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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, 2001
Commission File Number 1-4773
AMERICAN BILTRITE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-1701350
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
57 River Street
Wellesley Hills, MA 02481-2097
(Address of Principal Executive Offices)
(781) 237-6655
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
Common Stock, $.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
1
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 4, 2002 was $19.2 million.
The number of shares of the registrant's common stock outstanding as of March 4,
2002 was 3,441,585.
DOCUMENTS INCORPORATED BY REFERENCE
Part III. Portions of the proxy statement for the annual meeting of
stockholders to be held on May 8, 2002, which will be filed by the
registrant within 120 days after December 31, 2001.
Some of the information presented in or incorporated by reference in this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Registrant believes that
its expectations are based on reasonable assumptions, within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include: (i) the future cost
and timing of payments associated with and availability of insurance coverage
for asbestos-related personal injury claims, as well as other environmental,
product and general liability claims, (ii) increases in raw material prices,
(iii) increased competitive activity from companies in the flooring industry,
some of which have greater resources and broader distribution channels than the
Registrant, (iv) unfavorable developments in the national economy or in the
housing industry in general, (v) shipment delays, depletion of inventory and
increased production costs resulting from unforeseen disruptions of operations
at any of the Registrant's facilities or distributors, and (vi) changes in
distributors of the Company's products.
2
PART I
ITEM 1. BUSINESS
(a) General Development of Business. American Biltrite Inc. ("ABI" or the
"Company") was organized in 1908 and is a Delaware corporation. ABI's major
operations include its Tape Division as well as a controlling interest in
Congoleum Corporation, a Delaware corporation ("Congoleum"), a controlling
interest in K&M Associates L.P., a Rhode Island limited partnership ("K&M"), and
ownership of two Canadian subsidiaries, American Biltrite (Canada) Ltd. ("AB
Canada") and Janus Flooring Corporation ("Janus").
The Tape Division produces adhesive-coated, pressure-sensitive papers and films
used to protect material during handling or storage or to serve as a carrier for
transferring decals or die-cut lettering. The Division also produces pressure
sensitive tapes and adhesive products used for applications in the heating,
ventilating and air conditioning (HVAC), footwear, automotive and electrical and
electronic industries.
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, owns an aggregate 94.5% interest (7% as sole general partner and
87.5% in limited partner interests) in K&M. K&M wholesales its products to mass
merchandisers and other major retailers. It also services certain retail
merchandisers' in-store operations in fashion jewelry and related accessories
departments by assisting retailers in managing inventory and maintaining
displays.
Congoleum is a leading manufacturer of resilient sheet and tile flooring. In
1993, ABI acquired an ownership position in Congoleum in exchange for its U.S.
tile business (the "Tile Division"). In 1995, ABI acquired voting control when
Congoleum sold a new issue of shares of its Class A common stock to the public
which had one vote per share and used the proceeds to redeem most of the
two-vote-per-share Class B shares held by the then majority shareholder. ABI's
interest has increased further since then as a result of Congoleum's repurchases
of its common stock combined with open market purchases by ABI. As of December
31, 2001, ABI's ownership of 151,100 shares of Congoleum's Class A common stock
and 4,395,605 shares of Class B common stock represented 69.5% of the voting
control of Congoleum.
Outside the United States, the Tape Division operates facilities in Belgium and
Singapore, where bulk tape products are converted into various sizes, a sales
and distribution facility in Italy, to quickly respond to customer demands in
the European and Asian markets and a sales representative office in Shanghai,
China. Other international operations include: a wholly-owned Canadian
subsidiary, AB Canada, which produces resilient floor tile, rubber tiles and
Uni-Turf (a vinyl-based floor covering for use in indoor sports facilities)
under license from ABI and industrial products (including conveyor belting,
truck and trailer splash guards and sheet rubber material); and a wholly owned
Canadian subsidiary, Janus, which produces prefinished solid hardwood flooring.
ABI owns 50% of Compania Hulera Sula, S.A. de C.V. ("Hulera Sula"), a Honduran
corporation, which produces soles, heels, sandals and other footwear products
under license from ABI. Hulera Sula owns 100% of Hulera Sacatepequez, S.A., a
Guatemalan corporation which manufactures products in Guatemala similar to those
of Hulera Sula. Fomtex, S.A., a Guatemalan corporation 60% owned by Hulera Sula,
manufactures foam mattresses, beds and other foam products.
3
For financial reporting purposes, ABI operates in four industry segments:
flooring products, tape products, jewelry and the Canadian division which
produces flooring and rubber products. See Note 15 of Notes to the Consolidated
Financial Statements, set forth in Item 8 below.
(b) Financial Information about Industry Segments. Business segment
information is in Note 15 of Notes to the Consolidated Financial Statements, set
forth in Item 8 below.
(c) Narrative Description of Business. Marketing, Distribution and Sales.
The Tape Division's protective papers and films are sold domestically and
throughout the world, principally through distributors, but also directly to
certain manufacturers. Other tape products are marketed through the Tape
Division's own sales force and by sales representatives and distributors
throughout the world. ABI's Belgian, Italian and Singapore facilities sell these
products throughout Europe and the Far East. Seasonal variations in the sales
and working capital requirements of this division are not significant.
The products of K&M are sold domestically through its own direct sales force
and, indirectly, through a wholly-owned subsidiary and through third-party sales
representatives. K&M's business and operations experience seasonal variations.
In general, fashion jewelry supply, distribution and service businesses respond
to the seasonal demands of mass merchandisers and other major retailers, which
typically peak in preparation for end-of-year holiday shopping. Accordingly,
K&M's working capital needs tend to be greatest in the second and third fiscal
quarters, while its revenues tend to be greater toward the end of each fiscal
year, especially in the latter part of the third quarter and the first half of
the fourth quarter.
AB Canada's floor tile, rubber products and industrial products are marketed
principally through distributors.
Janus's prefinished solid hardwood flooring products are marketed in Canada and
the United States principally through distributors.
Congoleum currently sells its products through approximately 22 distributors
providing approximately 57 distribution points in the United States and Canada,
as well as directly to a limited number of mass market retailers. Congoleum
considers its distribution network to be very important to maintaining
competitive position. While most of its distributors have marketed Congoleum's
products for many years, replacements are necessary periodically to maintain the
strength of the distribution network. Although Congoleum has more than one
distributor in some of its distribution territories and actively manages its
credit exposure to its customers, the loss of a major customer could have a
materially adverse impact on Congoleum's sales, at least until a suitable
replacement is in place. The sales pattern for Congoleum's products is seasonal,
with peaks in retail sales typically occurring during March/April/May and
September/October. Orders are generally shipped as soon as a truckload quantity
has been accumulated, and backorders can be canceled without penalty.
Hulera Sula's footwear and foam products are marketed and distributed in certain
Central American countries.
Financial information about products that contributed more than 10% of the
Company's consolidated revenue during the last three fiscal years is included in
Note 15 of Notes to the Consolidated Financial Statements, set forth in Item 8
below.
4
Working Capital and Cash Flow. In general, ABI's working capital requirements
are not affected by accelerated delivery requirements of major customers or by
obtaining a continuous allotment of raw material from suppliers. ABI does not
provide special rights for customers to return merchandise and does not provide
special seasonal or extended terms to its customers. K&M does provide
pre-approved allowances in the form of markdowns and return authorizations for
end of season merchandise in their service stores.
Congoleum produces goods for inventory and sells on credit to customers.
Generally, Congoleum's distributors carry inventory as needed to meet local or
rapid delivery requirements. Credit sales are typically subject to a discount if
paid within terms.
Raw Materials. ABI generally designs and engineers its own products. Most of the
raw materials required by ABI for its manufacturing operations are available
from multiple sources; however, ABI does purchase some of its raw materials from
a single source or supplier. Any significant delay in or disruption of the
supply of raw materials could substantially increase ABI's cost of materials,
require product reformulation or require qualification of new suppliers, any one
or more of which could materially adversely affect the business, operations or
financial condition of ABI. ABI's subsidiary, Congoleum, does not have readily
available alternative sources of supply for specific designs of transfer print
paper, which are produced utilizing print cylinders engraved to Congoleum's
specifications. Although no loss of this source of supply is anticipated,
replacement could take a considerable period of time and interrupt production of
certain products. Congoleum maintains a raw material inventory and has an
ongoing program to develop new sources which will provide continuity of supply
for its raw material requirements.
Competition. All businesses in which ABI is engaged are highly competitive,
principally based upon pricing of the product, the quality of the product and
service to the customer. ABI's tape products compete with some of the largest
fully integrated rubber and plastic companies, as well as smaller producers.
Included among their competitors are 3M, Fasson, Dupont Kansai, Ivex and R-Tape.
AB Canada's flooring products compete with those of other manufacturers of
rubber and vinyl floor tiles and with all other types of floor covering. AB
Canada also competes with Armstrong World Industries, Inc., V.P.I. and Nora and
with other manufacturers of alternate floor covering products. In the rubber
products category, AB Canada has several competitors, principally among them
being Garlock Sealing Division of Goodrich, The Biltrite Corporation and West
America Rubber Company.
The market for Congoleum's products is highly competitive. Resilient sheet and
tile compete for both residential and commercial customers primarily with
carpeting, hardwood, melamine laminate and ceramic tile. In residential
applications, both tile and sheet products are used primarily in kitchens,
bathrooms, laundry rooms and foyers and, to a lesser extent, in playrooms and
basements. Ceramic tile is used primarily in kitchens, bathrooms and foyers.
Carpeting is used primarily in bedrooms, family rooms and living rooms. Hardwood
flooring and melamine laminate are used primarily in family rooms, foyers and
kitchens. Commercial grade resilient flooring faces substantial competition from
carpeting, ceramic tile, rubber tile, hardwood flooring and stone in commercial
applications. Congoleum believes, based upon its market research, that purchase
decisions are influenced primarily by fashion elements such as design, color and
style, durability, ease of maintenance, price and ease of installation. Both
tile and sheet resilient flooring are easy to replace for repair and
redecoration and, in Congoleum's view, have advantages over other floor covering
products in terms of both price and ease of installation and maintenance.
5
Congoleum encounters competition from domestic and, to a much lesser extent,
foreign manufacturers. Certain of Congoleum's competitors, including Armstrong
in the resilient category, have substantially greater financial and other
resources than Congoleum.
K&M competes with other companies making similar products on the basis of
product pricing and the effectiveness of merchandising services offered. In
assessing the effectiveness of K&M products and services, customers tend to
focus on margin dollars realized from the sales of product and return on
inventory investment needed to generate sales. In its business of supplying and
servicing fashion jewelry and accessory products, K&M competes with a variety of
suppliers, among them are Liz Claiborne Inc., Jones Apparel Group and a number
of other companies offering similar products and/or services. K&M also competes
with numerous importers and overseas suppliers of similar items.
Patents and Trademarks. ABI and its subsidiaries own many trademarks, including
the Congoleum brand name, the AB(R) logo, TransferRite(R) at the Tape Division
and Amtico(R), which is used solely in the Canadian market. K&M also licenses
the Anne Klein(R), Anne Klein 2(R), and Guess?(R) trademarks as well as certain
others. These trademarks are important for the Company in maintaining its
competitive position. The Company also believes that patents and know-how play
an important role in maintaining competitive position. For example, Congoleum
utilizes a proprietary transfer printing process for certain tile products that
it believes produces visual effects that only one other competitor is presently
able to duplicate.
Research and Development. Research and development efforts at the Company
concentrate on new product development, increasing efficiencies of the various
manufacturing processes, and improving the features and performance of existing
products. Expenditures for research and development were $4.9 million, $5.5
million, and $5.6 million, on a consolidated basis for the years ended December
31, 2001, 2000 and 1999, respectively.
Key Customers. For the year ended December 31, 2001, two customers of Congoleum
each accounted for over 10% of ABI's consolidated sales revenue. These customers
were its distributor to the manufactured housing market, LaSalle-Bristol, and
its largest general line distributor, Mohawk Industries, Inc. No other customer
accounted for more than 10% of consolidated sales. K&M's top three customers in
terms of net sales in 2001 together account for approximately 74% of K&M's
aggregate net sales. The loss of the largest customer would have a material
adverse effect on K&M. Sales to four unaffiliated customers of the Tape Division
together constitute approximately 23% of the sales for the Division. The loss of
two or more of these customers would have a significant, adverse effect on Tape
Division's revenue. See Note 15 of Notes to Consolidated Financial Statements
set forth in Item 8 below.
Backlog. The dollar amount of backlog of orders believed to be firm as of
December 31, 2001 and 2000 was $15.7 million and $14.0 million, respectively. It
is anticipated that all of the backlog as of December 31, 2001 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.
6
Environmental Compliance. Because of the nature of the operations conducted by
ABI, ABI's facilities are subject to a broad range of federal, state, local and
foreign legal and regulatory provisions relating to the environment, including
those regulating the discharge of materials into the environment, the handling
and disposal of solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at ABI facilities
and off-site disposal locations. ABI believes that compliance with existing
federal, state, local and foreign provisions will not have a material adverse
effect upon its capital expenditures, earnings and competitive position.
Congoleum, pursuant to administrative consent orders signed in 1986 and in
connection with a prior restructuring, is in the process of implementing cleanup
measures at its Trenton sheet facility under New Jersey's Environmental Clean-up
Responsibility Act, as amended by the New Jersey Industrial Site Recovery Act.
Congoleum does not anticipate that the additional costs of these measures will
be material. In connection with the acquisition of the Tile Division, ABI signed
a similar consent order with respect to the Trenton tile facility, and Congoleum
agreed to be financially responsible for any cleanup measures required.
