eps3415.htm
FORM
10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Quarterly
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
For
Quarter Ended March 31, 2009
|
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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
57
River Street
Wellesley
Hills, Massachusetts 02481-2097
(Address
of Principal Executive Offices)
(781)
237-6655
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ] No [ ]
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 [ ] Accelerated filer
[ ] Non-accelerated filer
[ ] (Do not check if a smaller reporting
company) 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 [ ] No [X]
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding
at May 12, 2009
|
|
|
|
Common
Stock
|
|
3,441,551
shares
|
FORWARD
LOOKING STATEMENTS
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 statements can be identified by the use of words
such as "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project" and other words of similar meaning. In particular, these
include statements relating to intentions, beliefs or current expectations
concerning, among other things, future performance, results of operations, the
outcome of contingencies, such as bankruptcy and other legal proceedings, and
financial conditions. These statements do not relate strictly to
historical or current facts. These forward-looking statements are
based on American Biltrite Inc.’s expectations and American Biltrite Inc.’s
understanding of its majority-owned subsidiary Congoleum Corporation’s
expectations, as of the date of this report, of future events, and American
Biltrite Inc. undertakes no obligation to update any of these forward-looking
statements, except as required by federal securities laws. Although
American Biltrite Inc. believes that these expectations are based on reasonable
assumptions, within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Readers are cautioned not to place undue reliance
on any forward-looking statements. Any or all of these statements may
turn out to be incorrect. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Any
forward-looking statements made in this report speak only as of the date of this
report unless the statement indicates that another date applies. It
is not possible to predict or identify all factors that could potentially cause
actual results to differ materially from expected and historical
results. Factors that could cause or contribute to American Biltrite
Inc.’s actual results differing from its expectations include those factors
discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in
American Biltrite Inc.’s other filings with the Securities and Exchange
Commission.
AMERICAN
BILTRITE INC.
INDEX
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
Consolidating
Condensed Balance Sheets – Assets as of March 31, 2009 (Unaudited) and
December 31, 2008
|
1
|
|
|
|
|
|
|
Consolidating
Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of
March 31, 2009 (Unaudited) and December 31, 2008
|
2
|
|
|
|
|
|
|
Consolidating
Condensed Statements of Operations (Unaudited) For the Three Months Ended
March 31, 2009 and 2008
|
3
|
|
|
|
|
|
|
Consolidating
Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended
March 31, 2009 and 2008
|
4
|
|
|
|
|
|
|
Notes
to Unaudited Consolidating Condensed Financial Statements
|
5
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
26
|
|
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
40
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
41
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
41
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
52
|
|
|
|
|
|
Item
5.
|
Other
Information
|
52
|
|
|
|
|
|
Item
6.
|
Exhibits
|
54
|
|
|
|
|
|
Signature
|
55
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
AMERICAN
BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING
CONDENSED BALANCE SHEETS – ASSETS
(In
thousands of dollars)
|
|
ABI
Consolidated
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
9,357 |
|
|
$ |
18,072 |
|
|
|
|
|
|
|
|
$ |
7,679 |
|
|
$ |
15,077 |
|
|
$ |
1,678 |
|
|
$ |
2,995 |
|
Restricted
cash
|
|
|
29,708 |
|
|
|
29,680 |
|
|
|
|
|
|
|
|
|
29,708 |
|
|
|
29,680 |
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
|
1,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
- |
|
Accounts
receivable, net
|
|
|
37,722 |
|
|
|
36,627 |
|
|
$ |
(274 |
) |
|
$ |
(367 |
) |
|
|
15,848 |
|
|
|
13,789 |
|
|
|
22,148 |
|
|
|
23,205 |
|
Inventories
|
|
|
77,992 |
|
|
|
79,082 |
|
|
|
(73 |
) |
|
|
(89 |
) |
|
|
38,142 |
|
|
|
35,814 |
|
|
|
39,923 |
|
|
|
43,357 |
|
Taxes
receivable
|
|
|
1,002 |
|
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,002 |
|
|
|
1,334 |
|
Prepaid
expense & other current assets
|
|
|
5,920 |
|
|
|
6,406 |
|
|
|
|
|
|
|
|
|
|
|
3,366 |
|
|
|
3,922 |
|
|
|
2,554 |
|
|
|
2,484 |
|
Total
current assets
|
|
|
162,701 |
|
|
|
171,201 |
|
|
|
(347 |
) |
|
|
(456 |
) |
|
|
94,743 |
|
|
|
98,282 |
|
|
|
68,305 |
|
|
|
73,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equipment, net
|
|
|
86,091 |
|
|
|
88,466 |
|
|
|
|
|
|
|
|
|
|
|
54,947 |
|
|
|
56,520 |
|
|
|
31,144 |
|
|
|
31,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
for asbestos-related liabilities
|
|
|
13,509 |
|
|
|
13,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,509 |
|
|
|
13,509 |
|
Other
assets
|
|
|
21,897 |
|
|
|
21,825 |
|
|
|
(117 |
) |
|
|
(117 |
) |
|
|
17,065 |
|
|
|
17,065 |
|
|
|
4,949 |
|
|
|
4,877 |
|
|
|
|
35,406 |
|
|
|
35,334 |
|
|
|
(117 |
) |
|
|
(117 |
) |
|
|
17,065 |
|
|
|
17,065 |
|
|
|
18,458 |
|
|
|
18,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
284,198 |
|
|
$ |
295,001 |
|
|
$ |
(464 |
) |
|
$ |
(573 |
) |
|
$ |
166,755 |
|
|
$ |
171,867 |
|
|
$ |
117,907 |
|
|
$ |
123,707 |
|
See
accompanying notes to consolidating condensed financial
statements.
AMERICAN
BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING
CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY
(In
thousands of dollars)
|
|
ABI
Consolidated
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
13,869 |
|
|
$ |
16,298 |
|
|
$ |
(274 |
) |
|
$ |
(366 |
) |
|
$ |
6,698 |
|
|
$ |
7,472 |
|
|
$ |
7,445 |
|
|
$ |
9,192 |
|
Accrued
expenses
|
|
|
28,431 |
|
|
|
31,880 |
|
|
|
|
|
|
|
|
|
|
|
14,237 |
|
|
|
16,897 |
|
|
|
14,194 |
|
|
|
14,983 |
|
Asbestos-related
liabilities
|
|
|
48,759 |
|
|
|
50,022 |
|
|
|
|
|
|
|
|
|
|
|
48,759 |
|
|
|
50,022 |
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
6,533 |
|
|
|
6,533 |
|
|
|
|
|
|
|
|
|
|
|
6,533 |
|
|
|
6,533 |
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
36,509 |
|
|
|
32,747 |
|
|
|
|
|
|
|
|
|
|
|
16,966 |
|
|
|
13,994 |
|
|
|
19,543 |
|
|
|
18,753 |
|
Current
portion of long-term debt
|
|
|
5,106 |
|
|
|
5,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,106 |
|
|
|
5,611 |
|
Liabilities
subject to compromise
|
|
|
4,997 |
|
|
|
4,997 |
|
|
|
|
|
|
|
|
|
|
|
4,997 |
|
|
|
4,997 |
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
144,204 |
|
|
|
148,088 |
|
|
|
(274 |
) |
|
|
(366 |
) |
|
|
98,190 |
|
|
|
99,915 |
|
|
|
46,288 |
|
|
|
48,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
1,033 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033 |
|
|
|
1,112 |
|
Asbestos-related
liabilities
|
|
|
13,563 |
|
|
|
13,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,563 |
|
|
|
13,563 |
|
Other
liabilities
|
|
|
16,767 |
|
|
|
16,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,767 |
|
|
|
16,801 |
|
Liabilities
subject to compromise
|
|
|
162,103 |
|
|
|
161,386 |
|
|
|
(117 |
) |
|
|
(117 |
) |
|
|
162,220 |
|
|
|
161,503 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
337,670 |
|
|
|
340,950 |
|
|
|
(391 |
) |
|
|
(483 |
) |
|
|
260,410 |
|
|
|
261,418 |
|
|
|
77,651 |
|
|
|
80,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
46 |
|
|
|
46 |
|
|
|
(93 |
) |
|
|
(93 |
) |
|
|
93 |
|
|
|
93 |
|
|
|
46 |
|
|
|
46 |
|
Additional
paid-in capital
|
|
|
19,799 |
|
|
|
19,749 |
|
|
|
(49,389 |
) |
|
|
(49,386 |
) |
|
|
49,389 |
|
|
|
49,386 |
|
|
|
19,799 |
|
|
|
19,749 |
|
Less
treasury shares
|
|
|
(15,132 |
) |
|
|
(15,132 |
) |
|
|
7,813 |
|
|
|
7,813 |
|
|
|
(7,813 |
) |
|
|
(7,813 |
) |
|
|
(15,132 |
) |
|
|
(15,132 |
) |
Accumulated
other comprehensive loss
|
|
|
(53,434 |
) |
|
|
(53,250 |
) |
|
|
6,111 |
|
|
|
6,110 |
|
|
|
(51,179 |
) |
|
|
(51,179 |
) |
|
|
(8,366 |
) |
|
|
(8,181 |
) |
(Deficit)
retained earnings
|
|
|
(3,691 |
) |
|
|
1,803 |
|
|
|
37,332 |
|
|
|
35,466 |
|
|
|
(84,145 |
) |
|
|
(80,038 |
) |
|
|
43,122 |
|
|
|
46,375 |
|
Total
stockholders’ (deficit) equity of controlling interests
|
|
|
(52,412 |
) |
|
|
(46,784 |
) |
|
|
1,774 |
|
|
|
(90 |
) |
|
|
(93,655 |
) |
|
|
(89,551 |
) |
|
|
39,469 |
|
|
|
42,857 |
|
Noncontrolling
interests
|
|
|
(1,060 |
) |
|
|
835 |
|
|
|
(1,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
787 |
|
|
|
835 |
|
Total
(deficit) equity
|
|
|
(53,472 |
) |
|
|
(45,949 |
) |
|
|
(73 |
) |
|
|
(90 |
) |
|
|
(93,655 |
) |
|
|
(89,551 |
) |
|
|
40,256 |
|
|
|
43,692 |
|
Total
liabilities and equity
|
|
$ |
284,198 |
|
|
$ |
295,001 |
|
|
$ |
(464 |
) |
|
$ |
(573 |
) |
|
$ |
166,755 |
|
|
$ |
171,867 |
|
|
$ |
117,907 |
|
|
$ |
123,707 |
|
See
accompanying notes to consolidating condensed financial
statements.
