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, 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 July 28, 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 June 30, 2000
(unaudited) and December 31, 1999..............................3
Statements of Operations for the three and six months
ended June 30, 2000 and 1999 (unaudited).......................4
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1999 and the six months ended
June 30, 2000 (unaudited)......................................5
Statements of Cash Flows for the six months
ended June 30, 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 and Use of Proceeds.........................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>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 18,495 $ 18,768
Short-term investments .................................... 6,503 19,232
Accounts and notes receivable, net ........................ 21,148 13,745
Inventories ............................................... 55,020 54,599
Prepaid expenses and other current assets ................. 2,099 3,687
Deferred income taxes ..................................... 4,421 3,515
--------- ---------
Total current assets ................................... 107,686 113,546
Property, plant and equipment, net ........................... 99,013 96,404
Goodwill, net ................................................ 11,171 11,387
Other noncurrent assets ...................................... 10,312 10,480
--------- ---------
Total assets ........................................... $ 228,182 $ 231,817
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 15,922 $ 19,160
Accrued expenses .......................................... 34,195 30,597
Accrued income taxes ...................................... 396 311
Deferred income taxes ..................................... 4,435 3,757
--------- ---------
Total current liabilities .............................. 54,948 53,825
Long-term debt ............................................... 99,600 99,575
Other liabilities ............................................ 18,495 18,405
Noncurrent pension liability ................................. 8,661 9,230
Accrued postretirement benefit obligation .................... 9,663 9,647
Deferred income taxes ........................................ 1,019 1,005
--------- ---------
Total liabilities ...................................... 192,386 191,687
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
June 30, 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 June 30, 2000 and December 31, 1999, respectively ... 46 46
Additional paid-in capital ................................... 49,105 49,105
Retained deficit ............................................. (4,589) (452)
Minimum pension liability adjustment ......................... (1,000) (1,000)
--------- ---------
43,609 47,746
Less common stock held in Treasury, at cost; 1,085,760
and 1,025,760 shares at June 30, 2000 and
December 31, 1999, respectively ........................... 7,813 7,616
--------- ---------
Total stockholders' equity ............................. 35,796 40,130
--------- ---------
Total liabilities and stockholders' equity ............. $ 228,182 $ 231,817
========= =========
</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 Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Net sales ..................................... $ 55,262 $ 64,306 $ 112,130 $ 129,693
Cost of sales ................................. 42,934 45,618 87,139 92,812
Selling, general and administrative expenses .. 14,475 16,084 29,100 31,711
--------- --------- --------- ---------
(Loss) income from operations ........... (2,147) 2,604 (4,109) 5,170
Other income (expense):
Interest income ............................ 546 460 911 948
Interest expense ........................... (1,811) (2,033) (3,623) (4,129)
Other income ............................... 522 919 861 1,164
Other expense .............................. (1) (36) (1) (56)
--------- --------- --------- ---------
(Loss) income before income taxes ....... (2,891) 1,914 (5,961) 3,097
(Credit) provision for income taxes ........ (688) 724 (1,824) 1,170
--------- --------- --------- ---------
Net (loss) income ....................... $ (2,203) $ 1,190 $ (4,137) $ 1,927
========= ========= ========= =========
Net (loss) income per common share,
basic & diluted ...................... $ (.27) $ .14 $ (.50) $ .22
========= ========= ========= =========
Weighted average number of common and
equivalent shares outstanding ........ 8,260 8,761 8,273 8,870
========= ========= ========= =========
</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
Common Stock Other
par value $0.01 Additional Comprehensive
---------------- Paid-in Retained Loss Treasury Comprehensive
Class A Class B Capital Deficit Adjustment* Stock Total Income
------- ------- ------- ------- ----------- ----- ----- ------
<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 loss...................... (4,137) (4,137) $(4,137)
-------
Net comprehensive loss........ $(4,137)
------ ------ ------- ------- ------- ------- ------- =======
Balance, June 30, 2000........ $ 47 $ 46 $49,105 $(4,589) $(1,000) $(7,813) $35,796
====== ====== ======= ======= ======= ======= =======
*Entire amount relates to minimum pension liability adjustment.
