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CONGOLEUM CORP
10-Q, 1999-08-12
PLASTICS PRODUCTS, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1999

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 incorporation or organization)	(IRS Employer Identification No.)

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 July 29, 1999
Class A Common Stock		4,129,090
Class B Common Stock		4,608,945

Page 1 of 17

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CONGOLEUM CORPORATION

Index

			Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
		Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998	3
		Statements of Operations for the three and six months ended June 30, 1999 and 1998 (unaudited)	4
		Statements of Changes in Stockholders' Equity for the year ended December 31, 1998 and the six months ended June 30, 1999 (unaudited)	5
		Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (unaudited)	6
		Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		12
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		13
Item 2.	Changes in Securities and Use of Proceeds		13
Item 3.	Defaults Upon Senior Securities		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
Item 5.	Other Information		13
Item 6.	Exhibits and Reports on Form 8-K		13
Signatures			14
Exhibit Index			15

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONGOLEUM CORPORATION
BALANCE SHEETS

					June 30,	December 31,
					1999		1998
					(Unaudited)
					(Dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents				$36,862		$50,344
	Accounts and notes receivable, net				23,932		15,880
	Inventories				62,141		45,192
	Prepaid expenses and other current assets				3,605		3,022
	Deferred income taxes				3,003		3,046
		Total current assets			129,543		117,484
Property, plant and equipment, net					90,154		87,954
Goodwill, net					11,603		11,819
Deferred income taxes					1,529		1,863
Other noncurrent assets					12,735		12,745
		Total assets			$245,564		$231,865
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable				19,286		14,399
	Accrued expenses				39,393		31,209
	Accrued income taxes				705		317
Deferred income taxes					3,682		3,058
		Total current liabilities			63,066		48,983
Long-term debt					99,550		99,526
Other liabilities					23,385		23,501
Noncurrent pension liability					11,853		12,130
Accrued postretirement benefit obligation					9,920		9,872
		Total liabilities			207,774		194,012
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01 per share; 20,000,000 shares
	authorized; 4,736,950 and 4,658,000 shares issued; 4,134,190 and 4,258,610 shares outstanding as of June 30, 1999 and December 31, 1998, respectively				47		47
Class B common stock, par value $0.01 per share; 4,608,945 and
	4,755,000 shares authorized, issued and outstanding as of June 30, 1999 and December 31, 1998, respectively				46		47
Additional paid-in capital					49,105		49,574
Retained deficit					(3,453)		(5,380)
Minimum pension liability adjustment					(2,302)		(2,302)
Common stock held in Treasury, at cost; 602,760 and 399,390 shares
	at June 30, 1999 and December 31, 1998, respectively				(5,653)		(4,133)
		Total stockholders' equity			37,790		37,853
		Total liabilities and stockholders' equity			$245,564		$231,865

The accompanying notes are an integral part
of the condensed financial statements.

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CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)

					Three Months Ended June 30,						Six Months Ended June 30,
					1999			1998			1999			1998
			(In thousands, except per share amounts)
Net sales				$	64,306		$	69,750		$	129,693		$	133,625
Cost of sales					45,618			48,749			92,812			95,267
Selling, general and administrative expenses					16,084			15,943			31,711			31,167
		Income from operations			2,604			5,058			5,170			7,191
Other income (expense):
	Interest income				460			282			948			460
	Interest expense				(2,033)			(1,671)			(4,129)			(3,346)
	Other income				919			573			1,164			668
	Other expense				(36)			(76)			(56)			(135)
		Income before income taxes			1,914			4,166			3,097			4,838
	Provision for income taxes				724			1,521			1,170			1,766
		Net income		$	1,190		$	2,645		$	1,927		$	3,072
		Net income per common share, basic & diluted		$	0.14		$	0.29		$	0.22		$	0.34
		Weighted average number of common and equivalent shares outstanding			8,761			9,038			8,870			9,038

The accompanying notes are an integral part
of the condensed financial statements.

