-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lzw3ele+xMo7hEIcJYZlr4CtFL0/S9B85/YmJd62xQFKNpQutGlTnCp4HWoW4WYv cQ0reHNZ3ITp/UwEBvbJdQ== 0001005477-99-005091.txt : 19991111 0001005477-99-005091.hdr.sgml : 19991111 ACCESSION NUMBER: 0001005477-99-005091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BILTRITE INC CENTRAL INDEX KEY: 0000004611 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 041701350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04773 FILM NUMBER: 99746086 BUSINESS ADDRESS: STREET 1: 57 RIVER STREET CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 BUSINESS PHONE: 6172376655 MAIL ADDRESS: STREET 1: 57 RIVER STREET CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BILTRITE RUBBER CO INC DATE OF NAME CHANGE: 19730621 10-Q 1 QUARTERLY REPORT 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 October 2, 1999 Commission File Number 1-4773 AMERICAN BILTRITE INC. (Exact name of registrant as specified in its charter) Delaware 04-1701350 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 57 River Street Wellesley Hills, Massachusetts 02481-2097 (Address of Principal Executive Offices) (781) 237-6655 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date covered by this report. Title of Each Class Outstanding at November 8, 1999 - ------------------- ------------------------------- Common 3,573,376 shares FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In thousands of dollars) October 2, December 31, 1999 1998 ---------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 38,762 $ 59,505 Accounts receivable, net 40,487 33,551 Inventories 88,490 69,722 Prepaid expenses & other current assets 10,772 9,199 --------- --------- TOTAL CURRENT ASSETS 178,511 171,977 Goodwill, net 21,636 22,332 Deferred income taxes 1,028 1,863 Other assets 14,065 16,097 Property, plant and equipment, net 131,128 123,770 --------- --------- $ 346,368 $ 336,039 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 8,500 Accounts payable 24,417 $ 20,596 Accrued expenses 54,263 50,328 Current portion of long-term debt 3,143 4,305 --------- --------- TOTAL CURRENT LIABILITIES 90,323 75,229 Long-term debt 110,993 114,101 Other liabilities 52,858 56,039 Noncontrolling interests 18,074 19,433 STOCKHOLDERS' EQUITY Common stock, par value $0.01-authorized 15,000,00 shares, issued 4,607,902 shares 46 46 Additional paid-in capital 19,423 19,423 Retained earnings 71,925 68,247 Accumulated other comprehensive loss (4,333) (4,906) Less cost of shares in treasury (12,941) (11,573) --------- --------- 74,120 71,237 --------- --------- $ 346,368 $ 336,039 ========= ========= See accompanying notes to consolidated condensed financial statements. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In thousands of dollars)
Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ---- ---- ---- ---- Net sales $106,950 $110,681 $317,939 $325,570 Interest and other income 980 1,416 2,935 2,764 -------- -------- -------- -------- 107,930 112,097 320,874 328,334 -------- -------- -------- -------- Costs and expenses: Cost of products sold 72,835 75,280 219,125 224,237 Selling, general and administrative expenses 27,236 26,227 82,885 81,071 Interest 2,318 2,364 7,109 6,577 -------- -------- -------- -------- 102,389 103,871 309,119 311,885 -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 5,541 8,226 11,755 16,449 Income taxes 2,003 3,212 4,467 6,404 Noncontrolling interests (701) (2,019) (1,661) (3,624) -------- -------- -------- -------- INCOME BEFORE EXTRA- ORDINARY ITEM 2,837 2,995 5,627 6,421 Extraordinary item -- early retirement of debt, net of income tax benefit (1,174) (1,174) -------- -------- -------- -------- NET EARNINGS $ 2,837 $ 1,821 $ 5,627 $ 5,247 ======== ======== ======== ======== Earnings per share: Basic Earnings before extraordinary item $ .79 $ .82 $ 1.56 $ 1.76 Extraordinary item (.32) (.32) -------- -------- -------- -------- Net income $ .79 $ .50 $ 1.56 $ 1.44 ======== ======== ======== ======== Diluted Earnings before extraordinary item $ .78 $ .79 $ 1.53 $ 1.68 Extraordinary item (.31) (.31) -------- -------- -------- -------- Net income $ .78 $ .48 $ 1.53 $ 1.37 ======== ======== ======== ======== Dividends declared per common share $ .125 $ .125 $ .375 $ .325
