for Congoleum's products is highly competitive. Resilient sheet and
tile compete for both residential and commercial customers primarily with
carpeting, hardwood, melamine laminate and ceramic tile. In residential
applications, both tile and sheet products are used primarily in
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kitchens, bathrooms, laundry rooms and foyers and, to a lesser extent, in
playrooms and basements. Ceramic tile is used primarily in kitchens, bathrooms
and foyers. Carpeting is used primarily in bedrooms, family rooms and living
rooms. Hardwood flooring and melamine laminate are used primarily in family
rooms, foyers and kitchens. Commercial grade resilient flooring faces
substantial competition from carpeting, ceramic tile, rubber tile, hardwood
flooring and stone in commercial applications. Congoleum believes, based upon
its market research, that purchase decisions are influenced primarily by fashion
elements such as design, color and style, durability, ease of maintenance, price
and ease of installation. Both tile and sheet resilient flooring are easy to
replace for repair and redecoration and, in Congoleum's view, have advantages
over other floor covering products in terms of both price and ease of
installation and maintenance.
Congoleum encounters competition from domestic and, to a much lesser extent,
foreign manufacturers. Certain of Congoleum's competitors, including Armstrong
in the resilient category, have substantially greater financial and other
resources than Congoleum.
K&M competes with other companies making similar products on the basis of
product pricing and the effectiveness of merchandising services offered. In
assessing the effectiveness of K&M products and services, customers tend to
focus on margin dollars realized from the sales of product and return on
inventory investment needed to generate sales. In its business of supplying and
servicing fashion jewelry and accessory products, K&M competes with a variety of
suppliers, among them are AAI Fostergrant, Monet Inc., Victoria Creations Inc.
and a number of other companies offering similar products and/or services. K&M
also competes with numerous importers and overseas suppliers of similar items.
Research and Development. Research and development efforts of both ABI and
Congoleum concentrate on new product development and expanding technical
expertise in the various manufacturing processes. ABI also focuses on improving
existing products. Congoleum also concentrates on ways to increase product
durability. Expenditures for research and development were $5,620,000,
$5,175,000, and $5,388,000 on a consolidated basis for the years ended December
31, 1999, 1998 and 1997, respectively.
Key Customers. For the year ended December 31, 1999, two customers of Congoleum
each accounted for over 10% of ABI's consolidated sales revenue. These customers
were its distributor to the manufactured housing market, LaSalle-Bristol, and
its distributor in the Western U.S., LD Brinkman & Co. K&M sales during 1999
included sales to large customers which accounted for less than 10% of ABI's
consolidated sales revenue. K&M's top three customers in terms of net sales in
1999 together account for approximately 88% of K&M's aggregate net sales, and
the loss of any such customer would have a material adverse effect on K&M. Sales
to four unaffiliated customers of ABI's Tape Division together constitute
approximately 26% of the sales for the Division. These sales constitute less
than 10% of ABI's consolidated sales. The loss of two or more of these customers
would have a significant, adverse effect on the Division's revenue. See Note 15
of Notes to Consolidated Financial Statements set forth in Item 8 below.
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Backlog. The dollar amount of backlog of orders believed to be firm as of
December 31, 1999 and 1998 was $15,400,000 and $21,800,000, respectively. It is
anticipated that all of the backlog as of December 31, 1999 will be filled
within the current fiscal year. There are no seasonal or other significant
aspects of the backlog. In the opinion of management, backlog is not significant
to the business of ABI.
Environmental Compliance. Because of the nature of the operations conducted by
ABI, ABI's facilities are subject to a broad range of federal, state, local and
foreign legal and regulatory provisions relating to the environment, including
those regulating the discharge of materials into the environment, the handling
and disposal of solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at ABI facilities
and off-site disposal locations. ABI believes that compliance with these
federal, state, local and foreign provisions will not have a material effect
upon its capital expenditures, earnings and competitive position.
Due to the nature of Congoleum's business and certain of the substances which
are or have been used, produced or discharged by Congoleum, Congoleum's
operations are subject to extensive federal, state and local laws and
regulations relating to the generation, storage, disposal, handling, emission,
transportation and discharge into the environment of hazardous substances.
Congoleum, pursuant to administrative consent orders signed in 1986 and in
connection with a prior restructuring, is in the process of implementing cleanup
measures at its Trenton sheet facility under New Jersey's Environmental Clean-up
Responsibility Act, as amended by the New Jersey Industrial Site Recovery Act.
Congoleum does not anticipate that the additional costs of these measures will
be material. In connection with the acquisition of the Tile Division, American
Biltrite signed a similar consent order with respect to the Trenton tile
facility, and Congoleum agreed to be financially responsible for any cleanup
measures required. In 1999, Congoleum incurred capital expenditures of
approximately $.3 million for environmental compliance and control facilities.
Congoleum has historically expended substantial amounts for compliance with
existing environmental laws and regulations, including those matters described
above. Congoleum will continue to be required to expend amounts in the future,
due to the nature of historic activities at its facilities, to comply with
existing environmental laws, and those amounts may be substantial but should
not, in Congoleum's judgment, have a material adverse effect on the financial
position of Congoleum. Because environmental requirements have grown
increasingly strict, however, Congoleum is unable to determine the ultimate cost
of compliance with environmental laws and enforcement policies.
See Item 3 below for certain additional information regarding environmental
matters.
Employees. As of December 31, 1999, ABI employed approximately 3,035 people.
(d) Financial information about foreign and domestic operations and
export sales. Financial information concerning foreign and domestic operations
is in Note 15 of Notes to the Consolidated Financial Statements, set forth in
Item 8 below. Export sales from the United States were $22,903,000 in 1999,
$20,886,000 in 1998 and $23,008,000 in 1997.
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ITEM 2. PROPERTIES
At December 31, 1999, ABI and Congoleum operated a total of nine manufacturing
plants, leased corporate and marketing office and warehousing space, and ABI
operated a jewelry product distribution warehouse, as follows:
Owned Industry Segment
or For Which
Location Square Feet Leased Properties Used
- -------- ----------- ------ ---------------
Trenton, NJ 1,050,000 Owned Flooring products
Marcus Hook, PA 1,000,000 Owned Flooring products
Trenton, NJ 282,000 Owned Flooring products
Finksburg, MD 107,000 Owned Flooring products
Trenton, NJ 111,314 Leased Flooring products
Mercerville, NJ 33,597 Leased Flooring products
Sherbrooke, Quebec 362,000 Owned Canadian division
Moorestown, NJ 226,000 Owned Tape products
Lowell, MA 57,000 Owned Tape products
Ayer, MA 42,000 Leased Tape products
Renaix, Belgium 84,000 Owned Tape products
Singapore 32,000 Owned Tape products
Providence, RI 103,000 Owned Jewelry products
ABI knows of no material defect in the titles to any such properties or material
encumbrances thereon. ABI considers that all of its properties are in good
condition and have been well maintained.
It is estimated that during 1999, ABI's plants for the manufacture of floor
covering products operated at approximately 69% of aggregate capacity, its
plants for the manufacture of tape products operated at approximately 90% of
aggregate capacity and the Canadian division operated at approximately 97% of
aggregate capacity. All estimates of aggregate capacity have been made on the
basis of a five-day, three-shift operation.
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ITEM 3. LEGAL PROCEEDINGS
ABI is a co-defendant with many other manufacturers and distributors of
asbestos-containing products in approximately sixty-three pending claims
involving approximately 764 individuals as of December 31, 1999. These claims
allege personal injury from exposure to asbestos or asbestos-containing
products. See Note 10 to the Consolidated Financial Statements included in Item
8 for detailed information about these claims.
ABI has been named as a Potentially Responsible Party ("PRP") within the meaning
of the federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), as to two sites in two separate states. See Note 10
to the Consolidated Financial Statements included in Item 8 for detailed
information about these matters.
In addition, ABI has been named as a defendant in one environmental lawsuit the
details of which are set forth in Note 10 to the Consolidated Financial
Statements included in Item 8.
ABI also is potentially responsible for response and remediation costs as to
four state supervised sites, two sites in Massachusetts, and one each in New
York and New Jersey. See Note 10 to the Consolidated Financial Statements
included in Item 8 for information about ABI's potential liability at these four
sites.
As of December 31, 1999, ABI has accrued $3.6 million for its estimable and
probable amounts for contingencies described above.
As of December 31, 1999 Congoleum was named as a defendant, together in most
cases with numerous other defendants, in approximately 676 pending lawsuits
(including workers' compensation cases) involving approximately 6,246
individuals alleging personal injury from exposure to asbestos or
asbestos-containing products. See Note 10 to the Consolidated Financial
Statements included in Item 8 for information about Congoleum's potential
liabilities to these lawsuits.
Together with a large number (in most cases, hundreds) of other companies,
Congoleum is named as a PRP in pending proceedings under CERCLA and similar
state laws. See Note 10 to the Consolidated Financial Statements included in
Item 8 for detailed information about these matters.
Congoleum is also a party to a pending proceeding relating to the investigation
and potential remediation of soil and groundwater contamination at its
manufacturing facility located at 1945 East State Street in Trenton, New Jersey.
The investigation of the nature and extent of any contamination at this site has
not been completed and Congoleum is therefore unable to estimate the amount, if
any, of its probable liability with respect to the potential remediation of this
site.
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In the ordinary course of its business, ABI and its consolidated entities become
involved in lawsuits, administrative proceedings, product liability and other
matters. In some of these proceedings, plaintiffs may seek to recover large and
sometimes unspecified amounts and the matters may remain unresolved for several
years. On the basis of information furnished by counsel and others, ABI and its
consolidated entities do not believe that these matters, individually or in the
aggregate, will have a material adverse effect on their business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The registrant's Common Stock is traded on the American Stock Exchange (ticker
symbol: ABL). The approximate number of record holders of ABI's Common Stock at
March 16, 2000 was 420.
High and low stock prices and dividends for the last two years were:
<TABLE>
<CAPTION>
Sales Price of Common Shares
----------------------------
1999 1998
Quarter ---- ----
Ended High Low High Low
- ------- ---- ---- ---- ---
<S> <C> <C> <C> <C>
March 31 26 3/8 18 3/4 31 3/4 23 5/8
June 30 21 3/4 16 7/8 31 3/4 29 1/4
September 30 21 3/8 16 1/2 30 7/8 22 1/4
December 31 17 3/8 12 3/8 24 1/4 20 1/2
<CAPTION>
Cash Dividends Per Common Share
-------------------------------
Quarter
Ended 1999 1998
- ------- ---- ----
<S> <C> <C>
March 31 $ .125 $ .100
June 30 .125 .100
September 30 .125 .125
December 31 .125 .125
------ ------
$ .500 $ .450
====== ======
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Position
Total assets $ 344,060 $ 336,039 $ 299,686 $ 324,966 $ 303,487
Long-term debt 114,105 118,406 94,409 106,721 110,919
Total stockholders' equity 78,381 71,237 65,345 61,761 57,796
Summary of Operations
Net sales 422,459 423,879 417,512 417,961 404,473
Earnings before other items 12,725 15,321 11,922 13,103 10,811
Noncontrolling interests (2,992) (5,145) (3,777) (6,804) (4,706)
Extraordinary item (1,174)
Net earnings 9,733 9,002 8,145 6,299 6,105
Basic earnings per share 2.71 2.47 2.24 1.73 1.69
Diluted earnings per share 2.66 2.36 2.18 1.69 1.61
Cash dividends per common
share .50 .45 .40 .40 .35
Number of shares used in
computing:
Basic earnings per share 3,591,895 3,641,337 3,633,076 3,645,089 3,619,198
Diluted earnings per share 3,661,946 3,806,202 3,738,406 3,728,860 3,792,037
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales for the year ended December 31, 1999 were $422.5 million as compared
to $423.9 million for the year ended December 31, 1998, a decrease of $1.4
million. The major portion of this sales decrease occurred at Congoleum
Corporation ("Congoleum") due to lower sales of certain residential products, a
decline in commercial product sales and competitive pressures resulting in lower
selling prices. K&M Associates L.P. ("K&M") experienced slightly lower sales
volume. ABI's Tape and Canadian divisions experienced higher sales volume
compared to last year.
