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, 2000
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, 2000
----------------------------- --------------------------------
Class A Common Stock 3,651,190
Class B Common Stock 4,608,945
Page 1 of 16
<PAGE>
CONGOLEUM CORPORATION
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999..................................3
Statements of Operations for the three months
ended March 31, 2000 and 1999 (unaudited)..........................4
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1999 and the three months ended March 31,
2000 (unaudited)...................................................5
Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (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............11
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
March 31, December 31,
2000 1999
---- ----
(Unaudited)
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents ......................... $19,856 $18,768
Short-term investments ............................ 4,478 19,232
Accounts and notes receivable, net ................ 22,595 13,745
Inventories ....................................... 54,460 54,599
Prepaid expenses and other current assets ......... 3,563 3,687
Deferred income taxes ............................. 2,986 3,515
--------- ---------
Total current assets ........................... 107,938 113,546
Property, plant and equipment, net ................... 98,834 96,404
Goodwill, net ........................................ 11,279 11,387
Other noncurrent assets .............................. 10,396 10,480
--------- ---------
Total assets ................................... $228,447 $231,817
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. 18,523 19,160
Accrued expenses .................................. 30,569 30,597
Accrued income taxes .............................. 308 311
Deferred income taxes .......................... 3,525 3,757
--------- ---------
Total current liabilities ...................... 52,925 53,825
Long-term debt ....................................... 99,588 99,575
Other liabilities .................................... 18,312 18,405
Noncurrent pension liability ......................... 9,021 9,230
Accrued postretirement benefit obligation ............ 9,671 9,647
Deferred income taxes ................................ 931 1,005
--------- ---------
Total liabilities .............................. 190,448 191,687
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01 per share;
20,000,000 shares authorized; 4,736,950 shares
issued; 3,651,190 and 3,711,190 shares
outstanding as of March 31, 2000 and December 31,
1999, respectively ................................ 47 47
Class B common stock, par value $0.01 per share;
4,608,945 shares authorized, issued and
outstanding as of March 31, 2000 and December 31,
1999, respectively ................................ 46 46
Additional paid-in capital ........................... 49,105 49,105
Retained deficit ..................................... (2,386) (452)
Minimum pension liability adjustment ................. (1,000) (1,000)
--------- ---------
45,812 47,746
--------- ---------
Less common stock held in Treasury, at cost;
1,085,760 and 1,025,760 shares at March 31,
2000 and December 31, 1999, respectively .......... 7,813 7,616
--------- ---------
Total stockholders' equity ..................... 37,999 40,130
--------- ---------
Total liabilities and stockholders' equity ..... $228,447 $231,817
========= =========
The accompanying notes are an integral part
of the condensed financial statements.
3
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
---------------------
2000 1999
(In thousands, except
per share amounts)
Net sales .............................................. $56,868 $65,387
Cost of sales .......................................... 44,205 47,194
Selling, general and administrative expenses ........... 14,625 15,627
-------- --------
(Loss) income from operations .................... (1,962) 2,566
Other income (expense):
Interest income ..................................... 365 488
Interest expense .................................... (1,812) (2,096)
Other income ........................................ 339 245
Other expense ....................................... -- (20)
-------- --------
(Loss) income before income taxes ................ (3,070) 1,183
(Credit) provision for income taxes ................. (1,136) 446
-------- --------
Net (loss) income ................................ $(1,934) $737
======== ========
Net (loss) income per common share, basic and
diluted ..................................... $(.23) $.08
======== ========
Weighted average number of common and
equivalent shares outstanding ............... 8,286 8,981
======== ========
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
par value $0.01 Additional Accumulated Other
---------------- Paid-in Retained Comprehensive Loss Treasury Comprehensive
