SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-13612
CONGOLEUM CORPORATION
(Exact name of Registrant as specified in Its Charter)
DELAWARE 02-0398678
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3705 Quakerbridge Road
P.O. Box 3127
Mercerville, NJ 08619-0127
(Address of Principal Executive Offices, including Zip Code)
Telephone number: (609) 584-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 30, 1996
- - ----------------------------- -----------------------------
Class A Common Stock 4,650,000
Class B Common Stock 5,350,000
Page 1 of 13
<PAGE>
CONGOLEUM CORPORATION
Index
Page
PART I. FINANCIAL INFORMATION ------
Item 1. Financial Statements:
Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 3
Statements of Operations for the three months
ended March 31, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (unaudited) 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONGOLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,634 $ 40,103
Accounts and notes receivable, net 18,365 16,755
Inventories 52,708 48,018
Prepaid expenses and other current assets 788 918
Deferred income taxes 4,210 4,210
--------- ---------
Total current assets 97,705 110,004
Property, plant and equipment, net 74,304 74,208
Goodwill, net 13,007 13,115
Deferred income taxes 2,873 2,873
Other noncurrent assets 6,493 6,642
--------- ---------
Total assets $ 194,382 $ 206,842
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,943 $ 21,397
Accrued expenses 23,729 29,634
Accrued income taxes 337 346
Deferred income taxes 2,072 2,072
--------- ---------
Total current liabilities 42,081 53,449
Long-term debt 90,000 90,000
Other liabilities 17,552 17,601
Noncurrent pension liability 12,575 12,575
Accrued postretirement benefit obligation 10,615 10,615
--------- ---------
Total liabilities 172,823 184,240
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01; 1,000,000
shares authorized; none issued or outstanding -- --
Class A common stock, par value $0.01;
20,000,000 shares authorized, 4,650,000 shares
issued and outstanding as of March 31, 1996 and
December 31, 1995 47 47
Class B common stock, par value $0.01;
5,350,000 shares authorized, issued and outstanding
as of March 31, 1996 and December 31, 1995 53 53
Additional paid-in capital 55,172 55,172
Retained deficit (32,701) (31,658)
Minimum pension liability adjustment (1,012) (1,012)
--------- ---------
Total stockholders' equity 21,559 22,602
--------- ---------
Total liabilities and stockholders' equity $ 194,382 $ 206,842
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
3
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
(In thousands, except
per share amounts)
<S> <C> <C>
Net sales $ 54,118 $ 63,221
Cost of sales 39,770 42,928
Selling, general and administrative expenses 14,673 14,862
--------- ---------
Income (loss) from operations (325) 5,431
Other income (expense):
Interest income 333 380
Interest expense (2,038) (2,048)
Other income 356 580
Other expense (51) (81)
--------- ---------
Income (loss) before income taxes (1,725) 4,262
Provision (benefit) for income taxes (681) 1,743
--------- ---------
Net income (loss) $ (1,044) $ 2,519
========= =========
Primary earnings (loss) per common share $ (0.10) $ 0.25
========= =========
Weighted average number of common shares and
equivalent shares outstanding 10,000 10,044
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
4
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,044) $ 2,519
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation and amortization 2,158 2,117
Provision for doubtful accounts 150 125
Changes in certain assets and liabilities:
Accounts and notes receivable (1,761) (9,687)
Inventories (4,690) (6,745)
Prepaid expenses and other assets 131 241
Accounts payable (5,454) (4,805)
Accrued expenses (5,914) (3,973)
Other liabilities (49) 98
--------- --------
Net cash used for operating activities (16,473) (20,110)
--------- --------
Cash flows provided by (used for) investing activities:
Capital expenditures (1,996) (1,516)
Purchase of short-term investments -- (5,500)
Maturities of short-term investments -- 17,500
--------- --------
Net cash provided by (used for) investing
activities (1,996) 10,484
--------- --------
Cash flows from financing activities:
Payment of equity offering costs -- (732)
Proceeds from equity offering -- 56,219
Purchase of class B shares -- (60,450)
--------- --------
Net cash used for financing activities -- (4,963)
--------- --------
Net decrease in cash and cash equivalents (18,469) (14,589)
Cash and cash equivalents:
Beginning of period 40,103 14,818
--------- --------
End of period $ 21,634 $ 229
========= ========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
- - --------------------------
The condensed financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with Rule 10-01 of Regulation S-
X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation have been included.
The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for a
full year. These condensed financial statements should be read in
conjunction with the Company's audited financial statements which
appear in the Company's Annual Report to Stockholders for the
period ended December 31, 1995.
2. Inventories
- - ----------------
A summary of the major classifications of inventories is as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
Finished goods $ 39,979 $ 34,122
Work-in-process 4,029 4,298
Raw materials and supplies 8,700 9,598
---------- ----------
$ 52,708 $ 48,018
========== ==========
</TABLE>
If the FIFO (first-in, first-out) method of inventory
accounting had been used, inventories would have been approximately
$1,133 and $226 higher than reported at March 31, 1996 and December
31, 1995, respectively.
