FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2003 Commission File Number 1-4773
AMERICAN BILTRITE INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1701350
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
57 River Street
Wellesley Hills, Massachusetts 02481-2097
(Address of Principal Executive Offices)
(781) 237-6655
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date covered by this report.
Title of Each Class Outstanding at August 8, 2003
------------------- -----------------------------
Common 3,441,551 shares
AMERICAN BILTRITE INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
June 30, 2003 (unaudited) and December 31, 2002..............3
Consolidated Condensed Statements of Operations for
the three and six months ended June 30, 2003 and
2002 (unaudited).............................................4
Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 (unaudited)..............5
Notes to Unaudited Consolidated Condensed
Financial Statements.........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk..29
Item 4. Controls and Procedures.....................................30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................31
Item 4. Submission of Matters to a Vote of Security Holders.........31
Item 6. Exhibits and Reports on Form 8-K............................31
Signature............................................................33
Index of Exhibits....................................................34
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
June 30, December 31,
2003 2002
--------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,830 $ 20,161
Restricted cash 2,869
Accounts receivable, net 44,797 41,217
Inventories 95,042 94,878
Prepaid expenses and other current assets 17,517 21,108
--------- ---------
TOTAL CURRENT ASSETS 171,055 177,364
Goodwill, net 11,300 11,300
Other assets 23,547 25,440
Property, plant and equipment, net 143,373 147,766
--------- ---------
TOTAL ASSETS $ 349,275 $ 361,870
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,166 $ 25,684
Accrued expenses 65,701 77,672
Notes payable 32,100 15,276
Current portion of long-term debt 21,235 21,061
--------- ---------
TOTAL CURRENT LIABILITIES 141,202 139,693
Long-term debt 104,113 104,210
Other liabilities 69,107 69,621
Noncontrolling interests 548 808
STOCKHOLDERS' EQUITY
Common stock, par value $0.01-authorized
15,000,000 shares, issued 4,607,902 shares 46 46
Additional paid-in capital 19,548 19,548
Retained earnings 46,720 62,376
Accumulated other comprehensive loss (16,877) (19,300)
Less cost of shares in treasury (15,132) (15,132)
--------- ---------
34,305 47,538
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 349,275 $ 361,870
========= =========
See accompanying notes to consolidated condensed financial statements.
3
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Net sales $ 105,815 $ 121,977 $ 209,774 $ 224,715
Interest and other income 1,612 1,255 2,176 1,727
--------- --------- --------- ---------
107,427 123,232 211,950 226,442
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold 82,767 87,901 158,241 162,703
Selling, general and administrative
expenses 29,129 29,090 58,066 56,474
Asset impairment 2,517 2,517
Interest expense 2,935 2,852 5,939 5,558
--------- --------- --------- ---------
117,348 119,843 224,763 224,735
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES AND OTHER ITEMS (9,921) 3,389 (12,813) 1,707
Income tax 1,952 1,288 2,108 649
Noncontrolling interests (13) (456) (90) (188)
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE
ACCOUNTING CHANGE (11,886) 1,645 (15,011) 870
Cumulative effect of accounting change (7,742)
--------- --------- --------- ---------
Net earnings (loss) $ (11,886) $ 1,645 $ (15,011) $ (6,872)
========= ========= ========= =========
Net earnings (loss) per common
share before cumulative effect
of accounting change, basic and diluted $ (3.45) $ .48 $ (4.36) $ .25
Cumulative effect of accounting change (2.25)
--------- --------- --------- ---------
Net earnings (loss) per
common share, basic and diluted $ (3.45) $ .48 $ (4.36) $ (2.00)
========= ========= ========= =========
Weighted average number of
common and equivalent shares
outstanding 3,442 3,442 3,442 3,442
========= ========= ========= =========
Dividends declared per common share $ .0625 $ .125 $ .1875 $ .25
See accompanying notes to consolidated condensed financial statements.
4
AMERICAN BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Six Months Ended
June 30,
2003 2002
---------------------
OPERATING ACTIVITIES
Net loss $(15,011) $ (6,872)
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization 9,250 8,731
Deferred income taxes 1,927 2,119
Asset impairment 2,517
Cumulative effect of accounting change 7,742
Changes in operating assets and liabilities:
Accounts receivable (2,769) (15,676)
Inventories 2,697 199
Prepaid expenses and other assets 4,001 3,519
Accounts payable and accrued expenses (16,447) 7,971
Noncontrolling interests 90 188
Other (1,052) (1,886)
-------- --------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES (14,797) 6,035
INVESTING ACTIVITIES
Investments in property, plant and equipment (4,092) (7,045)
Proceeds from sales of short-term investments 1,416
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (4,092) (5,629)
FINANCING ACTIVITIES
Net short-term borrowings 15,624 4,217
Payments on long-term debt (576) (519)
Net change in restricted cash (2,869)
Dividends paid (645) (860)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 11,534 2,838
Effect of foreign exchange rates changes on cash (1,976) (1,006)
-------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (9,331) 2,238
Cash and cash equivalents at beginning of period 20,161 16,804
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 10,830 $ 19,042
======== ========
See accompanying notes to consolidated condensed financial statements.
5
AMERICAN BILTRITE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements which
include the accounts of American Biltrite Inc. and its wholly-owned subsidiaries
(and including, unless the context otherwise indicates, K&M Associates L.P.,
referred to herein as "ABI", "American Biltrite" or the "Company") as well as
entities over which it has voting control have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments, in 2003 the impairment
charge related to Janus, and in 2002 the cumulative effect of the change in
accounting for goodwill) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002.
As more fully discussed in Note E of Notes to Unaudited Consolidated Condensed
Financial Statements, the Company's majority-owned subsidiary Congoleum
Corporation ("Congoleum) is a party to a significant number of lawsuits stemming
from its manufacture of asbestos-containing products and has announced its
intention to seek confirmation of a pre-packaged plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") as part
of its strategy to resolve this liability. The plan contemplated by Congoleum
would permit shareholders, including ABI, to retain their existing equity
interests in Congoleum. American Biltrite expects it would receive certain
relief as may be afforded under section 524(g)(4) of the Bankruptcy Code from
asbestos claims that derive from claims made against Congoleum, which claims are
expected to be channeled to the Plan Trust. American Biltrite also expects it
would make certain contributions and incur certain other obligations as part of
Congoleum's plan. Because it maintains a controlling interest in Congoleum, ABI
has continued to consolidate Congoleum's results, which included losses of $20.7
million and $16.1 million in excess of the carrying value of its investment in
Congoleum at June 30, 2003 and December 31, 2002 respectively. For more
information regarding Congoleum's and ABI's asbestos liabilities and plans for
resolving those liabilities, please refer to Notes D and E of Notes to Unaudited
Consolidated Condensed Financial Statements. In addition, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors that May Affect Future Results - The Company and its
majority-owned subsidiary have significant asbestos liability and funding
exposure, and the Company's and Congoleum's strategies for resolving this
exposure may not be successful" for factors that could cause actual results to
differ from Congoleum's and ABI's goals for resolving their asbestos
liabilities.
6
Note A - Basis of Presentation (continued)
The consolidated balance sheet at December 31, 2002 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
Certain amounts appearing in the prior period's consolidated condensed financial
statements have been reclassified to conform to the current period's
presentations.
Note B - Accounting Principles
Changes in Accounting Principles
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). 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. 142 was effective for the Company as
of January 1, 2002. During the first quarter of 2002, the Company performed an
impairment test of goodwill and concluded that there was impairment of goodwill
related to both its wholly owned subsidiary Janus Flooring Corporation ("Janus
Flooring") and its majority-owned subsidiary Congoleum. The Company compared the
implied fair value of their goodwill to the carrying value of goodwill and
determined that based on the fair value of both Congoleum and Janus Flooring,
there should be no goodwill recorded. Congoleum recorded an impairment loss of
$10.5 million during the first quarter of 2002 based on this change in
accounting principle. American Biltrite's share, 55%, in this impairment loss
resulted in a charge of $5.8 million plus a charge of $1.9 million for an
impairment loss related to Janus Flooring goodwill for a total charge of $7.7
million during the first quarter of 2002.
Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation of Financial Standards (FIN)
No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, (the "Interpretation"),
which expands on the accounting guidance of SFAS Nos. 5, 57 and 107 and
incorporates without change the provisions of FIN No. 34, which is being
superseded. The Interpretation will significantly change current practice in the
accounting for and disclosure of guarantees. Guarantees meeting the
characteristics described in the Interpretation are to be recognized at fair
value and significant disclosure rules have been implemented even if the
likelihood of the guarantor making payments is remote. The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002, while the initial measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have an effect on ABI's
consolidated results of operations and financial position.
7
Note C - Inventories
Inventories at June 30, 2003 and December 31, 2002 consisted of the following
(in thousands):
June 30, December 31,
2003 2002
-------- ----------
Finished goods $69,475 $66,341
Work-in-process 11,674 12,155
Raw materials and supplies 13,893 16,382
------- -------
$95,042 $94,878
======= =======
Note D - Commitments and Contingencies
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, product liability and other matters, as
more fully described below. In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts, and the matters may remain
unresolved for several years.
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. Due to the
relative magnitude and wide range of estimates of these liabilities and the fact
that recourse related to these liabilities is generally limited to Congoleum,
these matters are discussed separately following matters for which ABI has
actual or potential liability. However, since ABI includes Congoleum in ABI's
consolidated financial statements, to the extent that Congoleum incurs a
liability or expense, it will be reflected in ABI's consolidated financial
statements. In addition, Congoleum has announced its intent to file a
pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code as
part of a plan to resolve its asbestos related liabilities.
American Biltrite Inc.
ABI is a co-defendant with many other manufacturers and distributors of asbestos
containing products in approximately 1,207 pending claims involving
approximately 2,744 individuals as of June 30, 2003. The claimants allege
personal injury or death from exposure to asbestos or asbestos-containing
products. Activity related to asbestos claims is as follows:
8
Note D - Commitments and Contingencies (continued)
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
------------------------------------
Beginning claims 884 464
New claims 433 528
Settlements (3) (11)
Dismissals (107) (97)
------------------------------------
Ending claims 1,207 884
====================================
The total indemnity costs incurred to settle claims during the six months ended
June 30, 2003 and twelve months ended December 31, 2002 were $29,000 and
$409,000, respectively, all of which were paid by ABI's insurance carriers, as
were the related defense costs. The average indemnity cost per resolved claim
was approximately $260 for the six months ended June 30, 2003 and $3,800 for the
year ended December 31, 2002. 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. The Company estimates its liability to defend and
resolve current and reasonably anticipated future asbestos-related claims (not
including claims asserted against Congoleum), based upon a strategy to actively
defend or seek settlement for those claims in the normal course of business.
Factors such as 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 the Company
were considered in performing these estimates. In 2002, the Company engaged an
outside actuary to assist it in developing estimates of the Company's liability
for resolving asbestos claims at December 31, 2002. The actuary estimated the
range of liability for settlement of current claims pending and claims
anticipated to be filed through 2008 was $8.5 million to $14.9 million. The
Company believes no amount within this range is more likely than any other, and
accordingly has recorded the minimum liability estimate of $8.5 million in its
financial statements. The Company also believes that based on this minimum
liability estimate, the corresponding amount of insurance probable of recovery
is $8.5 million at December 31, 2002 and June 30, 2003, which has been included
in other assets.
Due to the numerous variables and uncertainties, the Company does not believe
that reasonable estimates can be developed of liabilities for claims beyond a
five year horizon. The Company will continue to evaluate its range of future
exposure, and the related insurance coverage available, and when appropriate,
record future adjustments to those estimates, which could be material.
The Company reported in its December 31, 2002 Form 10-K that its goal was to
resolve all of its pending and future asbestos related liabilities as part of
Congoleum's anticipated plan of reorganization under Chapter 11 of the United
States Bankruptcy Code. The Company now
9
Note D - Commitments and Contingencies (continued)
anticipates that resolution of its asbestos related liabilities resulting from
Congoleum's anticipated plan will be limited to liabilities derivative of claims
asserted against Congoleum as may be afforded under Section 524(g)(4) of the
Bankruptcy Code.
ABI reported in its December 31, 2002 Form 10-K that it 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 three sites located in three separate states. ABI
also reported that it is potentially responsible for response and remediation
costs with respect to three state-supervised sites. There have been no material
developments relating to these sites during the three or six month periods ended
June 30, 2003.
A lawsuit was brought by Olin Corporation ("Olin"), 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.
In 2000, ABI and The Biltrite Corporation ("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 Olin Site
after January 1, 1999, plus an annual reimbursement of $0.1 million 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 Olin Site. Olin has estimated that the
total response costs for 2003 will be approximately $5.5 million. For costs
beyond 2003, ABI has estimated the range to be between $13.3 million to $26.0
million. As of June 30, 2003, ABI has estimated its potential liability to Olin
to be in the range of $2.5 million to $4.3 million before any recoveries from
insurance and net of its right of reimbursement from TBC.
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 reviewing the condition of the site and its potential liability for its
share of any clean-up costs. ABI believes, at this time, that the cost of site
investigation, remediation, maintenance and monitoring at the site will be
approximately $1 million. ABI has not yet entered a final cost sharing agreement
with the current owner. Under an agreement between ABI and TBC, TBC is liable
for 37.5% of the remediation costs, incurred by ABI at this site.
10
Note D - Commitments and Contingencies (continued)
ABI has made demands against its insurance carriers to provide defense and
indemnity for ABI's liabilities at the CERCLA sites, the Olin Site and the state
supervised sites. An agreement was executed by ABI and its 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 June 30, 2003, the Company has accrued $4.1 million for ABI's
estimable and probable amounts for environmental-related contingencies described
above. Additionally, the Company has recorded an asset related to insurance
recoveries relating to those contingencies, net of reimbursements to certain
PRP's, for approximately $0.9 million.
Congoleum
Congoleum is a defendant in a large number of asbestos-related lawsuits and has
announced its intent to file a pre-packaged plan of reorganization under Chapter
11 of the Bankruptcy Code. See Note E - "Congoleum Asbestos Liabilities and
Planned Reorganization."
Congoleum is named, together with a large number (in most cases, hundreds) of
other companies, as a PRP in pending proceedings under CERCLA, and similar state
laws. In addition, in three other instances, although not named as a PRP,
Congoleum has received a request for information. These pending proceedings
currently relate to four disposal sites in New Jersey, Pennsylvania, Maryland,
and Connecticut 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 other 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 81 companies, substantially all of which are large financially
solvent entities. Two removal actions were substantially complete as of December
31, 1998; however, the groundwater remediation phase has not begun and the
remedial investigation/feasibility study related to the groundwater remediation
has not been approved. The PRP group estimated that future costs of 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 approximately 5.8%.
Congoleum also accrues remediation costs for certain of Congoleum's owned
facilities on an undiscounted basis. Congoleum has entered into an
administrative consent order with the New Jersey Department of Environmental
Protection and has self-guaranteed certain remediation funding sources and
financial responsibilities. Estimated total clean-up costs, including capital
outlays and future maintenance costs for soil and groundwater remediation are
primarily based on engineering studies.
11
Note D - Commitments and Contingencies (continued)
The outcome of these matters could result in significant expenses or judgments
that could have a material adverse effect on the financial position of
Congoleum.
Other
In addition to the matters referenced above and in Note E, in the ordinary
course of their businesses, 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.
Note E - Congoleum Asbestos Liabilities and Planned Reorganization
On January 13, 2003, ABI's majority-owned subsidiary Congoleum announced that it
had begun preliminary settlement negotiations with attorneys it believes
represent the majority of plaintiffs with asbestos claims pending against it and
that upon successful completion of these negotiations, it intends to seek
confirmation of a pre-packaged plan of reorganization under Chapter 11 of the
Bankruptcy Code. On March 31, 2003, Congoleum reached an agreement in principle
with attorneys representing more than 75% of the known present claimants with
asbestos claims pending against Congoleum.
