Back to GetFilings.com
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, 1995 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 (I.R.S. Employer Identification No.)
incorporation or organization)
57 River Street, Wellesley Hills, Massachusetts 02181
- ------------------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 237-6655
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, No Par Value American Stock Exchange
- -------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
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. [ ]
The aggregate market value of the voting stock of the registrant held by non-
affiliates as of March 18, 1996 was $31,508,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 18, 1996 was 3,672,936 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of stockholders to be
held on May 6, 1996 are incorporated by reference into Part III.
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
through three businesses: the Tape Division, the Ideal Tape Division and K&M
Associates L.P., a Rhode Island limited partnership ("K&M"). In addition, ABI
owns a 44% equity interest in Congoleum Corporation ("Congoleum"), a
manufacturer and producer of resilient floor tile and sheet vinyl flooring.
Outside the United States, in addition to international sales of Tape Division
and Ideal Tape Division products, ABI has: a wholly owned Canadian subsidiary
("ABI-Canada") which produces resilient floor tile, rubber studded tile 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.
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 three industry segments: flooring products, industrial products and jewelry.
See Note 13 of Notes to the Consolidated Financial Statements.
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 Ideal Tape Division produces
pressure sensitive tapes and adhesive products used for applications in the
footwear, heating, ventilating and air conditioning (HVAC), and electrical and
electronic industries. Prior to the completion of the 1993 Congoleum joint
venture transaction, which resulted in the disposition by ABI of the assets and
business of its then existing resilient tile flooring business (the "Flooring
Division") and the acquisition by ABI of its equity interest in Congoleum, ABI's
Flooring Division produced resilient floor tile products, for sale principally
to consumers for home use and "do-it-yourself" installation and to businesses
for commercial installation and use in offices and light industries.
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 82.25% interest (7% as sole general
partner and 75.25% in limited partner interests) in K&M. K&M wholesales its
products to mass merchandisers and other major retailers. It also
2
services certain retail merchandisers' in-store operations in fashion jewelry
and related accessories departments by assisting customers in managing inventory
and maintaining displays.
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.
Specifically, during 1995 and in January of 1996, ABI indirectly acquired both
62.25% in limited partner interests for aggregate consideration of $13 million
in cash, notes and ABI common stock and, through the merger of third-party
corporations into wholly owned ABI subsidiaries, an additional 5% in limited
partner interests and a 7% sole general partner interest for aggregate merger
consideration of $2.5 million in cash 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 based upon 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, 1995, the
aggregate purchase price under the option agreements for the remaining limited
partner interests in K&M would be $2.9 million. See Note 4 of Notes to the
Consolidated Financial Statements.
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 represent 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 in 1995.
(b) Financial Information about Industry Segments. Business segment
information is included in Item 8 in Note 13 of Notes to the Consolidated
Financial Statements.
(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. Ideal Tape Division
products are marketed through the division's own sales force and by sales
representatives and
3
distributors throughout the world. ABI's Belgian and Singapore facilities sell
these products throughout Europe and the Far East while all domestic and the
remaining foreign sales are generated by the Lowell facility. The business and
operations of the Tape Division and the Ideal Tape Division do not experience
seasonal variations, and neither these divisions nor the industry in which they
operate have any material practices with respect to working capital.
ABI-Canada's floor tile and rubber studded 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 distributors in the United States
and Canada, as well as directly to a limited number of mass market retailers.
Congoleum considers its distribution network 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 many 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 was in place. 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. Occasionally, extended payment
terms may be granted.
The products of K&M are sold domestically and throughout the world through its
own direct sales force and, indirectly, through a wholly owned subsidiary and
through third-party sales representatives. Unlike the other businesses and
operations of ABI, the K&M Division 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 owns 50% of Compania Hulera Sula, S.A. de C.V. ("Hulera Sula"), a Honduras
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 Guatemala corporation which manufactures and markets
products in
4
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. Except as set
forth herein, ABI does not provide special rights for customers to return
merchandise and does not provide special seasonal or extended terms to its
customers.
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.
K&M's working capital is affected by merchandise return and pricing policies
negotiated between K&M and certain of its customers. K&M customers whose in-
store fashion jewelry and related accessories departments are also serviced by
K&M have the right, in certain circumstances, to return unsold merchandise of
such departments to K&M. As a standard industry practice, K&M also reserves a
percentage of revenues from gross sales for point-of-sale retail discounts given
by its customers, a portion of which such customers are permitted to charge back
to K&M. Such customer markdown and return activities generally rise and fall in
seasonal patterns similar to but not coincidental with sales patterns.
Markdowns generally follow peak selling periods, creating downward pressures on
working capital balances as residual inventories of unsold fashion merchandise
are moved off to make way for new goods. Various factors such as changes in
fashion trends, the state of the economy and the retail selling environment make
it impossible to predict with certainty the possible impact on working capital
in future periods of such customer markdown and return practices.
Raw Materials. 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, and ABI has not been dependent on any
particular source of supply for raw materials essential to its businesses.
During 1995, ABI experienced significant price increases in paper, latex and
resins. ABI's subsidiary, Congoleum, also has experienced significant price
increases in certain materials at times. Further, 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.
5
Competition. All businesses in which ABI is engaged are highly competitive.
- -----------
ABI's industrial products (including tape products) compete with those of some
of the largest fully integrated rubber and plastic companies, as well as smaller
producers. In the floor covering field, ABI-Canada's products compete with
those of other manufacturers of rubber and vinyl floor tiles and with all other
types of floor covering.
ABI competes with other companies making similar products principally on the
basis of price, service and product performance. In the industrial products
category, there are at least 30 competitors, principal among them being Goodyear
Canada, Inc., Minnesota Mining & Manufacturing Company, Permacel and Shuford
Mills, Inc. In floor covering products, ABI competes with Armstrong World
Industries, Inc., Domco Industries, Ltd., Flextile Ltd. and Mondo Rubber
International, Inc. as well as with other manufacturers of alternate floor
covering products such as carpeting, wood flooring and sheet vinyl flooring.
ABI competes broadly in all markets for its products.
The market for Congoleum's products is highly competitive. Resilient sheet
vinyl and vinyl tile compete for both residential and commercial customers
primarily with carpeting, hardwood and ceramic tile. In residential
applications, both vinyl tile and sheet vinyl are used primarily in 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.
Both hardwood flooring and carpeting are used throughout homes. Commercial
grade, resilient vinyl 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
vinyl tile and sheet vinyl 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 believes that it is the second largest manufacturer of resilient vinyl
flooring products in the United States, after Armstrong World Industries, Inc.
Congoleum encounters competition from domestic and, to a much lesser extent,
foreign manufacturers. Certain of Congoleum's competitors have substantially
greater financial and other resources than Congoleum.
K&M competes with others 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 wholesaling and servicing fashion jewelry and
accessory products to mass merchandising retailers, K&M has one principal
competitor,
6
Accessory Associates Inc., offering similar products and services. A large
number of smaller companies offer limited products and/or services.
Research and Development. ABI and Congoleum's research and development efforts
- ------------------------
concentrate on new product development and expanding technical expertise in the
manufacturing process. ABI also concentrates on improving existing products
while Congoleum also concentrates on trying to increase product durability.
Expenditures for research and development were $4.4 million and $4.9 million on
a consolidated basis for the years ended December 31, 1995 and 1994,
respectively. For the year ended December 31, 1993, ABI's expenditures were $1.3
million while Congoleum's expenditures were $2.6 million for the ten months
ended December 31, 1993.
Key Customers. For the year ended December 31, 1995, 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-Deitch, and its
distributor in the Southwest and on the West Coast, LD Brinkman & Co. K&M sales
during 1995 include sales to large customers, which account for less than 10% of
ABI's consolidated sales revenue. K&M's top three customers in terms of net
sales in 1995 together account for approximately 78% of K&M's aggregate net
sales, and the loss of any such customer would have a material adverse effect on
K&M. See Note 13 of Notes to Consolidated Financial Statements.
Backlog. The dollar amount of backlog of orders believed to be firm as of
- -------
December 31, 1995 is $18,500,000 (now inclusive of Congoleum and K&M) and at
December 31, 1994, $9,300,000. It is anticipated that all of the backlog 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. ABI believes that compliance with federal, state and
- ------------------------
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment will not have a material effect upon its capital expenditures,
earnings and competitive position. See Item 3 for certain additional information
regarding environmental matters included in the description of legal
proceedings.