6
<PAGE>
3. Other
- - ---------
On February 8, 1995, the Company completed a public offering
of 4,650,000 shares of a new series of Class A Common Stock (the
Class A shares) for $13 per share (the "Offering") and implemented
a Plan of Repurchase, pursuant to which its two-tiered holding
company ownership structure was eliminated through the merger of
the Company's direct and indirect parent corporations (collectively
"Holdings") with and into the Company, with the Company as the
surviving corporation. The Company's capital stock outstanding
immediately prior to the consummation of the merger contemplated in
the Plan of Repurchase was converted in the merger into 10,000,000
shares (the "Recapitalization") of a new series of Class B Common
Stock (the Class B shares). Hillside Industries Incorporated
("Hillside") and American Biltrite Inc. ("ABI") as holders of the
Class B shares are entitled to two votes per share on all matters
submitted to a vote of stockholders other than certain
extraordinary matters. The holders of the Class A shares are
entitled to one vote per share on all matters submitted to a vote
of stockholders. In addition, in connection with the Plan of
Repurchase, the Stockholders' Agreement among the Company,
Holdings, ABI and Hillside, and certain other agreements were
either amended or terminated, and Hillside made a cash payment of
$2,000 to ABI in consideration of ABI's agreement to enter into the
Plan of Repurchase and consummate the transactions contemplated
thereby. The net proceeds of the Offering, together with
approximately $5,200 of other funds of the Company, were used to
repurchase 4,650,000 Class B shares held by Hillside which were
then retired by the Company.
4. Commitments and Contingencies
- - ---------------------------------
Certain legal and administrative claims are pending or have
been asserted against the Company, which are considered incidental
to its business. Among these claims, the Company 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
amount of such future cost is indeterminable due to such unknown
factors as the magnitude of clean-up costs, the timing and extent
of the remedial actions that may be required, the determination of
the Company's liability in proportion to other potentially
responsible parties, and the extent to which costs may be
recoverable from insurance. The contingencies also include claims
for personal injury and/or property damage.
The Company records a liability for environmental remediation
and asbestos-related claim costs when a clean-up program or claim
payment becomes probable and the costs can be reasonably estimated.
As assessments and clean-ups progress, these liabilities are
adjusted based upon progress in determining the timing and extent
of remedial actions and the related costs and damages. The extent
and amounts of the liabilities can change substantially due to
factors such as the nature or extent of contamination, changes in
remedial requirements and technological improvements. Estimated
insurance recoveries related to these liabilities are reflected in
other non-current assets.
Although the outcome of these matters could result in
significant expenses or judgments, management does not believe that
their disposition will have a material adverse effect on the
financial position or results of operations of the Company.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- - ---------------------
Three months ended March 31, 1996 as compared to three months ended
March 31, 1995.
Net sales for the first quarter of 1996 were $54.1 million as
compared to $63.2 million for the first quarter of 1995, a decrease
of $9.1 million or 14.4%. This decline in sales was due to
several factors. First was the extremely weak retail demand in the
quarter. Second was the continued decline in purchases by Color
Tile, Inc., a major retailer operating under Chapter 11 bankruptcy
protection. Third was the timing of the Company's Spring season
new product introductions, which occurred later in 1996 than in
1995, resulting in a greater proportion of shipments in early April
as opposed to late March. Fourth was a decline in sales in Canada
resulting from changes of the Company's distribution in that
country which have not yet been completed.
Gross profit for the first quarter of 1996 was $14.3 million
compared to $20.3 million for the first quarter of 1995, a decrease
of $5.9 million. As a percent of sales, gross profit was 26.5% in
the first quarter of 1996, as compared to 32.1% in the first
quarter of 1995. The gross profit decline was due to both lower
sales and decreased production volumes, which more than offset
declines in raw material costs from first quarter 1995 levels.
Selling, general, and administrative expenses were $14.7
million in the first quarter of 1996, down slightly from $14.9
million in the first quarter of 1995. As a percentage of sales,
selling, general, and administrative expenses were 27.1% for the
first quarter of 1996 and 23.5% for the first quarter of 1995, with
the increase in percentage the result of the sales decline.
The loss from operations for the first quarter of 1996 was
$0.3 million (0.6% of net sales), compared to income of $5.4
million (8.6% of net sales) for the first quarter of 1995, a
decrease of $5.8 million. The decrease resulted from the lower
level of sales and reduced gross profit margins.
The net loss for the first quarter of 1996 was $1.0 million,
compared to income of $2.5 million for the first quarter of 1995, a
decrease of $3.6 million. This decline was due to the decrease in
income from operations and other income.
