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 September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-13612
CONGOLEUM CORPORATION
(Exact name of Registrant as specified in Its Charter)
DELAWARE 02-0398678
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3705 Quakerbridge Road
P.O. Box 3127
Mercerville, NJ 08619-0127
(Address of Principal Executive Offices, including Zip Code)
Telephone number: (609) 584-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 29, 1997
---------------------------- --------------------------------
Class A Common Stock 4,311,800
Class B Common Stock 5,255,000
Page 1 of 15
<PAGE>
CONGOLEUM CORPORATION
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996..............................3
Statements of Operations for the three and nine months
ended September 30, 1997 and 1996 (unaudited)..................4
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1996 and the nine months ended September 30,
1997 (unaudited)...............................................5
Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited)..................6
Notes to Unaudited Condensed Financial Statements .............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................11
Item 2. Changes in Securities.............................................11
Item 3. Defaults Upon Senior Securities...................................11
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................11
Item 6. Exhibits and Reports on Form 8-K..................................11
Signatures................................................................12
Exhibit Index.............................................................13
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONGOLEUM CORPORATION
BALANCE SHEETS
September December 31,
30, 1996
1997
(Unaudited)
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 5,497 $ 30,629
Short-term investments............................. 14,200 17,500
Accounts and notes receivable, net................. 21,588 18,886
Inventories........................................ 54,572 47,450
Prepaid expenses and other current assets.......... 715 1,014
Deferred income taxes.............................. 3,077 2,874
-------- --------
Total current assets............................ 99,649 118,353
Property, plant and equipment, net.................... 87,359 78,313
Goodwill, net......................................... 12,359 12,683
Deferred income taxes................................. 3,089 3,068
Other noncurrent assets............................... 7,796 7,381
-------- --------
Total assets.................................... $210,252 $219,798
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 12,855 $ 19,935
Accrued expenses................................... 33,331 32,828
Accrued income taxes............................... 672 1,663
Deferred income taxes.............................. 1,773 1,924
-------- --------
Total current liabilities....................... 48,631 56,350
Long-term debt........................................ 80,925 87,750
Other liabilities..................................... 20,900 19,401
Noncurrent pension liability.......................... 12,632 12,381
Accrued postretirement benefit obligation............. 10,249 10,249
-------- --------
Total liabilities............................... 173,337 186,131
-------- --------
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 4,557,500 and
4,645,500 shares as of September 30, 1997 and
December 31, 1996................................... 47 47
Class B common stock, par value $0.01 per share;
5,255,000 and 5,350,000 shares authorized, issued
and outstanding as of September 30, 1997
and December 31, 1996............................... 52 53
Additional paid-in capital............................ 54,194 55,172
Retained deficit...................................... (14,246) (19,561)
Minimum pension liability adjustment.................. (1,995) (1,995)
Common stock held in Treasury, at cost; 100,500 shares
at September 30, 1997 and 4,500 shares at
December 31, 1996................................... (1,137) (49)
-------- --------
Total stockholders' equity...................... 36,915 33,667
-------- --------
Total liabilities and stockholders' equity...... $210,252 $219,798
======== ========
The accompanying notes are an integral part
of the condensed financial statements.