The agreement in principle contemplates a Chapter 11 reorganization seeking
confirmation of a pre-packaged plan that would leave trade and other unsecured
nonasbestos creditors unimpaired and would resolve all pending and future
asbestos claims against Congoleum, including any derivative liability of ABI and
Congoleum's distributors that derive from claims asserted against Congoleum as
may be afforded under Section 524(g)(4) of the Bankruptcy Code. Approval of an
asbestos channeling injunction pursuant to section 524(g) of the Bankruptcy Code
would require the supporting votes of at least 75% of the asbestos claimants
with claims against Congoleum who vote on the plan. Resolution of Congoleum's
asbestos liability through a pre-packaged reorganization plan is subject to
various other conditions as well, including approval by the bankruptcy court.
In furtherance of the agreement in principle, on April 10, 2003, Congoleum
entered into a settlement agreement with various asbestos claimants (the
"Claimant Agreement"). As contemplated by the Claimant Agreement, Congoleum also
entered into a trust agreement (the "Collateral Trust Agreement") which
established a trust (the "Collateral Trust") to distribute funds in accordance
with the terms of the Claimant Agreement and a security agreement (the "Security
Agreement") pursuant to which Congoleum granted the Collateral Trust a security
interest in Congoleum's rights under its applicable insurance coverage and
payments from its insurers for asbestos claims (the "Collateral").
The Claimant Agreement establishes a compensable disease valuation matrix (the
"Matrix") and allows claimants who qualify and participate in the Claimant
Agreement to settle their claim for the Matrix value secured in part (75%) by
the security interest in the Collateral. The Collateral Trust Agreement provides
for distribution of trust assets according to various requirements that give
priority (subject to aggregate distribution limits) to participating claimants
who had pre-
12
Note E - Congoleum Asbestos Liabilities and Planned Reorganization (continued)
existing unfunded settlement agreements ("pre-existing settlement agreements")
with Congoleum and participating claimants who qualify for payment under
unfunded settlement agreements entered into by Congoleum with plaintiffs that
have asbestos claims pending against Congoleum and which claims are scheduled
for trial after the effective date of the Claimant Agreement but prior to the
commencement of Congoleum's anticipated pre-packaged Chapter 11 reorganization
case ("trial-listed settlement agreements").
Pursuant to the terms and conditions of the Claimant Agreement, Congoleum will
settle claims pertaining to a pre-existing settlement agreement or trial-listed
settlement agreement, which settled claims will be fully secured by the
Collateral, and all other claims with claimants electing to participate on the
terms and conditions of the Claimant Agreement, which settled claims will be
partially secured by the Collateral in an amount equal to 75% of the settled
value, with the remaining 25% of the settled value being unsecured. Congoleum
expects that, under its pre-packaged Chapter 11 plan, a trust will be
established upon consummation of Congoleum's confirmed pre-packaged Chapter 11
plan of reorganization (the "Plan Trust"). As contemplated by the Claimant
Agreement and the Collateral Trust Agreement, upon consummation of the plan, and
establishment of the Plan Trust, the assets in the Collateral Trust would be
transferred to the Plan Trust. It is expected that the Plan Trust would fund the
settlement of all pending and future asbestos claims (including any claims
contemplated by the Claimant Agreement that are unsatisfied as of the
confirmation of the plan of reorganization by the bankruptcy court) and protect
Congoleum from future asbestos-related litigation by channeling all asbestos
claims (including any claims contemplated by the Claimant Agreement that are
unsatisfied as of the confirmation of the plan of reorganization by the
bankruptcy court) to the Plan Trust pursuant to Section 524(g) of the Bankruptcy
Code.
It is expected that Congoleum's trade and other unsecured nonasbestos creditors
would be unimpaired under its pre-packaged Chapter 11 plan and that its trade
creditors would be paid in the ordinary course of business. ABI understands that
Congoleum's goal is to finalize negotiations of a pre-packaged Chapter 11 plan
of reorganization and begin soliciting acceptances for such plan by no later
than August, 2003 and to commence its pre-packaged Chapter 11 case in September,
2003. After Congoleum has commenced its pre-packaged Chapter 11 case, it is
expected that it would take another two to six months to confirm the plan and
emerge from the process. ABI and Congoleum hope that Congoleum obtains
confirmation of its plan by the end of 2003.
Congoleum expects that its costs to effect this plan, consisting principally of
legal and advisory fees and contributions to the Plan Trust will be
approximately $21.3 million at a minimum, of which Congoleum spent $7.1 million
during the first six months of 2003.
It is expected that pursuant to Congoleum's anticipated pre-packaged Chapter 11
plan of reorganization, the Company would receive certain relief as may be
afforded under section 524(g)(4) of the United States Bankruptcy Code of 1978,
as amended, from asbestos claims that derive from claims made against Congoleum,
which claims are expected to be channeled to the
13
Note E - Congoleum Asbestos Liabilities and Planned Reorganization (continued)
trust established upon consummation of Congoleum's confirmed pre-packaged
Chapter 11 plan of reorganization (the "Plan Trust"). The Company and Congoleum
do not expect that any other asbestos claims that may be asserted against the
Company would be channeled to the Plan Trust.
Pursuant to the terms of Congoleum's anticipated pre-packaged Chapter 11 plan of
reorganization, the Company expects to pledge all of the shares of Congoleum
stock that it owns, together with any other equity interests and rights the
Company may own or hold in Congoleum, as of the later of June 30, 2005 and the
last trading day of the 90 consecutive trading day period commencing on the
first anniversary of the effective date of Congoleum's confirmed pre-packaged
Chapter 11 plan of reorganization (the "Principal Adjustment Date") pursuant to
the terms of a pledge agreement (the "Pledge Agreement"), which pledge will
serve as collateral securing Congoleum's obligations under a promissory note
that Congoleum is expected to contribute to the Plan Trust (the "Congoleum
Note").
The Company expects that the original principal amount of the Congoleum Note
will be $2,738,234.75 (the "Original Principal Amount") and will be subject to
increase as of the Principal Adjustment Date in an amount equal to the excess,
if any, of the amount by which 51% of Congoleum's market capitalization as of
the Principal Adjustment Date, based upon (subject to certain exceptions) the
total number of shares of Congoleum's common stock outstanding as of such date
multiplied by the average of the closing trading prices of Congoleum's Class A
common stock for the 90 consecutive trading days ending on the Principal
Adjustment Date, exceeds the Original Principal Amount (the "Additional
Principal Amount"), plus any accrued but unpaid interest or other amounts that
may be added to such principal amount pursuant to the terms of the Congoleum
Note. The Company expects that interest on outstanding principal of the
Congoleum Note will accrue at a rate of 9% per annum. The Company expects that
interest on the Original Principal Amount will accrue and be payable quarterly
and that interest on the Additional Principal Amount will accrue quarterly and
be added to the Additional Principal Amount as additional principal. The Company
expects that upon the earlier of August 1, 2008 and the date that all of
Congoleum's 8 5/8% Senior Notes Due 2008 (the "Congoleum Senior Notes") are
repaid in full, interest on the then outstanding Additional Principal Amount
will then accrue and be payable quarterly.
The Company further expects that all principal on the Congoleum Note then
outstanding together with any accrued but unpaid interest will be payable in
full by Congoleum on the tenth anniversary of the date of the Congoleum Note,
subject to the right of the Plan Trust to accelerate all amounts then owed on
the Congoleum Note following an uncured event of default under the Congoleum
Note. The Company expects that events of default under the Congoleum Note would
include the failure to pay interest and principal prior to the expiration of a
10-day grace period following the applicable due date, the occurrence of an
event of default under the Indenture governing the Congoleum Senior Notes (the
"Indenture"), the breach by Congoleum of any covenant or agreement contained in
the Congoleum Note which remains uncured 30 days following notice by the Plan
Trust to Congoleum and the Company of the breach and a material breach of the
Pledge Agreement by the Company which remains uncured 30 days following notice
by the Plan Trust to the Company and Congoleum of the breach. The Company
expects
14
Note E - Congoleum Asbestos Liabilities and Planned Reorganization (continued)
that the terms of the Congoleum Note would provide that, upon the occurrence of
an event of default under the Congoleum Note, Congoleum and the Company would
have 10 days from the date they receive notice that an event of default has
occurred to cure the event of default. The Company further expects that the
Congoleum Note would provide that, if the event of default remains uncured after
the 10-day cure period, the aggregate outstanding principal amount of the
Congoleum Note together with any accrued but unpaid interest thereon would
become immediately due and payable by Congoleum if the event of default relates
to an uncured event of default of the Indenture, and with regard to other events
of default of the Congoleum Note, the Plan Trust may, upon notice to Congoleum
and the Company, declare the aggregate outstanding principal amount of the
Congoleum Note together with any accrued but unpaid interest thereon to be
immediately due and payable by Congoleum. The Company further expects that the
Plan Trust's rights to payment under the Congoleum Note will be subordinate and
subject in right of payment to the prior payment in full of all amounts owing
and payable pursuant to the Congoleum Senior Notes and Congoleum's credit
facility, except that regularly scheduled interest payments under the Congoleum
Note are expected to be payable by Congoleum so long as no default or event of
default has occurred or is continuing under the Indenture or Congoleum's credit
facility.
