eps2914.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or
15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31,
2007
Commission File Number
1-4773
AMERICAN
BILTRITE INC.
(Exact name of registrant as specified
in its charter)
Delaware
|
04-1701350
|
(State or Other Jurisdiction
of
|
(IRS Employer Identification
No.)
|
Incorporation or
Organization)
|
|
57 River Street
Wellesley Hills, MA 02481-2097
(Address of Principal Executive
Offices)
(781) 237-6655
(Registrant’s telephone number,
including area code)
Securities registered pursuant to
Section 12(b) of the Act:
|
Name
of Exchange on
|
Title
of Each Class
|
Which
Registered
|
|
|
Common
Stock, $.01 Par Value
|
American
Stock Exchange
|
Securities registered pursuant to
Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES o NO x
Indicate by check mark if the Registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90
days. YES x NO o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form
10-K. o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer o Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO x
The aggregate market value of the
registrant's common stock held by non-affiliates as of June 29, 2007 was $13.5 million.
The number of shares of the registrant's
common stock, par value $.01 per share, outstanding as of March 14, 2008 was 3,441,551.
Documents
Incorporated by Reference – Portions of the proxy statement for the annual
meeting of stockholders to be held on May 6, 2008, which will be filed by the
registrant within 120 days after December 31, 2007, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
Factors That
May Affect Future Results –
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 registrant's expectations, as of the date of this report, of future
events. Except as required by applicable law, the registrant
undertakes no obligation to update any of these forward-looking
statements. Although the registrant believes that its expectations
are based on reasonable assumptions, within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. Readers are cautioned not to
place undue reliance on any forward-looking statements. Factors that
could cause or contribute to the registrant's actual results differing from its
expectations include those factors discussed elsewhere in this report, including
in Item 1A (Risk Factors).
PART
I
ITEM 1. BUSINESS
General Development of
Business
American Biltrite Inc. (together with,
unless the context otherwise indicates, its wholly-owned subsidiaries and
K&M Associates L.P., "ABI" or the "Company") was organized in 1908 and is a
Delaware corporation. ABI's major
operations include its Tape Division, a controlling interest in K&M
Associates L.P., a Rhode
Island limited partnership
("K&M"), and ownership of a Canadian subsidiary, American Biltrite
(Canada) Ltd. ("AB Canada"). ABI
also presently owns 55.4% of the outstanding common stock of Congoleum
Corporation, a Delaware corporation
("Congoleum"). Congoleum filed a voluntary petition with the
United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy
Court”) (Case No. 03-51524) seeking relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in 2003. ABI expects its ownership interest in
Congoleum to be eliminated pursuant to the terms of the plan of reorganization for Congoleum pending in the Bankruptcy
Court.
The Tape Division produces
adhesive-coated, pressure-sensitive papers and films used to protect material
during handling or storage or to serve as a carrier for transferring decals or
die-cut lettering. The Tape Division also produces pressure sensitive
tapes and adhesive products used for applications in the heating, ventilating
and air conditioning (HVAC), footwear, automotive, electrical and electronic
industries.
In 1995, ABI acquired a controlling
interest in K&M, a designer, supplier, distributor and servicer of a wide
variety of adult, children's and specialty items of fashion jewelry and related
accessories throughout the U.S. and Canada. ABI, through wholly-owned
subsidiaries, owns an aggregate 95.5% interest (7% as sole general partner and
88.5% in limited partner interests) in K&M. K&M wholesales
its products to mass merchandisers, specialty stores and department
stores.
Congoleum is a leading manufacturer of
resilient sheet and tile flooring. In 1993, ABI acquired an ownership
position in Congoleum in exchange for its U.S. tile business (the "Tile
Division"). In 1995, ABI acquired voting control of Congoleum when
Congoleum sold a new issue of shares of its Class A common stock to the public
which had one vote per share and used the proceeds to redeem most of the
two-vote-per-share Class B shares held by the then majority
shareholder. ABI's interest has increased further since then as a
result of Congoleum's repurchases of its common stock combined with open market
purchases of Congoleum common stock by ABI. As of December 31, 2007,
ABI's ownership of 151,100 shares of Congoleum's Class A common stock and
4,395,605 shares of Congoleum's Class B common stock represented 69.4% of the
outstanding equity voting interests of Congoleum.
Congoleum
is a defendant in a large number of asbestos-related lawsuits. On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to
resolve claims asserted against it related to the use of asbestos in its
products decades ago. During 2003, Congoleum had obtained the
requisite votes of asbestos personal injury claimants necessary to seek approval
of a proposed, pre-packaged Chapter 11 plan of reorganization. In
January 2004, Congoleum filed its proposed plan of reorganization and disclosure
statement with the Bankruptcy Court. From that filing through 2007,
several subsequent plans were negotiated with representatives of the Asbestos
Claimants’ Committee (the “ACC”), the Future Claimants’ Representative (the
“FCR”) and other asbestos claimant representatives. In addition, an
insurance company, Continental Casualty Company, and its affiliate, Continental
Insurance Company (collectively, “CNA”), filed a plan of reorganization and the
Official Committee of Bondholders (the “Bondholders’ Committee”) (representing
holders of Congoleum’s 8 5/8% Senior Notes due August 1, 2008 (the “Senior
Notes”)) also filed a plan of reorganization. In May 2006, the
Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in reorganization plan mediation
discussions. Several mediation sessions took place during 2006,
culminating in two competing plans, one which Congoleum filed jointly with the
ACC in September 2006 (the “Tenth Plan”) and the other filed by CNA, both of
which the Bankruptcy Court subsequently ruled were not confirmable as a matter
of law. In March 2007, Congoleum resumed global plan
mediation discussions with the various parties seeking to resolve the issues
raised in the Bankruptcy Court’s ruling with respect to the Tenth
Plan. In July 2007, the FCR filed a plan of reorganization and
proposed disclosure statement. After extensive further
mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’
Committee and Congoleum jointly filed a plan of reorganization (the “Joint
Plan”). The Bankruptcy Court approved the disclosure statement for
the Joint Plan in February 2008, and a confirmation hearing is scheduled for
June 26, 2008. Under the terms of the Joint Plan, ABI's ownership interest in Congoleum
would be eliminated. ABI expects that its ownership interest in
Congoleum would be eliminated under any alternate plan or outcome in Congoleum’s
Chapter 11 case. See Notes 1 and 9 of the Notes to
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K.
Outside the United States, the Tape Division operates production
facilities in Belgium, Italy and Singapore, where bulk tape products are converted
into various sizes. Sales offices at the Singapore and Italy locations and sales representative
offices in Shanghai, China, Bangkok Thailand and Seoul, South Korea enable quicker response to customer
demands in the European and Asian markets. The Company’s wholly-owned
Canadian subsidiary, American Biltrite (Canada) Ltd., produces resilient floor
tile, rubber tiles and rolled rubber flooring and industrial products (including
conveyor belting, truck and trailer splash guards and sheet rubber material) and
imports certain rubber and tile products from China for
resale. K&M maintains a purchasing office in China, from which it sources the majority of
the products it sells.
ABI owns 50% of Compania Hulera Sula,
S.A. de C.V. ("Hulera Sula"), a Honduran corporation, which produces soles,
heels, sandals and other footwear products under license from
ABI. Hulera Sula in turn owns 100% of Hulera Sacatepequez, S.A., a Guatemalan corporation which
manufactures products in Guatemala similar to those of Hulera
Sula. Hulera Sula also owns 60% of Fomtex, S.A., a Guatemalan corporation, which
manufactures foam mattresses, beds and other foam
products.
In October 2003, ABI discontinued the
operations of its wholly owned subsidiary Janus Flooring Corporation (“Janus
Flooring”), which manufactured pre-finished hardwood flooring in Canada. Results from Janus
Flooring, including charges resulting from the shutdown, are reported as a
discontinued operation in the Company's consolidated financial statement set
forth in Item 8 of this Annual Report on Form 10-K. During 2006, the
remaining assets of Janus Flooring were sold, and the discontinued operation was
effectively dissolved. As of December 31, 2006, the Company
merged Janus Flooring with and into American Biltrite (Canada) Ltd.
For financial reporting purposes, ABI
operates in four industry segments: flooring products, the Tape
Division, jewelry and the Canadian division, which produces flooring and rubber
products. See Note 14 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K.
Narrative Description of
Business
Marketing,
Distribution and Sales The Tape Division's
protective papers and films are sold domestically and throughout the world,
principally through distributors, but also directly to certain
manufacturers. Other tape products are marketed through the Tape
Division's own sales force and by third-party sales representatives and
distributors throughout the world. ABI's Belgian, Italian and
Singapore facilities sell these products
throughout Europe and the Far East.
The products of K&M are sold
domestically and in Canada through its own direct sales force and
through third-party sales representatives. K&M's business and
operations experience seasonal variations. In general, fashion
jewelry supply, distribution and service businesses respond to the seasonal
demands of mass merchandisers and other major retailers, which typically peak in
preparation for end-of-year holiday shopping. Accordingly, K&M's
working capital needs tend to be greatest in the second and third fiscal
quarters as it increases inventories in advance of its peak selling season,
while its revenues tend to be greater toward the end of each fiscal year,
especially in the latter part of the third quarter and the first half of the
fourth quarter.
AB Canada's floor tile, rubber products
and industrial products are marketed principally through
distributors. Seasonal variations in the sales and working capital
requirements of this division are not significant.
Congoleum currently sells its products
through approximately 13 distributors providing approximately 51 distribution
points in the United
States and Canada, as well as directly to a limited
number of mass market retailers. Congoleum considers its distribution
network to be very important to maintaining a competitive
position. Although Congoleum has more than one distributor in some of
its distribution territories and actively manages its credit exposure to its
customers, the loss of a major customer could have a materially adverse impact
on Congoleum's business, results of operations and financial condition, at least
until a suitable replacement is in place. The sales pattern for
Congoleum's products is seasonal, with peaks in retail sales typically occurring
during March/April/May and September/October. Orders are generally
shipped as soon as a truckload quantity has been accumulated, and backorders can
be canceled without penalty.
Hulera Sula's footwear and foam products
are marketed and distributed in certain Central American
countries.
Financial information about products
that contributed more than 10% of the Company's consolidated revenue during the
last two fiscal years is included in Note 14 of the Notes to the Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.
Working
Capital and Cash Flow In general, ABI's working capital
requirements are not affected by accelerated delivery requirements of major
customers or by obtaining a continuous allotment of raw material from
suppliers. ABI does not provide special rights for customers to
return merchandise and does not provide special seasonal or extended terms to
its customers. K&M does provide pre-approved allowances in the
form of markdowns and return authorizations as required.
Congoleum produces goods for inventory
and sells on credit to customers. Generally, Congoleum's distributors
carry inventory as needed to meet local or rapid delivery
requirements. Congoleum’s typical credit terms generally require
payment on invoices within 31 days, with a discount available for earlier
payment. These practices are typical within the
industry.
During
2007, Congoleum paid $13.1 million in fees and expenses (net of recoveries)
related to implementation of its planned reorganization under Chapter 11 and
litigation with certain insurance companies. Congoleum expects to spend an
additional $24.7 million in 2008 on these matters. At December 31, 2007,
Congoleum had incurred but not paid approximately $9.0 million in additional
fees and expenses for services rendered through that date with respect to these
matters. Congoleum anticipates that its debtor-in-possession
financing facility (including anticipated extensions thereof), together with
cash from operations, will provide it with sufficient liquidity to operate
during 2008 while under Chapter 11 protection. There can be no assurances
that Congoleum will continue to be in compliance with the required covenants
under this facility or that the debtor-in-possession facility (as extended) will
be renewed prior to its expiration if a plan of reorganization is not confirmed
before that time. For a plan of reorganization to be confirmed, Congoleum
will need to obtain and demonstrate the sufficiency of financing needed to
effectuate the plan and emerge from its Chapter 11 case. Congoleum cannot
presently determine the terms of any such financing it might obtain, nor can
there be any assurances of its success obtaining it.
In connection with Congoleum’s plan of
reorganization, ABI expects to spend $400 thousand in 2008, which is not
expected to have a material adverse effect on ABI’s working capital or cash
flow. ABI and Congoleum have separate credit facilities which are
governed by independent credit agreements, and ABI is generally not otherwise
liable for the separate obligations of Congoleum.
See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – ABI and Non-Debtor Subsidiaries”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – Congoleum” in Item 7 of this
Annual Report on Form 10-K.
Raw
Materials ABI
generally designs and engineers its own products. Most of the raw
materials required by ABI for its manufacturing operations are available from
multiple sources; however, ABI does purchase some of its raw materials from a
single source or supplier. Any significant delay in or disruption of
the supply of raw materials could substantially increase ABI's cost of
materials, require product reformulation or require qualification of new
suppliers, any one or more of which could materially adversely affect the
business, operations or financial condition of ABI. Congoleum does
not have readily available alternative sources of supply for specific designs of
transfer print film, which are produced utilizing print cylinders engraved to
Congoleum's specifications. Although no loss of this source of supply
is anticipated, replacement could take a considerable period of time and
interrupt production of certain products. Congoleum maintains a raw
material inventory and has an ongoing program to develop new sources, which is
designed to provide continuity of supply for its raw material
requirements. Although the Company and Congoleum have generally not
had difficulty in obtaining their requirements for these materials, they have
occasionally experienced significant price increases for some of these
materials. Although the Company and Congoleum have been able
to obtain sufficient supplies of specialty resin and other raw materials, there
can be no assurances that they may not experience difficulty obtaining supplies
and raw materials in the future, particularly if global supply conditions
deteriorate, which could have a material adverse effect on profit
margins.
Competition All businesses in which ABI
is engaged are highly competitive, principally based upon pricing of the
product, the quality of the product and service to the
customer. ABI’s tape products compete with products of some of the
largest fully integrated rubber and plastic companies, as well as those of
smaller producers. Included among its competitors are 3M, Nitto
Permacel, Ivex/Novasol and R-Tape. AB Canada's flooring products
compete with those of other manufacturers of rubber and resilient floor tiles
and with all other types of floor covering. AB Canada also competes
with Armstrong World Industries, Inc., Flexco/Roppe, Nora and Mondo and with
other manufacturers of alternate floor covering products. In the
rubber products category, AB Canada has several competitors, principally among
them being GRT Division of Enpro and WARCO/Biltrite.