See accompanying notes to consolidated condensed financial statements. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands of dollars) Nine Months Ended October 2, October 3, 1999 1998 -------- -------- OPERATING ACTIVITIES Net earnings $ 5,627 $ 5,247 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 11,936 11,458 Loss on early retirement of debt 3,809 Accounts and notes receivable (7,022) (12,804) Inventories (18,799) (1,235) Prepaid expenses and other current assets (4,008) 466 Deferred taxes 2,722 Accounts payable and accrued expenses 6,104 12,791 Noncontrolling interests 1,624 2,384 Other 567 (443) -------- -------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (1,249) 21,673 INVESTING ACTIVITIES Investment in property, plant and equipment (18,030) (13,488) Purchase of short-term investments (4,301) (15,000) Maturities of short-term investments 4,301 19,600 -------- -------- NET CASH USED BY INVESTING ACTIVITIES (18,030) (8,888) FINANCING ACTIVITIES Net short-term borrowings 8,500 1,300 Long-term borrowings 101,728 Debt insurance costs (2,821) Payments on long-term debt (4,179) (77,787) Premium payments on early retirement of debt (2,563) Purchase of treasury shares (4,950) (1) Proceeds from exercise of stock options 163 Dividends paid (1,350) (1,183) -------- -------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,979) 18,836 Effect of foreign exchange 515 (638) -------- -------- (DECREASE) INCREASE IN CASH (20,743) 30,983 Cash and cash equivalents at beginning of period 59,505 19,306 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,762 $ 50,289 ======== ======== See accompanying notes to consolidated condensed financial statements. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 2, 1999 Note A - Basis of Presentation The accompanying unaudited consolidated condensed financial statements which include the accounts of American Biltrite Inc. and its wholly-owned subsidiaries ("ABI") as well as entities over which it has voting control have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended October 2, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. Note B - Inventories Inventory at October 2, 1999 and December 31, 1998 consisted of the following (in thousands): October 2, December 31, 1999 1998 ------- ------- Finished goods $65,361 $50,683 Work-in-process 10,774 9,201 Raw materials and supplies 12,355 9,838 ------- ------- $88,490 $69,722 ======= ======= Note C - Commitments and Contingencies ABI has recorded what it believes are adequate provisions for environmental remediation and product-related liabilities. While the Company believes that its estimate of the future amount of these liabilities is reasonable, the ultimate outcome of these matters cannot be determined. Note D - Income Taxes The Company anticipates an effective income tax rate of 38% in 1999 compared to 39% in 1998 based upon a lower tax rate from a subsidiary for 1999. During the third quarter of 1999, the Company recorded an adjustment to reflect the expected income tax rate for 1999. Note E - Comprehensive Income As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. Statement 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 2, 1999 The following table presents total comprehensive income for the three months and nine months ended October 2, 1999 and October 3, 1998 (in thousands):
Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ---- ---- ---- ---- Net earnings $ 2,837 $ 1,821 $ 5,627 $ 5,247 Foreign currency translation adjustments (125) (748) 573 (1,168) ------- ------- ------- ------- Total comprehensive income $ 2,712 $ 1,073 $ 6,200 $ 4,079 ======= ======= ======= =======
Note F - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share for the three months and nine months ended October 2, 1999 and October 3, 1998 (in thousands, except per share amounts):
Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ---- ---- ---- ---- Numerator: Net income $2,837 $1,821 $5,627 $5,247 ====== ====== ====== ====== Denominator: Denominator for basic earnings per share: Weighted-average shares 3,573 3,643 3,602 3,640 Denominator for diluted earnings per share: Dilutive employee stock options 71 163 84 184 ------ ------ ------ ------ Weighted-average shares and assumed conversions 3,644 3,806 3,686 3,824 ====== ====== ====== ====== Basic earnings per share $ .79 $ .50 $ 1.56 $ 1.44 ====== ====== ====== ====== Diluted earnings per share $ .78 $ .48 $ 1.53 $ 1.37 ====== ====== ====== ======
FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 2, 1999 Note G - Industry Segments Description of Products and Services The Company has four reportable segments: flooring products, tape products, jewelry and a Canadian division which produces flooring and rubber products. Congoleum represents the Company's flooring products segment, which manufactures vinyl and vinyl composition floor coverings with distribution primarily through floor covering distributors, retailers and contractors for commercial and residential use. The tape products segment consists of two production facilities in the United States and finishing and sales facilities in Belgium and Singapore. The tape products segment manufactures paper, film, HVAC, electrical, shoe and other tape products for use in industrial and automotive markets. The jewelry segment reflects the results of K&M Associates L.P., a national costume jewelry supplier to the mass merchandiser markets. The Company's Canadian division produces flooring, rubber products, including materials used by footwear manufacturers, and other industrial products.