The Company further expects that, in addition to the pledge of Congoleum stock
and equity rights, as additional security under the Congoleum Note, the
Congoleum Note, the Pledge Agreement and the anticipated terms of Congoleum's
pre-packaged Chapter 11 plan of reorganization would also provide that the Plan
Trust would not be obligated to pay the Company pursuant to any rights of
indemnity that the Company may have against the Plan Trust for asbestos-related
claims pursuant to Congoleum's pre-packaged Chapter 11 plan of reorganization or
a certain Joint Venture Agreement from 1992 to which both the Company and
Congoleum are parties to (as amended, the "Joint Venture Agreement") until after
any amounts due and payable to the Plan Trust under the Congoleum Note have been
paid in full to the Plan Trust. Until such time, any such payments that would
otherwise have been payable to the Company pursuant to that right of indemnity,
would be set aside by the Plan Trust and held in escrow by the Plan Trust for
the Company's benefit and pledged by the Company as additional collateral
securing Congoleum's obligations under the Congoleum Note until released from
such escrow and paid to the Company, as further provided under Congoleum's
anticipated pre-packaged Chapter 11 plan of reorganization, the Congoleum Note
and the Pledge Agreement.
The Company further expects that the Congoleum Note, the Pledge Agreement and
Congoleum's pre-packaged Chapter 11 plan of reorganization would also provide
that Congoleum would be prohibited from making any payments to the Company
pursuant to any rights of indemnity that the Company may have against Congoleum
for claims pursuant to the Joint Venture Agreement until after any amounts due
and payable to the Plan Trust under the Congoleum Note have been paid in full to
the Plan Trust. Until such time, any such payments that would otherwise have
been payable to the Company pursuant to that right of indemnity, would be paid
by Congoleum to the Plan Trust and the Plan Trust would set aside and hold in
escrow such amounts for the Company's benefit and the Company will pledge such
amounts as additional collateral securing Congoleum's obligations under the
Congoleum Note until paid to the Company, as further
15
Note E - Congoleum Asbestos Liabilities and Planned Reorganization (continued)
provided under Congoleum's anticipated pre-packaged Chapter 11 plan of
reorganization, the Congoleum Note and the Pledge Agreement.
The Company expects that it would be allowed to prepay the principal amount of
the Congoleum Note, in whole but not in part, without any penalty or premium at
any time following the Principal Adjustment Date and that any interest that may
have accrued but not yet been paid at the time of any principal repayment would
be due and payable at the time of the principal repayment. The Company expects
that Congoleum would be obligated to repay the Company for any amounts paid by
the Company pursuant to the Congoleum Note, which repayment obligation would be
evidenced by a promissory note or notes to be issued by Congoleum to the
Company. It is expected that any such note would have similar payment terms as
those expected to be afforded to the Plan Trust with regard to the Congoleum
Note, which rights of repayment are expected to be subordinate and subject in
right of payment to the prior payment in full of all amounts owing and payable
to the Plan Trust with regard to the Congoleum Note and with regard to amounts
owing and payable pursuant to the Congoleum Senior Notes and Congoleum's credit
facility, except that the right of full subordination with regard to the
Congoleum Senior Notes and Congoleum's credit facility would contain an
exception that would allow Congoleum to make regularly scheduled interest
payments to the Company pursuant to any such note so long as no default or event
of default has occurred or is continuing under the Indenture or Congoleum's
credit facility.
It is further expected that if the Company prepaid the Congoleum Note and the
Company sold all or substantially all of the shares of Congoleum's stock held by
the Company as of the Principal Adjustment Date during the three-year period
following such date, the Company would be obligated to make a contribution to
the Plan Trust if the equity value of Congoleum implied by the price paid to the
Company for the shares of Congoleum's stock exceeded the greater of the Original
Principal Amount or 51% of Congoleum's market capitalization as of the Principal
Adjustment Date, based upon (subject to certain exceptions) the total number of
shares of Congoleum's common stock outstanding as of such date multiplied by the
average of the closing trading prices of Congoleum's Class A common stock for
the 90 consecutive trading days ending on the Principal Adjustment Date. In such
instance, it is expected that the Company would be obligated to pay to the Plan
Trust an amount equal to 50% of such excess amount. Under the expected terms of
Congoleum's pre-packaged Chapter 11 plan of reorganization, Congoleum would be
obligated to repay the Company for any amounts paid by the Company to the Plan
Trust pursuant to this obligation. In satisfaction of Congoleum's repayment
obligation it would owe to the Company, it is expected that Congoleum would
issue a promissory note to the Company in a principal amount equal to the amount
of any such payments made by the Company plus any accrued but unpaid interest or
other amounts that may be added to such principal amount pursuant to the terms
of the promissory note which would be subordinate and subject in right of
payment to the prior payment in full of all amounts owing and payable pursuant
to the Congoleum Senior Notes and Congoleum's credit facility, except that
regularly scheduled interest payments could be paid on such note so long as no
default or event of default has occurred or is continuing under the Indenture or
Congoleum's credit facility.
16
Note E - Congoleum Asbestos Liabilities and Planned Reorganization (continued)
The Company further expects that it will make a cash contribution in the amount
of $250,000 to the Plan Trust upon formation of the Plan Trust.
The Company has previously disclosed that its goal was to have all current and
future asbestos claims that may be asserted against it channeled to the Plan
Trust. At the present time, Congoleum's pre-packaged Chapter 11 plan of
reorganization will not provide relief to the Company for all asbestos claims
that may be asserted against it and will not include an assignment of the
Company 's insurance policies to the Plan Trust. The Company has not abandoned
its goal of obtaining that relief at a future time if circumstances change so
that the Company and Congoleum believe that the Company could attain the
Company's desired channeling relief without posing significant risks to the
success of Congoleum's plan of reorganization or the Company, its insurance
coverage and its business. Both the Company and Congoleum, however, presently
believe that it is unlikely that the Company will be successful in realizing its
goal in this regard, and the Company is not actively pursuing this goal at this
time.
As previously discussed, under the expected terms of Congoleum's plan of
reorganization, the Company would receive certain relief as may be afforded
under section 524(g)(4) of the Bankruptcy Code from asbestos claims that derive
from claims made against Congoleum, which claims are expected to be channeled to
the Plan Trust. However, Congoleum and the Company do not expect that any other
asbestos claims that may be asserted against the Company would be channeled to
the Plan Trust. The Company and Congoleum also expect that the contributions the
Company would make to the Plan Trust will differ from the contributions
previously publicly disclosed that might be made by the Company if it were to
receive its desired relief and are expected to consist of those items referred
to above in this Note E.
Note F - Comprehensive Income (Loss)
The following table presents total comprehensive income (loss) for the three and
six month periods ended June 30, 2003 and 2002 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
-------- ------ -------- -------
Net earnings (loss) $(11,886) $1,645 $(15,011) $(6,872)
Foreign currency translation adjustments 1,432 810 2,423 674
-------- ------ -------- -------
Total comprehensive income (loss) $(10,454) $2,455 $(12,588) $(6,198)
======== ====== ======== =======
Note G - Earnings (Loss) Per Share
Earnings (loss) per share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding.
17
Note H - 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. The
flooring products segment includes Congoleum, which represents the majority of
the Company's flooring products segment and Janus Flooring Corporation.