Class A Class B Capital Deficit Adjustment* Stock Total Income (loss)
------- ------- ------- ------- ----------- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998..... $47 $47 $49,574 $(5,380) $(2,302) $(4,133) $37,853
Purchase of treasury stock..... (3,483) (3,483)
Purchase and retirement of
Class B stock.............. (1) (469) (470)
Minimum pension liability
adjustment, net of
tax of $748................ 1,302 1,302 $ 1,302
Net income..................... 4,928 4,928 4,928
-------
Net comprehensive income....... $ 6,230
------ ------ ------- ------- ------- ------- ------- =======
Balance, December 31, 1999..... 47 46 49,105 (452) (1,000) (7,616) 40,130
Purchase of treasury stock..... (197) (197)
Net income..................... (1,934) (1,934) $(1,934)
-------
Net comprehensive income....... $(1,934)
------ ------ ------- ------- ------- ------- ------- =======
Balance, March 31, 2000........ $47 $46 $49,105 $(2,386) $(1,000) $(7,813) $37,999
====== ====== ======= ======= ======= ======= =======
</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,
--------------------
2000 1999
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ............................................ $(1,934) $737
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation .............................................. 2,606 2,555
Amortization .............................................. 204 204
Deferred income taxes ..................................... 223 --
Changes in certain assets and liabilities:
Accounts and notes receivable ......................... (8,850) (10,556)
Inventories ........................................... 139 (7,425)
Prepaid expenses and other current assets ............. 124 175
Accounts payable ...................................... (637) 4,286
Accrued expenses ...................................... (31) 3,283
Other liabilities ..................................... (278) (48)
-------- --------
Net cash used by operating activities .............. (8,434) (6,789)
-------- --------
Cash flows from investing activities:
Capital expenditures ...................................... (5,035) (2,650)
Maturities of short-term investments ...................... 14,754 --
-------- --------
Net cash provided (used) by investing activities ... 9,719 (2,650)
-------- --------
Cash flows from financing activities:
Purchase of Class B shares ................................ -- (470)
Purchase of treasury stock ................................ (197) (1,218)
-------- --------
Net cash used by financing activities .............. (197) (1,688)
-------- --------
Net increase (decrease) in cash and cash equivalents ............ 1,088 (11,127)
Cash and cash equivalents:
Beginning of period .......................................... 18,768 50,344
-------- --------
End of period ................................................ $19,856 $39,217
======== ========
</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, 2000 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, 1999.
2. Inventories
A summary of the major classifications of inventories is as follows:
March 31, December 31,
2000 1999
--------- -----------
Finished goods..................... $44,347 $43,719
Work-in-process.................... 4,015 2,743
Raw materials and supplies......... 6,098 8,137
-------- --------
$54,460 $54,599
If the FIFO (first-in, first-out) method of inventory accounting (which
approximates current cost) had been used, inventories would have been
approximately $416 and $1,640 lower than reported at March 31, 2000 and December
31, 1999, respectively.
7
<PAGE>
3. Income (Loss) Per Share
Income (loss) per share is calculated by dividing net income (loss) 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 (loss) per common share for the three month
periods ending March 31, 2000 and 1999.
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.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three months ended March 31, 2000 as compared to three months ended March 31,
1999.
Net sales for the first quarter of 2000 were $56.9 million compared to
$65.4 million for the first quarter of 1999, a decrease of $8.5 million or
13.0%. The decrease in sales was due to lower sales of manufactured housing
products, lower sales of promotional goods, and lower overall purchases by
distributors, particularly a major one that was recently acquired. The Company
anticipates sales will continue to be below prior year levels in the second
quarter of 2000, but expects improved results in the second half of the year as
a result of new product shipments.
Gross profit for the first quarter of 2000 was $12.7 million compared to
$18.2 million for the first quarter of 1999, a decrease of $5.5 million. As a
percentage of sales, gross profit was 22.3% in the first quarter of 2000, as
compared to 27.8% in the first quarter of 1999. The decrease in gross profits
and gross profit margins was due to lower sales and production volumes, combined
with higher raw material costs.
