SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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)
Telephone number: (609) 584-3000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
---------------------- ------------------------
Class A Common Stock, par value New York Stock Exchange, Inc.
$.01 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
<PAGE>
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 3, 1997, the aggregate market value of all
shares of Class A Common Stock held by non-affiliates of the
Registrant was approximately $63.1 million based on the closing
price ($13.625 per share) on the New York Stock Exchange. For
purposes of determining this amount, affiliates are defined as
directors and executive officers of the Registrant and, American
Biltrite Inc. and Hillside Capital Incorporated. All of the
shares of Class B Common Stock of the Registrant are held by
affiliates of the Registrant. As of March 3, 1997, an aggregate
of 4,647,500 shares of Class A Common Stock and an aggregate of
5,350,000 shares of Class B Common Stock of the Registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part II. Portions of the Company's Annual Report to
Shareholders for the year ended December 31, 1996
Part III. Portions of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on
May 12, 1997.
Some of the information presented in or incorporated by
reference in this report constitutes "forward-looking statements"
within meaning of the Private Securities Litigation Reform Act of
1995. Although the Registrant believes that its expectations are
based on reasonable assumptions, within the bounds of its
knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from its
expectations. Factors that could cause actual results to differ
from expectations include: (i) increases in raw material prices,
(ii) increased competitive activity from companies in the
flooring industry, some of which have greater resources and
broader distribution channels than the Registrant, (iii)
unfavorable developments in the national economy or in the
housing industry in general, (iv) shipment delays, depletion of
inventory and increased production costs resulting from
unforeseen disruptions of operations at any of the Registrant's
facilities or distributors and (v) the future cost and timing of
payments associated with environmental, product and general
liability claims.
2
<PAGE>
PART I
ITEM 1. BUSINESS
Congoleum Corporation (the "Company") was incorporated in
Delaware in 1986, but traces its history in the flooring business
back to Nairn Linoleum Co. which began in 1886. On March 11,
1993 (effective on February 28, 1993), the business and assets of
the Company and those of the Amtico Tile Division of American
Biltrite Inc. (the "Tile Division") were combined (the
"Acquisition"). The Acquisition was effected through the
organization of a new corporation, Congoleum Holdings
Incorporated ("Congoleum Holdings"), to which Hillside Industries
Incorporated ("Hillside Industries") contributed all of the
outstanding capital stock of Resilient Holdings Incorporated
("Resilient"), the owner of all of the outstanding capital stock
of the Company, and to which American Biltrite Inc. ("American
Biltrite") contributed the assets and certain liabilities of the
Tile Division. Upon consummation of the Acquisition, Congoleum
Holdings owned all of the outstanding capital stock of Resilient,
which, in turn, owned all of the outstanding capital stock of the
Company, and the Company owned the Tile Division. The assets and
liabilities comprising the Tile Division which were acquired by
the Company in the Acquisition are held directly by the Company.
On February 8, 1995, the Company completed a public offering of
4,650,000 shares of Class A Common Stock (the "Offering"). Upon
completion of the Offering, the Company implemented a Plan of
Repurchase pursuant to which its two-tiered holding company
ownership structure was eliminated through the merger of
Congoleum Holdings with and into the Company, with the Company
as the surviving corporation.
Congoleum produces both sheet vinyl and vinyl tile products
with a wide variety of product features, designs and colors.
Sheet vinyl, in its predominant construction, is produced by
applying a vinyl gel to a flexible felt or a vinyl (for perimeter
installed products) backing, printing a design on the gel,
applying a wearlayer, heating the gel layer sufficiently to cause
it to expand into a cushioned foam and, in some products, adding
a high-gloss coating. The Company also produces through-chip
inlaid products for the commercial market. These products are
produced by applying an adhesive coat and solid vinyl colored
chips to a felt backing and laminating the sheet under pressure
with a heated drum. Vinyl tile is manufactured by creating a
base stock (consisting primarily of limestone and vinyl resin)
which is less flexible than the backings for sheet vinyl, and
transferring or laminating to it preprinted colors and designs
followed by a wearlayer and a urethane coating in some cases.
Commercial vinyl tile is manufactured by including colored vinyl
chips in the pigmented base stock. For do-it-yourself tile, an
adhesive is applied to the back of the tile. The differences
between products within each of the two product lines consist
primarily of content and thickness of wearlayers and coatings,
the use of chemical embossing to impart a texture, the complexity
of designs and the number of colors.
RAW MATERIALS
- -------------
The principal raw materials used in the manufacture of sheet
vinyl and vinyl tile are vinyl resins, plasticizers, latex,
limestone, stabilizers, cellulose paper fibers, urethane and
transfer print paper. Most of these raw materials are purchased
from multiple sources. The Company has had no difficulty in
obtaining its requirements for these materials, although
significant price increases in certain materials have been
experienced at times.
3
<PAGE>
The Company believes that alternative suppliers are
available for substantially all of its raw material requirements.
However, the Company does not have readily available alternative
sources of supply for specific designs of transfer print paper,
which are produced utilizing print cylinders engraved to the
Company's specifications. Although no loss of this source of
supply is anticipated, replacement could take a considerable
period of time and interrupt production of certain products.
The Company maintains a raw material inventory and has an ongoing
program to develop new sources which will provide continuity of
supply for its raw material requirements.
PATENTS AND TRADEMARKS
- ----------------------
The Company believes that the Congoleum brand name, as well
as the other trademarks it holds, are important to maintaining
competitive position. In 1993, the Company sold the rights to
the Amtico trademark in the United States and began selling tile
under the Congoleum brand name.
The Company also believes that patents and know-how play an
important role in maintaining competitive position. In
particular, the Company utilizes a proprietary transfer printing
process for certain vinyl tile products that it believes produces
visual effects that only one other competitor is presently able
to duplicate.
DISTRIBUTION
- ------------
The Company currently sells its products through
approximately 35 distributors providing approximately 100
distribution points in the United States and Canada, as well as
directly to a limited number of mass market retailers. The sales
pattern is seasonal, with peaks in retail sales typically
occurring during March/April/May and September/October. Orders
are generally shipped as soon as a truckload quantity has been
accumulated, and backorders can be canceled without penalty. At
December 31, 1996, the backlog of unshipped orders was $12.3
million, compared to $10.4 million at December 31, 1995.
The Company considers its distribution network very
important to maintaining competitive position. While most of its
distributors have marketed the Company's products for many years,
replacements are necessary periodically to maintain the strength
of the distribution network. Although the Company has more than
one distributor in many of its distribution territories and
actively manages its credit exposure to its customers, the loss
of a major customer could have a materially adverse impact on the
Company's sales, at least until a suitable replacement was in
place. For the year ended December 31, 1996, two customers each
accounted for over 10% of the Company's sales. These customers
were its distributor to the manufactured housing market, LaSalle-
Bristol, and its distributor in the Southwest and on the West
Coast, LD Brinkman & Co.
4
<PAGE>
WORKING CAPITAL
- ---------------
The Company produces goods for inventory and sells on credit
to customers. Generally, the Company's distributors carry
inventory as needed to meet local or rapid delivery requirements.
Credit sales are typically subject to a discount if paid within
terms.
PRODUCT WARRANTIES
- ------------------
The Company offers a limited warranty on all of its products
against manufacturing defects. In addition, as a part of efforts
to differentiate mid and high-end products through color, design
and other attributes, the Company offers enhanced warranties with
respect to wear, moisture discoloration and other performance
characteristics which increase with the price points of such
products.
COMPETITION
- -----------
The market for the Company's products is highly competitive.
Resilient sheet vinyl and vinyl tile compete for both residential
and commercial customers primarily with carpeting, hardwood,
melamine laminate and ceramic tile. In residential applications,
both vinyl tile and sheet vinyl are used primarily in kitchens,
bathrooms, laundry rooms and foyers and, to a lesser extent, in
playrooms and basements. Ceramic tile is used primarily in
kitchens, bathrooms and foyers. Carpeting is used primarily in
bedrooms, family rooms, and living rooms. Hardwood flooring and
melamine laminate are used primarily in family rooms, foyers, and
kitchens. Commercial grade, resilient vinyl flooring faces
substantial competition from carpeting, ceramic tile, rubber
tile, hardwood flooring and stone in commercial applications.
The Company believes, based upon its market research, that
purchase decisions are influenced primarily by fashion elements
such as design, color and style, durability, ease of maintenance,
price and ease of installation. Both vinyl tile and sheet vinyl
are easy to replace for repair and redecoration and, in the
Company's view, have advantages over other floor covering
products in terms of both price and ease of installation and
maintenance.
The Company believes that it is the second largest
manufacturer of resilient vinyl flooring products in the United
States. The Company encounters competition from domestic and, to
a much lesser extent foreign manufacturers. Certain of the
Company's competitors, including Armstrong in the resilient
category, have substantially greater financial and other
resources than the Company.
RESEARCH & DEVELOPEMENT
- -----------------------
The Company's research and development efforts concentrate
on new product development, trying to increase product durability
and expanding technical expertise in the manufacturing process.
Expenditures for research and development for the year ended
December 31, 1996 were $4.6 million, up from $3.7 million and
$3.5 million for the years ended December 31, 1995 and 1994.
5
<PAGE>
ENVIRONMENTAL REGULATION
- ------------------------
Due to the nature of the Company's business and certain of
the substances which are or have been used, produced or
discharged by the Company, the Company's operations are subject
to extensive federal, state and local laws and regulations
relating to the generation, storage, disposal, handling,
emission, transportation and discharge into the environment of
hazardous substances. The Company, pursuant to administrative
consent orders signed at the time of Hillside's acquisition of
the Company in 1986 and in connection with a prior restructuring,
is in the process of implementing clean-up measures at its
Trenton sheet vinyl facility under New Jersey's Environmental
Clean-up Responsibility Act, as amended by the New Jersey
Industrial Site Recovery Act. The Company does not anticipate
that the additional costs of these measures will be material. In
connection with the Acquisition of the Tile Division, American
Biltrite signed a similar consent order with respect to the
Trenton tile facility, and the Company agreed to be financially
responsible for any clean-up measures required. In 1996, the
Company incurred capital expenditures of approximately $0.4
million for environmental compliance and control facilities.
The Company has historically expended substantial amounts
for compliance with existing environmental laws and regulations,
including those matters described above. The Company will
continue to be required to expend amounts in the future, due to
the nature of historic activities at its facilities, to comply
with existing environmental laws, and those amounts may be
substantial but should not, in the Company's judgment, have a
material adverse effect on the financial position of the company.