The market for Congoleum's products is
highly competitive. Resilient sheet and tile compete for both
residential and commercial customers primarily with carpeting, hardwood,
melamine laminate and ceramic tile. In residential applications, both
tile and sheet products are used primarily in kitchens, bathrooms, laundry rooms
and foyers and, to a lesser extent, in playrooms and
basements. Ceramic tile is used primarily in kitchens, bathrooms and
foyers. Carpeting is used primarily in bedrooms, family rooms and
living rooms. Hardwood flooring and melamine laminate are used
primarily in family rooms, foyers and kitchens. Commercial grade
resilient flooring faces substantial competition from carpeting, ceramic tile,
rubber tile, hardwood flooring and stone in commercial
applications. Congoleum believes, based upon its market research,
that purchase decisions are influenced primarily by fashion elements such as
design, color and style, durability, ease of maintenance, price and ease of
installation. Both tile and sheet resilient flooring are easy to
replace for repair and redecoration and, in Congoleum's view, have advantages
over other floor covering products in terms of both price and ease of
installation and maintenance.
Congoleum encounters competition from
three other manufacturers in North America and, to a lesser extent, foreign
manufacturers. In the resilient category, Armstrong World Industries,
Inc. has the largest market share. Some of Congoleum's competitors
have substantially greater financial and other resources and access to capital
than Congoleum.
K&M competes with other companies
that make similar products on the basis of product pricing and the effectiveness
of merchandising services offered. In assessing K&M’s products
and services, K&M's customers tend to focus on margin dollars realized from
the customers’ sales of product and return on inventory investment needed to be
made by the customer in order to generate sales. In its business of
supplying and servicing fashion jewelry and accessory products, K&M competes
with a variety of competitors, among them are Liz Claiborne Inc., Jones Apparel
Group and a number of other companies offering similar products and/or
services. K&M also competes with numerous importers and overseas
suppliers of similar items.
Patents and
Trademarks ABI
and its subsidiaries own many trademarks, including the Congoleum brand name,
the AB® logo, TransferRite® and Ideal® at the Tape Division, Estrie®, AB Colors
Plus® Dura-Shield® and Transseal® at AB Canada, and Amtico®, which is used
solely in the Canadian market. K&M also licenses for
jewelry the Panama Jack®, Guess?®, Bratz® Rocawear®, Its Happy Bunny®, Peanuts®
and MUDD® trademarks as well as certain others. These trademarks are
important for the Company in maintaining its competitive
position. The licensing agreements are subject to expiration
dates and other termination provisions, and the licensor or the Company may
choose not to extend or renew certain agreements. The Company has an
ongoing program seeking additional or replacement licenses. The Company also believes
that patents and know-how play an important role in maintaining competitive
position.
Research and
Development Research and development
efforts at the Company concentrate on new product development, increasing
efficiencies of the various manufacturing processes, and improving the features
and performance of existing products. Expenditures for research and
development were $6.2 million, on a consolidated basis, for each of the years
2007 and 2006.
Key
Customers For
the year ended December 31, 2007, two customers of Congoleum accounted for over
10% of ABI's consolidated net sales. The two customers together
accounted for 66% of Congoleum’s net sales of $204.3 million. These customers are
Congoleum’s distributor to the manufactured housing market, LaSalle-Bristol, and
its largest retail distributor, Mohawk Industries, Inc. No other
customer accounted for more than 10% of ABI’s consolidated
sales.
K&M’s top four customers in terms of
net sales in 2007 together accounted for 58% of K&M’s net
sales. The loss of the largest of these customers would have a
material adverse effect on K&M’s business, results of operations and
financial condition and would likely have a material adverse effect on the
Company’s business, results of operations or financial
condition.
Sales to five unaffiliated customers of
the Tape Division together constitute approximately 20% of the net sales for the
Tape Division. The loss of the largest of these unaffiliated
customers and/or two or more of the other four unaffiliated customers could have
a material adverse effect on the Tape Division's business, results of operations
and financial condition.
AB Canada’s sales to Congoleum accounted
for approximately 8% of AB Canada’s net sales in 2007. The loss of
Congoleum’s business would have a significant, adverse affect on AB Canada’s
revenue. These intercompany sales are eliminated from the Company’s
consolidated financial statements, in accordance with generally accepted
accounting principles. See Note 14 of the Notes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.
Backlog The dollar amount of backlog
of orders believed to be firm as of December 31, 2007 and 2006 was $16.3 million
and $15.4 million, respectively. It is anticipated that all of the
backlog as of December 31, 2007 will be filled within the current fiscal
year. There are no seasonal or other significant aspects of the
backlog. In the opinion of management, backlog is not significant to
the business of ABI.
Environmental
Compliance Because of the nature of the
operations conducted by ABI and Congoleum, each company’s facilities are subject
to a broad range of federal, state, local and foreign legal and regulatory
provisions relating to the environment, including those regulating the discharge
of materials into the environment, the handling and disposal of solid and
hazardous substances and wastes, and the remediation of contamination associated
with releases of hazardous substances at owned or leased facilities and off-site
disposal locations.
ABI and its subsidiaries, including
Congoleum, have historically expended substantial amounts for compliance with
existing environmental laws and regulations, including those matters described
in Item 3 (Legal Proceedings) and Note 8 to the Notes to the Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K. ABI and Congoleum will continue to be required to expend
amounts in the future, due to the nature of past activities at their facilities,
to comply with existing environmental laws, and those amounts may be
substantial. Because environmental requirements have grown
increasingly strict, however, ABI is unable to determine the ultimate cost of
compliance with environmental laws and enforcement policies. The
Company has established accruals for matters for which management considers a
loss to be probable and reasonably estimable. ABI and Congoleum
believe that compliance with existing federal, state, local and foreign
provisions will not have a material adverse effect upon their financial
positions nor do ABI and Congoleum expect to incur material recurring costs or
capital expenditures relating to environmental matters, except as disclosed in
Item 3 (Legal Proceedings) and Note 8 to the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K. However, there can be no assurances that the ultimate liability
concerning these matters will not have a material adverse effect on the
Company’s business, results of operations and financial
condition.
Employees As of December 31, 2007, ABI
and its subsidiaries employed approximately 1,500 people. Substantially all of the
Company’s employees are employed on a full time basis.
Financial Information About Foreign and
Domestic Operations and Export Sales
Financial information concerning foreign
and domestic operations is in Note 14 of the Notes to the Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form
10-K. The Company’s consolidated export sales from the United States were $28.8 million in 2007 and $28.3
million in 2006.
Available
Information
The
Company is subject to the reporting and other information requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly, and
current reports, proxy statements and other documents with the Securities and
Exchange Commission pursuant to those requirements. The public may
read and copy any materials that the Company files with the Securities and
Exchange Commission at the Securities and Exchange Commission's Public Reference
Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. Also, the
Securities and Exchange Commission maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including the Company, that file electronically with the Securities and
Exchange Commission. The public can obtain any documents that the
Company files with the Securities and Exchange Commission at
http://www.sec.gov.
Congoleum
is also subject to the reporting and other information requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission pursuant to those requirements. Such reports,
proxy statements and other information filed by or in connection with Congoleum
with the Securities and Exchange Commission (the "Congoleum Reports") are
available from the Securities and Exchange Commission in a similar manner as are
the reports, proxy statements and other information filed by the Company with
the Securities and Exchange Commission. The Company is providing this
information regarding the availability of Congoleum Reports for informational
purposes only. The Congoleum Reports are expressly not incorporated
into or made a part of this report or any other reports, statements or other
information filed by the Company with the Securities and Exchange Commission or
otherwise made available by the Company. The Company expressly
disclaims any liability for information disclosed or omitted in the Congoleum
Reports and, except as required by the federal securities laws, expressly
disclaims any obligation to update or correct any information included in the
Congoleum Reports.
Item
1A. RISK FACTORS
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. Congoleum’s plan of
reorganization for Congoleum is expected to result in elimination of the
interests of Congoleum's equity holders, including the Company.
As more
fully set forth in Notes 1, 8 and 9 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form 10-K, the Company
and Congoleum have significant liability and funding exposure for asbestos
personal injury claims. On December 31, 2003, Congoleum filed a
voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of
the Bankruptcy Code as a means to resolve claims asserted against it related to
the use of asbestos in its products decades ago. A joint plan of
reorganization for Congoleum proposed by the FCR, the ACC, the Bondholders’
Committee and Congoleum is pending in the Bankruptcy Court, which plan is
referred to elsewhere in this Annual Report on Form 10-K as the "Joint
Plan." Under the terms of the Joint Plan, ABI's ownership interest in
Congoleum would be eliminated. ABI expects that its ownership
interest in Congoleum would be eliminated under any alternate plan or outcome in
Congoleum’s Chapter 11 case.
The Joint
Plan and any other plan of reorganization for Congoleum will be subject to
numerous conditions, approvals and other requirements, including the receipt of
necessary creditor, claimant and court approvals. Certain insurers
are contesting the Joint Plan in the bankruptcy court and Congoleum is involved
in ongoing litigation against its insurers in a state court coverage
action. If the insurers are successful in contesting the Joint Plan
or in denying coverage under the insurance policies, the Joint Plan may not
receive necessary court approval or may not become
effective. Further, even if the insurers are not successful in
contesting the Joint Plan or in denying coverage under the insurance policies,
Congoleum may be required to incur significant time and expense litigating
against the insurers, which could further delay any confirmation or
effectiveness of the Joint Plan. In order to obtain confirmation of
the Joint Plan, Congoleum will need sufficient funds to pay for the continued
litigation with these insurers as well the bankruptcy proceedings
generally.
Under the
terms of the Joint Plan, ABI’s rights and claims to indemnification from
Congoleum under the existing joint venture agreement between ABI and Congoleum
that relate to ABI's contribution to Congoleum in 1993 of ABI's tile division,
and the joint venture agreement itself, will be deemed rejected and disallowed
upon the effective date of the Joint Plan, and therefore
eliminated. The Joint Plan's rejection and disallowance of the joint
venture agreement and ABI’s claims thereunder include any unfunded
indemnification claims ABI may have had prepetition and during the pendency of
Congoleum's Chapter 11 case as well as any such claims ABI might otherwise have
been entitled to assert after the Joint Plan becomes effective.
In
addition, in view of ABI’s relationships with Congoleum, ABI will be affected by
Congoleum's negotiations regarding, and its pursuit of, the Joint Plan or any
alternative plan of reorganization, and there can be no assurance as to what
that impact, positive or negative, might be. In any event, the
failure of Congoleum to obtain confirmation and consummation of a Chapter 11
plan of reorganization would have a material adverse effect on Congoleum's
business, results of operations or financial condition and could have a material
adverse effect on ABI’s business, results of operations or financial
condition.
The
Company has its own direct asbestos liability as well. The Company's
strategy remains to vigorously defend against and strategically settle its
asbestos claims on a case-by-case basis. To date, the Company's
insurers have funded substantially all of the Company's liabilities and expenses
related to its asbestos liability under the Company's applicable insurance
policies. The Company expects its insurance carriers will continue to
defend and indemnify it for a substantial amount of its asbestos liabilities for
the foreseeable future. If, however, the Company were not able to
receive such coverage from its insurers for the Company's asbestos liabilities
and expenses, that would likely have a material adverse effect on the Company's
financial position. In addition, certain of the excess liability
insurance policies that the Company purchased were underwritten by companies
that are now insolvent, which may limit the amount of funds available to pay for
any future claims covered by these policies. It is also possible that
asbestos claims may be asserted against the Company alleging exposure allocable
solely to years in which the Company’s insurance policies excluded coverage for
asbestos.
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.
In the
past, federal legislation has been proposed which would establish a national
trust to provide compensation to victims of asbestos-related injuries and
channel all current and future asbestos-related personal injury claims to that
trust. In light of the numerous uncertainties surrounding this and
other possible asbestos legislation in the United States, ABI does not know what
effects any such legislation, if adopted, may have upon its or Congoleum's
businesses, results of operations or financial conditions, or upon any plan of
reorganization for Congoleum.
For further information regarding the
Company's and Congoleum's asbestos liability, insurance coverage and strategies
to resolve that asbestos liability, please see Notes 1, 8 and 9 of the Notes to
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K.
Elimination
of the Company’s interests in Congoleum could have a material adverse impact on
the business relationships between ABI and Congoleum, and ABI’s business,
operations and financial condition.
Under the
Joint Plan, ABI's ownership interest in Congoleum would be
eliminated. Pursuant to the terms of the Joint Plan, the plan trust
established upon effectiveness of the Joint Plan will own 50.1% of reorganized
Congoleum's outstanding common stock and Congoleum’s bondholders will own the
remaining 49.9% of reorganized Congoleum's outstanding common stock, with the
plan trust’s share of reorganized Congoleum’s outstanding common stock being
subject to a put/call agreement that ABI expects will result in the plan trust’s
divestiture of its 50.1% share of reorganized Congoleum’s outstanding common
stock following the effective date of the Joint Plan. There can be no
assurances how this and any other change in ownership and control may affect
reorganized Congoleum’s business, operations and financial condition, or its
future relationships with ABI.