Employees. As of December 31, 1995, ABI employed approximately 2,835 people.
- ---------
(d) Financial information about foreign and domestic operations and export
sales. Financial information concerning foreign and domestic operations is
included in Item 8 in Note 13 of Notes to the Consolidated Financial Statements.
Export sales from the United States were $18,057,000 in 1995 (now inclusive of
Congoleum and K&M), $10,037,000 in 1994 and $9,737,000 in 1993.
7
ITEM 2. PROPERTIES
-------------------
At December 31, 1995, ABI and Congoleum operated a total of nine manufacturing
plants 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
Sherbrooke, 330,000 Owned Industrial and
Quebec flooring products
Moorestown, NJ 225,000 Owned Industrial products
Lowell, MA 58,000 Owned Industrial products
Renaix, Belgium 36,000 Owned Industrial products
Singapore 12,000 Leased Industrial products
Providence, RI 103,000 Owned Jewelry products
ABI knows of no material defect in the titles to any such plants or material
encumbrances thereon. ABI considers that all of its plants are in good condition
and have been well maintained.
It is estimated that during 1995, ABI's plants for the manufacture of floor
covering products operated at approximately 74% of aggregate capacity and its
plants for the manufacture of industrial products operated at approximately 90%
of aggregate capacity. All estimates of aggregate capacity have been made on the
basis of a five day, three shift operation.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
ABI is a co-defendant with other manufacturers and distributors of asbestos-
containing products in approximately sixty-two lawsuits. Under certain
circumstances, third parties are contractually liable for up to the full amount
of any liabilities suffered by ABI in connection with these actions. 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.
8
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 three sites in three separate
states. At one of the three sites, the Ideal Tape Division is also named as a
PRP. Under an agreement, the Ideal Tape Division will share a percentage of the
costs with the former owner of the Ideal Tape Division's assets. ABI also is
potentially responsible for response and remediation costs as to two state-
supervised sites.
At these five sites, ABI's liability will be based upon disposal of allegedly
hazardous waste material from its current and former plants. The exact amount
of future costs to ABI resulting from such liability, if any, 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 has been named as a defendant in two environmental lawsuits. In 1964, ABI
sold a former chemical manufacturing facility. There have been three other
owners between ABI and the present owner. It has been alleged that ABI, along
with the three other former owners who are also defendants, is responsible for a
portion of the site's soil and groundwater response and remediation costs.
While there is insufficient information to determine what these costs will be or
the extent of ABI's responsibility, if any, management believes that it has
legal and equitable defenses to this suit. In another suit, ABI is alleged to
have sent hazardous waste to a municipal landfill. In order to avoid the cost of
litigation, ABI has offered to contribute $172,620 as part of $2.8 million being
raised by 14 third-party defendants, to reach a global settlement of the case.
The past and future costs to clean up the site are expected to be approximately
$24 million.
ABI is involved in other routine legal proceedings relating to its business and
operations. ABI does not believe that these proceedings will have a material
adverse effect in the aggregate on ABI's results of operations or financial
condition.
ABI's subsidiary, Congoleum, is also involved in the following legal
proceedings, as reported in Congoleum Corporation's Annual Report on Form 10-K,
as filed with the Commission on March 27, 1996:
As of December 31, 1995 Congoleum was named as defendant, together in most cases
with numerous other companies, in approximately 552 currently pending lawsuits
(including workers' compensation cases) involving approximately 2,915
individuals alleging personal injury from exposure to asbestos or asbestos-
containing products. The plaintiffs in these cases, as well as similar cases in
the past which have been settled or dismissed, allege that they or the
individuals they represent have contracted asbestosis, pleural thickening,
mesothelioma, cancer or other lung disease as a result of exposure to asbestos
in the course of their activities as
9
plumbers, carpenters, floor installers, machinists, or in other capacities,
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 or the Flooring Division) and that
included among such products which caused their diseases were sheet vinyl
products provided by Congoleum or resilient tile provided by the Flooring
Division or both. Congoleum discontinued the manufacture of asbestos-containing
sheet vinyl products in 1983, and the Flooring Division ceased manufacturing
asbestos-containing tile products in 1984. In general, asbestos-containing
products have not been found to pose a health risk unless the asbestos becomes
airborne. All of the asbestos in asbestos-containing sheet vinyl and tile
products sold by Congoleum or the Flooring 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
allow the asbestos fibers to become airborne. Generally, if discovery conducted
in the course of defending any of these cases does not reveal proof that the
allegedly injured individual had contact with Congoleum's or the Flooring
Division's asbestos-containing products, Congoleum has sought dismissal of the
complaint. In several cases in which discovery did reveal such contact,
Congoleum has in the past, to avoid the cost of litigation, agreed to
settlements which have in almost all instances been relatively nominal.
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 resilient vinyl products will not have a material adverse
effect in the aggregate on its results of operations or financial position.
Congoleum has also been included as one of many co-defendants in a number of
lawsuits brought by public and private entities, including public school
districts and public and private building owners. These lawsuits include
allegations of damage to buildings caused by asbestos-containing products and
generally seek to recover compensatory and punitive damages and equitable
relief, including reimbursement of expenditures or removal and replacement of
such products.
Congoleum and the Flooring Division, as mentioned above, discontinued the
manufacture of all asbestos-containing resilient vinyl products in 1983 and
1984, respectively. Although Congoleum is not presently a defendant in any
such cases, it is possible that additional claims may be raised for alleged
property damage caused by asbestos-containing products manufactured by
Congoleum. Uncertainty still remains as to the potential number of such claims
and any liability resulting therefrom. Based on Congoleum's past experience and
insurance coverage it believes it has for indemnity and defense costs, and
barring substantial increase in the number of such claims, Congoleum believes
that they should not have a material adverse effect in the aggregate on its
results of operations or financial position.
10
Together with a large number (in most cases, hundreds) of other companies,
Congoleum is named a PRP in pending proceedings under CERCLA and similar state
laws. In three instances, although not named as a PRP, Congoleum has received a
"Request for Information." These pending proceedings currently relate to ten
waste 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 disposal sites. The proceedings
are essentially similar in that in each case Congoleum's alleged liability is
based upon its disposal at the site, either directly or through a third-party
waste hauler, of allegedly hazardous substances from its plants. CERCLA has
been interpreted to impose joint and several liability on each PRP. In these
CERCLA actions, however, Congoleum does not expect that it will be required to
bear more than its percentage volume share among cooperating PRP's. With
respect to three of the ten sites Congoleum believes that it has a substantial
defense against liability based upon Congoleum's records which indicate that no
hazardous substances were shipped by Congoleum to these sites, although it is
participating in the clean-up activities at these sites subject to a reservation
of rights. At one of the remaining seven sites, Congoleum's percentage share of
soil remediation costs has been determined and paid. However, the costs for
groundwater remediation and Congoleum's percentage share of these costs have not
been determined. Congoleum contends that its percentage share of the
groundwater remediation costs should be less than its share of soil remediation
costs because of its belief that a significant portion of the substances
disposed of by Congoleum were disposed of after the majority of groundwater
contamination had occurred. While Congoleum does not have information as to its
alleged percentage share at all of the remaining six sites, based upon the
available information, including Congoleum's records, it appears that the volume
of waste at the sites attributable to Congoleum is relatively small (from under
1% to approximately 2% at five sites and approximately 4.3% at the sixth).
Although there can be no assurances, Congoleum anticipates that these
proceedings 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 agreements, will not
have a material adverse effect in the aggregate on the Company's results of
operations or financial position.
On July 15, 1994, Kentile Floors, Inc. ("Kentile"), a debtor-in-possession
pursuant to Chapter 11 of the United States Bankruptcy Code, commenced an
adversary proceeding against Congoleum in the Bankruptcy Court for the Southern
District of New York. The complaint asserts that Congoleum tortiously
interfered with certain of Kentile's contracts with its distributors when those
distributors terminated their agreements with Kentile to become distributors of
Congoleum's floor tile. Kentile seeks $15.0 million in damages on account of
the alleged interference. Although Congoleum's motion to have the proceeding
dismissed on the pleadings was denied, Congoleum believes that Kentile's claim
is without merit and intends to vigorously contest the lawsuit.
11
Congoleum is also involved in workers' compensation claims and other routine
legal proceedings relating to its business and operations. Congoleum does not
believe that these will have a material adverse effect in the aggregate on
Congoleum's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
Not applicable.