Because environmental requirements have grown increasingly
strict, however, the Company is unable to determine the ultimate
cost of compliance with environmental laws and enforcement
policies.
EMPLOYEES
- ---------
At December 31, 1996, the Company employed a total of 1,332
personnel compared to 1,320 employees at December 31, 1995.
The Company has entered into collective bargaining
agreements with hourly employees at three of its plants and with
the drivers of the trucks that provide inter-plant
transportation. These agreements cover approximately 761 of the
Company's employees. The Trenton vinyl tile plant has a
three-year collective bargaining agreement which expires in
May 1998. The Marcus Hook plant has a three-year collective
bargaining agreement which expires in November 1998. The Trenton
sheet vinyl plant has a five-year collective bargaining agreement
which expires in February 2001. The Finksburg plant has no
union affiliation. In the past five years there have been no
significant strikes by employees at the Company and the Company
believes that its employee relations are satisfactory.
6
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following information is furnished with respect to each of
the executive officers of the Company, each of whom is elected by
and serves at the pleasure of the Board of Directors. The
business experience shown for each officer has been his principal
occupation for at least the past five years. Ages are shown as
of February 1, 1997.
Roger S. Marcus (Age 51)
- ------------------------
Roger S. Marcus has been a Director and President and Chief
Executive Officer of the Company since March 1993, and Chairman
since December 1994. Mr. Marcus is also a Director (since 1981),
Chairman of the Board (since 1992) and Chief Executive Officer
(since 1983) of American Biltrite. From 1983 to 1992, Mr. Marcus
served as Vice Chairman of the Board of American Biltrite.
Richard G. Marcus (Age 49)
- -------------------------
Richard G. Marcus has been Vice Chairman of the Company since
December 1994, and Director since March 1993. Mr. Marcus is also
a Director (since 1982) and President (since 1983) and Chief
Operating Officer (since 1992) of American Biltrite.
Robert N. Agate (Age 52)
- -----------------------
Robert N. Agate has been Senior Vice President - Manufacturing of
the Company since March 1993. Prior thereto, he was Vice
President of Manufacturing of the Tile Division of American
Biltrite (since 1981).
Howard N. Feist III (Age 40)
- ---------------------------
Howard N. Feist III has been Senior Vice President - Finance and
Secretary of the Company since March 1993. Prior thereto, he had
served as Vice President - Finance and Secretary of the Company
since 1988.
Dennis P. Jarosz (Age 51)
- ------------------------
Dennis P. Jarosz has been Senior Vice President - Marketing since
July 1995. Prior thereto, he had served as Vice President -
Marketing since March 1993 and Vice President - Sales & Marketing
of the Tile Division of American Biltrite (since 1986).
Anthony C. Prestipino (Age 49)
- -----------------------------
Anthony C. Prestipino has been Senior Vice President - Sales of
the Company since November 1995. Prior thereto, he was Vice
President - Sales & Marketing for commercial products of the
Karastan Bigelow Division of Mohawk Industries and Fieldcrest
Cannon (since 1989).
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Peter J. Rohrbacher (Age 45)
- ---------------------------
Peter J. Rohrbacher has been Senior Vice President - Engineering
of the Company since October 1993. He was Vice President -
Coatings of the Company from March 1993 to September 1993. Prior
thereto, he was Vice President - Research & Development of the
Tile Division of American Biltrite (since 1988).
Thomas A. Sciortino (Age 50)
- ---------------------------
Thomas A. Sciortino has been Senior Vice President -
Administration of the Company since March 1993. Prior thereto,
he was Vice President-Finance of the Tile Division of American
Biltrite (since 1982).
Joseph Silbermann (Age 41)
- -------------------------
Joseph Silbermann has been Senior Vice President - Research &
Development since October 1996. Prior thereto, he had served as
Business Manager for the Plastics Additives Division of Elf
Atochem North America.
Merrill M. Smith (Age 71)
- ------------------------
Merrill M. Smith has been Senior Vice President - Technology of
the Company since March 1993. Prior thereto, he was Vice
President - Technology of American Biltrite (since 1985).
8
<PAGE>
ITEM 2. PROPERTIES
The Company owns four manufacturing facilities located in
Maryland, Pennsylvania and New Jersey and leases corporate and
marketing offices in Mercerville, New Jersey, where it has a
lease expiring in December, 1997 (subject to renewal options),
which are described below:
<TABLE>
<CAPTION>
Location Owned/Leased Usage Square Feet
- -------- ------------ ----- -----------
<S> <C> <C> <C>
Finksburg, MD Owned Felt 107,000
Marcus Hook, PA Owned Sheet Vinyl 1,000,000
Trenton, NJ Owned Sheet Vinyl 1,050,000
Trenton, NJ Owned Vinyl Tile 282,000
Mercerville, NJ Leased Corporate Offices 30,116
</TABLE>
The Finksburg facility consists primarily of a 16-foot wide
felt production line.
The Marcus Hook facility is capable of manufacturing
rotogravure printed sheet flooring in widths of up to 16 feet.
Major production lines at this facility include a 12 foot wide
oven, two 16 foot wide ovens, a 12 foot wide printing press and a
16 foot wide printing press.
The Trenton sheet vinyl facility is capable of manufacturing
rotogravure printed and through-chip inlaid sheet vinyl in widths
up to 6 feet. Major production lines, all six foot wide, include
an oven, a rotary laminating line and a press. The examination,
packing and warehousing of all sheet vinyl (except products for
the manufactured housing segment) occurs at the Trenton plant
distribution center.
The Trenton vinyl tile facility consists of three major
production lines, a four foot wide commercial tile line, a two
foot wide residential tile line and a one foot residential tile
line.
Productive capacity and extent of utilization of the Company's
facilities are dependent on a number of factors, including the
size, construction, and quantity of product being manufactured,
some of which also dictate which production line(s) must be
utilized to make a given product. The Company's major production
lines were operated an average of 75% of the hours available on a
five-day, three shift basis in 1996, with the corresponding
figure for individual production lines ranging from 22% to 120%.
Although many of the Company's manufacturing facilities have
been substantially depreciated, the Company has generally
maintained and improved the productive capacity of these
facilities over time through a program of regular capital
expenditures. The Company increased capital spending in 1996 and
plans a further increase in 1997 to accelerate improvements to
its manufacturing facilities and equipment, including the
refurbishment of an oven line at its Marcus Hook facility. The
Company considers its manufacturing facilities to be adequate for
its present and anticipated near term production needs.
9
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ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1996 the Company was named as defendant,
together in most cases with numerous other companies, in
approximately 661 currently pending lawsuits (including worker's
compensation cases) involving approximately 7,936 individuals
alleging personal injury from exposure to asbestos or asbestos-
containing products. The plaintiffs in these cases, as well as
similar cases in the past which have been settled or dismissed,
allege that they or the individuals they represent have
contracted asbestosis, pleural thickenings, mesothelioma, cancer
or other lung disease as a result of exposure to asbestos in the
course of their activities as plumbers, carpenters, floor
installers, machinists, or in other capacities, either as
independent contractors or as employees of shipyards or other
industries utilizing asbestos-containing products (or, in the
worker's compensation cases, as employees of the Company or the
Tile Division) and that included among such products which caused
their diseases were sheet vinyl products provided by the Company
or resilient tile provided by the Tile Division, or both. The
Company discontinued the manufacture of asbestos-containing sheet
vinyl products in 1983, and the Tile Division ceased
manufacturing asbestos-containing tile products in 1984. In
general, asbestos-containing products have not been found to pose
a health risk unless the asbestos becomes airborne. All of the
asbestos in asbestos-containing sheet vinyl and tile products
sold by the Company or the Tile Division was fully-bonded or
encapsulated during the manufacturing process. The Company has
issued warnings not to remove asbestos-containing flooring by
sanding or other methods that allow the asbestos fibers to become
airborne. Although there can be no assurance, the Company
believes, based upon the nature of its asbestos-containing
products and its experience with cases to date, that any
potential liability from pending personal injury claims relating
to the Company's asbestos-containing resilient vinyl products
will not have a material adverse effect in the aggregate on the
financial position of the company.
Together with a large number (in most cases, hundreds) of other
companies, the Company is named as a "Potentially Responsible
Party" ("PRP") in pending proceedings under the federal
Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), and similar state laws. In four
instances, although not named as a PRP, the Company has received
a "Request for Information." These pending proceedings currently
relate to ten waste disposal sites in New Jersey, Pennsylvania,
Maryland, Connecticut and Delaware in which recovery from
generators of hazardous substances is sought for the cost of
cleaning up the contaminated waste disposal sites. Although
there can be no assurances, the Company anticipates that these
proceedings will be resolved over a period of years for amounts
(including legal fees and other defense costs) which the Company
believes based on current estimates of liability and, in part, on
insurance coverage agreements, will not have a material adverse
effect in the aggregate on the financial position of the company.
On July 15, 1994, Kentile Floors, Inc. ("Kentile"), a debtor-in-
possession pursuant to Chapter 11 of the United States Bankruptcy
Code, commenced an adversary proceeding against the Company in
the Bankruptcy Court for the Southern District of New York. The
complaint asserts that the Company tortiously interfered with
certain of Kentile's contracts with its distributors when those
distributors terminated their agreements with Kentile to become
distributors of the Company's floor tile. Kentile seeks $15.0
million in damages on account of the alleged interference.
Although the Company's motion to have the proceeding dismissed on
the pleadings was denied, the Company believes that Kentile's
claim is without merit and intends to vigorously contest the
lawsuit.
10
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by
reference to all information under the caption "Market
Information" on page 25 of the Company's Annual Report to
Shareholders for the year ended December 31, 1996 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by
reference to all information under the heading "Selected
Financial Data" on page 6 of the Company's Annual Report to
Shareholders for the year ended December 31, 1996 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated by
reference to all information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on pages 7 through 9 of the Company's Annual Report
to Shareholders for the year ended December 31, 1996 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are incorporated by
reference and the financial statement schedule is included in
this report on Form 10-K, as listed in Item 14(a) Part IV of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
12
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by these Items (except for the
information regarding executive officers called for by Item 401
of Regulation S-K which is included in Part I hereof in
accordance with General Instruction G(3)), are hereby
incorporated by reference to the Registrant's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on
May 12, 1997.