Interest income increased to $2.0 million in 1999 from $1.8 million in 1998 due
to increases in funds available for short-term investment at Congoleum.
Cost of products sold in 1999 increased to 68.9% of net sales from 68.5% last
year. This increase in cost is due mainly to the results at Congoleum where they
experienced lower average selling prices and a less profitable mix of sales.
These factors were partially mitigated by lower material costs and improvements
in manufacturing efficiency. At both ABI and K&M, cost of products sold as a
percentage of net sales were lower than last year.
Selling, general and administrative expenses as a percentage of net sales
increased to 25.0% in 1999 from 24.3% in 1998. Congoleum introduced a wood
laminate flooring product line in mid 1999 and expensed $2.0 million in
displays, samples and other launch related costs, thus increasing the percentage
relationship to sales in this area.
Interest expense increased to $9.5 million in 1999 from $9.0 million in 1998.
This increase occurred mainly at Congoleum and was due primarily to higher
average levels of long-term debt in 1999 versus 1998.
The provision for income taxes declined to 36.7% of pre-tax income in 1999 from
38.7% in 1998 as a result of the lower income tax level at Congoleum, which
reduced the average effective statutory tax rate. Tax benefits occurred from the
establishment of two large foreign sales corporations and lower effective state
income taxes.
Net income for the year ended December 31, 1999 was $9.7 million, up by $.7
million over last year's net income of $9.0 million. ABI, Congoleum and K&M were
all profitable in 1999. Basic net earnings per share was $2.71 in 1999, up from
$2.47 in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales for the year ended December 31, 1998 were $423.9 million as compared
to $417.5 million for the year ended December 31, 1997, an increase of $6.4
million or 1.5%. The major portion of this sales increase occurred at Congoleum
in improved sales to the manufactured housing industry and to home centers.
Sales from K&M increased over 1997 due to a full year of sales to a
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major customer we started servicing for the first time in the latter half of
1997. Sales at ABI's Tape and Canadian divisions reflect slight decreases
compared to 1997.
Interest income increased to $1.8 million in 1998 from $1.6 million in 1997 due
to increases in funds available for short-term investment at both Congoleum and
ABI's Canadian division.
Other revenues increased by $.8 million in 1998 to $1.9 million from $1.1
million in 1997. The major reason for this positive shift is due to the
improvement of the value of the Belgian franc compared to the U.S. dollar during
the course of 1998, which favorably impacted ABI's operation in Belgium.
Cost of products sold in 1998 decreased to 68.5% of net sales from 69.4% in
1997. This decrease in cost is mainly attributable to the results at Congoleum
where they experienced declines in raw material costs, increases in
manufacturing productivity and a higher-margin mix of sales. At both ABI and
K&M, cost of products sold as a percentage of net sales were at the same levels
as 1997.
Selling, general and administrative expenses as a percentage of net sales were
24.3% for 1998 and 24.4% for 1997. At Congoleum, expenses in this area decreased
as a result of expense control initiatives partially offset by increased
spending related to Year 2000 compliance. At K&M, costs increased due to
increases in field sales expense to service additional sales volume. At ABI,
slight cost increases resulted from Year 2000 compliance in addition to
increases in field sales and advertising/promotion expenses.
Interest expense decreased to $9.0 million in 1998 from $9.3 million in 1997.
This decrease occurred at both ABI and K&M due to a reduction in outstanding
indebtedness. This was partially offset by an interest expense increase at
Congoleum primarily due to a lower amount of interest being capitalized rather
than expensed in connection with capital expenditures in 1998.
During 1998, Congoleum issued $100 million in ten year 8 5/8% Senior Notes and
used most of the proceeds to repay its outstanding 9% Senior Notes due 2001 in
the principal amount of $76.6 million, together with accrued interest,
prepayment premiums and financing fees and expenses. Congoleum recorded an
extraordinary after tax charge of $2.4 million of which ABI recorded $1.2
million, reflecting our 49% ownership interest in Congoleum.
Net income for the year ended December 31, 1998 was $9.0 million, up by $.9
million over 1997 net income of $8.1 million. ABI, Congoleum and K&M were all
profitable in 1998. Basic net earnings per share was $2.47 in 1998, up from
$2.24 in 1997.
Liquidity and Capital Resources
At December 31, 1999, consolidated working capital was $86.9 million, the ratio
of current assets to current liabilities was 2.00 to 1.00, and the debt to
equity ratio was 1.46 to 1.00. Influencing the debt to equity ratio is $99.6
million of Congoleum debt, which has no recourse to ABI. Net cash provided by
operations during 1999 was $25.1 million, generated mainly from net earnings
13
<PAGE>
and depreciation. Capital expenditures for 2000 are estimated to be
approximately $23.0 million. At ABI, capital expenditures cover normal
replacement of machinery and equipment and process improvements. Congoleum is
proceeding with a major program to modernize and improve its plant and
equipment. Because of these programs at Congoleum, capital expenditures are
expected to continue at this level for the next two years. Depreciation and
amortization expense is forecasted at $16.0 million.
In 1998, Congoleum's Board of Directors approved a plan to purchase up to $5.0
million of Congoleum's common stock. As of December 31, 1999, Congoleum had
repurchased 717,665 shares of its common stock for an aggregate cost of $4.1
million pursuant to this plan. At ABI, based on a prior Board of Directors
authorization, $2.8 million is available for the purchase of ABI's common stock.
Cash requirements for capital expenditures, working capital, debt service,
equity investments in K&M and the current authorizations of $2.8 million to
repurchase ABI common stock and $.9 million to repurchase Congoleum common
stock, are expected to be financed from operating activities and borrowings
under existing lines of credit which are presently $65.0 million.
Year 2000
From 1996 to 1999, the Company made the modifications and replacements necessary
to assure its systems and equipment would not experience problems handling dates
in the year 2000.
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 by year (in thousands):
1997 1998 1999
---- ---- ----
Expenses paid to third parties $307 $462 $411
Allocated payroll costs 457 533 261
Capital expenditures 120 415 157
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. The nature of these costs, and
their accounting treatment, is the same as described above. The following table
summarizes the Company's 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 $ 835
Allocated payroll costs 74 279 518
Capital expenditures 244 470 1,342
14
<PAGE>
Contingencies
ABI has recorded what it believes are adequate provisions for environmental
remediation and product-related liabilities, including provisions for testing
for potential remediation of conditions at its own facilities. While ABI
believes its estimate of the future amount of these liabilities is reasonable
and that they will be paid for the most part over a period of one to ten years,
the timing and amount of such payments may differ significantly from ABI's
assumptions. Although the effect of future government regulation could have a
significant effect on ABI's costs, ABI is not aware of any pending legislation
which could significantly affect the liabilities ABI has established for these
matters. There can be no assurances that the costs of any future government
regulations could be passed along by ABI to its customers.
Certain legal and administrative claims are pending or have been asserted
against ABI, which are considered incidental to its business. Among these
claims, ABI is a named party in several actions associated with waste disposal
sites and asbestos-related claims. These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites. The exact amount of such future costs to ABI
is indeterminable due to such unknown factors as the magnitude of cleanup costs,
the timing and extent of the remedial actions that may be required, the
determination of ABI's liability in proportion to other potentially responsible
parties and the extent to which costs may be recoverable from insurance. ABI has
recorded provisions in its financial statements for the estimated probable loss
associated with all known environmental and asbestos-related contingencies. The
contingencies also include claims for personal injury and/or property damage.
(See Note 10 of Notes to Consolidated Financial Statements.)
Market Risk
The Company is exposed to changes in prevailing market interest rates affecting
the return on its investments but does not consider this interest rate market
risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in highly liquid debt instruments with
strong credit ratings and short-term (less than one year) maturities. The
carrying amount of these investments approximates fair value due to the
short-term maturities. Substantially all of the Company's outstanding long-term
debt as of December 31, 1999 consisted of indebtedness with a fixed rate of
interest, which is not subject to change based upon changes in prevailing market
interest rates.
The Company operates internationally, principally in Canada, Europe and the Far
East, giving rise to exposure to market risks from changes in foreign exchange
rates. To a certain extent, foreign currency exchange rate movements also affect
the Company's competitive position, as exchange rate changes may affect business
practices and/or pricing strategies of non-U.S. based competitors. For foreign
currency exposures existing at December 31, 1999, a 10% unfavorable movement in
currency exchange rates in the near term would not materially affect ABI's
consolidated operating results, financial position or cash flows.
15
<PAGE>
Under its current policies, the Company does not use derivative financial
instruments, derivative commodity instruments or other financial instruments to
manage its exposure to changes in interest rates, foreign currency exchange
rates, commodity prices or equity prices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
See Item 7, page 15, for disclosures about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required under this item are incorporated
herein by reference to pages 20 through 61 of this Form 10-K. The consolidated
financial statement schedule required under this item is incorporated herein by
reference to page 62 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 9, 2000 filed with the
Securities and Exchange Commission within 120 days after December 31, 1999 and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 9, 2000 filed with the
Securities and Exchange Commission within 120 days after December 31, 1999 and
is incorporated herein by reference.
16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 9, 2000 filed with the
Securities and Exchange Commission within 120 days after December 31, 1999 and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 9, 2000 filed with the
Securities and Exchange Commission within 120 days after December 31, 1999 and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Financial Statements and Financial Statement Schedules
(1) The following consolidated financial statements of American
Biltrite Inc. and subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated balance sheets - December 31, 1999 and 1998
Consolidated statements of earnings -
Years ended December 31, 1999, 1998 and 1997
Consolidated statements of stockholders' equity -
Years ended December 31, 1999, 1998 and 1997
Consolidated statements of cash flows - Years ended
December 31, 1999, 1998 and 1997
Notes to consolidated financial statements
(2) The following financial statement schedule is included in Item
14 (d)
SCHEDULE II - Valuation and Qualifying Accounts
17
<PAGE>
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(3) Listing of Exhibits
The listing of exhibits required under this item is
incorporated herein by reference to pages 64 through 67 of
this Form 10-K.
(b) Reports on Form 8-K. None.
(c) Exhibits: The required exhibits are filed herewith following the
required Exhibit Index.