Segment Profit and Assets (In thousands) Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues Revenues from external customers: Flooring products $ 61,779 $ 68,411 $191,071 $201,583 Tape products 21,902 19,851 65,742 61,932 Jewelry 12,643 13,791 29,842 34,465 Canadian division 10,626 8,628 31,284 27,590 -------- -------- -------- -------- Total revenues from external customers 106,950 110,681 317,939 325,570 -------- -------- -------- -------- Intersegment revenues: Flooring products 715 233 1,117 686 Tape products 32 46 137 159 Jewelry Canadian division 1,026 1,212 5,523 5,074 -------- -------- -------- -------- Total intersegment revenues 1,773 1,491 6,777 5,919 -------- -------- -------- -------- 108,723 112,172 324,716 331,489 Reconciling items Intersegment revenues (1,773) (1,491) (6,777) (5,919) -------- -------- -------- -------- Total consolidated revenues $106,950 $110,681 $317,939 $325,570 ======== ======== ======== ========
FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 2, 1999 Note G - Industry Segments continued
(In thousands) Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ---- ---- ---- ---- Segment profit (loss) Flooring products $ 2,417 $ 6,151 $ 5,515 $ 10,989 Tape products 1,548 738 4,410 2,222 Jewelry 860 1,030 (395) 1,806 Canadian division 972 651 3,006 2,422 -------- -------- -------- -------- Total segment profit 5,797 8,570 12,536 17,439 Reconciling items Corporate office loss (293) (375) (721) (927) Intercompany profit 37 31 (60) (63) -------- -------- -------- -------- Total consolidated earnings before income taxes and other items $ 5,541 $ 8,226 $ 11,755 $ 16,449 ======== ======== ======== ========
October 2, December 31, 1999 1998 ---- ---- Segment assets Flooring products $ 234,598 $ 231,865 Tape products 58,645 48,308 Jewelry 20,454 16,298 Canadian division 25,294 20,710 --------- --------- Total segment assets 338,991 317,181 Reconciling items Corporate office assets 27,699 29,446 Intersegment accounts receivable (20,110) (10,436) Intersegment profit in inventory (212) (152) --------- --------- Total consolidated assets $ 346,368 $ 336,039 ========= ========= FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 2, 1999 Note H - Changes in Accounting Principles Effective January 1, 1999, the Company adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This Statement requires certain costs of internally developed software to be capitalized for years beginning after December 15, 1998. The adoption of this SOP did not have a material impact on the Company's financial statements. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 2, 1999 Results of Operations Net sales for the third quarter of 1999 were $107.0 million compared to $110.7 million for the third quarter of 1998, reflecting a decrease of $3.7 million or 3%. This sales decrease occurred at Congoleum Corporation ("Congoleum") and at K&M Associates L.P. ("K&M"). At Congoleum, the decline in sales is due primarily to lower average selling prices and declines in sales of commercial products and promotional goods. At K&M, sales were lower than last year mainly due to the late delivery of third quarter orders to certain major customers that did ship in the fourth quarter. Sales at ABI's Tape and Canadian operations were higher than last year. Sales for the first nine months of 1999 were $317.9 million compared to $325.6 million last year. Sales performance at Congoleum and K&M, as noted above, accounts for the year-to-date decrease, partially offset by increased sales at ABI's Tape and Canadian operations. Interest and other income decreased in the current quarter to $1.0 million from $1.4 million in last year's third quarter. The decrease in the current quarter is primarily due to lower foreign exchange gains experienced in Belgium compared to last year. Cost of products sold as a percentage of net sales remained unchanged with the current quarter increasing to 68.1% from 68.0% in last year's third quarter and for the nine month period was 68.9% in both years. At Congoleum, cost of products sold as a percentage of net sales was higher in both the third quarter and nine months of 1999 compared to 1998 due to lower production volumes and lower average selling prices in 1999, which more than offset benefits from their improved manufacturing efficiencies. At ABI's Tape and Canadian operations, cost of products sold was improved in 1999 during both the third quarter and nine months from increased sales and greater production volume. Selling, general and administrative expenses as a percentage of net sales in the current quarter increased to 25.5% from 23.7% last year and for the current nine months increased to 26.1% from 24.9% and is primarily the result of lower sales volume levels experienced in both the current quarter and nine months with only minor expense increases. Interest expense for the nine months of 1999 reflects a slight increase compared to last year and is due to higher debt outstanding at Congoleum. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 2, 1999 Income before extraordinary item for the third quarter of 1999 was $2.8 million compared to $3.0 million last year and for the first nine months of 1999 was $5.6 million compared to $6.4 million last year. Operating results were positive at American Biltrite's Tape and Canadian operations in both the current quarter and nine months while profits were lower at Congoleum. K&M was profitable during the third quarter at a level comparable to last year, but they generated losses in the first and second quarters this year compared to profits in 1998. The Company anticipates an effective income tax rate of 38% in 1999 compared to 39% in 1998 based upon a lower tax rate from a subsidiary for 1999. During the third quarter of 1999, the Company recorded an adjustment to reflect the expected income tax rate for 1999. As described in the Liquidity and Capital Resources section, Congoleum refinanced its long-term debt during the third quarter of 1998 and recorded an extraordinary after-tax charge of $2.4 million, ABI's share being $1.2 million or $.32 per share for debt extinguishment costs in connection with this transaction. Liquidity and Capital Resources Cash and cash equivalents decreased $20.7 million for the nine months ended October 2, 1999 to $38.8 million. Working capital was $88.2 million, down from $96.7 million at year end 1998. The ratio of current assets to current liabilities at October 2, 1999 was 2.0 and at December 31, 1998 was 2.3. Cash used by operations was $1.2 million in the first nine months of 1999 primarily due to purchases of inventory at Congoleum for the introduction of their new wood laminate product line and increases in their sheet products inventory resulting from larger, more economical production runs. Capital expenditures in the current nine months were $18.0 million and depreciation and amortization expense was $11.9 million. It is anticipated that total year capital spending will be in the range of $24 to $26 million. On August 3, 1998, Congoleum issued $100 million of 8 5/8% Senior Notes maturing August 1, 2008 priced at 99.505 to yield 8.70%. Proceeds of the offering were used to redeem all of the 9% Senior Notes, including accrued interest and prepayment premium, to pay certain fees and expenses in connection with the offering, and for working capital and general corporate purposes. In connection with this offering, Congoleum recorded an extraordinary after-tax charge of $2.4 million in the third quarter of 1998, ABI's share of this charge was $1.2 million. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 2, 1999 The Company has established a reserve for product related liabilities and an environmental reserve against which the costs of administration and remediation are and will be charged. Since legal proceedings tend to be unpredictable and costly, resolution of an environmental proceeding could possibly be material to the results of operations or cash flow for a particular quarterly or annual reporting period. Cash requirements for capital expenditures, working capital, debt service and the current authorization to repurchase $3.3 million of ABI's Common Stock and $1.2 million of Congoleum's Common Stock are expected to be financed from operating activities and borrowings under existing bank lines of credit which at ABI are presently $35.0 million and at Congoleum are $30.0 million. During the nine months ended October 2, 1999, ABI repurchased $1.4 million of its Common Stock and Congoleum repurchased $3.6 million of its Common Stock. In 1996, the Company began the initial planning of a comprehensive initiative to address the impact of the Year 2000 on its information and equipment systems. The Company organized a Year 2000 oversight team to develop a strategy of evaluation, implementation, testing and contingency planning to address the Company's Year 2000 readiness. The evaluation phase involved performing a complete, company-wide inventory to identify all internal, general purpose and production hardware and software systems, as well as any embedded logic devices used to control equipment or facilities, that required modification to become Year 2000 compliant. In addition to the Company's internal assessment, the Company communicated with all its distributors and all key third party suppliers of goods and services to determine their states of Year 2000 readiness, implementation of Year 2000 compliant systems and related contingency plans. In the second quarter of 1997, the Company began the implementation and testing phase of replacing or modifying system hardware, software and devices. As of September 1999, the Company has completed work on 98% of the systems identified as requiring modification. The remaining projects, which will be completed in the current fourth quarter, are not business essential. Costs directly associated with achieving Year 2000 compliance, including modifying computer software or converting to new programs, consist of payments to third parties as well as an allocation of the payroll and benefits of its employees based on the amount of their time devoted to this activity. These costs are expensed as incurred. Costs for new hardware are capitalized in accordance with the Company's fixed asset policy, and any equipment retired is written off. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 2, 1999 The following table summarizes the Company's direct Year 2000 compliance expenditures (actual and planned) by year: (In thousands) 1997 1998 1999 ---- ---- ---- Expenses paid to third parties $307 $464 $412 Allocated payroll costs 457 538 254 Capital expenditures 120 415 194 In addition to work undertaken explicitly to achieve Year 2000 compliance, the Company has replaced or upgraded a number of systems in the ordinary course of business where the replacement or upgrade has, in addition to its primary benefits, also provided Year 2000 compliance. The nature of these costs, and their accounting treatment, is the same as described above. The following table summarizes the Company's actual or planned expenditures on systems improvements undertaken for reasons unrelated to the Year 2000, but also serving to achieve Year 2000 compliance: (In thousands) 1997 1998 1999 ---- ---- ---- Expenses paid to third parties $118 $505 $836 Allocated payroll costs 74 300 255 Capital expenditures 244 470 535 The costs of achieving Year 2000 compliance, and of improving the Company's systems, are being funded through operating cash flow. With respect to embedded logic devices used to monitor or control equipment or facilities, the Company has completed a survey of all locations and identified 21 devices which must be modified or replaced at an estimated aggregate cost of $0.3 million. As of the first week in October 1999, the Company has replaced all of these devices. Although the Company believes it has taken the necessary steps to ensure that the Company will be Year 2000 compliant, there can be no assurances that all third parties will be Year 2000 compliant or that unforeseen Year 2000 issues will not arise. Management currently believes the worst case scenario with any reasonable probability is that a small number of vendors, who are not critical to the operation of the Company's business, will be unable to supply materials for a short time after January 1, 2000, and that minor additional systems modifications not identified during evaluation or testing will be identified and corrected in a matter of days. The Company does not anticipate any disruption of service to its customers. The Company has prepared contingency plans for the various potential disruptions that could occur in spite of its own efforts and representations from its distributors and suppliers. FORM 10-Q PART I. FINANCIAL INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 2, 1999 Market Risk The Company is exposed to changes in prevailing market interest rates affecting the return on its investments but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and short-term (less than one year) maturities. The carrying amount of these investments approximates fair value due to the short-term maturities. Substantially all of the Company's outstanding long-term debt as of October 2, 1999 consisted of indebtedness with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. The Company operates internationally, principally in Canada, Europe and the Far East, giving rise to exposure to market risks from changes in foreign exchange rates. To a certain extent, foreign currency exchange rate movements also affect the Company's competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors. For foreign currency exposures existing at October 2, 1999, a 10% unfavorable movement in currency exchange rates in the near term would not materially affect ABI's consolidated operating results, financial position or cash flows. Under its current policies, the Company does not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage its exposure to changes in interest rates, foreign currency exchange rates, commodity prices or equity prices. FORM 10-Q PART II. OTHER INFORMATION AMERICAN BILTRITE INC. AND SUBSIDIARIES October 2, 1999 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended October 2, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN BILTRITE INC. ---------------------- (Registrant) Date: November 9, 1999 BY: /s/ Gilbert K. Gailius ---------------------- Gilbert K. Gailius Vice President-Finance EX-27 2 FDS --
5 1,000 9-mos DEC-31-1999 JAN-01-1999 OCT-02-1999 38,762 0 40,487 0 88,490 178,511 131,128 0 346,368 90,323 0 0 0 46 74,074 346,368 317,939 320,874 219,125 309,119 0 0 7,109 11,755 4,467 0 0 0 0 5,627 1.56 1.53
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