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 June 30, 1997
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 August 1, 1997
------------------------ -----------------------------
Class A Common Stock 4,564,100
Class B Common Stock 5,255,000
Page 1 of 15
<PAGE>
CONGOLEUM CORPORATION
Index
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements:
Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Statements of Operations for the three and six
months ended June 30, 1997 and 1996 (unaudited) 4
Statements of Changes in Stockholders' Equity for
the year ended December 31, 1996 and the six months
ended June 30, 1997 (unaudited) 5
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited) 6
Notes to Unaudited Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONGOLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,085 $ 30,629
Short-term investments 24,600 17,500
Accounts and notes receivable, net 21,015 18,886
Inventories 66,673 47,450
Prepaid expenses and other current assets 207 1,014
Deferred income taxes 2,874 2,874
--------- ---------
Total current assets 117,454 118,353
Property, plant and equipment, net 83,653 78,313
Goodwill, net 12,467 12,683
Deferred income taxes 3,068 3,068
Other noncurrent assets 8,073 7,381
--------- ---------
Total assets $ 224,715 $ 219,798
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,195 $ 19,935
Accrued expenses 40,453 32,828
Accrued income taxes 1,503 1,663
Deferred income taxes 1,924 1,924
--------- ---------
Total current liabilities 59,075 56,350
Long-term debt 86,925 87,750
Other liabilities 20,830 19,401
Noncurrent pension liability 12,632 12,381
Accrued postretirement benefit obligation 10,249 10,249
--------- ---------
Total liabilities 189,711 186,131
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share;
1,000,000 shares authorized; none issued or
outstanding -- --
Class A common stock, par value $0.01 per
share; authorized 20,000,000 shares; issued
4,652,000 and 4,650,000 shares; outstanding
4,583,000 and 4,645,500 shares as of June 30,
1997 and December 31, 1996 47 47
Class B common stock, par value $0.01 per
share; 5,255,000 and 5,350,000 shares
authorized, issued and outstanding as of
June 30, 1997 and December 31, 1996 52 53
Additional paid-in capital 54,194 55,172
Retained deficit (16,444) (19,561)
Minimum pension liability adjustment (1,995) (1,995)
Common stock held in Treasury, at cost; 75,000
shares at June 30, 1997 and 4,500 shares at
December 31, 1996 (850) (49)
---------- ---------
Total stockholders' equity 35,004 33,667
---------- ---------
Total liabilities and stockholders'equity $ 224,715 $ 219,798
========== =========
</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 Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 64,909 $ 74,380 $ 125,992 $ 128,498
Cost of sales 45,104 49,324 87,946 89,507
Selling, general and
administrative expenses 15,843 15,641 31,060 29,901
--------- --------- --------- ---------
Income from operations 3,962 9,415 6,986 9,090
Other income (expense):
Interest income 454 356 959 689
Interest expense (1,616) (2,044) (3,599) (4,082)
Other income 671 308 812 664
Other expense (107) (19) (174) (70)
--------- --------- --------- ---------
Income before income taxes 3,364 8,016 4,984 6,291
Provision for income taxes 1,260 3,166 1,867 2,485
--------- --------- --------- ---------
Net income $ 2,104 $ 4,850 $ 3,117 $ 3,806
========= ========= ========= =========
Net income per common
share $ 0.21 $ 0.48 $ 0.31 $ 0.38
========= ========= ========= =========
Weighted average number of
common shares and
equivalent shares
outstanding 9,944 10,000 9,990 10,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
4
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Minimum
par value $0.01 Additional Pension
--------------- Paid-in Retained Liability Treasury
Class A Class B Capital Deficit Adjustment Stock Total
------- ------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 47 $ 53 $ 55,172 $ (31,658) $ (1,012) $ 22,602
======= ======= ========= ========= ========== ========
Purchase of treasury stock $ (49) (49)
Minimum pension liability
Adjustment, net of tax
benefit (983) (983)
Net income 12,097 12,097
------- ------- --------- --------- ---------- -------- ---------
Balance, December 31, 1996 47 53 55,172 (19,561) (1,995) (49) 33,667
------- ------- --------- --------- ---------- -------- ---------
Purchase of treasury stock (801) (801)
Purchase and retirement of
Class B Common Stock (1) (1,004) (1,005)
Exercise of stock options 26 26
Net income 3,117 3,117
------- ------- --------- --------- ---------- -------- ---------
Balance, June 30, 1997 $ 47 $ 52 $ 54,194 $ (16,444) $ (1,995) $ (850) $ 35,004
======= ======= ========= ========= ========== ======== =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1996