12
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 the Company's Common
Stock at March 18, 1996 was 525.
High and low stock prices and dividends for the last two years were:
Sales Price of Common Shares
----------------------------
1995 1994
Quarter ------ -------
Ended High Low High Low
------- ------- ------ ------- -------
March 31 35 1/4 27 1/4 24 1/2 21 1/2
June 30 29 7/8 22 3/4 27 1/4 22 3/16
September 30 25 7/8 21 3/8 30 23 1/4
December 31 24 1/8 18 7/8 27 3/4 23 3/8
Cash Dividends Per Common Share
-------------------------------
Quarter
Ended 1995 1994
- -------- ------- -------
March 31 $ .0625 $ .01875
June 30 .0875 .03750
September 30 .1000 .03750
December 31 .1000 .05000
------- -------
$ .3500 $ .14375
======= =======
13
ITEM 6. SELECTED FINANCIAL DATA
- ----------------------------------
Year Ended December 31,
----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands except per share)
Net sales $404,473 $106,145 $103,851 $156,668 $153,514
Earnings before
other items 10,811 4,900 3,022 3,827 2,972
Non-controlling
interests (4,706)
Equity in earnings of
joint venture 7,361 2,349
Extraordinary credit 300
Net earnings 6,105 12,261 5,371 3,827 3,272
Total assets 303,487 82,804 71,697 96,297 94,343
Long-term debt 110,919 4,188 6,249 17,661 19,854
Number of shares used
in computing earnings
per common share 3,791,476 3,769,134 3,738,844 3,643,984 3,623,882
Earnings per common share:
Earnings before
extraordinary credit $ 1.61 $ 3.25 $ 1.44 $ 1.05 $ .82
Extraordinary credit .09
Net earnings 1.61 3.25 1.44 1.05 .91
Cash dividends per common
share .35 .14375 .075 .075 .075
1993 reflects the effect of the formation of the Congoleum joint venture.
See Note 4 at Notes to the Consolidated Financial Statements.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_______________________________________________________
Results of Operations
- ---------------------
American Biltrite Inc. ("ABI") 1995 revenues and earnings include those of
Congoleum Corporation ("Congoleum") for the entire year and K&M Associates L.P.
("K&M") since April 1, 1995. In 1994 and 1993, ABI's share of Congoleum's net
earnings was accounted for on the equity method. In 1995, as a result of
Congoleum's initial public offering of its common stock, ABI's voting control of
Congoleum increased to 57%, thus requiring ABI to consolidate the financial
statements of Congoleum with those of ABI. During 1995, ABI's ownership in K&M
increased from 8% to 70.5%, thus requiring ABI to consolidate the financial
results of K&M with those of ABI. In 1994 and 1993, ABI only included in income
amounts received from K&M as partnership distributions and interest on
partnership capital.
Below are the consolidated income statements of the Company. For comparative
purposes, presented below is 1994 pro forma income statement information
reflecting the consolidation of Congoleum and K&M as though it had occurred
January 1, 1994. See Note 4 of the audited financial statements.
Pro forma
1995 1994 1994 1993
---- --------- ---- ----
(In millions)
Net sales $404.5 $409.3 $106.1 $103.8
Interest and other income 4.8 3.2 1.5 .6
------ ------ ------ ------
409.3 412.5 107.6 104.4
Costs and expenses:
Cost of products sold 287.2 266.6 75.9 74.1
Selling, general and
administrative expenses 93.0 97.4 23.4 24.5
Interest 10.4 9.2 .6 1.0
------ ------ ------ ------
390.6 373.2 99.9 99.6
------ ------ ------ ------
Earnings before income taxes
and other items 18.7 39.3 7.7 4.8
Provision for income taxes 7.9 15.3 2.8 1.8
Non-controlling interests (4.7) (11.0)
Equity in earnings of
joint venture 7.4 2.4
------- ------ ------ ------
Net earnings $ 6.1 $ 13.0 $ 12.3 $ 5.4
======= ====== ====== ======
Earnings per common share $ 1.61 $ 3.41 $ 3.25 $ 1.44
====== ====== ====== ======
Pretax earnings for 1995 of $18.7 million are higher than 1994's pretax of $7.7
million because of the inclusion in 1995 of Congoleum and K&M earnings/loss on
this line. In 1994, Congoleum was accounted for on the equity in earnings of
joint venture line. On a pro forma basis, combining the net earnings effect
between years, the contribution to earnings from ABI, Congoleum and K&M
15
were lower than 1994 due to a combination of factors which include a weak
economy, raw material inflation, competitive pricing and a sluggish retail
environment. ABI-Canada did not contribute to earnings in 1995 and K&M posted a
loss. Pretax earnings of ABI of $7.7 million in 1994 were $2.9 million higher
than 1993 pretax earnings of $4.8 million. Key factors accounting for the
improvement from 1993 to 1994 were major increases in sales volume in both the
Tape Division and Ideal Tape Division due mainly to an improvement in the
domestic economy, with ABI-Canada being only slightly ahead of 1993. Earnings
from operations in 1994 particularly benefited from a major restructuring and
reorganization at the Ideal Tape Division which returned to reasonable profit
levels after three years of small losses.
Net sales increased in 1995 to $404.5 million from $106.1 million in 1994 due
mainly to the 1995 inclusion of Congoleum sales of $263.1 million and K&M sales
of $34.7 million. ABI-Canada and Tape Division 1995 sales are slightly ahead of
1994's level and, on a pro forma basis, Congoleum sales are slightly lower than
last year due to weak retail demand, particularly for higher priced residential
products, and reduced purchases by a major customer. Partially offsetting these
decreases were sales of new products and increased sales to the manufactured
housing segment. Net sales increased in 1994 to $106.1 million from $103.8
million in 1993. Excluding Amtico sales from 1993, sales of ongoing operations
in 1994 increased by $13.4 million or 14% over 1993. All divisions of ABI
experienced sales increases in 1994 compared to 1993.
Interest income increased to $1.8 million in 1995 from $.4 million in 1994.
Interest income at Congoleum amounted to $1.5 million in 1995.
Other revenue increased to $3.0 million in 1995 from $1.1 million in 1994,
primarily due to the inclusion in 1995 of Congoleum and K&M. The most
significant item in other revenue is $1.1 million royalty income earned at
Congoleum, which is comparable to the amount of royalty income earned by
Congoleum in 1994. Other revenue in 1994 increased to $1.1 million compared to
1993, primarily due to ABI receiving profit distributions of $.6 million from
K&M. Insurance recoveries and foreign exchange gains made up the balance of the
increase from 1993.
Cost of products sold in 1995 was 71.0% of net sales and compares favorably with
71.5% in 1994. Historically, gross margins at Congoleum and K&M are higher than
those for the rest of ABI and did influence the improvement in gross margins for
1995. In 1995 at Congoleum, costs were higher than 1994 due to sharply higher
raw material costs. At K&M in 1995, costs were also higher than 1994 due to
product mix changes. Cost of products sold in 1994 was 71.5% of net sales and is
equivalent to the 71.3% in 1993. Major improvements at the Ideal Tape Division
resulting from a plan of restructuring and reorganization, offset increased
costs at the Tape Division from capacity-related manufacturing constraints that
were relieved in the 1994 fourth quarter due to the completion of an expansion
program.
16
Selling, general and administrative expenses increased to 23.0% of net sales
in 1995 from 22.1% in 1994. The reason for this increase is the impact of
expenses at K&M where these expenses historically have been over 35% of net
sales due to the retail nature of their business. Excluding K&M from the
calculation, these percentages would be lower than last year. At both ABI and
Congoleum, this expense on a pro forma basis is lower in actual dollars due to
management control of operating expenses in light of lower profitability in
1995. At Congoleum, this lower spending level more than offset a $2.5 million
charge to bad debt expense related to the bankruptcy filing of a major retailer.
Selling, general, and administrative expense in 1994 amounted to 22.1% of net
sales compared to 23.6% in 1993. Absolute dollars were lower than 1993 in that
1993 included two months of Amtico flooring division expenses. The previously
discussed reorganization and restructuring at the Ideal Tape Division also
resulted in reduced spending levels in this expense category.