Congoleum has historically expended substantial amounts for compliance with
existing environmental laws and regulations, including those matters described
above. Congoleum will continue to be required to expend amounts in the future,
due to the nature of past activities at its facilities, to comply with existing
environmental laws, and those amounts may be substantial but should not, in
Congoleum's judgment, have a material adverse effect on the financial position
of Congoleum. Because environmental requirements have grown increasingly strict,
however, Congoleum is unable to determine the ultimate cost of compliance with
environmental laws and enforcement policies.
See Item 3 below for certain additional information regarding environmental
matters.
Employees. As of December 31, 2001, ABI employed approximately 2,850 people.
(d) Financial information about foreign and domestic operations and export
sales. Financial information concerning foreign and domestic operations is in
Note 15 of Notes to the Consolidated Financial Statements, set forth in Item 8
below. Export sales from the United States were $24.4 million in 2001, $25.2
million in 2000 and $22.9 million in 1999.
7
ITEM 2. PROPERTIES
At December 31, 2001, ABI owned ten manufacturing plants and a jewelry
distribution center and leased additional office and warehousing space as
follows:
Owned Industry Segment
Or For Which
Location Square Feet Leased Properties Used
- ---------------------------------------------------------------------------------------------
Trenton, NJ 1,050,000 Owned Flooring products
Marcus Hook, PA 1,000,000 Owned Flooring products
Trenton, NJ 282,000 Owned Flooring products
Finksburg, MD 107,000 Owned Flooring products
Trenton, NJ 111,000 Leased Flooring products
Mercerville, NJ 47,000 Leased Flooring products
Sherbrooke, Quebec 379,000 Owned Canadian division
Moorestown, NJ 226,000 Owned Tape products
Lowell, MA 57,000 Owned Tape products
Ayer, MA 42,000 Leased Tape products
Renaix, Belgium 84,000 Owned Tape products
Singapore 32,000 Owned Tape products
Providence, RI 103,000 Owned Jewelry products
Toronto, Ontario 200,000 Owned Flooring products
ABI knows of no material defect in the titles to any such properties or material
encumbrances thereon other than the owned properties in Renaix, Belgium, and
Singapore which have outstanding mortgages of 64% and 74% of the original cost
of the property, respectively. ABI considers that all of its properties are in
good condition and have been well maintained.
8
It is estimated that during 2001, ABI's plants for the manufacture of floor
covering products operated at approximately 62% of aggregate capacity, its
plants for the manufacture of tape products operated at approximately 95% of
aggregate capacity and the Canadian division operated at approximately 93% 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 many other manufacturers and distributors of
asbestos-containing products in approximately four hundred and sixty-four
pending claims involving approximately 1,400 individuals as of December 31,
2001. The claimants allege personal injury from exposure to asbestos or
asbestos-containing products. See Note 10 of Notes to the Consolidated Financial
Statements included in Item 8 for detailed information about these claims.
ABI has been named as a Potentially Responsible Party ("PRP") within the meaning
of the federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), as to two sites in two separate states. See Note 10
of Notes to the Consolidated Financial Statements included in Item 8 for
detailed information about these matters.
In addition, ABI has entered into a settlement agreement that resolved one
environmental lawsuit. The details are set forth in Note 10 of Notes to the
Consolidated Financial Statements included in Item 8.
ABI has been notified by the present owner of a formerly owned site in Maine
that it is potentially responsible for response and remediation costs. ABI also
is potentially responsible for response and remediation costs as to three state
supervised sites, two sites in Massachusetts, and one in New York. See Note 10
of Notes to the Consolidated Financial Statements included in Item 8 for
information about ABI's potential liability at these four sites.
As of December 31, 2001, ABI has accrued $1.75 million representing the
estimable and probable amounts for contingencies described above, net of
expected recoveries.
As of December 31, 2001 Congoleum was named as a defendant, together in most
cases with numerous other defendants, in approximately 6,563 pending lawsuits
(including workers' compensation cases) involving approximately 23,139
individuals alleging personal injury or death from exposure to asbestos or
asbestos-containing products. See Note 10 of Notes to the Consolidated Financial
Statements included in Item 8 for information about Congoleum's potential
liabilities to these lawsuits.
Together with a large number (in most cases, hundreds) of other companies,
Congoleum is named as a PRP in pending proceedings under CERCLA and similar
state laws. See Note 10 of Notes to the Consolidated Financial Statements
included in Item 8 for detailed information about these matters.
The Company also accrues remediation costs for certain of the Company's owned
facilities on an undiscounted basis. Estimated total cleanup costs, including
capital outlays and future maintenance costs for soil and groundwater
remediation are primarily based on engineering studies.
9
In the ordinary course of its business, ABI and its consolidated entities become
involved in lawsuits, administrative proceedings, product liability and other
matters. In some of these proceedings, plaintiffs may seek to recover large and
sometimes unspecified amounts and the matters may remain unresolved for several
years. On the basis of information furnished by counsel and others, ABI and its
consolidated entities do not believe that these matters, individually or in the
aggregate, will have a material adverse effect on their business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The registrant's Common Stock is traded on the American Stock Exchange (ticker
symbol: ABL). At the close of business on March 4, 2002, the closing price of
ABI's Common Stock was $12.80 per share and the approximate number of record
holders was 365.
High and low stock prices and dividends for the last two years were:
Sale Prices of Common Shares
2001 2000
------------------------------------------------------
Quarter Ended High Low High Low
- ------------------------------------------------------------------------------
March 31 $15.38 $13.50 $14.50 $13.00
June 30 14.00 12.10 14.00 12.44
September 30 14.15 10.80 15.75 11.75
December 31 14.51 10.40 15.63 12.38
Cash Dividends Per Common
Share
----------------------------
Quarter Ended 2001 2000
- -----------------------------------------------------------
March 31 $.125 $.125
June 30 .125 .125
September 30 .125 .125
December 31 .125 .125
----------------------------
$.500 $.500
============================
10
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
2001 2000 1999 1998 1997
-----------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Financial Position
Total assets $372,764 $365,263 $344,060 $336,039 $299,686
Long-term debt 126,161 112,138 114,105 118,406 94,409
Total stockholders' equity 77,248 79,547 78,381 71,237 65,345
Summary of Operations
Net sales $414,328 $420,373 $422,459 $423,879 $417,512
Income before other items 2,381 2,098 12,725 15,321 11,922
Noncontrolling interests 435 3,235 (2,992) (5,145) (3,777)
Extraordinary item (1,174)
Net income 2,816 5,333 9,733 9,002 8,145
Basic income per share .82 1.52 2.71 2.47 2.24
Diluted income per share .82 1.51 2.66 2.36 2.18
Cash dividends per common
share .50 .50 .50 .45 .40
Number of shares used
in computing:
Basic income per share 3,455,134 3,518,107 3,591,895 3,641,337 3,633,076
Diluted income per share 3,455,134 3,537,256 3,661,946 3,806,202 3,738,406
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales for the year ended December 31, 2001 were $414.3 million, a decrease
of $6.0 million or 1.4% from sales in 2000. Sales at the Tape and Canadian
Divisions declined as a result of economic conditions. Flooring product segment
sales increased due to the inclusion of a full year of sales at Janus, which was
acquired in October 2000. Sales at Congoleum declined slightly. Jewelry sales
increased due to the acquisition of a line of licensed products combined with
growth in sales to existing and new customers.
Cost of products sold was 71.5% of net sales in 2001, up from 71.0% in 2000.
This increase was primarily due to decreased sales volume and competitive
pricing pressures affecting results at the Tape and Canadian Divisions. Gross
profit margins also declined slightly at K&M due to a lower margin
11
mix of sales. Gross profit margins improved at Congoleum due to cost reductions,
efficiency improvements, and a more profitable sales mix.
Selling, general and administrative expenses for the year ended December 31,
2001 were $106.9 million, or 25.8% of net sales, up slightly from $106.0
million, or 25.2% or net sales, in 2000. The increase in these expenses was
primarily due to the growth at K&M arising from the licensed product lines
acquired from Swank, Inc. and the inclusion of a full year of expenses at Janus.
Selling, general and administrative expenses declined at the Tape Division and
Canadian Division but increased as a percentage of sales due to the significant
sales declines at both operations. At Congoleum, selling, general and
administrative expenses declined in both amount and as a percent of sales due to
cost reductions initiated in the first quarter of 2001.
Interest income declined from $2.0 million in 2000 to $0.9 million in 2001 due
to lower average balances of cash equivalents and short-term investments earning
interest at lower rates. Other income increased from $2.2 million in 2000 to
$3.0 million in 2001 primarily as a result of a $0.7 million gain on the sale of
a warehouse.
Interest expense increased from $9.4 million in 2000 to $10.9 million in 2001
due to higher borrowings in 2001.
The provision for income taxes in 2001 was 43.2% of pre-tax income, up from
26.8% in 2000. The increase in the tax rate was primarily due to the fact that
Janus and Congoleum, which had losses in 2001, had lower effective tax rates
than the other ABI operations, which had income in 2001. As a result, the tax
benefit provided for on these losses was less than the tax expense provided for
on the income of the other operations. The effect of expenses not deductible for
tax purposes, which has a greater impact on the effective tax rate at lower
levels of income, also contributed to the relatively high effective tax rate for
2001.
Net income for the year ended December 31, 2001 was $2.8 million, down from $5.3
million in 2000. Income declined at the Tape and Canadian Divisions. Janus
incurred a loss in its first full year as part of ABI. The loss at Congoleum was
less than the loss in 2000, which included non-recurring charges for a change of
distributor. Net income at K&M increased.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales for the year ended December 31, 2000 were $420.4 million as compared
to $422.5 million for the year ended December 31, 1999, a decrease of $2.1
million. All of this sales decrease occurred at Congoleum due to declines in
sales of promotional goods and products for the manufactured housing industry.
Sales increased at ABI's Tape and Canadian Divisions as well as K&M. ABI
acquired Janus in October 2000 and its sales are included from the date of the
acquisition.
Cost of products sold in 2000 increased to 71.0% of net sales from 68.9% last
year. This increase in cost is due mainly to the results at Congoleum, where
margins declined due to lower sales and higher raw material and energy costs. At
ABI, only nominal increases were incurred with minimal decreases incurred at
K&M.
12
As a percentage of sales, selling, general and administrative expenses were
approximately the same for both 2000 and 1999.
A non-recurring charge of $7.7 million was recorded in 2000 for the costs of a
major distributor change at Congoleum, the replacement of L.D. Brinkman & Co.
with Mohawk Industries. There were two components to the charge. First was
Congoleum's share of the costs of establishing Mohawk as a distributor, which
include training, meetings, displays and similar costs. Second were the costs to
be paid pursuant to the settlement agreement with L.D. Brinkman.
The provision for income taxes declined to 26.8% of pre-tax income in 2000 from
36.7% in 1999. Key among the factors reducing the effective tax rate include a
reduction in ABI's provision for taxes caused by Congoleum's 2000 pre-tax loss
and lower Canadian taxes due to incentives related to expansion programs.
Net income for the year ended December 31, 2000 was $5.3 million, down by $4.4
million from last year's net income of $9.7 million. ABI and K&M were both
profitable. Congoleum was not profitable. Janus was nominally unprofitable since
the October 2000 acquisition date. Basic net earnings per share were $1.52 in
2000, down from $2.71 in 1999.
Liquidity and Capital Resources
At December 31, 2001, consolidated working capital was $81.8 million, the ratio
of current assets to current liabilities was 1.9 to 1.0, and the debt to equity
ratio was 1.78 to 1.0. Debt issued by Congoleum accounts for $99.7 million or
72% of consolidated debt and is not guaranteed or otherwise secured by ABI or
its other subsidiaries. Net cash provided by operations during 2001was $7.4
million.
Capital expenditures for 2002 are estimated to be approximately $16.0 million.
For ABI and its associated subsidiaries, capital expenditures cover normal
replacement of machinery and equipment and process improvements.
In 1998, Congoleum's Board of Directors approved a plan to purchase up to $5.0
million of Congoleum's common stock. As of December 31, 2001, Congoleum had
repurchased 777,665 shares of its common stock for an aggregate cost of $4.3
million pursuant to this plan. At ABI, based on prior Board authorizations, $3.0
million is available for the purchase of ABI's common stock. In 2000, ABI's
Board of Directors authorized the purchase of up to $5.0 million of Congoleum's
common stock. As of December 31, 2001, ABI had purchased 151,100 shares of
Congoleum common stock for $0.4 million pursuant to that authorization.
In July 2001, the Company, through a Canadian subsidiary, entered into a credit
agreement providing a $7.5 million Canadian dollar (US $4.9 million) capital
loan and increasing an existing operating loan facility to $10.0 million
Canadian dollars (US $6.5 million). Proceeds of the capital loan were used to
fund acquisitions of property and equipment in Canada. The capital loan is
payable in 20 equal quarterly installments beginning February 28, 2002 and bears
interest at 6.03%. The operating loan is payable on demand and bears interest at
a floating rate which averaged 4.65% at December 31, 2001.
In the third quarter of 2001, ABI entered into a Note Purchase and Private Shelf
Agreement with Prudential Insurance Company ("Pru Agreement"). Under the terms
of this agreement, ABI borrowed
13
$20 million and used the proceeds to retire existing long-term and revolving
debt. The new notes bear interest at 8.16% (reducing to 7.91% if a lower ratio
of debt to EBITDA as defined in the Pru Agreement, is attained). Principal is
repayable in five annual $4.0 million installments beginning August 28, 2006.
