SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-13612
CONGOLEUM CORPORATION
(Exact name of Registrant as specified in Its Charter)
DELAWARE 02-0398678
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3705 Quakerbridge Road
P.O. Box 3127
Mercerville, NJ 08619-0127
(Address of Principal Executive Offices, including Zip Code)
Telephone number: (609) 584-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 30, 1997
- -------------------- -----------------------------
Class A Common Stock 4,644,200
Class B Common Stock 5,350,000
Page 1 of 13
<PAGE>
CONGOLEUM CORPORATION
Index
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements:
Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 3
Statements of Operations for the three months
ended March 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited) 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CONGOLEUM CORPORATION
BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,315 $ 30,629
Short-term investments 26,700 17,500
Accounts and notes receivable, net 24,517 18,886
Inventories 55,487 47,450
Prepaid expenses and other current assets 488 1,014
Deferred income taxes 2,874 2,874
--------- ---------
Total current assets 119,381 118,353
Property, plant and equipment, net 78,798 78,313
Goodwill, net 12,575 12,683
Deferred income taxes 3,068 3,068
Other noncurrent assets 7,224 7,381
--------- ---------
Total assets $221,046 $219,798
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 17,769 19,935
Accrued expenses 35,196 32,828
Accrued income taxes 1,759 1,663
Deferred income taxes 1,924 1,924
--------- ---------
Total current liabilities 56,648 56,350
Long-term debt 87,200 87,750
Other liabilities 19,620 19,401
Noncurrent pension liability 12,632 12,381
Accrued postretirement benefit obligation 10,249 10,249
--------- ---------
Total liabilities 186,349 186,131
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share;
1,000,000 shares authorized; none issued
or outstanding -- --
Class A common stock, par value $0.01 per
share; authorized 20,000,000 shares;
issued 4,652,000 and 4,650,000 shares;
outstanding 4,646,700 and 4,645,500
shares as of March 31, 1997 and
December 31, 1996 47 47
Class B common stock, par value $0.01 per
share; 5,350,000 shares authorized, issued
and outstanding as of March 31, 1997 and
December 31, 1996 53 53
Additional paid-in capital 55,198 55,172
Retained deficit (18,548) (19,561)
Minimum pension liability adjustment (1,995) (1,995)
Common stock held in Treasury, at cost;
5,300 shares at March 31, 1997 and
4,500 shares at December 31, 1996 (58) (49)
--------- ---------
Total stockholders' equity 34,697 33,667
--------- ---------
Total liabilities and stockholders' equity $221,046 $219,798
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
3
<PAGE>
<TABLE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
(In thousands, except
per share amounts)
<S> <C> <C>
Net sales $61,083 $54,118
Cost of sales 42,842 40,183
Selling, general and administrative expenses 15,217 14,260
--------- ---------
Income (loss) from operations 3,024 (325)
Other income (expense):
Interest income 505 333
Interest expense (1,983) (2,038)
Other income 141 356
Other expense (67) (51)
--------- ---------
Income (loss) before income taxes 1,620 (1,725)
Provision (benefit) for income taxes 607 (681)
--------- ---------
Net income (loss) $ 1,013 $(1,044)
========= =========
Net income (loss) per common share $ 0.10 $ (0.10)
========= =========
Weighted average number of common shares and
equivalent shares outstanding 10,035 10,000
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
4
<PAGE>
<TABLE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,013 $ (1,044)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation 2,337 1,901
Amortization 266 257
Changes in certain assets and liabilities:
Accounts and notes receivable (5,632) (1,611)
Inventories (8,037) (4,690)
Prepaid expenses and other assets 526 131
Accounts payable (2,165) (5,662)
Accrued expenses 2,463 (5,706)
Other liabilities 470 (49)
--------- ---------
Net cash used by operating activities (8,759) (16,473)
--------- ---------
Cash flows provided (used) by investing
activities:
Capital expenditures (2,822) (1,996)
Purchase of short-term investments (18,100) --
Maturities of short-term investments 8,900 --
--------- ---------
Net cash used by investing activities (12,022) (1,996)
--------- ---------
Cash flows from financing activities:
Payments to reduce long-term debt (550) --
Exercise of stock options 26 --
Purchase of treasury stock (9) --
--------- ---------
Net cash used by financing activities (533) --
--------- ---------
Net decrease in cash and cash equivalents (21,314) (18,469)
Cash and cash equivalents:
Beginning of period 30,629 40,103
--------- ---------
End of period $ 9,315 $ 21,634
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
The condensed financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with Rule 10-01 of Regulation S-
X and have not been audited by the Company's independent
accountants. Certain information and note disclosures normally
included in annual financial statements prepared in accordance
with generally accepted accounting principles for complete
financial statements have been condensed or omitted in accordance
with the rules and regulations of the Securities and Exchange
Commission. The preparation of condensed financial statements
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. In the opinion
of management, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the
Company's financial position have been included. The results of
operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for a full
year. These condensed financial statements should be read in
conjunction with the Company's audited financial statements which
appear in the Company's Annual Report to Stockholders for the
period ended December 31, 1996.