The effective tax rate in 1995 was 42%, in 1994 it was 36%, and in 1993 it was
38%. The primary reasons for the increase in the effective tax rate in 1995 are
the consolidation of Congoleum, whose effective tax rate is 42%, and the effect
of providing deferred taxes on undistributed domestic earnings.
In 1995, at all ABI and Congoleum operations, raw material price inflation
resulted in a decline in gross profit margins due to the inability to completely
pass on to its customers these cost increases in the form of higher selling
prices. The effects of movement in foreign currency exchange rates were not
significant during 1995. Because ABI's foreign operations are limited and
conducted in countries that historically have had stable currencies and low
inflation, ABI believes movements of foreign currency exchange rates in the
future would not significantly affect its results of operations.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1995, consolidated working capital was $87.0 million, the ratio
of current assets to current liabilities was 2.1 to 1, and the debt to equity
ratio was 1.92 to 1. Influencing the debt to equity ratio is $90.0 million of
Congoleum debt which has no recourse to ABI. Net cash provided by operations
during 1995 was $15.8 million, generated mainly from net earnings and
depreciation partially offset by increases in inventories due mainly to
anticipated improvement in sales levels and a reduction in payables and accruals
which is primarily due to the settlement of certain liabilities acquired in the
K&M transaction. Capital expenditures for 1996 are estimated to be in the range
of $18-20 million. Capital expenditures cover normal replacement of machinery
and equipment and process improvement purposes, and at ABI's Moorestown plant, a
continuation of an expansion program that began in 1995. Depreciation and
amortization expense is forecast at $13.5 million.
17
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 over a period of five 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 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 clean-
up 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.
ABI records a liability for environmental remediation and asbestos-related claim
costs when a clean-up program or claim payment becomes probable and the costs
can be reasonably estimated. As assessments and clean-ups progress, these
liabilities are adjusted based upon progress in determining the timing and
extent of remedial actions and the related costs and damages. The extent and
amounts of the liabilities can change substantially due to factors such as the
nature or extent of contamination, changes in remedial requirements and
technological improvements. Estimated insurance recoveries related to these
liabilities are reflected in other noncurrent assets.
ABI has recorded its estimate of loss associated with the foregoing claims;
however, the ultimate outcome of these matters cannot presently be determined
and could possibly be material to the results of operations or cash flows for a
particular quarterly or annual reporting period.
18
Cash requirements for capital expenditures, working capital, debt service,
equity investments in K&M and the current authorization of $5.6 million to
purchase ABI common stock, are expected to be financed from operating activities
and borrowings under existing lines of credit which at ABI are presently $28.0
million and at Congoleum are $30.0 million.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The response to this item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ----------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURES
------------------------------------
Not applicable.
PART III
Information in response to Items 10, 11, 12 and 13 is incorporated by reference
to ABI's definitive Proxy materials relating to its Annual Meeting of
Stockholders to be held May 6, 1996, to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- ----------------------------------------------------------------
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
Exhibit No. Description
----------- -----------
3.1 (3) Restated Certificate of Incor-
poration, May 14, 1990
3.1 (4) Certificate of Amendment of the
Restated Certificate of
Incorporation dated May 30, 1995
3.2 (5) IV By-Laws, amended and restated
as of 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) VIII 1993 Stock Award and Incentive
Plan
10(9) K&M Associates L.P. Amended and
Restated Agreement of Limited
Partnership
21
10(10) IX Purchase Agreement dated as of
March 31, 1995 by and among
Ocean State and certain limited
partners of K&M (filed herewith)
10(11) IX 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
(filed herewith)
10(12) IX Option Agreement dated as of
April 1, 1995 by and among Ocean
State and certain limited
partners of K&M (filed herewith)
10(13) IX 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 (filed herewith)
11 Statement Re: Computation of
Per Share Earnings
13 Annual Report to Stockholders for
the year ended December 31, 1995
(which is not deemed to be "filed"
except to the extent that portions
thereof are expressly incorporated
by reference in this Annual Report
on Form 10-K)
21 Subsidiaries of the Registrant
(including each subsidiary's
jurisdiction of incorporation
and the name under which each
subsidiary does business)
23(1) Consent of Ernst & Young LLP,
Independent Auditors
23(2) Consent of Coopers & Lybrand,
L.L.P. Independent Accountants
99(1) X Consolidated Financial Statements
of Congoleum Holdings Incorporated
and Subsidiaries for the period
February 28, 1993 (effective date)
through December 31, 1993 and the
year ended December 31, 1994.
22
-----------------
I Incorporated by reference to exhibit 10(2) to the
Company's Annual Report on Form 10-K for the 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 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 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 year
ended December 31, 1991.
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 filed
December 21, 1992.
VII Incorporated by reference to the exhibits filed with
the Company's Current Report on Form 8-K filed
March 25, 1993.
VIII Incorporated by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
IX Incorporated by reference to the exhibits to the
Company's Current Report on Form 8-K as amended
by the Form 8-K/A filed respectively on May 17, 1995
and July 17, 1995.
X Incorporated by reference to Item 14 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994.
(b) Reports on Form 8-K. None.
(c) Exhibits - the response to this portion of Item 14 is submitted as a
separate section of this report.
23
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 25, 1996 by: /s/ Gilbert K. Gailius
-------------------- ----------------------------------
Gilbert K. Gailius, Vice President
Finance, Chief Financial Officer
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 25, 1996 by: /s/ Roger S. Marcus
-------------------- ---------------------------------
Roger S. Marcus, Chairman of the
Board, Chief Executive Officer
and Director
Date: March 25, 1996 by: /s/ Richard G. Marcus
-------------------- ----------------------------------
Richard G. Marcus, President, Chief
Operating Officer and Director
Date: March 25, 1996 by: /s/ William M. Marcus
-------------------- ----------------------------------
William M. Marcus, Executive Vice
President, Treasurer, Chairman of
the Executive Committee and Director
Date: March 25, 1996 by: /s/ John C. Garrels, 3rd
-------------------- ----------------------------------
John C. Garrels, 3rd, Director
Date: March 25, 1996 by: /s/ Mark N. Kaplan
-------------------- ----------------------------------
Mark N. Kaplan, Director
Date: March 25, 1996 by: /s/ Edward J. Lapointe
-------------------- ----------------------------------
Edward J. Lapointe, Controller
24
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14 (a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Financial Statements and Supplementary Data
Financial Statement Schedules
Certain Exhibits
Year Ended December 31, 1995
AMERICAN BILTRITE INC.
Wellesley Hills, Massachusetts
25
FORM 10-K -- ITEM 14 (a) (1) and (2)
American Biltrite Inc. and Subsidiaries
List of Financial Statements and Financial Statement Schedules
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, 1995 and 1994
Consolidated statements of earnings -
Years ended December 31, 1995, 1994 and 1993
Consolidated statements of stockholders' equity -
Years ended December 31, 1995, 1994 and 1993
Consolidated statements of cash flows -
Years ended December 31, 1995, 1994, and 1993
Notes to consolidated financial statements
The following financial statement schedules of American Biltrite Inc. and
subsidiaries are included in Item 14 (d):
Schedule II - Valuation and qualifying accounts
The Consolidated Financial Statements of Congoleum Holdings Incorporated and
Subsidiaries for the period February 28, 1993 (effective date) through December
31, 1993 and the year ended December 31, 1994 are incorporated by reference to
Item 14 of Part IV of ABI's Annual Report on Form 10-K for the year ended
December 31, 1994, filed as Exhibit 99(1) hereto.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
26
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 as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. 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. The 1994 and 1993 financial
statements of Congoleum Corporation (a corporation in which the Company has a
44% interest) have been audited by other auditors whose report has been
furnished to us; insofar as our opinion on the 1994 and 1993 consolidated
financial statements relates to data included for Congoleum Corporation, it is
based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1994 and 1993, the report of other
auditors, 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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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.