(d) Financial Statement Schedule: The required consolidated financial
statement schedule is included on page 62 of this Form 10-K.
18
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
American Biltrite Inc.
We have audited the accompanying consolidated balance sheets of American
Biltrite Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Biltrite
Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 2000
19
<PAGE>
American Biltrite Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31
1999 1998
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,285 $ 59,505
Short-term investments 19,232 -
Accounts and notes receivable, less allowances of
$5,543 in 1999 and $5,124 in 1998 for doubtful accounts and
discounts 30,586 33,551
Inventories 82,977 69,722
Prepaid expenses and other current assets 11,672 9,199
------------------------------------
Total current assets 171,752 171,977
Other assets:
Goodwill, net 21,361 22,332
Deferred income taxes -- 1,863
Other assets 14,619 16,097
------------------------------------
35,980 40,292
Property, plant and equipment, net 136,328 123,770
------------------------------------
Total assets $344,060 $336,039
====================================
</TABLE>
<TABLE>
<CAPTION>
December 31
1999 1998
------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 27,453 $ 20,596
Accrued expenses 54,216 50,328
Current portion of long-term debt 3,139 4,305
------------------------------------
Total current liabilities 84,808 75,229
Long-term debt, less current portion 110,966 114,101
Other liabilities 50,309 56,039
Noncontrolling interests 19,596 19,433
Stockholders' equity:
Common stock, par value $.01--authorized
15,000,000 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,423 19,423
Retained earnings 75,730 68,247
Accumulated other comprehensive income (loss) (3,347) (4,906)
------------------------------------
91,852 82,810
Less cost of shares of common stock in treasury
(1,071,216 shares in 1999 and 960,914 shares in 1998) 13,471 11,573
------------------------------------
Total stockholders' equity 78,381 71,237
------------------------------------
Total liabilities and stockholders' equity $344,060 $336,039
====================================
</TABLE>
See accompanying notes.
20
<PAGE>
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Earnings
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $422,459 $423,879 $417,512
Interest 2,040 1,790 1,626
Other 1,895 1,882 1,078
------------------------------------------------------
426,394 427,551 420,216
Costs and expenses:
Cost of products sold 290,940 290,507 289,739
Selling, general and administrative expenses 105,818 102,999 101,838
Interest 9,520 9,043 9,344
------------------------------------------------------
406,278 402,549 400,921
------------------------------------------------------
Earnings before income taxes and other items 20,116 25,002 19,295
Provision for income taxes 7,391 9,681 7,373
------------------------------------------------------
12,725 15,321 11,922
Noncontrolling interests (2,992) (5,145) (3,777)
------------------------------------------------------
Earnings before extraordinary item 9,733 10,176 8,145
Extraordinary item - early retirement of debt, net
of income tax benefit -- (1,174) --
------------------------------------------------------
Net earnings $ 9,733 $ 9,002 $ 8,145
======================================================
Earnings per share:
Basic
Earnings before extraordinary item $ 2.71 $ 2.79 $ 2.24
Extraordinary item -- (.32) --
------------------------------------------------------
Net earnings $ 2.71 $ 2.47 $ 2.24
======================================================
Diluted
Earnings before extraordinary item $ 2.66 $ 2.67 $ 2.18
Extraordinary item -- (.31) --
======================================================
Net earnings $ 2.66 $ 2.36 $ 2.18
======================================================
</TABLE>
See accompanying notes.
21
<PAGE>
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in- Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income (Loss) Stock Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $46 $ 19,423 $ 56,920 $ (2,798) $(11,830) $ 61,761
Comprehensive Income:
Net earnings for 1997 8,145 8,145
Other comprehensive income (loss) (507) (507)
--------
Total comprehensive income 7,638
Dividends declared ($.40 per share) (1,453) (1,453)
Effects of Congoleum capital transactions (2,688) (2,688)
Exercise of stock options 89 89
Purchase of treasury stock (2) (2)
--------------------------------------------------------------------------
Balance at December 31, 1997 46 19,423 60,924 (3,305) (11,743) 65,345
Comprehensive Income:
Net earnings for 1998 9,002 9,002
Other comprehensive income (loss) (1,601) (1,601)
--------
Total comprehensive income 7,401
Dividends declared ($.45 per share) (1,639) (1,639)
Effects of Congoleum capital transactions (40) (40)
Exercise of stock options 171 171
Purchase of treasury stock (1) (1)
--------------------------------------------------------------------------
Balance at December 31, 1998 46 19,423 68,247 (4,906) (11,573) 71,237
Comprehensive Income:
Net earnings for 1999 9,733 9,733
Other comprehensive income 1,559 1,559
--------
Total comprehensive income 11,292
Dividends declared ($.50 per share) (1,795) (1,795)
Effects of Congoleum capital transactions (455) (455)
Purchase of treasury stock (1,898) (1,898)
--------------------------------------------------------------------------
Balance at December 31, 1999 $46 $ 19,423 $ 75,730 $ (3,347) $(13,471) $ 78,381
==========================================================================
</TABLE>
See accompanying notes.
22
<PAGE>
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings $ 9,733 $ 9,002 $ 8,145
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 16,231 15,128 14,501
Provision for doubtful accounts 2,966 2,411 2,433
Loss on early retirement of debt, including write-off of deferred
financing fees -- 3,809 --
Deferred income taxes 2,634 5,144 (470)
Accounts and notes receivable (143) (5,769) 1,718
Inventories (13,252) 4,407 5,830
Prepaid expenses and other current assets (2,342) (2,518) (816)
Accounts payable and accrued expenses 7,108 2,342 (9,623)
Noncontrolling interests 2,992 5,145 3,777
Other (863) 188 (53)
-----------------------------------------
Net cash provided by operating activities 25,064 39,289 25,442
Investing activities
Purchases of short-term investments (51,044) (15,000) (40,200)
Proceeds from sales of short-term investments 31,812 22,900 49,800
Investments in property, plant and equipment (26,971) (17,155) (22,183)
-----------------------------------------
Net cash used in investing activities (46,203) (9,255) (12,583)
Financing activities
Long-term borrowings -- 101,719 --
Payments on long-term debt (4,259) (77,787) (12,312)
Net short-term payments -- (5,500) (4,750)
Debt issuance costs -- (3,310) --
Premium payment on early retirement of debt -- (2,563) --
Purchase and retirement of Congoleum Class B shares (470) -- (5,630)
Purchase of treasury shares (5,381) (191) (3,896)
Dividends paid (1,795) (1,639) (1,453)
Proceeds from exercise of stock options -- 171 115
-----------------------------------------
Net cash (used) provided by financing activities (11,905) 10,900 (27,926)
Effect of foreign exchange rate changes on cash 824 (735) 715
-----------------------------------------
(Decrease) increase in cash and cash equivalents (32,220) 40,199 (14,352)
Cash and cash equivalents at beginning of year 59,505 19,306 33,658
-----------------------------------------
Cash and cash equivalents at end of year $ 27,285 $ 59,505 $ 19,306
=========================================
</TABLE>
See accompanying notes.
23
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of American Biltrite
Inc. and its wholly-owned subsidiaries (referred to as "ABI" or the "Company"),
as well as entities over which it has voting control, including Congoleum
Corporation, a publicly traded company in which ABI, at December 31, 1999, has a
53% ownership interest and 68% of the voting shares. Intercompany accounts and
transactions, including transactions with associated companies which result in
intercompany profit, are eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent liabilities, at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Some of the information presented in this
report constitutes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
Cash Equivalents
Cash equivalents represent highly liquid debt instruments with maturities of
three months or less at the date of purchase. The carrying value of cash
equivalents approximates fair value.
24
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Short-Term Investments
The Company invests in highly liquid debt instruments with strong credit
ratings. Commercial paper investments with a maturity greater than three months,
but less than one year, at the time of purchase are considered to be short-term
investments. The carrying amount of the investments approximates fair value due
to their short maturity. The Company maintains cash and cash equivalents and
short-term investments with certain financial institutions. The Company performs
periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most of the Company's domestic inventories
and the first-in, first-out (FIFO) method for the Company's foreign inventories.
Property, Plant and Equipment
These assets are stated at cost. Expenditures for maintenance, repairs and
renewals are charged to expense; major improvements are capitalized.
Depreciation, which is determined using the straight-line method, is provided
over the estimated useful lives (30 to 40 years for buildings and building
improvements, ten to 15 years for production equipment and heavy-duty vehicles,
and three to ten years for light-duty vehicles and office furnishings and
equipment).
Debt Issue Costs
Costs incurred in connection with the issuance of long-term debt have been
capitalized and are being amortized over the life of the related debt
agreements. During 1998, Congoleum wrote off old debt issue costs and
capitalized new debt issue costs in connection with a debt offering and
redemption (see Note 6). Debt issue costs at December 31, 1999 and 1998 amounted
to $2,834,000 and $3,170,000, respectively, net of accumulated amortization of
$476,000 and $140,000, respectively, and are included in other noncurrent
assets.
25
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Goodwill
The excess of purchase cost over the fair value of the net assets acquired
(goodwill) established in 1993 by Congoleum is being amortized on a
straight-line basis over 40 years. Goodwill associated with the K & M
transactions (see Note 4) is being amortized over 20 years. At each balance
sheet date, the Company evaluates the recoverability of its goodwill using
certain financial indicators, such as historical and future ability to generate
income from operations. Accumulated amortization amounted to $8,668,000 and
$7,572,000 at December 31, 1999 and 1998, respectively.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate the Company's assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to fair market value is required.
Environmental Remediation Liabilities
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 96-1,
Environmental Remediation Liabilities. The Company is subject to federal, state,
and local environmental laws and regulations. The Company records a liability
for environmental remediation claims when a clean-up program or claim payment
becomes probable and the costs can be reasonably estimated. The recorded
liabilities are not discounted for delays in future payments (see Notes 5, 7 and
10).
Revenue Recognition
The Company records revenue, net of a provision for estimated returns and
allowances, upon shipment.
26
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Income Taxes
The Company provides for income taxes based upon earnings reported for financial
statement purposes. Deferred tax assets and liabilities are determined based
upon temporary differences between the financial reporting and tax bases of
assets and liabilities.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, requires the recognition of, or disclosure of,
compensation expense for grants of stock options or other equity instruments
issued to employees based on their fair value at the date of grant. As permitted
by SFAS No. 123, the Company follows the disclosure requirements instead of
recognition of compensation expense and therefore continues to apply existing
accounting rules under APB Opinion No. 25 (APB 25) and related interpretations
for its employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Research and Development Costs
Expenditures relating to the development of new products are charged to
operations as incurred and amounted to $5,620,000 , $5,175,000 and $5,388,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
Foreign Currency Translation
All balance sheet accounts of foreign subsidiaries are translated at the current
exchange rate, and income statement items are translated at the average exchange
rate for the period; resulting translation adjustments are made directly to
accumulated other comprehensive income in stockholders' equity. Realized
exchange gains and losses (immaterial in amount) are included in current
operations.
27
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Issuances of Stock by Subsidiaries
The Company accounts for issuances of stock by its subsidiaries as capital
transactions.
Earnings Per Share
In 1997, the Company adopted SFAS No. 128, Earnings Per Share. Under SFAS No.