In September 2001, ABI entered into a new revolving credit agreement. This
agreement provides for borrowings of up to $30 million through September 28,
2004, with interest varying from LIBOR plus 1.0% to LIBOR plus 2.5% depending
upon the Company's leverage ratio, as defined.
In December 2001, Congoleum entered into a revolving credit facility, which
expires in 2004, that provides for borrowings up to $30 million depending on
levels of, and secured by, inventory and receivables.
Certain borrowing agreements of the Company or its subsidiaries restrict the
ability of the Company or the borrowing subsidiary to incur additional
indebtedness, pay dividends, or make capital expenditures, and require the
maintenance of certain financial ratios and minimum net worth levels. In
addition, borrowings under Congoleum's facility are based upon the amount of
inventory and accounts receivable available as collateral. These considerations
could limit the Company's ability to fully utilize the $66.3 million available
under its existing lines of credit. At December 31, 2001, $7.7 million was
outstanding under these lines and $1.8 million secured outstanding letters of
credit.
Cash requirements for capital expenditures, working capital, debt service,
dividends and any share repurchases are expected to be financed from operating
activities and borrowings under existing lines of credit.
The following table summarizes the Company's obligations at December 31, 2001
for future principal payments on its long-term debt and future minimum rental
payments on its noncancellable operating leases.
Payments due by Period
(amounts in thousands)
Less than 1-2 2-3 3-4 4-5 After
Total 1 Year Years Years Years Years 5 Years
----------------------------------------------------------------------
Long-term
debt $126,161 $1,038 $1,048 $1,048 $1,052 $5,057 $116,918
Operating
leases 18,955 4,560 3,338 2,533 1,776 1,616 5,132
Contingencies
ABI has recorded what it believes are adequate provisions for environmental
remediation and product-related liabilities, including provisions for testing
for potential remediation of conditions at its own facilities. While ABI
believes its estimate of the future amount of these liabilities is reasonable
and that they will be paid for the most part over a period of one to seven
years, the timing and amount of such payments may differ significantly from
ABI's assumptions. Although the effect of future government
14
regulation could have a significant effect on ABI's costs, ABI is not aware of
any pending legislation which could significantly affect the liabilities ABI has
established for these matters. There can be no assurances that the costs of any
future government regulations could be passed along by ABI to its customers.
Certain legal and administrative claims are pending or have been asserted
against ABI, which are considered incidental to its business. Among these
claims, ABI is a named party in several actions associated with waste disposal
sites and asbestos-related claims. These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites. The exact amount of such future costs to ABI
is indeterminable due to such unknown factors as the magnitude of cleanup costs,
the timing and extent of the remedial actions that may be required, the
determination of ABI's liability in proportion to other potentially responsible
parties and the extent to which costs may be recoverable from insurance. ABI has
recorded provisions in its financial statements for the estimated probable loss
associated with all known environmental and asbestos-related contingencies. The
contingencies also include claims for personal injury and/or property damage.
(See Note 10 of Notes to Consolidated Financial Statements.)
Critical Accounting Policies
The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements included in Item 8 of this Form 10-K. The
Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the carrying value of inventories,
realizability of outstanding accounts receivable, sales returns and allowances,
reserves for environmental matters and other contingencies, and the provision
for income taxes. The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. In the past, actual results have not been materially different
from the Company's estimates. However, results may differ from these estimates
under different assumptions or conditions.
The Company has identified the following as critical accounting policies, based
on the significant judgments and estimates used in determining the amounts
reported in its consolidated financial statements:
Environmental Contingencies - As discussed previously, the Company has incurred
liabilities related to environmental remediation costs at both third party sites
and Company owned sites. Management has recorded both liabilities and insurance
receivables in its consolidated financial statements for its estimate of future
remediation activities. These estimates are based on certain assumptions such as
the extent of clean-up activities to be performed, the methods employed in the
clean-up activities, the Company's relative share in costs at sites where other
parties are involved, and the ultimate insurance coverage available. These
projects tend to be long-term in nature, and these assumptions are subject to
refinement as facts change. As such, it is possible that the Company may need to
revise its recorded liabilities and
15
receivables for environmental costs in future periods resulting in potentially
material adjustments to the Company's earnings in future periods.
Valuation of Deferred Tax Assets - The Company will provide for valuation
reserves against its deferred tax assets when it becomes more likely than not
that the Company will not be able to utilize the tax benefit underlying the
asset. In evaluating the recovery of deferred tax assets, management makes
certain assumptions as to future events such as the ability to generate future
taxable income. It is possible that the facts underlying these assumptions may
not materialize in future periods, which may require the Company to record
additional deferred tax valuation allowances.
Asbestos Liabilities - As discussed previously, the Company primarily through
its subsidiary, Congoleum, is a party to a significant number of lawsuits
stemming from its manufacture of asbestos-containing products. The Company has
recorded in its consolidated balance sheet a liability and corresponding
insurance receivable based on its estimates of the future costs and related
insurance recoveries to settle asbestos litigation and pay for related legal and
loss handling costs. These estimates are based on a number of subjective
assumptions, including the anticipated costs to settle claims, the cost to
litigate claims, the number of claims expected to be received, and the
applicability and allocation of insurance coverage to these costs. Due to the
highly subjective nature of these assumptions, the Company has estimated a wide
range of potential future costs and insurance recoveries and, because management
believes that no amount within the range is more likely than any other, has
recorded a liability and insurance receivable based on the low end of the range
in accordance with accounting principles generally accepted in the United
States. As such, the selection of a different amount within the range could have
a material effect on the Company's consolidated financial statements, as could
future developments, which may differ from the assumptions used in developing
the Company's estimates.
Pension Plans and Postretirement Benefits - The Company accounts for its defined
benefit pension plans in accordance with SFAS No. 87, "Employers' Accounting for
Pensions," which requires that amounts recognized in financial statements be
determined on an actuarial basis. As permitted by SFAS No. 87, the Company uses
a calculated value of plan assets (which is further described below). SFAS No.
87 requires that the effects of the performance of the pension plans' assets and
changes in pension liability discount rates on the Company's computation of
pension income (expense) be amortized over future periods.
The most significant element in determining the Company's pension income
(expense) in accordance with SFAS No. 87 is the expected return on plan assets.
In 2001, the Company has assumed that the expected long-term rate of return on
plan assets will be 7.5%-9%. The assumed long-term rate of return on assets is
applied to a calculated value of plan assets, which recognizes changes in the
fair value of plan assets in a systematic manner over four years. This produces
the expected return on plan assets that is included in pension income (expense).
The difference between this expected return and the actual return on plan assets
is deferred. The net deferral of past asset gains (losses) affects the
calculated value of plan assets and, ultimately, future pension income
(expense).
At the end of each year, the Company determines the discount rate to be used to
calculate the present value of plan liabilities. The discount rate is an
estimate of the current interest rate at which the pension liabilities could be
effectively settled at the end of the year. In estimating this rate, the Company
looks to rates of return on high-quality, fixed-income investments that receive
one of the two highest ratings given by a recognized ratings agency. At December
31, 2001, the Company determined this rate to be 6.75%-7.25%.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to changes in prevailing market interest rates affecting
the return on its investments but does not consider this interest rate market
risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in highly liquid debt instruments with
strong credit ratings and short-term (less than one year) maturities. The
carrying amount of these investments approximates fair value due to the
short-term maturities. Substantially all of the Company's outstanding long-term
debt as of December 31, 2001 consisted of indebtedness with a fixed rate of
interest, which is not subject to change based upon changes in prevailing market
interest rates.
The Company operates internationally, principally in Canada, Europe and the Far
East, giving rise to exposure to market risks from changes in foreign exchange
rates. To a certain extent, foreign currency exchange rate movements also affect
the Company's competitive position, as exchange rate changes may affect business
practices and/or pricing strategies of non-U.S. based competitors. For foreign
currency exposures existing at December 31, 2001, a 10% unfavorable movement in
currency exchange rates in the near term would not materially affect ABI's
consolidated operating results, financial position or cash flows.
Under its current policies, the Company does not use derivative financial
instruments, derivative commodity instruments or other financial instruments to
manage its exposure to changes in interest rates, foreign currency exchange
rates, commodity prices or equity prices.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
American Biltrite Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
December 31
2001 2000
-------------------------
Assets
Current assets:
Cash and cash equivalents $ 16,804 $ 16,859
Short-term investments 1,416 12,097
Accounts and notes receivable, less allowances
of $4,227 in 2001 and $4,092 in 2000 for
doubtful accounts and discounts 39,768 45,378
Inventories 93,923 86,786
Deferred income taxes 8,033 5,718
Prepaid expenses and other current assets 11,335 7,173
-------------------------
Total current assets 171,279 174,011
Other assets:
Goodwill, net 23,773 23,431
Deferred income taxes 1,335 1,530
Other assets 25,718 22,094
-------------------------
50,826 47,055
Property, plant and equipment, net 150,659 144,197
-------------------------
Total assets $372,764 $365,263
=========================
See accompanying notes.
18
American Biltrite Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(In thousands of dollars)
December 31
2001 2000
----------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 28,501 $ 31,101
Accrued expenses 48,253 54,654
Notes payable 11,646 11,698
Current portion of long-term debt 1,038 3,713
----------------------
Total current liabilities 89,438 101,166
Long-term debt, less current portion 125,123 108,425
Other liabilities 69,003 61,966
Noncontrolling interests 11,952 14,159
Stockholders' equity:
Common stock, par value $.01, authorized 15,000,000
shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,548 19,521
Retained earnings 80,752 79,663
Accumulated other comprehensive income (loss) (7,966) (5,514)
----------------------
92,380 93,716
Less cost of shares of common stock in treasury
(1,166,317 shares in 2001 and 1,101,517 shares in
2000) 15,132 14,169
----------------------
Total stockholders' equity 77,248 79,547
----------------------
Total liabilities and stockholders' equity $ 372,764 $ 365,263
======================
See accompanying notes.
19
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands of dollars, except per share amounts)
Years ended December 31
2001 2000 1999
-------------------------------------
Revenues:
Net sales $414,328 $420,373 $422,459
Interest 910 2,041 2,040
Other 3,023 2,158 1,895
-------------------------------------
418,261 424,572 426,394
Costs and expenses:
Cost of products sold 296,250 298,558 290,940
Selling, general and administrative
expenses 106,879 106,022 105,818
Distributor transition costs -- 7,717 --
Interest 10,937 9,407 9,520
-------------------------------------
414,066 421,704 406,278
-------------------------------------
Income before income taxes and other
items 4,195 2,868 20,116
Provision for income taxes 1,814 770 7,391
-------------------------------------
2,381 2,098 12,725
Noncontrolling interests 435 3,235 (2,992)
-------------------------------------
Net income $ 2,816 $ 5,333 $ 9,733
=====================================
Income per share:
Basic $ 0.82 $ 1.52 $ 2.71
=====================================
Diluted $ 0.82 $ 1.51 $ 2.66
=====================================
See accompanying notes.
20
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands of dollars)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income (Loss) Stock Equity
-------------------------------------------------------------------
Balance at December 31, 1998 $46 $19,423 $68,247 $(4,906) $(11,573) $71,237
Comprehensive income:
Net income for 1999 9,733 9,733
Other comprehensive income 1,559 1,559
-----------
Total comprehensive income 11,292
Dividends declared ($.50 per share) (1,795) (1,795)
Effects of Congoleum capital
transactions (455) (455)
Purchase of treasury stock (1,898) (1,898)
-------------------------------------------------------------------
Balance at December 31, 1999 46 19,423 75,730 (3,347) (13,471) 78,381
Comprehensive income:
Net income for 2000 5,333 5,333
Other comprehensive loss (2,167) (2,167)
-----------
Total comprehensive income 3,166
Tax benefit on exercise of options 98 98
Dividends declared ($.50 per share) (1,759) (1,759)
Effects of Congoleum capital
transactions 359 359
Exercise of stock options 249 249
Purchase of treasury stock (947) (947)
-------------------------------------------------------------------
Balance at December 31, 2000 46 19,521 79,663 (5,514) (14,169) 79,547
Comprehensive income:
Net income for 2001 2,816 2,816
Other comprehensive loss (2,452) (2,452)
-----------
Total comprehensive income 364
Tax benefit on exercise of options 27 27
Dividends declared ($.50 per share) (1,727) (1,727)
Exercise of stock options 103 103
Purchase of treasury stock (1,066) (1,066)
-------------------------------------------------------------------
Balance at December 31, 2001 $46 $19,548 $80,752 $(7,966) $(15,132) $77,248
===================================================================
See accompanying notes.