Congoleum manufactures vinyl and vinyl composition floor coverings and sells
them primarily through floor covering distributors to retailers, and to
contractors for commercial and residential use. Janus Flooring Corporation
manufacturers prefinished hardwood flooring. The Company has announced that it
plans to sell or dispose of the Janus operation during the second half of 2003.
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.
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---------------------- -----------------------
Net Sales
Net sales to external customers:
Flooring products* $ 57,348 $ 69,865 $ 112,927 $ 129,756
Tape products 20,856 22,447 40,225 41,717
Jewelry 16,998 19,312 37,272 34,078
Canadian division 10,613 10,353 19,350 19,164
--------- --------- --------- ---------
Total net sales to external
customers 105,815 121,977 209,774 224,715
--------- --------- --------- ---------
Intersegment net sales:
Flooring products 13 70 33 160
Tape products 39 38 72 76
Jewelry
Canadian division 1,881 2,941 3,863 5,946
--------- --------- --------- ---------
Total intersegment net sales 1,933 3,049 3,968 6,182
--------- --------- --------- ---------
107,748 125,026 213,742 230,897
Reconciling items
Intersegment net sales (1,933) (3,049) (3,968) (6,182)
--------- --------- --------- ---------
Total consolidated net sales $ 105,815 $ 121,977 $ 209,774 $ 224,715
========= ========= ========= =========
*includes Janus sales of $ 2,358 $ 1,951 $ 4,371 $ 3,993
========= ========= ========= =========
18
Note H - Industry Segments (continued)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------------ -------------------
Segment (loss) profit
Flooring products* $(9,956) $ 883 $(13,264) $ (645)
Tape products 235 1,088 (200) 1,133
Jewelry (107) 1,697 1,580 1,843
Canadian division 40 322 (134) 518
------- ------- -------- -------
Total segment (loss) profit (9,788) 3,990 (12,018) 2,849
Reconciling items
Corporate items (58) (593) (748) (1,100)
Intercompany loss (75) (8) (47) (42)
------- ------- -------- -------
Total consolidated (loss) before
income taxes and other items $(9,921) $ 3,389 $(12,813) $ 1,707
======= ======= ======== =======
*includes Janus loss of $(7,970) $ (391) $ (8,689) $ (973)
======= ======= ======== =======
June 30, December 31,
2003 2002
------------------------
Segment assets
Flooring products* $ 212,794 $ 226,339
Tape products 57,954 56,543
Jewelry 37,281 43,123
Canadian division 35,974 30,467
--------- ---------
Total segment assets 344,003 356,472
Reconciling items
Corporate items 21,412 19,420
Intersegment accounts receivable (15,931) (13,860)
Intersegment profit in inventory (209) (162)
--------- ---------
Total consolidated assets $ 349,275 $ 361,870
========= =========
*includes Janus assets of $ 6,532 $ 12,934
========= =========
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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, that involve risks, uncertainties and
assumptions. These forward-looking statements are based on the Company's (and
its majority-owned subsidiary Congoleum's) expectations, as of the date of this
report, of future events and the Company undertakes no obligation to update any
of these forward-looking statements. Although the Company believes that these
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. Readers are cautioned
not to place undue reliance on any forward-looking statements. Factors that
could cause or contribute to the Company's actual results differing from its
expectations include those factors discussed elsewhere in this report, including
in the section of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors That May Affect
Future Results," in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 and in the Company's other filings with the Securities and
Exchange Commission.
The Company's majority-owned subsidiary, Congoleum, is a defendant in a large
number of asbestos-related lawsuits and has announced its intent to file a
pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code as
part of its strategy to resolve this liability. In addition, the Company is a
defendant in a number of asbestos-related lawsuits as well. See Notes D and E of
the Notes to Unaudited Consolidated Condensed Financial Statements, which are
incorporated herein by reference. These matters may have a material adverse
impact on the Company's or Congoleum's financial position and results of
operations.
Based on its pre-packaged bankruptcy strategy, ABI's consolidated subsidiary
Congoleum has made provision in its financial statements for the minimum amount
of the range of estimates for its contribution and costs to effect its plan to
settle asbestos liabilities through a plan trust established pursuant to Section
524(g) of the Bankruptcy Code. Congoleum recorded a charge of $17.3 million in
the fourth quarter of 2002 to increase its recorded liability to the estimated
minimum of $21.3 million, of which Congoleum spent $7.1 million during the first
six months of 2003. Actual amounts that will be contributed to the plan trust
and costs for pursuing and implementing the plan of reorganization could be
materially higher, which could have a material effect on ABI's consolidated
results of operations.
During the second quarter of 2003, the Company reassessed operations at its
Toronto, Canada subsidiary, Janus Flooring Corporation, a manufacturer of
prefinished hardwood flooring, and decided to exit this business before the end
of 2003 due to its history of operating losses. The Company acquired Janus
Flooring Corporation in 2000 intending it to serve as a strategic addition to
the flooring product business. Included in second quarter 2003 results of
operations are total charges of $8.5 million consisting primarily of $3.0
million to reduce inventories to net realizable value, $0.5 million in accounts
receivable allowances, a $2.5 million asset impairment charge related to
machinery and equipment and a $1.9 million income tax provision to write off
deferred tax assets deemed not probable of recovery.
20
Results of Operations
Net sales for the second quarter of 2003 were $105.8 million compared to $122.0
million in the second quarter of 2002, a decrease of $16.2 million or 13.3%. Net
sales for the first six months of 2003 were $209.8 million, down $14.9 million
or 6.6% from the first half of 2002. The decrease in sales for both the second
quarter and six months of 2003 was primarily due to Congoleum which experienced
continued weakness in the manufactured housing and home center channels while
sales in the first half of 2002 benefited from initial shipments of
do-it-yourself tile to a major home center and an increase in inventory level by
a large distributor. Jewelry segment revenues were down $2.3 million in the
second quarter of 2003 compared to 2002 due to lower sales of Back to School
Programs. Revenues at the Tape division were down slightly while revenues at the
Canadian division were essentially unchanged from prior year levels.
Cost of products sold as a percentage of net sales was 78.2% in the second
quarter of 2003 versus 72.1% in the second quarter of 2002. For the six months
ended June 30, 2003, cost of products sold as a percentage of net sales was
75.4% compared with 72.4% during the same period one year earlier. The $3.0
million charge to reduce Janus inventories to net realizable value had a
significant negative impact on cost of sales percentage in both the second
quarter and six months of 2003, accounting for approximately half the percentage
increase. Operationally, all divisions of the Company experienced slightly lower
margins in the second quarter and six months of 2003 caused by lower sales
volume and cost pressures.
Selling, general and administrative expenses as a percentage of net sales were
27.5% in the second quarter of 2003 compared to 23.8% in the second quarter of
2002. For the six months ended June 30, 2003, selling general and administrative
expenses as a percentage of net sales were 27.7%, up from 25.1% in the first
half of 2002. In absolute dollars, expenditures for selling, general and
administrative expenses were essentially at the same levels at all divisions for
both the second quarter and six months of 2003 and 2002 but resulted in higher
percentages due to lower sales volume.
The asset impairment charge of $2.5 million in the second quarter of 2003 was to
write down to net realizable value of the plant and equipment at Janus Flooring
given the anticipated disposition.
Interest and other income for the three and six months ended June 30, 2003
increased from comparable year earlier periods primarily due to foreign exchange
gains at the Canadian operations generated by the strengthening of the Canadian
dollar.
For the three months ended June 30, 2003, the Company had a net loss of $11.9
million versus net income of $1.6 million in the same period one year earlier.
Substantially all of the loss in the second quarter of 2003 was due to the $8.5
million charge noted above for the discontinuance of Janus Flooring coupled with
operating losses in the flooring segment. Other segments operated at near break
even during the second quarter of 2003. For the first six months of 2003, net
loss was $15.0 million versus net income before a required accounting change of
$0.9 million in 2002.
The Company's provision for tax expense in the second quarter of 2003 consists
primarily of $1.9 million to establish a 100% valuation allowance against
deferred taxes at Janus Flooring. Congoleum and Janus Flooring are not
recognizing any tax related benefit on their losses.