13
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) The following financial statements of the Company and
the report of independent auditors are incorporated herein by
reference to pages 10 to 24 in the Company's Annual Report to
Shareholders for the year ended December 31, 1996 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
Page Number
-----------
Report of Independent Auditors 24
Balance Sheets as of December 31, 1996
and December 31, 1995 10
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 11
Statements of Changes in Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 12
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 13
Notes to Financial Statements 14
Supplementary Data
Quarterly Financial Data (Unaudited) 23
(2) The following financial statement schedule is
included in this report on Form 10-K:
Page Number
-----------
Schedule II - Valuation and Qualifying
Accounts 20
All other schedules are omitted because they
are not required, inapplicable, or the
information is otherwise shown in the financial
statements or notes thereto.
(3) Exhibits
Exhibit
Number Exhibit
- ------ -------
2.1 Plan of Repurchase dated as of February 1, 1995 by and
among American Biltrite Inc., Hillside Industries
Incorporated, Congoleum Holdings Incorporated, Resilient
Holdings Incorporated and the Company.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Amended and Restated Bylaws of the Company.
14
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Exhibit
Number Exhibit
- ------- -------
4.1 Financing Agreement, dated April 19, 1991 (the "CIT
Financing Agreement"), by and among the CIT Group/Business
Credit, Inc. ("CIT"), The Bank of New York Commercial
Corporation ("BONY/CC"), Chemical Bank ("Chemical") and
The Chase Manhattan Bank, N.A. ("Chase") (collectively,
the "Senior Lenders") and the Company.
4.2 First Amendment, dated March 11, 1993, to the CIT
Financing Agreement by and among the Senior Lenders and
the Company.
4.3 Indenture, dated as of February 1, 1994, between the
Company and Chemical Bank, as trustee.
4.4 Registration Rights Agreement, dated as of February 8,
1995 by and between the Company and Hillside.
10.1 The CIT Financing Agreement (see Exhibit 4.1).
10.2 First Amendment to the CIT Financing Agreement (see
Exhibit 4.2).
10.8 Joint Venture Agreement, dated as of December 16, 1992, by
and among Resilient Holdings, Hillside, the Company
(collectively the "Congoleum Group"), Hillside Capital and
American Biltrite.
10.9 Closing Agreement, dated as of March 11, 1993, by and
among the Congoleum Group, Hillside Capital and American
Biltrite.
10.12 Stockholders Agreement, dated as of March 11, 1993 (the
"Stockholders Agreement"), by and among the Congoleum
Group, American Biltrite and Congoleum Holdings.
10.12.1 First Amendment, dated February 8, 1995, to the
Stockholders Agreement, by and among Hillside, American
Biltrite and the Company.
10.13 Personal Services Agreement, dated as of March 11, 1993
(the "Personal Services Agreement"), by and between
American Biltrite and the Company.
10.14 Business Relations Agreement, dated as of March 11, 1993,
by and between American Biltrite and the Company.
10.15 Tax Sharing and Indemnification Agreement, dated as of
March 11, 1993, by and among Congoleum Holdings, Resilient
Holdings, Hillside Capital and the Company.
10.19 Commitment Letter, dated January 19, 1994 regarding
Financing Agreement dated April 19, 1991, as amended, by
and among CIT, BONYCC and the Company.
10.20 Trademark Purchase Agreement, dated November 29, 1993, by
and between the Company and The Amtico Company LTD
("Amtico Company").
10.21 First Right of Refusal, dated November 29, 1993, by and
between American Biltrite (Canada) Limited and Amtico
Company.
10.22 Undertaking Concerning Amtico Trademark, dated November
29, 1993, by and between American Biltrite and Amtico
Company.
10.23 Form of 1995 Stock Option Plan.
10.23.1 Form of Amendment to 1995 Stock Option Plan
15
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10.24 License Agreement, dated as of September 20, 1995 between
Congoleum Intellectual Properties, Inc. and the Company.
11 Statement re: Computation of Per Share Earnings.
13.1 Pages 6 through 25 of the Congoleum Annual Report to
Shareholders for the year ended December 31, 1996.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Opinion of Coopers & Lybrand L.L.P.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 14th day of March, 1997.
CONGOLEUM CORPORATION
By: /S/ Roger S. Marcus
------------------------
Roger S. Marcus
President, Chairman & Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ Roger S. Marcus President, Chairman, Chief March 14, 1997
- ------------------- Executive Officer and Director
Roger S. Marcus (Principal Executive Officer)
/S/ Howard N. Feist III Senior Vice President - Finance March 14, 1997
- ----------------------- (Principal Financial and
Howard N. Feist III Accounting Officer)
/S/ Richard G. Marcus Director March 14, 1997
- ---------------------
Richard G. Marcus
/S/ William M. Marcus Director March 14, 1997
- ---------------------
William M. Marcus
/S/ John N. Irwin III Director March 14, 1997
- ---------------------
John N. Irwin III
/S/ Cyril C. Baldwin, Jr. Director March 14, 1997
- ------------------------
Cyril C. Baldwin, Jr.
/S/ David N. Hurwitz Director March 14, 1997
- --------------------
David N. Hurwitz
/S/ Mark N. Kaplan Director March 14, 1997
- ------------------
Mark N. Kaplan
/S/ C. Barnwell Straut Director March 14, 1997
- ----------------------
C. Barnwell Straut
</TABLE>
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
***2.1 Plan of Repurchase dated as of February 1, 1995 by and
among American Biltrite Inc., Hillside Industries
Incorporated, Congoleum Holdings Incorporated,
Resilient Holdings Incorporated and the Company.
*****3.1 Certificate of Incorporation of the Company, as amended.
*****3.2 Amended and Restated Bylaws of the Company.
**4.1 Financing Agreement, dated April 19, 1991 (the "CIT
Financing Agreement"), by and among the CIT
Group/Business Credit, Inc. ("CIT"), The Bank of New
York Commercial Corporation ("BONY/CC"), Chemical Bank
("Chemical") and The Chase Manhattan Bank, N.A.
("Chase") (collectively, the "Senior Lenders") and the
Company.
**4.2 First Amendment, dated March 11, 1993, to the CIT
Financing Agreement by and among the Senior Lenders and
the Company.
**4.3 Indenture, dated as of February 1, 1994, between the
Company and Chemical Bank, as trustee.
***4.4 Registration Rights Agreement, dated as of February 8,
1995 by and between the Company and Hillside.
**10.1 The CIT Financing Agreement (see Exhibit 4.1).
**10.2 First Amendment to the CIT Financing Agreement (see
Exhibit 4.2).
**10.8 Joint Venture Agreement, dated as of December 16, 1992,
by and among Resilient Holdings, Hillside, the Company
(collectively the "Congoleum Group"), Hillside Capital
and American Biltrite.
**10.9 Closing Agreement, dated as of March 11, 1993, by and
among the Congoleum Group, Hillside Capital and
American Biltrite.
**10.12 Stockholders Agreement, dated as of March 11, 1993 (the
"Stockholders Agreement"), by and among the Congoleum
Group, American Biltrite and Congoleum Holdings.
***10.12.1 First Amendment, dated February 8, 1995, to the
Stockholders Agreement, by and among Hillside,
American Biltrite and the Company.
**10.13 Personal Services Agreement, dated as of March 11, 1993
(the "Personal Services Agreement"), by and between
American Biltrite and the Company.
**10.14 Business Relations Agreement, dated as of March 11,
1993, by and between American Biltrite and the Company.
**10.15 Tax Sharing and Indemnification Agreement, dated as of
March 11, 1993, by and among Congoleum Holdings,
Resilient Holdings, Hillside Capital and the Company.
**10.19 Commitment Letter, dated January 19, 1994 regarding
Financing Agreement dated April 19, 1991, as amended,
by and among CIT, BONYCC and the Company.
18
<PAGE>
Exhibit
Number Exhibit
- ------- -------
***10.20 Trademark Purchase Agreement, dated November 29, 1993,
by and between the Company and The Amtico Company LTD
("Amtico Company").
***10.21 First Right of Refusal, dated November 29, 1993, by and
between American Biltrite (Canada) Limited and Amtico
Company.
***10.22 Undertaking Concerning Amtico Trademark, dated November
29, 1993, by and between American Biltrite and Amtico
Company.
***10.23 Form of 1995 Stock Option Plan.
10.23.1 Form of Amendment to 1995 Stock Option Plan
****10.24 License Agreement, dated as of September 20, 1995
between Congoleum Intellectual Properties, Inc. and the
Company.
11 Statement re: Computation of Per Share Earnings.
13.1 Pages 6 through 25 of the Congoleum Annual Report to
Shareholders for the year ended December 31, 1996.
****21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Opinion of Coopers & Lybrand L.L.P.
27.0 Financial Data Schedule.
_____________
** Incorporated by reference to the exhibit bearing the same
number filed with the Company's Registration Statement on
Form S-1 (File No. 33-71836) declared effective by the
Securities and Exchange Commission on January 25, 1994).
*** Incorporated by reference to the exhibit bearing the same
number filed with the Company's Registration Statement on
Form S-1 (File No. 33-87282) declared effective by the
Securities and Exchange Commission on February 1, 1995.
**** Incorporated by reference to the exhibit bearing the same
number filed with the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
***** Incorporated by reference to the exhibit bearing the
same number filed with the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996.
19
<PAGE>
<TABLE>
CONGOLEUM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
--------------
<CAPTION>
Additions
----------------------
Balance at Charged Balance
Beginning to Costs/ Other at end
of Period Expenses (a) Changes Deductions (b) of Period
--------- ----------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful
accounts and cash
discounts $(5,095) $ (600) $ -- $ 2,289 $(3,406)
Year ended December 31, 1995:
Allowance for doubtful
accounts and cash
discounts $(5,213) $(2,800) ($55)(d) $ 2,973 $(5,095)
Year ended December 31, 1994:
Allowance for doubtful
accounts and cash
discounts $(5,337) $ (817) $ 564(c) $ 377 $(5,213)
</TABLE>
[FN]
(a) Uncollectible accounts charged to bad debt expense.
(b) Balances written-off, net of recoveries.
(c) Represents reduction of the allowance for doubtful accounts and cash
discounts.
(d) Represents increase of the allowance for doubtful accounts and cash
discounts.
