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, 1998
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, 1998
---------------------------- --------------------------------
Class A Common Stock 4,282,800
Class B Common Stock 4,755,000
Page 1 of 16
<PAGE>
CONGOLEUM CORPORATION
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997..............................3
Statements of Operations for the three months
ended March 31, 1998 and 1997 (unaudited)......................4
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1997 and the three months ended March 31,
1998 (unaudited)...............................................5
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited)......................6
Notes to Unaudited Condensed Financial Statements .............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................12
Item 2. Changes in Securities.........................................12
Item 3. Defaults Upon Senior Securities...............................12
Item 4. Submission of Matters to a Vote of Security Holders...........12
Item 5. Other Information.............................................12
Item 6. Exhibits and Reports on Form 8-K..............................12
Signatures ...............................................................13
Exhibit Index.............................................................14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONGOLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
(Dollars in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $3,675 $11,069
Short-term investments...................................... 9,200 7,900
Accounts and notes receivable, net.......................... 25,110 14,512
Inventories................................................. 47,137 44,434
Prepaid expenses and other current assets................... 1,469 2,965
Deferred income taxes....................................... 3,041 3,041
-------- ----------
Total current assets..................................... 89,632 83,921
Property, plant and equipment, net.............................. 87,814 88,401
Goodwill, net................................................... 12,143 12,251
Deferred income taxes........................................... 2,636 2,636
Other noncurrent assets......................................... 9,243 9,372
-------- ----------
Total assets............................................. $201,468 $196,581
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ 15,864 13,440
Accrued expenses............................................ 30,574 28,793
Accrued income taxes........................................ 1,155 918
Deferred income taxes....................................... 1,752 1,752
-------- --------
Total current liabilities................................ 49,345 44,903
Long-term debt.................................................. 76,594 76,594
Other liabilities............................................... 22,520 22,305
Noncurrent pension liability.................................... 10,873 11,038
Accrued postretirement benefit obligation....................... 9,926 9,958
-------- ---------
Total liabilities........................................ 169,258 164,798
------- -------
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01 per share;
20,000,000 shares authorized; 4,652,000 shares issued;
4,282,800 shares outstanding as of March 31, 1998 and
December 31, 1997, respectively............................. 47 47
Class B common stock, par value $0.01 per share; 4,755,000
shares authorized, issued and outstanding as of March 31,
1998 and December 31, 1997, respectively.................... 47 47
Additional paid-in capital...................................... 49,574 49,574
Retained deficit................................................ (12,393) (12,820)
Minimum pension liability adjustment............................ (1,122) (1,122)
Common stock held in Treasury, at cost; 375,200 shares at
March 31, 1998 and December 31, 1997, respectively.......... (3,943) (3,943)
--------- ----------
Total stockholders' equity............................... 32,210 31,783
-------- ---------
Total liabilities and stockholders' equity............... $201,468 $196,581
======== ========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
3
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
(In thousands, except
per share amounts)
<S> <C> <C>
Net sales........................................................... $63,875 $61,083
Cost of sales....................................................... 46,518 42,842
Selling, general and administrative expenses........................ 15,224 15,217
-------- --------
Income from operations....................................... 2,133 3,024
Other income (expense):
Interest income................................................. 178 505
Interest expense................................................ (1,675) (1,983)
Other income.................................................... 95 141
Other expense................................................... (59) (67)
-------- --------
Income before income taxes................................... 672 1,620
Provision (benefit) for income taxes............................ 245 607
-------- --------
Net income................................................... $ 427 $ 1,013
======== ========
Net income per common share, basic and diluted............... $ 0.05 $ 0.10
======== ========
Weighted average number of common and
equivalent shares outstanding........................... 9,039 10,035
======== ========
</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>
Accumulated
Other
Common Stock Additional Comprehensive
par value $0.01 Paid-in Retained Income/(Loss) Treasury
Class A Class B Capital Deficit Adjustment* Stock Total
------- ------- ------- ------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....$ 47 $ 53 $ 55,172 $(19,561) $ (1,995) $ (49) $33,667
========= ========= ========= ======== =========== ========= =======
Purchase of treasury stock.... (3,894) (3,894)
Purchase and retirement of
Class B Common Stock...... (6) (5,624) (5,630)
Exercise of stock options..... 26 26
Minimum pension liability 873 873
Adjustment, net of tax
Net income.................... 6,741 6,741
--------- --------- --------- -------- ----------- --------- -------
Balance, December 31, 1997.... 47 47 49,574 (12,820) (1,122) (3,943) 31,783
--------- --------- --------- -------- ----------- --------- -------
Purchase of treasury stock....