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CONGOLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)

		Common Stock par value $0.01				Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive Loss Adjustment*				Treasury Stock				Comprehensive Income
		Class A		Class B												Total
Balance, December 31, 1997		$47		$47		$49,574		($12,820)			($1,122)			($3,943)		$31,783
Purchase of treasury stock														(190)		(190)
Minimum pension liability
	Adjustment, net of tax										(1,180)					(1,180)			($1,180)
Net income								7,440								7,440			$7,440
Net comprehensive income																			$6,260
Balance, December 31, 1998		47		47		49,574		(5,380)			(2,302)			(4,133)		37,853
Purchase of treasury stock														(1,520)		(1,520)
Purchase and retirement of
	Class B Common Stock			(1)		(469)										(470)
Net income								1,927								1,927			$1,927
Net comprehensive income																			$1,927
Balance, June 30, 1999		$47		$46		$49,105		($3,453)			($2,302)			($5,653)		$37,790

*Entire amount relates to minimum pension liability adjustment.

The accompanying notes are an integral part
of the condensed financial statements.

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CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)

						Six Months Ended June 30,
						1999		1998
						(In thousands)
Cash flows from operating activities:
	Net income					$1,927		$3,072
	Adjustments to reconcile net income to net cash provided/(used)
	by operating activities:
		Depreciation				5,089		4,865
		Amortization and write-off of deferred refinancing fees				409		474
		Provision for bad debt				87		--
		Changes in certain assets and liabilities:
			Accounts and notes receivable			(8,139)		(11,432)
			Inventories			(16,949)		(4,907)
			Prepaid expenses and other current assets			(738)		1,864
			Accounts payable			4,887		3,815
			Accrued expenses			8,572		10,884
			Other liabilities			652		(596)
				Net cash provided/(used) by operating activities		(4,203)		8,039
	Cash flows from investing activities:
		Capital expenditures				(7,289)		(3,773)
		Purchase of short-term investments				(4,301)		(11,700)
		Maturities of short-term investments				4,301		9,500
				Net cash used by investing activities		(7,289)		(5,973)
	Cash flows from financing activities:
		Purchase and retirement of Class B stock				(470)		--
		Purchase of treasury stock				(1,520)		--
				Net cash used by financing activities		(1,990)		--
Net increase/(decrease) in cash and cash equivalents						(13,482)		2,066
Cash and cash equivalents:
	Beginning of period					50,344		11,069
	End of period					$36,862		$13,135

The accompanying notes are an integral part
of the condensed financial statements.

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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 and six months ended June 30, 1999 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, 1998.

2. Inventories

A summary of the major classifications of inventories is as follows:

		June 30, 1999		December 31, 1998
Finished goods		$51,308			$36,018
Work-in-process		4,381			3,106
Raw materials and supplies		6,452			6,068
		$62,141			$45,192

If the FIFO (first-in, first-out) method of inventory accounting (which approximates current cost) had been used, inventories would have been approximately $1,544 and $1,251 lower than reported at June 30, 1999 and December 31, 1998, respectively.

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 and six month periods ending June 30, 1999 and 1998.

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 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 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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three and six months ended June 30, 1999 as compared to three and six months ended June 30, 1998.

Net sales for the second quarter of 1999 were $64.3 million as compared to $69.7 million in the second quarter of 1998, a decrease of $5.4 million or 7.8%. Year-to-date net sales for the first six months of 1999 were $129.7 million, a decrease of $3.9 million or 2.9% from the first six months of 1998. The decrease in sales in the second quarter and first half of 1999 from the comparable periods in 1998 is due to both lower selling prices and lower unit volume. Competitive pressures have necessitated reductions in pricing of certain products which have reduced overall average selling prices 3.0% to 3.5% in 1999 from 1998. Unit volume has declined primarily due to a reduction in the number of retail buying group stores selling the Company's products.

Gross profit for the second quarter of 1999 was $18.7 million, down $2.3 million from $21.0 million in the second quarter of 1998. Gross profit as a percent of net sales declined to 29.1% in the second quarter of 1999 from 30.1% in the second quarter of 1998. Gross profit for the first six months of 1999 was $36.9 million (28.4% of net sales) as compared to $38.4 million (28.7% of net sales) in the first half of 1998. The decline in gross profit was due to lower sales, while the decline in gross profit as a percent of sales was due to the lower selling prices, partly offset by lower raw material costs and improved manufacturing productivity.