ABI
provides management services to Congoleum, sells and purchases products to and
from Congoleum, and receives royalties from Congoleum. Agreements for
these current intercompany arrangements expire on the earlier of the effective
date of the Joint Plan or September 30, 2008. It is not known whether
ABI, Congoleum and the other parties in interest would agree to extend the term
of these arrangements if the Joint Plan has not become effective by September
30, 2008, and if so, for how long any extension would last or what the terms of
any such extension and related intercompany arrangements would
be. The terms of the Joint Plan provide for certain intercompany
arrangements continuing for a two year period ending on the second anniversary
of the effective date of the Joint Plan pursuant to a new agreement to be
entered into by ABI and reorganized Congoleum on the effective date of the Joint
Plan. The Joint Plan provides that the new agreement will be in form
and substance mutually agreeable to the FCR, the Bondholders' Committee, the ACC
and ABI. Pursuant to that new agreement, ABI's current chief
executive officer would serve as a director and the chief executive officer of
reorganized Congoleum and ABI would have to make available to reorganized
Congoleum substantially all of his time during normal working hours on annual
basis, ABI would have to make available to reorganized Congoleum approximately
25% of the time of ABI's current president and chief operating officer during
normal working hours and on an annual basis, and ABI's current chief financial
officer would serve as the chief financial officer of reorganized Congoleum and
ABI would have to make available to reorganized Congoleum approximately 50% of
his time during normal working hours and on an annual
basis. Expiration or termination of such intercompany arrangements,
failure to reach definitive agreement on final terms of future arrangements
between ABI and reorganized Congoleum, or failure to consummate such
arrangements in connection with the effectiveness of a plan of reorganization
for Congoleum could have a material adverse impact on the business relationships
between ABI and Congoleum, and ABI’s business, operations and financial
condition.
The
Company has had to amend its debt agreements in the past in order to avoid being
in default of those agreements and may have to do so again in the future, and
the Company's ability to obtain additional financing may be
limited.
In the
past, the Company has had to amend its debt agreements in order to avoid being
in default of those agreements as a result of failing to satisfy certain
financial covenants contained in those agreements. Most recently, on
March 12, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB
Canada, entered into an amendment, effective as of December 31, 2007, to the
credit agreement with Bank of America, National Association and Bank of America,
National Association acting through its Canada branch, each in their respective
capacities as lenders and administrative agents under that credit
agreement. That credit agreement, as amended and restated, governs
ABI's primary source of borrowings. The March 12, 2008 amendment
removed the financial covenant that required the Company not to have any
consecutive quarterly net losses from continuing operations (reporting Congoleum
on the equity method of accounting). In addition, for purposes of
determining the Company's compliance with the financial covenant requiring its
Consolidated Adjusted EBITDA to exceed 100% of the Company's Consolidated Fixed
Charges (in each case, as determined under the credit agreement), the amendment
permits the Company to add certain amounts to its Consolidated Adjusted EBITDA
to the extent those amounts are deducted in determining the Company's
Consolidated Net Income (as determined under the credit
agreement). On May 14, 2007, the same parties entered into an
amendment, effective as of March 31, 2007, to the Credit Agreement to revise a
financial covenant to provide that for each of the two consecutive fiscal
quarters of the Company ending December 31, 2006 and March 31, 2007, the Company
may not have a quarterly net loss from continuing operations in excess of $400
thousand. On September 25, 2006, the Company entered into an
amendment and restatement to the credit agreement it has with Bank of America,
National Association and Bank of America, National Association acting through
its Canada branch. In connection with that amendment and restatement,
certain financial covenants were amended under the credit agreement to enable
the Company to comply with those covenants. Although the Company does
not anticipate that it will need to further amend the credit agreement to avoid
being in default at some future date, there can be no assurances in that
regard. If the Company were to violate one of those covenants and not
amend the agreement to address or obtain a waiver of the violation, it could
breach the agreement, resulting in a default of the agreement. If
such a default were to occur, the lenders could require the Company to repay all
amounts outstanding under the credit agreement. If the Company were
unable to repay those amounts due, the lenders could have its rights over the
collateral (most of the Company’s and its domestic subsidiaries’ (excluding
Congoleum) assets) exercised, which would likely have a material adverse effect
on the Company’s business, results of operations or financial
condition.
In
addition, under the terms of the credit agreement, the Company's ability to
obtain additional debt financing is limited. Moreover, since the Company
and most of its domestic subsidiaries have already granted security interests in
most of their assets, the Company's ability to obtain any additional debt
financing may be limited.
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 of the nature of their prior activities at their facilities, in order to
comply with existing environmental laws, and those amounts may be
substantial. Although the Company and Congoleum believe that those
amounts should not have a material adverse effect on their respective financial
positions, 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 or 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 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 or 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. The Company and Congoleum have occasionally experienced
significant price increases for some of its raw materials. Although
the Company has been able to obtain sufficient supplies of raw materials, there
can be no assurances that it may not experience difficulty in the future,
particularly if global supply conditions deteriorate, which could have a
material adverse effect on profit margins.
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, one of Congoleum’s major competitors has
successfully confirmed a plan of reorganization under Chapter 11 of the
Bankruptcy Code. Having shed much of its pre-filing asbestos and
other liabilities, that competitor may have a competitive cost 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 slowdown in the housing industry has resulted in
reduced demand for the Company’s and Congoleum’s products. These
conditions could be exacerbated by contraction of the sub-prime mortgage
industry.
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.
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 or 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 Division principally sells its products through
distributors. Sales to five unaffiliated customers accounted for
approximately 20% of the Company's Tape Division's net sales for the year ended
December 31, 2007 and 22% of its net sales for the year ended December 31,
2006. The loss of the largest unaffiliated customer and/or two or
more of the other four unaffiliated customers could have a material adverse
effect on the Company's business, results of operations or financial
condition.
The
Company's majority-owned subsidiary Congoleum principally sells its products
through distributors. 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, or
financial condition. Congoleum derives a significant percentage of
its sales from two of its distributors. These two distributors
accounted for approximately 66% and 67% of Congoleum's net sales for the years
ended December 31, 2007 and 2006, respectively.
The Company's subsidiary K&M sells
its products through its own direct sales force and, indirectly, through a
wholly owned subsidiary and through third-party sales
representatives. Four of K&M's customers accounted for
approximately 58% of its net sales for the year ended December 31, 2007 and 60%
of its net sales for the year ended December 31, 2006. The loss of the largest of these
customers would have a material adverse effect on K&M’s business, results of
operations and financial condition and would likely have a material adverse
effect on the Company’s business, results of operations or 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, three of the 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, all of whom have no 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 or financial
condition.
Item 1B. UNRESOLVED STAFF
COMMENTS
Not applicable.
ITEM
2. PROPERTIES
At December 31, 2007, ABI and its
subsidiaries owned ten manufacturing plants and a jewelry
distribution center (located in Providence, Rhode Island) and leased office and
warehousing space as follows:
Location
|
Square
Feet
|
Owned
Or
Leased
|
Industry
Segment
For
Which
Properties
Used
|
|
|
|
|
Trenton, NJ
|
1,050,000
|
Owned
|
Flooring
products
|
|
|
|
|
Marcus Hook,
PA
|
1,000,000
|
Owned
|
Flooring
products
|
|
|
|
|
Trenton, NJ
|
282,000
|
Owned
|
Flooring
products
|
|
|
|
|
Finksburg, MD
|
107,000
|
Owned
|
Flooring
products
|
|
|
|
|
Mercerville, NJ
|
56,000
|
Leased
|
Flooring
products
|
|
|
|
|
Sherbrooke, Quebec
|
379,000
|
Owned
|
Canadian
division
|
|
|
|
|
Moorestown, NJ
|
226,000
|
Owned
|
Tape
products
|
|
|
|
|
Lowell, MA
|
57,000
|
Owned
|
Tape
products
|
|
|
|
|
Billerica, MA
|
30,000
|
Leased
|
Tape
products
|
|
|
|
|
Renaix, Belgium
|
84,000
|
Owned
|
Tape
products
|
|
|
|
|
Singapore
|
32,000
|
Owned
|
Tape
products
|
|
|
|
|
Providence, RI
|
103,000
|
Owned
|
Jewelry
products
|
|
|
|
|
New York, NY, Qingdao, China, Orlando, FL and Bentonville, AK
|
27,200
|
Leased
|
Jewelry
products
|
ABI knows of no material defect in the
titles to any such properties or material encumbrances thereon other than
mortgages on the owned properties in Renaix, Belgium, and Singapore securing
outstanding debt in amounts equal to approximately 5% and 48% of the original
cost of the property, respectively, and under the terms of the Company's
principal debt agreement, pursuant to which the Company has granted a security
interest in the properties in Moorestown, NJ, Lowell, MA and Providence,
RI. ABI believes that all of its and its subsidiaries' properties are
in good condition and have been well maintained.
It is estimated that during 2007, ABI's
and its subsidiaries' plants for the manufacture of floor covering products
operated at approximately 58% of aggregate capacity, its plants for the
manufacture of tape products operated at approximately 71% of aggregate capacity
and the Canadian division operated at approximately 59% of aggregate
capacity. All estimates of aggregate capacity have been made on the
basis of a five-day, three-shift operation.
ITEM 3. LEGAL PROCEEDINGS
ABI has been named by the Environmental
Protection Agency as a Potentially Responsible Party (“PRP”) within the meaning
of the federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended, as to six sites in five separate
states. In addition, ABI has been named a PRP by the
State of Maine’s Department of Environmental
Protection with regard to two sites in Maine. See Note 8 of the Notes to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.
In accordance with SFAS No. 5,
Accounting for
Contingencies, ABI has
recorded a reserve of approximately $3.8 million, which represents a probable
and reasonably estimable amount to cover the anticipated remediation costs at
all sites, net of recoveries, based on facts and circumstances known to the
Company at the present time.
ABI is a co-defendant with many other
manufacturers and distributors of asbestos-containing products in approximately
1,360 pending claims involving approximately 1,946 individuals as of
December 31,
2007. These
claims relate to products of the Company’s former Tile Division, which
ABI contributed to
Congoleum. The
claimants allege personal injury from exposure to asbestos or
asbestos-containing products. The Company utilizes an
actuarial study to assist it in developing estimates of the Company’s potential
liability for resolving present and possible future asbestos
claims. Projecting future asbestos claims costs requires estimating
numerous variables that are extremely difficult to predict, including the
incidence of claims, the disease that may be alleged by future claimants, future
settlement and trial results, future court dismissal rates for claims, and
possible asbestos legislation developments. Furthermore, any
predictions with respect to these variables are subject to even greater
uncertainty as the projection period lengthens. In light of these
inherent uncertainties, the Company believes that six years is the most
reasonable period over which to include future claims that may be brought
against the Company for recognizing a reserve for future costs. The
Company believes that costs for claims that might be brought after that period
are not reasonably estimable.
The
estimated range of liability for settlement of current claims pending and claims
anticipated to be filed through 2013 was $12.6 million to $41.4 million as of
December 31, 2007. The Company believes no amount within this range
is more likely than any other and, accordingly, has recorded a liability of
$12.6 million in its financial statements, which represents the minimum probable
and reasonably estimable amount for the future liability at the present time.
The Company also believes that based on this liability estimate, the
corresponding amount of insurance probable of recovery is $11.1 million at
December 31, 2007, which has been included in other assets. The
estimated amount of insurance that is probable of recovery depends on the
liability estimate as well as a number of additional factors, including the
financial viability of some of the insurance companies, the method in which
losses will be allocated to the various insurance policies and the years covered
by those policies, how legal and other loss handling costs will be covered by
the insurance policies, and interpretation of the effect on coverage of various
policy terms and limits and their interrelationships. The recorded
liability and related insurance asset do not include any related defense
costs. Defense costs are typically paid in addition to the indemnity
limits under the primary layer insurance policies, while certain excess layer
policies pay them within policy limits and other excess layer policies pay them
in addition to policy limits. Defense costs historically paid by
ABI’s carriers have been approximately 156% of the related indemnity
costs.
The recorded amounts were based
on facts currently known by ABI and a number of
assumptions. However, projecting future events, such as the number of
new claims to be filed each year, the average cost of disposing of each such
claim, the allocation of claims to specific insurance policies, and the
continuing solvency of various insurance companies, as well as numerous
uncertainties surrounding asbestos legislation in the United States, could cause
the actual liability and insurance recoveries for the Company to be higher or
lower than those projected or recorded.
There can be no assurance that the
Company’s actual asbestos-related settlement and defense costs will not exceed
its accrued asbestos liabilities, or that it will receive the insurance
recoveries which it has accrued. It is reasonably possible
that the Company will incur charges for resolution of asbestos claims in the
future, which could exceed the Company’s existing reserves. The
Company’s strategy
remains to vigorously
defend against and
strategically settle its asbestos claims on a case-by-case basis. The
Company believes it has
substantial insurance coverage to mitigate future costs related to this
matter.
See Note 8 of the Notes to the
Consolidated Financial Statements set forth in Item 8 of this Annual Report on
Form 10-K for additional information about these claims.
Congoleum
is a defendant in a large number of asbestos-related lawsuits. On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to
resolve claims asserted against it related to the use of asbestos in its
products decades ago. During 2003, Congoleum had obtained the
requisite votes of asbestos personal injury claimants necessary to seek approval
of a proposed, pre-packaged Chapter 11 plan of reorganization. In
January 2004, Congoleum filed its proposed plan of reorganization and disclosure
statement with the Bankruptcy Court. From that filing through 2007,
several subsequent plans were negotiated with representatives of the ACC, the
FCR and other asbestos claimant representatives. In addition, an
insurance company, CNA, filed a plan of reorganization and the Bondholders’
Committee also filed a plan of reorganization. In May 2006, the
Bankruptcy Court ordered the principal parties in interest in Congoleum’s
reorganization proceedings to participate in reorganization plan mediation
discussions. Several mediation sessions took place during 2006,
culminating in two competing plans, one which Congoleum filed jointly with the
ACC in September 2006 and the other filed by CNA, both of which the Bankruptcy
Court subsequently ruled were not confirmable as a matter of
law. In March 2007, Congoleum resumed global plan
mediation discussions with the various parties seeking to resolve the issues
raised in the Bankruptcy Court’s ruling with respect to the Tenth
Plan. In July 2007, the FCR filed a plan of reorganization and
proposed disclosure statement. After extensive further
mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’
Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy
Court approved the disclosure statement for the Joint Plan in February 2008, and
a confirmation hearing is scheduled for June 26, 2008. Under the
terms of the Joint Plan, ABI's
ownership interest in Congoleum would be eliminated. ABI expects its
ownership interest in Congoleum would be eliminated under any alternate plan or
outcome in Congoleum’s Chapter 11 case. See Notes 1 and 9 of
the Notes to Consolidated Financial Statements set forth in Item 8 of this
Annual Report on Form 10-K.