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,117 $ 3,806
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 4,672 3,849
Amortization 527 513
Gain on disposal of property, plant and equipment (196) --
Changes in certain assets and liabilities:
Accounts and notes receivable (2,129) (5,272)
Inventories (19,223) (6,020)
Prepaid expenses and other assets 807 238
Accounts payable (4,740) (2,736)
Accrued expenses 7,543 7,917
Other liabilities 681 45
-------- --------
Net cash provided (used) by operating activities (8,941) 2,340
-------- --------
Cash flows from investing activities:
Capital expenditures (10,142) (4,356)
Proceeds from sale of property, plant and
equipment 244 --
Purchase of short-term investments (28,800) (27,500)
Maturities of short-term investments 21,700 --
-------- --------
Net cash used by investing activities (16,998) (31,856)
-------- --------
Cash flows from financing activities:
Payments to reduce long-term debt (825) --
Exercise of stock options 26 --
Purchase and retirement of Class B stock (1,005) --
Purchase of treasury stock (801) (49)
-------- --------
Net cash used by financing activities (2,605) (49)
-------- --------
Net decrease in cash and cash equivalents (28,544) (29,565)
Cash and cash equivalents:
Beginning of period 30,629 40,103
-------- --------
End of period $ 2,085 $ 10,538
======== ========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
6
<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 and have
not been audited by the Company's independent accountants. Certain
information and note disclosures normally included in audited
financial statements prepared in accordance with generally accepted
accounting principles for complete financial statements have been
condensed or omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. The preparation of
condensed financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses during the reporting
period. In the opinion of management, all adjustments (consisting
of normal and recurring adjustments) considered necessary for a fair
presentation of the Company's financial position have been included.
The results of operations for the three and six months ended June
30, 1997 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, 1996.
2. INVENTORIES
- ----------------
A summary of the major classifications of inventories is as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Finished goods $ 52,130 $ 34,920
Work-in-process 6,355 2,089
Raw materials and supplies 8,188 10,441
--------- ---------
$ 66,673 $ 47,450
========= =========
</TABLE>
If the FIFO (first-in, first-out) method of inventory
accounting (which approximates current cost) had been used,
inventories would have been approximately $1,357 and $2,027 lower
than reported at June 30, 1997 and December 31, 1996, respectively.
3. EARNINGS PER SHARE
- -----------------------
Earnings per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. For
the three and six months ended June 30, 1997, common stock
equivalents have been included in the weighted average number of
7
<PAGE>
shares of common stock outstanding and amount to approximately 2,000
and 20,000 shares respectively. For the three and six months ended
June 30, 1996, common stock equivalents have not been included in
the weighted average number of shares of common stock outstanding
since the effect would be antidilutive. For the three month periods
ending June 30, 1997 and 1996, there is no difference between
primary and fully diluted net income per common share.
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," which simplifies the calculation of earnings
per share (EPS) and is effective for both interim and annual periods
ending after December 15, 1997. The Statement is not expected to
have a material impact on the Company's financial statements.
4. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
The Company is 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. Among these claims, the Company is a named party in
several actions associated with waste disposal sites, asbestos-
related claims and general liability claims. 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 currently-owned and
previously-owned facilities. The contingencies also include claims
for personal injury and/or property damage. The exact amount of
such future costs and timing of payments are 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 any costs
may be recoverable from insurance.
The Company records a liability for environmental remediation,
asbestos-related claim costs, and general liability claims 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. The recorded liabilities are not discounted for
delays in future payments and are not reduced by the amount of
estimated insurance recoveries. Such estimated insurance recoveries
are considered probable of recovery.