AMERICAN
BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
For
the Three Months Ended March 31, 2009 and 2008
(In
thousands of dollars, except share and per share amounts)
|
|
ABI
Consolidated
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
70,061 |
|
|
$ |
95,757 |
|
|
|
|
|
|
|
|
$ |
30,106 |
|
|
$ |
47,697 |
|
|
$ |
39,955 |
|
|
$ |
48,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
56,161 |
|
|
|
72,593 |
|
|
$ |
(309 |
) |
|
$ |
(300 |
) |
|
|
25,960 |
|
|
|
36,824 |
|
|
|
30,510 |
|
|
|
36,069 |
|
Selling,
general & administrative expenses
|
|
|
20,510 |
|
|
|
22,389 |
|
|
|
|
|
|
|
|
|
|
|
8,250 |
|
|
|
9,132 |
|
|
|
12,260 |
|
|
|
13,257 |
|
(Loss)
income from operations
|
|
|
(6,610 |
) |
|
|
775 |
|
|
|
309 |
|
|
|
300 |
|
|
|
(4,104 |
) |
|
|
1,741 |
|
|
|
(2,815 |
) |
|
|
(1,266 |
) |
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7 |
|
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
1,128 |
|
|
|
5 |
|
|
|
23 |
|
Interest
expense
|
|
|
(345 |
) |
|
|
(708 |
) |
|
|
|
|
|
|
|
|
|
|
(108 |
) |
|
|
(197 |
) |
|
|
(237 |
) |
|
|
(511 |
) |
Other
(expense) income
|
|
|
(499 |
) |
|
|
233 |
|
|
|
(293 |
) |
|
|
(292 |
) |
|
|
118 |
|
|
|
(64 |
) |
|
|
(324 |
) |
|
|
589 |
|
|
|
|
(837 |
) |
|
|
676 |
|
|
|
(293 |
) |
|
|
(292 |
) |
|
|
12 |
|
|
|
867 |
|
|
|
(556 |
) |
|
|
101 |
|
(Loss)
income before income taxes
|
|
|
(7,447 |
) |
|
|
1,451 |
|
|
|
16 |
|
|
|
8 |
|
|
|
(4,092 |
) |
|
|
2,608 |
|
|
|
(3,371 |
) |
|
|
(1,165 |
) |
(Benefit
from) provision for income taxes
|
|
|
(53 |
) |
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
929 |
|
|
|
(68 |
) |
|
|
(410 |
) |
Net
(loss) income
|
|
|
(7,394 |
) |
|
|
932 |
|
|
|
16 |
|
|
|
8 |
|
|
|
(4,107 |
) |
|
|
1,679 |
|
|
|
(3,303 |
) |
|
|
(755 |
) |
Noncontrolling
interests
|
|
|
1,897 |
|
|
|
40 |
|
|
|
1,847 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
40 |
|
Net
(loss) income attributable to controlling interests
|
|
$ |
(5,497 |
) |
|
$ |
972 |
|
|
$ |
1,863 |
|
|
$ |
8 |
|
|
$ |
(4,107 |
) |
|
$ |
1,679 |
|
|
$ |
(3,253 |
) |
|
$ |
(715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Net
(loss) income attributable to American Biltrite Inc. per
share
|
|
|
|
|
|
|
Basic
|
|
$ |
(1.60 |
) |
|
$ |
0.28 |
|
Diluted
|
|
|
(1.60 |
) |
|
|
0.28 |
|
Weighted
average number of common and equivalent shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,441,551 |
|
|
|
3,441,551 |
|
Diluted
|
|
|
3,441,551 |
|
|
|
3,441,551 |
|
See
accompanying notes to consolidating condensed financial
statements.
AMERICAN
BILTRITE INC. AND SUBSIDIARIES
CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
For
the Three Months Ended March 31, 2009 and 2008
(In
thousands of dollars)
|
|
ABI
Consolidated
|
|
|
Eliminations
|
|
|
Congoleum
|
|
|
American
Biltrite
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to controlling interests
|
|
$ |
(5,497 |
) |
|
$ |
972 |
|
|
$ |
1,863 |
|
|
$ |
8 |
|
|
$ |
(4,107 |
) |
|
$ |
1,679 |
|
|
$ |
(3,253 |
) |
|
$ |
( 715 |
) |
Adjustments
to reconcile net (loss) income to net cash (used) provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,443 |
|
|
|
3,991 |
|
|
|
|
|
|
|
|
|
|
|
2,432 |
|
|
|
2,673 |
|
|
|
1,011 |
|
|
|
1,318 |
|
Stock
compensation expense
|
|
|
52 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
5 |
|
|
|
50 |
|
|
|
— |
|
Noncontrolling
interests
|
|
|
(1,897 |
) |
|
|
(160 |
) |
|
|
(1,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
(160 |
) |
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(1,275 |
) |
|
|
(2,744 |
) |
|
|
(92 |
) |
|
|
347 |
|
|
|
(2,059 |
) |
|
|
(3,191 |
) |
|
|
876 |
|
|
|
100 |
|
Inventories
|
|
|
727 |
|
|
|
(5,832 |
) |
|
|
(16 |
) |
|
|
(8 |
) |
|
|
(2,328 |
) |
|
|
(5,646 |
) |
|
|
3,071 |
|
|
|
(178 |
) |
Prepaid
expenses and other assets
|
|
|
449 |
|
|
|
1,403 |
|
|
|
|
|
|
|
|
|
|
|
556 |
|
|
|
843 |
|
|
|
(107 |
) |
|
|
560 |
|
Proceeds
from legal fees disgorgement
|
|
|
- |
|
|
|
9,168 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
9,168 |
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(5,349 |
) |
|
|
(3,889 |
) |
|
|
92 |
|
|
|
(347 |
) |
|
|
(3,369 |
) |
|
|
(1,906 |
) |
|
|
(2,072 |
) |
|
|
(1,636 |
) |
Asbestos-related
expenses
|
|
|
(1,292 |
) |
|
|
(3,575 |
) |
|
|
|
|
|
|
|
|
|
|
(1,292 |
) |
|
|
(3,575 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
558 |
|
|
|
1,390 |
|
|
|
|
|
|
|
|
|
|
|
682 |
|
|
|
1,586 |
|
|
|
(124 |
) |
|
|
(196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by operating activities
|
|
|
(10,081 |
) |
|
|
729 |
|
|
|
— |
|
|
|
— |
|
|
|
(9,483 |
) |
|
|
1,636 |
|
|
|
(598 |
) |
|
|
(907 |
) |
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in property, plant and equipment
|
|
|
(1,177 |
) |
|
|
(1,024 |
) |
|
|
— |
|
|
|
— |
|
|
|
(859 |
) |
|
|
(468 |
) |
|
|
(318 |
) |
|
|
(556 |
) |
Purchase
of short-term investments
|
|
|
(1,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(2,177 |
) |
|
|
(1,024 |
) |
|
|
— |
|
|
|
— |
|
|
|
(859 |
) |
|
|
(468 |
) |
|
|
(1,318 |
) |
|
|
(556 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
short-term borrowings
|
|
|
3,776 |
|
|
|
2,312 |
|
|
|
|
|
|
|
|
|
|
|
2,972 |
|
|
|
2,121 |
|
|
|
804 |
|
|
|
191 |
|
Payments
on long-term debt
|
|
|
(584 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(584 |
) |
|
|
(42 |
) |
Net
change in restricted cash
|
|
|
(28 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
3,164 |
|
|
|
2,214 |
|
|
|
— |
|
|
|
— |
|
|
|
2,944 |
|
|
|
2,065 |
|
|
|
220 |
|
|
|
149 |
|
Effect
of foreign exchange rate changes on cash
|
|
|
379 |
|
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379 |
|
|
|
(518 |
) |
Net
(decrease) increase in cash
|
|
|
(8,715 |
) |
|
|
1,401 |
|
|
|
— |
|
|
|
— |
|
|
|
(7,398 |
) |
|
|
3,233 |
|
|
|
(1,317 |
) |
|
|
(1,832 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
18,072 |
|
|
|
30,185 |
|
|
|
|
|
|
|
|
|
|
|
15,077 |
|
|
|
26,327 |
|
|
|
2,995 |
|
|
|
3,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
9,357 |
|
|
$ |
31,586 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,679 |
|
|
$ |
29,560 |
|
|
$ |
1,678 |
|
|
$ |
2,026 |
|
See
accompanying notes to consolidating condensed financial
statements.