Selling, general and administrative expenses were $16.1 million in the second quarter of 1999, up 0.9% from the second quarter of 1998. As a percent of net sales, selling, general and administrative expenses were 25.0% in the second quarter of 1999 as compared to 22.9% in the second quarter of 1998. For the six months ended June 30, 1999, selling, general and administrative expenses were 24.5% of net sales, as compared to 23.3% in the same period one year earlier. Selling, general and administrative costs in the second quarter and first half of 1999 include costs associated with launching a new wood laminate product line. These costs offset declines in other sales related costs.

Income from operations for the second quarter of 1999 was $2.6 million (4.0% of net sales) as compared to $5.1 million (7.3% of net sales) in the second quarter of 1998. Operating income for the first six months of 1999 was $5.2 million (4.0% of net sales), down from $7.2 million (5.4% of net sales) in the first half of 1998. Operating income and margins declined primarily due to the lower sales.

Interest income for the three and six month periods ending June 30, 1999 increased from year earlier levels as a result of higher average levels of invested cash. Interest expense for the three and six month periods ended June 30, 1999 increased from year earlier levels due to higher levels of long-term debt slightly offset by a lower interest rate. Other income for the three and six month periods ending June 30, 1999 increased from year earlier levels due to additional revenue from licensing and sundry income.

Net income for the second quarter of 1999 was $1.2 million, compared with $2.6 million for the same period last year, reflecting the lower sales and operating income. Year-to-date net income through June 30, 1999 was $1.9 million as compared with $3.1 million in the first six months of 1998.

Liquidity and Capital Resources

Cash and cash equivalents declined $13.5 million for the six months ended June 30, 1999 to $36.9 million. Working capital at June 30, 1999 was $66.5 million, down slightly from $68.5 million at December 31, 1998. The ratio of current assets to current liabilities at June 30, 1999 was 2.1 compared to 2.4 at December 31, 1998. The ratio of debt to total capital at June 30, 1999 was .41 compared to .43 at December 31, 1998. Cash used by operations was $4.2 million for the first six months of 1999, compared to cash provided by operations of $8.0 million in the first six months of 1998. The increase in cash used by operations in the first half of 1999 over the first half of 1998 was due to purchases of inventory for the introduction of the wood laminate product line and increases in sheet products inventory resulting from larger, more economical production runs.

Capital expenditures were $7.3 million for the first six months of 1999 and are expected to increase during the balance of the year. Total 1999 capital spending is projected to be approximately $18.0 to $20.0 million.

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.

In 1998, the Company's Board of Directors approved a new plan to repurchase up to $5.0 million of the Company's common stock. As of June 30, 1999, the Company had repurchased 270,475 shares of its common stock for an aggregate cost of $2.2 million pursuant to this plan. Expenditures on share repurchases in the first half of 1999 totaled $2.0 million.

In 1996, the Company began the initial planning of a comprehensive initiative to address the impact of the Year 2000 on its information and equipment systems. The Company organized a Year 2000 oversight team to develop a strategy of evaluation, implementation, testing and contingency planning to address the Company's Year 2000 readiness. The evaluation phase involved performing a complete, Company-wide inventory to identify all internal, general purpose and production hardware and software systems, as well as any embedded logic devices used to control equipment or facilities, that required modification to become Year 2000 compliant. In addition to the Company's internal assessment, the Company communicated with all its distributors and all key third party suppliers of goods and services to determine their states of Year 2000 readiness, implementation of Year 2000 compliant systems and related contingency plans.

In the second quarter of 1997, the Company began the implementation and testing phase of replacing or modifying system hardware, software and devices. As of June 1999, the Company has completed work on 97% of the systems identified as requiring modification. The remaining systems, none of which are critical to the Company's operations, are scheduled for modification during the third quarter of 1999.

Costs directly associated with achieving Year 2000 compliance, including modifying computer software or converting to new programs, consist of payments to third parties as well as an allocation of the payroll and benefits of its employees based on the amount of their time devoted to this activity. These costs are expensed as incurred. Costs for new hardware are capitalized in accordance with the Company's fixed asset policy, and any equipment retired is written off.