3
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Net sales .................................. $ 69,526 $ 71,900 $ 195,518 $ 200,398
Cost of sales .............................. 49,850 47,527 137,796 137,034
Selling, general and administrative expenses 14,677 15,896 45,737 45,797
-------- -------- --------- ---------
Income from operations ............... 4,999 8,477 11,985 17,567
Other income (expense):
Interest income ......................... 293 497 1,252 1,186
Interest expense ........................ (1,610) (2,044) (5,209) (6,126)
Other income ............................ 146 393 958 1,057
Other expense ........................... (311) (64) (485) (134)
-------- -------- --------- ---------
Income before income taxes ........... 3,517 7,259 8,501 13,550
Provision for income taxes .............. 1,319 2,867 3,186 5,352
-------- -------- --------- ---------
Net income ........................... $ 2,198 $ 4,392 $ 5,315 $ 8,198
======== ======== ========= =========
Net income per common share .......... $ 0.22 $ 0.44 $ 0.54 $ 0.82
======== ======== ========= =========
Weighted average number of
common shares and equivalent
shares outstanding ................... 9,823 9,997 9,934 9,999
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
4
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Minimum
par value $0.01 Additional Pension
------------------ Paid-in Retained Liability Treasury
Class A Class B Capital Deficit Adjustment Stock Total
------- ------- ---------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ....... $47 $53 $55,172 $(31,658) $(1,012) $22,602
======= ======== ======== ======== ======== =======
Purchase of treasury stock ....... $(49) (49)
Minimum pension liability
Adjustment, net of tax benefit (983) (983)
Net income ....................... 12,097 12,097
-------- -------- -------- -------- -------- -------- -------
Balance, December 31, 1996 ....... 47 53 55,172 (19,561) (1,995) (49) 33,667
-------- -------- -------- -------- -------- -------- -------
Purchase of treasury stock ....... (1,088) (1,088)
Purchase and retirement
of Class B Common Stock ........ (1) (1,004) (1,005)
Exercise of stock options ........ 26 26
Net income ....................... 5,315 5,315
-------- -------- -------- -------- -------- -------- -------
Balance, September 30, 1997 ...... $47 $52 $54,194 $(14,246) $(1,995) $(1,137) $36,915
======== ======== ======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $5,315 $8,198
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation ........................................ 6,828 5,800
Amortization ........................................ 912 769
Deferred taxes ...................................... (375)
(Gain) loss on disposal of property, plant
and equipment ...................................... (196) 7
Changes in certain assets and liabilities:
Accounts and notes receivable ..................... (2,702) (12,065)
Inventories ....................................... (7,122) 507
Prepaid expenses and other assets ................. 299 (303)
Accounts payable .................................. (7,080) (7,424)
Accrued expenses .................................. (12) 6,146
Other liabilities ................................. 750 27
--------- ---------
Net cash provided (used) by operating activities (3,383) 1,662
--------- ---------
Cash flows from investing activities:
Capital expenditures ................................ (16,401) (9,462)
Proceeds from sale of property, plant and equipment . 244 --
Purchase of short-term investments .................. (43,000) (35,100)
Maturities of short-term investments ................ 46,300 --
--------- ---------
Net cash used by investing activities ........... (12,857) (44,562)
--------- ---------
Cash flows from financing activities:
Payments to reduce long-term debt ................... (6,825) --
Exercise of stock options ........................... 26 --
Purchase and retirement of Class B stock ............ (1,005) --
Bank checks outstanding less cash in bank ........... -- 2,846
Purchase of treasury stock .......................... (1,088) (49)
--------- ---------
Net cash provided (used) by financing activities (8,892) 2,797
--------- ---------
Net decrease in cash and cash equivalents ............... (25,132) (40,103)
Cash and cash equivalents:
Beginning of period ................................... 30,629 40,103
--------- ---------
End of period ......................................... $5,497 $ --
========= =========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
6
<PAGE>
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
The condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Rule 10-01 of Regulation S-X and have not been audited by the Company's
independent accountants. Certain information and note disclosures normally
included in audited financial statements prepared in accordance with generally
accepted accounting principles for complete financial statements have been
condensed or omitted in accordance with the rules and regulations of the
Securities and Exchange Commission. The preparation of condensed financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses during the
reporting period. In the opinion of management, all adjustments (consisting of
normal and recurring adjustments) considered necessary for a fair presentation
of the Company's financial position have been included. The results of
operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for a full year. These
condensed financial statements should be read in conjunction with the Company's
audited financial statements which appear in the Company's Annual Report to
Stockholders for the period ended December 31, 1996.
2. Inventories
A summary of the major classifications of inventories is as follows:
September 30, December 31,
1997 1996
--------- -----------
Finished goods..................... $40,761 $34,920
Work-in-process.................... 5,717 2,089
Raw materials and supplies......... 8,094 10,441
-------- -------
$54,572 $47,450
======= =======
If the FIFO (first-in, first-out) method of inventory accounting (which
approximates current cost) had been used, inventories would have been
approximately $451 and $2,027 lower than reported at September 30, 1997 and
December 31, 1996, respectively.
3. Earnings Per Share
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. For the three and nine
months ended September 30, 1997, common stock equivalents have been included in
the weighted average number of shares of common
7
<PAGE>
stock outstanding and amount to approximately 3,000 and 14,000 shares
respectively. For the three and nine months ended September 30, 1996, common
stock equivalents have not been included in the weighted average number of
shares of common stock outstanding since the effect would be antidilutive. For
the three and nine month periods ending September 30, 1997 and 1996, there is no
difference between primary and fully diluted net income per common share.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share," which
simplifies the calculation of earnings per share (EPS) and is effective for both
interim and annual periods ending after December 15, 1997. The Statement is not
expected to have a material impact on the Company's financial statements.