Although the outcome of these matters could result in
significant expenses or judgments, management does not believe based
on present facts and circumstances that their disposition will have
a material adverse effect on the financial position of the Company.
5. RECLASSIFICATIONS
- ----------------------
For comparison purposes, certain amounts have been reclassified
to conform to the current year presentation.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three and six months ended June 30, 1997 as compared to three and
six months ended June 30, 1996.
Net sales for the second quarter of 1997 were $64.9 million as
compared to $74.4 million for the second quarter of 1996, a decrease
of $9.5 million or 12.7%. Year-to-date net sales for the first six
months of 1997 were $126.0 million, a decrease of $2.5 million or
2.0% from the first six months of 1996. Second quarter net sales in
1997 were negatively affected by weak retail demand. In addition,
during the quarter ended June 30, 1997 the Company was in the
process of building inventory in preparation for an extended
shutdown to refurbish a major production line. As a result, it was
limited in its ability to stimulate sales with promotions and
specials.
Gross profit for the second quarter of 1997 was $19.8 million,
down $5.3 million from $25.1 million in the second quarter of 1996.
Gross profit as a percent of net sales in the second quarter of 1997
was 30.5%, compared to 33.7% in the second quarter of 1996. Year-to-
date gross profit for the first six months of 1997 was $38.0 million
(30.2% of net sales), down from $39.0 million (30.3% of net sales)
in the first six months of 1996. For 1997 second quarter and first
half gross profit was lower than the comparable periods in 1996 due
to lower net sales, competitive pricing pressures, and higher raw
material costs, which offset improvements in manufacturing
efficiency.
Selling, general, and administrative costs increased by $0.2
million or 1.3% to $15.8 million in the second quarter of 1997 from
$15.6 million in the second quarter of 1996. As a percent of net
sales, selling, general, and administrative costs were 24.4% for the
second quarter of 1997 and 21.0% for the second quarter of 1996.
Year-to-date selling, general and administrative expenses for the
first six months of 1997 were $31.1 million (24.7% of net sales),
compared to $29.9 million (23.3% of net sales) in the same period
last year. The increase in operating expenses is primarily due to
increased investment in retail displays.
Income from operations for the second quarter of 1997 was $4.0
million (6.1% of net sales), compared to $9.4 million (12.7% of net
sales) for the second quarter of 1996, a decrease of $5.5 million,
or 57.9%. This decline was due to the lower net sales and gross
profit margins during the second quarter of 1997. Income from
operations for the six months ended June 30, 1997 totaled $7.0
million, $2.1 million lower than the same period in 1996.
Net income for the second quarter of 1997 was $2.1 million,
compared to $4.8 million for the second quarter of 1996, a decrease
of $2.7 million, reflecting the lower income from operations, partly
offset by higher royalty income and lower interest expense. For the
six months ended June 30, 1997, net income was $3.1 million, $0.7
million lower than net income in the first half of 1996.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents, including short-term investments,
declined $21.4 million for the six months ended June 30, 1997, to
$26.7 million. Working capital at June 30, 1997 was $58.4 million,
down from $62.0 million at December 31, 1996. The ratio of current
assets to current liabilities at June 30, 1997 was 2.0 to 1.0,
compared to 2.1 to 1.0 at December 31, 1996. The ratio of debt to
total capital at June 30, 1997 was .39 to 1.0 compared to .40 to 1.0
at December 31, 1996. Cash used by operations was $8.9 million for
the first half of 1997, compared to cash generated from operations
of $2.3 million in the first half of 1996.
In June 1997, the Company shut down its largest production line
for a substantial upgrading that is expected to take several months.
Inventories at June 30, 1997 were $19.2 million higher than at
December 31, 1996, reflecting the additional material produced in
preparation for this shutdown. This is the primary reason for the
lower cash from operations when compared to the same period last
year. The bulk of this additional inventory is expected to be sold
by the end of 1997. Capital expenditures were $10.1 million for the
first half of 1997, and are expected to continue at that level
during the balance of the year, with full year expenditures
projected to be $20 million.