AMERICAN
BILTRITE INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATING CONDENSED
FINANCIAL
STATEMENTS
March
31, 2009
(Unaudited)
Note A - Basis of
Presentation
The
accompanying unaudited consolidating condensed financial statements which
include the accounts of American Biltrite Inc. and its wholly owned subsidiaries
(and including, unless the context otherwise indicates, its majority-owned
subsidiary K&M Associates L.P., are referred to herein as "ABI", "American
Biltrite" or the "Company") as well as entities over which it has voting control
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information, the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments and provisions to effect a plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") of Congoleum Corporation ("Congoleum"), a majority-owned
subsidiary of the Company, to settle asbestos liabilities) considered necessary
for a fair presentation have been included. Operating results for the
three months ended March 31, 2009 are not necessarily indicative of the results
that may be expected for future periods, including the year ending December 31,
2009. For further information, refer to the consolidating financial
statements and the notes to those financial statements included in American
Biltrite Inc.'s Annual Report on Form 10-K for the year ended December 31,
2008.
The
consolidating condensed balance sheet at December 31, 2008 has been derived from
the audited financial statements as of that date but does not include all of the
information and notes required by accounting principles generally accepted in
the United States for complete financial statements.
As
discussed more fully below and elsewhere in these notes to consolidating
condensed financial statements, the Company's subsidiary Congoleum filed for
bankruptcy protection on December 31, 2003 in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court"). The
accompanying consolidated financial statements include the results for Congoleum
for all periods presented. Congoleum’s results include losses
(including other comprehensive losses) of $91.8 million and $89.6 million in
excess of the value of ABI’s investment in Congoleum at March 31, 2009 and
December 31, 2008, respectively. ABI owns a majority of the voting
stock of Congoleum, and expects to continue doing so until Congoleum’s
reorganization proceedings are concluded. Upon effectiveness of any
plan of reorganization for Congoleum, ABI expects that its ownership interests
in Congoleum will be cancelled, at which time ABI would no longer include
Congoleum's results in the consolidated results of the Company. 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
Note A - Basis of
Presentation
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 (and its debtor
subsidiaries), which may be more meaningful for certain analyses.
For
more information regarding Congoleum’s asbestos liability and plan for resolving
that liability, please refer to Note I.
The
American Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"),
provides financial reporting guidance for entities that are reorganizing under
the Bankruptcy Code. Congoleum has implemented this guidance in its
consolidated financial statements for periods commencing after December 31,
2003. Pursuant to SOP 90-7, companies in reorganization under the
Bankruptcy Code are required to segregate pre-petition liabilities that are
subject to compromise and report them separately on the balance sheet.
Liabilities that may be affected by a plan of reorganization are recorded at the
amount of the expected allowed claims, even if they may be settled for lesser
amounts. Liabilities for asbestos claims are recorded based upon the
minimum amount Congoleum expects to spend for its contribution to, and costs to
settle asbestos liabilities through, the Plan Trust (as described in Note I).
Obligations arising post-petition and pre-petition obligations that are secured
or that the Bankruptcy Court has authorized Congoleum to pay, are not classified
as liabilities subject to compromise. Other pre-petition claims (which
would be classified as liabilities subject to compromise) may arise due to the
rejection by Congoleum of executory contracts or unexpired leases pursuant to
the Bankruptcy Code or as a result of the allowance by the Bankruptcy Court of
contingent or disputed claims related to pre-petition matters.
As
discussed in Note D, American Biltrite’s revolving credit facility expires on
September 30, 2009. In addition, the Company entered into a limited
waiver and modification agreement to its credit agreement governing that credit
facility with its lenders, which granted the Company a temporary waiver through
June 30, 2009 of the Company's default under the credit agreement for failure to
comply with one of its financial covenants as of March 31, 2009. The
temporary waiver expires on June 30, 2009 (subject to possible earlier
termination or expiration upon the occurrence of certain specified events) and
requires the Company to deliver by May 22, 2009 to the lenders an executed
commitment letter from another financial institution reasonably acceptable to
the lenders which contemplates payment in full in cash of all amounts owed to
the Company’s lenders under the credit agreement on or prior to June 29,
2009. The limited waiver and modification agreement contemplates the
Company repaying the lenders all amounts owed to them under the existing credit
agreement by June 29, 2009. The Company believes it will be
successful in obtaining replacement financing for the term loan and credit
facility under the credit agreement by June 29, 2009, and that the
replacement facility contemplated would provide the Company with sufficient
financing on commercially reasonable terms for an extended period of time. It is
possible, however, that the Company may not be successful in obtaining the
replacement
Note A - Basis of
Presentation
financing
it is currently seeking and it may not be able to obtain financing from other
alternative sources or under a different arrangement with its existing lenders,
particularly in light of the recent substantial disruption in the global credit
markets which has resulted in credit becoming more expensive and difficult to
obtain. Failure to obtain adequate financing on commercially
reasonable terms would have a material adverse effect on the Company's business,
results of operations and financial condition.
The
consolidated financial statements of American Biltrite Inc. have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. Accordingly, the financial statements do not include any
adjustments that might be necessary should American Biltrite or Congoleum be
unable to continue as a going concern. In light of American
Biltrite’s need to refinance its credit facility (see Note D), there is
substantial doubt about American Biltrite’s ability to continue as a going
concern unless it is successful in obtaining replacement
financing. In light of Congoleum’s substantial asbestos liabilities
(see Note I), there is substantial doubt about Congoleum’s ability to continue
as a going concern unless it timely obtains relief from those liabilities
through a successful reorganization under Chapter 11 of the Bankruptcy
Code.
Recently
Issued Accounting Principles
On
January 1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51 (“SFAS No. 160”). The new standard changed the accounting
and reporting of noncontrolling interests. SFAS No. 160 requires that
noncontrolling interests be presented in the consolidated balance sheets within
equity, but separate from the Company’s stockholders’ equity, and that the
amount of consolidated net income (loss) attributable to American Biltrite Inc.
and to the noncontrolling interests be clearly identified and presented in the
consolidated statement of operations. Any losses in excess of the
noncontrolling interests’ equity interests will continue to be allocated to the
noncontrolling interests. Purchases or sales of equity interests that
do not result in a change of control will be accounted for as equity
transactions. Upon a sale of equity interests that results in a loss
of control of previously controlling interest, the interest sold, as well as any
interest retained, will be measured at fair value, with the gain or loss
recognized in earnings. The new standard has been applied
prospectively as of January 1, 2009, except for the presentation and disclosure
requirements, which have been applied retrospectively for prior periods
presented (see Note J).