20
<PAGE>
Exhibit 10.23.1 - Form of Amendment to 1995 Stock Option Plan
FIRST AMENDMENT TO
CONGOLEUM CORPORATION
1995 STOCK OPTION PLAN
Pursuant to Section 8(e) of the Congoleum Corporation
1995 Stock Option Plan (the "Plan"), the Board of Directors of
Congoleum Corporation and the stockholders of Congoleum
Corporation have approved an amendment to Section 5 of the Plan,
effective as of May 12, 1997, so that such Section shall read in
full as follows:
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for
the grant of Awards under the Plan shall be 800,000
shares of Stock, subject to adjustment as provided
herein. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall
have been or may be reacquired by the Company in the
open market, in private transactions or otherwise.
Notwithstanding the foregoing, grants of Options
under the Plan to any individual shall be limited to
Options to purchase no more than 200,000 shares of
Stock per calendar year. If any shares subject to an
Award are forfeited, canceled, exchanged or
surrendered or if an Award otherwise terminates or
expires without a distribution of shares to the
Grantee, the shares of Stock with respect to such
Award shall, to the extent of any such forfeiture,
cancellation, exchange, surrender, termination or
expiration, again be available for Awards under the
Plan.
In the event that the Committee shall determine that
any dividend or other distribution (whether in the
form of cash, Stock, or other property), recapital-
ization, stock split, reverse split, reorganization,
merger, consolidation, spin-off, combination, rep-
urchase, or share exchange,or other similar corporate
transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Grantees
under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems
necessary or appropriate to any or all of (i) the
number and kind of shares of Stock which may
thereafter be issued in connection with Awards, (ii)
the number and kind of shares of Stock issued or
issuable in respect of outstanding Awards, and (iii)
the exercise price, grant price, or purchase price
relating to any Award; provided that, with respect
to ISOs, such adjustment shall be made in accordance
with Section 424(h) of the Code.
<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
<TABLE>
CONGOLEUM CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Years Ended December 31,
------------------------------
Primary Earnings Per Common Share: 1996 1995 1994
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
Income per common and common
equivalent share $ 12,097 $ 9,435 $ 17,495
======== ======= ========
Weighted average common shares
outstanding 9,997 10,000 10,000
Effect of assumed exercise of
dilutive stock options(1) 4 -- --
-------- ------- --------
Weighted average common and
common equivalent shares 10,001 10,000 10,000
Income per common and common
equivalent share $ 1.21 $ 0.94 $ 1.75
======== ======= ========
Fully Diluted Earnings Per Common Share:
- ----------------------------------------
Income per common and common
equivalent share $ 12,097 $ 9,435 $ 17,495
======== ======= ========
Weighted average common shares
outstanding 9,997 10,000 10,000
Effect of assumed exercise of
dilutive stock options(1) 10 -- --
-------- ------- -------
Weighted average common and
common equivalent shares 10,007 10,000 10,000
Income per common and common
equivalent share $ 1.21 $ 0.94 $ 1.75
======== ====== =======
</TABLE>
[FN]
(1) Computed based on the Treasury Stock method.
<PAGE>
Congoleum Corporation
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended For the ten For the five For the year
December 31, months ended months ended ended
-------------------------- December 31, February 28, September 30,
1996 1995 1994 1993(a) 1993(b)(c)(d) 1992(d)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 269,451 $ 263,147 $ 265,784 $ 211,140 $ 65,935 $ 164,216
Cost of sales 180,520 184,621 173,184 141,706 49,307 116,735
Selling, general and
administrative expenses 63,662 56,989 58,190 45,798 19,723 43,736
Restructuring and
integration costs -- -- -- -- 18,265 --
- -------------------------------------------------------------------------------------------------
Income (loss) from
operations 25,269 21,537 34,410 23,636 (21,360) 3,745
Interest expense, net (6,369) (6,708) (6,968) (5,341) (2,155) (4,265)
Related party interest
expense -- -- -- -- (855) (1,715)
Other income (expense),
net 1,095 1,135 1,184 (562) 125 220
- -------------------------------------------------------------------------------------------------
Income (loss) before taxes
and cumulative effect of
changes in accounting
principles 19,995 15,964 28,626 17,733 (24,245) (2,015)
Provision (benefit) for
income taxes 7,898 6,529 11,131 6,561 (7,868) (401)
- -------------------------------------------------------------------------------------------------
Income (loss) before
accounting changes 12,097 9,435 17,495 11,172 (16,377) (1,614)
Cumulative effect of
changes in accounting
principles -- -- -- -- (10,782) --
- -------------------------------------------------------------------------------------------------
Net income (loss) $ 12,097 $ 9,435 $ 17,495 $ 11,172 $ (27,159) $ (1,614)
=================================================================================================
Net income per common
share $ 1.21 $ .94 $ 1.75 $ .79 $ (4.53) $ (.27)
Average shares outstanding 10,001 10,000 10,000 11,447 6,000 6,000
Balance Sheet Data (at end
of period):
Total assets $ 219,798 $ 206,842 $ 204,822 $ 175,546 $ 179,723 $ 129,028
Total debt 87,750 90,000 90,000 61,423 81,941 55,395
Stockholders' equity 33,667 22,602 19,410 9,017 293 27,644
</TABLE>
[FN]
(a) Includes results of the Tile Division acquired effective February 28, 1993.
(b) In connection with the Acquisition of the Amtico Tile Division of American
Biltrite, the Company adopted a plan of restructuring and integration to combine
its operations with the Tile Division and recorded nonrecurring charges of $18.3
million in February 1993. The restructuring and integration charges include
provisions for environmental remediation (arising as a result of the change in
ownership of the acquired facilities), transaction costs, product line and
distribution consolidation, severance cost, termination of various lease
commitments, write-off of plant equipment and other assets, and other costs
associated with combining and integrating operations.
(c) Effective October 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109,
"Accounting for Income Taxes" resulting in a one-time charge of $10.8 million,
net of related tax benefits of $2.5 million.
(d) Prior to the acquisition, the Company's fiscal year ended September 30. At
the effective date of the acquisition, February 28, 1993, the Company adopted a
December 31 fiscal year end. Based on the significant impact of the acquisition
on the business and operations of the Company, the period prior to the
acquisition, consisting of five months ended February 28, 1993 is presented as a
transition period.
6
<PAGE>
Congoleum Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
=================================================================
RESULTS OF OPERATIONS
The Company's business is cyclical and is affected by the same
economic factors that affect the remodeling and housing indus
tries in general, including the availability of credit, consumer
confidence, changes in interest rates, market demand and general
economic conditions.
In addition to external economic factors, the Company's results
are sensitive to sales and manufacturing volume, competitors'
pricing, consumer preferences for flooring products, raw material
costs and the mix of products sold. The manufacturing process is
capital intensive and requires substantial investment in
facilities and equipment. The cost of operating these facilities
generally does not vary in direct proportion to production
volume, and consequently operating results fluctuate
disproportionately with changes in sales volume.
Year Ended December 31, 1996 as Compared to Year Ended
December 31, 1995
Net sales for the year ended December 31, 1996 were $269.4
million as compared to $263.1 million for the year ended December
31, 1995, an increase of $6.3 million or 2.4%. Sales were higher
in 1996 due to new customers, increased demand from the
manufactured housing industry and a 2-3% price increase.
Partially offsetting this was a decline in purchases by a major
retail customer currently operating under bankruptcy protection.
This decline is expected to continue in 1997.
Gross profit for the year ended December 31, 1996 was $88.9
million, or 33.0% of sales, compared to $78.5 million, or 29.8%
of sales for the previous year, an increase of $10.4 million, or
13.3%. The improvement in gross profit during 1996 was due to
lower raw material costs, increased sales and pricing, and
improved manufacturing productivity.
Selling, general and administrative expenses amounted to $63.7
million for the year ended December 31, 1996, compared to $57.0
million for 1995, an increase of $6.7 million or 11.7%. Higher
spending on marketing and new product development programs,
together with costs associated with establishing new distribution
in Canada, were the primary contributors to the increase, which
was partially offset by lower bad debt expense in 1996. As a
percent of sales, selling, general, and administrative expenses
amounted to 23.6% for the year ended December 31, 1996, compared
to 21.7% for 1995.
Income from operations was $25.3 million (9.4% of net sales)
for the year ended December 31, 1996, up from $21.5 million (8.2%
of net sales) for 1995, an increase of $3.7 million (17.3%). The
improvement in operating income during 1996 was the result of
higher sales and gross profit margins, net of the increase in
selling, general and administrative costs.
Interest income increased from $1.5 million in 1995 to $1.8
million in 1996 due to higher average cash and short-term
investment balances during the year ended December 31, 1996. The
provision for income taxes declined from 40.9% of income before
income taxes for 1995 to 39.5% for 1996 as a result of lower
effective state income taxes.
Net income for the year ended December 31, 1996 was $12.1
million, compared to net income of $9.4 million for 1995, an
increase of $2.7 million or 28.2%.
Year Ended December 31, 1995 as Compared to Year Ended
December 31, 1994
Net sales for the year ended December 31, 1995 were $263.1
million as compared to $265.8 million in the previous year, a
decrease of $2.7 million, or 1.0%. Weak consumer demand for
residential floor covering, coupled with reduced purchases by a
major retailer, more than offset a 3-4% price increase which took
place January 1, 1995 and greater sales to the manufactured
housing segment. Sales of products in the mid to low-price
segments were most negatively affected, as the success of newly
introduced products (Futura and Forum Wood Plank) helped maintain
sales in the high-price segment at levels comparable to 1994.
Gross profit for the year ended December 31, 1995 was $78.5
million, or 29.8% of sales, compared to $92.6 million, or 34.8%
of sales, in the same period one year earlier, a decline of $14.1
million or 15.2%. The majority of decline in gross profit
resulted from lower margins, with the balance due to lower sales.
The decline in gross profit margins in 1995 versus 1994 was
primarily due to the Company's inability to pass on to its
customers the sharply higher raw material costs experienced in
1995, which were approximately 12% higher than 1994 levels.
The higher proportion of relatively lower margin sales to the
manufactured housing industry in the sales mix was also a
7
<PAGE>
factor in the margin decline, as were production inefficiencies
experienced during the unseasonably hot summer of 1995.
Selling, general and administrative expenses amounted to
$57.0 million for the year ended December 31, 1995, compared to
$58.2 million for the same period one year earlier, a decrease of
$1.2 million, or 2.1%. Management control of operating expenses,
coupled with lower marketing and freight costs associated with
the mix of products sold in 1995, more than offset a $2.5 million
charge to bad debt expense related to the bankruptcy filing of a
major retailer. As a percent of sales, selling, general and
administrative expenses amounted to 21.7% in the twelve months
ended December 31, 1995 as compared to 21.9% in the comparable
earlier period.