During 1996, the Company's Board of Directors authorized the
repurchase of $5 million of the Company's common stock and $10
million of its 9% senior notes. At June 30, 1997, $1.9 million had
been expended on stock repurchases and $3.1 million had been
expended on note repurchases pursuant to these authorizations.
The Company has recorded what it believes are adequate
provisions for environmental remediation and product-related
liabilities, including provisions for testing for potential
remediation of conditions at its own facilities. While the Company
believes its estimate of the future amount of these liabilities is
reasonable, that such amounts will not have a material adverse
effect on the financial position of the Company 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, stock and note repurchases, and planned capital
expenditures through the foreseeable future.
10
<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:
At the Annual Meeting of Stockholders held on
May 12, 1997, the following actions were taken:
Two nominees were elected as Class A Directors
who will hold office until the Annual Meeting of
Stockholders in 2000 and until their successors are
duly elected and qualify.
Name Votes For Instructed Votes Withheld
---- --------- ---------- --------------
William M. Marcus 14,829,171 323 202,231
C. Barnwell Straut 14,829,494 -- 202,231
The following persons are the other directors of
the Company whose term of office as a director
continued after the meeting:
Cyril C. Baldwin, Jr. Roger S. Marcus
John N. Irwin III Richard G. Marcus
Mark N. Kaplan William M. Marcus
An amendment to the Company's 1995 Stock Option
Plan to increase the number of shares authorized to
be issued thereunder from 550,000 to 800,000, an
increase of 250,000 shares, was approved.
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
14,317,738 183,060 29,245 501,682
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: 11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K: None
11
<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: August 6, 1997 By: /s/ Howard N. Feist III
-------------------------
Howard N. Feist III
Sr. Vice President - Finance
(Principal Financial &
Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit Number
- -------------------------------- ------
Computation of Per Share Earnings 11
Financial Data Schedule 27
13
<PAGE>
EXHIBIT 11
Congoleum Corporation
Computation of Income Per Common Share
(Amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
- -----------------------------------
Income per common and common
equivalent share $ 2,104 $ 4,850 $ 3,117 $ 3,806
======== ======== ======== ========
Weighted average common shares
outstanding 9,942 10,000 9,970 10,000
Effect of assumed exercise of
dilutive stock options <F1> 2 -- 20 --
-------- -------- -------- --------
Weighted average common and common
equivalent shares 9,944 10,000 9,990 10,000
======== ======== ======== ========
Income per common and common
equivalent share $ 0.21 $ 0.48 $ 0.31 $ 0.38
======== ======== ======== ========
Fully Diluted Earnings Per Common Share:
- ----------------------------------------
Income per common and common
equivalent share $ 2,104 $ 4,850 $ 3,117 $ 3,806
======== ======== ======== ========
Weighted average common shares
outstanding 9,942 10,000 9,970 10,000
Effect of assumed exercise of
dilutive stock options <F1> 2 -- 20 --
-------- -------- -------- --------
Weighted average common and common
equivalent shares 9,944 10,000 9,990 10,000
======== ======== ======== ========
Income per common and common
equivalent share $ 0.21 $ 0.48 $ 0.31 $ 0.38
======== ======== ======== ========
<F1> Computed based on the treasury stock method.
14
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, statements of operations and statements of cash
flows 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,085
<SECURITIES> 24,600
<RECEIVABLES> 21,015
<ALLOWANCES> 0
<INVENTORY> 66,673
<CURRENT-ASSETS> 117,454
<PP&E> 83,653
<DEPRECIATION> 4,672
<TOTAL-ASSETS> 224,715
<CURRENT-LIABILITIES> 59,075
<BONDS> 86,925
0
0
<COMMON> 99
<OTHER-SE> 34,905
<TOTAL-LIABILITY-AND-EQUITY> 224,715
<SALES> 125,992
<TOTAL-REVENUES> 127,763
<CGS> 87,946
<TOTAL-COSTS> 87,946
<OTHER-EXPENSES> 31,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,599
<INCOME-PRETAX> 4,984
<INCOME-TAX> 1,867
<INCOME-CONTINUING> 3,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,117
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