128, primary and fully diluted earnings per share are replaced by basic and
diluted earnings per share. Basic earnings per share have been computed based on
the weighted-average number of common shares outstanding during the period.
Diluted earnings per share have been computed based upon the weighted-average
number of common shares outstanding during the year, adjusted for the dilutive
effect of shares issuable upon the exercise of stock options determined based
upon average market price for the period.
Changes in Accounting Principles
During 1998, the Accounting Standards Executive Committee (AcSEC) issued
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 Company adopted SOP 98-1 effective January 1, 1999. The
adoption of this SOP did not have a material impact in 1999 or 1998.
28
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Inventories
Inventory at December 31 consisted of the following:
1999 1998
----------------------------
(In thousands)
Finished goods $ 61,69 $ 50,683
Work-in-process 8,628 9,201
Raw materials and supplies 12,654 9,838
----------------------------
$ 82,977 $ 69,722
============================
At December 31, 1999, domestic inventories determined by the LIFO inventory
method amounted to $64,064,000 ,065,000 at December 31, 1998). If the FIFO
inventory method, which approximates replacement cost, had been used for these
inventories, they would have been $491,000 lower at December 31, 1999 and
$181,000 greater at December 31, 1998.
3. Property, Plant and Equipment
A summary of the major components of property, plant and equipment at December
31 is as follows:
1999 1998
---------------------------
(In thousands)
Land and improvements $ 5,452 $ 5,402
Buildings 57,631 55,706
Machinery and equipment 197,466 186,741
Construction-in-progress 21,017 5,646
---------------------------
281,566 253,495
Less accumulated depreciation 145,238 129,725
---------------------------
$136,328 $123,770
===========================
29
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Property, Plant and Equipment (continued)
Interest is capitalized in connection with the construction of major facilities.
Capitalized interest is recorded as part of the asset to which it relates and is
amortized over the asset's estimated useful life. Capitalized interest cost was
and $325,000 for 1999 and 1998, respectively.
Depreciation expense amounted to $14,750,000, $13,599,000 and $12,600,000 in
1999, 1998 and 1997, respectively.
4. Related-Party Transactions
Included in other assets on the accompanying balance sheets is ABI's investment
in Compania Hulera Sula, S.A., a 50%-owned associate. The investment is
accounted for on the cost method due to the uncertainty of the political climate
and currency restrictions in Honduras. During 1997, the Company wrote down its
investment from $1,100,000 to $850,000 to reflect a reduction in Hulera Sula's
net worth.
Congoleum Transactions
In November 1998, Congoleum's Board of Directors authorized Congoleum to
repurchase an additional $5,000,000 of its common stock (Class A and Class B
shares) through the open market or through privately negotiated transactions,
bringing the total authorized common share repurchases to $15,000,000. Under the
total plan, Congoleum has repurchased $13,716,000 of common stock through
December 31, 1999. Shares of Class B stock repurchased (totaling 741,055) have
been retired. The reduction of Congoleum's equity from the repurchase of common
stock during 1999 resulted in a reduction of ABI's investment in Congoleum of
$455,000 (1998--$40,000, 1997--$2,688,000) which was charged to retained
earnings.
The effect of the repurchase of Congoleum's common stock during 1999 was to
increase ABI's ownership interest from 49% to 53%. In addition, as of December
31, 1999, ABI's ownership of 4,395,605 shares of Congoleum's Class B common
stock represented 68% of the voting control of Congoleum. ABI has had voting
control of Congoleum since 1995, and accordingly, the accounts of Congoleum are
consolidated into the financial statements of the Company.
30
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related-Party Transactions (continued)
K&M Transactions
During 1995, ABI acquired additional partnership interests in K&M, giving ABI
majority ownership and control. In conjunction with the acquisition, ABI also
entered into agreements with the remaining limited partners of K&M, providing
ABI the option to buy, and providing the limited partners of K&M the option to
sell, the remaining partnership interests in K&M. Since 1995, ABI has acquired
additional limited partnership interests of 12% for consideration of $2,064,000.
If all of the remaining limited partnership interests in K&M were to be
purchased by ABI, the purchase price would amount to approximately $3,439,000 as
of December 31, 1999. ABI owns an 83% partnership interest in K&M at December
31, 1999.
5. Accrued Expenses
Accrued expenses at December 31 consisted of the following:
1999 1998
----------------------
(In thousands)
Accrued advertising and sales promotions $23,164 $22,804
Employee compensation and related benefits 10,698 11,225
Interest 3,947 4,023
Environmental liabilities 4,670 3,690
Income taxes 7,614 4,739
Other 4,123 3,847
------------------------
$54,216 $50,328
========================
31
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Financing Arrangements
Long-term debt at December 31 consisted of the following:
1999 1998
------------------------
(In thousands)
8 5/8% Senior Notes, due 2008 $ 99,575 $ 99,526
Series A Notes 12,000 15,000
Other notes 2,530 3,880
-------------------------
114,105 118,406
Less current portion 3,139 4,305
--------------------------
$110,966 $114,101
==========================
In August 1998, Congoleum issued $100,000,000 of 8 5/8% Senior Notes, maturing
August 1, 2008, priced at 99.505 to yield 8.70%. 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 the date of redemption. The indenture under which
the notes were issued includes certain restrictions on additional indebtedness
and uses of cash by Congoleum, including dividend payments. The holders of the
Senior Notes have no recourse to the assets of ABI and K&M.
During 1998, proceeds from the 8 5/8% Senior Notes were used to redeem all of
the previously outstanding 9% Senior Notes, including accrued interest and
prepayment premium, to pay certain fees and expenses in connection with the
offering, and for working capital purposes. In connection with the offering in
1998, Congoleum recorded an extraordinary charge of $2,413,000, net of
$1,400,000 of income tax benefit, to write off debt issuance costs and premiums
associated with the repurchase of the 9% Senior Notes. ABI recorded its share of
this extraordinary charge in the amount of $1,174,000 in 1998.
The fair value of Congoleum's long-term debt is based on the quoted market
prices for publicly traded issues. The estimated fair value of the 8 5/8% Senior
Notes was $88,000,000 and $98,500,000 at December 31, 1999 and 1998,
respectively.
32
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Financing Arrangements (continued)
In 1996, ABI entered into a credit agreement with an insurance company (the
Agreement) providing for the issuance of senior promissory notes aggregating $30
million. In January 1996, $15 million principal amount of notes were issued
(Series A Notes). The Series A Notes bear interest at 6.7% per annum and are
payable in annual installments of $3 million beginning in 1999. Notes issued
under the Agreement are obligations of ABI, and the holders of the Notes have no
recourse to the assets of Congoleum or K&M. The fair value of the Series A Notes
approximates their carrying value at both December 31, 1999 and 1998.
Other notes consist of promissory notes issued in connection with various
transactions. In 1998, the Company obtained loans from local banks in connection
with the acquisition of buildings in Belgium and Singapore. The loans were for
2,500,000 Belgian francs and 2,700,000 Singapore dollars. The loans are payable
in equal installments through 2008 and 2018, respectively. The interest rates on
the loans are 5.6% for the Belgian loan and 1.5% above the local bank's prime
rate (7.5% at December 31, 1999) for the Singapore loan. The loans are secured
by the property acquired.
At December 31, 1999, the Company had revolving and other short-term agreements
providing for secured and unsecured borrowings up to $65 million, with interest
accruing at variable rates. No borrowings were outstanding under these
agreements at December 31, 1999 and 1998. Commitment fees and compensating
balance requirements associated with these agreements are insignificant.
The terms of the Company's loan agreements impose certain restrictions on its
ability to incur additional indebtedness and call for the maintenance of
specific levels of working capital and minimum net worth and restrict the
payment of cash dividends to holders of common stock and other capital
distributions as defined. At December 31, 1999, retained earnings which were
unrestricted as to such distributions amounted to $6,157,000.
Interest paid on all outstanding debt amounted to $10,110,000 in 1999,
$9,480,000 in 1998 and $10,216,000 in 1997.
33
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Financing Arrangements (continued)
Principal payments on the Company's long-term obligations due in each of the
next five years are as follows (in thousands):
2000 $3,139
2001 3,108
2002 3,111
2003 3,115
2004 119
7. Other Liabilities
Other liabilities at December 31 consisted of the following:
1999 1998
------------------------
(In thousands)
Environmental remediation and product
related liabilities $11,928 $16,198
Pension benefits 11,662 14,531
Other postretirement benefits 9,647 9,872
Accrued workers' compensation 5,164 4,987
Deferred income taxes 8,695 6,658
Accrued compensation 1,346 1,061
Other 1,867 2,732
------------------------
$50,309 $56,039
========================
34
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans
The Company sponsors several noncontributory defined benefit pension plans
covering substantially all employees. Amounts funded annually by the Company are
actuarially determined using the projected unit credit and unit credit methods
and are equal to or exceed the minimum required by government regulations.
Pension fund assets are invested in a variety of equity and fixed-income
securities.
Pension Benefits
1999 1998
---------------------------
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year $ 75,040 $ 71,956
Service cost 1,729 1,609
Interest cost 4,934 4,871
Plan participants' contributions 140 111
Actuarial (gains) losses (3,314) 2,018
Foreign currency exchange rate changes 226 (79)
Benefits paid (5,388) (5,446)
---------------------------
Benefit obligation at end of year $ 73,367 $ 75,040
===========================
Change in plan assets
Fair value of plan assets at beginning of year $ 64,927 $ 64,230
Actual return on plan assets 7,958 4,794
Company contributions 1,923 1,749
Plan participants' contribution 140 111
Foreign currency exchange rate changes 450 (511)
Benefits paid (5,388) (5,446)
---------------------------
Fair value of plan assets at end of year $ 70,010 $ 64,927
===========================
35
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans (continued)
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------------------
(In thousands)
<S> <C> <C>
Funded status of the plan (underfunded) $ (3,356) $(10,114)
Unrecognized net actuarial (gains) losses (5,117) 788
Unrecognized transition obligation 220 525
Unamortized prior service cost (1,479) (1,702)
--------------------------------
Accrued benefit cost $ (9,732) $(10,503)
================================
<CAPTION>
December 31
1999 1998
--------------------------------
(In thousands)
Amounts recognized in the statement of financial position
<S> <C> <C>
Accrued benefit liability $(11,962) $(14,923)
Intangible asset 655 796
Deferred tax asset 575 1,322
Accumulated other comprehensive loss 1,000 2,302
--------------------------------
Net amount recognized $ (9,732) $(10,503)
================================
<CAPTION>
December 31
1999 1998
--------------------------------
<S> <C> <C>
Weighted-average assumptions
Discount rate 7.25%--7.50% 6.75%--7.50%
Expected return on plan assets 7.50%--9.00% 7.50%--9.00%
Rate of compensation increase 5.00% 5.00%
</TABLE>
At December 31, 1999, three of the Company's plans have projected benefit
obligations in excess of plan assets. The aggregate projected benefit
obligations and plan assets of these plans were $27,514,000 and $17,979,000,
respectively.