There can be no assurance that the
Joint Plan or any other
plan will receive the
acceptances necessary for confirmation, that the Joint Plan will not be modified further,
that the conditions to the
Joint Plan or any other plan will be satisfied or waived, that the Joint Plan or any other plan will timely receive necessary court approvals from
the Bankruptcy Court and the United States District Court for the District of New Jersey (the
“District Court”), that
the Joint Plan or
any other plan will be confirmed, that
the Joint Plan or
any other plan, if confirmed, will become
effective, or that Congoleum will have sufficient funds to pay for continued
litigation over any plan of reorganization and the state court insurance coverage
litigation. Any other plan of reorganization that
may be proposed for Congoleum may contain terms substantially different from
those contained in the Joint Plan.
Congoleum, pursuant to administrative
consent orders signed in 1986 and in connection with a prior restructuring, is
in the process of implementing cleanup measures at its Trenton sheet facility. ABI had also
signed a similar consent order with regard to its former Trenton tile facility. Congoleum
agreed to be financially responsible for the clean-up of the Trenton tile facility as part of ABI’s contribution to Congoleum of
ABI’s former Tile
Division. See Note 8 of the Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.
Together with a large number (in most
cases, hundreds) of other companies, Congoleum is named as a PRP in pending
proceedings under CERCLA and similar state laws. See Note 8 of
the Notes to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for additional
information about these matters.
Congoleum also accrues remediation costs
for certain of its owned facilities on an undiscounted
basis. Estimated total cleanup costs, including capital outlays and
future maintenance costs for soil and groundwater remediation are primarily
based on engineering studies. In the ordinary course of its business,
ABI and its consolidated entities become involved in lawsuits, administrative
proceedings, product liability and other matters. In some of these
proceedings, plaintiffs may seek to recover large and sometimes unspecified
amounts and the matters may remain unresolved for several
years.
Notes 1, 8 and 9 of the Notes to Consolidated Financial
Statements set forth in Item 8 of this Annual Report on Form 10-K, to the extent
addressing matters reportable under this Item 3, are incorporated by reference
herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
|
MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SECURITY HOLDER
MATTERS
|
American Biltrite Inc.'s Common Stock is
traded on the American Stock Exchange (ticker symbol: ABL). At the
close of business on March 14, 2008, the closing price of ABI's
Common Stock was $6.50 per share and the approximate number of
record holders was 266. High and low sales prices for ABI’s Common Stock for each quarter over the last two years
were:
|
|
Sale Prices of Common
Shares
|
|
|
|
2007
|
|
|
2006
|
|
Quarter
Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$ |
9.75 |
|
|
$ |
7.98 |
|
|
$ |
11.60 |
|
|
$ |
9.08 |
|
June 30
|
|
|
9.89 |
|
|
|
8.07 |
|
|
|
11.72 |
|
|
|
9.25 |
|
September
30
|
|
|
8.82 |
|
|
|
5.75 |
|
|
|
11.00 |
|
|
|
9.41 |
|
December 31
|
|
|
7.25 |
|
|
|
4.05 |
|
|
|
10.99 |
|
|
|
8.01 |
|
No
dividends on the Common Stock were declared during 2007 or 2006. The
Company’s debt agreement restricts the ability of the Company to declare and pay
dividends. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources – ABI and
Non-Debtor Subsidiaries” set forth in Item 7 of this Annual Report on Form
10-K.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information regarding the Company's equity
compensation plans as of December 31, 2007.
Plan
Category
|
|
Number
of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in Column
(a))
|
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
(c)
|
|
Equity
Compensation Plans Approved by Security Holders
|
|
|
266,500
|
|
|
$ |
10.06
|
|
|
|
266,520
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
|
|
35,500
|
|
|
|
12.19
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
302,000
|
|
|
|
10.31
|
|
|
|
281,020(1)
|
|
(1)
|
Includes
266,520 shares of Common Stock available for issuance under the Company's
1993 Stock Award and Incentive Plan, as amended and restated as of March
4, 1997. In addition to stock options, awards under the
Company's 1993 Stock Award and Incentive Plan, as amended and restated as
of March 4, 1997, may take the form of stock appreciation rights (SARs),
limited SARs, restricted stock, restricted stock units and other stock
awards specified in the Plan. If such awards are granted, they
will reduce the number of shares of Common Stock available for issuance
pursuant to future stock option
awards.
|
On July
1, 1999 the Company established its 1999 Stock Option Plan for Non-Employee
Directors (as amended, the "1999 Plan"), under which non-employee directors may
be granted non-qualified options (the "Options") to purchase shares of Common
Stock. The maximum number of shares of Common Stock that may be
issued pursuant to the 1999 Plan is 50,000 shares. The 1999 Plan was
not submitted to stockholders for approval. Under the 1999 Plan, each
new non-employee member of the Board who has not previously been a non-employee
member of the Board during the term of the 1999 Plan will be granted on the date
he or she is elected to the Board during the term of the 1999 Plan an Option to
purchase 1,000 shares of Common Stock. In addition, under the 1999
Plan, each non-employee member of the board receives each year on July 1 an
Option to purchase 500 shares of Common Stock. The options granted
under the 1999 Plan have ten-year terms and fully vest 6 months from the grant
date. The exercise price for each Option is 100% of the fair market
value on the date of the grant. No Options may be granted under the
1999 Plan on or after July 1, 2009. As of December 31, 2007 an
aggregate of 31,500 shares of common stock were issuable upon the exercise of
vested and outstanding Options. An additional 4,000 options vested on
January 1, 2008.
Congoleum
maintains separate equity compensation plans.
ITEM 6.
|
SELECTED FINANCIAL
DATA
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
American
Biltrite’s consolidated financial statements include its majority-owned
subsidiary, Congoleum. However, under the terms of the Joint Plan,
ABI’s ownership interest in
Congoleum would be
eliminated. ABI expects its ownership interest in
Congoleum to be eliminated under any alternate plan or outcome in Congoleum’s
Chapter 11 case. On December 31, 2003, Congoleum filed a
voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of
the Bankruptcy Code as a means to resolve claims asserted against it related to
the use of asbestos in its products decades ago. During 2003,
Congoleum had obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of
reorganization. In January 2004, Congoleum filed its proposed joint
plan of reorganization and disclosure statement with the Bankruptcy
Court. From that filing through 2007, several subsequent plans were
negotiated with representatives of the ACC, the FCR and other asbestos claimant
representatives. In addition, an insurance company, CNA, filed a plan
of reorganization and the Bondholders’ Committee also filed a plan of
reorganization. In May 2006, the Bankruptcy Court ordered the
principal parties in interest in Congoleum’s reorganization proceedings to
participate in reorganization plan mediation discussions. Several
mediation sessions took place during 2006, culminating in two competing plans,
one which Congoleum filed jointly with the ACC in September 2006 and the other
filed by CNA, both of which the Bankruptcy Court subsequently ruled were not
confirmable as a matter of law. In March 2007, Congoleum resumed
global plan mediation discussions with the various parties seeking to resolve
the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth
Plan. In July 2007, the FCR filed a plan of reorganization and
proposed disclosure statement. After extensive further mediation
sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and
Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved
the disclosure statement for the Joint Plan in February 2008, and a confirmation
hearing is scheduled for June 26, 2008.
There can
be no assurance that the Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Joint Plan will not be modified
further, that the conditions to the Joint Plan or any other plan will be
satisfied or waived, that the Joint Plan or any other plan will timely receive
necessary court approvals from the Bankruptcy Court and the District Court, that
the Joint Plan or any other plan will be confirmed, that the Joint Plan or any
other plan, if confirmed, will become effective, or that Congoleum will have
sufficient funds to pay for continued litigation over any plan of reorganization
and the state court coverage litigation. Any other plan of
reorganization that may be proposed for Congoleum may contain terms
substantially different from those contained in the Joint Plan.
ABI
estimates that it will spend an additional $400 thousand for legal fees in 2008,
which it has accrued, in connection with Congoleum’s reorganization
plan. Actual costs for pursuing and implementing the Joint Plan or
any plan of reorganization could be materially higher, and Congoleum and the
Company may record significant additional charges should the minimum estimated
cost increase.
In
addition, ABI is also a defendant in a number of asbestos-related lawsuits in
addition to those brought against Congoleum. See Note 8 of the Notes
to Consolidated Financial Statements set forth in Item 8 of this Annual Report
on Form 10-K, which is incorporated herein by reference. These
matters could have a material adverse impact on the Company's financial position
and results of operations.
During
2003, the Company decided to discontinue the operations of its Janus Flooring
Corporation subsidiary, a manufacturer of pre-finished hardwood flooring, and
sell the related assets. Results of Janus Flooring, including charges
resulting from the shutdown, are being reported as a discontinued
operation. During 2006, the remaining assets of Janus Flooring were
sold, and the discontinued operation was effectively dissolved. As of
December 31, 2006, the Company merged Janus Flooring with and into American
Biltrite (Canada) Ltd.
Due to
Congoleum’s reorganization and separate capital structure, as well as the
anticipated elimination of ABI’s ownership interest in Congoleum, the Company
believes that presenting the results of operations of ABI and its non-debtor
subsidiaries separately from those of Congoleum is the most meaningful way to
discuss and analyze its financial condition and results of
operations.
Results
of Operations
ABI and Non-Debtor
Subsidiaries
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
(In
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
216,463 |
|
|
|
|
|
$ |
216,063 |
|
|
|
|
Cost
of sales
|
|
|
160,034 |
|
|
|
|
|
|
159,009 |
|
|
|
|
Gross
profit
|
|
|
56,429 |
|
|
|
26.1 |
% |
|
|
57,054 |
|
|
|
26.4 |
% |
Selling,
general & administrative expenses
|
|
|
57,820 |
|
|
|
26.7 |
% |
|
|
54,873 |
|
|
|
25.4 |
% |
Operating
(loss) income
|
|
|
(1,391 |
) |
|
|
|
|
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(2,297 |
) |
|
|
|
|
|
|
(2,324 |
) |
|
|
|
|
Other
income, net
|
|
|
1,380 |
|
|
|
|
|
|
|
426 |
|
|
|
|
|
(Loss)
income before taxes and other items
|
|
|
(2,308 |
) |
|
|
|
|
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit
from) provision for income taxes
|
|
|
(1,033 |
) |
|
|
|
|
|
|
235 |
|
|
|
|
|
Noncontrolling
interests
|
|
|
(57 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$ |
(1,332 |
) |
|
|
|
|
|
$ |
1 |
|
|
|
|
|
Net sales
for the year ended December 31, 2007 were $216.5 million, an increase of $400
thousand from sales of $216.1 million in 2006. Tape segment sales
decreased $5.1 million or 4.9% due to lower sales volume, partly offset by $1.2
million in selling price increases. In 2007, a large automotive film
customer switched their business to a competitor, and a large HVAC tape customer
produced for itself certain tapes previously supplied by the Tape division;
these two matters accounted for the majority of the lower sales
volume. Canadian segment sales increased $1.4 million or 2.4% due to
the result of foreign currency translation, as well as increased sales of luxury
tile and cured rubber products. Jewelry segment sales improved $3.4
million or 5.6% due to higher sales to mass merchandisers.
Gross
profit was 26.1% of net sales in 2007 compared to 26.4% in 2006. Tape
segment gross margins improved by 0.5 percentage points of net sales primarily
due to the impact of $1.2 million in costs incurred for a product recall
necessitated by defective material from a supplier on 2006 gross
margins. Excluding the impact of the product recall, margins
decreased by 0.6 percentage points of net sales as the impact of lower
production volumes more than offset the benefit of manufacturing efficiency
improvements. Canadian division gross margins declined by 0.6
percentage points of net sales due to the strengthening of the Canadian dollar
relative to the US dollar during the year. Although the Canadian
division’s US dollar sales and purchases are approximately the same, the
Canadian division uses a first-in, first-out method of costing inventory, and as
a result, exchange rate fluctuations are reflected in sales more quickly than in
cost of sales. Jewelry segment margins decreased by 1.3 percentage
points of net sales due to higher costs for goods and freight, partly offset by
lower royalty costs.
The
Company includes the cost of purchasing and finished goods inspection in
selling, general and administrative expenses. Some companies also
record such costs in operating expenses while others record them in cost of
goods sold. Consequently, the Company’s gross profit margins may not
be comparable to other companies. Had the Company recorded these
expenses in cost of sales, the gross profit margins for the years ended December
31, 2007 and 2006 would have been 25.6% and 26.0%, respectively.
Selling,
general and administrative expenses for the year ended December 31, 2007 were
$57.8 million, up from $54.9 million in 2006. Selling, general and
administrative expenses increased at Canadian division due to the impact of
foreign currency exchange on these expenses and increased at the Tape division
due to additional selling expenses. Canadian division segment
selling, general and administrative expenses also benefitted from receipt of a
$0.6 million class action settlement in 2006. Jewelry segment
selling, general and administrative expenses decreased by $0.7 million from 2006
to 2007 due to cost reduction programs. During 2007, ABI increased
the estimate of its share of the environmental remediation costs for a
previously owned property and recorded a $1.4 million charge, which also
contributed to the increase in selling, general and administrative expenses over
2006.
Net
interest expense of $2.3 million for 2007 was approximately the same compared to
2006.
Other
income increased from $0.4 million in 2006 to $1.4 million in 2007 as a result
of a charge of $860 thousand in other expense in 2006 for prepayment costs in
connection with refinancing a note.