Selling, general and administrative expenses were $14.6 million in the
first quarter of 2000 compared to $15.6 million in the first quarter of 1999, a
decrease of $1.0 million or 6.4%. As a percentage of sales, selling, general and
administrative expenses were 25.7% for the first quarter of 2000, up from 23.9%
for the first quarter of 1999. The decline in selling, general and
administrative expenses was due to lower costs related to the Company's laminate
line, which was launched in 1999, together with other reductions due to lower
sales volume and expense reduction programs.
Loss from operations for the first quarter of 2000 was $2.0 million (3.5%
of net sales), compared to income of $2.6 million (3.9% of net sales) for the
first quarter of 1999, a decrease of $4.5 million. The decline in operating
income was due to the lower sales, partly offset by the reduced expenses.
Net loss for the first quarter of 2000 was $1.9 million, compared to net
income of $0.7 million for the first quarter of 1999, a decrease of $2.7
million. The effective tax rate for the first quarter of 2000 was 37.0%,
compared with 37.8% for the first quarter of 1999. The decrease in the effective
tax rate for 2000 is primarily due to lower effective state income tax rates.
9
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments declined $13.7 million
for the three months ended March 31, 2000, to $24.3 million. Working capital at
March 31, 2000 was $55.0 million, down slightly from $59.7 million at December
31, 1999. The ratio of current assets to current liabilities at March 31, 2000
was 2.0 compared to 2.1 at December 31, 1999. The ratio of debt to total capital
at March 31, 2000 was .44 compared to .43 at December 31, 1999. Cash used by
operations was $8.4 million for the first quarter of 2000, $1.6 million greater
than the first quarter of 1999. This increase was primarily due to lower income
and reductions of payables and accrued liabilities, largely offset by the
benefit of inventory reduction efforts.
Capital expenditures were $5.0 million for the first quarter of 2000.
Total 2000 capital spending is projected to be approximately $15.0 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 million of the Company's Common Stock. As of March 31, 2000,
the Company had repurchased 777,665 shares of its Common Stock for an aggregate
cost of $4.3 million pursuant to this plan. Expenditures on share repurchases in
the first quarter of 2000 totaled $0.2 million.
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.
10
<PAGE>
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 March 31, 2000 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.
11
<PAGE>
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: 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
12
<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 11, 2000 By: /s/ H. N. Feist III
----------------------------
(signature)
Howard N. Feist III
Chief Financial Officer
(Principal Financial & Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit Number
- ------- ------
Computation of Per Share Earnings 11
Financial Data Schedule 27
14
EXHIBIT 11
Congoleum Corporation
Computation of (Loss) Income Per Common Share
(Amounts in thousands, except earnings per share)
Three Months Ended
March 31,
Basic (Loss) Earnings Per Common Share: 2000 1999
-------- ------
(Loss) income per common and common equivalent share $ (1,934) $ 737
======== ======
Weighted average common shares outstanding 8,286 8,981
======== ======
(Loss) income per common share $ (.23) $ .08
======== ======
Diluted (Loss) Earnings Per Common Share
(Loss) income per common and common equivalent share $ (1,934) $ 737
======== ======
Weighted average common shares outstanding 8,286 8,981
======== ======
Weighted average common and common equivalent shares 8,286 8,981
======== ======
(Loss) income per common and common equivalent share $ (.23) $ .08
======== ======
15
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 19,856
<SECURITIES> 4,478
<RECEIVABLES> 26,073
<ALLOWANCES> 3,478
<INVENTORY> 54,460
<CURRENT-ASSETS> 107,938
<PP&E> 205,214
<DEPRECIATION> 106,380
<TOTAL-ASSETS> 228,447
<CURRENT-LIABILITIES> 52,925
<BONDS> 99,588
0
0
<COMMON> 93
<OTHER-SE> 37,906
<TOTAL-LIABILITY-AND-EQUITY> 228,447
<SALES> 56,868
<TOTAL-REVENUES> 57,572
<CGS> 44,205
<TOTAL-COSTS> 44,205
<OTHER-EXPENSES> 14,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,812
<INCOME-PRETAX> (3,070)
<INCOME-TAX> (1,136)
<INCOME-CONTINUING> (1,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,934)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