21
American Biltrite Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
Years ended December 31
2001 2000 1999
---------------------------------
Operating activities
Net income $ 2,816 $ 5,333 $ 9,733
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,773 17,239 16,231
Provision for doubtful accounts 2,777 1,054 2,966
Deferred income taxes 401 (1,705) 2,634
Gain on sale of property, plant and equipment (809) -- --
Changes in certain operating assets and liabilities,
exclusive of those arising from acquisitions:
Accounts and notes receivable 4,020 (15,726) (143)
Inventories (4,925) (2,386) (13,252)
Prepaid expenses and other current assets (7,503) (2,811) (2,342)
Accounts payable and accrued expenses (8,953) 3,414 7,108
Noncontrolling interests (435) (3,235) 2,992
Other 1,258 2,383 (738)
---------------------------------
Net cash provided by operating activities 7,420 3,560 25,189
Investing activities
Purchases of short-term investments (4,175) (23,392) (51,044)
Proceeds from sales of short-term investments 14,856 30,527 31,812
Investments in property, plant and equipment (25,240) (20,817) (26,971)
Proceeds from sale of property, plant and equipment 1,575 -- --
Purchase of Congoleum Class A shares -- (437) --
Acquisition of certain Swank assets (4,646) -- --
Acquisition of Janus Flooring -- (2,979) --
Purchase of additional partnership interests in K&M (2,066) (1,314) (125)
---------------------------------
Net cash used in investing activities (19,696) (18,412) (46,328)
Financing activities
Long-term borrowings 24,787 -- --
Payments on long-term debt (10,715) (4,630) (4,259)
Net short-term borrowings (payments) (52) 11,499 --
Purchase and retirement of Congoleum Class B shares -- -- (470)
Purchase of treasury shares (1,066) (1,144) (5,381)
Dividends paid (1,727) (1,759) (1,795)
Proceeds from exercise of stock options 103 249 --
---------------------------------
Net cash provided (used) by financing activities 11,330 4,215 (11,905)
Effect of foreign exchange rate changes on cash 891 211 824
---------------------------------
Decrease in cash and cash equivalents (55) (10,426) (32,220)
Cash and cash equivalents at beginning of year 16,859 27,285 59,505
---------------------------------
Cash and cash equivalents at end of year $ 16,804 $ 16,859 $ 27,285
=================================
See accompanying notes.
22
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands of dollars)
December 31, 2001
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of American Biltrite
Inc. and its wholly-owned subsidiaries (referred to as "ABI" or the "Company"),
as well as entities over which it has voting control. In 1995, ABI gained voting
control over Congoleum Corporation (Congoleum) and K&M Associates L.P. (K&M).
Intercompany accounts and transactions, including transactions with associated
companies that result in intercompany profit, are eliminated.
Included in other assets on the accompanying balance sheets is ABI's investment
in Compania Hulera Sula, S.A., a 50%-owned venture. The investment is accounted
for on the cost method due to the uncertainty of the political climate and
currency restrictions in Honduras.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses in previous
years have generally been within or below provisions for such losses. For the
years ended December 31, 2001, 2000 and 1999, the Company had two customers that
accounted for 26%, 24% and 28% of net sales, respectively. At December 31, 2001,
2000 and 1999, one customer accounted for 14%, 23% and 20% of trade receivables
outstanding, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent liabilities, at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
23
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
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
The Company invests in highly liquid debt instruments with strong credit
ratings. Commercial paper investments with a maturity greater than three months,
but less than one year, at the time of purchase are considered to be short-term
investments. The carrying amount of the investments approximates fair value due
to their short maturity. The Company maintains cash and cash equivalents and
short-term investments with certain financial institutions. The Company performs
periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most of the Company's domestic inventories
and the first-in, first-out (FIFO) method for the Company's foreign inventories.
Property, Plant and Equipment
These assets are stated at cost. Expenditures for maintenance, repairs and
renewals are charged to expense; major improvements are capitalized.
Depreciation, which is determined using the straight-line method, is provided
over the estimated useful lives (thirty to forty years for buildings and
building improvements, ten to fifteen years for production equipment and
heavy-duty vehicles, and three to ten years for light-duty vehicles and office
furnishings and equipment).
24
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
Debt Issue Costs
Costs incurred in connection with the issuance of long-term debt have been
capitalized and are being amortized over the life of the related debt
agreements. Debt issue costs at December 31, 2001 and 2000 amounted to $2,162
and $2,498, respectively, net of accumulated amortization of $1,148 and $812,
respectively, and are included in other noncurrent assets.
Goodwill
The excess of purchase cost over the fair value of the net assets acquired
(goodwill) established for Congoleum is being amortized on a straight-line basis
over 40 years. Goodwill associated with the Janus Flooring purchase and K & M
transactions (see Note 4) is being amortized over 15 and 20 years, respectively.
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
$11,205 and $9,803 at December 31, 2001 and 2000, respectively.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate the Company's assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to fair market value is required.
25
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
Environmental Remediation Liabilities
The Company is subject to federal, state, and local environmental laws and
regulations. The Company records a liability for environmental remediation
claims when a clean-up program or claim payment becomes probable and the costs
can be reasonably estimated. The recorded liabilities are not discounted for
delays in future payments (see Notes 5, 7 and 10). The Company is a party to a
number of lawsuits stemming from its manufacture of asbestos-containing
products. The Company records a liability for these cases based on its estimate
of costs to resolve both open and incurred but not reported claims. The Company
also records an insurance receivable based on its estimate of insurance
recoveries for these costs. In estimating the Company's asbestos-related
exposures, the Company analyzes and considers the possibility of any
uncertainties regarding the legal sufficiency of insurance claims or solvency of
insurance carriers.
Revenue Recognition
Revenue is recognized when products are shipped and title has passed to the
customer. Net sales are comprised of the total sales billed during the period
less the sales value of estimated returns, trade discounts and customers'
allowances. The Company defers recognition of revenue for its estimate of
potential sales returns under right-of-return agreements with its customers
until the right-of-return period lapses.
Shipping and Handling Costs
Shipping and handling costs for the years ended December 31, 2001, 2000 and 1999
were $8,442, $9,457 and $8,789, respectively, and are included in selling,
general and administrative expenses.
Income Taxes
The Company provides for income taxes based upon earnings reported for financial
statement purposes. Deferred tax assets and liabilities are determined based
upon temporary differences between the financial reporting and tax bases of
assets and liabilities.
26
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, requires the recognition of, or disclosure of,
compensation expense for grants of stock options or other equity instruments
issued to employees based on their fair value at the date of grant. As permitted
by SFAS No. 123, the Company follows the disclosure requirements instead of
recognition of compensation expense and therefore continues to apply existing
accounting rules under APB Opinion No. 25 (APB 25) and related interpretations
for its employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Research and Development Costs
Expenditures relating to the development of new products are charged to
operations as incurred and amounted to $4,940, $5,486 and $5,620 for the years
ended December 31, 2001, 2000 and 1999, respectively.
Foreign Currency Translation
Balance sheet accounts of foreign subsidiaries are translated at the current
exchange rate, and income statement items are translated at the average exchange
rate for the period; resulting translation adjustments are made directly to
accumulated other comprehensive income (loss) in stockholders' equity. Realized
exchange gains and losses (immaterial in amount) are included in current
operations.
Issuances of Stock by Subsidiaries
The Company accounts for issuances of stock by its subsidiaries as capital
transactions.
Earnings Per Share
Basic earnings per share have been computed based on the weighted-average number
of common shares outstanding during the period. Diluted earnings per share have
been computed based upon the weighted-average number of common shares
outstanding during the year, adjusted for the dilutive effect of shares issuable
upon the exercise of stock options determined based upon average market price
for the period.
27
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
Changes in Accounting Principles
In December 1999, the Securities and Exchange Commission (SEC) staff issued
Staff Accounting Standard Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), which summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133, as amended by SFAS 138), which requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
The Company adopted SAB 101 in the fourth quarter of fiscal 2000 and SFAS 133 in
the first quarter of fiscal 2001. Adoption of these pronouncements did not have
a significant effect on the Company's consolidated financial position or results
of operations.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS No. 144) was issued. The Company will adopt SFAS No.
144 effective January 1, 2002. Among other things, SFAS No. 144 significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. This statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
the provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" that relate to
reporting the effects of disposal of a segment of a business. The Company is
currently assessing the impact of adopting SFAS No. 144 on its consolidated
financials statements.
28
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
1. Significant Accounting Policies (continued)
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS No.
141), and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).
SFAS No. 141 applies to all business combinations completed after June 30, 2001
and requires the use of the purchase method of accounting. SFAS No. 141 also
establishes new criteria for determining whether intangible assets should be
recognized separately from goodwill. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 provides that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment on an annual basis. SFAS No. 141 is not expected to
have a significant impact on the results of operations or financial position of
the Company. While the Company has not fully evaluated the impact of adopting
SFAS No. 142, adoption of this standard is expected to result in elimination of
approximately $1.4 million of goodwill amortization expense per year. With the
elimination of goodwill amortization for 2001, earnings per share would have
been $1.22.
Reclassifications
Certain amounts in 2000 have been reclassified to permit comparison with 2001
classifications.
2. Inventories
Inventories at December 31 consisted of the following:
2001 2000
------------------------
Finished goods $69,527 $63,421
Work-in-process 11,382 9,764
Raw materials and supplies 13,014 13,601
------------------------
$93,923 $86,786
========================
At December 31, 2001, domestic inventories determined by the LIFO inventory
method amounted to $64,873 ($62,431 at December 31, 2000). If the FIFO inventory
method, which approximates replacement cost, had been used for these
inventories, they would have been $676 and $1,400 higher at December 31, 2001
and 2000, respectively.
29
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
3. Property, Plant and Equipment
A summary of the major components of property, plant and equipment at December
31 is as follows:
2001 2000
-------------------------
Land and improvements $ 6,734 $ 5,753
Buildings 70,119 65,469
Machinery and equipment 237,484 218,346
Construction-in-progress 9,762 15,355
-------------------------
324,099 304,923
Less accumulated depreciation 173,440 160,726
-------------------------
$150,659 $144,197
=========================
Interest is capitalized in connection with the construction of major facilities.
Capitalized interest is recorded as part of the asset to which it relates and is
amortized over the asset's estimated useful life. Capitalized interest cost was
$330 and $1,113 for 2001 and 2000, respectively.
Depreciation expense amounted to $16,986, $15,720 and $14,750 in 2001, 2000 and
1999, respectively.
4. Acquisitions and Purchase of Additional Partnership Interests
Congoleum Transactions
During 2000, ABI purchased 151,100 shares of Congoleum's Class A common stock
for a total of $437. Congoleum and ABI's purchase of Congoleum's common stock
resulted in an increase in ABI's investment in Congoleum of $359, which
increased retained earnings. ABI's ownership interest increased from 53% at
December 31, 1999 to 55% at December 31, 2001. As of December 31, 2001, ABI's
combined ownership of Congoleum's Class A and Class B common stock represented
69.5% of the voting control of Congoleum.
30
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
4. Acquisition and Purchase of Additional Partnership Interests (continued)
Acquisition of Certain Swank Assets
In July 2001, K&M acquired certain inventories and receivables of Swank's Ladies
Jewelry division in exchange for $4,646, and entered into related licensing
agreements with Anne Klein(R) and Guess?(R). The acquisition was accounted for
using purchase accounting, with the purchase price allocated to the assets
acquired based on their fair market value at the date of acquisition. The
purchase price was allocated to accounts receivable ($1,532) and inventories
($3,114). The acquisition's operating results are included in the Company's
consolidated statement of income from the date of acquisition.
Acquisition of Janus Flooring
In October 2000, the Company acquired Janus Flooring Corporation, a wood
flooring company in Toronto, Canada. The acquisition price was approximately
$3,000. Assets acquired and liabilities assumed consisted of trade accounts
receivable ($426), inventory ($1,937), prepaid and other current assets ($372),
property, plant and equipment ($3,183), accounts payable and accrued expenses
($2,283), and debt ($2,849). Included in the assets acquired were land and
buildings, which the Company sold in 2001 for $673. In connection with the
acquisition, the Company recorded goodwill of $2,113, which was being amortized
over a period of 15 years.
K&M Transactions
During 1995, ABI acquired additional partnership interests in K&M, giving ABI
majority ownership and control. In conjunction with the acquisition, ABI also
entered into agreements with the remaining limited partners of K&M, providing
ABI the option to buy, and providing the limited partners of K&M the option to
require ABI to purchase, the remaining partnership interests in K&M. During 2001
and 2000, ABI acquired an additional 10% and 6% interest from the limited
partners for total consideration of $2,066 and $1,314, respectively. ABI owns a
94.5% partnership interest in K&M at December 31, 2001.
31
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
5. Accrued Expenses
Accrued expenses at December 31 consisted of the following:
2001 2000
---------------------
Accrued advertising and sales promotions $24,164 $20,122
Employee compensation and related benefits 7,757 8,932
Interest 3,887 4,042
Environmental liabilities 1,740 2,442
Distributor start-up costs -- 4,659
Reserve for sales returns -- 4,034
Deferred income taxes 3,598 3,211
Income taxes 1,212 1,898
Other 5,895 5,314
---------------------
$48,253 $54,654
=====================
6. Financing Arrangements
Long-term debt at December 31 consisted of the following:
2001 2000
-------------------------
8 5/8% Senior Notes, due 2008 $ 99,674 $ 99,625
Series A Notes -- 9,000
Notes payable 20,000 --
Other notes 6,487 3,513
-------------------------
126,161 112,138
Less current portion 1,038 3,713
-------------------------
$125,123 $108,425
=========================
32
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
6. Financing Arrangements (continued)
In August 1998, Congoleum issued $100,000 of 8 5/8% Senior Notes, maturing
August 1, 2008, priced at 99.505 to yield 8.70%. The Senior Notes are redeemable
at the option of Congoleum, in whole or in part, at any time on or after August
1, 2003, at predetermined redemption prices (ranging from 104% to 100%), plus
accrued and unpaid interest to date of redemption. The holders of the Senior
Notes have no recourse to the assets of ABI and K&M.
The fair value of Congoleum's long-term debt is based on the quoted market
prices for publicly traded issues. The estimated fair value of the 8 5/8% Senior
Notes was approximately $65,000 and $50,000 at December 31, 2001 and 2000,
respectively.