Note B -
Inventories
Inventories
at March 31, 2009 and December 31, 2008 consisted of the following (in thousands):
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$ |
54,686 |
|
|
$ |
56,262 |
|
|
Work-in-process
|
|
|
12,096 |
|
|
|
10,847 |
|
|
Raw
materials and supplies
|
|
|
11,210 |
|
|
|
11,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,992 |
|
|
$ |
79,082 |
|
Note C – Accrued
Expenses
Accrued
expenses at March 31, 2009 and December 31, 2008 consisted of the following
(in
thousands):
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
Accrued
advertising and sales promotions
|
|
$ |
14,155 |
|
|
$ |
17,625 |
|
|
Employee
compensation and related benefits
|
|
|
7,502 |
|
|
|
7,124 |
|
|
Interest
|
|
|
25 |
|
|
|
- |
|
|
Environmental
matters
|
|
|
949 |
|
|
|
815 |
|
|
Royalties
|
|
|
1,008 |
|
|
|
959 |
|
|
Income
taxes
|
|
|
337 |
|
|
|
371 |
|
|
Other
|
|
|
4,455 |
|
|
|
4,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,431 |
|
|
$ |
31,880 |
|
See
Note F for Liabilities Subject to Compromise.
Note D – Financing
Arrangements
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 Associates L.P. ("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 American
Biltrite (Canada) Ltd. 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 $1.5 million, respectively, subject
to availability under the Revolver and the Canadian Revolver,
respectively. The Revolver expires on September 30,
2009. At March 31, 2009, the Company had $19.5 million and $5.0
million outstanding on its Revolver and Term Loan, respectively.
The
Company has had to receive waivers from BofA and amend the Credit Agreement
several times in the past to avoid defaulting under that agreement due to
failing to satisfy certain financial covenants contained in that
agreement. Most recently, on May 15, 2009, the Company entered into a
limited waiver and modification agreement (the “Waiver”) to the Credit Agreement
with BofA, pursuant to which BofA granted the Company a temporary waiver through
June 30, 2009 of the Company’s default of the Credit Agreement due to the
Company’s failure to satisfy as of March 31, 2009 the financial covenant
requiring that the Company’s Consolidated Adjusted EBITDA exceed 100% of its
Consolidated Fixed Charges for the 12 month period ending March 31, 2009, as
determined under the Credit Agreement. The temporary waiver granted
by BofA pursuant to the Waiver expires on June 30, 2009 (subject to possible
earlier termination or expiration upon the occurrence of certain specified
events) and requires the Company to deliver by May 22, 2009 to BofA an executed
commitment letter from another financial institution reasonably acceptable to
BofA, which contemplates payment in full in cash of all amounts owed to BofA
under the Credit Agreement on or prior to June 29, 2009. The Waiver
also reduced the maximum borrowing limit under the Revolver from $30 million to
$24 million. In connection with the Waiver, the Company paid BofA a
fee of $5 thousand and is obligated to pay BofA an additional fee of $20
thousand upon termination or expiration of the temporary waiver granted by BofA
pursuant to the Waiver, unless BofA is repaid all amounts owed to BofA under the
Credit Agreement by June 29, 2009, in which case, the Company would not be
required to pay the additional $20 thousand fee. The Waiver
contemplates the Company repaying BofA all amounts owed to BofA under the Credit
Agreement by June 29, 2009. The Company is currently working with a
replacement lender that is conducting due diligence in connection with providing
a possible new $30 million revolving credit facility and $8 million term loan to
replace the Credit Agreement, including the Term Loan and the Revolver. The
Company believes it will be successful in obtaining replacement financing for
the Term Loan and Revolver by June 29, 2009 and that the replacement facility
contemplated would provide the Company with sufficient financing on commercially
reasonable terms for an extended period of time. It is possible, however, that
the Company may not be successful in obtaining the replacement financing it is
currently seeking and it may not be able to obtain financing from
Note D – Financing
Arrangements (continued)
other
alternative sources or under a different arrangement with its existing lenders,
particularly in light of the recent substantial disruption in the global credit
markets which has resulted in credit becoming more expensive and difficult to
obtain. Failure to obtain adequate financing on commercially
reasonable terms would have a material adverse effect on the Company's business,
results of operations and financial condition.
Any
further required amendments and/or replacement financing, if obtained, could
result in significant cost to the Company. If an event of default
under the Credit Agreement were to occur, the lenders could cease to make
borrowings available under the Revolver and 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 their rights over the
collateral (most of the Company’s and its subsidiaries’ (excluding Congoleum)
assets, as applicable) exercised, which would likely have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Note E – Other
Liabilities
Other
Liabilities at March 31, 2009 and December 31, 2008 consisted of the following
(in
thousands):
|
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
Pension
benefits
|
|
$ |
8,350 |
|
|
$ |
8,185 |
|
|
Environmental
remediation and product related liabilities
|
|
|
4,454 |
|
|
|
4,454 |
|
|
Income
taxes payable
|
|
|
- |
|
|
|
394 |
|
|
Deferred
income taxes
|
|
|
131 |
|
|
|
131 |
|
|
Other
|
|
|
3,832 |
|
|
|
3,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,767 |
|
|
$ |
16,801 |
|
See
Note F for Liabilities Subject to Compromise.
Note F – Liabilities Subject
to Compromise
As
a result of Congoleum’s Chapter 11 filing (see Notes A and I), pursuant to SOP
90-7, Congoleum is required to segregate pre-petition liabilities that are
subject to compromise and report them separately on the consolidated balance
sheet. Liabilities that may be affected by a plan of reorganization
are recorded at the amount of the expected allowed claims, even if they may be
settled for lesser amounts. Substantially all of Congoleum’s
pre-petition debt is recorded at face value and is classified within liabilities
subject to compromise.
Liabilities
subject to compromise at March 31, 2009 and December 31, 2008 and included in
ABI’s consolidated balance sheet at each such date were as follows (in thousands):
|
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
|
Current
liability
|
|
|
|
|
|
|
|
Pre-petition
other payables and accrued interest
|
|
$ |
4,997 |
|
|
$ |
4,997 |
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Debt
(at face value)
|
|
|
100,000 |
|
|
|
100,000 |
|
|
Pension
liability
|
|
|
37,631 |
|
|
|
37,022 |
|
|
Other
post-retirement benefit obligation
|
|
|
11,063 |
|
|
|
10,938 |
|
|
Pre-petition
other liabilities
|
|
|
13,526 |
|
|
|
13,543 |
|
|
|
|
|
162,220 |
|
|
|
161,503 |
|
|
Elimination
– Payable to American Biltrite
|
|
|
(117 |
) |
|
|
(117 |
) |
|
Total
non-current liability
|
|
|
162,103 |
|
|
|
161,386 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities subject to compromise
|
|
$ |
167,100 |
|
|
$ |
166,383 |
|
Additional
pre-petition claims (which would be classified as liabilities subject to
compromise) may arise due to the rejection by Congoleum of executory contracts
or unexpired leases pursuant to the Bankruptcy Code, or as a result of the
allowance by the Bankruptcy Court of contingent or disputed claims.
Note G – Pension
Plans
The
Company and Congoleum sponsor several noncontributory defined benefit pension
plans covering most of their employees. Benefits under the plans are
based on years of service and employee compensation. Amounts funded
annually by the Company and Congoleum are actuarially determined using the
projected unit credit and unit credit methods and are equal to or exceed the
minimum required by government regulations. Congoleum also maintains
health and life insurance programs for retirees (reflected in the table below
under the columns entitled "Other Benefits").