36
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 1,729 $ 1,609 $ 1,535
Interest cost 4,934 4,871 4,809
Expected return on assets (5,521) (5,384) (4,809)
Amortization of prior service cost (223) (229) (240)
Amortization of transition obligation 305 277 274
Recognized net actuarial (gains) losses (67) (221) 103
---------------------------------------
Net periodic benefit cost $ 1,157 $ 932 $ 1,672
=======================================
</TABLE>
The Company also has three 401(k) defined contribution retirement plans that
cover substantially all employees. Eligible employees may contribute up to a
range of 12% to 15% of compensation with partially matching Company
contributions. Defined contribution pension expense for the Company was
$1,658,000, $1,779,000, and $1,579,000 for the years ended December 1999, 1998
and 1997, respectively.
9. Postretirement Benefits Other Than Pensions
Net periodic postretirement benefits cost for the year ended December 31 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 148 $ 139 $ 139
Interest cost 480 480 505
Amortization of prior service benefit (409) (409) (409)
Amortization of net loss 71 60 99
--------------------------------------
Net periodic benefit cost $ 290 $ 270 $ 334
=====================================
Weighted-average discount rate 7.25% 6.75% 7.0%
</TABLE>
37
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Postretirement Benefits Other Than Pensions (continued)
The change in benefit obligation and the actuarial and recorded liabilities for
these postretirement benefits at December 31, none of which has been funded in
1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
(In thousands)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at end of prior year $ 7,376 $ 7,552
Service cost (with interest) 148 139
Interest cost 480 480
Actuarial gain (346) (256)
Benefits paid (517) (539)
---------------------------------
Benefit obligation at end of year $ 7,141 $ 7,376
=================================
Funded status (unfunded) $ (7,141) $ (7,376)
Unrecognized net gain (513) (96)
Unrecognized prior service benefit (2,406) (2,815)
---------------------------------
Accrued postretirement benefit cost (10,060) (10,287)
Less current portion 413 415
---------------------------------
Noncurrent postretirement benefit obligations $ (9,647) $ (9,872)
=================================
</TABLE>
The annual rate of increase in the per capita cost of covered health care
benefits was assumed to be 7.4% in 1999; the rate was assumed to decrease
gradually to 5.0% over the next seven years and remain level thereafter. An
increase of one percentage point in the assumed health care cost trend rates for
each future year would increase the aggregate of the service and interest cost
components of net periodic postretirement benefits cost by $56,000 for the year
ended December 31, 1999, and would increase the accumulated postretirement
benefit obligations by $506,000 at December 31, 1999.
38
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies
Leases
The Company occupies certain warehouse and office space and uses certain
equipment and motor vehicles under lease agreements expiring at various dates
through 2010. The leases generally require the Company to pay for utilities,
insurance, taxes and maintenance, and some contain renewal options. Total rent
expense charged to operations was $4,922,000 in 1999, $3,889,000 in 1998 and
$3,428,000 in 1997.
Future minimum payments relating to operating leases are as follows (in
thousands):
2000 $ 3,554
2001 3,355
2002 2,763
2003 2,223
2004 1,658
Thereafter 9,227
-----------
Total future minimum lease payments $22,780
===========
Environmental and Other Liabilities
The Company records a liability for environmental remediation claims when a
clean-up program or claim payments become probable and the costs can be
reasonably estimated. As assessments and clean-up programs progress, these
liabilities are adjusted based upon the progress in determining the timing and
extent of remedial actions and the related costs and damages. The recorded
liabilities are not reduced by the amount of insurance recoveries. Such
estimated insurance recoveries are reflected in other noncurrent assets and are
considered probable of recovery.
39
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
American Biltrite Inc.
ABI is a co-defendant with many other manufacturers and distributors of
asbestos-containing products in approximately sixtyeventy-three pending claims
involving approximately 764 individuals as of December 31, 1999. These claims
allege personal injury from exposure to asbestos or asbestos-containing
products. As of December 31, 1998, there were approximately seventy-nine pending
claims involving approximately 590 individuals. Activity related to asbestos
claims during the years ended December 31, 1999 and 1998 was as follows:
1999 1998
-------------------
Claims at January 1 79 66
New c laims 17 31
Settlements (3) (3)
Dismissals (30) (15)
-------------------
Claims at December 31 63 79
===================
The total indemnity costs incurred to settle claims during 1999 and 1998 were
$965,000 and $265,000, respectively, all of which were paid by ABI's insurance
carriers, as were the related defense costs. The average indemnity cost per
resolved claim was $29,000 in 1999 and $15,000 in 1998. Furthermore, under
certain circumstances, third parties are contractually liable for up to the full
amount of any liabilities suffered by ABI in connection with these claims. In
general, asbestos-containing products have not been found to pose a health risk
unless significant amounts of free asbestos fibers become airborne. The asbestos
in asbestos-containing products sold by ABI was encapsulated during the
manufacturing process. ABI believes that these suits are without merit and that,
in any event, the damages sought are substantially within the coverages of its
applicable liability insurance policies, and accordingly, no dedicated reserves
have been set aside for these suits.
40
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
ABI has been named as a Potentially Responsible Party ("PRP") within the meaning
of the Federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), as to two sites in two separate states. At one of
the two sites located in Southington, Connecticut, ("Southington Site"), ABI's
subsidiary ("Ideal") is also named as a PRP. At the Southington Site, the
currently estimated aggregate future cost of remediation and monitoring is
approximately $31 million. ABI's and Ideal's share of the assessments to the
PRPs to date is approximately $115,000. Subject to a final allocation among the
PRPs, ABI's and Ideal's share of the future remediation costs is currently
estimated to be approximately $329,000. Under an agreement, Ideal will share a
percentage of this cost with the former owner of Ideal's assets. Under an
agreement between ABI and The Biltrite Corporation ("TBC"), TBC is liable for
37.5% of the remediation costs incurred by ABI with respect to the Southington
Site.
At the other site, ABI, together with a number of other PRPs, signed a consent
decree and site remediation agreement (the "Agreements") which, without an
admission of liability, requires remediation at the ILCO Superfund site located
in Leeds, Alabama (the "ILCO Site"). On April 22, 1997, the United States
District Court for the Northern District of Alabama approved the consent decree.
The currently estimated aggregate future cost of remediation and associated
transactional costs at the ILCO Site is $20.4 million. Pursuant to a final
allocation among consent decree participants, ABI's share of the currently
estimated remediation cost is approximately $361,000 after considering
commitments from de minimus and de maximus settlors, the City of Leeds and its
insurers and TBC, which is, by agreement, liable for 37.5% of the remediation
costs incurred by ABI. This amount will be payable over the next four to seven
years. ABI and the other settling PRPs also are pursuing litigation against PRPs
who used the ILCO Site and have not settled.
ABI currently is a defendant in a lawsuit in which Olin Corporation, the present
owner of a former chemical plant in Wilmington, Massachusetts, claims that ABI
and other defendants are liable for a portion of the costs associated with
remediating environmental conditions at the site. The lawsuit, captioned Olin
Corporation v. Fisons, plc et al., was filed on May 26, 1993 in the Federal
District Court of Massachusetts. A wholly owned subsidiary of ABI owned and
operated the Wilmington plant from 1959 to 1964, and for
41
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
approximately one month during 1964, ABI held title to the property directly.
Olin has conducted an environmental assessment of the site and awaits a decision
by Massachusetts officials concerning the scope of any remedial actions which
must be undertaken at the site.
In January of 2000, ABI and TBC reached an agreement-in-principle with Olin that
would settle all of Olin's claims against ABI and TBC in the litigation. Under
the terms of the agreement-in-principle, ABI would pay Olin $4.1 million in
settlement of its share of Olin's $18 million of response costs incurred at the
site through December 31, 1998. ABI also would pay Olin 21.7% of Olin's response
costs incurred at the site after January 1, 1999. Under an agreement between ABI
and TBC, TBC is liable for 37.5% of the costs that may be incurred by ABI as a
result of this lawsuit and 37.5% of the settlement amounts paid by ABI to Olin
under the agreement-in-principle with Olin described below.
Olin estimates that it incurred $2 million in response costs from January 1 to
December 31, 1999. Additional expenditures, principally remediation and
oversight costs, will be required to remediate the site. ABI is unable to
estimate the amount of additional expenditures that Olin may be required to make
to remediate the site. At this time, ABI cannot determine the estimable and
probable costs of its share of any future response costs. In the event that the
parties are unable to reduce the agreement-in-principle to a mutually
acceptable, fully executed settlement agreement, trial is scheduled to commence
on May 1, 2000.
ABI also is potentially responsible for response and remediation costs as to
four state-supervised sites, two sites in Massachusetts, and one each in New
York and New Jersey. At these four sites, ABI's liability will be based upon
disposal of allegedly hazardous waste material from its current and former
plants. While the exact amount of the future costs to ABI resulting from its
liability is indeterminable due to such unknown factors as the magnitude of
clean-up costs, the timing and extent of the remedial actions that may be
required, determination of ABI's liability in proportion to other responsible
parties and the extent to which costs may be recoverable from insurance, ABI
believes, based upon current information available, that its liability at any of
these sites will not be material. Under an agreement between ABI and TBC, TBC is
liable for 37.5% of the remediation costs which may be incurred by ABI at all of
these sites.
42
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
ABI has made demands against its insurance carriers to provide defense and
indemnity for ABI's liabilities at the Southington site, the ILCO site, the Olin
site and the state-supervised sites in Massachusetts, New York and New Jersey.
ABI and its principal carrier have entered into negotiations to resolve this
insurance coverage demand made against the carrier. ABI cannot estimate the
probable insurance recovery from this carrier or any of its other insurance
carriers at any of the sites at this stage of negotiations.
ABI is involved in other routine legal proceedings relating to its business and
operations. ABI does not believe that these proceedings, in the aggregate, will
have a material adverse effect on ABI's results of operations or financial
condition.
As of December 31, 1999, the Company has accrued $3.6 million for ABI's
estimable and probable amounts for contingencies described above. Additional
amounts have been provided for matters related to Congoleum as described below.
Congoleum
Congoleum is named, together with a large number (in most cases, hundreds) of
other companies, as a PRP in pending proceedings under the CERCLA, as amended,
and similar state laws. In two instances, although not named as a PRP, Congoleum
has received a request for information. These pending proceedings currently
relate to seven disposal sites in New Jersey, Pennsylvania, Maryland,
Connecticut and Delaware in which recovery from generators of hazardous
substances is sought for the cost of cleaning up the contaminated waste sites.
Congoleum's ultimate liability in connection with those sites may depend on many
factors, including the volume of material contributed to the site, the number of
other PRP's and their financial viability, the remediation methods and
technology to be used, and the extent to which costs may be recoverable from
insurance. However, under CERCLA, and certain other laws, as a PRP, Congoleum
can be held jointly and severally liable for all environmental costs associated
with a site.
The most significant exposure to which Congoleum has been named a PRP relates to
a recycling facility site in Elkton, Maryland. Two removal actions were
substantially complete as of December 31, 1998; however, the groundwater
remediation phase has not begun, and the remedial investigation/feasibility
study related to the groundwater remediation has not been approved. The PRP
group estimated that future costs of
43
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
groundwater remediation would be approximately $26 million, of which, based on
waste allocations among members of the PRP group, Congoleum's share was
estimated to be approximately 5.5%. At December 31, 1999, Congoleum believes its
probable liability, which has been recorded in other liabilities, based on
present facts and circumstances, to be approximately $1.5 million. A
corresponding insurance receivable of $1.2 million has been recorded in other
noncurrent assets. No other PRP sites are material on an individual basis.