In December 2001, Congoleum entered into a revolving credit facility, which
expires in 2004 that provides for borrowings up to $30,000 depending on levels
of inventory and receivables. This agreement provides for a commitment fee based
on the average daily unused portion of the commitment equal to three-eighths of
one percent and a servicing fee of one-tenth of one percent per annum of the
revolver. Borrowings under this facility are collateralized by inventory and
receivables. There were no borrowings outstanding under this facility at
December 31, 2001, however, the facility provides for standby letters of credit,
which totaled $1,792 at December 31, 2001.
In 1996, ABI entered into a credit agreement with an insurance company providing
for the issuance of senior promissory notes aggregating $30 million. In January
1996, $15 million principal amount of notes were issued (Series A Notes). The
Series A Notes bear interest at 6.7% per annum and are payable in annual
installments of $3 million beginning in 1999. The Series A Notes were repaid in
full during 2001 (see below). The fair value of the Series A Notes approximates
their carrying value at December 31, 2000.
During the third quarter of 2001, ABI entered into a Note Purchase and Private
Shelf Agreement with Prudential Insurance Company ("Pru Agreement"). Under the
terms of this agreement, ABI borrowed $20 million and used the proceeds to
retire existing long-term and revolving debt. The new notes bear interest at
8.16% (reducing to 7.91% if a lower ratio of debt to EBITDA as defined in the
Pru Agreement, is attained). Principal is repayable in five annual $4,000
installments beginning August 28, 2006.
33
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
6. Financing Arrangements (continued)
Other notes consist of promissory notes issued in connection with various
transactions. In 1998, the Company obtained loans from local banks in connection
with the acquisition of buildings in Belgium and Singapore. The loans were for
2,500 Belgian francs and 2,700 Singapore dollars. The loans are payable in equal
installments through 2008 and 2018, respectively. The interest rates on the
loans are 5.6% for the Belgian loan and 1.5% above the local bank's prime rate
(5.0% at December 31, 2001) for the Singapore loan. The loans are secured by the
property acquired.
During the third quarter of 2001, ABI also entered into a new revolving credit
agreement. This agreement provides for borrowings of up to $30 million through
September 28, 2004, with interest varying based upon the Company's leverage
ratio (as defined in that agreement). This agreement provides for a commitment
fee based on the average daily unused portion of the commitment, which varies
depending on the leverage ratio. At December 31, 2001, the Company had $4,900
outstanding under this agreement with an interest rate of 3.84%.
In July 2001, the Company, through a Canadian subsidiary, entered into a credit
agreement providing a $7,500 Canadian dollars (US $4,900) capital loan and
increasing an existing operating loan facility to $10,000 Canadian dollars (US
$6,500). Proceeds of the capital loan were used to fund acquisitions of property
and equipment in Canada. The capital loan is payable in 20 equal quarterly
installments beginning February 28, 2002 and bears interest at 6.03%. The
operating loan is payable on demand and bears interest at a floating rate which
averaged 4.65% at December 31, 2001.
In October 2001, the Company renewed a Canadian dollar note agreement for one
year providing $4,500 Canadian dollars (US $2,900) at an interest rate of 4.67%.
The terms of certain of the Company's loan agreements include restrictions on
incurring additional indebtedness, restrictions on some types of payments
including dividends, and limitations on capital expenditures. Certain agreements
also have covenants requiring maintenance of minimum net worth levels, current
ratios, and fixed charge coverage ratios and maximum debt levels and debt to
EBITDA ratios. At December 31, 2001, retained earnings which were unrestricted
as to such distributions amounted to $4,022.
Interest paid on all outstanding debt amounted to $11,119 in 2001, $10,938 in
2000 and $10,493 in 1999.
34
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
6. Financing Arrangements (continued)
Principal payments on the Company's long-term obligations due in each of the
next five years are as follows:
2002 $1,038
2003 1,048
2004 1,048
2005 1,052
2006 5,057
7. Other Liabilities
Other liabilities at December 31 consisted of the following:
2001 2000
---------------------
Environmental remediation and product
related liabilities $25,262 $22,651
Pension benefits 16,574 14,055
Other postretirement benefits 8,972 9,329
Accrued workers' compensation 5,971 5,196
Deferred income taxes 8,333 7,301
Accrued compensation 1,893 1,757
Other 1,998 1,677
---------------------
$69,003 $61,966
=====================
35
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
8. Pension Plans
The Company sponsors several noncontributory defined benefit pension plans
covering most of the Company's employees. Amounts funded annually by the Company
are actuarially determined using the projected unit credit and unit credit
methods and are equal to or exceed the minimum required by government
regulations. Pension fund assets are invested in a variety of equity and
fixed-income securities.
Years ended December 31
2001 2000
-----------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 74,229 $ 73,367
Service cost 1,514 1,588
Interest cost 5,183 5,128
Plan participants' contributions 150 163
Actuarial losses (gains) 297 (249)
Foreign currency exchange rate changes (347) (236)
Benefits paid (5,636) (5,532)
-----------------------
Benefit obligation at end of year $ 75,390 $ 74,229
=======================
Years ended December 31
2001 2000
-----------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 67,073 $ 70,010
Actual return on plan assets (572) 227
Company contributions 2,603 2,526
Plan participants' contribution 150 163
Foreign currency exchange rate changes (516) (321)
Benefits paid (5,636) (5,532)
-----------------------
Fair value of plan assets at end of year $ 63,102 $ 67,073
=======================
36
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
8. Pension Plans (continued)
December 31
2001 2000
--------------------
Funded status of the plan (underfunded) $(12,352) $ (7,156)
Unrecognized net actuarial losses 7,244 250
Unrecognized transition obligation (664) (42)
Unamortized prior service cost (365) (695)
--------------------
Accrued benefit cost $ (6,137) $ (7,643)
====================
Amounts recognized in the balance sheet
Accrued benefit liability $(16,574) $(13,710)
Other asset 813 564
Deferred tax asset 3,513 2,009
Accumulated other comprehensive loss 6,111 3,494
--------------------
Net amount recognized $ (6,137) $ (7,643)
====================
The intangible asset and deferred tax asset are amounts recorded on Congoleum's
balance sheet, which is included in the consolidated financial statements of
ABI. The accumulated other comprehensive loss is also recorded on Congoleum's
balance sheet; however, ABI's consolidated statements of stockholders' equity
reflect its proportionate share, based on its 55.04% ownership interest in
Congoleum, of the change in minimum pension liability. At December 31, 2001 and
2000, ABI's accumulated other comprehensive loss included a component for the
change in minimum pension liability of $3,363 and $1,923, respectively (see Note
12).
Years ended December 31
2001 2000
-------------------------------
Weighted-average assumptions
Discount rate 6.75% - 7.25% 7.25% - 7.50%
Expected return on plan assets 7.50% - 9.00% 7.50% - 9.00%
Rate of compensation increase 5.00% 5.00%
37
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
8. Pension Plans (continued)
At December 31, 2001, three of the Company's plans have projected benefit
obligations in excess of plan assets. The aggregate projected benefit
obligations, accumulated benefit obligations and plan assets of these plans were
$59,939, $58,662 and $44,003, respectively.
Years ended December 31
2001 2000 1999
------------------------------
Components of net periodic benefit cost
Service cost $ 1,514 $ 1,588 $ 1,729
Interest cost 5,183 5,129 4,934
Expected return on assets (5,739) (5,896) (5,521)
Amortization of prior service cost (195) (231) (223)
Amortization of transition obligation 275 273 305
Recognized net actuarial gains (19) (430) (67)
------------------------------
Net periodic benefit cost $ 1,019 $ 433 $ 1,157
==============================
The Company also has three 401(k) defined contribution retirement plans that
cover substantially all employees. Eligible employees may contribute up to 12%
to 15% of compensation with the Company partially matching contributions.
Defined contribution pension expense for the Company was $1,793, $1,471, and
$1,658 for the years ended December 2001, 2000 and 1999, respectively.
38
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
9. Postretirement Benefits Other Than Pensions
The Company maintains health and life insurance programs for retirees. The net
periodic postretirement benefits cost for these programs for the years ended
December 31 is as follows:
2001 2000 1999
-------------------------
Service cost $ 142 $ 134 $ 148
Interest cost 474 461 480
Amortization of prior service benefit (462) (417) (409)
Amortization of net (gain) loss (9) (3) 71
-------------------------
Net periodic benefit cost $ 145 $ 175 $ 290
=========================
Weighted-average discount rate 7.25% 7.25% 7.25%
The change in benefit obligation and the actuarial and recorded liabilities for
these postretirement benefits at December 31, none of which are been funded,
were as follows:
2001 2000
------------------
Change in benefit obligation
Benefit obligation at end of prior year $ 6,800 $ 7,141
Service cost (with interest) 142 134
Interest cost 474 461
Actuarial loss (gain) 121 (449)
Benefits paid (504) (487)
------------------
Benefit obligation at end of year $ 7,033 $ 6,800
==================
39
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
9. Postretirement Benefits Other Than Pensions (continued)
Years ended December 31
2001 2000
-----------------------
Funded status (unfunded) $(7,033) $(6,800)
Unrecognized net gain (829) (959)
Unrecognized prior service benefit (1,527) (1,989)
-----------------------
Accrued postretirement benefit cost (9,389) (9,748)
Less current portion 417 419
-----------------------
Noncurrent postretirement benefit obligations $(8,972) $(9,329)
=======================
The annual rate of increase in the per capita cost of covered health care
benefits was assumed to be 8.0% in 2001; the rate was assumed to decrease
gradually to 5.0% over the next five years and remain level thereafter. An
increase of one percentage point in the assumed health care cost trend rates for
each future year would increase the aggregate of the service and interest cost
components of net periodic postretirement benefits cost by $52 for the year
ended December 31, 2001, and would increase the accumulated postretirement
benefit obligations by $492 at December 31, 2001.
10. Commitments and Contingencies
Leases
The Company occupies certain warehouse and office space and uses certain
equipment and motor vehicles under lease agreements expiring at various dates
through 2010. The leases generally require the Company to pay for utilities,
insurance, taxes and maintenance, and some contain renewal options. Total rent
expense charged to operations was $6,173 in 2001, $4,881 in 2000 and $4,922 in
1999.
40
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
Future minimum payments relating to operating leases are as follows:
2002 $ 4,560
2003 3,338
2004 2,533
2005 1,776
2006 1,616
Thereafter 5,132
--------
Total future minimum lease payments $18,955
========
Environmental and Other Liabilities
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, product liability and other matters, as
more fully described in the following footnote. In some of these proceedings,
plaintiffs may seek to recover large and sometimes unspecified amounts, and the
matters may remain unresolved for several years. On the basis of information
furnished by counsel and others, the Company does not believe that these
matters, individually or in the aggregate, will have a material adverse effect
on its business or financial condition.
The Company records a liability for environmental remediation claims when it
becomes probable that the Company will incur costs relating to a clean-up
program or will have to make claim payments and the costs or payments can be
reasonably estimated. As assessments are revised and clean-up programs progress,
these liabilities are adjusted to reflect such revisions and progress.
Liabilities of Congoleum comprise the substantial majority of the environmental
and other liabilities reported on the Company's balance sheet as shown in the
following table. Due to the relative magnitude and wide range of estimates of
these liabilities and due to the fact that recourse related to these liabilities
is limited to Congoleum, these matters are discussed separately following
matters for which American Biltrite has actual or potential liability.
41
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
2001 2000
Liability Receivable Liability Receivable
--------------------------------------------------
Congoleum
Environmental liabilities $ 5,013 $ 2,044 $ 5,051 $ 2,044
Asbestos product liability 17,773 9,632 15,326 7,132
Other 1,218 200 1,316 --
--------------------------------------------------
24,004 11,876 21,693 9,176
--------------------------------------------------
American Biltrite
Environmental liabilities 2,898 1,250 3,300 1,250
Asbestos product liability -- -- -- --
Other 100 -- 100 --
--------------------------------------------------
2,998 1,250 3,400 1,250
--------------------------------------------------
Consolidated
Environmental liabilities 7,911 3,294 8,351 3,294
Asbestos product liability 17,773 9,632 15,326 7,132
Other 1,318 200 1,416 --
--------------------------------------------------
$27,002 $13,126 $25,093 $10,426
==================================================
Reporting Classification
of above amounts
Accrued expenses $ 1,740 -- $ 2,442 --
Other liabilities 25,262 -- 22,651 --
Other current assets -- $ 375 -- --
Other assets -- 12,751 -- $10,426
--------------------------------------------------
$27,002 $13,126 $25,093 $10,426
==================================================
42
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
American Biltrite Inc.
ABI is a co-defendant with many other manufacturers and distributors of asbestos
containing products in approximately 464 pending claims involving approximately
1,400 individuals as of December 31, 2001. The claimants allege personal injury
or death from exposure to asbestos or asbestos-containing products. Activity
related to asbestos claims during the years ended December 31, was as follows:
2001 2000
-----------------
Claims at January 1 330 63
New claims 189 298
Settlements (15) (11)
Dismissals (40) (20)
-----------------
Claims at December 31 464 330
=================
The total indemnity costs incurred to settle claims during 2001 and 2000 were
$411 and $62, respectively, all of which were paid by ABI's insurance carriers,
as were the related defense costs. The average indemnity cost per resolved claim
was approximately $8 in 2001 and $2 in 2000. In general, governmental
authorities have determined that asbestos-containing sheet and tile products are
nonfriable (i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable. ABI believes that these suits are without merit and
that, in any event, the damages sought are within the coverages of its
applicable liability insurance policies; accordingly, no reserves have been
provided for these suits.