The
table below summarizes the components of the net periodic benefit cost for the
Company's and Congoleum's pension and other benefit plans during the three
months ended March 31, 2009 and 2008 (in thousands):
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Pension
|
|
|
Other
Benefits
|
|
|
Pension
|
|
|
Other
Benefits
|
|
Service
cost
|
|
$ |
494 |
|
|
$ |
57 |
|
|
$ |
642 |
|
|
$ |
56 |
|
Interest
cost
|
|
|
1,646 |
|
|
|
161 |
|
|
|
1,652 |
|
|
|
144 |
|
Expected
return on plan assets
|
|
|
(1,192 |
) |
|
|
- |
|
|
|
(1,719 |
) |
|
|
- |
|
Recognized
net actuarial loss
|
|
|
1,102 |
|
|
|
16 |
|
|
|
384 |
|
|
|
15 |
|
Amortization
of prior service cost
|
|
|
27 |
|
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
2,077 |
|
|
$ |
234 |
|
|
$ |
990 |
|
|
$ |
215 |
|
The
weighted average assumptions used to determine net periodic benefit cost for the
three months ended March 31, 2009 and 2008 were as follows:
|
2009
|
|
2008
|
|
Pension
|
|
Other
Benefits
|
|
Pension
|
|
Other
Benefits
|
|
|
|
|
|
|
|
|
Discount
rate
|
5.75%
- 7.50%
|
|
6.00%
|
|
5.50%
- 6.00%
|
|
6.00%
|
Expected
long-term return on plan assets
|
7.00%
|
|
—
|
|
7.00%
- 7.50%
|
|
—
|
Rate
of compensation increase
|
3.00%
- 4.00%
|
|
—
|
|
4.00%
- 5.00%
|
|
—
|
Note H - Commitments and
Contingencies
The
Company and Congoleum are subject to federal, state and local environmental laws
and regulations, and certain legal and administrative claims are pending or have
been asserted against the Company and Congoleum. Among these claims,
the Company and Congoleum are separately a named party in several actions
associated with waste disposal sites. 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 the Company’s and
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 the Company’s
and Congoleum’s liability in proportion to other potentially responsible
parties, the financial viability of other potentially responsible parties, and
the extent to which costs may be recoverable from
insurance. Provisions in the financial statements have been recorded
for the estimated probable loss associated with all known general and
environmental contingencies for the Company and Congoleum. While the Company and
Congoleum believe their 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 the Company’s
and Congoleum’s assumptions. Although the effect of future government
regulation could have a significant effect on the Company’s and Congoleum’s
costs, the Company and Congoleum are not aware of any pending legislation that
would have such an effect. There can be no assurances that the costs
of any future government regulations could be passed along to their
customers. Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets.
The
Company and Congoleum record a liability for environmental remediation claims
when it becomes probable that the Company or Congoleum, as applicable, will
incur costs relating to a clean-up program or will have to make claim payments,
and the costs or payments can be reasonably estimated. As assessments are
revised and clean-up programs progress, these liabilities are adjusted as
appropriate to reflect such revisions and progress.
Liabilities
of Congoleum comprise the substantial majority of the environmental and other
liabilities reported on the Company’s consolidated balance sheet. Due
to the relative magnitude and wide range of estimates of these liabilities and
the fact that recourse related to these liabilities is generally limited to
Congoleum, these matters are discussed separately following matters for which
ABI has actual or potential liability. However, since ABI includes
Congoleum in ABI’s consolidating financial statements, to the extent that
Congoleum incurs a liability or expense, it will be reflected in ABI's
consolidating financial statements.
Note H - Commitments and
Contingencies (continued)
American Biltrite
Inc.
ABI is a co-defendant with many other
manufacturers and distributors of asbestos containing products in approximately
1,281 pending claims involving approximately 1,836 individuals as of March 31,
2009. The claimants allege personal injury or death from exposure to
asbestos or asbestos-containing products. Activity related to ABI's
asbestos claims is as follows:
|
|
|
Three Months
Ended
March
31,
2009
|
|
|
Year
Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
Beginning
claims
|
|
|
1,269 |
|
|
|
1,360 |
|
|
New
claims
|
|
|
50 |
|
|
|
356 |
|
|
Settlements
|
|
|
(1 |
) |
|
|
(13 |
) |
|
Dismissals
|
|
|
(37 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
|
|
|
|
Ending
claims
|
|
|
1,281 |
|
|
|
1,269 |
|
The
total indemnity costs incurred to settle claims during the three months ended
March 31, 2009 and the year ended December 31, 2008 were $0.3 million and $0.9
million, respectively, all of which were paid by ABI's insurance carriers, as
were the related defense costs. ABI has first-layer excess umbrella
policies with several insurers, which include coverage for the Company’s
asbestos related liabilities (the “Umbrella Coverage”).
In
addition to coverage available under the Umbrella Coverage, ABI has additional
excess liability insurance policies that should provide further coverage if and
when limits of certain policies within the Umbrella Coverage
exhaust. While ABI expects the Umbrella Coverage will result in the
substantial majority of defense and indemnity for asbestos claims against ABI
being paid by its insurance carriers for the foreseeable future, ABI may incur
uninsured costs related to asbestos claims, and those costs could be
material. If ABI were to incur significant uninsured costs for
asbestos claims, or its insurance carriers failed to fund insured costs for
asbestos claims, such costs could have a material adverse impact on its
liquidity, financial condition and results of operations.
In
general, governmental authorities have determined that asbestos-containing sheet
and tile products are nonfriable (i.e., cannot be crumbled by hand pressure)
because the asbestos was encapsulated in the products during the manufacturing
process. Thus, governmental authorities have concluded that these
products do not pose a health risk when they are properly maintained in place or
properly removed so that they remain nonfriable. The Company has
issued warnings not to remove asbestos-containing flooring by sanding or
other methods that may cause the product to become friable.
Note H - Commitments and
Contingencies (continued)
The
Company estimates its liability for indemnity to resolve current and reasonably
anticipated future asbestos-related claims (not including claims asserted
against Congoleum), based upon a strategy to actively defend against and
strategically settle those claims on a case-by-case basis.1 Factors such as recent and
historical settlement and trial results, the court dismissal rate of claims, the
incidence of past and recent claims, the number of cases pending against it and
asbestos litigation developments that may impact the exposure of the Company
were considered in performing these estimates. Changes in these
factors could have a material impact on the Company’s liability. For
example, it is estimated that a 1 percentage point increase in the Company’s
acceptance rate of mesothelioma claims results in a 21% increase in mesothelioma
liability assuming all other variables remained constant.
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 claim 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. Due
to the numerous variables and uncertainties, including the effect of Congoleum’s
Chapter 11 case and any proposed plan of reorganization on the Company’s
liabilities, the Company does not believe that reasonable estimates can be
developed of liabilities for claims beyond a six year horizon. The
Company will continue to evaluate its range of future exposure, and the related
insurance coverage available, and when appropriate, record future adjustments to
those estimates, which could be material.
The
estimated range of liability for settlement of current claims pending and claims
anticipated to be filed through 2014 was $13.6 million to $44.0 million as of
December 31, 2008. The Company believes no amount within this range
is more likely than any other, and accordingly has recorded a liability of $13.6
million in its financial statements which represents a 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 $13.5 million at December 31, 2008,
which has been included in other assets. 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 terms of the Umbrella Coverage and additional excess
policies, the allocation of costs to those policies as applicable, and the
financial viability of some of the insurance companies. These amounts
were based on currently
Note H - Commitments and
Contingencies (continued)
known
facts 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, 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 accrued asbestos liabilities will
approximate its actual asbestos-related settlement costs, or that it will
receive the insurance recoveries which it has accrued. The Company
believes that it is reasonably possible that it 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 actively 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.
In
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008, the Company disclosed various legal proceedings. Material
developments relating to those matters during the three month period ended on
March 31, 2009 include those mentioned in the immediately following
paragraphs.
Additional
potential remediation costs have been identified related to the Olin Corporation
site in Wilmington, Massachusetts (the “Olin Site”) and the Parcel A site owned
by Miller Industries, Inc., in Lisbon Falls, Maine (the “Lisbon Falls
Site”). At the Olin Site, potential additional remediation costs of
approximately $750 thousand have been identified of which ABI’s estimated share
would be approximately $163 thousand. As of March 31, 2009, ABI has estimated
its potential liability to Olin to be in the range of $4.1 million to $10.9
million after allocation for the annual reimbursement of $100 thousand for
Olin’s internal costs and before any recovery from insurance and The Biltrite
Corporation ("TBC"). Under a preexisting agreement between ABI and
TBC, TBC is liable for 37.5% of these costs incurred by ABI. These
costs are expected to be paid out over approximately ten years.