Congoleum also accrues remediation costs for certain of Congoleum's owned
facilities on an undiscounted basis. Estimated total clean-up costs, including
capital outlays and future maintenance costs for soil and groundwater
remediation, are primarily based on engineering studies.
Although there can be no assurances, Congoleum anticipates that these matters
will be resolved over a period of years for amounts (including legal fees and
other defense costs) which Congoleum believes based on current estimates of
liability and, in part, on insurance coverage, and based on advice from counsel,
will not have a material adverse effect on the financial position of Congoleum.
Congoleum is one of many defendants in approximately 670 pending claims
(including workers' compensation cases) involving approximately 6,246
individuals as of December 31, 1999, alleging personal injury from exposure to
asbestos or asbestos-containing products. There were 657 claims at December 31,
1998 which involved approximately 1,984 individuals. Activity related to
asbestos claims during the years ended December 31, 1999 and 1998 was as
follows:
1999 1998
-----------------------
Claims at January 1 657 654
New claims 247 203
Settlements (48) (63)
Dismissals (186) (137)
-----------------------
Claims at December 31 670 657
=======================
44
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
The total indemnity costs incurred, excluding the case noted below, to settle
claims during 1999 and 1998 were and $2,160,000, respectively, which were paid
by Congoleum's insurance carriers, as were the related defense costs. The
average indemnity cost per resolved claim was $12,000in 1999 and $11,000 in
1998, all of which costs were covered by Congoleum's insurance carriers. Costs
per claim vary depending on a number of factors, including the number of
plaintiffs, the nature of their alleged exposure and the location of the claim.
Nearly all claims allege that various diseases or health issues were contracted
as a result of exposure to asbestos in the course of their activities either as
independent contractors or as employees of shipyards or other industries
utilizing asbestos-containing products (or, in the workers' compensation cases,
as employees of Congoleum) and that included among such products which allegedly
caused their diseases were sheet products provided by Congoleum or resilient
tile provided by the Amtico Tile Division of ABI (the "Tile Division"), or both.
Congoleum discontinued the manufacture of asbestos-containing sheet products in
1983, and the Tile Division ceased manufacturing asbestos-containing tile
products in 1984. In general, asbestos-containing products have not been found
to pose a health risk unless significant amounts of free asbestos fibers become
airborne. All of the asbestos in asbestos-containing sheet and tile products
sold by Congoleum or the Tile Division was fully bonded or encapsulated during
the manufacturing process. Congoleum has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that do not comply with
governmental asbestos handling standards.
In one of the cases tried before a jury in Superior Court of California in Los
Angeles, held in May and June 1997, Congoleum and another defendant were found
liable for $3.3 million in damages, subject to proportional liability under
California law. Congoleum had previously settled one count for an immaterial
amount and had gone to trial for the remaining counts. The jury found that
Congoleum was liable for only 25% of the plaintiff's non-economic damages, but
as a result of post-verdict motions, the trial judge granted plaintiff's motion
for judgment notwithstanding the verdict and held that California Proposition 51
(establishing proportionate liability for non-economic damages) did not apply in
this case. Congoleum and the other defendant appealed this decision and, in
August 1999, the appeals court reversed the previous judgement and ordered the
trial court to enter a judgement against Congoleum for $818,000. Congoleum's
insurance carrier has paid for the defense costs incurred and has indicated that
it would be responsible for paying the ultimate judgment in the case, subject to
certain limitations.
45
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
At December 31, 1999, Congoleum has accrued approximately $4.4 million for costs
related to asbestos product liability. Estimated insurance coverage of $0.8
million has been recorded in other noncurrent assets at December 31, 1999 and
are considered probable of recovery.
Although there can be no assurance, Congoleum believes, based upon the nature of
its asbestos-containing products and its experience with cases to date, that any
potential liability from pending personal injury claims relating to Congoleum's
asbestos-containing products will not have a material adverse effect on the
financial position of Congoleum.
The total balances of environmental and asbestos related liabilities and the
related insurance receivables deemed probable of recovery at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998
Liability Receivable Liability Receivable
---------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Asbestos product liability $ 7,500 $ 2,000 $ 9,200 $ 2,900
Environmental liabilities 4,400 800 6,900 3,300
Other 800 -- 1,100 --
---------------------------------------------------
Total $12,700 $ 2,800 $17,200 $ 6,200
===================================================
</TABLE>
Other
In the ordinary course of its business, ABI and Congoleum become involved in
lawsuits, administrative proceedings, product liability and other matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts, and the matters may remain unresolved for several years. On
the basis of information furnished by counsel and others, ABI and Congoleum do
not believe that these matters, individually or in the aggregate, will have a
material adverse effect on their business or financial condition.
46
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves $19,574 $21,959
Credit carryforwards -- 336
----------------------------
Total deferred tax assets 19,574 22,295
Deferred tax liabilities:
Depreciation 14,599 14,212
Insurance 2,615 3,438
Inventory 3,199 2,538
Undistributed domestic earnings 2,489 2,517
Foreign taxes 1,084 1,087
Other 1,991 1,640
----------------------------
Total deferred tax liabilities 25,977 25,432
----------------------------
Net deferred tax liability $(6,403) $(3,137)
============================
</TABLE>
Credit carryforwards consisted primarily of alternative minimum tax credits and
foreign tax credits. The components of earnings before income taxes for the year
ended December 31 were as follows:
1999 1998 1997
-----------------------------------------------
(In thousands)
Domestic $16,726 $21,722 $16,849
Foreign 3,390 3,280 2,446
-----------------------------------------------
$20,116 $25,002 $19,295
===============================================
47
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Significant components of the provision for income taxes for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $3,078 $3,087 $6,346
Foreign 1,295 1,185 931
State 384 265 566
---------------------------------------------
Total current 4,757 4,537 7,843
Deferred:
Federal 2,416 4,483 (441)
Foreign (3) 41 50
State 221 620 (79)
---------------------------------------------
Total deferred 2,634 5,144 (470)
---------------------------------------------
$7,391 $9,681 $7,373
=============================================
</TABLE>
Deferred income taxes include provisions of $260,000, $479,000 and $301,000
during 1999, 1998 and 1997, respectively, for ABI's share of the undistributed
earnings of Congoleum, which does not file a consolidated tax return with ABI.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense for the year ended December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 2.0 2.3 2.8
Undistributed domestic earnings 1.3 1.9 1.5
Other (1.6) (0.5) (1.1)
--------------------------------------------
Effective tax rate 36.7% 38.7% 38.2%
============================================
</TABLE>
48
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Undistributed earnings of foreign subsidiaries aggregated approximately
$18,942,000 at December 31, 1999, which, under existing law, will not be subject
to U.S. tax until distributed as dividends. Because the earnings have been or
are intended to be reinvested in foreign operations, no provision has been made
for U.S. income taxes that may be applicable thereto.
Income taxes paid amounted to approximately $5,269,000 in 1999, $6,160,000 in
1998 and $5,727,000 in 1997.
12. Other Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130
established standards for reporting and displaying comprehensive income and its
components; however, the adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requiress unrealized
gains or losses on available-for-sale securities, foreign currency translation
adjustments and changes in certain minimum pension liabilities, which prior to
adoption, were reported separately in stockholders' equity, to be included in
other comprehensive income. The 1997 financial statements were reclassified to
conform to the requirements of SFAS No. 130.
Components of other comprehensive income (loss) for the year ended December 31
consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
(In thousands)
<S> <C> <C> <C>
Foreign currency translation adjustments $ 964 $(1,024) $(838)
Change in minimum pension liability 595 (577) 331
--------------------------------------------
$1,559 $(1,601) $(507)
============================================
</TABLE>
49
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Other Comprehensive Income (continued)
Accumulated balances related to each component of other comprehensive loss as of
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Foreign currency translation adjustments $(2,819) $(3,783) $(2,759)
Minimum pension liability (528) (1,123) (546)
-----------------------------------------
$(3,347) $(4,906) $(3,305)
=========================================
</TABLE>
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Numerator:
Net income $9,733 $9,002 $8,145
-----------------------------------------
Denominator:
Denominator for basic earnings per share:
Weighted-average shares 3,592 3,641 3,633
Dilutive employee stock options 70 165 105
-----------------------------------------
Denominator for diluted earnings per share:
Adjusted weighted-average shares and assumed
conversions 3,662 3,806 3,738
=========================================
Basic earnings per share $ 2.71 $ 2.47 $ 2.24
=========================================
Diluted earnings per share $ 2.66 $ 2.36 $ 2.18
=========================================
</TABLE>
50
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Stock Option Plans
ABI Stock Plans
During 1999, ABI adopted a stock option plan which permits the issuance of
50,000 options for common stock to non-employee directors. Under the terms of
the plan, options granted are nonqualified and are issued at a price equal to
100% of fair market value at the date of grant. Options granted under the plan
are exercisable six months after the date of grant.
During 1993, ABI adopted a stock award and incentive plan which permits the
issuance of options, stock appreciation rights (SARs), limited SARs, restricted
stock, restricted stock units and other stock-based awards to selected employees
and independent contractors of the Company. The plan reserved 400,000 shares of
common stock for grant and provides that the term of each award be determined by
the committee of the Board of Directors (Committee) charged with administering
the plan. During 1997, the Board of Directors approved an amendment to the plan
to increase the number of shares reserved for grant from 400,000 to 550,000.
Under the terms of the plan, options granted may be either nonqualified or
incentive stock options and the exercise price, determined by the Committee, may
not be less than the fair market value of a share on the date of grant. SARs and
limited SARs granted in tandem with an option shall be exercisable only to the
extent the underlying option is exercisable and the grant price shall be equal
to the exercise price of the underlying option. In addition, the Committee may
grant restricted stock to participants of the plan at no cost. No SARs or
restricted stock have been granted under the plan since its adoption. Other than
the restrictions which limit the sale and transfer of these shares, participants
are entitled to all the rights of a shareholder.
51
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Stock Option Plans (continued)
The following tables summarize information about ABI's fixed stock options:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 564,080 $18.84 574,580 $18.79 342,640 $15.60
Granted 6,000 20.50 -- 238,500 23.63
Exercised -- -- (10,500) 16.26 (6,560) 13.56
Forfeited (14,240) 23.04 -- -- --
----------- ----------- -----------
Outstanding at end of year 555,840 18.75 564,080 18.84 574,580 18.79
=========== =========== ===========
Options exercisable at end of year 414,540 339,280 312,932
Available for grant at end of year 77,580 19,340 19,340
</TABLE>
<TABLE>
<CAPTION>
Weighted-Average
Option Outstanding at Exercisable at Remaining Exercise
Grant Date December 31, 1999 December 31, 1999 Contractual Life Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 1991 50,400 50,400 1.42 years $ 7.00
August 1993 274,440 274,440 3.67 years 16.88
April 1997 225,000 89,700 7.33 years 23.63
July 1999 6,000 -- 9.50 years 20.50
</TABLE>
Congoleum Stock Option Plan
Effective with its public offering, Congoleum adopted the 1995 stock option plan
(the plan). Under the plan, options to purchase up to 800,000 shares of
Congoleum's Class A common stock may be issued to officers and key employees.