21
The Company expects the charges recorded in the second quarter of 2003 will
represent the substantial majority of the expenses to exit the Janus Flooring
business. Future expenses in connection with the disposition, which will be
reported as losses on discontinued operations, are currently anticipated to be
approximately $2 million. The Company anticipates the disposition of Janus, net
of future expenses, will generate $3 million to $5 million in cash. The
disposition of Janus will not have a material effect on future consolidated net
sales of American Biltrite.
Liquidity and Capital Resources
Cash and cash equivalents, including restricted cash and short term investments,
declined $6.5 million in the first half of 2003 to $13.7 million, compared with
an increase of $0.8 million in the first half of 2002, primarily due to
settlement of accrued liabilities and accounts payable. Under the terms of its
Revolving Credit Agreement, Congoleum's accounts receivable payments are
deposited in an account assigned to its lender and the funds are used to pay
down any loan balance. Restricted cash represents funds deposited in this
account but not immediately available for reducing the loan balance. Working
capital at June 30, 2003 was $29.9 million, down from $37.7 million at December
31, 2002. The ratio of current assets to current liabilities at June 30, 2003
was 1.21, down from 1.27 at December 31, 2002.
Capital expenditures in the first half of 2003 were $4.1 million compared to
$7.0 million for the first half of 2002. It is anticipated that capital spending
for the full year 2003 will be in the range of $10 to $12 million.
The Company has recorded provisions which it believes are adequate for
environmental remediation and non-asbestos product-related liabilities,
including provisions for testing for potential remediation of conditions at its
own facilities. While the Company believes its estimate of the future amount of
these liabilities is reasonable, that such amounts will be paid over a period of
three to ten years and that the Company expects to have sufficient resources to
fund such amounts, the actual timing and amount of such payments may differ
significantly from the Company's assumptions. Although the effect of future
government regulation could have a significant effect on the Company's costs,
the Company is not aware of any pending legislation which would have a material
adverse effect on its consolidated results of operations or financial position.
There can be no assurances that such costs could be passed along to its
customers.
Cash requirements for capital expenditures, working capital, debt service and
any share repurchases are expected to be financed from operating activities and
borrowings under existing bank lines of credit, which are presently $67.6
million in the aggregate. At June 30, 2003, $32.1 million was outstanding under
these lines and $1.8 million secured outstanding letters of credit. Effective as
of June 30, 2003, two of the Company's debt agreements were amended to revise
certain financial covenants measured as of that date to allow the Company to
satisfy the covenants. The Company is in discussion with its lenders and expects
to further amend these agreements by a required deadline of September 15, 2003.
Failure to do so would result in an event of default under those agreements,
which could result in the acceleration of payment by the Company of any amounts
outstanding under those agreements. If that were to occur, no assurance can be
given that we would have sufficient liquidity to repay our bank indebtedness in
full or any of our other debts. The Company anticipates the further amendments
will include granting its primary lenders a security interest in certain assets
of the Company.
22
Under Congoleum's anticipated plan of reorganization, it is expected that
certain rights that the Company may have to receive indemnification for claims
under the plan of reorganization or the Joint Venture Agreement, subject to
certain exceptions, will not be paid to the Company for so long as any
obligations owed to the Plan Trust by Congoleum under the Congoleum Note remain
outstanding. Instead, those amounts will be held in escrow by the Plan Trust and
be pledged by the Company as collateral securing Congoleum's obligations under
the Congoleum Note until paid to the Company pursuant to the terms of
Congoleum's plan of reorganization, the Congoleum Note and the Pledge Agreement.
To the extent the amounts that are subject to that escrow are material, that
could have a material adverse affect on the Company's liquidity and capital
resources since those escrowed amounts represent amounts that would have already
been paid by the Company but not yet reimbursed to the Company to the extent
they remain in escrow. In addition, the terms of the Congoleum plan of
reorganization are expected to provide that the Company will no longer have
certain other rights to receive indemnification under the Joint Venture
Agreement or Congoleum's plan of reorganization for asbestos-related property
damage claims. To the extent that the Company pays material amounts for
asbestos-related property damage claims that the Company would have been
entitled to be reimbursed for by Congoleum absent the provisions of Congoleum's
plan of reorganization, that could have a material adverse effect on the
Company's liquidity and capital resources. Furthermore, to the extent that the
amount of any of the Company's indemnity claims against the Plan Trust are
reduced to an amount less than the corresponding amount paid by the Company
pursuant to the distribution procedures under the Company's plan of
reorganization, that could have a material adverse effect on the Company's
liquidity and capital resources.
The Company did not declare a dividend for the third quarter of 2003. Future
dividends, if any, will be determined by the Board of Directors based upon the
financial performance and capital requirements of the Company, among other
considerations.
As previously discussed, ABI and Congoleum have significant liability exposure
regarding asbestos-related claims. ABI expects that, based on its current claims
experience, its insurance recoveries will fully cover its asbestos-related
liability in the foreseeable future. To the extent ABI incurs liability for
asbestos-related claims which turn out not to be recoverable from its insurance
carriers (whether because the insurance carriers become insolvent or otherwise)
or other persons, ABI's funding obligations with respect to those liabilities
would increase. This increased funding obligation could have a material adverse
effect upon ABI's liquidity and capital resources. In addition, Congoleum's
pursuit of its anticipated pre-packaged Chapter 11 plan of reorganization will
have a material adverse impact on Congoleum's liquidity and capital resources.
Risk Factors That May Affect Future Results
The Company and its majority-owned subsidiary Congoleum have significant
asbestos liability and funding exposure, and the Company's and Congoleum's
strategies for resolving this exposure may not be successful.
23
As more fully set forth in Notes A, D and E of Notes to Unaudited Consolidated
Condensed Financial Statements, which are included in this report, the Company
and its majority-owned subsidiary Congoleum have significant liability and
funding exposure for asbestos personal injury claims. Congoleum has reached an
agreement in principle with attorneys representing more than 75% of the known
present claimants with asbestos claims pending against Congoleum. In furtherance
of the agreement in principle, Congoleum entered into a settlement agreement
with various asbestos claimants, which provides for a global settlement of more
than 75% of the known asbestos personal injury claims pending against Congoleum.
The agreement in principle also contemplates Congoleum pursuing a Chapter 11
reorganization seeking confirmation of a pre-packaged plan that would leave
trade and other unsecured nonasbestos creditors unimpaired and would resolve all
pending and future asbestos claims against Congoleum, including any derivative
liability of the Company and Congoleum's distributors from claims asserted
against Congoleum. Confirmation of an asbestos channeling injunction pursuant to
section 524(g) of the Bankruptcy Code would require the supporting votes of at
least 75% of the asbestos claimants with claims against Congoleum who vote on
the plan, as well as a determination by the bankruptcy court that the plan has
satisfied certain criteria under the Bankruptcy Code.
There can be no assurance that the Company or Congoleum will be successful in
realizing these goals in this regard or in obtaining the necessary votes,
consents and approvals, or in implementing the desired plan terms. As a result,
any settlement reached by Congoleum or the Company with their asbestos
plaintiffs or plan of reorganization pursued by the Company or confirmed by a
bankruptcy court could vary significantly from the description in this report
(including descriptions incorporated by reference in this report), including the
estimated costs and contributions to effect the contemplated plan of
reorganization could be significantly greater than currently estimated. Any plan
of reorganization pursued by Congoleum will be subject to numerous conditions,
approvals and other requirements, including bankruptcy court approvals, and
there can be no assurance that such conditions, approvals and other requirements
will be satisfied or obtained or that there may not be delays, which could be
significant in satisfying or obtaining them. Delays in obtaining the necessary
supporting votes in favor of Congoleum's plan of reorganization, as well as any
other delays in getting Congoleum's plan of reorganization approved by the
bankruptcy court, could result in a proceeding that takes longer, and is more
costly, than Congoleum has estimated. Furthermore, any such delay could result
in Congoleum's pre-packaged plan of reorganization not being confirmed by the
bankruptcy court or in the abandonment of the pre-packaged plan of
reorganization in favor of a non-prepackaged plan of reorganization. If a
pre-packaged plan of reorganization is abandoned in favor of a non-prepackaged
plan of reorganization, Congoleum would likely incur significantly more costs
due to the likely greater difficulty of negotiating a plan of reorganization
with more impaired classes of creditors. Also, obtaining confirmation of a plan
under those circumstances would likely take a considerable amount of time and
effort in order for the various parties involved to negotiate a plan in light of
their potentially conflicting interests. There can be no assurance that the
terms of any non-prepackaged plan of reorganization would be as favorable to
Congoleum, Congoleum's shareholders, including ABI, holders of Congoleum's
Senior Notes and other nonasbestos related constituents as the expected terms of
Congoleum's anticipated pre-packaged plan of reorganization.