The
effective tax rates of 45% and 83% for 2007 and 2006, respectively, are due
primarily to the effect of combining various segments with differing statutory
rates applied to pretax losses in certain locations and pretax income in other
locations. American Biltrite’s U.S. operations and foreign branches
incurred a pretax loss of $1.2 million for 2007 and $0.4 million in
2006. The tax benefits recorded for the losses were $358 thousand
(30%) and $74 thousand (16%) for 2007 and 2006, respectively. The
Company’s Canadian operation had a pretax loss of $1.1 million for 2007 and
pretax income of $0.7 million for 2006. A benefit of $675 thousand
(61%) and a provision of $309 thousand (42%) were recorded by the Canadian
operations for 2007 and 2006, respectively. During 2007, the Canadian
operations recognized a benefit as a result of a change in valuation allowance
against net operating loss carryforwards from Janus. The combined
pretax loss of $2.3 million and net tax benefit of $1.0 million for 2007
resulted in an effective tax rate of 45%. The combined pretax income
and net tax provision of $283 thousand and $235 thousand, respectively, resulted
in an effective rate of 83% for 2006.
The
Company incurred a loss of $1.3 million from continuing operations for 2007
compared with income of $0.1 million in 2006 as a result of the lower income
from operations in 2007 versus 2006, partly offset by the increase in other
income and the tax benefit recognized in 2007.
Congoleum
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
(In
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
204,262 |
|
|
|
|
|
$ |
219,474 |
|
|
|
|
Cost
of sales
|
|
|
153,809 |
|
|
|
|
|
|
169,023 |
|
|
|
|
Gross
profit
|
|
|
50,453 |
|
|
|
24.7 |
% |
|
|
50,451 |
|
|
|
23.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
37,469 |
|
|
|
18.3 |
% |
|
|
39,906 |
|
|
|
18.2 |
% |
Asbestos-related
reorganization expenses
|
|
|
41,315 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Operating
(loss) income
|
|
|
(28,331 |
) |
|
|
|
|
|
|
10,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond
interest reversal (expense)
|
|
|
29,603 |
|
|
|
|
|
|
|
(10,612 |
) |
|
|
|
|
Interest
income (expense), net
|
|
|
197 |
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Other
(expense) income, net
|
|
|
(447 |
) |
|
|
|
|
|
|
162 |
|
|
|
|
|
Income
(loss) before taxes
|
|
|
1,022 |
|
|
|
|
|
|
|
(165 |
) |
|
|
|
|
Provision
for (benefit from) income taxes
|
|
|
1,713 |
|
|
|
|
|
|
|
(844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(691 |
) |
|
|
|
|
|
$ |
679 |
|
|
|
|
|
Net sales
for the year ended December 31, 2007 totaled $204.3 million as compared to
$219.5 million for the year ended December 31, 2006, a decrease of $15.2 million
or 6.9%. The decrease in sales was primarily attributable to declines in new
home construction, softness in the remodeling market and lower production of
homes in the manufactured housing segment. The impact of these sales decreases
were partially mitigated by continued sales growth in the Duraproduct category
and the impact of price increases instituted in mid-2007.
Gross
profit for the year ended December 31, 2007 totaled $50.5 million, or 24.7% of
net sales, compared to $50.5 million or 23.0% of net sales for the year ended
December 31, 2006. Gross profit for the year was essentially the same year over
year, as raw material costs and the unfavorable impact of unabsorbed
manufacturing overhead due to lower volumes were offset by price increases and
manufacturing cost reduction programs.
Selling,
general and administrative expenses were $37.5 million for the year ended
December 31, 2007 as compared to $39.9 million for the year ended December 31,
2006, a decrease of $2.4 million. The decrease in selling, general and
administrative expenses reflects cost reduction programs, including headcount
reductions, instituted in early 2007. As a percent of net sales,
selling, general and administrative expenses were 18.3% and 18.2% for the years
ended December 2007 and 2006, respectively.
Given the
terms of the proposed Joint Plan, in the fourth quarter of 2007 Congoleum
recorded an additional $41.3 million charge. Of this charge, $14.9
million related to the write off of certain insurance litigation costs
receivable that will not be collected by Congoleum under the terms of the Joint
Plan if it is confirmed and effective, and $26.4 million was an additional
provision for estimated costs for the reorganization proceedings and coverage
litigation. In the fourth quarter of 2007 Congoleum also recorded a
$41.0 million interest expense credit to reverse post-petition interest accrued
on its 8 5/8% Senior Notes.
Income
from operations, excluding the special charge above, was $13.0 million for the
year ended December 31, 2007 compared to $10.5 million for the same period in
the prior year, an increase of $2.4 million. This increase in operating income
primarily reflects the reduction in operating expenses. Operating
income for the year ended December 31, 2006 included a $1.3 million gain,
included in selling, general and administrative expenses, on the replacement of
a damaged production line that was covered by insurance.
Interest
income was $1.2 million and $.5 million in 2007 and 2006, respectively, with the
increase of $.07 million versus the prior year reflecting interest earned on
federal income tax refunds and higher cash balances. Interest
expense, excluding interest on the Senior Notes, for 2007 was $1.0 million as
compared to interest expense of $0.8 million for 2006. Bond interest
reversal on the Senior Notes in 2007 was $29.6 million as compared to interest
expense on Senior Notes in 2006 of $10.6 million.
Congoleum
recorded a provision for income taxes of $1.7 million in 2007, reflecting an
increase in non-deductible expenses for tax return purposes. For
2006, Congoleum recorded a benefit of $0.8 million, reflecting the reversal of
previously established reserves in connection with a closing agreement with the
Internal Revenue Service for tax return years 2000 to 2003.
Liquidity
and Capital Resources – ABI and Non-Debtor Subsidiaries
Cash and
cash equivalents, including short term investments, increased by $1.3 million to
$3.9 million at December 31, 2007 as compared to December 31,
2006. Working capital at December 31, 2007 was $31.9 million,
compared with $29.6 million at December 31, 2006. The ratio of
current assets to current liabilities at December 31, 2007 was 1.63 compared to
1.62 at December 31, 2006, consistent with the increased amount of working
capital at December 31, 2006.
Net cash
provided by operating activities of continuing operations for the year ended
December 31, 2007 was $6.7 million compared with $2.5 million for the year ended
December 31, 2006. This increase was due to a $5.9 million reduction
in inventory during 2007 compared with an increase in inventory of $3.4 million
in 2006, as well as less cash used to settle payables and accrued liabilities in
2007 versus 2006. These factors were partly offset by lower net
income and a greater increase in accounts receivable in 2007 versus
2006.
Capital
expenditures for 2007 were $1.7 million compared to $1.8 million for
2006. During the second quarter of 2006, the Company completed the
sale of a building and land owned by the Company’s former subsidiary, Janus
Flooring, a discontinued operation, for $5.0 million Canadian
dollars. The Company received net cash proceeds of $800 thousand
(Canadian), which was used to reduce borrowings, and a note for $4.0 million
(Canadian). Payment of the note is due within 60 days of receipt of
an environmental certification on the land sold, which the Company received on
March 20, 2008.
The
Company has recorded provisions which it believes are adequate for environmental
remediation, including provisions for testing and potential remediation of
conditions at its own facilities, and non-asbestos product-related
liabilities. While the Company believes its estimate of the future
amount of these liabilities is reasonable, that most of such amounts will be
paid over a period of one 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 or regulation relating to these matters that would
have a material adverse effect on its consolidated results of operations or
financial position. There can be no assurances that any such costs
could be passed along to its customers.
American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the “Revolver”) and the term loan (“Term Loan”) it has with Bank of America,
National Association (“BofA”) and BofA acting through its Canada branch (the
“Canadian Lender”) pursuant to an amended and restated credit agreement (the
“Credit Agreement”). The Credit Agreement provides American Biltrite
Inc. and its subsidiary K&M with (i) a $30.0 million commitment under the
Revolver with a $12.0 million borrowing sublimit (the “Canadian Revolver”) for
American Biltrite Inc.’s subsidiary AB Canada and (ii) a $10.0 million Term
Loan. The Credit Agreement also provides for domestic and Canadian
letter of credit facilities with availability of up to $5.0 million and $1.0
million, respectively, subject to availability under the Revolver and the
Canadian Revolver, respectively.
In
September 2006, American Biltrite Inc. entered into an amendment and restatement
to the Credit Agreement with BofA and the Canadian Lender. Pursuant
to the amendment and restatement, the Term Loan was added to the Credit
Agreement and the amount of the Revolver was increased by $10.0 million to its
current $30.0 million amount. In addition, the availability for
domestic letters of credit issued under the Credit Agreement was increased from
$4.0 million to $5.0 million. In connection with that amendment and
restatement, American Biltrite Inc. used approximately $17.0 million of new
borrowings from the proceeds of the Term Loan, which was fully drawn, and under
the Revolver to fully prepay $16.0 million of aggregate outstanding principal
amount of the Company’s senior notes, all of which were held by The Prudential
Insurance Company of America, together with approximately $1.0 million in
interest and yield maintenance fees in connection with those notes and
prepayment. A charge of approximately $860 thousand for early
extinguishment of debt was recorded in connection with this prepayment, which is
included in other expense.
The
amount of borrowings available from time to time for American Biltrite Inc. and
K&M under the Revolver may not exceed the lesser of (a) $30.0 million less
the then outstanding amount of borrowings by AB Canada under the Canadian
Revolver less any outstanding borrowings under the domestic letter of credit
facility and (b) the applicable borrowing base. The formula used for
determining the domestic borrowing base is based upon inventory, receivables and
fixed assets of the Company and certain of its subsidiaries (not including,
among others, AB Canada and Congoleum), reduced by amounts outstanding under the
Term Loan.
The
amount of borrowings available from time to time for AB Canada under the
Canadian Revolver is limited to the lesser of (a) $12 million less any
outstanding borrowings under the Canadian letter of credit facility, (b) AB
Canada's borrowing base amount, which is based upon AB Canada's accounts
receivable, inventory and fixed assets, and (c) $30.0 million less the amount of
domestic borrowings outstanding under the Revolver on behalf of the Company and
K&M. AB Canada may borrow amounts under the Canadian Revolver in
United States or Canadian dollar denominations; however, solely for purposes of
determining amounts outstanding and borrowing availability under the Revolver,
all Canadian dollar denominated amounts will be converted into United States
dollars in the manner provided in the Credit Agreement.
Interest
is payable quarterly on the Term Loan and Revolver borrowings by American
Biltrite Inc. and K&M under the Credit Agreement at rates which vary
depending on the applicable interest rate in effect and are generally determined
based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR
based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, (b) if a
fixed rate is in effect, at a rate between the fixed rate plus 1.0% to a fixed
rate plus 2.75%, depending on the Company's leverage ratio, as determined under
the Credit Agreement, and (c) for loans not based on a LIBOR or fixed rate, the
higher of (i) BofA's applicable prime rate and (ii) 0.50% plus the federal funds
rate, as determined under the Credit Agreement. Under the Credit
Agreement, American Biltrite Inc. and K&M may generally determine whether
interest on domestic revolving loans will be calculated based on a LIBOR based
rate, and if BofA elects to make a fixed rate option available, whether interest
on revolving loans will be calculated based on a fixed rate.
Interest
is payable quarterly on revolving loans under the Canadian Revolver at rates
which vary depending on the applicable interest rate in effect and are generally
determined based upon: (a) if a LIBOR based rate is in effect, at a rate between
a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit
Agreement,
and (b) if a LIBOR based rate is not in effect, for outstanding revolving loans
denominated in Canadian dollars, the higher of (i) 0.50% plus the applicable
30-day average bankers' acceptance rate as quoted on Reuters CDOR page and (ii)
the Canadian Lender's applicable prime rate for loans made in Canadian dollars
to Canadian customers, and for outstanding revolving loans denominated in United
States dollars, the higher of (i) 0.50% plus the federal funds rate as
calculated under the Credit Agreement and (ii) the applicable rate announced by
the Canadian Lender as its reference rate for commercial loans denominated in
United States dollars made to a person in Canada. Under the Credit
Agreement, AB Canada may generally determine whether interest on Canadian
revolving loans will be calculated based on a LIBOR based rate.
American
Biltrite Inc. has entered into interest rate swap agreements that effectively
fix the LIBOR rate component of the Term Loan and $6.0 million of the Revolver
at 5.18% and 5.15% respectively.
The Term
Loan principal is payable in 20 quarterly installments of $500 thousand
beginning December 31, 2006 and ending on September 30, 2011. All
indebtedness under the Credit Agreement, other than the Term Loan, is due on
September 30, 2009.
The
Credit Agreement contains certain covenants that the Company must
satisfy. The covenants included in the Credit Agreement include
certain financial tests, restrictions on the ability of the Company to incur
additional indebtedness or to grant liens on its assets and restrictions on the
ability of the Company to pay dividends on its capital stock. The
financial tests are required to be calculated based on the Company accounting
for its majority-owned subsidiary Congoleum on the equity method and include a
maximum ratio of total liabilities to tangible net worth, a minimum ratio of
earnings before interest, taxes, depreciation and amortization (“EBITDA”) less
certain cash payments for taxes, debt service, and dividends to interest
expense, a minimum level of tangible net worth, and a maximum level of capital
spending. Pursuant to the amendment and restatement to the Credit
Agreement entered into on September 25, 2006, certain of the financial covenants
under the Credit Agreement were amended to, among other things, (i) increase the
permitted ratio of the Company's consolidated total liabilities to consolidated
tangible net worth to 200%, (ii) to provide for a higher threshold for
satisfying the consolidated tangible net worth test and (iii) to provide a
higher permitted aggregate amount for capital expenditures in any fiscal
year. The Credit Agreement also requires, for each fiscal quarter
ending on and after September 30, 2006, the Company's consolidated adjusted
EBITDA for the four consecutive fiscal quarters then ending to exceed 100% of
the Company's consolidated fixed charges for the 12-month period ending on such
date, as determined under the Credit Agreement.
Pursuant
to the Credit Agreement, the Company and certain of its subsidiaries previously
granted BofA and the Canadian Lender a security interest in most of the
Company's and its subsidiaries' assets. The security interest granted
does not include shares of capital stock of Congoleum or the assets of
Congoleum. In addition, pursuant to the Credit Agreement, certain of
the Company’s subsidiaries have agreed to guarantee the Company's obligations
(excluding AB Canada's obligations) under the Credit Agreement.