43
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
ABI has been named as a Potentially Responsible Party ("PRP") within the meaning
of the Federal Comprehensive Environmental Response Compensation and Liability
Act, as amended ("CERCLA"), with respect to two sites located in separate
states. At one of the two sites, which is located in Southington, Connecticut,
(the "Southington Site"), an ABI subsidiary ("Ideal") is also named as a PRP. At
the Southington Site, the currently estimated aggregate future cost of
remediation and monitoring is approximately $43 million. ABI's and Ideal's share
of the aggregate assessments to the PRPs to date is approximately $140. Subject
to a final allocation among the PRPs, ABI's and Ideal's aggregate share of the
future remediation costs is currently estimated to be approximately $465. Under
an agreement, Ideal will share a percentage of this cost with the former owner
of Ideal's assets. Under an agreement between ABI and The Biltrite Corporation
("TBC"), TBC is liable for 37.5% of the remediation costs incurred by ABI with
respect to the Southington Site. Total shared costs are approximately $100.
At the other site, ABI, together with a number of other PRPs, signed a consent
decree and site remediation agreement (the "Agreements"), which, without
admission of liability by the PRPs, requires remediation of the ILCO Superfund
site located in Leeds, Alabama (the "ILCO Site"). The currently estimated
aggregate future cost of remediation and associated transactional costs at the
ILCO Site ranges from $2.3 million to $10.0 million. Pursuant to a final
allocation among consent decree participants, ABI's share of the currently
estimated remediation costs range from a refund of approximately $39 to a
payment of about $120. These estimates consider commitments from de minimus and
de maximus settlors, the City of Leeds and its insurers, amounts currently held
in an escrow fund, a RCRA Closure Fund refund, and TBC's share, which by
agreement is 37.5% of the remediation costs incurred by ABI. ABI's share of
future remediation costs will be payable over the next three to six years. ABI
and the other settling PRPs also are pursuing litigation against three PRPs who
used the ILCO Site and have not settled.
A lawsuit was brought by Olin Corporation, the present owner of a former
chemical plant site in Wilmington, Massachusetts (the "Olin Site"), which
alleged that ABI and three defendants were liable for a portion of the site's
soil and groundwater response and remediation costs at the site. A wholly owned
subsidiary of ABI owned and operated the Wilmington plant from 1959 to 1964, and
for approximately one month during 1964, ABI held title to the property
directly.
44
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
In 2000, ABI and TBC entered into a settlement agreement with Olin that resolved
all claims and counterclaims among the parties. Under the terms of the
agreement, ABI and TBC together paid Olin $4.1 million in settlement of their
share of Olin's $18 million of alleged past response costs incurred through
December 31, 1998. ABI and TBC also agreed to reimburse Olin for 21.7% of Olin's
response costs incurred at the site after January 1, 1999, plus an annual
reimbursement of $100 for Olin's internal costs. Under an agreement between ABI
and TBC, TBC is liable for 37.5% of the costs that may be incurred by ABI in
connection with this lawsuit and 37.5% of the amounts due under the settlement
agreement with Olin.
Additional expenditures, principally consisting of remediation and oversight
costs, will be required to remediate the site. Olin has estimated that the total
response costs for 2002 will be $2.5 million. For costs beyond 2002, ABI has
estimated the range to be between $16.3 million to $28.5 million. As of December
31, 2001, ABI has estimated its potential liability for Olin to be in the range
of $2.3 million to $4.0 million before any recoveries from insurance.
The State of Maine Department of Environmental Protection has put the present
owner of a former ABI plant on notice to clean up a dumpsite where there is
exposed asbestos from sheet vinyl waste along with other hazardous substances.
ABI is currently reviewing the allegations, the condition of the site and its
potential liability for its share of any clean-up costs. ABI also is potentially
responsible for response and remediation costs with respect to three
state-supervised sites, two sites in Massachusetts, and one in New York. At
these four sites, ABI's liability will be based upon disposal of allegedly
hazardous waste material from its current and former plants. While the exact
amount of the future costs to ABI resulting from its liability is indeterminable
due to such unknown factors as the magnitude of clean-up costs, the timing and
extent of the remedial actions that may be required, determination of ABI's
liability in proportion to other responsible parties and the extent to which
costs may be recoverable from insurance, ABI believes, based upon current
information available, that its liability for these sites will not be material.
Under an agreement between ABI and TBC, TBC is liable for 37.5% of the
remediation costs, incurred by ABI at these sites.
45
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
ABI has made demands against its insurance carriers to provide defense and
indemnity for ABI's liabilities at the Southington Site, the ILCO Site, the Olin
Site and the state supervised sites in Maine, Massachusetts and New York. An
agreement was executed by ABI and it carriers regarding the payment of the
defense costs for the Olin Site. ABI and its carriers continue to discuss ABI's
remaining demands for insurance coverage for these sites. As of December 31,
2001, the Company has accrued $3.0 million for ABI's estimable and probable
amounts for contingencies described above. Additionally, the Company has
recorded an asset related to insurance recoveries, net of reimbursements to
certain PRP's, for approximately $1.3 million.
Congoleum
Congoleum is named, together with a large number (in most cases, hundreds) of
other companies, as a PRP in pending proceedings under the CERCLA, as amended,
and similar state laws. In two instances, although not named as a PRP, Congoleum
has received a request for information. These pending proceedings currently
relate to seven disposal sites in New Jersey, Pennsylvania, Maryland,
Connecticut and Delaware in which recovery from generators of hazardous
substances is sought for the cost of cleaning up the contaminated waste sites.
Congoleum's ultimate liability in connection with those sites depends on many
factors, including the volume of material contributed to the site, the number of
other PRP's and their financial viability, the remediation methods and
technology to be used, and the extent to which costs may be recoverable from
insurance. However, under CERCLA, and certain other laws, as a PRP, Congoleum
can be held jointly and severally liable for all environmental costs associated
with a site.
The most significant exposure to which Congoleum has been named a PRP relates to
a recycling facility site in Elkton, Maryland. The PRP group at this site is
made up of 51 companies, substantially all of which are large financially
solvent entities. Two removal actions were substantially complete as of 1998;
however, the groundwater remediation phase has not begun, and the remedial
investigation/feasibility study related to the groundwater remediation has not
been approved. The PRP group estimated that future costs of groundwater
remediation, based on engineering and consultant studies conducted, would be
approximately $26 million. Congoleum's proportionate share, based on waste
disposed at the site, is estimated to be 6.1%.
46
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
Congoleum also accrues remediation costs for certain of Congoleum's owned
facilities on an undiscounted basis. Estimated total clean-up costs, including
capital outlays and future maintenance costs for soil and groundwater
remediation are primarily based on engineering studies.
Although there can be no assurances, Congoleum anticipates that these matters
will be resolved over a period of years for amounts (including legal fees and
other defense costs) which Congoleum believes based on current estimates of
liability and, in part, on insurance coverage, and based on advice from counsel,
will not have a material adverse effect on the financial position of Congoleum.
Congoleum is one of many defendants in approximately 6,563 pending claims
(including workers' compensation cases) involving approximately 23,139
individuals as of December 31, 2001, alleging personal injury or death from
exposure to asbestos or asbestos-containing products. There were 1,754 claims at
December 31, 2000 that involved approximately 12,079 individuals. Activity
related to asbestos claims during the years ended December 31, was as follows:
2001 2000
--------------------
Claims at January 1 1,754 670
New claims 5,048 1,302
Settlements (40) (76)
Dismissals (199) (142)
--------------------
Claims at December 31 6,563 1,754
====================
The total indemnity costs incurred to settle claims during 2001 and 2000 were
$1.1 million and $3.9 million, respectively, which were paid by Congoleum's
insurance carriers, as were the related defense costs. Costs per claim vary
depending on a number of factors, including the nature of the alleged exposure
and the jurisdiction of where the claim was litigated. As of December 31, 2001,
Congoleum has incurred asbestos-related claims of $11.4 million, to resolve
claims of over 33,000 claimants, substantially all of which have been paid by
Congoleum's insurance carriers. The average indemnity cost per resolved claimant
is three hundred and forty dollars ($340). Over 99% of claims incurred by
Congoleum have settled, on average, for amounts less than one hundred dollars
($100) per claimant.
47
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
Nearly all claims allege that various diseases were caused by exposure to
asbestos-containing products, including sheet vinyl and resilient tile
manufactured by Congoleum (or in the workers' compensation cases, exposure to
asbestos in the course of employment with Congoleum). Congoleum discontinued the
manufacture of asbestos-containing sheet vinyl products in 1983 and
asbestos-containing tile products in 1974. In general, governmental authorities
have determined that asbestos-containing sheet and tile products are nonfriable
(i.e. can not be crumpled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. Congoleum has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.
Congoleum regularly evaluates its estimated liability to defend and resolve
current and reasonably anticipated future asbestos-related claims. It reviews,
among other things, recent and historical settlement and trial results, the
incidence of past and recent claims, the number of cases pending against it, and
asbestos litigation developments that may impact the exposure of Congoleum. One
such development, the declarations of bankruptcy by several companies that were
typically lead defendants in asbestos-related cases, is likely to have a
negative impact on Congoleum's claim experience. The estimates developed are
highly uncertain due to the limitations of the available data and the difficulty
of forecasting the numerous variables that can affect the range of the
liability.
Congoleum periodically updates its evaluation of the range of potential defense
and indemnity costs for asbestos-related liabilities and the insurance coverage
in place to cover these costs. Congoleum believes that its range of probable and
estimable undiscounted losses for asbestos-related claims through the year 2049
ranges from $53.3 million to $195.6 million before considering the effects of
insurance recoveries. As discussed previously, it is very difficult to forecast
a liability for Congoleum's ultimate exposure for asbestos-related claims as
there are multiple variables that can affect the timing, severity, and quantity
of claims. As such, the Company has concluded that no amount within that range
is more likely than any other, and therefore has determined that the amount of
the gross liability it should record for asbestos-related claims is equal to $53
million in accordance with accounting principles generally accepted in the
United States.
48
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
During the period that Congoleum produced asbestos-containing products,
Congoleum purchased primary and excess insurance policies providing in excess of
$1 billion coverage for bodily injury asbestos claims. To date, all claims and
defense costs have been paid through primary insurance coverage. At December 31,
2001 Congoleum had $2.6 million in remaining primary insurance coverage for
bodily injury asbestos claims. Once all primary coverage is exhausted, Congoleum
expects defense and indemnity costs to be covered by its excess insurance
policies. However, it is likely that Congoleum will share in these. The first
layer of excess insurance policies provides for $135 million in coverage. Of
this layer, approximately 16% to 28% (depending on the method used to allocate
losses) was underwritten by carriers who are presently insolvent. Congoleum
anticipates that it will have to pay some or all of the portion of costs
resolving asbestos-related claims that are allocable to such insolvent carriers,
and that it may in turn be able to recover a portion of such payments from the
estates or insurance guaranty funds responsible for the obligations of these
carriers.
The same factors that affect developing forecasts of potential defense and
indemnity costs for asbestos-related liabilities also affect estimates of the
total amount of insurance that is probable of recovery, as do a number of
additional factors. These additional factors include the financial viability of
some of the insurance companies, the method in which losses will be allocated to
the various insurance policies, the years covered by those policies, and how
legal and other loss handling costs will be covered by the insurance policies,
and interpretation of the effect on coverage of various policy terms and limits
and their relationships. Congoleum has filed suit regarding insurance coverage
issues against certain of its primary insurance carriers, the carriers
comprising its first layer of excess insurance, state guaranty funds
representing insolvent carriers, and its insurance brokers, and has begun
settlement negotiations with several of these parties.
Congoleum has determined, based on its review of existing insurance policies and
the advice of legal counsel that approximately $42.5 million of the estimated
$53.3 million gross liability is probable of recovery. This determination was
made after considering the terms of the available insurance coverage, the
financial viability of the insurance companies and the status of negotiations
with its carriers. Congoleum further believes that the criteria, as defined by
accounting principles generally accepted in the United States, to offset
estimated gross liability with a portion of the probable insurance recovery
equal to $35.5 million, have been met. Additionally, in 2001 Congoleum recorded
an asset of $2.5 million for the probable settlement of disputed insurance
coverage. Congoleum also recognized a liability for asbestos product liability
of $2.8 million. The balance of the estimated gross liability of $17.8 million
has been reflected in the balance sheet as a long-term liability. Congoleum has
also recorded in the consolidated balance sheet an insurance receivable of $9.6
million that represents an estimate of
49
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
10. Commitments and Contingencies (continued)
probable insurance recoveries that do not qualify for offsetting against the
gross liability and for the probable insurance settlement discussed previously.
This insurance receivable has been recorded in other long-term assets.
Since many uncertainties exist surrounding asbestos litigation, Congoleum will
continue to evaluate its asbestos-related estimated liability and corresponding
estimated insurance assets as well as the underlying assumptions used to derive
these amounts. It is reasonably possible that Congoleum's total liability for
asbestos-related claims may be greater than the recorded liability and that
insurance recoveries may be less than the recorded asset. These uncertainties
may result in Congoleum incurring future charges to income to adjust the
carrying value of recorded liabilities and assets. Additionally, since Congoleum
has recorded an amount representing the low end of the range of exposure for
asbestos-related claims, it is possible that over time another amount within the
range will be a better estimate of the actual losses. Although the resolution of
these claims is anticipated to take decades, amounts recorded for the liability
are not discounted, and the effect on results of operations in any given year
from a revision to these estimates could be material. Congoleum does not
believe, however, that asbestos-related claims will have a material adverse
effect on its financial position or liquidity.