Purchase and retirement of
Class B Common Stock......
Exercise of stock options.....
Minimum pension liability
Adjustment, net of tax
Net income.................... 427 427
--------- --------- --------- -------- ----------- --------- -------
Balance, March 31, 1998....... $47 $47 $49,574 $(12,393) $(1,122) $(3,943) $32,210
========= ========= ========= ======== =========== ========= =======
</TABLE>
* Entire amount relates to minimum pension liability adjustment.
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 427 $1,013
Adjustments to reconcile net income to net cash (used)
by operating activities:
Depreciation.............................................................. 2,419 2,337
Amortization and write-off of deferred refinancing fees................... 237 266
Changes in certain assets and liabilities:
Accounts and notes receivable........................................ (10,598) (6,224)
Inventories.......................................................... (2,703) (8,037)
Prepaid expenses and other current assets............................ 1,496 1,118
Accounts payable..................................................... 2,424 (2,165)
Accrued expenses..................................................... 2,018 2,463
Other liabilities.................................................... 18 470
--------- ---------
Net cash used by operating activities........................... (4,262) (8,759)
--------- ---------
Cash flows from investing activities:
Capital expenditures...................................................... (1,832) (2,822)
Purchase of short-term investments........................................ (9,200) (18,100)
Maturities of short-term investments...................................... 7,900 8,900
--------- ---------
Net cash used by investing activities........................... (3,132) (12,022)
--------- ---------
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.......................................... (7,394) (21,314)
Cash and cash equivalents:
Beginning of period........................................................... 11,069 30,629
--------- ---------
End of period ................................................................ $ 3,675 $ 9,315
========= =========
</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 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, 1998 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, 1997.
2. Inventories
A summary of the major classifications of inventories is as follows:
March 31, December 31,
1998 1997
--------- -----------
Finished goods..................... $36,190 $34,914
Work-in-process.................... 4,458 3,160
Raw materials and supplies......... 6,489 6,360
------- -------
$47,137 $44,434
======= =======
If the FIFO (first-in, first-out) method of inventory accounting (which
approximates current cost) had been used, inventories would have been
approximately $1,322 and $340 lower than reported at March 31, 1998 and December
31, 1997, respectively.
7
<PAGE>
3. Income Per Share
Income per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. Due to the immaterial
effect of common stock equivalents, there is no difference between basic and
fully diluted net income per common share for the three month periods ending
March 31, 1998 and 1997.
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.
8
<PAGE>
5. Reclassifications
For comparative purposes, certain amounts have been reclassified to
conform to the current year presentation.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three months ended March 31, 1998 as compared to three months ended March 31,
1997.
Net sales for the first quarter of 1998 were $63.9 million as compared to
$61.1 million for the first quarter of 1997, an increase of 2.8 million or 4.6%.
This increase was due to greater shipments to mass merchandise retailers and to
the Company's manufactured housing industry distributor, which was reducing its
inventory in the first quarter of 1997.
Gross profit for the first quarter of 1998 was $17.3 million compared to
$18.2 million for the first quarter of 1997, a decrease of $0.9 million. As a
percent of sales, gross profit was 27.2% in the first quarter of 1998, as
compared to 29.9% in the first quarter of 1997. The decrease in gross profits
and gross profit margins was due to a less profitable sales mix, declines in
selling prices of certain products, and lower production volumes, which offset
improvements in manufacturing efficiency.
Selling, general, and administrative expenses were $15.2 million in both
the first quarter of 1998 and the first quarter of 1997. As a percentage of
sales, selling, general, and administrative expenses were 23.8% for the first
quarter of 1998, down from 24.9% for the first quarter of 1997. Increase in
sales-related expenses were offset by reductions in other expenses, primarily as
a result of lower headcount.
Income from operations for the first quarter of 1998 was $2.1 million
(3.3% of net sales), compared to $3.0 million for the first quarter of 1997, a
decrease of $0.9 million. The decrease resulted from the decline in gross profit
margins, which offset the increased sales volume.