ERNST & YOUNG LLP
Boston, Massachusetts
March 5, 1996
27
American Biltrite Inc. and Subsidiaries
Consolidated Balance Sheets (Notes 1 and 4)
(In thousands of dollars)
December 31
1995 1994
--------------------
Assets
Current assets:
Cash and cash equivalents $ 39,297 $ 4,883
Short-term investments 4,295
Accounts and notes receivable, less
allowances of $6,477 in 1995 and
$1,466 in 1994 for doubtful accounts
and discounts 30,708 12,664
Inventories 82,853 19,304
Prepaid expenses and other current
assets 11,268 3,189
--------------------
Total current assets 164,126 44,335
Other assets:
Goodwill, net 23,579
Deferred income taxes 2,873
Other assets 8,614 11,668
--------------------
35,066 11,668
Property, plant and equipment, net 104,295 26,801
--------------------
Total assets $303,487 $82,804
====================
28
December 31
1995 1994
---------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 29,094 $ 8,692
Accrued expenses 44,819 9,160
Current portion of long-term debt 3,207 2,094
---------------------
Total current liabilities 77,120 19,946
Long-term debt, less current portion 107,712 2,094
Other liabilities 48,180 6,643
Non-controlling interests 12,679
Stockholders' equity
Common stock, without par
value--authorized 15,000,000 shares,
issued 4,607,902 19,469 18,997
shares
Retained earnings 52,096 49,644
Equity adjustment from foreign
currency translation (2,334) (2,437)
Minimum pension liability (445)
---------------------
68,786 66,204
Less cost of shares of common stock in
treasury (937,966 shares in 1995,
1,036,334 shares in 1994) 10,990 12,083
---------------------
Total stockholders' equity 57,796 54,121
---------------------
Total liabilities and stockholders'
equity $303,487 $82,804
=====================
See accompanying notes.
29
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Earnings (Notes 1 and 4)
(In thousands of dollars, except per share data)
Year ended December 31
1995 1994 1993
-------------------------------
Revenues:
Net sales $404,473 $106,145 $103,851
Interest 1,765 416 537
Other 3,026 1,039 38
-------------------------------
409,264 107,600 104,426
Costs and expenses:
Cost of products sold 287,177 75,870 74,053
Selling, general and administrative
expenses 92,965 23,410 24,547
Interest 10,402 606 978
-------------------------------
390,544 99,886 99,578
-------------------------------
Earnings before income taxes and
other items 18,720 7,714 4,848
Provision for income taxes 7,909 2,814 1,826
-------------------------------
10,811 4,900 3,022
Non-controlling interests (4,706)
Equity in earnings of joint venture 7,361 2,349
-------------------------------
Net earnings $ 6,105 $ 12,261 $ 5,371
===============================
Earnings per common share:
Primary $ 1.61 $ 3.25 $ 1.44
===============================
Fully diluted $ 1.61 $ 3.24 $ 1.41
===============================
See accompanying notes.
30
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands of dollars)
Foreign
Currency Minimum
Common Retained Translation Pension Treasury
Stock Earnings Adjustment Liability Stock
--------------------------------------------------------------------------
Balance at January 1, 1993 $18,647 $33,743 $ (758) $ (9,879)
Net earnings 5,371
Dividends declared ($.075 per share) (271)
Foreign currency translation adjustment (966)
Exercise of stock options 536
Tax benefits associated with the
exercise of stock options 350
Purchase of treasury stock (2,817)
--------------------------------------------------------------------------
Balance at December 31, 1993 18,997 38,843 (1,724) (12,160)
Net earnings 12,261
Dividends declared ($.14375 per share) (512)
Effects of Congoleum capital
transactions (948)
Foreign currency translation adjustment (713)
Exercise of stock options 79
Purchase of treasury stock (2)
--------------------------------------------------------------------------
Balance at December 31, 1994 18,997 49,644 (2,437) (12,083)
Net earnings 6,105
Dividends declared ($.35 per share) (1,276)
Effects of Congoleum capital
transactions (2,377)
Foreign currency translation adjustment 103
Exercise of stock options 512
Tax benefits associated with the exercise
of stock options 472
Purchase of treasury stock (1,593)
Issuance of treasury stock in connection
with K&M transactions 2,174
Minimum pension liability adjustment,
net of tax benefit $(445)
--------------------------------------------------------------------------
Balance at December 31, 1995 $19,469 $52,096 (2,334) $(445) $(10,990)
==========================================================================
See accompanying notes.
31
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Notes 1 and 4)
(In thousands of dollars)
Year ended December 31
1995 1994 1993
--------------------------------
Operating activities
Net earnings $ 6,105 $12,261 $ 5,371
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 12,104 2,715 2,686
Provision for doubtful accounts 2,522 189 (224)
Equity in earnings of joint venture (7,361) (2,349)
Deferred income taxes 2,393 298 392
Accounts and notes receivable 2,685 (43) (2,649)
Inventories (5,355) (3,597) (2,927)
Prepaid expenses and other current assets (718) (155) (106)
Accounts payable and accrued expenses (7,007) 3,561 976
Non-controlling interests 4,706
Other (1,631) (270) (138)
--------------------------------
Net cash provided by operating activities 15,804 7,598 1,032
Investing activities
Purchases of short-term investments (22,005) (8,190) (3,200)
Proceeds from sales of short-term investments 50,300 5,895 1,200
Investment in property, plant and equipment (14,121) (8,599) (2,837)
Business acquisitions, net of cash acquired (5,274)
Proceeds from joint venture transaction 13,789
Redemption of preferred stock by equity investee 5,000
Other 692
--------------------------------
Net cash provided (used) by investing activities 8,900 (5,202) 8,952
Financing activities
Payments on long-term debt (3,436) (2,072) (11,387)
Short-term borrowings 12,000
Payments on short-term borrowings (1,000) (3,750)
Payment of loans from affiliates (5,792)
Net proceeds from Congoleum equity offering 56,219
Repurchase of Congoleum class B shares (60,450)
Other (2,971) (435) (2,202)
---------------------------------
Net cash used in financing activities (4,430) (3,507) (17,339)
Effect of foreign exchange rate changes on cash (678) (534) (136)
---------------------------------
Increase (decrease) in cash and cash equivalents 19,596 (1,645) (7,491)
Cash and cash equivalents at beginning of year
(including Congoleum Corporation in 1995) 19,701 6,528 14,019
---------------------------------
Cash and cash equivalents at end of year $ 39,297 $ 4,883 $ 6,528
=================================
See accompanying notes.
32
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
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) as well as entities
over which it has voting control. As described in Note 4, ABI in 1995 gained
voting control over Congoleum Corporation (Congoleum) and K&M Associates L.P.
(K&M). (ABI, Congoleum, and K&M are collectively referred to as the Company.)
Until 1995, the Company's investments in Congoleum and K&M were accounted for
under the equity method and cost method, respectively. 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 assets and 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.
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.
Short-Term Investments
Short-term investments at December 31, 1994 consist mainly of variable rate
governmental debt securities. Investments bought or sold in 1995, in addition to
the variable rate governmental debt securities, consisted of commercial paper
having maturities less than six months at date of purchase. All securities are
classified as available for sale and the cost of such securities approximated
fair value.
33
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
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.
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 (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 $4,376,000 at December 31, 1995.
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 of the assets.
Impairment of Long-Lived Assets
The adoption by the Company in 1995 of SFAS No. 121, which establishes
accounting standards for measuring the impairment of long lived assets, did not
materially affect the Company's consolidated financial statements.
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 market value or discounted cash flow value is required.
34
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment. The
Company has established programs for certain product lines which, under
specified conditions, provide price protection rights and/or enable its
customers to return product. The effect of these programs is estimated and
current period sales and cost of sales are reduced accordingly.
Income Taxes
The Company provides for income taxes based upon earnings reported for financial
statement purposes. Deferred tax assets and liabilities are determined based on
temporary differences between the financial reporting and tax bases of assets
and liabilities.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees (and intends to continue to do so)
and, accordingly, recognizes no compensation expense for the stock option
grants.
Research and Development Costs
Expenditures relating to the development of new products are charged to
operations as incurred and amounted to $4,441,000, $1,425,000 and $1,312,000 for
the years ended December 31, 1995, 1994 and 1993, 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 a
separate component of stockholders' equity. Realized exchange gains and losses
(immaterial in amount) are included in current operations.
35
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 Common Share
Primary 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.
Fully 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 the higher of the average price for the period or the
period-ending market price.
2. Inventories
Inventory at December 31, 1995 and 1994 consisted of the following:
1995 1994
------------------
(In thousands)
Finished goods $54,629 $ 7,608
Work-in-process 11,984 5,791
Raw materials and supplies 16,240 5,905
------------------
$82,853 $19,304
==================
At December 31, 1995, domestic inventories determined by the LIFO inventory
method amounted to $59,293,000 ($9,873,000 at December 31, 1994). If the FIFO
inventory method, which approximates replacement cost, had been used for these
inventories, they would have been $1,782,000 and $868,000 greater at December
31, 1995 and 1994, respectively.