At
the Lisbon Falls Site, the cost of site investigation, remediation, maintenance
and monitoring was estimated at December 31, 2008 to be between $1.3 million and
$2.3 million. The estimate has been revised by an environmental
consultant to $2.0 million to $3.0 million because additional remediation may be
necessary. Pursuant to ABI’s pre-existing agreement with TBC, TBC is liable for
37.5% of costs ABI incurs in connection with the Lisbon Falls
Site. Because there are other parties potentially responsible for the
remediation costs and no cost allocation has been agreed upon, ABI’s estimated
liability with regard to the Lisbon Falls Site is subject to future negotiation
with the current owner of the property.
There
have been no other material developments relating to the environmental sites or
the other environmental matters described in ABI's Annual Report on Form 10-K
during the three month period ended March 31, 2009.
Note H - Commitments and
Contingencies (continued)
Congoleum
Congoleum
is a defendant in a large number of asbestos-related lawsuits and on December
31, 2003, filed a petition commencing a voluntary reorganization case under
Chapter 11 of the Bankruptcy Code for purposes of resolving its asbestos-related
liabilities. See Note I.
Congoleum
is named, together with a large number (in most cases, hundreds) of other
companies, as a PRP in pending proceedings under CERCLA and similar state
laws. In addition, in four other instances, although not named as a
PRP, Congoleum has received a request for information. The pending
proceedings in which Congoleum is a named PRP currently relate to eight disposal
sites in New Jersey, Pennsylvania and Maryland in which recovery from generators
of hazardous substances is sought for the cost of cleaning up the contaminated
waste sites. Congoleum’s ultimate liability and funding obligations
in connection with those other sites depends on many factors, including the
volume of material contributed to the site by Congoleum, the number of other
PRP’s and their financial viability, the remediation methods and technology to
be used and the extent to which costs may be recoverable by Congoleum from
relevant insurance policies. However, under CERCLA and certain other
laws, Congoleum, as a PRP, can be held jointly and severally liable for all
environmental costs associated with a site.
The
most significant exposure for which Congoleum has been named a PRP relates to a
recycling facility site in Elkton, Maryland (the "Galaxy/Spectron Superfund
Site"). The PRP group at this site is made up of 81 companies,
substantially all of which are large, financially solvent
entities. Two removal actions were substantially complete as of
December 31, 1998, and a groundwater treatment system was installed
thereafter. The United States Environmental Protection Agency has
selected a remedy for the soil and shallow groundwater (Operable Unit 1 or
OU-1); however, the remedial investigation/feasibility study related to the deep
groundwater (Operational Unit 2 or OU-2) has not been completed. The
PRP group, of which Congoleum is a part, has entered into a consent decree to
perform the remedy for OU-1 and resolve natural resource damage claims. The
consent decree also requires the PRP group to perform the OU-2 remedy, assuming
that the estimated cost of the remedy is not more than $10.0
million. If the estimated cost of the OU-2
remedy is more than $10.0 million, the PRP group may decline to perform it or
they may elect to perform it anyway. Cost estimates for the OU-1 and OU-2 work
combined (including natural resource damages) range between $22 million and $34
million, with Congoleum’s share ranging between approximately $1.0 million and
$1.6 million. This assumes that all parties participate and that none
cash-out and pay a premium; those two factors may account for some fluctuation
in Congoleum’s share of the costs. Fifty percent (50%) of Congoleum’s share of
the costs is presently being paid by one of its insurance carriers, Liberty
Mutual Insurance Company, whose remaining policy limits for this claim are
expected to cover approximately $300 thousand in additional
costs. Congoleum expects to fund the balance to the extent further
insurance coverage is not available.
Note H - Commitments and
Contingencies (continued)
Congoleum
filed a motion before the Bankruptcy Court seeking authorization and approval of
the consent decree and related settlement agreements for the Galaxy/Spectron
Superfund Site, as well as authorization for Liberty Mutual Insurance Company
and Congoleum to make certain payments that have been invoiced to Congoleum with
respect to the consent decree and related settlement agreements. An
order authorizing and approving the consent decree and settlement agreements was
issued by the Bankruptcy Court in August 2006.
Congoleum
also accrues remediation costs for certain of Congoleum’s owned facilities on an
undiscounted basis. Congoleum has entered into an administrative
consent order with the New Jersey Department of Environmental Protection and has
established a remediation trust fund of $100 thousand as financial assurance for
certain remediation funding obligations. Estimated total clean-up
costs of $1.3 million for Congoleum’s expected portion of those remediation
funding obligations, including capital outlays and future maintenance costs for
soil and groundwater remediation, are primarily based on engineering
studies. Of this amount, $300 thousand was included in current
liabilities subject to compromise and $1.0 million was included in non-current
liabilities subject to compromise in ABI’s consolidated balance sheet as of
March 31, 2009 and December 31, 2008.
At
March 31, 2009 and December 31, 2008, Congoleum recorded a total of $4.4 million
for estimated environmental liabilities, which liabilities were not reduced by
the amount of expected insurance recoveries. At March 31, 2009 and
December 31, 2008, such estimated insurance recoveries are approximately $2.1
million. Receivables for expected insurance recoveries are recorded
if the related carriers are solvent and paying claims under a reservation of
rights or under an obligation pursuant to coverage in place or a settlement
agreement. Substantially all of Congoleum’s recorded insurance assets
for environmental matters are collectible from a single carrier.
Congoleum
anticipates that these matters will be resolved over a period of years, and that
after application of expected insurance recoveries, funding of the costs by
Congoleum will not have a material adverse impact on Congoleum’s liquidity or
financial position. However, unfavorable developments in these
matters could result in significant expenses or judgments that could have a
material adverse effect on Congoleum’s and the Company’s business, results of
operations or financial condition.
Other
In
addition to the matters referenced above and in Note I, in the ordinary course
of their businesses, the Company and Congoleum become involved in lawsuits and
administrative proceedings in connection with product liability claims (in
addition to asbestos related claims) and other matters. In some of
these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts, and the matters may remain unresolved for several
years.
Note I – Congoleum Asbestos
Liabilities and Reorganization
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 (“ACC”), the Future Claimants’ Representative (“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 (“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
joint plan of reorganization (the “Joint Plan”). The Bankruptcy Court
approved the disclosure statement for the Joint Plan in February 2008, and the
Joint Plan was solicited in accordance with court-approved voting
procedures. Various objections to the Joint Plan were filed, and on
May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment
motions relating to certain of those objections. On June 6, 2008, the
Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112. Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008. Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believed addressed the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions. A term sheet describing the proposed
material terms of a contemplated new plan of reorganization and a settlement of
avoidance litigation with respect to pre-petition claim settlements (the
“Litigation Settlement”) was entered into by those parties and was filed with
the Bankruptcy Court on August 14, 2008. Certain insurers and a large
bondholder have filed objections to the Litigation Settlement and/or reserved
their rights to object to confirmation of the contemplated new plan of
reorganization. The Bankruptcy Court approved the Litigation
Settlement following a hearing on October 20, 2008, but the court reserved
certain issues,
Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)
including
whether any plan of reorganization embodying the settlement meets the standards
required for confirmation of a plan of reorganization. On November
14, 2008, Congoleum, the ACC and the Bondholders’ Committee filed an amended
joint plan of reorganization for Congoleum, et al. with the Bankruptcy Court
(the “Amended Joint Plan”). In January 2009, an insurer filed a
motion for summary judgment seeking denial of confirmation of the Amended Joint
Plan, and a hearing was held on February 5, 2009. On February 26,
2009, the Bankruptcy Court rendered an opinion denying confirmation of the
Amended Joint Plan. Pursuant to the opinion, the Bankruptcy Court
entered the Order of Dismissal dismissing Congoleum’s bankruptcy case (the
“Order of Dismissal”). On February 27, 2009, Congoleum and the
Bondholders’ Committee appealed the Order of Dismissal to the U.S. District
Court for the District of New Jersey, which appeal remains
pending. On March 3, 2009, an order was entered by the Bankruptcy
Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a
final non-appealable decision affirming the Order of Dismissal. Under
the terms of the Amended 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.
Under
the terms of the Amended Joint Plan, a trust would be created that would assume
the liability for Congoleum’s current and future asbestos claims (the “Plan
Trust”). That trust would receive the proceeds of various settlements
Congoleum has reached with a number of insurance carriers and would be assigned
Congoleum’s rights under its remaining policies covering asbestos product
liability. The trust would also receive 70% of the newly issued
common stock of reorganized Congoleum when the plan takes effect and $5 million
in new 9.75% senior secured notes that mature five years from
issuance.