Income from operations was $21.5 million (8.2% of net sales)
in the year ended December 31, 1995, compared to operating income
of $34.4 million (12.9% of net sales) in the year earlier period,
a decrease of $12.9 million, or 37.4%. The decrease reflects the
impact of lower gross profit margins and sales, partly offset by
reductions in selling, general and administrative expenses.
Interest expense, net, was $6.7 million for the year ended
December 31, 1995, compared to $7.0 million for the comparable
prior period. Higher interest expense in 1995, reflecting a full
year of interest on the Senior Notes (see Note 5 of Notes to
Financial Statements) versus eleven months in 1994, was more than
offset by higher investment interest income, the result of both
higher average invested balances and higher rates earned on those
investments. Other income, net, for the year ended December 31,
1995 was $1.1 million compared to $1.2 million for the year ended
December 31, 1994 reflecting slightly lower royalty income.
Net income for the year ended December 31, 1995 was $9.4
million compared to net income of $17.5 million one year earlier,
a decrease of $8.1 million, primarily reflecting the after tax
decrease in operating income.
LIQUIDITY AND CAPITAL RESOURCES
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 (see Notes 1 and 17 of Notes to
Financial Statements). 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). The net proceeds of
approximately $55.2 million after deducting fees, together with
approximately $5.2 million of other funds of the Company, were
used to repurchase 4,650,000 Class B shares held by Hillside. As
a result, the cash and stockholders' equity of the Company
immediately following the Offering was approximately $5.2 million
lower than it was immediately prior to the Offering.
On February 1, 1994, the Company completed a public offering
for $90 million of Senior Notes due 2001. The Senior Notes,
issued at par, bear interest at 9%. The indenture under which
the notes were issued includes certain restrictions on
indebtedness and dividend payments. The net proceeds of the
offering of approximately $85.8 million after deducting fees were
used for retirement of all outstanding long-term debt and
mandatory redeemable Series A and B preferred stock. In
addition, the Company paid $8.5 million to repurchase outstanding
warrants on the Company's Class C common stock. In connection
with the retirement of the existing long-term debt, the Company
amended its revolving credit facility. The amended facility
provides for borrowings up to $30 million with interest at 1%
over prime, or 2 3/4% over LIBOR. This financing agreement
contains certain covenants which include the maintenance of
minimum net worth and restrictions on the incurrence of
additional debt. Borrowings under this facility are
collateralized by inventory, receivables and documents of title.
At December 31, 1996, the Company had unused borrowing
availability under the amended revolving credit facility of $26.9
million.
Cash and cash equivalents, including short-term investments at
December 31, 1996 were $48.1 million, an increase of $8.0 million
over December 31, 1995. Working capital at December 31, 1996 was
$62.0 million, up from $56.6 million one year earlier. The ratio
of current assets to current liabilities at December 31, 1996 was
2:1, substantially the same as one year earlier. The ratio of
debt to total capital at December 31, 1996 was .40, compared to
8
<PAGE>
.44 one year earlier. Net cash provided by operations during the
year ended December 31, 1996 was $23.1 million, up 38.6% from
the same period one year earlier. Capital expenditures in 1996
totaled $12.8 million.
During 1996, the Company's Board of Directors authorized the
repurchase of $5 million of the Company's Class A shares and $10
million of its 9% Senior Notes. At December 31, 1996, $2.3
million had been expended on Senior Note repurchases and $49
thousand on repurchases of Class A shares.
The Company is proceeding with a program to modernize and
improve its plant and equipment, and has budgeted capital
expenditures of approximately $20 million for the year ending
December 31, 1997. Annual capital expenditures are expected to
continue at approximately this level for the next two to three
years.
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 impact on the Company's 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
financial position. There can be no assurances that the costs of
any future government regulations could be passed along to its
customers.
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 (more fully
discussed in "Legal Proceedings" in Part I Item 3. and
"Environmental Regulation" in Part I Item 1. of the Company's
Annual Report on Form 10-K). These actions include possible
obligations to remove or mitigate the effects on the environment
of wastes deposited at various sites, including Superfund sites
and certain of the Company'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 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 Company has recorded
provisions in its financial statements for the estimated probable
loss associated with all known general, environmental and
asbestos-related contingencies.
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. Estimated insurance
recoveries related to these liabilities are reflected in other
noncurrent assets (see Note 16 of Notes to Financial Statements).
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.
The Company's principal sources of capital are net cash
provided by operating activities and borrowings under its Amended
and Restated Financing Agreement. The Company believes these
sources will be adequate to fund working capital requirements,
debt service payments and planned capital expenditures through
the foreseeable future.
9
<PAGE>
<TABLE>
Congoleum Corporation
BALANCE SHEETS
(dollars in thousands, except per share amounts)
=============================================================================
<CAPTION>
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,629 $ 40,103
Short-term investments 17,500 --
Accounts and notes receivable, less allowance for
doubtful accounts and cash discounts of $3,406
and $5,095 as of December 31, 1996 and 1995 18,886 16,755
Inventories 47,450 48,018
Prepaid expenses and other current assets 1,014 918
Deferred income taxes 2,874 4,210
- -----------------------------------------------------------------------------
Total current assets 118,353 110,004
Property, plant, and equipment, net 78,313 74,208
Goodwill, net 12,683 13,115
Deferred income taxes 3,068 2,873
Other noncurrent assets 7,381 6,642
- -----------------------------------------------------------------------------
Total assets $ 219,798 $ 206,842
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,338 $ 21,397
Accrued liabilities 32,425 29,634
Accrued income taxes 1,663 346
Deferred income taxes 1,924 2,072
- -----------------------------------------------------------------------------
Total current liabilities 56,350 53,449
Long-term debt 87,750 90,000
Other liabilities 19,401 17,601
Noncurrent pension liability 12,381 12,575
Accrued postretirement benefit obligation 10,249 10,615
- -----------------------------------------------------------------------------
Total liabilities 186,131 184,240
- -----------------------------------------------------------------------------
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;
4,645,500 and 4,650,000 outstanding as of
December 31, 1996 and 1995 47 47
Class B common stock, par value $0.01;
5,350,000 shares authorized, issued and outstanding
as of December 31, 1996 and 1995 53 53
Additional paid-in capital 55,172 55,172
Retained deficit (19,561) (31,658)
Minimum pension liability adjustment (1,995) (1,012)
Common stock held in treasury, at cost; 4,500 shares
at December 31, 1996 (49) --
- -----------------------------------------------------------------------------
Total stockholders' equity 33,667 22,602
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 219,798 $ 206,842
=============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
Congoleum Corporation
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
=============================================================================
<CAPTION>
For the years ended
December 31,
------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 269,451 $ 263,147 $ 265,784
Cost of sales 180,520 184,621 173,184
Selling, general and administrative
expenses 63,662 56,989 58,190
- ------------------------------------------------------------------------------
Income from operations 25,269 21,537 34,410
Other income (expense):
Interest income 1,784 1,479 879
Interest expense (8,153) (8,187) (7,847)
Other income 1,436 1,407 1,818
Other expense (341) (272) (634)
- ------------------------------------------------------------------------------
Income before income taxes 19,995 15,964 28,626
Provision for income taxes 7,898 6,529 11,131
==============================================================================
Net income $ 12,097 $ 9,435 $ 17,495
==============================================================================
Net income per common share $ 1.21 $ .94 $ 1.75
==============================================================================
Weighted average number of
common and equivalent
shares outstanding 10,001 10,000 10,000
==============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
Congoleum Corporation
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
==============================================================================
<CAPTION>
Common Stock Common Stock Minimum
par value $1 par value $0.01 Additional Pension
---------------- ---------------- Paid-in Retained Liability Treasury
Class A Class B Class A Class B Capital Deficit Adjustment Stock Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 $ 4 $ 5 $ 55,661 $ (46,331) $ (322) $ 9,017
Repurchase of
outstanding warrants (7,199) (7,199)
Dividends accrued on
redeemable Series A
and Series B
preferred stock (225) (225)
Minimum pension
liability adjustment,
net of tax benefit 322 322
Net income 17,495 17,495
Recapitalization in
conjunction with the
public offering
(Note 17) (4) (5) $ 100 (91) --
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31,
1994 -- -- 100 55,570 (36,260) -- 19,410
Initial public offering
of 4,650,000 shares of
Class A common stock $ 47 55,172 55,219
Repurchase and
retirement of 4,650,000
shares of Class B
common stock (47) (55,570) (4,833) (60,450)
Minimum pension
liability adjustment,
net of tax benefit (1,012) (1,012)
Net income 9,435 9,435
- ----------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Congoleum Corporation
STATEMENTS OF CASH FLOWS
(dollars in thousands)
=============================================================================
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,097 $ 9,435 $ 17,495
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 8,696 7,593 7,687
Amortization 1,087 1,025 1,054
Provision for doubtful accounts 600 2,800 817
Deferred income taxes 994 1,107 1,665
Loss on disposition of assets 16 94 16
Changes in certain assets and
liabilities:
Accounts and notes receivable (2,731) (2,107) 2,126
Inventories 568 (1,124) (1,723)
Prepaid expenses and other
current assets (140) 239 (257)
Accounts payable (1,059) (350) 1,004
Accrued liabilities 4,108 (1,422) (3,269)
Other liabilities (1,094) (596) 2,428
- -----------------------------------------------------------------------------
Net cash provided by
operating activities 23,142 16,694 29,043
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (12,817) (10,178) (10,726)
Purchase of short-term investments (45,000) (12,500) (40,500)
Maturities of short-term investments 27,500 36,500 16,500
- -----------------------------------------------------------------------------
Net cash provided (used) by
investing activities (30,317) 13,822 (34,726)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in revolving credit facility -- -- (473)
Proceeds from issuance of long-term debt -- -- 90,000
Retirement of long-term debt and
redeemable preferred stock -- -- (59,874)
Debt issuance costs -- -- (3,387)
Payments to reduce long-term debt (2,250) -- --
Equity offering cost -- (1,000) --
Proceeds from equity offering -- 56,219 --
Purchase of Class B shares -- (60,450) --
Repurchase of common stock warrants -- -- (8,500)
Purchase of treasury stock (49) -- --
- -----------------------------------------------------------------------------
Net cash provided (used) by
financing activities (2,299) (5,231) 17,766
- -----------------------------------------------------------------------------
Net increase (decrease) in cash (9,474) 25,285 12,083
Cash and cash equivalents:
Beginning of year 40,103 14,818 2,735
- -----------------------------------------------------------------------------
End of year $ 30,629 $ 40,103 $ 14,818
=============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Congoleum Corporation
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
=============================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business and Basis of Presentation - Congoleum
Corporation (the "Company" or "Congoleum") manufactures and
sells resilient sheet vinyl and vinyl tile flooring products
primarily to wholesale distributors and major retailers in
the United States and Canada. Prior to the closing of a
public offering in February 1995 (the "Offering" - Note 17),
the Company was an indirect subsidiary of Congoleum Holdings
Incorporated ("Holdings"), which was controlled jointly by
Hillside Industries Incorporated ("Hillside") and American
Biltrite Inc. ("ABI").