Liquidity and Capital Resources
- - -------------------------------
Cash and cash equivalents declined $18.5 million for the three
months ended March 31, 1996, to $21.6 million. Working capital at
March 31, 1996 was $55.6 million, down from $56.6 million at
December 31, 1995. The ratio of current assets to current
liabilities at March 31, 1996 was 2.3 compared to 2.1 at December
31, 1995. The ratio of debt to total capital at March 31, 1996 was
.46 compared to .44 at December 31, 1995. Cash used by operations
was $16.5 million for the first quarter of 1996.
8
<PAGE>
Capital expenditures were $2.0 million for the first quarter
of 1996, but are expected to increase during the balance of the
year. Total 1996 capital spending is anticipated to be
approximately $12 to $14 million.
The Company has recorded what it believes are adequate
provisions for environmental remediation and product-related li
abilities, including provisions for testing for potential
remediation of conditions at its own facilities. While the Company
believes its estimate of the future amount of these liabilities is
reasonable, that such amounts will not have a material adverse
impact on the Company's results of operations or financial
position, 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 assumptions. Although the effect
of future government regulation could have a significant effect on
the Company's costs, the Company is not aware of any pending
legislation which could have a material adverse effect on its
results of operations or financial position. There can be no
assurances that such costs could be passed along to its customers.
The Company's principal sources of liquidity are net cash
provided by operating activities and borrowings under its Amended
and Restated Financing Agreement. The Company believes that these
sources will be adequate to fund working capital requirements, debt
service payments and planned capital expenditures through the
foreseeable future.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security
Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: 11. Computation of Per Share Earnings
(b) Reports on Form 8-K: One report on Form 8-K dated
April 2, 1996 was filed during the first quarter
of 1996.
The Form 8-K reported on Item IV "Changes in
Registrant's Certifying Accountants" as follows:
Effective March 28, 1996 Congoleum Corporation ("the
Company") dismissed Coopers & Lybrand L.L.P. and engaged
Ernst & Young L.L.P. as its independent accountants. The
decision to change accountants was approved by the Audit
Committee of the Board of Directors.
Coopers & Lybrand L.L.P.'s reports on the Company's
financial statements for the past two years did not
contain an adverse opinion, disclaimer of opinion, or
qualification or modification as to uncertainty, audit
scope, or accounting principles.
During the two most recent fiscal years and the
subsequent interim period preceding March 28, 1996, there
have been no disagreements with Coopers & Lybrand L.L.P.
on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of
Coopers & Lybrand L.L.P., would have caused it to make
reference to the subject matter of the disagreement in
connection with its report.
10
<PAGE>
CONGOLEUM CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONGOLEUM CORPORATION
(Registrant)
Date: May 6, 1996 By:/s/ Howard N. Feist III
--------------------------
(signature)
Howard N. Feist III
Sr. Vice President - Finance
(Principal Financial & Accounting
Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit Number
- - ------- ------
Computation of Per Share Earnings 11
12
<PAGE>
EXHIBIT 11
Congoleum Corporation
Computation of Per Share Earnings
(Amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Primary Fully diluted
earnings per earnings per
First quarter ended March 31, 1996 common share common share
- - ---------------------------------- ------------ -------------
<S> <C> <C>
Net income (loss) $ (1,044) $ (1,044)
(less) preferred dividends -- --
--------- ---------
Earnings (loss) for per-share calculations $ (1,044) $ (1,044)
--------- ---------
Average number of shares outstanding 10,000 10,000
Average stock option shares -- --
Average warrant shares -- --
--------- ---------
Shares for earnings calculation 10,000 10,000
--------- ---------
Earnings (loss) per share $ (0.10) $ (0.10)
========= =========
First quarter ended March 31, 1995
- - ----------------------------------
Net income $ 2,519 $ 2,519
(less) preferred dividends -- --
--------- ---------
Earnings for per-share calculations $ 2,519 $ 2,519
--------- ---------
Average number of shares outstanding 10,000 10,000
Average stock option shares 44 66
Average warrant shares -- --
--------- ---------
Shares for earnings calculation 10,044 10,066
--------- ---------
Earnings per share $ 0.25 $ 0.25
========= =========
</TABLE>
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Statements of Operations as reported in
the Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,634
<SECURITIES> 0
<RECEIVABLES> 18,365
<ALLOWANCES> 0
<INVENTORY> 52,708
<CURRENT-ASSETS> 97,705
<PP&E> 74,304
<DEPRECIATION> 0
<TOTAL-ASSETS> 194,382
<CURRENT-LIABILITIES> 42,081
<BONDS> 90,000
0
0
<COMMON> 100
<OTHER-SE> 21,459
<TOTAL-LIABILITY-AND-EQUITY> 194,382
<SALES> 54,118
<TOTAL-REVENUES> 54,807
<CGS> 39,770
<TOTAL-COSTS> 39,770
<OTHER-EXPENSES> 14,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,038
<INCOME-PRETAX> (1,725)
<INCOME-TAX> (681)
<INCOME-CONTINUING> (1,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,044)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