These options may be either incentive stock options or nonqualified stock
options, and the option price must be at least equal to the fair value of
Congoleum's Class A common stock on the date of grant. All options granted have
ten-year terms and vest over five years at the rate of 20% per year beginning on
the first anniversary of the date of grant.
52
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Stock Option Plans (continued)
On July 1, 1999, a Directors Stock Option Plan was established, under which
non-employee directors may be granted options to purchase up to 50,000 shares of
Class A Common Stock. Options granted have ten-year terms and vest six months
from the grant date. During 1999, options to purchase 5,000 shares were granted
under the plan.
The following table summarizes information about Congoleum's fixed stock
options:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 626,000 $10.91 511,900 $13.01 484,500 $ 12.89
Granted 10,000 7.19 345,000 9.00 56,000 14.25
Exercised -- -- -- -- (2,000) 13.00
Forfeited (14,000) 9.00 (230,900) 12.72 (26,600) 13.53
------- -------- -------
Outstanding at end of year 622,000 $10.90 626,000 10.91 511,900 13.01
======= ======== =======
Options exercisable at end of year 306,200 180,000 185,200
Available for grant at end of year 226,000 172,000 286,100
</TABLE>
Pro Forma Disclosure
Pro forma disclosure, as required by SFAS No. 123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement.
The fair value for the ABI options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 1997, respectively: risk-free interest rate of 5.87%
and 6.69%, expected dividend yield of 18.29% and 12.70%, volatility factor of
the expected market price of the Company's common stock of .287 and .288, and a
weighted-average expected life of the options of seven and one-half years.
53
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Stock Option Plans (continued)
The fair value for the Congoleum options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: option forfeiture of 15%,
risk-free interest rates of 6.61%, 4.80% and 5.76%, no dividends, volatility
factors of the expected market price of Congoleum's common stock of .576, .365
and .356, and a weighted-average expected life of the options of seven years.
The weighted-average fair value of options granted under ABI's 1997 Stock Award
and Incentive Plan during 1997 was $1.25. The weighted-average fair value of
options granted under ABI's 1999 Stock Award and Incentive Plan during 1999 was
$.22. The weighted-average fair value of options granted under Congoleum's 1995
Stock Option Plan during 1999, 1998 and 1997 was $4.674.72, $4.31 and $6.97,
respectively. The weighted-average fair value of options granted for the
Directors Stock Option Plan in 1999 was $3.15.
For purposes of pro forma disclosures, the estimated fair value of the ABI and
Congoleum options is amortized to expense over the options' vesting period. The
impact on pro forma net income may not be representative of compensation expense
in future years, when the effect of the amortization of multiple awards would be
reflected in the pro forma disclosures.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income $9,733 $9,002 $8,145
Estimated pro forma compensation expense
from stock options (402) (355) (332)
-------------------------------------------------
Pro forma net income $9,331 $8,647 $7,813
=================================================
Pro forma earnings per share:
Basic $ 2.60 $ 2.38 $ 2.15
Diluted 2.55 2.27 2.09
</TABLE>
54
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. 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.
Measurement of Segment Profit or Loss and Segment Assets
The Company considers all revenues and expenses to be of an operating nature
and, accordingly, allocates them to industry segments regardless of the profit
center in which recorded. Costs specific to a segment, such as pension expense,
are charged to the segment. Corporate office expenses are allocated to certain
segments based on resources allocated. All assets, except investment in Hulera
Sula, are considered operating assets. Significant assets of the Corporate
office include cash, deferred tax assets, goodwill and investment in Hulera
Sula. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost plus an agreed upon
intercompany profit on intersegment sales or transfers.
Factors Used to Identify Reportable Segments
Reportable segments are business units that offer different products and are
each managed separately. The Company's Canadian division manufactures certain
products which are similar to products of the flooring segment; however, the
Canadian division is managed and reports separately from the flooring segment.
55
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Industry Segments (continued)
Segment Profit and Assets
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------------------------------------------------
Revenues (In thousands) Revenues from external customers:
<S> <C> <C> <C>
Flooring products $ 245,439 $ 258,258 $ 251,562
Tape products 88,337 82,233 83,389
Jewelry 46,552 47,350 44,537
Canadian division 42,131 36,038 38,024
--------------------------------------------------------
Total revenues from external customers 422,459 423,879 417,512
Intersegment revenues:
Flooring products 568 868 964
Tape products 158 193 162
Jewelry -- -- --
Canadian division 6,966 6,613 5,110
--------------------------------------------------------
Total intersegment revenues 7,692 7,674 6,236
--------------------------------------------------------
Total revenue 430,151 431,553 423,748
Reconciling items
Intersegment revenues (7,692) (7,674) (6,236)
--------------------------------------------------------
Total consolidated revenues $ 422,459 $ 423,879 $ 417,512
========================================================
</TABLE>
Approximately 54%, 50% and 50% of the Canadian division's revenues from external
customers were for flooring products for 1999, 1998 and 1997, respectively. The
remaining revenues from the Canadian division's external customers were from
sale of rubber and other industrial products.
For the years ended December 31, 1999, 1998 and 1997, the Company had a customer
which represented 16%, 15% and 14% of the Company's net sales, respectively.
This customer represented 28%, 25% and 23% of the flooring segment's net sales,
respectively. For 1999, 1998 and 1997, the Company had another customer which
represented 12%, 13% and 11% of the Company's net sales, respectively. This
customer represented 21%, 22% and 19% of the flooring segment's net sales,
respectively.
56
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Industry Segments (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest revenue
Flooring products $ 1,836 $ 1,607 $ 1,539
Tape products 18 22 15
Jewelry 40 61 --
Canadian division 135 163 87
------------------------------------------------------
Total segment interest revenue 2,029 1,853 1,641
Reconciling items
Corporate office interest revenue 76 37 23
Intersegment interest revenue (65) (100) (38)
------------------------------------------------------
$ 2,040 $ 1,790 $ 1,626
Total consolidated interest revenue
======================================================
Interest expense
Flooring products $ 7,938 $ 7,365 $ 6,797
Tape products 143 74 --
Jewelry 1,044 1,312 1,654
Canadian division -- 1 4
------------------------------------------------------
Total segment interest expense 9,125 8,752 8,455
Reconciling items
Corporate office interest expense 460 391 927
Intersegment interest expense (65) (100) (38)
------------------------------------------------------
Total consolidated interest expense $ 9,520 $ 8,752 $ 8,455
======================================================
Depreciation and amortization expense
Flooring products $ 11,038 $ 10,741 $ 10,346
Tape products 2,230 1,979 1,831
Jewelry 695 239 237
Canadian division 1,562 1,494 1,395
------------------------------------------------------
Total segment depreciation and amortization 15,525 14,453 13,809
Reconciling items
Corporate office depreciation and amortization 706 675 692
------------------------------------------------------
Total consolidated depreciation and amortization $ 16,231 $ 15,128 $ 14,501
======================================================
</TABLE>
57
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Industry Segments (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Segment profit
Flooring products $ 7,648 $ 15,516 $ 11,055
Tape products 6,304 3,797 4,512
Jewelry 3,585 2,657 2,731
Canadian division 3,826 3,095 2,879
------------------------------------------------------
Total segment profit 21,363 25,065 21,177
Reconciling items
Corporate office loss (1,184) (4) (1,940)
Intercompany (loss) profit (63) (59) 58
------------------------------------------------------
Total consolidated earnings before income taxes and other items $ 20,116 $ 25,002 $ 19,295
======================================================
</TABLE>
Segment profit or loss is before income tax expense or benefit and extraordinary
items. In 1998, the flooring segment recorded a loss on early retirement of
debt, net of income tax benefit, of$2,413,000. The extraordinary loss is not
included in the segment profit disclosed above.
<TABLE>
<CAPTION>
December 31
1999 1998 1997
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Segment assets
Flooring products $ 231,817 $ 231,865 $ 196,581
Tape products 49,876 48,308 47,728
Jewelry 15,737 16,298 18,074
Canadian division 27,146 20,710 20,179
--------------------------------------------------------
Total segment assets 324,576 317,181 282,562
Reconciling items
Corporate office assets 26,702 29,446 32,606
Intersegment accounts receivable (7,003) (10,436) (15,389)
Intersegment profit in inventory (215) (152) (93)
--------------------------------------------------------
Total consolidated assets $ 344,060 $ 336,039 $ 299,686
========================================================
</TABLE>
58
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Industry Segments (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Expenditures for additions to long-lived assets
Flooring products $ 18,670 $ 9,440 $ 19,767
Tape products 2,557 4,396 1,249
Jewelry 1,971 613 112
Canadian division 3,735 2,693 1,038
-----------------------------------------------------
Total expenditures for additions to long-lived assets 26,933 17,142 22,166
Reconciling items
Corporate office expenditure for additions to long-lived assets 38 13 17
-----------------------------------------------------
Total expenditures for additions to long-lived assets $ 26,971 $ 17,155 $ 22,183
=====================================================
</TABLE>
Geographic Area Information
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues from external customers
United States $355,174 $363,742 $353,325
Canada 36,619 31,314 35,667
Europe 15,203 16,225 16,000
Asia 6,818 7,397 8,676
Other 8,645 5,201 3,844
-----------------------------------------------------
Total revenues from external customers $422,459 $423,879 $417,512
=====================================================
</TABLE>
Revenues are attributed to countries based on the location of customers.
59
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Industry Segments (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Long-lived assets by area
United States $157,670 $150,079 $147,707
Canada 11,033 8,284 7,549
Europe 1,104 1,275 622
Asia 2,501 2,561 170
-----------------------------------------------------
Total long-lived assets $172,308 $162,199 $156,048
=====================================================
</TABLE>
During 1998, the Company acquired buildings in Belgium and Singapore (see Note
6).
60
<PAGE>
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1999
- ----
Net sales $106,987 $104,002 $106,950 $104,520
Gross profit 32,437 32,262 34,115 32,705
Net earnings 1,458 1,332 2,837 4,106
Net earnings per share:
Basic .40 .37 .79 1.15
Diluted .39 .36 .78 1.14
1998
- ----
Net sales $106,388 $108,501 $110,681 $ 98,309
Gross profit 31,578 34,354 35,401 32,039
Net earnings 1,325 2,101 1,821 3,755
Net earnings per share:
Basic .36 .58 .50 1.03
Diluted .35 .55 .48 1.00
</TABLE>
In the third quarter of 1998, ABI recorded an extraordinary loss in the amount
of $1,174,000 to recognize its share of Congoleum's loss on early retirement of
debt, net of income tax benefit. Basic and diluted earnings per share before
extraordinary item for the third quarter ended October 3, 1998 were $.82 and
$.79, respectively.