Upon completion of the Offering, the Company implemented a
Plan of Repurchase pursuant to which its two-tiered holding
company ownership structure was eliminated through the merger
of Congoleum Holdings with and into the Company, with the
Company as the surviving corporation. Consequently, the 1994
financial statements included herein are presented on a
combined basis with Holdings which was formed on February 26,
1993. All significant intercompany transactions and accounts
have been eliminated.
Use of Estimates - Some of the information presented in this
report constitutes "forward-looking statements" within meaning
of the Private Securities Litigation Reform Act of 1995. The
preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue Recognition - Revenue is recognized when products are
shipped. Net sales are comprised of the total sales billed
during the period less the sales value of goods returned,
trade discounts and customers' allowances.
Cash and Cash Equivalents - All highly liquid debt instruments
with a maturity of three months or less at the time of
purchase are considered to be cash equivalents.
Short-Term Investments - Investments in A1/P1 Commercial Paper
with a maturity greater than three months, but less than six
months at the time of purchase are considered to be short-term
investments. The carrying amount of the Commercial Paper
approximates fair value due to its short maturity.
Inventories - Inventories are stated at the lower of cost or
market. The LIFO (last-in, first-out) method of determining
cost is used for substantially all inventories.
Property, Plant, and Equipment - Property, plant, and equipment
are recorded at cost and are depreciated over their estimated
useful lives (30 years for buildings and building improvements,
15 years for production equipment and heavy duty vehicles, 4 to
10 years for light duty vehicles and office furnishings and
equipment) on the straight-line method for financial reporting
and accelerated methods for income tax purposes. Costs of major
additions and betterments are capitalized; maintenance and
repairs which do not improve or extend the life of respective
assets are charged to operations as incurred. When an asset is
sold, retired or otherwise disposed of, the cost of the asset
and the related accumulated depreciation are removed from the
respective accounts and any resulting gain or loss is reflected
in operations.
Debt Issue Costs - Costs incurred in connection with the
issuance of long-term debt have been capitalized and are being
amortized over the life of the related debt agreements. Such
costs, net of accumulated amortization, amounted to $2,359 and
$3,014 at December 31, 1996 and 1995, respectively, and are
included in other noncurrent assets.
Goodwill - The excess of purchase cost over the fair value of
net assets acquired (goodwill)is being amortized on a straight-
line basis over 40 years. At each balance sheet date, the
Company evaluates the recoverability of its goodwill using
certain financial indicators, such as historical and future
14
<PAGE>
ability to generate income from operations. Accumulated
amortization amounted to $4,409 and $3,977 at December 31, 1996
and 1995, respectively.
Income Taxes - The provision for income taxes is based on
earnings reported in the financial statements under an asset
and liability approach in accordance with SFAS No. 109,
"Accounting for Income Taxes," that requires the recognition of
deferred tax assets and liabilities and their reported amounts
for financial statement purposes.
Income Per Share - Net income per common share has been computed
by dividing net income applicable to common stock by the weighted
average number of common and common equivalent shares outstanding
during the year, giving effect to dilutive stock options. For
the periods ending December 31, 1996, 1995 and 1994, there is no
difference between primary and fully dilutive net income per
common share.
Changes in Accounting Principles - Effective January 1, 1996,
the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 requires the recognition of, or disclosure of,
compensation expense for grants of stock options or other equity
instruments issued to employees based on their fair value at the
date of grant. As permitted by SFAS No. 123, the Company elected
the disclosure requirements instead of recognition of compensation
expense and therefore will continue to apply existing accounting
rules. Effective January 1, 1995, the Company adopted SFAS No. 121
which establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill
related to those assets. The adoption of these standards had no
effect on the Company's statement of financial position, income or
liquidity.
In October 1996, the Accounting Standards Executive Committee
(AcSEC) of the American Institute of Certified Public Accountants
issued SOP 96-1, "Environmental Remediation Liabilities." SOP 96-1
provides authoritative guidance on the recognition, measurement,
display and disclosure of environmental remediation liabilities
and is effective on January 1, 1997 for the Company. The adoption
of SOP 96-1 is not expected to have a material effect on the
Company's financial condition.
2. INVENTORIES:
A summary of the major components of inventories is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 34,920 $ 34,122
Work-in-process 2,089 4,298
Raw materials and supplies 10,441 9,598
- ---------------------------------------------------------------------
Total inventories $ 47,450 $ 48,018
=====================================================================
</TABLE>
If the FIFO (first-in, first-out) method of inventory accounting
(which approximates current cost) had been used, inventories would
have been approximately $2,027 lower and $226 higher than reported
at December 31, 1996 and 1995, respectively. The carrying value of
certain LIFO inventories was reduced by market valuation reserves
of $650 and $354 at December 31, 1996 and 1995, respectively.
3. PROPERTY, PLANT, AND EQUIPMENT:
A summary of the major components of property, plant, and equipment
is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,960 $ 2,960
Buildings and improvements 27,706 25,014
Machinery and equipment 113,352 108,514
Construction-in-progress 11,844 6,607
- ------------------------------------------------------------------------
155,862 143,095
Less accumulated depreciation (77,549) (68,887)
- ------------------------------------------------------------------------
Total property, plant, and
equipment, net $ 78,313 $ 74,208
========================================================================
</TABLE>
15
<PAGE>
The amount of approved but unexpended capital appropriations at
December 31,1996 was $5,684, substantially all of which is planned
to be expended during 1997.
4. ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Accrued marketing and
sales promotion $ 16,565 $ 15,089
Employee compensation
and related benefits 8,305 7,205
Interest 3,362 3,453
Environmental remediation
and product-related liabilities 957 957
Other 3,236 2,930
- ----------------------------------------------------------------------
Total accrued liabilities $ 32,425 $ 29,634
======================================================================
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31 December 31
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
9% Senior Notes due 2001 $ 87,750 $ 90,000
</TABLE>
On February 1, 1994, the Company completed a public offering for
$90,000 of Senior Notes (the "Senior Notes") due 2001. The Senior
Notes, issued at par, bear interest at 9.0%. The Indenture under
which the notes were issued includes certain restrictions on
additional indebtedness and dividend payments.
A portion of the net proceeds of approximately $85,850, after
deducting fees, of the Senior Note Offering was used for the
retirement of all outstanding long-term debt and the redemption of
all of the redeemable preferred stock held by Hillside and ABI.
In addition, the Company paid $8,500 to repurchase the outstanding
warrants on the Company's Class C common stock.
The Senior Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 1998 at a
predetermined redemption price (ranging from 103% to 100%), plus
accrued and unpaid interest to the date of redemption.
During 1996, the Company announced that its Board of Directors had
approved a program to repurchase up to $10,000 of its outstanding
Senior Notes either in the open market or in privately negotiated
transactions. At December 31, 1996, the Company had repurchased
$2,250 of its Senior Notes. In connection with the repurchase,
the Company also wrote off a portion of the debt issuance cost
associated with the repurchased Senior Notes. The net loss
associated with the Senior Note repurchase was immaterial to the
financial statements, and is included in other expense for the
period ended December 31, 1996.
The Company has a revolving credit facility which expires in 2000
that provides for borrowings up to $30,000 with interest at 1%
over prime, or 2-3/4% over LIBOR, at the Company's option. This
agreement provides for a commitment fee based on the average daily
unused portion of the commitment equal to one quarter of one
percent per annum. This financing agreement contains certain
covenants which include the maintenance of minimum net worth and
restrictions on the incurrence of additional debt. Borrowings
under this facility are collateralized by inventory and
receivables. There were no borrowings outstanding under this
facility at December 31, 1996, however, the facility provides
for standby letters of credit which totals $3,100 at December 31,
1996.
16
<PAGE>
The fair value of the Senior Notes, estimated based on the quoted
market price, was approximately $87,311 at December 31, 1996.
6. REDEEMABLE PREFERED STOCK:
In connection with the formation of Congoleum Holdings (Note 1),
Holdings issued 50 shares of $100,000 par value 9% cumulative
redeemable Series A preferred stock (Series A stock) and 233.24
shares of $100,000 par value 9% cumulative redeemable Series B
preferred stock (Series B stock). All of the outstanding Series A
and Series B preferred stock was redeemed in February 1994 (Note 5)
at the redemption price of $100,000 per share plus accrued but
unpaid dividends.
7. OTHER LIABILITIES:
Other liabilities consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Environmental remediation
and product-related
liabilities $ 10,926 $ 10,415
Accrued workers'
compensation claims 4,871 4,462
Other 3,604 2,724
- -----------------------------------------------------------------------
Total other liabilities $ 19,401 $ 17,601
=======================================================================
</TABLE>
8. RESEARCH AND DEVELOPEMENT COSTS:
Total research and development costs charged to operations
amounted to $4,552, $3,683 and $3,487 for the years ended December
31, 1996, 1995 and 1994, respectively.
9. OPERATING LEASE COMMITMENTS AND RENT EXPENSE:
The Company leases certain office facilities and equipment under
leases with varying terms.
Future minimum lease payments of significant, noncancelable
operating leases having initial or remaining lease terms in excess
of one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years Ending
- -----------------------------------------------------------------------
<S> <C>
1997 $ 1,515
1998 604
1999 296
2000 25
2001 --
Thereafter --
- -----------------------------------------------------------------------
Total minimum lease payments $ 2,440
=======================================================================
</TABLE>
Rent expense was $1,772, $1,791 and $1,593 for the years ended
December 31, 1996, 1995 and 1994, respectively.
10. RETIREMENT PLANS:
Retirement benefits are provided for substantially all employees
under Company-sponsored defined benefit pension plans. The plans
are noncontributory and generally provide monthly lifetime payments,
normally commencing at age 65. Benefits under the plans are based
upon the provisions of negotiated labor contracts and years of
service. It is the Company's policy to make contributions to these
plans sufficient to meet the minimum funding requirements of
applicable laws and regulations plus such additional amounts, if
any, as the Company's actuarial consultants advise to be
appropriate. The projected unit credit and unit credit methods
were utilized for determination of the actuarial cost.