Net income for the first quarter of 1998 was $0.4 million, compared to
$1.0 million for the first quarter of 1997, a decrease of $0.6 million.
Liquidity and Capital Resources
Cash and cash equivalents, including short-term investments, declined $6.1
million for the three months ended March 31, 1998, to $12.9 million. Working
capital at March 31, 1998 was $40.3 million, up from 39.0 million at December
31, 1997. The ratio of current assets to current liabilities at March 31, 1998
was 1.8 compared to 1.9 at December 31, 1997. The ratio of debt to total capital
at March 31, 1998 was .38 compared to .39 at December 31, 1997. Cash used by
operations was $4.2 million for the first quarter of 1998, compared to $8.8
million in the first quarter of 1997.
Capital expenditures were $1.8 million for the first quarter of 1998, but
are expected to increase during the balance of the year. Total 1998 capital
spending is projected to be approximately $18.0 to $20.0 million.
10
<PAGE>
In 1996, the Company's Board of Directors approved a plan to repurchase up
to $5.0 million (increased to $10.0 million in 1997) of the Company's common
stock (Class A and Class B shares) and up to $10.0 million of its 9% Senior
Notes (increased to $20.0 million in 1997). At March 31, 1998, $9.6 million had
been expended on stock purchases and $13.4 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 has completed an assessment of the steps it believes will be
necessary for its existing and planned data processing systems to operate
properly when confronted with dates beginning in the year 2000. A plan has been
developed which identifies the systems affected and the steps that will be
required to assure year 2000 compliance. The Company's existing plans to improve
operations by replacing or upgrading systems in the ordinary course of business
during 1998 and 1999 will have the additional benefit of providing year 2000
compliance in many instances. The resources required to make the remaining
systems compliant have been estimated, and are being provided by a combination
of existing employees and outside contractors. The Company has retained or
believes it will be able to retain the necessary employees and outside resources
to accomplish this, and that the cost to achieve compliance will not be material
to the Company's financial position, liquidity or results of operations.
However, if any governmental agencies, key customers or key suppliers are unable
to make the necessary computer system changes on a timely basis, such inability
could negatively impact the Company's results of operations.
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 the 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
11
<PAGE>
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.
12
<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
13
<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 15, 1998 By: /s/
------------------------------
(signature)
Howard N. Feist III
Sr. Vice President - Finance
(Principal Financial & Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit Number
- ------- ------
Computation of Per Share Earnings 11
Financial Data Schedule 27
15
Congoleum Corporation
Computation of Income Per Common Share
(Amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Basic Earnings Per Common Share: 1998 1997
- --------------------------------- --------------- ---------------
<S> <C> <C>
Income per common and common equivalent share $ 427 $ 1,013
======= =========
Weighted average common shares outstanding 9,038 9,997
------- ---------
Weighted average common shares 9,038 9,997
======= =========
Income per common share $ 0.05 $ 0.10
======= =========
Diluted Earnings Per Common Share
Income per common and common equivalent share $ 427 $ 1,013
======= =========
Weighted average common shares outstanding 9,038 9,997
Effect of assumed exercise of dilutive stock options (1) 1 38
------- ---------
Weighted average common and common equivalent shares 9,039 10,035
======= =========
Income per common and common equivalent share $ 0.05 $ 0.10
======= =========
</TABLE>
(1) Computed based on the treasury stock method.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, statements of operations and statements of cash
flows as reported in the form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Mar-31-1998
<CASH> 3,675
<SECURITIES> 9,200
<RECEIVABLES> 28,687
<ALLOWANCES> 3,577
<INVENTORY> 47,137
<CURRENT-ASSETS> 89,632
<PP&E> 174,254
<DEPRECIATION> 86,440
<TOTAL-ASSETS> 201,468
<CURRENT-LIABILITIES> 49,345
<BONDS> 76,594
0
0
<COMMON> 94
<OTHER-SE> 32,116
<TOTAL-LIABILITY-AND-EQUITY> 201,468
<SALES> 63,875
<TOTAL-REVENUES> 64,148
<CGS> 46,518
<TOTAL-COSTS> 46,518
<OTHER-EXPENSES> 15,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,675
<INCOME-PRETAX> 672
<INCOME-TAX> 245
<INCOME-CONTINUING> 427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