Holders
of Congoleum’s Senior Notes would receive on a pro rata basis $70 million in new
9.75% senior secured notes that mature five years from issuance. The
new senior secured notes would be subordinated to the working capital facility
that provides Congoleum’s financing upon exiting reorganization. In
addition, holders of the Senior Notes would receive 30% of the newly issued
common stock of reorganized Congoleum. Congoleum’s obligations for
the Senior Notes, including interest accrued as of the date of the bankruptcy
filing of $3.6 million, would be satisfied by the new senior secured notes and
the common stock issued when the Joint Plan took effect.
Under
the terms of the Amended Joint Plan, existing Class A and Class B common stock
of Congoleum would be cancelled when the plan took effect and holders of those
shares, including ABI, would not receive anything on account of their cancelled
shares.
Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)
The
Amended Joint Plan also includes certain terms that would govern an intercompany
settlement and ongoing intercompany arrangements among American Biltrite and its
subsidiaries and reorganized Congoleum which would be effective when the Amended
Joint Plan takes effect and would have a term of two years. Those
intercompany arrangements include the provision of management services by
American Biltrite to reorganized Congoleum and other business relationships
substantially consistent with their traditional relationships. The
Amended Joint Plan provides that the final terms of the intercompany
arrangements among American Biltrite and its subsidiaries and reorganized
Congoleum would be memorialized in a new agreement to be entered into by
reorganized Congoleum and American Biltrite in form and substance mutually
agreeable to the Bondholders’ Committee, the ACC and American Biltrite.
Expiration or termination of these existing arrangements, failure to reach
definitive agreement on final terms of future arrangements, 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.
There
can be no assurance that the appeal of the Order of Dismissal to the United
States District Court for the District of New Jersey or any other court which
may be appealed to will be successful or that the Bankruptcy Court will not
subsequently vacate its grant of a stay of its Order of Dismissal. If
the appeal is not successful, Congoleum’s bankruptcy case could be dismissed,
resulting in Congoleum no longer benefiting from the protection from creditor
claims currently afforded to it by the Chapter 11 case and the Bankruptcy
Code. Further, as indicated in the Order of Dismissal, Congoleum’s
ability to refile another bankruptcy petition may be limited, which could result
in Congoleum having to attempt to conduct its business and operations outside of
the protections of the Bankruptcy Code, including attempting to defend against,
satisfy or defray its creditor claims, such as its substantial asbestos
liabilities and its Senior Notes, and continued litigation against its insurers
to attempt to obtain insurance coverage for Congoleum’s asbestos
liabilities. It is unclear what effect the Order of Dismissal, the
stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable
decision affirming the Order of Dismissal and the continued litigation may have
on Congoleum’s business and operations, including with regard to its
relationships with its vendors, suppliers, customers, lenders and other
constituencies.
Even
if the appeal of the Order of Dismissal is successful for Congoleum, there can
be no assurance that the Amended Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Amended Joint Plan will not be
modified further, that the conditions to the Amended Joint Plan or any other
plan will be satisfied or waived, that the Amended 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, that the Amended
Joint Plan or any other plan will be confirmed, that the Amended
Joint Plan or any other plan, if confirmed, will become effective, or that
Congoleum will have sufficient funds to pay for completion of the appellate
process with respect to the Amended Joint Plan, 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
Amended Joint Plan.
Note I – Congoleum Asbestos
Liabilities and Reorganization (continued)
In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into a Claimant Agreement, which provides for the 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 proposed plan of reorganization, 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 the previous proposed plan
of reorganization. It is also likely that additional new claims may
be asserted in connection with any solicitation of acceptances of any future
plan. Congoleum does not believe it can reasonably estimate the
liability associated with claims that may be pending.
Note J – Noncontrolling
Interests
American
Biltrite Inc. owns 55.04% of Congoleum’s Class A common stock. The
majority of the noncontrolling interests recorded in American Biltrite’s
consolidated financial statements represent the 44.96% of Congoleum’s
stockholders other than American Biltrite Inc. Prior to January 1,
2009, in accordance with Accounting Research Bulletin 51, Consolidated Financial
Statements, American Biltrite Inc. reported in its consolidated results
100% of Congoleum’s losses from the period Congoleum incurred a deficit in
earnings during 2002 through December 31, 2008. Under SFAS No. 160,
44.96% of Congoleum’s income or loss is attributed to the noncontrolling
interests even if the attribution of a loss results in a negative
balance. The effect of the change in attributing earnings or losses
has a significant impact on the consolidated results reported by American
Biltrite Inc. Had the Company not adopted SFAS 160 on January 1,
2009, the pro forma consolidated net loss reported by American Biltrite Inc. and
the consolidated loss per share for the three months ended March 31, 2009 would
have been $7.3 million and $2.13 per share (basic and diluted),
respectively. The pro forma consolidated stockholders’ deficit would
have been $54.3 million as of March 31, 2009.
Note K - Comprehensive
Income (Loss)
The
following table presents total comprehensive income for the three months ended
March 31, 2009 and 2008 (in
thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to ABI
|
|
$ |
(5,497 |
) |
|
$ |
972 |
|
Foreign
currency translation adjustments
|
|
|
(184 |
) |
|
|
(483 |
) |
Total
comprehensive (loss) income attributable to ABI
|
|
$ |
(5,681 |
) |
|
$ |
489 |
|
Note L - Earnings (Loss) Per
Share
Basic
and diluted earnings per share are computed in accordance with FASB Statement
No. 128, Earnings per
Share ("SFAS 128"). SFAS 128 requires both basic earnings per
share, which is based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which is based on the
weighted-average number of common shares outstanding and all dilutive potential
common share equivalents outstanding. The dilutive effect of options
is determined under the treasury stock method using the average market price for
the period. Common equivalent shares are included in the per share
calculations when the effect of their inclusion would be dilutive.
Note M - Industry
Segments
Description
of Products and Services
The
Company has four segments for financial reporting purposes: flooring
products, tape division, jewelry and a Canadian division. The flooring products
segment consists of Congoleum, a manufacturer of resilient floor coverings,
which are sold primarily through floor covering distributors to retailers and
contractors for residential use. The tape division segment manufactures paper,
film, HVAC, electrical, shoe and other tape products for use in industrial and
automotive markets in two production facilities in the United States, and in
finishing and sales facilities in Belgium and Singapore. The jewelry
segment consists of the Company's majority-owned subsidiary K&M Associates
L.P., a national costume jewelry supplier to mass merchandisers and department
stores. The Company's Canadian division produces flooring, rubber and
other industrial products.