36
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Property, Plant and Equipment
A summary of the major components of property, plant and equipment is as
follows:
1995 1994
--------------------
(In thousands)
Land and improvements $ 5,452 $ 2,366
Buildings 42,133 14,859
Machinery and equipment 145,543 32,678
Construction-in-progress 8,893 552
--------------------
202,021 50,455
Less accumulated depreciation 97,726 23,654
--------------------
$104,295 $26,801
====================
Depreciation expense amounted to $11,274,000, $2,715,000 and $2,686,000 in 1995,
1994 and 1993, respectively.
4. Related-Party Transactions
Investments in associated companies, which are included in other assets, consist
of the following:
1995 1994
--------------------
(In thousands)
Congoleum Corporation $ 8,566
Compania Hulera Sula, S.A., Honduras $ 1,100 1,100
K&M Associates L.P. 562
--------------------
$ 1,100 $10,228
====================
37
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related-Party Transactions (continued)
The investment in Compania Hulera Sula, S.A., a 50%-owned associate, is
accounted for on the cost method due to the uncertainty of the political climate
and currency restrictions in Honduras.
1995 Transactions
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. As a result of these transactions, ABI recorded a charge to
stockholders' equity of $2,377,000 in 1995. In conjunction with these
transactions, the Company exchanged its shares of Class B Common Stock for
4,395,605 shares of a new series of Class B Common Stock (the foregoing
transactions are collectively referred to as the Congoleum transactions). The
exchange of stock did not change the Company's 44% ownership interest, however,
the new shares represent 57% of the voting shares of Congoleum, giving ABI
majority voting control. Accordingly, the accounts of Congoleum have been
consolidated into the 1995 financial statements of the Company.
During 1995, the Company purchased an additional 55.5% limited partnership
interest and 7% sole general partnership interest in K&M, a national jewelry
supplier (the K&M transactions). The K&M transactions were completed in a series
of transactions for aggregate consideration of $13,605,000 and were accounted
for using the purchase method. Goodwill of $10,863,000 was recorded in
connection with these transactions and is being amortized using the straight-
line method over a 20-year life.
The first series of transactions, in which ABI acquired 50.5% limited
partnership interest and 7% sole general partnership interest, were completed
effective April 1, 1995, and provided ABI voting control over K&M. Accordingly,
the accounts of K&M have been consolidated in the financial statements of ABI
since April 1, 1995. The second transaction, in which ABI acquired an additional
5% limited partnership interest, was completed in August 1995.
38
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued
4. Related-Party Transactions (continued)
In conjunction with the K&M transactions, 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. If all of the remaining limited partnership
interests in K&M were to be purchased by ABI, the purchase price would amount to
approximately $4,868,000.
Prior to the completion of the K&M transactions, ABI held an 8% limited
partnership interest in K&M, which it accounted for using the cost method.
The following pro forma financial statements give effect to the K&M and
Congoleum transactions as though they had occurred on January 1, 1994 (in
thousands, except per share amounts):
Year ended
December 31
1994
-------------
Revenue $409,300
=============
Net earnings $ 12,950
=============
Earnings per common share:
Primary $ 3.41
=============
Fully diluted $ 3.40
=============
39
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related-Party Transactions (continued)
Prior to 1995, ABI accounted for its investment in Congoleum using the equity
method. Retained earnings at December 31, 1994 includes unremitted earnings of
Congoleum, net of deferred taxes, of $9,710,000. Summarized consolidated
financial information of Congoleum as of December 31, 1994, and for the year
then ended is as follows (in thousands):
December 31
1994
-----------
Current assets $107,258
Noncurrent assets 109,948
-----------
$217,206
===========
Current liabilities $ 53,919
Noncurrent liabilities 143,877
-----------
197,796
Common stock equity 19,410
-----------
$217,206
===========
Ten months
Year ended ended
December 31 December 31
1994 1993
----------------------------------
Net sales $265,784 $211,140
Gross profit 92,600 69,434
Net income 17,495 11,172
Net income attributable to common shareholders 17,352 9,046
40
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related-Party Transactions (continued)
1994 Transactions
On January 25, 1994, Congoleum completed a public offering of $90,000,000 senior
notes due 2001. The net proceeds were used to (i) redeem approximately
$30,000,000 of preferred stock and accrued dividends (including ABI's $5,000,000
preferred stock investment); (ii) repay approximately $30,000,000 of
indebtedness and accrued interest; (iii) purchase outstanding warrants for
approximately $8,500,000 and (iv) fund working capital requirements. In
connection with the purchase of outstanding warrants, ABI charged $948,000 to
retained earnings to reflect the reduction in the equity of Congoleum.
ABI and Congoleum provide certain goods and services to each other pursuant to
agreements which were negotiated at arms length at the time of the formation of
the joint venture. Purchase and sales transactions with Congoleum during 1994
were approximately $3,800,000 and $4,500,000, respectively, and for 1993 were
approximately $2,400,000 and $3,000,000, respectively. Also during 1994, ABI
made payments to and received payments from Congoleum for certain services
received from and provided to Congoleum. Amounts due to and due from Congoleum
at December 31, 1994 for normal trade activity and services were approximately
$100,000 and $1,100,000, respectively.
5. Accrued Expenses
Accrued expenses consist of the following:
1995 1994
-----------------
(In thousands)
Accrued advertising and sales promotion $18,780
Employee compensation and related
benefits 11,226 $3,357
Interest 3,861 115
Environmental liabilities 3,127 2,000
Other 7,825 3,688
-----------------
$44,819 $9,160
=================
41
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Financing Arrangements
Long-term debt consists of the following:
1995 1994
------------------
(In thousands)
9.0% Senior Notes, due 2001 $ 90,000
Line of credit obligations 12,000
9.65% notes 2,000 $4,000
Other notes 6,919 188
------------------
110,919 4,188
Less current portion 3,207 2,094
------------------
$107,712 $2,094
==================
The 9.0% Senior Notes are obligations of ABI's subsidiary, Congoleum. The Senior
Notes have no recourse to the assets of ABI and K&M, and are redeemable at the
option of Congoleum, in whole or in part, at any time on and after February 1,
1998 at a predetermined redemption price (ranging from 103% to 100%), plus
accrued and unpaid interest to the date of redemption. As a result of the
Company's consummation of its initial public stock offering, it may use all or a
portion of the proceeds of such offering on or before the third anniversary of
the issuance of the Senior Notes to redeem up to 25% of the aggregate principal
amount of the Senior Notes originally issued at a redemption price of 108%, plus
accrued and unpaid interest to the date of redemption. The fair value of the
Senior Notes, estimated based on the quoted market price, was approximately
$96,500,000 at December 31, 1995.
In January 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 6.71% per
annum and are payable in annual installments of $3 million beginning in 1999.
ABI, with the consent of the lender, may issue through January 1998 the
additional $15 million of promissory notes available under the Agreement. All
notes issued under the Agreement are obligations of ABI and have no recourse to
the assets of Congoleum or K&M.
42
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Financing Arrangements (continued)
Of the $15 million proceeds from the Series A Notes offering, the Company used
$12 million to repay amounts due under its line of credit arrangements and $2
million to retire its 9.65% notes. Accordingly, such amounts are classified as
long-term obligations at December 31, 1995.
Other notes mainly comprise promissory notes issued in connection with the K&M
transactions (described in Note 4), which bear interest at 1% above the First
National Bank of Boston's base lending rate (8.5% at December 31, 1995), and are
repayable through 1999. The carrying value of the other notes approximates fair
value.
The Company, at December 31, 1995, had revolving and other short-term agreements
providing for secured and unsecured borrowings up to $58 million with interest
accruing at variable rates, which at December 31, 1995 ranged from 6.4% to 9.5%.
At December 31, 1995, the weighted average interest rate on the $12 million
outstanding under these arrangements, which is unsecured, was approximately
6.6%. The carrying value of amounts outstanding under these agreements at
December 31, 1995, approximates fair value. 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, 1995, retained earnings which were
unrestricted as to such distributions amounted to $6,170,000.
Interest paid on all outstanding debt amounted to $10,111,000 in 1995, $804,000
in 1994 and $965,000 in 1993.