2. Inventories
A summary of the major classifications of inventories is as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- --------------
<S> <C> <C>
Finished goods $43,275 $34,920
Work-in-process 3,563 2,089
Raw materials and supplies 8,649 10,441
-------- --------
$55,487 $47,450
======== ========
</TABLE>
If the FIFO (first-in, first-out) method of inventory
accounting (which approximates current cost) had been used,
inventories would have been approximately $1,346 and $2,027 lower
than reported at March 31, 1997 and December 31, 1996,
respectively.
6
<PAGE>
3. Earnings Per Share
Earnings per share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding.
For the three months ended March 31, 1997, common stock
equivalents have been included in the weighted average number of
shares of common stock outstanding and amounts to approximately
38,000 shares. For the three months ended March 31, 1996, common
stock equivalents have not been included in the weighted average
number of shares of common stock outstanding since the effect
would be antidilutive. For the three month periods ending March
31, 1997 and 1996, there is no difference between primary and
fully diluted net income per common share.
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," which simplifies the calculation of earnings
per share (EPS) and is effective for both interim and annual
periods ending after December 15, 1997. The Statement is not
expected to have a material impact on the Company's financial
statements.
4. Commitments and Contingencies
The Company is subject to federal, state and local
environmental laws and regulations and certain legal and
administrative claims are pending or have been asserted against
the Company. Among these claims, the Company is a named party in
several actions associated with waste disposal sites, asbestos-
related claims, and general liability claims. These actions
include possible obligations to remove or mitigate the effects on
the environment of wastes deposited at various sites, including
Superfund sites and certain of the Company's 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 are not discounted for delays in future payments and
are not reduced by the amount of estimated insurance recoveries.
Such estimated insurance recoveries are considered probable of
recovery.
Although the outcome of these matters could result in
significant expenses or judgments, management does not believe
based on present facts and circumstances that their disposition
will have a material adverse effect on the financial position of
the Company.
5. Reclassifications
For comparison purposes, certain amounts have been
reclassified to conform to the current year presentation.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Three months ended March 31, 1997 as compared to three months
ended March 31, 1996.
Net sales for the first quarter of 1997 were $61.1 million as
compared to $54.1 million for the first quarter of 1996, an
increase of $7.0 million or 12.9%. This increase was due to
generally stronger demand in the residential and manufactured
housing segments than in the first quarter of 1996. Also
contributing to the increase were sales to new customers and
earlier shipments of the Company's spring season new product
introductions.
Gross profit for the first quarter of 1997 was $18.2 million
compared to $13.9 million for the first quarter of 1996, an
increase of $4.3 million. As a percent of sales, gross profit was
29.9% in the first quarter of 1997, as compared to 25.7% in the
first quarter of 1996. The increase in gross profits was due to
both higher sales and improved gross profit margins. Gross profit
margins improved primarily due to increased manufacturing
efficiency resulting from higher production volume and investments
in capital equipment.
Selling, general, and administrative expenses were $15.2
million in the first quarter of 1997, up from $14.3 million in the
first quarter of 1996, primarily due to costs associated with the
sales increase. As a percentage of sales, selling, general, and
administrative expenses were 24.9% for the first quarter of 1997,
down from 26.3% for the first quarter of 1996, as a result of the
higher sales which more than offset the related selling expense
increase.
Income from operations for the first quarter of 1997 was $3.0
million (4.9% of net sales), compared to a loss of $0.3 million
for the first quarter of 1996, an increase of $3.3 million. The
increase resulted from the higher level of sales and improved
gross profit margins.