24
Some additional factors that could cause actual results to differ from
Congoleum's and the Company's goals for resolving asbestos liability by
Congoleum pursuing a pre-packaged plan of reorganization bankruptcy filing
include: (i) the future cost and timing of estimated asbestos liabilities and
payments and availability of insurance coverage and reimbursement from insurance
companies, which underwrote the applicable insurance policies for Congoleum and
the Company, for asbestos-related claims and other costs relating to the
execution and implementation of any plan of reorganization pursued by Congoleum,
(ii) timely reaching agreement with other creditors, or classes of creditors,
that exist or may emerge, (iii) the Company's and Congoleum's satisfaction of
the conditions and obligations under their respective outstanding debt
instruments, and amendment of those outstanding debt instruments, as necessary,
to permit the contemplated note contribution and pledge in connection with
Congoleum's pre-packaged plan of reorganization and to make certain financial
covenants in those debt instruments less restrictive, (iv) the response from
time-to-time of the Company's and Congoleum's lenders, customers, suppliers and
other constituencies to the ongoing process arising from the strategy to settle
asbestos liability, including Congoleum's ability to obtain debtor-in-possession
financing from its current lender under its credit facility or from another
lender, (v) timely obtaining sufficient creditor and court approval of any
reorganization plan and (vi) compliance with the Bankruptcy Code, including
section 524(g).
As a result of Congoleum's significant liability and funding exposure for
asbestos claims, there can be no assurance that if Congoleum were to incur any
unforecasted or unexpected liability or disruption to its business or operations
it would be able to withstand that liability or disruption and continue as an
operating company. Any significant increase of the Company's asbestos liability
and funding exposure would likely have a material adverse effect on the
Company's business, operations and financial condition and possibly its ability
to continue as a going concern.
For further information regarding the Company's and Congoleum's asbestos
liability, insurance coverage and strategies to resolve that asbestos liability,
please see Notes A, D and E of Notes to Unaudited Consolidated Condensed
Financial Statements, which are included in this report.
The Company and its majority-owned subsidiary Congoleum may incur substantial
liability for environmental claims and compliance matters.
Due to the nature of the Company's and its majority-owned subsidiary Congoleum's
businesses and certain of the substances which are or have been used, produced
or discharged by them, the Company's and Congoleum's operations and 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 Company and Congoleum
facilities and off-site disposal locations. The Company and Congoleum have
historically expended substantial amounts for compliance with existing
environmental laws or regulations, including environmental remediation costs at
both third-party sites and Company and Congoleum-owned sites. The Company and
Congoleum will continue to be required to expend amounts in the future because
25
of the nature of their prior activities at their facilities, to comply with
existing environmental laws, and those amounts may be substantial. Although the
Company and Congoleum expect that they would have sufficient resources to fund
any such liabilities, there is no certainty that these amounts will not have a
material adverse effect on their respective financial positions because, as a
result of environmental requirements becoming increasingly strict, neither the
Company nor Congoleum is able to determine the ultimate cost of compliance with
environmental laws and enforcement policies. Moreover, in addition to
potentially having to pay substantial amounts for compliance, future
environmental laws or regulations may require or cause the Company or Congoleum
to modify or curtail their operations, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company and its majority-owned subsidiary Congoleum, may incur substantial
liability for other product and general liability claims.
In the ordinary course of their businesses, the Company and its majority-owned
subsidiary Congoleum become involved in lawsuits, administrative proceedings,
product liability claims (in addition to asbestos related claims) 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. These matters could have a material adverse effect on the Company's
business, results of operations and financial condition if the Company or
Congoleum, as applicable, is unable to successfully defend against or settle
these matters and its insurance coverage is insufficient to satisfy any
judgments against it or settlements relating to these matters or the Company or
Congoleum, as applicable, is unable to collect insurance proceeds relating to
these matters.
The Company and its majority-owned subsidiary Congoleum are dependent upon a
continuous supply of raw materials from third-party suppliers and would be
harmed if there were a significant, prolonged disruption in supply or increase
in its raw material costs.
The Company and its majority-owned subsidiary Congoleum generally design and
engineer their own products. Most of the raw materials required by the Company
for its manufacturing operations are available from multiple sources; however,
the Company 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 the Company's cost of materials, require product
reformulation or require qualification of new suppliers, any one or more of
which could materially adversely affect the Company's business, results of
operations or financial condition. The Company's majority-owned 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 Congoleum does not
anticipate any loss of this source of supply, replacement could take a
considerable period of time and interrupt production of certain products, which
could have a material adverse affect on the Company's business, results of
operations or financial condition.
26
The Company and its majority-owned subsidiary Congoleum operate in highly
competitive markets and some of their competitors have greater resources, and in
order to be successful, the Company and Congoleum must keep pace with and
anticipate changing customer preferences.
The market for the Company's and its majority-owned subsidiary Congoleum's
products and services is highly competitive. Some of their respective
competitors have greater financial and other resources and access to capital.
Furthermore, to the extent any of the Company's or Congoleum's competitors make
a filing under Chapter 11 of the Bankruptcy Code and emerge from bankruptcy as a
continuing operating company that has shed much of their pre-filing liabilities,
those competitors could have a cost competitive advantage over Congoleum. In
addition, in order to maintain their competitive positions, the Company and
Congoleum may need to make substantial investments in their businesses,
including, as applicable, product development, manufacturing facilities,
distribution network and sales and marketing activities. Competitive pressures
may also result in decreased demand for their products and in the loss of market
share for their products. Moreover, due to the competitive nature of their
industries, they may be commercially restricted from raising or even maintaining
the sales prices of their products, which could result in the incurrence of
significant operating losses if their expenses were to increase or otherwise
represent an increased percentage of sales.
The markets in which the Company and Congoleum compete are characterized by
frequent new product introductions and changing customer preferences. There can
be no assurance that the Company's and Congoleum's existing products and
services will be properly positioned in the market or that the Company and
Congoleum will be able to introduce new or enhanced products or services into
their respective markets on a timely basis, or at all, or that those new or
enhanced products or services will receive customer acceptance. The Company's
and Congoleum's failure to introduce new or enhanced products or services on a
timely basis, keep pace with industry or market changes or effectively manage
the transitions to new products, technologies or services could have a material
adverse effect on the Company's business, results of operations or financial
condition.
The Company and its majority-owned subsidiary Congoleum are subject to general
economic conditions and conditions specific to their respective industries.
The Company and its majority-owned subsidiary Congoleum are subject to the
effects of general economic conditions. A sustained general economic slowdown
could have serious negative consequences for the Company's business, results of
operations and financial condition. Moreover, their businesses are affected by
the economic factors that affect their respective industries.
The Company and its majority-owned subsidiary Congoleum could realize shipment
delays, depletion of inventory and increased production costs resulting from
unexpected disruptions of operations at any of the Company's or Congoleum's
facilities.
27
The Company's and its majority-owned subsidiary Congoleum's businesses depend
upon their ability to timely manufacture and deliver products that meet the
needs of their customers and the end users of their products. If the Company or
Congoleum were to realize an unexpected, significant and prolonged disruption of
its operations at any of its facilities, including disruptions in its
manufacturing operations, it could result in shipment delays of its products,
depletion of its inventory as a result of reduced production and increased
production costs as a result of taking actions in an attempt to cure the
disruption or carry on its business while the disruption remains. Any resulting
delay, depletion or increased production cost could result in increased costs,
lower revenues and damaged customer and product end user relations, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company and its majority-owned subsidiary Congoleum offer limited warranties
on their products which could result in the Company or Congoleum incurring
significant costs as a result of warranty claims.