Note M - Industry Segments
(continued)
Net
sales by segment for the three months ended March 31, 2009 and 2008 were as
follows (in
thousands):
|
|
2009
|
|
|
2008
|
|
Net
sales to external customers:
|
|
|
|
|
|
|
Flooring
products
|
|
$ |
30,106 |
|
|
$ |
47,697 |
|
Tape
products
|
|
|
16,469 |
|
|
|
22,443 |
|
Jewelry
|
|
|
11,565 |
|
|
|
11,747 |
|
Canadian
division
|
|
|
11,921 |
|
|
|
13,870 |
|
Total
net sales to external customers
|
|
|
70,061 |
|
|
|
95,757 |
|
Intersegment
net sales:
|
|
|
|
|
|
|
|
|
Flooring
products
|
|
|
— |
|
|
|
— |
|
Tape
products
|
|
|
— |
|
|
|
— |
|
Jewelry
|
|
|
— |
|
|
|
— |
|
Canadian
division
|
|
|
800 |
|
|
|
1,221 |
|
Total
intersegment net sales
|
|
|
800 |
|
|
|
1,221 |
|
Reconciling
items
|
|
|
— |
|
|
|
— |
|
Intersegment
net sales
|
|
|
(800 |
) |
|
|
(1,221 |
) |
|
|
|
|
|
|
|
|
|
Total
consolidated net sales
|
|
$ |
70,061 |
|
|
$ |
95,757 |
|
Segment
profit or loss is before income tax expense or benefit and noncontrolling
interests. Profit (loss) by segment for the three months ended March
31, 2009 and 2008 was as follows (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Segment
profit (loss)
|
|
|
|
|
|
|
Flooring
products
|
|
$ |
(4,092 |
) |
|
$ |
2,608 |
|
Tape
products
|
|
|
(2,533 |
) |
|
|
411 |
|
Jewelry
|
|
|
(838 |
) |
|
|
(1,331 |
) |
Canadian
division
|
|
|
75 |
|
|
|
102 |
|
Total
segment profit
|
|
|
(7,388 |
) |
|
|
1,790 |
|
Reconciling
items
|
|
|
|
|
|
|
|
|
Corporate
expenses
|
|
|
(75 |
) |
|
|
(347 |
) |
Intercompany
profit
|
|
|
16 |
|
|
|
8 |
|
Total
consolidated (loss) income before income taxes and other
items
|
|
$ |
(7,447 |
) |
|
$ |
1,451 |
|
Note M - Industry Segments
(continued)
Assets
by segment as of the end of the quarter and the end of the prior year were as
follows (in
thousands):
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
Segment
assets
|
|
|
|
|
|
|
Flooring
products
|
|
$ |
166,755 |
|
|
$ |
171,867 |
|
Tape
products
|
|
|
49,524 |
|
|
|
48,115 |
|
Jewelry
|
|
|
19,661 |
|
|
|
24,038 |
|
Canadian
division
|
|
|
30,494 |
|
|
|
29,866 |
|
Total
segment assets
|
|
|
266,434 |
|
|
|
273,886 |
|
Reconciling
items
|
|
|
|
|
|
|
|
|
Corporate
items
|
|
|
33,767 |
|
|
|
35,948 |
|
Intersegment
accounts receivable
|
|
|
(15,812 |
) |
|
|
(14,626 |
) |
Intersegment
profit in inventory
|
|
|
(74 |
) |
|
|
(90 |
) |
Intersegment
other asset
|
|
|
(117 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
Consolidated
assets
|
|
$ |
284,198 |
|
|
$ |
295,001 |
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Global
and financial markets have recently been experiencing substantial disruption in
the current recession. Economic conditions in the United States have
been challenging, including in the industries in which the Company and Congoleum
conduct business. The downturn in the housing industry has resulted
in reduced demand for the Company's and Congoleum's products. The
slowdown in manufacturing, including in the automotive and industrial sectors,
has resulted in reduced demand for the Tape division's products. In
addition, the decline in consumer and retailer, especially mid-tier retailer,
spending has resulted in reduced demand for K&M's products. The
Company expects the current and forecasted economic conditions to continue to
negatively impact the Company's and Congoleum's businesses and operations and
that the extent of that impact will depend on the duration and depth of the
economic recession.
In
addition, raw material and energy costs have been volatile and, although below
their peak levels in 2008, remain at historically high levels, which has
negatively impacted the Company's and Congoleum's businesses and operating
results. Although raw material and energy costs have recently
declined, it is not known whether raw material and energy prices will remain
lower or will revert to increasing price levels. In light of the
current and forecasted economic conditions in the United States and the
industries in which the Company and Congoleum conduct business, the Company and
Congoleum may be unable to pass increased raw material and energy costs on to
their respective customers.
Although
the Company and Congoleum intend to implement reductions in their expenses,
there can be no assurance that they will be able to reduce their respective
expenses, that any reductions they may implement will have any meaningful
positive impact on their businesses, results of operations or financial
condition, or that they will be able to sustain any expense reductions that they
may implement.
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 have been eliminated and would be eliminated under the terms of
the Amended
Joint Plan. 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 global mediation discussions. Numerous 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 the Joint Plan was solicited in accordance with
court-approved voting procedures. Various objections to the Joint
Plan were filed, and on May 12, 2008 the Bankruptcy Court heard oral argument on
summary judgment motions relating to certain of those objections. On June 6,
2008, the Bankruptcy Court issued a ruling that the Joint Plan was not legally
confirmable, and issued an Order to Show Cause why the case should not be
converted or dismissed pursuant to 11 U.S.C. § 1112. Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008. Following further
negotiations, the Bondholders’ Committee, the ACC, the FCR, representatives of
holders of pre-petition settlements and Congoleum reached an agreement in
principle which the Company understands that Congoleum believes addresses the
issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the
court's prior decisions. A term sheet describing the proposed
material terms of a contemplated new plan of reorganization and a settlement of
avoidance litigation with respect to pre-petition claim settlements (the
“Litigation Settlement”) was entered into by those parties and was filed with
the Bankruptcy Court on August 14, 2008.
Certain
insurers and a large bondholder filed objections to the Litigation Settlement
and/or reserved their rights to object to confirmation of the contemplated new
plan of reorganization. The Bankruptcy Court approved the Litigation
Settlement following a hearing on October 20, 2008, but the court reserved
certain issues, including whether any plan of reorganization embodying the
settlement meets the standards required for confirmation of a plan of
reorganization. On November 14, 2008, Congoleum, the ACC and the
Bondholders’ Committee filed the Amended Joint Plan. In January 2009,
an insurer filed a motion for summary judgment seeking denial of confirmation of
the Amended Joint Plan, and a hearing was held on February 5,
2009. On February 26, 2009, the Bankruptcy Court rendered an opinion
denying confirmation of the Amended Joint Plan. Pursuant to the
opinion, the Bankruptcy Court entered the Order of Dismissal dismissing
Congoleum’s bankruptcy case. On February 27, 2009, Congoleum and the
Bondholders’ Committee appealed the Order of Dismissal to the U.S. District
Court for the District of New Jersey, which appeal remains
pending. On March 3, 2009, an order was entered by the Bankruptcy
Court granting a stay of the Bankruptcy Court’s Order of Dismissal pending a
final non-appealable decision affirming the Order of Dismissal. Under
the terms of the Amended 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.
There
can be no assurance that the appeal of the Order of Dismissal to the United
States District Court for the District of New Jersey or any other court which
may be appealed to will be successful or that the Bankruptcy Court will not
subsequently vacate its grant of a stay of its Order of Dismissal. If
the appeal is not successful, Congoleum’s bankruptcy case could be dismissed,
resulting in Congoleum no longer benefiting from the protection from creditor
claims currently afforded to it by the Chapter 11 case and the Bankruptcy
Code. Further, as indicated in the Order of Dismissal, Congoleum’s
ability to refile another bankruptcy petition may be limited, which could result
in Congoleum having to attempt to conduct its business and operations outside of
the protections of the Bankruptcy Code, including attempting to defend against,
satisfy or defray its creditor claims, such as its substantial asbestos
liabilities and its Senior Notes, and continued litigation against its insurers
to attempt to obtain insurance coverage for Congoleum’s asbestos
liabilities. It is unclear what effect the Order of Dismissal, the
stay of the Bankruptcy Court’s Order of Dismissal pending a final non-appealable
decision affirming the Order of Dismissal and the continued litigation may have
on Congoleum’s business and operations, including with regard to its
relationships with its vendors, suppliers, customers, lenders and other
constituencies.
Even
if the appeal of the Order of Dismissal is successful for Congoleum, there can
be no assurance that the Amended Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Amended Joint Plan will not be
modified further, that the conditions to the Amended Joint Plan or any other
plan will be satisfied or waived, that the Amended 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, that the Amended
Joint Plan or any other plan will be confirmed, that the Amended Joint Plan or
any other plan, if confirmed, will become effective, or that Congoleum will have
sufficient funds to pay for completion of the appellate process with respect to
the Amended Joint Plan, 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 Amended Joint
Plan.
ABI
has certain intercompany claims against and arrangements with
Congoleum. The Amended Joint Plan would govern an intercompany
settlement and ongoing intercompany arrangements among ABI and its subsidiaries
and reorganized Congoleum, which would be effective when the Amended Joint Plan
took effect and would have a term of two years. Those intercompany
arrangements include the provision of management services by ABI to reorganized
Congoleum and other business relationships substantially consistent with their
traditional relationships. The Amended Joint Plan provides that the
final terms of the intercompany arrangements among ABI and its subsidiaries and
reorganized Congoleum would be memorialized in a new agreement to be entered
into by reorganized Congoleum and American Biltrite in form and substance
mutually agreeable to the Bondholders’ Committee, the ACC and
ABI. The existing arrangements currently in effect among ABI and its
non-debtor subsidiaries and Congoleum expire on June 30, 2009, unless
renewed. In addition, under the terms of the Amended 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, would have been deemed rejected and disallowed upon the
effective date of the Amended Joint Plan, and therefore
eliminated. The Amended Joint