Other
In the ordinary course of its business, ABI and Congoleum become involved in
lawsuits, administrative proceedings, product liability and other matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts, and the matters may remain unresolved for several years. On
the basis of information furnished by counsel and others, ABI and Congoleum do
not believe that these matters, individually or in the aggregate, will have a
material adverse effect on their business or financial condition.
50
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
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, were as
follows:
2001 2000
-----------------------
Deferred tax assets:
Accruals and reserves $ 22,234 $ 22,110
Net operating losses and credit carryforwards 5,739 2,787
-----------------------
Total deferred tax assets 27,973 24,897
Less valuation allowance 1,828 1,555
-----------------------
Net deferred tax assets 26,145 23,342
Deferred tax liabilities:
Depreciation 15,421 14,332
Insurance 5,334 4,994
Inventory 2,823 2,744
Undistributed domestic earnings 2,427 2,042
Foreign taxes 1,180 975
Other 1,523 1,519
-----------------------
Total deferred tax liabilities 28,708 26,606
-----------------------
Net deferred tax liability $ (2,563) $ (3,264)
=======================
Credit carryforwards consisted primarily of alternative minimum tax credits and
state tax credits. Net operating losses consisted of state losses of $0 and $900
for 2001 and 2000, respectively. Management has determined that partial
valuation allowance is necessary to reduce the deferred tax assets to the amount
expected to be realized at December 31, 2001 and 2000.
During 2001, 2000 and 1999, Congoleum recorded a minimum pension liability
adjustment. Deferred taxes were adjusted accordingly, and the tax effect reduced
or increased Congoleum's retained earnings. The tax benefit (charge) to retained
earnings was $1,504, $1,434, and $(748) for the years ended December 31, 2001,
2000 and 1999, respectively. The consolidated statement of stockholders' equity
reflects ABI's proportionate share of the net adjustment to retained earnings.
51
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
11. Income Taxes (continued)
The components of earnings (loss) before income taxes for the years ended
December 31 are as follows:
2001 2000 1999
-------------------------------
Domestic $ 4,884 $ (663) $ 16,726
Foreign (689) 3,531 3,390
-------------------------------
$ 4,195 $ 2,868 $ 20,116
===============================
Significant components of the provision for income taxes for the years ended
December 31 were as follows:
2001 2000 1999
-------------------------------
Current:
Federal $ 1,378 $ 876 $ 3,078
Foreign (117) 1,123 1,295
State 262 476 384
-------------------------------
Total current 1,523 2,475 4,757
Deferred:
Federal (103) (1,605) 2,416
Foreign 206 (109) (3)
State 188 9 221
-------------------------------
Total deferred 291 (1,705) 2,634
-------------------------------
$ 1,814 $ 770 $ 7,391
===============================
Deferred income taxes include provisions (benefit) of $(90), $(470) and $260
during 2001, 2000 and 1999, respectively, for ABI's share of the undistributed
earnings of Congoleum, which does not file a consolidated tax return with ABI.
52
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
11. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense for the years ended December 31 was as follows:
2001 2000 1999
--------------------------
U.S. statutory rate 34.0% 35.0% 35.0%
State income taxes, net of federal
benefits and valuation allowance 6.9 7.7 2.0
Undistributed domestic earnings (2.2) (15.6) 1.3
Other 4.6 (0.2) (1.6)
--------------------------
Effective tax rate 43.3% 26.9% 36.7%
==========================
Undistributed earnings of foreign subsidiaries aggregated approximately
$19,760,000 at December 31, 2001, 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 $1,257 in 2001, $5,122 in 2000 and
$5,269 in 1999.
12. Other Comprehensive Income
The Company records unrealized gains or losses on available-for-sale securities,
foreign currency translation adjustments and changes in certain minimum pension
liabilities in other comprehensive income.
Components of other comprehensive income (loss) for the years ended December 31
consisted of the following:
2001 2000 1999
----------------------------
Foreign currency translation adjustments $(1,012) $ (772) $ 964
Change in minimum pension liability (1,440) (1,395) 595
----------------------------
$(2,452) $(2,167) $1,559
============================
53
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
12. Other Comprehensive Income (continued)
Accumulated balances related to each component of other comprehensive loss as of
December 31 were as follows:
2001 2000 1999
-----------------------------
Foreign currency translations adjustments $(4,603) $(3,591) $(2,819)
Minimum pension liability (3,363) (1,923) (528)
-----------------------------
$(7,966) $(5,514) $(3,347)
=============================
13. Income Per Share
The following table sets forth the computation of basic and diluted income per
share for the years ended December 31:
2001 2000 1999
---------------------------------------
(In thousands, except per share amounts)
Numerator:
Net income $2,816 $5,333 $9,733
=======================================
Denominator:
Denominator for basic income per share:
Weighted-average shares 3,455 3,518 3,592
Dilutive employee stock options -- 19 70
---------------------------------------
Denominator for diluted income per share:
Adjusted weighted-average shares and
assumed conversions 3,455 3,537 3,662
=======================================
Basic income per share $ 0.82 $ 1.52 $ 2.71
=======================================
Diluted income per share $ 0.82 $ 1.51 $ 2.66
=======================================
54
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
14. Stock Option Plans
ABI Stock Plans
During 1999, ABI adopted a stock option plan, which permits the issuance of
50,000 options for common stock to non-employee directors. Under the terms of
the plan, options granted are nonqualified and are issued at a price equal to
100% of fair market value at the date of grant. Options granted under the plan
are exercisable six months after the date of grant.
ABI maintains a stock award and incentive plan which permits the issuance of
options, stock appreciation rights (SARs), limited SARs, restricted stock,
restricted stock units and other stock-based awards to selected employees and
independent contractors of the Company. The plan reserved 400,000 shares of
common stock for grant and provides that the term of each award be determined by
the committee of the Board of Directors (Committee) charged with administering
the plan. During 1997, the Board of Directors approved an amendment to the plan
to increase the number of shares reserved for grant from 400,000 to 550,000.
Under the terms of the plan, options granted may be either nonqualified or
incentive stock options and the exercise price, determined by the Committee, may
not be less than the fair market value of a share on the date of grant. SARs and
limited SARs granted in tandem with an option shall be exercisable only to the
extent the underlying option is exercisable and the grant price shall be equal
to the exercise price of the underlying option. In addition, the Committee may
grant restricted stock to participants of the plan at no cost to them. No SARs
or restricted stock have been granted under the plan since its adoption. Other
than the restrictions, which limit the sale and transfer of these shares,
participants are entitled to all the rights of a shareholder.
55
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
14. Stock Option Plans (continued)
The following tables summarize information about ABI's fixed stock options:
2001 2000 1999
--------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------
Outstanding at beginning of year 543,740 $19.28 555,840 $18.75 564,080 $18.84
Granted 3,000 14.00 27,000 14.51 6,000 20.50
Exercised (14,800) 7.00 (35,600) 7.00 -- --
Forfeited (21,500) 20.17 (3,500) 23.63 (14,240) 23.04
------- ------ -------
Outstanding at end of year 510,440 19.57 543,740 19.28 555,840 18.75
======= ======= =======
Options exercisable at end of year 450,357 432,357 414,540
Available for grant at end of year 72,580 54,080 77,580
Outstanding Exercisable at Weighted-Average
Range of at December 31 Weighted- December 31 Weighted- Remaining
Exercise Price 2001 Average Exercise 2001 Average Exercise Contractual Life
Price Price
- -----------------------------------------------------------------------------------------------------------
$12.75 - $17.25 293,440 $16.63 275,657 $16.76 2.34 years
20.50 - 23.63 217,000 23.54 174,700 23.52 5.07 years
Congoleum Stock Option Plan
Congoleum maintains a Stock Option Plan and a Directors' Stock Option Plan.
Under these plans, options to purchase up to 850,000 shares of Congoleum's Class
A common stock may be issued to directors, officers and key employees. These
options may be either incentive stock options or nonqualified stock options, and
the options' exercise price must be at least equal to the fair value of
Congoleum's Class A common stock on the date of grant.
In 2001, Congoleum offered to exchange new stock options to be granted on a
future date for all existing outstanding options. January 4, 2002, 667,500
outstanding options (approximately 99%) under the 1995 Plan and all outstanding
options under the Non-Employee Directors Plan were voluntarily forfeited. The
Company plans to issue new options exactly six months and one day from their
cancellation date equal to the amount forfeited.
56
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
14. Stock Option Plans (continued)
Pro Forma Disclosure
Pro forma disclosure, as required by SFAS No. 123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement.
The fair value for the ABI options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2001 and 2000, respectively: risk-free interest rate of 4.95%
and 6.23%, expected dividend yield of 26.79% and 27.04%, volatility factor of
the expected market price of the Company's common stock of .321 and .327, and a
weighted-average expected life of the options of seven and one-half years.
The weighted-average fair value of options granted under ABI's 1997 Stock Award
and Incentive Plan during 2001 was $0. The weighted-average fair value of
options granted under ABI's 1999 Stock Award and Incentive Plan for directors
during 2001 and 2000 was $0.01 and $0.01, respectively.
For purposes of pro forma disclosures, the estimated fair value of the ABI
options is amortized to expense over the options' vesting period. The impact on
pro forma net income may not be representative of compensation expense in future
years, when the effect of the amortization of multiple awards would be reflected
in the pro forma disclosures.
The Company's pro forma information follows:
Years ended December 31
2001 2000 1999
---------------------------------------
(In thousands, except per share amounts)
Net income $ 2,816 $ 5,333 $ 9,733
Estimated pro forma compensation
expense from stock options (244) (248) (402)
---------------------------------------
Pro forma net income $ 2,572 $ 5,085 $ 9,331
=======================================
Pro forma income per share:
Basic $ 0.74 $ 1.45 $ 2.60
Diluted 0.74 1.44 2.55
57
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments
Description of Products and Services
The Company has four reportable segments: flooring products, tape products,
jewelry, and a Canadian division that produces flooring and rubber products.
Congoleum, which represents the majority of the Company's flooring products
segment, manufactures vinyl and vinyl composition floor coverings and sells them
primarily through floor covering distributors to retailers, and contractors for
commercial and residential use. Effective October 12, 2000, the Company acquired
Janus Flooring Corporation, which has been included in the flooring products
segment. The tape products segment consists of two production facilities in the
United States, and finishing and sales facilities in Belgium and Singapore. The
tape products segment manufactures paper, film, HVAC, electrical, shoe, and
other tape products for use in industrial and automotive markets. The jewelry
segment consists of K&M Associates L.P., a national costume jewelry supplier to
mass merchandisers and department stores. The Company's Canadian division
produces flooring, rubber products, including materials used by footwear
manufacturers, and other industrial products.
Measurement of Segment Profit or Loss and Segment Assets
The Company considers all revenues and expenses to be of an operating nature
and, accordingly, allocates them to industry segments regardless of the profit
center in which recorded. Costs specific to a segment, such as pension expense,
are charged to the segment. Corporate office expenses are allocated to certain
segments based on resources allocated. Significant assets of the Corporate
office include cash, deferred tax assets, and goodwill. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies.
Intersegment sales and transfers are recorded at cost plus an agreed upon
intercompany profit on intersegment sales or transfers.
Factors Used to Identify Reportable Segments
Reportable segments are business units that offer different products and are
each managed separately. The Company's Canadian division manufactures certain
products, which are similar to products of the flooring segment; however, the
Canadian division is managed and reports separately from the flooring segment.
58
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments (continued)
Segment Profit and Assets
Years ended December 31
2001 2000 1999
--------------------------------------
Revenues
Revenues from external customers:
Flooring products $ 230,213 $ 226,291 $ 245,439
Tape products 82,914 94,773 88,337
Jewelry 61,277 50,202 46,552
Canadian division 39,924 49,107 42,131
-----------------------------------
Total revenues from external customers 414,328 420,373 422,459
Intersegment revenues:
Flooring products 288 361 568
Tape products 143 154 158
Jewelry -- -- --
Canadian division 7,949 6,354 6,966
-----------------------------------
Total intersegment revenues 8,380 6,869 7,692
-----------------------------------
Total revenue 422,708 427,242 430,151
Reconciling items
Intersegment revenues (8,380) (6,869) (7,692)
-----------------------------------
Total consolidated revenues $ 414,328 $ 420,373 $ 422,459
===================================
A major portion of the increase in Jewelry segment revenue in 2001 compared to
2000 was from the acquisition of Swank's Ladies Jewelry Division.
Approximately 53%, 56% and 54% of the Canadian division's revenues from external
customers were for flooring products for 2001, 2000 and 1999, respectively. The
remaining revenues from the Canadian division's external customers were from
sale of rubber and other industrial products.