The Company and its majority-owned subsidiary Congoleum offer a limited warranty
on many of their products against manufacturing defects. In addition, as a part
of its efforts to differentiate mid- and high-end products through color, design
and other attributes, Congoleum offers enhanced warranties with respect to wear,
moisture discoloration and other performance characteristics which generally
increase with the price of such products. If the Company or Congoleum were to
incur a significant number of warranty claims, the resulting warranty costs
could be substantial.
The Company and its majority-owned subsidiary Congoleum rely on a small number
of customers and distributors for a significant portion of their sales or to
sell their products.
The Company's tape and flooring divisions principally sell their products
through distributors. Sales to five unaffiliated customers accounted for
approximately 25% of the Company's tape division's net sales for the year ended
December 31, 2002 and 27% of its net sales for the year ended December 31, 2001.
The loss of two or more of those customers could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company's majority-owned subsidiary Congoleum principally sells its products
through distributors. While most of Congoleum's distributors have marketed
Congoleum's products for many years, replacements are necessary periodically to
maintain the strength of Congoleum's distribution network. Although Congoleum
has more than one distributor in some of its distribution territories and
actively manages its credit exposure to its distributors, the loss of a major
distributor could have a materially adverse impact on the Company's business,
results of operations, and financial condition. Congoleum derives a significant
percentage of its sales from two of its distributors. These two distributors
accounted for approximately 59% of Congoleum's net sales for the year ended
December 31, 2002 and 48% of Congoleum's net sales for the year ended December
31, 2001.
The Company's subsidiary K&M Associates L.P. sells its products through its own
direct sales force and, indirectly, through a wholly owned subsidiary and
through third-party sales representatives. Three of K&M Associates L.P.'s
customers accounted for approximately 75% of its
28
net sales for the year ended December 31, 2002 and 74% of its net sales for the
year ended December 31, 2001. The loss of K&M Associates L.P.'s largest customer
would likely have a material adverse effect on the Company's business, results
of operations and financial condition.
The Company and its majority-owned subsidiary Congoleum depend on key executives
to run their businesses, and the loss of any of these executives would likely
harm the Company's business.
The Company and its majority-owned subsidiary Congoleum depend on key executives
to run their businesses. In particular, the same persons that serve as key
executives at the Company also serve as key executives at Congoleum. The
Company's future success will depend largely upon the continued service of these
key executives, none of whom have an employment contract with the Company or
Congoleum, as applicable, and may terminate their employment at any time without
notice. Although certain key executives of the Company and Congoleum are,
directly or indirectly, large shareholders of the Company or Congoleum, and thus
are less likely to terminate their employment, the loss of any key executive, or
the failure by the key executive to perform in his current position, could have
a material adverse effect on the Company's business, results of operations and
financial condition.
Item 3. Quantitative and Qualitative Disclosures About 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. The substantial majority of the Company's outstanding
consolidated long-term debt as of June 30, 2003 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. 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 June 30, 2003, 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.
The Company does not currently 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 and does not hold any instruments for trading purposes.
29
Item 4: Controls and Procedures
a) Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based
on such evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
30
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note D "Commitments and Contingencies" and Note E "
Congoleum Asbestos Liabilities and Planned Reorganization" of the Notes to
Unaudited Consolidated Condensed Financial Statements are incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 7, 2003, the following
action was taken:
Three nominees were elected as Class I Directors who will hold office
until the Annual Meeting of Stockholders in 2006 and until their
successors are duly elected and qualify.
Withheld From
Name Votes For All Nominees
---- --------- ------------
Gilbert K. Gailius 2,712,806 124,289
Frederick H. Joseph 2,755,486 81,609
Richard G. Marcus 2,712,486 124,609
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation (2)
3.2 By-Laws, amended and restated as of March 13, 1991 (1)
10.1 Settlement Agreement Between Congoleum and Various
Asbestos Claimants dated April 10, 2003
10.1.1 First Amendment to Settlement Agreement Between
Congoleum and Various Asbestos Claimants dated June
6, 2003
10.2 Collateral Trust Agreement, dated April 16, 2003,
by and between Congoleum, Arthur J. Pergament,
solely in his capacity as the Collateral Trustee of
the Collateral Trust, and Wilmington Trust Company,
solely in its capacity as Delaware Trustee of the
Collateral Trust
31
10.2.1 First Amendment to Collateral Trust Agreement,
dated June 6, 2003, by and between Congoleum,
Arthur J. Pergament, solely in his capacity as the
Collateral Trustee of the Collateral Trust, and
Wilmington Trust Company, solely in its capacity as
Delaware Trustee of the Collateral Trust
10.3 Security Agreement, dated April 16, 2003, by and
between Congoleum and Arthur J. Pergament, solely
in his capacity as the Collateral Trustee of the
Collateral Trust
10.3.1 Second Security Agreement, dated April 17, 2003, by
and between Congoleum and Arthur J. Pergament,
solely in his capacity as the Collateral Trustee of
the Collateral Trust
10.3.2 Termination Agreement, dated June 6, 2003, by and
between Congoleum and Arthur J. Pergament, solely
in his capacity as the Collateral Trustee of the
Collateral Trust
10.3.3 Superceding Security Agreement, dated June 11,
2003, by and between Congoleum and Arthur J.
Pergament, solely in his capacity as the Collateral
Trustee of the Collateral Trust
31.1 Certification of CEO
31.2 Certification of CFO
32.1 Certification of the Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
(2) Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
(b) Reports on Form 8-K
On April 1, 2003, the Company filed a Current Report on Form 8-K, dated
the same date, under Item 5, announcing that its majority-owned subsidiary
Congoleum Corporation had reached an agreement in principle to settle its
asbestos claims and furnished the Current Report on Form 8-K, under Item
12, relating to the Company's press release dated March 31, 2003
announcing its financial results for the year-ended December 31, 2002.
32
On May 16, 2003, the Registrant furnished a Current Form 8-K, dated the
same date, under Item 12, relating to the Company's press release dated
May 14, 2003 announcing its financial results for the fiscal quarter ended
March 31, 2003 and declaring a dividend.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BILTRITE INC.
----------------------
(Registrant)
Date: August 13, 2003 BY: /s/ Howard N. Feist III
--------------------------------
Howard N. Feist III
Vice President-Finance
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
33
INDEX OF EXHIBITS
Exhibit No. Description
-----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation (2)
3.2 By-Laws, amended and restated as of
March 13, 1991(1)
10.1 Settlement Agreement Between Congoleum
and Various Asbestos Claimants dated
April 10, 2003
10.1.1 First Amendment to Settlement Agreement
Between Congoleum and Various Asbestos
Claimants dated June 6, 2003
10.2 Collateral Trust Agreement, dated April
16, 2003, by and between Congoleum,
Arthur J. Pergament, solely in his
capacity as the Collateral Trustee of
the Collateral Trust, and Wilmington
Trust Company, solely in its capacity as
Delaware Trustee of the Collateral Trust
10.2.1 First Amendment to Collateral Trust
Agreement, dated June 6, 2003, by and
between Congoleum, Arthur J. Pergament,
solely in his capacity as the Collateral
Trustee of the Collateral Trust, and
Wilmington Trust Company, solely in its
capacity as Delaware Trustee of the
Collateral Trust
10.3 Security Agreement, dated April 16,
2003, by and between Congoleum and
Arthur J. Pergament, solely in his
capacity as the Collateral Trustee of
the Collateral Trust
10.3.1 Second Security Agreement, dated April
17, 2003, by and between Congoleum and
Arthur J. Pergament, solely in his
capacity as the Collateral Trustee of
the Collateral Trust
10.3.2 Termination Agreement, dated June 6,
2003, by and between Congoleum and
Arthur J. Pergament, solely in his
capacity as the Collateral Trustee of
the Collateral Trust
34
10.3.3 Superceding Security Agreement, dated
June 11, 2003, by and between Congoleum
and Arthur J. Pergament, solely in his
capacity as the Collateral Trustee of
the Collateral Trust
31.1 Certification of CEO
31.2 Certification of CFO
32.1 Certification of the Chief Executive
Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
---------------------------
(1) Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
(2) Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
35