17
<PAGE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
For the years ended
December 31,
- -----------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Benefits earned
during the year
(service cost) $ 1,113 $ 919 $ 1,075
Interest cost on
projected benefit
obligation 3,743 3,797 3,646
Return on plan assets (2,515) (6,088) 1,506
Net amortization
and deferral (1,088) 2,745 (5,265)
- ------------------------------------------------------------------------
Net periodic
pension cost $ 1,253 $ 1,373 $ 962
========================================================================
</TABLE>
The following tables present a reconciliation of the Plans'status
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Plan(s) Whose
Accumulated
Benefits
Exceed Assets
- -------------------------------------------------------------------------
<S> <C>
December 31, 1996:
Actuarial present value
of benefit obligations:
Vested benefit obligations $ 54,168
- -------------------------------------------------------------------------
Accumulated benefit obligations $ 55,678
- -------------------------------------------------------------------------
Projected benefit obligations $ 56,182
Plan assets at fair market value 41,010
- -------------------------------------------------------------------------
Projected benefit obligations
in excess of plan assets (15,172)
Unrecognized net loss 7,108
Unrecognized net obligation 161
Unrecognized prior service cost (2,463)
Adjustment required to
recognize minimum liability (4,302)
- -------------------------------------------------------------------------
Accrued pension liability
($2,287 included in
accrued liabilities) $ (14,668)
=========================================================================
December 31, 1995:
Actuarial present value
of benefit obligations:
Vested benefit obligations $ 53,507
- -------------------------------------------------------------------------
Accumulated benefit obligations $ 54,980
- -------------------------------------------------------------------------
Projected benefit obligations $ 55,216
Plan assets at fair market value 40,683
- -------------------------------------------------------------------------
Projected benefit obligations
in excess of plan assets (14,533)
Unrecognized net loss 5,905
Unrecognized net obligation 237
Unrecognized prior service cost (2,821)
Adjustment required to
recognize minimum liability (3,085)
- ------------------------------------------------------------------------
Accrued pension liability
($1,722 included in
accrued liabilities) $ (14,297)
========================================================================
</TABLE>
Plan assets which are deposited with a trustee consist principally of
fixed income, equity and short-term investments and cash equivalents.
The provisions of FASB Statement No. 87, "Employers' Accounting
for Pensions," require the recognition of an additional minimum
liability for plans whose accumulated benefits exceed assets.
These amounts have been recorded as a long-term liability with an
offsetting intangible asset included in other noncurrent assets
amounting to $1,005 and $1,375 at December 31, 1996 and 1995,
respectively. Because the asset recognized may not exceed the
amount of unrecognized prior service cost, the balance of $1,995,
net of tax benefits of $1,303, is reported as a separate reduction
of stockholders' equity at December 31, 1996.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the projected benefit obligations are 7.0% and 5.5% as of
December 31, 1996 and 1995, respectively. The expected long-term
rate of return on plan assets is 9.0% for all years presented.
18
<PAGE>
The Company also has two 401(k) defined contribution retirement
plans that cover substantially all employees. Eligible employees
may contribute up to 15% of compensation with partially matching
Company contributions. Defined contribution pension expense for
the Company was $1,363, $1,128 and $1,107 for the years ended
December 31, 1996, 1995 and 1994, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and life insurance
benefits for certain retirees. The determination of benefit cost
for postretirement plans is based on plan provisions. These
benefits are provided through insurance companies whose premiums
are based on benefits paid or claims experience.
Net periodic postretirement benefits cost, calculated in accordance
with SFAS No. 106, is as follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during
the year $ 141 $ 137 $ 185
Interest cost on
postretirement
benefit obligations 484 480 487
Amortization of
prior service cost (447) (524) (524)
Amortization
of losses 90 47 21
- ------------------------------------------------------------------------
Net periodic
postretirement
benefits cost $ 268 $ 140 $ 169
========================================================================
</TABLE>
At December 31, 1996 and 1995, the actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Accumulated present
value of postretirement
benefit obligations:
Retirees and
dependents $ (4,136) $ (3,319)
Fully eligible active
plan participants (999) (1,076)
Other active plan
participants (2,355) (2,432)
Unrecognized prior
service cost (3,633) (4,944)
Unrecognized
net loss 303 648
- ----------------------------------------------------------------------
Accrued
postretirement
benefit obligations (10,820) (11,123)
Less current
portion 571 508
- ----------------------------------------------------------------------
Noncurrent
postretirement
benefit obligations $ (10,249) $ (10,615)
======================================================================
</TABLE>
A weighted average assumed discount rate of 7.0% was used to
measure the accumulated postretirement benefit obligations as of
December 31, 1996 and 1995. The annual rate of increase in the
per capita cost of covered health care benefits was assumed to be
10.1% in 1996; the rate was assumed to decrease gradually to 5.0%
over the next 10 years and remain level thereafter. An increase
of one percentage point in the assumed health care cost trend
rates for each future year would have increased the aggregate of
service and interest cost components of net periodic postretire-
ment benefits cost by $86, $87 and $69 for the years ended
December 31, 1996, 1995 and 1994, respectively, and would have
increased the accumulated postretirement benefit obligations by
$798 and $783 as of December 31, 1996 and 1995, respectively.
19
<PAGE>
12. INCOME TAXES:
The provision (benefit) for income taxes as shown in the
accompanying statements of operations is comprised of the
following:
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 5,591 $ 4,114 $ 8,394
State 711 608 1,262
Deferred:
Federal 1,348 1,272 1,816
State 248 535 (341)
- --------------------------------------------------------------------------
Provision for
income taxes $ 7,898 $ 6,529 $ 11,131
==========================================================================
</TABLE>
The following is a reconciliation of the statutory federal income
tax rate to the Company's effective tax rate expressed as a
percentage of income before income taxes:
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 3.5 4.4 2.1
Goodwill 0.8 1.0 0.5
Other 0.2 0.5 1.3
- ----------------------------------------------------------------------
Effective tax rate 39.5% 40.9% 38.9%
=======================================================================
</TABLE>
Deferred taxes are recorded using enacted tax rates based upon
differences between financial statement and tax bases of assets
and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. The components of the deferred tax asset and
liability relate to the following temporary differences:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Accounts receivable $ 1,021 $ 1,633
Unfunded pension
liability 5,264 4,796
Environmental
remediation and
product-related
reserves 8,009 7,324
Postretirement
benefit obligations 4,241 4,349
Other accruals 974 1,727
- -----------------------------------------------------------------------
Total deferred
tax asset 19,509 19,829
- -----------------------------------------------------------------------
Deferred tax liability:
Depreciation and
amortization (12,023) (11,896)
Inventory (1,924) (2,072)
Other (1,544) (850)
- -----------------------------------------------------------------------
Total deferred
liability (15,491) (14,818)
- -----------------------------------------------------------------------
Net deferred
tax asset $ 4,018 $ 5,011
=======================================================================
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest were $8,168, $8,102 and $4,751 for the
years ended December 31, 1996, 1995 and 1994, respectively. Cash
payments for income taxes were $4,335, $6,183 and $12,326 for the
years ended December 31, 1996, 1995 and 1994, respectively.
20
<PAGE>
14. RELATED PARTY TRANSACTIONS:
The Company and ABI provide certain goods and services to each
other pursuant to agreements which were negotiated at arm's length
at the time of the acquisition. The Company had the following
transactions with ABI:
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------------
1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 1,213 $ 1,409 $ 1,527
Raw material
transfers to ABI 3,115 2,899 2,247
Computer service
income 226 262 397
Material purchases
from ABI 5,814 3,817 4,471
Management fees 1,265 993 920
==========================================================================
</TABLE>
Amounts as of December 31, 1996, 1995 and 1994 due from an
affiliate of ABI totaled $620, $236 and $94, respectively.
Amounts as of December 31, 1996, 1995 and 1994 due to ABI and its
affiliates totaled $1,586, $1,586 and $1,054, respectively.
For the years ended December 31, 1995 and 1994 management fees to
Hillside totaled $19 and $180, respectively.
15. MAJOR CUSTOMERS:
Substantially all the Company's sales are to select flooring
distributors and retailers located in the United States. Economic
and market conditions, as well as the individual financial
condition of each customer, are considered when establishing
allowances for losses from doubtful accounts.
Two customers accounted for 22% and 20% of the Company's net
sales for the year ended December 31, 1996, 21% and 21% for the
year ended December 31, 1995, and 16% and 18% for the year ended
December 31, 1994 and accounted for 41% and 34% of accounts
receivable at December 31, 1996 and 1995, respectively.
16. CONTINGENT AND OTHER LIABILITIES:
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 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 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 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 (Notes 4 and 7) are not discounted for delays in
future payments and are not reduced by the amount of estimated
insurance recoveries. Such estimated insurance recoveries of
$3,939 and $2,176 are reflected in other noncurrent assets at
December 31, 1996 and 1995 and 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.
21
<PAGE>
17. INITIAL PUBLIC EQUITY OFFERING:
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 (Note 1). 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 and 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, 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
approximately $55,219 after deducting fees, together with
approximately $5,231 of other funds of the Company, were used to
repurchase 4,650,000 Class B shares held by Hillside. Following
the completion of the offering and the Plan of Repurchase, ABI
owns 4,395,605 Class B shares that represent 57.3% of the voting
control of the Company.
The accompanying financial statements have been adjusted to show
the effects of the Recapitalization as if it had occurred on
December 31, 1994. All references to weighted average number of
common and equivalent shares and related per share amounts in the
statements of operations have been similarly adjusted.
18. 1995 STOCK OPTION PLAN:
Effective with the public offering (Note 17), the Company adopted
the 1995 stock option plan ("The Plan"). Under the Plan, options
to purchase up to 550,000 shares of the Company's Class A common
stock may be issued to officers and key employees. The Company
has proposed to amend the plan to increase the number of shares
authorized to be issued from 550,000 to 800,000, an increase of
250,000 shares, subject to shareholder approval. These options
may be either incentive stock options or nonqualified stock
options, and the options price must be at least equal to the fair
value of the Company's Class A common stock on the date of grant.
All options granted have ten-year terms and vest over five years
at the rate of 20% per year beginning on the first anniversary
of the date of grant.