4. Commitments and Contingencies
The Company is subject to federal, state and local environmental laws and
regulations and certain legal and administrative claims are pending or have been
asserted against the Company. Among these claims, the Company is a named party
in several actions associated with waste disposal sites, asbestos-related claims
and general liability claims. These actions include possible obligations to
remove or mitigate the effects on the environment of wastes deposited at various
sites, including Superfund sites and certain of the Company's currently-owned
and previously-owned facilities. The contingencies also include claims for
personal injury and/or property damage. The exact amount of such future costs
and timing of payments are indeterminable due to such unknown factors as the
magnitude of clean-up costs, the timing and extent of the remedial actions that
may be required, the determination of the Company's liability in proportion to
other potentially responsible parties and the extent to which any costs may be
recoverable from insurance.
The Company records a liability for environmental remediation,
asbestos-related claim costs, and general liability claims when a clean-up
program or claim payment becomes probable and the costs can be reasonably
estimated. As assessments and clean-ups progress, these liabilities are adjusted
based upon progress in determining the timing and extent of remedial actions and
the related costs and damages. The extent and amounts of the liabilities can
change substantially due to factors such as the nature or extent of
contamination, changes in remedial requirements and technological improvements.
The recorded liabilities are not discounted for delays in future payments and
are not reduced by the amount of estimated insurance recoveries. Such estimated
insurance recoveries are considered probable of recovery.
Although the outcome of these matters could result in significant expenses
or judgments, management does not believe based on present facts and
circumstances that their disposition will have a material adverse effect on the
financial position of the Company.
5. Reclassifications
For comparison purposes, certain amounts have been reclassified to conform
to the current year presentation.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three and nine months ended September 30, 1997 as compared to three and nine
months ended September 30, 1996.
Net sales for the third quarter of 1997 were $69.5 million as compared to
$71.9 million for the third quarter of 1996, a decrease of $2.4 million or 3.3%.
Year-to-date net sales for the first nine months of 1997 were $195.5 million, a
decrease of $4.9 million or 2.4% from the first nine months of 1996. The primary
reason for the decline in sales from the third quarter of 1996 to the third
quarter of 1997 was the virtual elimination of purchases by Color Tile, Inc.,
which closed its remaining retail stores in the third quarter of this year.
Third quarter net sales in 1997 were also negatively affected by weak retail
demand and a promotional pricing environment for the Company's products.
Gross profit for the third quarter of 1997 was $19.7 million, down $4.7
million from $24.4 million in the third quarter of 1996. Gross profit as a
percent of net sales in the third quarter of 1997 was 28.3%, compared to 33.9%
in the third quarter of 1996. Year-to-date gross profit for the first nine
months of 1997 was $57.7 million (29.5% of net sales), down from $63.4 million
(31.6% of net sales) in the first nine months of 1996. Third quarter and nine
month year-to-date 1997 gross profits were lower than the comparable periods in
1996 due to lower sales, promotional pricing pressures, higher raw material
costs, and the disruptive effect of rebuilding the Company's largest production
line during the summer of 1997.
Selling, general, and administrative costs decreased by $1.2 million or
7.7% to $14.7 million in the third quarter of 1997 from $15.9 million in the
third quarter of 1996. As a percent of net sales, selling, general, and
administrative costs were 21.1% for the third quarter of 1997 and 22.1% for the
third quarter of 1996. Year-to-date selling, general and administrative expenses
for the first nine months of 1997 were $45.7 million (23.4% of net sales),
compared to $45.8 million (22.9% of net sales) in the same period last year. The
decline in operating expenses from the third quarter of 1996 to the third
quarter of 1997 is due to the lower sales level and cost reductions initiated as
a result thereof. For the nine months ended September 30, 1997 reductions in
operating expenses from the same period in 1996 have been largely offset by
increased spending on retail displays.
Income from operations for the third quarter of 1997 was $5.0 million
(7.2% of net sales), compared to $8.5 million (11.8% of net sales) for the third
quarter of 1996, a decrease of $3.5 million, or 41.0%. This decline was due to
the lower net sales and gross profit margins during the third quarter of 1997.
Income from operations for the nine months ended September 30, 1997 totaled
$12.0 million, $5.6 million lower than the same period in 1996.
Net income for the third quarter of 1997 was $2.2 million, compared to
$4.4 million for the third quarter of 1996, a decrease of $2.2 million,
reflecting the lower income from operations and an increase in other expenses
for accelerated amortization of debt issuance costs as a result of debt
repurchases. For the nine months ended September 30, 1997, net income was $5.3
million, $2.9 million lower than net income in the first nine months of 1996.