In the
past, the Company has had to amend its debt agreements in order to avoid being
in default of those agreements as a result of failing to satisfy certain
financial covenants contained in those agreements. At March 31, 2007, the
Company was not in compliance with the financial covenant under the Credit
Agreement that there be no consecutive quarterly net losses from
continuing
operations. On
May 14, 2007, American Biltrite Inc. and its subsidiaries, K&M and AB
Canada, entered into an amendment, effective as of March 31, 2007, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement. The amendment revised that financial covenant to provide that for
each of the two consecutive fiscal quarters of the Company ending December 31,
2006 and March 31, 2007, the Company may not have a quarterly net loss from
continuing operations in excess of $400 thousand. The Company was in compliance
with the financial covenants of its debt agreements at June 30 and September 30,
2007. At December 31, 2007, the Company was not in compliance with
the financial covenant under the Credit Agreement that requires a ratio of
Adjusted EBITDA to Consolidated Interest Expense (as such terms are defined in
the Credit Agreement) to exceed 1.0 and that there be no consecutive quarterly
net losses from continuing operations. On March 12, 2008, American
Biltrite Inc. and its subsidiaries, K&M and AB Canada, entered into an
amendment, effective as of December 31, 2007, to the Credit Agreement with BofA
and BofA acting through its Canada branch, each in their respective capacities
as lenders and administrative agents under the Credit Agreement. The
amendment removed the financial covenant that required the Company not to have
any consecutive quarterly net losses from continuing operations. In
addition, for purposes of determining the Company's compliance with the
financial covenant requiring its Consolidated Adjusted EBITDA to exceed 100% of
the Company's Consolidated Fixed Charges (in each case, as determined under the
Credit Agreement), the amendment permits the Company to add certain amounts to
its Consolidated Adjusted EBITDA to the extent those amounts are deducted in
determining the Company's Consolidated Net Income (as determined under the
Credit Agreement). Further, under that amendment, the lenders waived
defaults that may have otherwise existed as of December 31, 2007 with respect to
the financial covenants that were amended by the amendment. As of
December 31, 2007, American Biltrite was in compliance with the financial
covenants of the Credit Agreement as amended by the May 14, 2007
amendment. ABI paid BofA a fee of $50 thousand in connection with
this amendment.
While the
Company does not currently anticipate that it will need to further amend its
existing debt agreements to avoid being in default at some future date, there
can be no assurances in that regard, and any required amendments, if obtained,
could result in significant cost to the Company. If a default were to occur and
the Company was unable to obtain a waiver from BofA, the Company would be
required to repay all amounts outstanding under the Credit Agreement and the
Company would need to obtain funding from another source. Otherwise, the Company
would likely be unable to repay those outstanding amounts, in which case, BofA
might exercise its rights over the collateral. Any default by the Company of the
Credit Agreement that resulted in the Company being required to immediately
repay outstanding amounts under the Credit Agreements, and for which suitable
replacement financing were not timely obtained, would have a material adverse
effect on the Company's business, results of operations and financial
condition.
Under the
terms of the Joint Plan, ABI’s ownership interest in Congoleum would be
eliminated. ABI expects that its ownership interest in Congoleum
would be eliminated under any alternate plan or outcome in Congoleum’s Chapter
11 case. While the Company does not believe the loss of the value of
its equity interest in Congoleum would have a direct material adverse effect on
ABI’s liquidity, the loss of a controlling interest could have a material
adverse impact on the business relationships between ABI and Congoleum, which in
turn could have a material adverse impact on
ABI’s
business, operations and financial condition. In connection with
Congoleum’s plan of reorganization, ABI expects to spend $400 thousand in 2008,
which is not expected to have a material adverse effect on ABI’s working capital
or cash flow.
The
Company has not declared a dividend subsequent to the third quarter of
2003. Future dividends, if any, will be determined by the Company's
Board of Directors based upon the financial performance and capital requirements
of the Company, among other considerations. Under the Credit
Agreement, aggregate dividend payments (since June 30, 2003) are generally
limited to 50% of cumulative consolidated net income (computed treating
Congoleum under the equity method of accounting), as determined under the Credit
Agreement, earned from June 30, 2003.
Liquidity
and Capital Resources – Congoleum
The
consolidated financial statements of Congoleum, which are reflected in the
Company's consolidated financial statements set forth in Item 8 of this Annual
Report on Form 10-K, have been prepared on a going concern basis. A
going concern basis contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Accordingly, the
consolidated financial statements of Congoleum do not include any adjustments
that might be necessary should Congoleum be unable to continue as a going
concern. As described more fully in the Notes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form 10-K,
there is substantial doubt about Congoleum's ability to continue as a going
concern unless it obtains relief from its substantial asbestos liabilities
through a successful reorganization under Chapter 11 of the Bankruptcy
Code.
On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court (Case No. 03-51524) seeking relief under the Bankruptcy
Code. See Notes 1 and 9 of the Notes to the Consolidated Financial
Statements, which are set forth in Item 8 of this Annual Report on Form 10-K,
for a discussion of Congoleum’s bankruptcy proceedings. These matters
continue to have a material adverse impact on Congoleum’s liquidity and capital
resources. During 2007, Congoleum paid $13.1 million in fees and
expenses (net of recoveries) related to reorganization proceedings under Chapter
11 and litigation with certain insurance companies. Congoleum expects
to spend an additional $24.7 million in 2008 on these matters. At December 31,
2007 Congoleum had incurred but not paid approximately $9 million in additional
fees and expenses for services rendered through that date.
Given the
terms of the Joint Plan, Congoleum has made provision in its financial
statements for the minimum estimated cost to effect its plan to settle asbestos
liabilities through confirmation of a plan that complies with section 524(g) of
the Bankruptcy Code. Congoleum recorded charges aggregating approximately $51.3
million in prior years. Given the terms of the proposed Joint Plan,
in the fourth quarter of 2007 Congoleum recorded an additional $41.3 million
charge. Of this charge, $14.9 million related to the write-off of
certain insurance litigation costs receivable that will not be collected under
the terms of the Joint Plan if it is confirmed and effective, and $26.4 million
was an additional provision for estimated costs for the reorganization
proceedings and coverage litigation. In the fourth quarter of 2007,
Congoleum also recorded a $41.0 million interest expense credit to reverse
post-petition interest accrued on its Senior Notes. Terms of previous
reorganization plans had provided, among other things, for the payment of
post-petition interest on the Senior Notes and therefore Congoleum had continued
to accrue such interest. Under the terms of the Joint Plan, the
holders of the Senior Notes will not receive any post-petition
interest.
In
February 2006, the Bankruptcy Court ordered Congoleum's former counsel, Gilbert,
Heintz & Randolph LLP (currently known as Gilbert Randolph LLP) ("GHR") to
disgorge all fees and certain expenses it was paid by Congoleum. The
amount of the disgorgement is approximately $9.6 million. In October
2006, Congoleum and GHR entered into a settlement agreement under which GHR is
to pay Congoleum approximately $9.2 million plus accruing interest in full
satisfaction of the disgorgement order. The payment is secured by
assets of GHR and is to be made over time according to a formula based on GHR’s
earnings. The Bankruptcy Court approved that settlement agreement in
April 2007. Payments received by Congoleum pursuant to that
settlement agreement in 2007 were not significant.
Unrestricted
cash and cash equivalents, including short-term investments at December 31,
2007, were $26.3 million, an increase of $7.7 million from December 31,
2006. Under the terms of its revolving credit agreement, payments on
Congoleum’s accounts receivable are deposited in an account assigned by
Congoleum to its lender and the funds in that account are used by the lender to
pay down any loan balance. Funds deposited in this account but not
yet applied to the loan balance, which amounted to $0.0 million and $3.6 million
at December 31, 2007 and December 31, 2006, respectively, are recorded as
restricted cash. Additionally, $6.5 million remaining from a $14.5
million settlement received in August 2004 from an insurance carrier, which is
subject to a court order, is included as restricted cash at December 31,
2007. Congoleum expects to contribute these funds, less any amounts
withheld pursuant to reimbursement arrangements, to the plan trust to be
established following confirmation of the Joint Plan. Working capital
was $9.4 million at December 31, 2007, down from $11.5 million one year
earlier. The ratio of current assets to current liabilities was 1.1
at December 31, 2007 compared to 1.2 at December 31, 2006. Net cash
provided by operations during the year ended December 31, 2007 was $11.3
million, as compared to net used in operations of $8.2 million in
2006.
Capital
expenditures in 2007 totaled $4.5 million. Congoleum is currently
planning capital expenditures of approximately $6.5 million in 2008 and between
$5.0 million and $7.0 million in 2009, primarily for maintenance and improvement
of plants and equipment, which it expects to fund with cash from operations and
credit facilities.
In
January 2004, the Bankruptcy Court authorized entry of a final order approving
Congoleum’s debtor-in-possession financing, which replaced its pre-petition
credit facility on substantially similar terms. The
debtor-in-possession financing agreement (as amended and approved by the
Bankruptcy Court to date) provides a revolving credit facility expiring on (i)
the earlier of June 30, 2007 and (ii) the date the plan of reorganization in
Congoleum's bankruptcy cases as confirmed by the Bankruptcy Court becomes
effective. Total borrowing under the facility may not exceed $30
million. Interest is based on 0.25% above the prime
rate. This financing agreement contains certain covenants, which
include the maintenance of minimum earnings before interest, taxes, depreciation
and amortization (“EBITDA”). It also includes restrictions on the
incurrence of additional debt and limitations on capital
expenditures. The covenants and conditions under this financing
agreement must be met in order for Congoleum to borrow from the facility.
Congoleum was in compliance with these covenants at December 31, 2007.
Borrowings under this facility are collateralized by inventory and
receivables. At December 31, 2007, based on the level of receivables
and inventory, $14.2 million was available under the facility, of which $2.2
million was utilized for outstanding letters of credit and $10.5 million was
utilized by the revolving loan. Congoleum anticipates that its
debtor-in-possession financing facility (including anticipated extensions
thereof) together with cash from operations, will
provide
it with sufficient liquidity to operate during 2008 while under Chapter 11
protection. There can be no assurances that Congoleum will continue to be
in compliance with the required covenants under this facility or that the
debtor-in-possession facility (as extended) will be renewed prior to its
expiration if a plan of reorganization is not confirmed before that time.
For a plan of reorganization to be confirmed, Congoleum will need to
obtain and demonstrate the sufficiency of financing needed to effectuate the
plan and emerge from its Chapter 11 case. Congoleum cannot presently
determine the terms of any such financing it might obtain, nor can there be any
assurances of its success obtaining it.
In
addition to the provision for asbestos litigation discussed previously,
Congoleum has also recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities (other than
asbestos-related claims), including provisions for testing for potential
remediation of conditions at its own facilities. Congoleum is subject to
federal, state and local environmental laws and regulations and certain legal
and administrative claims are pending or have been asserted against
Congoleum. Among these claims, Congoleum is a named party in several
actions associated with waste disposal sites (more fully discussed in Note 8 of
the Notes to Consolidated Financial Statements set forth in Item 8 of this
Annual Report on Form 10-K). These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites and certain of Congoleum’s owned and previously
owned facilities. The contingencies also include claims for personal
injury and/or property damage. The exact amount of such future cost
and timing of payments are indeterminable due to such unknown factors as the
magnitude of cleanup costs, the timing and extent of the remedial actions that
may be required, the determination of Congoleum’s liability in proportion to
other potentially responsible parties, and the extent to which costs may be
recoverable from insurance. Congoleum has recorded provisions in its
financial statements for the estimated probable loss associated with all known
general and environmental contingencies. While Congoleum believes its estimate
of the future amount of these liabilities is reasonable, and that they will be
paid over a period of five to ten years, the timing and amount of such payments
may differ significantly from Congoleum’s assumptions. Although the
effect of future government regulation could have a significant effect on
Congoleum’s costs, Congoleum is not aware of any pending legislation which would
reasonably have such an effect. There can be no assurances that the
costs of any future government regulations could be passed along by Congoleum to
its customers. Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets.
The
outcome of these environmental matters could result in significant expenses
incurred by or judgments assessed against Congoleum.
Congoleum's
principal sources of capital are net cash provided by operating activities and
borrowings under its financing agreement. Congoleum cannot presently determine
the amount of fees, expenses, and trust contributions it may incur in connection
with obtaining confirmation of its plan of reorganization. Congoleum
believes that its existing cash (including restricted cash), cash generated from
operations, and debtor-in-possession credit arrangements should be sufficient to
provide adequate working capital for operations during
2008. Congoleum’s ability to emerge from Chapter 11 will depend on
obtaining sufficient exit financing to settle administrative expenses of the
reorganization and any other related obligations, and to provide adequate future
liquidity.
Contingencies
ABI has recorded what it believes are
adequate provisions for environmental remediation and product-related
liabilities, including provisions for testing for potential remediation of
conditions at its own facilities. While ABI believes its estimate of
the future amount of these liabilities is reasonable and that they will be paid
for the most part over a period of one to ten years, the timing and amount of
such payments may differ significantly from ABI's
assumptions. Although the effect of future government regulation
could have a significant effect on ABI's costs, ABI is not aware of any pending
legislation which could significantly affect the liabilities ABI has established
for these matters. There can be no assurances that the costs of any
future government regulations could be passed along by ABI to its
customers.
Certain legal and administrative claims
are pending or have been asserted against ABI. Among these claims,
ABI is a named party in several actions associated with waste disposal sites and
asbestos-related claims. These actions include possible obligations
to remove or mitigate the effects on the environment of wastes deposited at
various sites, including Superfund sites. The exact amount of such
future costs to ABI is indeterminable due to such unknown factors as the
magnitude of cleanup costs, the timing and extent of the remedial actions that
may be required, the determination of ABI's liability in proportion to other
potentially responsible parties and the extent to which costs may be recoverable
from insurance. ABI has recorded provisions in its consolidated
financial statements for the estimated probable loss associated with all known
environmental and asbestos-related contingencies. The contingencies
also include claims for personal injury and/or property damage. (See
Notes 1, 8 and 9 of the
Notes to Consolidated
Financial Statements set forth in Item 8 of this Annual Report on Form
10-K.)