59
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments (continued)
Years ended December 31
2001 2000 1999
------------------------------
Interest revenue
Flooring products $ 709 $ 1,799 $ 1,836
Tape products 105 25 18
Jewelry 34 48 40
Canadian division 144 131 135
------------------------------
Total segment interest revenue 992 2,003 2,029
Reconciling items
Corporate office interest revenue 56 98 76
Intersegment interest revenue (138) (60) (65)
------------------------------
Total consolidated interest revenue $ 910 $ 2,041 $ 2,040
==============================
Interest expense
Flooring products $ 8,797 $ 7,567 $ 7,938
Tape products 114 144 143
Jewelry 741 1,029 1,044
Canadian division 38 1 --
------------------------------
Total segment interest expense 9,690 8,741 9,125
Reconciling items
Corporate office interest expense 1,385 726 460
Intersegment interest expense (138) (60) (65)
------------------------------
Total consolidated interest expense $ 10,937 $ 9,407 $ 9,520
==============================
60
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments (continued)
Years ended December 31
2001 2000 1999
--------------------------------
Depreciation and amortization expense
Flooring products $ 12,533 $ 11,786 $ 11,038
Tape products 2,523 2,246 2,230
Jewelry 741 686 695
Canadian division 1,978 1,783 1,562
--------------------------------
Total segment depreciation and amortization 17,775 16,501 15,525
Reconciling items
Corporate office depreciation and amortization 998 738 706
--------------------------------
Total consolidated depreciation and amortization $ 18,773 $ 17,239 $ 16,231
================================
Segment profit
Flooring products $ (3,912) $(12,158) $ 7,648
Tape products 1,143 7,620 6,304
Jewelry 6,440 4,145 3,585
Canadian division 1,717 4,170 3,826
--------------------------------
Total segment profit 5,388 3,777 21,363
Reconciling items
Corporate office loss (1,121) (1,005) (1,184)
Intercompany profit (loss) (72) 96 (63)
--------------------------------
Total consolidated earnings before income taxes and
other items $ 4,195 $ 2,868 $ 20,116
================================
Segment profit or loss is before income tax expense or benefit. Included in the
flooring products segment loss for 2000 is a charge of $9 million (before tax)
recorded by Congoleum in connection with a change in distributor (see Note 16).
61
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments (continued)
December 31
2001 2000 1999
-----------------------------------
Segment assets
Flooring products $ 238,885 $ 244,185 $ 231,817
Tape products 57,417 53,724 49,876
Jewelry 27,809 19,193 15,737
Canadian division 32,660 29,858 27,146
-----------------------------------
Total segment assets 356,771 346,960 324,576
Reconciling items
Corporate office assets 30,043 31,413 26,702
Intersegment accounts receivable (13,859) (12,991) (7,003)
Intersegment profit in inventory (191) (119) (215)
-----------------------------------
Total consolidated assets $ 372,764 $ 365,263 $ 344,060
===================================
Expenditures for additions to long-lived
assets
Flooring products $ 10,887 $ 13,948 $ 18,670
Tape products 8,303 3,621 2,557
Jewelry 858 457 1,971
Canadian division 5,185 2,769 3,735
-----------------------------------
Total expenditures for additions to
long-lived assets 25,233 20,795 26,933
Reconciling items
Corporate office expenditure for additions
to long-lived assets 7 22 38
-----------------------------------
Total expenditures for additions to
long-lived assets $ 25,240 $ 20,817 $ 26,971
===================================
62
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
15. Industry Segments (continued)
Geographic Area Information
Years ended December 31
2001 2000 1999
------------------------------
Revenues from external customers
United States $344,266 $350,852 $355,174
Canada 37,821 35,661 36,619
Mexico 6,929 7,238 --
Europe 16,599 16,436 15,203
Asia 6,719 7,119 6,818
Other 1,994 3,067 8,645
------------------------------
Total revenues from external customers $414,328 $420,373 $422,459
==============================
Revenues are attributed to regions based on the location of customers
Years ended December 31
2001 2000 1999
------------------------------
Long-Lived Assets by Area
United States $177,154 $170,738 $157,670
Canada 21,094 17,036 11,033
Mexico 9 7 --
Europe 890 1,009 1,104
Asia 2,338 2,462 2,501
------------------------------
Total long-lived assets $201,485 $191,252 $172,308
==============================
16. Distributor Transition Costs
During the third quarter of 2000, Congoleum announced the appointment of Mohawk
Industries, Inc. as a national distributor. At the same time, Congoleum
announced it was terminating its distribution arrangements with LDBrinkman &
Co., who had been its exclusive distributor in much of the southwestern United
States, accounting for 21% of Congoleum's sales in 1999. LDBrinkman & Co.
contested Congoleum's right to terminate its distributor agreement and the
matter went to arbitration in the fourth quarter of 2000. The parties signed a
final settlement agreement in February 2001.
63
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
Congoleum recorded a charge of $7.7 million in the fourth quarter of 2000 to
provide for the nonrecurring costs associated with the transition. Included in
this charge were certain costs incurred by Congoleum for establishing Mohawk as
a distributor, which included training, meetings and legal costs. Congoleum also
agreed to subsidize a portion of the costs of merchandising materials for Mohawk
such as samples and displays. Also included in the charge were certain
termination payments to be made to LDBrinkman pursuant to the terms of the
settlement agreement. These costs have all been paid as of December 31, 2001.
Congoleum also re-evaluated its allowance for doubtful accounts in light of the
settlement agreement and concluded it should be reduced by $1.8 million, which
was recorded as a credit to bad debt expense in the fourth quarter of 2000.
Congoleum provided right-of-return provisions to LDBrinkman in the settlement
agreement whereby LDBrinkman could return certain unsold inventory purchased
from Congoleum that met minimize size and quality requirements. Congoleum
deferred the recognition of revenue for its estimate of returns of inventory
under the rights-of-return agreement. Inventory was returned pursuant to this
agreement during the third quarter of 2001 and Congoleum has no further
obligations under this provision.
A summary of the distributor transition costs recorded in 2000 appears below:
Costs of establishing Mohawk as a distributor $3,076
LDBrinkman termination costs 4,641
----------
7,717
----------
Impact on gross margin of estimated sales returns 1,291
----------
Total reduction in Congoleum's pre-tax income 9,008
Tax effect 2,959
----------
Total reduction in Congoleum's net income $6,049
==========
The resolution of this matter did not have a material effect on the results of
operations for the year ended December 31, 2001.
64
American Biltrite Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars)
17. Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
(In thousands, except per share amounts)
2001
- ----
Net sales $ 99,697 $ 98,060 $111,010 $105,561
Gross profit 25,312 26,739 33,377 32,650
Net income (loss) (1,991) (680) 2,702 2,785
Net income (loss) per share:
Basic (0.57) (0.20) 0.79 0.81
Diluted (0.57) (0.20) 0.79 0.81
2000
- ----
Net sales $102,445 $102,398 $112,685 $102,845
Gross profit 28,114 28,842 33,009 31,850
Net income 350 984 3,091 908
Net income per share:
Basic 0.10 0.28 0.88 0.26
Diluted 0.10 0.28 0.87 0.26
65
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
American Biltrite Inc.
We have audited the accompanying consolidated balance sheets of American
Biltrite Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
Our audits also include the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Biltrite
Inc. and subsidiaries at December 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 1, 2002
66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 8, 2002 filed with the
Securities and Exchange Commission within 120 days after December 31, 2001 and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 8, 2002 filed with the
Securities and Exchange Commission within 120 days after December 31, 2001 and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 8, 2002 filed with the
Securities and Exchange Commission within 120 days after December 31, 2001 and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in ABI's Proxy Statement for
its Annual Stockholders' Meeting to be held May 8, 2002 filed with the
Securities and Exchange Commission within 120 days after December 31, 2001 and
is incorporated herein by reference.
67
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Financial Statements and Financial Statement Schedules
(1) The following consolidated financial statements of American Biltrite
Inc. and subsidiaries are included in Item 8:
Consolidated balance sheets - December 31, 2001 and 2000,
pages 18 & 19
Consolidated statements of income -
Years ended December 31, 2001, 2000 and 1999, page 20
Consolidated statements of stockholders' equity -
Years ended December 31, 2001, 2000 and 1999, page 21
Consolidated statements of cash flows -
Years ended December 31, 2001, 2000 and 1999, page 22
Notes to consolidated financial statements, pages 23 through
65
(2) The following financial statement schedule is included in Item 14
(d)
SCHEDULE II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Listing of Exhibits
The listing of exhibits required under this item is incorporated
herein by reference to pages 71 through 74 of this Form 10-K.
(b) Reports on Form 8-K. None.
(c) Exhibits: The required exhibits are filed herewith or incorporated by
reference following the required Exhibit Index.
(d) Financial Statement Schedule: The required consolidated financial
statement schedule is included on page 69 of this Form 10-K.
68
American Biltrite Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000 and 1999
(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
Description Period Expenses Describe Other Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------------
2001
- ----
Allowances for doubtful accounts
and cash discounts $4,092 $2,777 $2,642 (A) $4,227
=======================================================================================
2000
- ----
Allowances for doubtful accounts
and cash discounts $5,543 $1,054 $2,505 (A) $4,092
=======================================================================================
1999
- ----
Allowances for doubtful accounts
and cash discounts $5,124 $2,966 $2,547 (A) $5,543
=======================================================================================
(A) Represents accounts charged off during the year, net of recoveries.
69
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 12, 2002 by: /s/ Howard N. Feist III
--------------------- -------------------------------
Howard N. Feist III
Vice President Finance and
Chief Financial Officer
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 12, 2002 by: /s/ Roger S. Marcus
--------------------- -------------------------------
Roger S. Marcus, Chairman of
the Board, Chief Executive
Officer and Director
Date: March 12, 2002 by: /s/ Richard G. Marcus
--------------------- -------------------------------
Richard G. Marcus, President,
Chief Operating Officer and
Director
Date: March 12, 2002 by: /s/ William M. Marcus
--------------------- -------------------------------
William M. Marcus, Executive
Vice President, Treasurer,
Chairman of the Executive
Committee and Director
Date: March 12, 2002 by: /s/ John C. Garrels III
--------------------- -------------------------------
John C. Garrels III, Director
Date: March 12, 2002 by: /s/ Kenneth I. Watchmaker
--------------------- -------------------------------
Kenneth I. Watchmaker, Director
Date: March 12, 2002 by: /s/ Edward J. Lapointe
--------------------- ------------------------------
Edward J. Lapointe, Controller
Date: March 12, 2002 by: /s/ Gilbert K. Gailius
--------------------- ------------------------------
Gilbert K. Gailius, Director
70
INDEX OF EXHIBITS
- -----------------
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
3 (1) VII Restated Certificate of Incorporation -
3 (2) I By-Laws, amended and restated as of -
March 13, 1991
4 (1) Any instrument defining the rights of -
holders of unregistered long-term debt of
American Biltrite Inc. that does not
authorize the issuance of debt securities
in excess of 10 percent of the total
assets of American Biltrite Inc. and its
subsidiaries on a consolidated basis is
not filed as an exhibit to this Report.
American Biltrite Inc. agrees to furnish
a copy of each such instrument to the
Securities and Exchange Commission upon
request.
10 (1) III 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 (2) IV 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 (3) IX, II 1993 Stock Award and Incentive Plan as -
Amended and Restated as of March 4, 1997
10 (4) VI K&M Associates L.P. Amended and Restated -
Agreement of Limited Partnership
10 (5) V Purchase Agreement dated as of March 31, -
1995 by and among Ocean State and certain
limited partners of K&M
71
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
10 (6) V Agreement and Plan of Merger dated as of -
April 1, 1995 by and among the Company,
Jewelco Acquisition Co., Inc., AIMPAR,
Inc., Arthur I. Maier, Bruce Maier and
Edythe J. Wagner
10 (7) V Option Agreement dated as of April 1, -
1995 by and among Ocean State and certain
limited partners of K&M
10 (8) V Agreement and Plan of Merger dated as of -
May 3, 1995 by and among the Company,
Zirconia Acquisition Co., Inc., Wilbur A.
Cowett Incorporated and Wilbur A. Cowett
10 (9) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and Michael J. Glazerman,
Trustee of the Marcus Family Insurance
Trust u/t/d/ March 1, 1990
10 (10) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and the Marcus Family 1990
Insurance Trust
10 (11) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and the Marcus Family 1996
Irrevocable Insurance Trust Dated October
28, 1996
10 (12) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and The Richard G. Marcus
Irrevocable Insurance Trust of 1990 Dated
June 1, 1990
10 (13) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and the Roger S. Marcus
Irrevocable Insurance Trust Dated
November 29, 1996, Richard G. Marcus,
Trustee
72
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
10 (14) VII, II Split-Dollar Agreement dated as of -
December 20, 1996 by and between American
Biltrite Inc. and the Roger S. Marcus
Irrevocable Insurance Trust Dated
November 29, 1996
10 (15) VII, II Split-Dollar Agreement dated as of -
January 9, 1997 by and between American
Biltrite Inc. and Joseph D. Burns
10 (16) VII, II Description of Supplemental Retirement -
Benefits for Gilbert K. Gailius
10 (17) X, II American Biltrite Inc. Deferred -
Compensation Plan
10 (18) X American Biltrite 1999 Stock Option Plan -
for Non-Employee Directors
10 (19) XI, II Description of Employment Arrangement for -
Gilbert K. Gailius
10 (20) II, XII Split-Dollar Agreement dated as of -
November 20, 2000 by and between American
Biltrite Inc. and
Howard N. Feist III
11 VIII Statement Re: Computation of Per Share -
Earnings
21 Subsidiaries of the Registrant (including 75 - 76
each subsidiary's jurisdiction of
incorporation and the name under which
each subsidiary does business)
23 (1) Consent of Ernst & Young LLP, Independent 77
Auditors
73
- ----------
I Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991. (1-4773)
II Compensatory plans required to be filed as exhibits pursuant to Item
14(c) of Form 10-K.
III Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K filed December 21, 1992. (1-4773)
IV Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K filed March 25, 1993. (1-4773)
V 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.
VI Incorporated by reference to Item 14 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
VII Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
VIII Incorporated by reference to Note 13 of the Company's consolidated
financial statements (filed herewith).
IX Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q filed on June 28, 1997.
X Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q filed on July 3, 1999
XI Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
XII Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
74