9
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents, including short-term investments, declined
$28.4 million for the nine months ended September 30, 1997, to $19.7 million.
Working capital at September 30, 1997 was $51.0 million, down from $62.0 million
at December 31, 1996. The ratio of current assets to current liabilities at
September 30, 1997 was 2.0 to 1.0, compared to 2.1 to 1.0 at December 31, 1996.
The ratio of debt to total capital at September 30, 1997 was .38 to 1.0 compared
to .40 to 1.0 at December 31, 1996. Cash used by operations was $3.4 million for
the first nine months of 1997, compared to cash generated from operations of
$1.7 million in the first nine months of 1996.
Capital expenditures were $16.4 million for the first nine months of 1997,
and are expected to continue at that rate during the balance of the year, with
full year expenditures projected to be $20 million in 1997 and 1998.
The Company's Board of Directors has authorized the repurchase of $5
million of the Company's common stock and $20 million of its 9% senior notes. At
September 30, 1997, $3.6 million had been expended on stock repurchases and $9.1
million had been expended on note repurchases pursuant to these authorizations.
The Company has recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities, including provisions
for testing for potential remediation of conditions at its own facilities. While
the Company believes its estimate of the future amount of these liabilities is
reasonable, that such amounts will not have a material adverse effect on the
financial position of the Company and that they will be paid over a period of
five to ten years, the timing and amount of such payments may differ
significantly from the Company's assumptions. Although the effect of future
government regulation could have a significant effect on the Company's costs,
the Company is not aware of any pending legislation which could have a material
adverse effect on its results of operations or financial position. There can be
no assurances that such costs could be passed along to its customers.
The Company's principal sources of liquidity are net cash provided by
operating activities and borrowings under its Amended and Restated Financing
Agreement. The Company believes that these sources will be adequate to fund
working capital requirements, debt service payments, stock and note repurchases,
and planned capital expenditures through the foreseeable future.
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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: 11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K: None
11
<PAGE>
CONGOLEUM CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONGOLEUM CORPORATION
(Registrant)
Date: November 3, 1997 By: /s/ Howard N. Feist III
------------------------
Howard N. Feist III
Sr. Vice President - Finance
(Principal Financial &
Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit Number
- ------- ------
Computation of Per Share Earnings 11
Financial Data Schedule 27
13
<PAGE>
EXHIBIT 11
Congoleum Corporation
Computation of Income Per Common Share
(Amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Primary Earnings Per Common Share: 1997 1996 1997 1996
- ---------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Income per common and common equivalent share $2,198 $4,392 $5,315 $8,198
====== ====== ====== ======
Weighted average common shares outstanding 9,820 9,995 9,920 9,998
Effect of assumed exercise of dilutive stock options (1) 3 2 14 1
------ ------ ------ ------
Weighted average common and common equivalent shares 9,823 9,997 9,934 9,999
Income per common and common equivalent share $0.22 $0.44 $0.54 $0.82
====== ====== ====== ======
Fully Diluted Earnings Per Common Share:
Income per common and common equivalent share $2,198 $4,392 $5,315 $8,198
====== ====== ====== ======
Weighted average common shares outstanding 9,820 9,995 9,920 9,998
Effect of assumed exercise of dilutive stock options (1) 3 4 14 1
------ ------ ------ ------
Weighted average common and common equivalent shares 9,823 9,999 9,934 9,999
====== ====== ====== ======
Income per common and common equivalent share $0.22 $0.44 $0.54 $0.82
====== ====== ====== ======
</TABLE>
(1) Computed based on the treasury stock method.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, statements of operations and statements of cash
flows as reported in the form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,497
<SECURITIES> 14,200
<RECEIVABLES> 25,202
<ALLOWANCES> 3,614
<INVENTORY> 54,572
<CURRENT-ASSETS> 99,649
<PP&E> 87,359
<DEPRECIATION> 6,828
<TOTAL-ASSETS> 210,252
<CURRENT-LIABILITIES> 48,631
<BONDS> 80,925
0
0
<COMMON> 99
<OTHER-SE> 36,816
<TOTAL-LIABILITY-AND-EQUITY> 210,252
<SALES> 195,518
<TOTAL-REVENUES> 197,728
<CGS> 137,796
<TOTAL-COSTS> 137,796
<OTHER-EXPENSES> 45,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,209
<INCOME-PRETAX> 8,501
<INCOME-TAX> 3,186
<INCOME-CONTINUING> 5,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,315
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