Net income for the first quarter of 1997 was $1.0 million,
compared to a loss of $1.0 million for the first quarter of 1996,
an increase of $2.1 million.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents, including short-term investments,
declined $12.1 million for the three months ended March 31, 1997,
to $36.0 million. Working capital at March 31, 1997 was $62.7
million, up from $62.0 million at December 31, 1996. The ratio of
current assets to current liabilities at March 31, 1997 was 2.1,
unchanged from December 31, 1996. The ratio of debt to total
capital at March 31, 1997 was .39 compared to .40 at December 31,
1996. Cash used by operations was $8.8 million for the first
quarter of 1997, compared to $16.5 million in the first quarter of
1996.
Capital expenditures were $2.8 million for the first quarter
of 1997, but are expected to increase during the balance of the
year. Total 1997 capital spending is budgeted to be approximately
$18 to $20 million.
8
<PAGE>
During 1996, the Company's Board of Directors authorized the
repurchase of $5 million of the Company's Class A common stock and
$10 million of its 9% senior notes. At March 31, 1997, $0.1
million had been expended on stock repurchases and $2.8 million
had been expended on note repurchases pursuant to these
authorizations.
The Company has recorded what it believes are adequate
provisions for environmental remediation and product-related
liabilities, including provisions for testing for potential
remediation of conditions at its own facilities. While the
Company believes its estimate of the future amount of these
liabilities is reasonable, that such amounts will not have a
material adverse effect on the financial position of the Company
and that they will paid over a period of five to ten years, the
timing and amount of such payments may differ significantly from
the Company's assumptions. Although the effect of future
government regulation could have a significant effect on the
Company's costs, the Company is not aware of any pending
legislation which could have a material adverse effect on its
results of operations or financial position. There can be no
assurances that such costs could be passed along to its customers.
The Company's principal sources of liquidity are net cash
provided by operating activities and borrowings under its Amended
and Restated Financing Agreement. The Company believes that these
sources will be adequate to fund working capital requirements,
debt service payments, stock and note repurchases, and planned
capital expenditures through the foreseeable future.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security
Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: 11. Computation of Per Share
Earnings
(b) Reports on Form 8-K: None
10
<PAGE>
CONGOLEUM CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONGOLEUM CORPORATION
(Registrant)
Date: May 8, 1997 By:/s/ Howard N. Feist III
--------------------------
(signature)
Howard N. Feist III
Sr. Vice President - Finance
(Principal Financial & Accounting
Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit Number
- ------- ------
Computation of Per Share Earnings 11
12
<PAGE>
EXHIBIT 11
<TABLE>
Congoleum Corporation
Computation of Income Per Common Share
(Amounts in thousands, except earnings per share)
<CAPTION>
Three Months Ended
March 31,
Primary Earnings Per Common Share: 1997 1996
- ---------------------------------- -------------------
<S> <C> <C>
Income per common and common equivalent
share $ 1,013 $(1,044)
-------- --------
Weighted average common shares outstanding 9,997 10,000
Effect of assumed exercise of dilutive
stock options (1) 38 --
-------- --------
Weighted average common and common
equivalent shares 10,035 10,000
======== ========
Income per common and common equivalent
share $ 0.10 $ (0.10)
======== ========
Fully Diluted Earnings Per Common Share
- ---------------------------------------
Income per common and common equivalent
share $ 1,013 $(1,044)
======== ========
Weighted average common shares outstanding 9,997 10,000
Effect of assumed exercise of dilutive
stock options (1) 38 --
-------- --------
Weighted average common and common
equivalent shares 10,035 10,000
======== ========
Income per common and common equivalent
share $ 0.10 $ (0.10)
======== ========
</TABLE>
(1) Computed based on the treasury stock method.
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,315
<SECURITIES> 26,700
<RECEIVABLES> 24,517
<ALLOWANCES> 0
<INVENTORY> 55,487
<CURRENT-ASSETS> 119,381
<PP&E> 78,798
<DEPRECIATION> 0
<TOTAL-ASSETS> 221,046
<CURRENT-LIABILITIES> 56,648
<BONDS> 87,200
0
0
<COMMON> 100
<OTHER-SE> 34,597
<TOTAL-LIABILITY-AND-EQUITY> 221,046
<SALES> 61,083
<TOTAL-REVENUES> 61,729
<CGS> 42,842
<TOTAL-COSTS> 42,842
<OTHER-EXPENSES> 15,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,983
<INCOME-PRETAX> 1,620
<INCOME-TAX> 607
<INCOME-CONTINUING> 1,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,013
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