61
<PAGE>
American Biltrite Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
Year ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
- ------------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts-- Deductions-- Balance at
Description Period and Expenses Describe Other Describe End of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Allowances for doubtful accounts and
cash discounts $5,124 $ 2,904 $ 2,485 (A) $5,543
===================================================================================
Reserve for returns and markdowns $2,840 $12,820 $12,142 (A) $3,518
===================================================================================
1998
- ----
Allowances for doubtful accounts and
cash discounts $5,052 $ 2,411 $ 2,339 (A) $5,124
===================================================================================
Reserve for returns and markdowns $3,141 $12,318 $12,619 (A) $2,840
===================================================================================
1997
- ----
Allowances for doubtful accounts and
cash discounts $4,935 $ 2,433 $ 2,316 (A) $5,052
===================================================================================
Reserve for returns and markdowns $3,880 $10,588 $11,327 (A) $3,141
===================================================================================
</TABLE>
(A) Represents accounts charged off during the year, net of recoveries
62
<PAGE>
Pursuant to the requirement of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned,
AMERICAN BILTRITE INC.
(Registrant)
Date: March 8, 2000 by: /s/ Gilbert K. Gailius
-------------------- -------------------------
Gilbert K. Gailius, Vice President
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 8, 2000 by: /s/ Roger S. Marcus
-------------------- ----------------------
Roger S. Marcus, Chairman of the
Board, Chief Executive Officer
and Director
Date: March 8, 2000 by: /s/ Richard G. Marcus
-------------------- -----------------------
Richard G. Marcus, President, Chief
Operating Officer and Director
Date: March 8, 2000 by: /s/ William M. Marcus
-------------------- -----------------------
William M. Marcus, Executive Vice
President, Treasurer, Chairman of
the Executive Committee and Director
Date: March 8, 2000 by: /s/ John C. Garrels, 3rd
-------------------- --------------------------
John C. Garrels, 3rd, Director
Date: March 8, 2000 by: /s/ Kenneth I. Watchmaker
-------------------- --------------------------
Kenneth I. Watchmaker, Director
Date: March 8, 2000 by: /s/ Edward J. Lapointe
-------------------- ------------------------------------
Edward J. Lapointe, Controller
Date: March 8, 2000 by: /s/ Howard N. Feist III
-------------------- -----------------------
Howard N. Feist III, Vice President
Finance and Chief Financial Officer
63
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- --------
<S> <C> <C>
3 (1) X Restated Certificate of Incorporation -
By-Laws, amended and restated as of
3 (2) IV March 13, 1991 -
10 (3) I, V 1985 Stock Option Plan ("the 1985 Plan") -
10 (4) II, V Form of Agreement pursuant to the 1985 -
Plan providing for ISO's
10 (5) III, V Form of Agreement pursuant to the 1985 -
Plan providing for NQSO's
10 (6) VI Joint Venture Agreement dated as of December 16,
1992 by and among American Biltrite Inc., Resilient
Holdings Incorporated, Congoleum Corporation,
Hillside Industries Incorporated and Hillside
Capital Corporation -
10 (7) VII Closing Agreement dated as of March 11, 1993 by and
among American Biltrite Inc., Resilient Holdings
Incorporated, Congoleum Corporation, Hillside
Industries Incorporated and Hillside Capital
Corporation -
10 (8) XII, V 1993 Stock Award and Incentive Plan as Amended and
Restated as of March 4, 1997 -
10 (9) IX K&M Associates L.P. Amended and Restated Agreement
of Limited Partnership -
10 (10) VIII Purchase Agreement dated as of March
31, 1995 by and among Ocean State and
certain limited partners
of K&M -
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- --------
<S> <C> <C>
10 (11) VIII Agreement and Plan of Merger dated as of April 1, -
1995 by and among the Company, Jewelco Acquisition
Co., Inc., AIMPAR, Inc., Arthur I. Maier, Bruce
Maier and Edythe J. Wagner
10 (12) VIII Option Agreement dated as of April 1, -
1995 by and among Ocean State and
certain limited partners of
K&M
10 (13) VIII Agreement and Plan of Merger dated as of May 3, -
1995 by and among the Company, Zirconia Acquisition
Co., Inc., Wilbur A. Cowett Incorporated and Wilbur
A. Cowett
10 (14) X, V Split-Dollar Agreement dated as of December 20, -
1996 by and between American Biltrite Inc. and
Michael J. Glazerman, Trustee of the Marcus Family
Insurance Trust u/t/d/ March 1, 1990
10 (15) X, V Split-Dollar Agreement dated as of December 20, -
1996 by and between American Biltrite Inc. and the
Marcus Family 1990 Insurance Trust
10 (16) X, V Split-Dollar Agreement dated as of December 20 -,
1996 by and between American Biltrite Inc. and the
Marcus Family 1996 Irrevocable Insurance Trust
Dated October 28, 1996
10 (17) X, V Split-Dollar Agreement dated as of December 20, -
1996 by and between American Biltrite Inc. and The
Richard G. Marcus Irrevocable Insurance Trust of
1990 Dated June 1, 1990
10 (18) X, V Split-Dollar Agreement dated as of December 20, -
1996 by and between American Biltrite Inc. and the
Roger S. Marcus Irrevocable Insurance Trust Dated
November 29, 1996, Richard G. Marcus, Trustee
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- --------
<S> <C> <C>
10 (19) X, V Split-Dollar Agreement dated as of December 20,
1996 by and between American Biltrite Inc. and the
Roger S. Marcus Irrevocable Insurance Trust Dated
November 29, 1996 -
10 (20) X, V Split-Dollar Agreement dated as of January 9, 1997 -
by and between American Biltrite Inc. and Joseph D.
Burns -
10 (21) X, V Description of Supplemental Retirement Benefits for
Gilbert K. Gailius
10 (22) XIII, V American Biltrite Deferred Compensation -
10 (23) XIII American Biltrite 1999 Stock Option Plan for
Non-Employee Directors -
10 (24) V Description of Employment Arrangement for Gilbert 68
K. Gailius,
11 XI Statement Re: Computation of Per Share Earnings -
21 Subsidiaries of the Registrant (including each 69-70
subsidiary's jurisdiction of incorporation and the
name under which each subsidiary does business)
23 (1) Consent of Ernst & Young LLP, Independent Auditors 71
27 Financial Data Schedule, filed herewith -
</TABLE>
66
<PAGE>
- -------------------------
I Incorporated by reference to exhibit 10 (2) to the Company's Annual
Report on Form 10-K for the I year ended December 31, 1986. (1-4773)
II Incorporated by reference to exhibit 10 (3) to the Company's Annual
Report on Form 10-K for the II year ended December 31, 1986. (1-4773)
III Incorporated by reference to exhibit 10 (4) to the Company's Annual
Report on Form 10-K for the III year ended December 31, 1986. (1-4773)
IV Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the IV year ended December 31, 1991. (1-4773)
V Compensatory plans required to be filed as exhibits pursuant to Item
14(c) of Form 10-K.
VI Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K VI filed December 21, 1992. (1-4773)
VII Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K VII filed March 25, 1993. (1-4773)
VIII Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K as amended VIII by the Form 8-K/A filed respectively on May
17, 1995 and July 17, 1995.
IX Incorporated by reference to Item 14 of the Company's Annual Report on
Form 10-K for the year IX ended December 31, 1995.
X Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the X year ended December 31, 1996.
XI Incorporated by reference to Note 13 of the Company's consolidated
financial statements (filed XI herewith).
XII Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q filed XII on June 28, 1997.
XIII Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q filed XIII on July 3, 1999
67
Exhibit No. 10(24)
Description Of Employment Arrangements
For Gilbert K. Gailius
The Board of Directors of American Biltrite Inc. (the "Company") recently
approved employment arrangements for Gilbert K. Gailius, formerly the Company's
Chief Financial Officer. These arrangements are effective as of January 1, 2000.
Under these arrangements, the Company has agreed to employ Mr. Gailius for a
period of two years as its Vice President of Strategic Planning at a salary of
$150,000 per year. In his new position, Mr. Gailius continues to participate in
the Company's annual bonus program at a level 50% lower than the level at which
he participated in that program for the Company's 1999 fiscal year. Mr. Gailius
also is eligible for pension benefits equal to $100,000 per year, consisting of
(a) the dollar amount of retirement benefits actually payable to Mr. Gailius
under The Retirement Plan for Salaried Employees of American Biltrite Inc. (the
"Pension Plan"); (b) an amount equal to the difference between (i) the dollar
amount of retirement benefits to which Mr. Gailius would have been entitled to
at age 65 under the Pension Plan absent any limit on credited compensation
imposed by the Internal Revenue Code of 1986, as amended, and (ii) the dollar
amount of retirement benefits actually payable to Mr. Gailius under the Pension
Plan; and (c) an additional cash payment from the Company. The payment
referenced in clause (c) of the immediately preceding sentence is guaranteed for
at least five years after Mr. Gailius's two-year term expires on January 1,
2002.
Mr. Gailius's duties and responsibilities as Vice President of Strategic
Planning will be as determined from time to time by the Company's President.
68
Exhibit No. 21
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
Effective as of March 27, 2000
Name Jurisdiction
---- ------------
American Biltrite (Canada) Ltd. Canada
200 Bank Street
Sherbrooke, Quebec J1H 4K3
also doing business in Canada
as Produits American Biltrite Ltee
American Biltrite Far East, Inc. Delaware
57 River Street
Wellesley Hills, Massachusetts 02481
American Biltrite Sales Corporation Virgin Islands
57 River Street
Wellesley Hills, Massachusetts 02481
Majestic Jewelry, Inc. Delaware
57 River Street
Wellesley Hills, Massachusetts 02481
Ocean State Jewelry, Inc. Rhode Island
57 River Street
Wellesley Hills, Massachusetts 02481
Aimpar, Inc. New York
57 River Street
Wellesley Hills, Massachusetts 02481
ABTRE, Inc. Tennessee
57 River Street
Wellesley Hills, Massachusetts 02481
69
<PAGE>
Ideal Tape Co., Inc. Delaware
1400 Middlesex Street
Lowell, Massachusetts 01851
American Biltrite Intellectual Properties, Inc. Delaware
103 Foulk Road Suite 200
Wilmington, Delaware 19803
K & M Trading (H.K.) Limited Hong Kong
1001 Hutchison House
10 Harcourt Road
Hong Kong
Congoleum Corporation Delaware
3705 Quakerbridge Road
Mercerville, New Jersey 08619
ABItalia, Inc. Delaware
57 River Street
Wellesley Hills, Massachusetts 02481
70
Exhibit 23(1)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-77318) pertaining to the 1993 Stock Award and Incentive Plan of
American Biltrite Inc., the Registration Statement (Form S-8 No. 333-84667)
pertaining to the 1993 Stock Award and Incentive Plan as Amended and Restated as
of March 4, 1997 of American Biltrite Inc., and the Registration Statement (Form
S-8 No. 333-84669) pertaining to the 1999 Stock Option Plan for Non-Employee
Directors of American Biltrite Inc., of our report dated March 7, 2000, with
respect to the consolidated financial statements and schedule of American
Biltrite Inc. and subsidiaries included in the Annual Report (Form 10-K) for the
year ended December 31, 1999.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
March 23, 2000
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<NAME> AMERICAN BILTRITE
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
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<SALES> 422,459
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<INCOME-TAX> 7,391
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