The following table summarizes the Company's direct Year 2000 compliance expenditures (actual and planned) by year:

(In thousands)		1997		1998		1999
Expenses paid to third parties		$52		$330		$127
Allocated payroll costs		174		386		59
Capital expenditures		5		206		--

In addition to work undertaken explicitly to achieve Year 2000 compliance, the Company has replaced or upgraded a number of systems in the ordinary course of business where the replacement or upgrade has, in addition to its primary benefits, also provided Year 2000 compliance. The nature of these costs, and their accounting treatment, is the same as described above. The following table summarizes the Company's actual or planned expenditures on systems improvements undertaken for reasons unrelated to the Year 2000, but also serving to achieve Year 2000 compliance:

(In thousands)		1997		1998		1999
Expenses paid to third parties		$13		$76		$113
Allocated payroll costs		48		37		--
Capital expenditures		92		144		126

The costs of achieving Year 2000 compliance, and of improving the Company's systems, are being funded through operating cash flow. With respect to embedded logic devices used to monitor or control equipment or facilities, the Company completed a survey of all locations and identified 12 devices needing modification or replacement at an aggregate cost of $0.2 million. The Company has replaced 9 of these devices and plans to replace the remaining 3 during the routine plant shutdown in the third quarter of 1999.

Although the Company believes it has taken all of the necessary steps to ensure that the Company will be Year 2000 compliant, there can be no assurances that the Company will be able to complete all of the modifications in the required time frame, that all third parties will be Year 2000 compliant or that unforeseen Year 2000 issues will not arise. Management currently believes the worst case scenario with any reasonable probability is that a small number of vendors, who are not critical to the operation of the Company's business, will be unable to supply materials for a short time after January 1, 2000, and that minor additional systems modifications not identified during evaluation or testing will be identified and corrected in a matter of days. The Company does not anticipate any disruption of service to its customers.

The Company is currently preparing contingency plans for the various potential disruptions that could occur in spite of its own efforts and representations from its distributors and suppliers.

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 Company 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 Company, (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 Company's facilities or distributors and (v) the future cost and timing of payments associated with environmental, product and general liability claims.

Item 3: Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to changes in prevailing market interest rates affecting the return on its investments but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and short-term (less than one year) maturities. The carrying amount of these investments approximates fair value due to the short-term maturities. Substantially all of the Company's outstanding long-term debt as of June 30, 1999 consisted of indebtedness with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. Under its current policies, the Company does not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage its exposure to changes in interest rates, foreign currency exchange rates, commodity prices or equity prices.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings: None

Item 2. Changes in Securities and Use of Proceeds: None

Item 3. Defaults Upon Senior Securities: None

Item 4. Submission of Matters to a Vote of Security Holders:

At the Annual Meeting of Stockholders held on May 5, 1999, the following actions were taken:

Three nominees were elected as Class C Directors who will hold office until the Annual Meeting of Stockholders in 2002 and until their successors are duly elected and qualify.

Name		Votes For		Votes Withheld
Roger S. Marcus		11,905,427		36,250
John N. Irwin III		11,906,359		35,318
Cyril C. Baldwin, Jr.		11,906,176		35,501

The following persons are the other directors of the Company whose term of office as a director continued after the meeting:

C. Barnwell Straut Mark N. Kaplan David N. Hurwitz

Richard G. Marcus William M. Marcus

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

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CONGOLEUM CORPORATION

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CONGOLEUM CORPORATION (Registrant)
Date: August 11, 1999	By: /s/
	(signature)
	Howard N. Feist III Chief Financial Officer (Principal Financial & Accounting Officer)

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EXHIBIT INDEX

Exhibit	Number
Computation of Per Share Earnings	11
Financial Data Schedule	27

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EXHIBIT 11

Congoleum Corporation
Computation of Income Per Common Share
(Amounts in thousands, except earnings per share)

		Three Months Ended					Six Months Ended
		June 30,						June 30,
Basic Earnings Per Common Share:		1999			1998			1999			1998
Income per common and common equivalent share	$	1,190		$	2,645		$	1,927		$	3,072
Weighted average common shares outstanding		8,761			9,038			8,870			9,038
Weighted average common shares		8,761			9,038			8,870			9,038
Income per common share	$	0.14		$	0.29		$	0.22		$	0.34
Diluted Earnings Per Common Share:
Income per common and common equivalent share	$	1,190		$	2,645		$	1,927		$	3,072
Weighted average common shares outstanding		8,761			9,038			8,870			9,038
Weighted average common and common equivalent shares		8,761			9,038			8,870			9,038
Income per common and common equivalent share	$	0.14		$	0.29		$	0.22		$	0.34

(1) Computed based on the treasury stock method.

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