43
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 (after considering the effects of the Series A Notes offering)
are as follows (in thousands):
1996 $ 3,207
1997 1,573
1998 1,070
1999 4,070
2000 3,000
7. Other Liabilities
Other liabilities consist of the following:
1995 1994
-----------------
(In thousands)
Pensions $14,304 $2,582
Post-retirement benefits 10,615
Environmental remediation and product
related liabilities 10,415
Accrued worker's compensation claims 4,462
Deferred income taxes 3,736 3,296
Other 4,648 765
-----------------
$48,180 $6,643
=================
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 method
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.
44
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans (continued)
The components of net periodic pension cost were as follows:
1995 1994 1993
---------------------------
(In thousands)
Service cost--benefits earned during the period $ 1,268 $ 360 $ 399
Interest cost on projected benefit obligation 4,767 924 1,134
Actual return on plan assets (8,558) (432) (1,218)
Net amortization and deferral 4,400 (300) 300
---------------------------
Net periodic pension cost $ 1,877 $ 552 $ 615
===========================
The following tables present a reconciliation of the plans funded status to
amounts recorded in the consolidated balance sheets at December 31, 1995 and
1994:
Plans Whose Assets
Exceed Accumulated Plans Whose Accumulated
Benefits Benefits Exceed Assets
----------------------------------------------
(In thousands)
December 31, 1995:
Actuarial present value of
benefit obligations:
Vested benefit obligations $ 8,291 $ 57,264
==============================================
Accumulated benefit
obligations $ 8,347 $ 58,758
==============================================
Projected benefit obligations $10,267 $ 58,994
Plan assets at fair market value 12,160 42,801
----------------------------------------------
Projected benefit obligations
less than (in excess of)
plan assets 1,893 (16,193)
Unrecognized net loss (gain) (2,392) 4,683
Unrecognized net obligation (asset) (248) 1,549
Unrecognized prior service cost (1) (2,803)
Adjustment required to recognize
minimum liability (3,193)
----------------------------------------------
Accrued pension liability
($2,401 included in accrued
expenses) $ (748) $(15,957)
==============================================
45
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans (continued)
Plans Whose
Assets Exceed
Accumulated
Benefits
---------------
(In thousands)
December 31, 1994:
Actuarial present value of benefit obligations:
Vested benefit obligations $11,169
===============
Accumulated benefit obligations $11,263
===============
Projected benefit obligations $12,741
Plan assets at fair market value 11,458
---------------
Projected benefit obligations in excess of
plan assets (1,283)
Unrecognized gain (2,692)
Unrecognized net obligation 1,298
Unrecognized prior service cost (20)
Adjustment required to recognize minimum
liability (462)
---------------
Accrued pension liability ($577 included in
accrued expenses) $(3,159)
===============
Key assumptions used in developing the actuarial present value of the Company's
benefit obligations are as follows:
December 31
1995 1994
-----------------------------
Weighted average discount
rate 7% 8%
Rate of increase in future
compensation levels 5% - 5.5% 5% - 5.5%
The expected long-term rate of return on plan assets assumptions used to develop
net periodic pension cost ranged from 8% to 9% in 1995, and were 8% in 1994 and
1993.
46
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Post Retirement Benefits Other Than Pensions
The Company provides certain health care and life insurance benefits for certain
retirees of Congoleum. The determination of benefit cost for post retirement
plans is based on plan provisions. These benefits are provided through insurance
companies whose premiums are based on benefits paid or claims experienced.
Net periodic post retirement benefits cost for the year ended December 31, 1995,
is as follows (in thousands):
Service cost-benefits earned during the year $ 137
Interest cost on post retirement benefit obligation 480
Amortization of prior service cost (524)
Amortization of losses 47
-----
Total expense $ 140
=====
At December 31, 1995, the actuarial and recorded liabilities for these post
retirement benefits, none of which have been funded, are as follows (in
thousands):
Accumulated post retirement benefit obligations:
Retirees and dependents $( 3,319)
Fully eligible active plan participants (1,076)
Other active employees (2,432)
Unrecognized prior service cost (4,944)
Unrecognized net loss 648
---------
Accrued post retirement benefit obligations (11,123)
Less current portion 508
---------
Noncurrent post retirement benefit obligation $(10,615)
=========
A weighted average assumed discount rate of 7.0% was used to measure the
accumulated post retirement benefit obligation as of December 31, 1995. The
annual rate of increase in the per capita cost of covered health care benefits
was assumed to be 11.1% in 1995; the rate was assumed to decrease gradually to
5.0% over the next 11 years and remain level thereafter. An increase of one
percent in the assumed health care cost trend rates for each
47
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Post Retirement Benefits Other Than Pensions (continued)
future year would have increased the aggregate of service and interest cost
components of net periodic post retirement benefit cost by $87,000 for the year
ended December 31, 1995 and would have increased the post retirement benefit
obligation by $783,000 as of December 31, 1995.
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 2000. 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 $3,142,000 in 1995, $1,060,000 in 1994 and
$1,094,000 in 1993.
Future minimum payments relating to operating leases are as follows (in
thousands):
1996 $3,013
1997 2,222
1998 1,039
1999 676
2000 476
--------
Total minimum lease payments $7,426
========
Contingent Liabilities
Certain legal and administrative claims are pending or have been asserted
against the Company, which are considered incidental to its business. Among
these claims, the Company 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, some of which are properties previously owned by the
Company. The amount of such future cost 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, the determination of the
48
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
Company's liability in proportion to other potentially responsible parties, the
effects of joint and several liability at Superfund sites, and the extent to
which costs may be recoverable from insurance. The contingencies also include
claims for personal injury and/or property damage.
The Company records a liability for environmental remediation and asbestos-
related claim costs when a clean-up program or claim payment become probable and
the costs can be reasonably estimated. As assessments and clean-ups progress,
these liabilities are adjusted based upon progress in determining the timing and
extent of remedial actions and the related costs and damages. The extent and
amounts of the liabilities can change substantially due to factors such as the
nature or extent of contamination, changes in remedial requirements and
technological improvements. The recorded liabilities are not reduced by the
amount of estimated insurance recoveries. Such estimated insurance recoveries of
$2,176,000 is reflected in other non-current assets at December 31, 1995 and is
considered probable of recovery.
The Company has recorded its estimate of loss associated with the foregoing
claims; however, the ultimate outcome of these matters cannot presently be
determined.
49
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, 1995 and
1994 are as follows:
1995 1994
------------------
(In thousands)
Deferred tax assets:
Accruals and reserves $19,525 $ 1,378
Inventory 183
Credit carryforwards 761 575
------------------
Total deferred tax assets 20,286 2,136
Deferred tax liabilities:
Depreciation 12,897 1,156
Inventory 1,705
Undistributed domestic earnings 1,384 970
Foreign taxes 1,037 1,072
Other 336 436
------------------
Total deferred tax liabilities 17,359 3,634
------------------
Net deferred tax asset (liability) $ 2,927 $(1,498)
==================
Credit carryforwards consist primarily of alternative minimum tax credits and
foreign tax credits.
50
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
The components of earnings before income taxes are:
Year ended December 31
1995 1994 1993
---------------------------
(In thousands)
Domestic $17,330 $5,461 $3,076
Foreign 1,390 2,253 1,772
---------------------------
$18,720 $7,714 $4,848
===========================
Significant components of the provision for income taxes are as follows:
Year ended December 31
1995 1994 1993
---------------------------
(In thousands)
Current:
Federal $ 4,007 $1,580 $1,028
Foreign 537 477 460
State 972 459 374
---------------------------
Total current 5,516 2,516 1,862
Deferred 2,393 298 (36)
---------------------------
$ 7,909 $2,814 $1,826
===========================
Deferred income taxes include provisions of $414,000, $781,000 and $228,000
during 1995, 1994 and 1993 for ABI's share of the undistributed earnings of
Congoleum, which does not file a consolidated tax return with ABI.
51
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
Year ended December 31
1995 1994 1993
---------------------------
(In thousands)
U.S. statutory rate 35% 34% 34%
State income taxes, net of federal
benefits 5 4 5
Tax effects of foreign operations (1) (1)
Undistributed domestic earnings 2
Other (1)
---------------------------
Effective tax rate 42% 36% 38%
===========================
Undistributed earnings of foreign subsidiaries aggregated approximately
$15,200,000 at December 31, 1995, 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 $8,509,000 in 1995, $1,442,000 in
1994 and $2,441,000 in 1993.