Application
of Critical Accounting Policies and Estimates
The
discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results and conditions may differ from
these estimates and assumptions.
Critical
accounting policies are defined as those that entail significant judgments and
uncertainties, and could potentially result in materially different results
under different assumptions and conditions. The Company believes that
its most critical accounting policies upon which its financial condition
depends, and which involve the most complex or subjective decisions or
assessments, are those described below. For a discussion on the
application of these and other accounting policies, see Note 1 in the Notes to
Consolidated Financial Statements set forth in Item 8 of this
Annual Report on Form 10-K.
Asbestos Liabilities – As
discussed previously, the Company is party to a significant number of lawsuits
stemming from their previous manufacture of asbestos-containing
products. ABI has recorded in its consolidated balance sheet a
liability and corresponding insurance receivable based on its estimates of the
future costs and related insurance recoveries to settle asbestos litigation
and
pay for
related legal and loss handling costs. These estimates are based on a
number of subjective assumptions, including the anticipated costs to settle
claims, the claims dismissal rate, the cost to litigate claims, the number of
claims expected to be received, and the applicability and allocation of
insurance coverage to these costs. Additionally, due to the numerous
uncertainties related to future asbestos litigation trends and costs, the
Company does not believe reasonable estimates can be developed for claim
developments beyond a six year horizon. Accordingly, the Company’s
estimated liability is based on claims currently filed as well as claims
anticipated to be filed over the next six years. A change in
assumptions could have a material effect on the Company’s estimated
liability. For example, it is estimated that a 1% decrease in the
Company’s dismissal rate would result in a 26% increase in liability assuming
all other variables remained constant.
Due to
the highly subjective nature of these assumptions, the Company has estimated a
wide range of potential future costs and insurance recoveries and, because
management believes that no amount within the range is more likely than any
other, has recorded a liability and insurance receivable based on the low end of
the range in accordance with accounting principles generally accepted in the
United States. As such, the selection of a different amount within
the range could have a material effect on the Company's consolidated financial
statements, as could future developments, which may differ from those assumed in
developing the Company's estimates. The same factors that affect
developing forecasts of potential indemnity costs for asbestos-related
liabilities also affect estimates of the total amount of insurance that is
probable of recovery, as do a number of additional factors. These
additional factors include the financial viability of some of the insurance
companies, the method in which losses will be allocated to the various insurance
policies and the years covered by those policies, how legal and other loss
handling costs will be covered by the insurance policies, and interpretation of
the effect on coverage of various policy terms and limits and their
interrelationships. The Company analyzes these estimates on an annual
basis and reassesses the assumptions used as additional information becomes
available over the course of time.
Congoleum
is a party to a significant number of lawsuits stemming from its manufacture of
asbestos-containing products. During 2007, Congoleum paid $13.1
million (net of recoveries) in fees and expenses related to implementation of
its planned reorganization under Chapter 11 of the Bankruptcy Code and
litigation with certain insurance companies. Given the terms of the
proposed Joint Plan, Congoleum has made provision in its financial statements
for the minimum estimated cost to effect its plan to settle asbestos liabilities
through confirmation of a plan that complies with section 524(g) of the
Bankruptcy Code. Congoleum recorded charges aggregating approximately
$51.3 million in prior years. Given the terms of the proposed Joint
Plan, in the fourth quarter of 2007 Congoleum recorded an additional $41.3
million charge. Of this charge, $14.9 million related to the
write-off of certain insurance litigation costs receivable that will not be
collected by Congoleum under the terms of the Joint Plan if it is confirmed and
effective, and $26.4 million was an additional provision for estimated costs for
the reorganization proceedings and coverage litigation. In the fourth
quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit
to reverse post-petition interest accrued on its Senior Notes. Terms
of previous reorganization plans had provided, among other things, for the
payment of post-petition interest on the Senior Notes and therefore Congoleum
had continued to accrue such interest. Under the terms of the Joint
Plan, the holders of the Senior Notes will not receive any post-petition
interest.
In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into the Claimant Agreement, which provides for settlement of certain
prepetition asbestos claims against Congoleum and provides for an aggregate
settlement value of at least $466 million as well as an additional number of
individually negotiated trial listed settlements with an aggregate value of
approximately $25 million, for total settlements in excess of $491
million. Participants in the Claimant Agreement signed releases
limiting their recourse against Congoleum to what they would receive from the
Plan Trust and Congoleum has therefore estimated its liability under the
Claimant Agreement as the cost of effecting the settlement through confirmation
of a plan of reorganization. In addition, as a result of tabulating
ballots on a previous plan, Congoleum is also aware of claims by claimants whose
claims were not determined under the Claimant Agreement but who have submitted
claims with a value of approximately $512 million based on the settlement values
applicable in a previous plan. It is also likely that additional new
claims will be asserted in connection with solicitation of acceptances of the
Joint Plan. Congoleum does not believe it can reasonably estimate the
liability associated with claims that may be pending.
ABI
understands that Congoleum expects that insurance will provide the substantial
majority of the recovery available to claimants, due to the amount of insurance
coverage it purchased and the comparatively limited resources and value of
Congoleum itself. Congoleum does not have the necessary financial
resources to litigate and/or settle asbestos claims in the ordinary course of
business.
While
Congoleum has provided for the anticipated costs to effect the Joint Plan, costs
for pursuing and implementing the Joint Plan and any plan of reorganization
could be materially higher than recorded amounts and previous
estimates.
Congoleum
will update its estimates, if appropriate, as additional information becomes
available during the reorganization process, which could result in potentially
material adjustments to Congoleum’s earnings in future periods.
Consolidation of Congoleum –
The Company's subsidiary Congoleum filed for bankruptcy protection on December
31, 2003. The accompanying consolidated financial statements
include the results for Congoleum for all periods presented. ABI
expects to continue to own a majority of the voting stock of Congoleum until
Congoleum’s reorganization proceedings are concluded, at which time ABI expects
it shares of Congoleum will be cancelled. The Company has elected to
continue to consolidate the financial statements of Congoleum in its
consolidated results because it believes that is the appropriate presentation
given its current voting control of Congoleum. However, the
accompanying financial statements also present the details of consolidation to
separately show the financial condition, operating results and cash flows of ABI
(including its non-debtor subsidiaries) and Congoleum, which may be more
meaningful for certain analyses. ABI’s reported consolidated
financial condition, operating results and cash flows results would be
materially different if they did not include Congoleum. The Company
anticipates its equity interest in Congoleum will be eliminated in connection
with the effectiveness of any future Congoleum plan of reorganization, at which
time it will no longer include Congoleum in the Company’s consolidated financial
statements.
Environmental Contingencies –
As discussed previously, the Company has incurred liabilities related to
environmental remediation costs at both third party sites and Company owned
sites. The Company accrues for its estimate of future remediation
activities when it is probable that a liability has been incurred and the amount
can be reasonably estimated. The most likely cost to be incurred is
accrued based on an evaluation of currently available facts with respect to each
individual site, including the extent of clean-up activities to be performed,
the methods employed in the clean-up activities, the Company's relative share in
costs at sites where other parties are involved, existing technology, current
laws and regulations and prior remediation experience. Where no
amount within a range of estimates is more likely to occur than another, the
minimum is accrued. For sites with multiple potentially responsible
parties, the Company considers its likely proportionate share of the anticipated
remediation costs and the ability of the other parties to fulfill their
obligations in establishing a provision for those costs. When future
liabilities are determined to be reimbursable by insurance coverage or payment
from third parties, an accrual is recorded for the potential liability and a
receivable is recorded related to the expected recovery. A receivable
reserve is recorded when recoveries are disputed or are not highly
probable. These estimates are based on certain assumptions such as
the Company's relative share in costs at sites where other parties are involved,
and the ultimate insurance coverage available. These projects tend to
be long-term in nature, and assumptions are subject to refinement as facts
change. As such, it is possible that the Company may need to revise
its recorded liabilities and receivables for environmental costs in future
periods resulting in potentially material adjustments to the Company's earnings
in future periods. The Company closely monitors existing and
potential environmental matters to consider the reasonableness of its estimates
and assumptions.
Valuation of Deferred Tax
Assets – The Company provides for valuation reserves against its deferred
tax assets in accordance with the requirements of SFAS 109. In
evaluating the recovery of deferred tax assets, the Company makes certain
assumptions as to the future reversal of existing taxable temporary differences,
taxable income in prior carryback years, the feasibility of tax planning
strategies, and estimated future taxable income. The valuation
allowance can be affected by changes to tax laws, changes to statutory tax rates
and changes to future taxable income estimates. It is possible that
the facts underlying these assumptions may not materialize as anticipated in
future periods, which may require the Company to record additional deferred tax
valuation allowances, or to reduce previously recorded valuation
allowances.
Pension and Other Postretirement
Benefits – The Company sponsors several noncontributory defined benefit
pension plans covering most of the Company’s employees. The Company
also maintains health and life insurance programs for
retirees. Benefits under the plans are based on years of service and
employee compensation. The costs and obligations associated with
these plans are dependent upon various actuarial assumptions used in calculating
such amounts. These assumptions include the long-term rate of return
on plan assets, discount rates and other factors. These assumptions
are evaluated and updated annually by management. Other assumptions
used include employee demographic factors such as retirement patterns,
mortality, turnover and the rate of compensation increases.
To
determine the expected long-term rate of return on plan assets, the Company
considers the current and expected asset allocation, as well as historical and
expected returns on each plan asset class. In 2007 and 2006, the
Company assumed that the expected long-term rate of return on plan assets will
be 7.0% - 7.5%. The assumed long-term rate of return on assets is
applied to a calculated value of plan assets, which recognizes changes in the
fair value of plan assets in a systematic manner over four
years. This produces the expected return on plan assets that is
included in pension expense. The difference between this expected
return and the actual return on plan assets is deferred. The net
deferral of past actuarial gains or losses affects the calculated value of plan
assets and, ultimately, future pension expense.
At the
end of each year, the Company determines the discount rate to be used to
calculate the present value of plan liabilities. The discount rate is
used to determine expected future benefit payments as a present value on the
measurement date, reflecting the current rate at which the pension liabilities
could be effectively settled. In estimating this rate, the Company
looks to rates of return on high-quality, fixed-income investments that receive
one of the two highest ratings given by a recognized ratings
agency. At December 31, 2007, the Company determined this rate to be
6.0%.
Allowance for Doubtful
Accounts – The Company’s allowance for doubtful accounts is determined
based on a variety of factors that affect the potential collectibility of the
related receivables, including the length of time receivables are past due,
customer credit ratings, financial stability of customers, specific one-time
events and past customer history. In addition, in circumstances where
the Company is made aware of a specific customer’s inability to meet its
financial obligations, a specific allowance is established. The
majority of accounts are individually evaluated on a regular basis and
appropriate reserves are established as deemed appropriate based on the criteria
previously noted. The remainder of the reserve is based on
management’s estimates and takes into consideration historical trends, market
conditions and the composition of the Company’s customer base. The
risk associated with this estimate is that the Company would not become aware of
potential collectibility issues related to specific accounts and thereby become
exposed to potential unreserved losses. Historically, the Company’s
estimates and assumptions around the allowance have been reasonably accurate and
the Company has processes and controls in place to closely monitor customers and
potential credit issues.
Inventory Allowances – The
Company maintains obsolescence and slow-moving allowances for
inventory. Products and materials that are specifically identified as
obsolete are fully reserved. The remainder of the allowance is based
on management’s estimates and fluctuates with market conditions, design cycles
and other economic factors. Risks associated with this allowance
include unforeseen changes in business cycles that could affect the
marketability of certain products and an unforecasted decline in current
production. Management closely monitors the market place and related
inventory levels and has historically maintained reasonably accurate allowance
levels. In addition, the Company values certain inventories using the
last-in, first-out (“LIFO”) method. Accordingly, a LIFO valuation
reserve is maintained to properly value these inventories.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
American
Biltrite Inc. and Subsidiaries
Consolidated
Balance Sheets with Consolidating Details – Assets
(In
thousands of dollars)
|
|
December
31
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
30,185 |
|
|
$ |
21,180 |
|
|
|
|
|
|
|
|
$ |
26,327 |
|
|
$ |
18,591 |
|
|
$ |
3,858 |
|
|
$ |
2,589 |
|
Restricted
cash
|
|
|
6,501 |
|
|
|
9,656 |
|
|
|
|
|
|
|
|
|
6,501 |
|
|
|
9,656 |
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable, less allowances for doubtful accounts and discounts
of $2,917 in 2007 and $3,070 in 2006
|
|
|
41,345 |
|
|
|
40,791 |
|
|
$ |
(316 |
) |
|
$ |
(226 |
) |
|
|
14,162 |
|
|
|
17,598 |
|
|
|
27,499 |
|
|
|
23,419 |
|
Inventories
|
|
|
78,401 |
|
|
|
80,471 |
|
|
|
(125 |
) |
|
|
(143 |
) |
|
|
35,182 |
|
|
|
34,220 |
|
|
|
43,344 |
|
|
|
46,394 |
|
Deferred
income taxes
|
|
|
961 |
|
|
|
1,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961 |
|
|
|
1,818 |
|
Prepaid
expenses & other current assets
|
|
|
20,001 |
|
|
|
28,406 |
|
|
|
|
|
|
|
|
|
|
|
13,138 |
|
|
|
25,610 |
|
|
|
6,863 |
|
|
|
2,796 |
|
Total
current assets
|
|
|
177,394 |
|
|
|
182,322 |
|
|
|
(441 |
) |
|
|
(369 |
) |
|
|
95,310 |
|
|
|
105,675 |
|
|
|
82,525 |
|
|
|
77,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equipment, net
|
|
|
99,153 |
|
|
|
106,380 |
|
|
|
|
|
|
|
|
|
|
|
61,993 |
|
|
|
67,757 |
|
|
|
37,160 |
|
|
|
38,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
for asbestos-related liabilities
|
|
|
11,140 |
|
|
|
9,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,140 |
|
|
|
9,320 |
|
Goodwill,
net
|
|
|
11,490 |
|
|
|
11,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,490 |
|
|
|
11,475 |
|
Other
assets
|
|
|
22,622 |
|
|
|
22,175 |
|
|
|
(126 |
) |
|
|
(135 |
) |
|
|
15,402 |
|
|
|
10,770 |
|
|
|
7,346 |
|
|
|
11,540 |
|
|
|
|
45,252 |
|
|
|
42,970 |
|
|
|
(126 |
) |
|
|
(135 |
) |
|
|
15,402 |
|
|
|
10,770 |
|
|
|
29,976 |
|
|
|
32,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
321,799 |
|
|
$ |
331,672 |
|
|
$ |
(567 |
) |
|
$ |
(504 |
) |
|
$ |
172,705 |
|
|
$ |
184,202 |
|
|
$ |
149,661 |
|
|
$ |
147,974 |
|
See
accompanying notes.