Effective January 1, 1996, the Company adopted the disclosure-
only option under SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company continues to use the accounting method
under APB Opinion No. 25 (APB 25) and related interpretations
for its employee stock options. Under APB 25, when the exercise
price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma disclosure, as required by SFAS No. 123, regarding net
income and earnings per share has been determined as if the
Company had accounted for its employee stock options under the
fair value method of the statement.
The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model (one of the
acceptable methods under SFAS No. 123) with the following
weighted-average assumptions for 1996 and 1995, respectively:
option forfeiture of 15%; risk-free interest rates of 5.99% and
5.9%; no dividends; volatility factors of the expected market
price of the Company's common stock of .388; and a weighted-average
expected life of the options of 7 years.
For purposes of pro forma disclosures, the estimated fair value of
the options ($103 for the 1996 grant and $2,832 for the 1995 grant)
is amortized to expense over the options' vesting period. The
initial impact on pro forma net income may not be representative
of compensation expense in future years, when the effect of the
amortization of multiple awards would be reflected in the pro-
forma disclosures. The Company's pro forma information follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Net income $ 12,097 $ 9,435
Estimated pro forma
compensation expense
from stock options:
1995 grant (566) (518)
1996 grant (19) -
- -----------------------------------------------------------------------
Pro forma net income $ 11,512 $ 8,917
=======================================================================
Pro forma earnings
per share $ 1.15 $ 0.89
=======================================================================
</TABLE>
A summary of the Company's stock option activity, and related
information is as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
beginning of year 481,000 -- -- --
Options granted 22,000 $ 10.63 498,000 $ 13.00
Options exercised -- -- -- --
Options forfeited (18,500) 13.00 (17,000) 13.00
Options outstanding
end of year 484,500 $ 12.89 481,000 $ 13.00
========================================================================
Exercisable at
end of year 94,100 $ 13.00 -- --
Stock options
available for
future issuance 65,500 69,000
========================================================================
</TABLE>
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table sets forth certain unaudited quarterly
financial information.
<TABLE>
<CAPTION>
Year ended December 31, 1996
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(a)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 54,118 $ 74,380 $ 71,900 $ 69,053
Gross profit 14,348 25,529 24,969 24,085
Net income
(loss) (1,044) 4,850 4,392 3,899
Net income
(loss) per
share (.10) .48 .44 .39
============================================================================
Year ended December 31, 1995
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(b)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 63,221 $ 68,703 $ 64,813 $ 66,410
Gross profit 20,293 21,166 18,217 18,850
Net income 2,519 3,821 1,745 1,350
Net income
per share .25 .38 .17 .14
============================================================================
</TABLE>
[FN]
(a) Fourth quarter 1996 includes a $0.6 million (after tax) charge
for accelerated depreciation of certain machinery and equipment.
(b) Fourth quarter 1995 includes a $1.5 million (after tax) charge
to bad debt expense.
23
<PAGE>
CONGOLEUM CORPORATION
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Shareholders of
Congoleum Corporation:
We have audited the accompanying balance sheet of Congoleum
Corporation as of December 31, 1996, and the related statements of
operations, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
balance sheet of Congoleum Corporation as of December 31, 1995 and
the related statements of operations, changes in stockholders'
equity, and cash flows for each of the two years in the period ended
December 31, 1995 were audited by other auditors whose report dated
February 20, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 financial statements present fairly, in all
material respects, the financial position of Congoleum Corporation as
of December 31, 1996, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
/S/ERNST & YOUNG LLP
- --------------------
Philadelphia, Pennsylvania
February 21, 1997
24
<PAGE>
DIRECTORS AND OFFICERS
======================================================================
BOARD OF DIRECTORS
Roger S. Marcus
Chairman of the Board, President and Chief Executive Officer of
Congoleum Corporation and Chairman of the Board and Chief
Executive Officer of American Biltrite Inc.
Cyril C. Baldwin, Jr.
Chairman of the Board of Cambrex Corporation
David N. Hurwitz
President and Chief Executive Officer of Goodson Newspaper Group
John N. Irwin III
Managing Director of Hillside Capital Incorporated
Mark N. Kaplan
Partner, Skadden, Arps, Slate, Meagher & Flom (Attorneys)
Richard G. Marcus
Vice Chairman of Congoleum Corporation and President and Chief
Operating Officer of American Biltrite Inc.
William M. Marcus
Executive Vice President and Treasurer of American Biltrite Inc.
C. Barnwell Straut
Managing Director of Hillside Capital Incorporated
CORPORATE OFFICERS
Roger S. Marcus
Chairman of the Board, President and Chief Executive Officer
Richard G. Marcus
Vice Chairman
Robert N. Agate
Senior Vice President - Manufacturing
Howard N. Feist III
Senior Vice President - Finance and Secretary
Dennis P. Jarosz
Senior Vice President - Marketing
Anthony C. Prestipino
Senior Vice President - Sales
Peter J. Rohrbacher
Senior Vice President - Engineering
Thomas A. Sciortino
Senior Vice President - Administration
Joseph Silbermann
Senior Vice President - Research and developement
Merrill M. Smith
Senior Vice President - Technology
=====================================================================
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Congoleum Corporation
3705 Quakerbridge Road
P.O. Box 3127
Mercerville, NJ 08619-0127
(609) 584-3000
ANNUAL MEETING
The 1997 Annual Meeting of the Stockholders of Congoleum
Corporation will be held on Monday, May 12, 1997 in the
America Room, 2nd Floor, The First National Bank of Boston,
100 Federal Street, Boston, Massachusetts at 9:30 a.m. local
time.
GENERAL COUNSEL
Patterson, Belknap, Webb & Tyler L.L.P.
1133 Avenue of the Americas
New York, NY 10036-6710
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square, Suite 4000
2001 Market Street
Philadelphia, PA 19103
MARKET INFORMATION
The Company's Class A common stock is listed on the New York
Stock Exchange. The following table reflects the high and
low prices (rounded to the nearest one-eighth) based on New
York Stock Exchange trading since February 2, 1995.
The Company does not anticipate paying any cash dividends in
the foreseeable future. Any future change in the Company's
dividend policy is within the discretion of the Board of
Directors and will depend, among other things, on the
Company's earnings, debt service and capital requirements,
restrictions in financing agreements, business conditions
and other factors that the Board of Directors deem relevant.
The payment of cash dividends is limited under the terms of
the Indenture relating to the Company's Senior Notes and the
terms of the Company's existing revolving credit facility,
subject to the Company's cumulative earnings and other
factors.
The number of registered and beneficial holders of the Class
A common stock on February 7, 1997 was approximately 2,000.
<TABLE>
<CAPTION>
1996 High Low
- -------------------------------------------------------------------
<S> <C> <C>
First Quarter 12 3/4 9 1/8
Second Quarter 12 5/8 8 7/8
Third Quarter 13 11 1/8
Fourth Quarter 14 1/4 12 1/2
1995 High Low
- -------------------------------------------------------------------
First Quarter 15 3/8 13
Second Quarter 15 5/8 11 1/4
Third Quarter 13 3/4 9 7/8
Fourth Quarter 12 1/8 8
</TABLE>
STOCKHOLDER INFORMATION
The Company will supply any owner of common stock, upon
written request to Mr. Howard N. Feist III of the Company at
the address set forth herein, and without charge, a copy of
the Annual Report on Form 10-K for the year ended December
31, 1996, which has been filed with the Securities and
Exchange Commission.
REGISTRAR AND TRANSFER AGENT
Bank of Boston
c/o Boston EquiServe L.P.
P.O. Box 8040
Boston, MA 02266-8040
(617) 575-3100
Exhibit 23.1 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Congoleum Corporation of our report
dated February 21, 1997, included in the 1996 Annual Report
to Shareholders of Congoleum Corporation.
Our audit also included the financial statement schedule of
Congoleum Corporation for the year ended December 31, 1996
listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, the
financial statement schedule referred to above, when
considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-97220) pertaining to
the Congoleum Corporation 1995 Stock Option Plan of this
report on the financial statement schedule and our report
dated February 21, 1997, with respect to the 1996
financial statements of Congoleum Corporation incorporated
by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
/S/ ERNST & YOUNG LLP
- ---------------------
Philadelphia, Pennsylvania
March 14, 1997
Exhibit 23.2 - Consent of Independent Accountants
We consent to the incorporation by reference in the
Registration Statement of Congoleum Corporation on Form S-8
(File No. 33-97220) of our report dated February 20, 1996 on
our audits of the financial statements and financial
statement schedule of Congoleum Corporation as of December
31, 1995 and for the years ended December 31, 1995 and 1994,
which report is included as Exhibit 23.3 in this Form 10-K.
/S/COOPERS & LYBRAND L.L.P.
- ---------------------------
Philadelphia, Pennsylvania
March 14, 1997
Exhibit 23.3 - Report of Independent Accountants
To The Board of Directors and Shareholders
Congoleum Corporation
We have audited the balance sheet of Congoleum Corporation as
of December 31, 1995 and the related statements of operations,
changes in stockholders' equity and cash flows for the years then
ended December 31, 1995 and 1994, which financial statements are
included on pages 10 through 23 of the 1996 Annual Report to
Shareholders of Congoleum Corporation and incorporated by
reference herein. We have also audited the financial statement
schedule listed in the Index as Item 14(a) for the years ended
December 31, 1995 and 1994. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Congoleum Corporation as of December 31, 1995, and the results
of its operations and its cash flows for the years ended December
31, 1995 and 1994, in conformity with generally accepted
accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information
required to be included therein.
/S/COOPERS & LYBRAND L.L.P.
- ---------------------------
Philadelphia, Pennsylvania
February 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONGOLEUM'S
BALANCE SHEETS AND INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,629
<SECURITIES> 17,500
<RECEIVABLES> 18,886
<ALLOWANCES> 0
<INVENTORY> 47,450
<CURRENT-ASSETS> 118,353
<PP&E> 78,313
<DEPRECIATION> 8,696
<TOTAL-ASSETS> 219,798
<CURRENT-LIABILITIES> 56,350
<BONDS> 87,750
0
0
<COMMON> 100
<OTHER-SE> 33,567
<TOTAL-LIABILITY-AND-EQUITY> 219,798
<SALES> 269,451
<TOTAL-REVENUES> 272,671
<CGS> 180,520
<TOTAL-COSTS> 180,520
<OTHER-EXPENSES> 63,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,153
<INCOME-PRETAX> 19,995
<INCOME-TAX> 7,898
<INCOME-CONTINUING> 12,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,097
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