12. Stock Option Plans
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.
Under the terms of the plan, options granted may be either non-qualified 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
52
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Stock Option Plans (continued)
exercisable and the grant price shall be equal to the exercise price of the
underlying option. During 1993, 294,800 stock options and limited SARs were
granted. No stock options or SARs were granted during 1994 or 1995. In addition,
the Committee may grant restricted stock to participants of the plan at no cost.
Other than the restrictions which limit the sale and transfer of these shares,
participants are entitled to all the rights of a shareholder. No restricted
stock or restricted stock units were granted during the three years ended
December 31, 1995.
During 1985, ABI adopted a stock option plan which permits the issuance of
300,000 shares of common stock to key executives. Under the terms of the plan,
options granted may be either non-qualified or incentive stock options and are
issued at prices ranging from 85% to 100% of fair market value at the date of
grant. Options granted under the plan are exercisable in installments; however,
no options are exercisable within one year or later than ten years from the date
of grant.
1995 1994 1993
-----------------------------
Outstanding at beginning of year 435,460 448,600 254,600
Granted ($16.875 per share) 294,800
Exercised (prices ranging from $5.75 to
$16.875 per share) (83,180) (13,140) (91,800)
Canceled ($7 per share) (2,840) (9,000)
-----------------------------
Outstanding at end of year (prices
ranging from $5.75 to $16.875 per
share) 349,440 435,460 448,600
=============================
Exercisable at end of year 155,004 174,020 115,400
Available for grant at end of year 123,640 120,800 120,800
53
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Stock Option Plans (continued)
Congoleum Stock Option Plan
Under the terms of Congoleum's 1995 Stock Option Plan (the Plan), options to
purchase up to 550,000 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 non qualified stock options, and the option price must be at least
equal to the fair value of the Congoleum's Class A common stock on the date of
grant. All options granted vest over five years at the rate of 20% per year
beginning on the first anniversary of the date of grant.
During 1995, Congoleum issued 498,000 options under the Plan, which are
exercisable at $13 per share. No shares were under option as of the beginning of
the year, 17,000 options were forfeited and no options were exercised or expired
during 1995. The total number of shares under option as of December 31, 1995 was
481,000 and an additional 69,000 shares are available for grant under the Plan
as of December 31, 1995. As of December 31, 1995, no options are exercisable
under the Plan.
The fair value of Congoleum's Class A common stock at December 31, 1995 was
approximately $10.75 per share.
13. Industry Segments
The Company operates in three principal industries: industrial, flooring and
jewelry products. Vinyl and vinyl composition floor coverings are manufactured
by the flooring group with distribution primarily through floor covering
distributors, retailers and contractors for commercial and residential use. The
industrial products group principally manufactures pressure-sensitive tape,
sheet rubber packing, matting, and footwear heels and soles, and conveyor
belting. These products are marketed through distributors as well as directly to
original equipment manufacturers and end users. The accounts of Congoleum are
included in the flooring products segment in 1995. The jewelry segment reflects
the results of K&M Associates L.P. which is a national costume jewelry supplier
to the mass merchandiser markets. The Company considers all revenues and
expenses except interest expense and investment income and all assets except
investments in affiliated companies to be of an operating nature and,
accordingly, allocates them to industry segments regardless of the profit center
in which recorded.
54
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Industry Segments (continued)
Information on Business Segments
- --------------------------------
1995 1994 1993
--------------------------------
(In thousands)
Net sales:
Flooring products $277,528 $ 18,386 $ 29,465
Industrial products 92,208 87,759 74,386
Jewelry 34,737
--------------------------------
Consolidated $404,473 $106,145 $103,851
================================
Operating profits:
Flooring products $ 21,768 $ 209 $ 1,323
Industrial products 7,745 7,804 4,431
Jewelry (2,156)
Interest expense and investment income (8,637) (299) (906)
--------------------------------
Consolidated $ 18,720 $ 7,714 $ 4,848
================================
Identifiable assets:
Flooring products $218,232 $ 13,784 $ 16,717
Industrial products 53,625 58,792 45,954
Jewelry 30,530
Investments in affiliated companies 1,100 10,228 9,026
--------------------------------
Consolidated $303,487 $ 82,804 $ 71,697
================================
Depreciation expense:
Flooring products $ 9,034 $ 978 $ 1,256
Industrial products 2,054 1,737 1,430
Jewelry 186
--------------------------------
Consolidated $ 11,274 $ 2,715 $ 2,686
================================
55
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Industry Segments (continued)
1995 1994 1993
---------------------------
(In thousands)
Capital expenditures:
Flooring products $11,126 $1,747 $1,443
Industrial products 2,820 6,852 1,394
Jewelry 175
---------------------------
Consolidated $14,121 $8,599 $2,837
===========================
In 1995, three customers of K&M accounted for approximately 29%, 26% and 23%,
respectively, of the jewelry segment net sales. Also in 1995, two customers
accounted for 20% and 15%, respectively, of the flooring industry segment net
sales. The loss of any one of these customers could adversely affect the results
of operations of the respective segment.
Amounts included in the above information relating to ABI's foreign operations
are summarized as follows (in thousands):
Net Sales Sales to
and Other Unaffiliated Operating Identifiable Depreciation Capital
Income Customers Profit Assets Expense Expenditures
---------------------------------------------------------------------------------------------------------
1995: $56,303 $56,230 $1,390 $28,684 $1,576 $1,701
=========================================================================================================
1994:
Canada $35,995 $35,844 $1,219 $21,248 $1,311 $2,719
Other 14,013 13,774 1,034 8,327 191 326
---------------------------------------------------------------------------------------------------------
Total $50,008 $49,618 $2,253 $29,575 $1,502 $3,045
=========================================================================================================
1993:
Canada $36,286 $35,243 $1,354 $21,528 $1,058 $1,746
Other 11,267 11,438 416 6,745 154 139
---------------------------------------------------------------------------------------------------------
Total $47,553 $46,681 $1,770 $28,273 $1,212 $1,885
=========================================================================================================
56
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Industry Segments (continued)
Intersegment and interarea sales include an element of profit which has been
eliminated in consolidation. Operating profit is total revenue less operating
expenses, excluding interest and general corporate expenses. Identifiable assets
by industry include both assets directly identified with those operations and an
allocable share of jointly used assets.
Substantially all the Company's sales are to select flooring distributors and
retailers located in the United States. Economic and market conditions, as well
as the individual financial condition of each customer, are considered when
establishing allowances for losses from doubtful accounts.
14. Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
(In thousands of dollars, except per share amounts)
1995
- ----
Net sales $89,691 $101,289 $107,441 $106,052
Gross profit 27,529 31,730 30,180 27,857
Net earnings 2,019 2,127 1,552 407
Net earnings per share:
Primary .53 .56 .41 .11
Fully diluted .53 .56 .41 .11
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
(In thousands of dollars, except per share amounts)
1994
- ----
Net sales $24,722 $ 27,823 $ 26,361 $ 27,239
Gross profit 6,817 7,893 7,816 7,749
Net earnings 1,448 3,631 3,180 4,002
Net earnings per share:
Primary .39 .97 .84 1.06
Fully diluted .39 .96 .84 1.06
57
American Biltrite Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
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 End
Description Period Expenses Describe Other Describe of Period
- ---------------------------------------------------------------------------------------------------------------------
1995
- ----
Allowances for doubtful
accounts and cash
discounts $1,466 $4,097 $ 5,408 (B) $ 4,494 (A) $6,477
========================================================================================
Reserve for returns and
markdowns $8,365 $ 2,521 (C) $7,585 (A) $3,301
========================================================================================
1994
- ----
Allowances for doubtful
accounts and cash
discounts $1,277 $2,189 $2,000 (A) $1,466
========================================================================================
58
American Biltrite Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts (continued)
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
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 End
Description Period Expenses Describe Other Describe of Period
- ---------------------------------------------------------------------------------------------------------------------
1993
- ----
Allowances for doubtful
accounts and cash
discounts $2,717 $1,560 $3,000 (A) $1,277
========================================================================================
(A) Represents accounts charged off during the year, net of recoveries and
$1,216 transferred to Congoleum in 1993.
(B) Represents allowances for Congoleum as of January 1, 1995 and K&M as of
April 1, 1995.
(C) Represents reserve for returns and markdowns for K&M as of April 1, 1995.
59