American
Biltrite Inc. and Subsidiaries
Consolidated
Balance Sheets with Consolidating Details – Liabilities and Stockholders’
Equity
(In
thousands of dollars, except per share amounts)
|
|
December
31
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
22,570 |
|
|
$ |
21,769 |
|
|
$ |
(316 |
) |
|
$ |
(226 |
) |
|
$ |
10,715 |
|
|
$ |
10,654 |
|
|
$ |
12,171 |
|
|
$ |
11,341 |
|
Accrued
expenses
|
|
|
37,035 |
|
|
|
37,411 |
|
|
|
|
|
|
|
|
|
|
|
20,742 |
|
|
|
22,301 |
|
|
|
16,293 |
|
|
|
15,110 |
|
Asbestos-related
liabilities
|
|
|
31,207 |
|
|
|
13,950 |
|
|
|
|
|
|
|
|
|
|
|
31,207 |
|
|
|
13,950 |
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
7,725 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
7,725 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
30,309 |
|
|
|
31,284 |
|
|
|
|
|
|
|
|
|
|
|
10,551 |
|
|
|
12,715 |
|
|
|
19,758 |
|
|
|
18,569 |
|
Current
portion of long-term debt
|
|
|
2,376 |
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,376 |
|
|
|
2,424 |
|
Liabilities
subject to compromise
|
|
|
4,997 |
|
|
|
34,602 |
|
|
|
|
|
|
|
|
|
|
|
4,997 |
|
|
|
34,602 |
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
136,219 |
|
|
|
141,440 |
|
|
|
(316 |
) |
|
|
(226 |
) |
|
|
85,937 |
|
|
|
94,222 |
|
|
|
50,598 |
|
|
|
47,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
6,725 |
|
|
|
8,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,725 |
|
|
|
8,971 |
|
Asbestos-related
liabilities
|
|
|
12,600 |
|
|
|
10,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600 |
|
|
|
10,300 |
|
Other
liabilities
|
|
|
12,195 |
|
|
|
15,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,195 |
|
|
|
15,441 |
|
Noncontrolling
interests
|
|
|
1,093 |
|
|
|
1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,093 |
|
|
|
1,087 |
|
Liabilities
subject to compromise
|
|
|
133,098 |
|
|
|
136,398 |
|
|
|
(126 |
) |
|
|
(135 |
) |
|
|
133,224 |
|
|
|
136,533 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
301,930 |
|
|
|
313,637 |
|
|
|
(442 |
) |
|
|
(361 |
) |
|
|
219,161 |
|
|
|
230,755 |
|
|
|
83,211 |
|
|
|
83,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $.01, authorized 15,000,000 shares, issued 4,607,902
shares
|
|
|
46 |
|
|
|
46 |
|
|
|
(93 |
) |
|
|
(93 |
) |
|
|
93 |
|
|
|
93 |
|
|
|
46 |
|
|
|
46 |
|
Additional
paid-in capital
|
|
|
19,607 |
|
|
|
19,591 |
|
|
|
(49,368 |
) |
|
|
(49,349 |
) |
|
|
49,368 |
|
|
|
49,349 |
|
|
|
19,607 |
|
|
|
19,591 |
|
Retained
earnings
|
|
|
30,835 |
|
|
|
32,821 |
|
|
|
35,413 |
|
|
|
35,376 |
|
|
|
(65,417 |
) |
|
|
(64,726 |
) |
|
|
60,839 |
|
|
|
62,171 |
|
Accumulated
other comprehensive loss
|
|
|
(15,487 |
) |
|
|
(19,291 |
) |
|
|
6,110 |
|
|
|
6,110 |
|
|
|
(22,687 |
) |
|
|
(23,456 |
) |
|
|
1,090 |
|
|
|
(1,945 |
) |
Less
cost of 1,166,351 shares of common stock in treasury
|
|
|
(15,132 |
) |
|
|
(15,132 |
) |
|
|
7,813 |
|
|
|
7,813 |
|
|
|
(7,813 |
) |
|
|
(7,813 |
) |
|
|
(15,132 |
) |
|
|
(15,132 |
) |
Total
stockholders’ equity
|
|
|
19,869 |
|
|
|
18,035 |
|
|
|
(125 |
) |
|
|
(143 |
) |
|
|
(46,456 |
) |
|
|
(46,553 |
) |
|
|
66,450 |
|
|
|
64,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
321,799 |
|
|
$ |
331,672 |
|
|
$ |
(567 |
) |
|
$ |
(504 |
) |
|
$ |
172,705 |
|
|
$ |
184,202 |
|
|
$ |
149,661 |
|
|
$ |
147,974 |
|
See
accompanying notes.
American
Biltrite Inc. and Subsidiaries
Consolidated
Statements of Operations with Consolidating Details
(In
thousands of dollars, except per share amounts)
|
|
Years Ended
December 31
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
420,725 |
|
|
$ |
435,537 |
|
|
|
|
|
|
|
|
$ |
204,262 |
|
|
$ |
219,474 |
|
|
$ |
216,463 |
|
|
$ |
216,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
312,814 |
|
|
|
327,585 |
|
|
$ |
(1,029 |
) |
|
$ |
(447 |
) |
|
|
153,809 |
|
|
|
169,023 |
|
|
|
160,034 |
|
|
|
159,009 |
|
Selling,
general & administrative expenses
|
|
|
95,289 |
|
|
|
94,779 |
|
|
|
- |
|
|
|
- |
|
|
|
37,469 |
|
|
|
39,906 |
|
|
|
57,820 |
|
|
|
54,873 |
|
Asbestos-related
reorganization charges
|
|
|
41,315 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
41,315 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
(Loss)
income from operations
|
|
|
(28,693 |
) |
|
|
13,173 |
|
|
|
1,029 |
|
|
|
447 |
|
|
|
(28,331 |
) |
|
|
10,545 |
|
|
|
(1,391 |
) |
|
|
2,181 |
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,338 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
1,224 |
|
|
|
515 |
|
|
|
114 |
|
|
|
354 |
|
Bond
interest reversal (expense)
|
|
|
29,603 |
|
|
|
(10,612 |
) |
|
|
|
|
|
|
|
|
|
|
29,603 |
|
|
|
(10,612 |
) |
|
|
|
|
|
|
|
|
Other
interest expense
|
|
|
(3,438 |
) |
|
|
(3,453 |
) |
|
|
|
|
|
|
|
|
|
|
(1,027 |
) |
|
|
(775 |
) |
|
|
(2,411 |
) |
|
|
(2,678 |
) |
Other
(expense) income, net
|
|
|
(78 |
) |
|
|
165 |
|
|
|
(1,011 |
) |
|
|
(423 |
) |
|
|
(447 |
) |
|
|
162 |
|
|
|
1,380 |
|
|
|
426 |
|
|
|
|
27,425 |
|
|
|
(13,031 |
) |
|
|
(1,011 |
) |
|
|
(423 |
) |
|
|
29,353 |
|
|
|
(10,710 |
) |
|
|
(917 |
) |
|
|
(1,898 |
) |
(Loss)
income before taxes and other items
|
|
|
(1,268 |
) |
|
|
142 |
|
|
|
18 |
|
|
|
24 |
|
|
|
1,022 |
|
|
|
(165 |
) |
|
|
(2,308 |
) |
|
|
283 |
|
Provision
for (benefit from) income taxes
|
|
|
680 |
|
|
|
(609 |
) |
|
|
|
|
|
|
|
|
|
|
1,713 |
|
|
|
(844 |
) |
|
|
(1,033 |
) |
|
|
235 |
|
Noncontrolling
interests
|
|
|
(57 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income from continuing operations
|
|
|
(2,005 |
) |
|
|
704 |
|
|
|
18 |
|
|
|
24 |
|
|
|
(691 |
) |
|
|
679 |
|
|
|
(1,332 |
) |
|
|
1 |
|
Discontinued
operation
|
|
|
- |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(2,005 |
) |
|
$ |
685 |
|
|
$ |
18 |
|
|
$ |
24 |
|
|
$ |
(691 |
) |
|
$ |
679 |
|
|
$ |
(1,332 |
) |
|
$ |
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
(loss) income per common share from continuing operations
|
|
$ |
(0.58 |
) |
|
$ |
0.20 |
|
|
$ |
(0.58 |
) |
|
$ |
0.20 |
|
Discontinued
operation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share
|
|
$ |
(0.58 |
) |
|
$ |
0.20 |
|
|
$ |
(0.58 |
) |
|
$ |
0.20 |
|
Weighted
average number of common and equivalent shares outstanding
|
|
|
3,442 |
|
|
|
3,442 |
|
|
|
3,442 |
|
|
|
3,457 |
|
See
accompanying notes.
American
Biltrite Inc. and Subsidiaries
Consolidated
Statements of Cash Flows with Consolidating Details – Operating
Activities
(In
thousands of dollars)
|
|
Years
Ended December 31
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(2,005 |
) |
|
$ |
685 |
|
|
$ |
18 |
|
|
$ |
24 |
|
|
$ |
(691 |
) |
|
$ |
679 |
|
|
$ |
(1,332 |
) |
|
$ |
(18 |
) |
Net
loss from discontinued operation
|
|
|
- |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
19 |
|
Net
(loss) income from continuing operations
|
|
|
(2,005 |
) |
|
|
704 |
|
|
|
18 |
|
|
|
24 |
|
|
|
(691 |
) |
|
|
679 |
|
|
|
(1,332 |
) |
|
|
1 |
|
Adjustments
to reconcile net (loss) income to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
16,185 |
|
|
|
16,245 |
|
|
|
|
|
|
|
|
|
|
|
10,690 |
|
|
|
10,478 |
|
|
|
5,495 |
|
|
|
5,767 |
|
Provision
for doubtful accounts and discounts
|
|
|
2,826 |
|
|
|
3,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,826 |
|
|
|
3,627 |
|
Deferred
income taxes
|
|
|
(1,901 |
) |
|
|
(2,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,901 |
) |
|
|
(2,856 |
) |
Asbestos-related
charge
|
|
|
41,315 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
41,315 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Bond
interest (reversal) expense
|
|
|
(29,603 |
) |
|
|
10,612 |
|
|
|
|
|
|
|
|
|
|
|
(29,603 |
) |
|
|
10,612 |
|
|
|
|
|
|
|
|
|
Gain
on replacement of property
|
|
|
- |
|
|
|
(1,266 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(1,266 |
) |
|
|
|
|
|
|
|
|
Charge
for early extinguishment of debt
|
|
|
- |
|
|
|
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
860 |
|
Stock
compensation charge
|
|
|
35 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
223 |
|
|
|
16 |
|
|
|
21 |
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(2,068 |
) |
|
|
(2,617 |
) |
|
|
216 |
|
|
|
(376 |
) |
|
|
3,436 |
|
|
|
(506 |
) |
|
|
(5,720 |
) |
|
|
(1,735 |
) |
Inventories
|
|
|
4,876 |
|
|
|
(3,038 |
) |
|
|
(18 |
) |
|
|
(24 |
) |
|
|
(962 |
) |
|
|
387 |
|
|
|
5,856 |
|
|
|
(3,401 |
) |
Prepaid
expenses & other current assets
|
|
|
2,113 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
1,965 |
|
|
|
(347 |
) |
|
|
148 |
|
|
|
1,190 |
|
Accounts
payable and accrued expenses
|
|
|
(1,359 |
) |
|
|
(8,885 |
) |
|
|
(216 |
) |
|
|
376 |
|
|
|
(1,097 |
) |
|
|
(4,950 |
) |
|
|
(46 |
) |
|
|
(4,311 |
) |
Asbestos-related
liabilities
|
|
|
(13,048 |
) |
|
|
(22,373 |
) |
|
|
|
|
|
|
|
|
|
|
(13,048 |
) |
|
|
(22,373 |
) |
|
|
|
|
|
|
|
|
Asbestos-related
reimbursement from insurance settlement
|
|
|
1,498 |
|
|
|
3,684 |
|
|
|
|
|
|
|
|
|
|
|
1,498 |
|
|
|
3,684 |
|
|
|
|
|
|
|
|
|
Noncontrolling
interests
|
|
|
6 |
|
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
(278 |
) |
Other
|
|
|
(901 |
) |
|
|
(1,156 |
) |
|
|
|
|
|
|
|
|
|
|
(2,236 |
) |
|
|
(4,784 |
) |
|
|
1,335 |
|
|
|
3,628 |
|
Net
cash provided (used) by operating activities of continuing
operations
|
|
|
17,969 |
|
|
|
(5,650 |
) |
|
|
- |
|
|
|
- |
|
|
|
11,286 |
|
|
|
(8,163 |
) |
|
|
6,683 |
|
|
|
2,513 |
|
Net
cash used by operating activities of discontinued
operation
|
|
|
- |
|
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|