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
5
<PAGE>
CONGOLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
2000 1999
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ........................................... $ (4,137) $ 1,927
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation ............................................. 5,274 5,089
Amortization ............................................. 409 409
Deferred income taxes .................................... (214) --
Provision for bad debt ................................... -- 87
Changes in certain assets and liabilities:
Accounts and notes receivable ........................ (7,403) (8,139)
Inventories .......................................... (421) (16,949)
Prepaid expenses and other current assets ............ 1,588 (738)
Accounts payable ..................................... (3,238) 4,887
Accrued expenses ..................................... 3,683 8,572
Other liabilities .................................... (463) 652
-------- --------
Net cash used by operating activities ............. (4,922) (4,203)
-------- --------
Cash flows from investing activities:
Capital expenditures ..................................... (7,883) (7,289)
Purchase of short-term investments ....................... (6,453) (4,301)
Maturities of short-term investments ..................... 19,182 4,301
-------- --------
Net cash provided (used) by investing activities .. 4,846 (7,289)
-------- --------
Cash flows from financing activities:
Purchase and retirement of Class B stock ................. -- (470)
Purchase of treasury stock ............................... (197) (1,520)
-------- --------
Net cash used by financing activities ............. (197) (1,990)
-------- --------
Net increase/(decrease) in cash and cash equivalents ........... (273) (13,482)
Cash and cash equivalents:
Beginning of period ......................................... 18,768 50,344
-------- --------
End of period ............................................... $ 18,495 $ 36,862
======== ========
</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 and six months ended June 30, 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:
June 30, December 31,
2000 1999
--------- -----------
Finished goods..................... $43,971 $43,719
Work-in-process.................... 3,768 2,743
Raw materials and supplies......... 7,281 8,137
-------- --------
$55,020 $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 $74 and $1,640 lower than reported at June 30, 2000 and December
31, 1999, respectively.
7
<PAGE>
3. Income Taxes
The effective tax rate in the second quarter of 2000 was 23.8%, which
includes an adjustment to equal an effective tax rate of 30.6% for the first
half of 2000. The rate change reflects updated taxable income revisions for
2000. If the first quarter 2000 rate of 37% had been used, net income and
earnings per share would have been $(1.8) million and $(.22) per share,
respectively. For the balance of the year, the Company presently anticipates an
effective tax rate of 30.6%
4. 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, 2000 and 1999.
5. 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 and six months ended June 30, 2000 as compared to three and six months
ended June 30, 1999.
Net sales for the second quarter of 2000 were $55.3 million, as compared
to $64.3 million in the second quarter of 1999, a decrease of $9.0 million or
14.1%. Year-to-date net sales for the first six months of 2000 were $112.1
million, a decrease of $17.6 million or 13.5% from the first six months of 1999.
The decrease in sales in the second quarter and first half of 2000 from the
comparable periods in 1999 is 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 acquired at the end of 1999.
Gross profit for the second quarter of 2000 was $12.3 million, down $6.4
million from $18.7 million in the second quarter of 1999. Gross profit as a
percent of net sales declined to 22.3% in the second quarter of 2000 from 29.1%
in the second quarter of 1999. Gross profit for the first six months of 2000 was
$25.0 million (22.3% of net sales), as compared to $36.9 million (28.4% of net
sales) in the first half of 1999. The decline in gross profit and gross profit
margins was due to lower sales and production volumes, combined with higher raw
material costs.
Selling, general and administrative expenses were $14.5 million in the
second quarter of 2000, down 10.0% from the second quarter of 1999. As a percent
of net sales, selling, general and administrative expenses were 26.2% in the
second quarter of 2000, as compared to 25.0% in the second quarter of 1999. For
the six months ended June 30, 2000, selling, general and administrative expenses
were $29.1 million (26.0% of net sales), as compared to $31.7 million (24.5% of
net sales) in the same period one year earlier. Selling, general and
administrative costs have declined in 2000 as compared to the first half of 1999
as a result of cost reduction initiatives undertaken in 2000, partially offset
by a severance charge of approximately $0.7 million in the second quarter, as
well as due to lower selling related costs, but have increased as a percent of
sales due to the sales decline.
The loss from operations for the second quarter of 2000 was $2.1 million,
as compared to income of $2.6 million in the second quarter of 1999. The
operating loss for the first six months of 2000 was $4.1 million, down from
income of $5.2 million in the first half of 1999. Operating income and margins
declined primarily due to the lower sales.
Interest expense for the three and six month periods ended June 30, 2000
is below the comparable year earlier period amounts due to a greater portion of
the interest on the Company's 8 5/8% senior notes being capitalized in
connection with capital projects in 2000 than in 1999.
The net loss for the second quarter of 2000 was $2.2 million, compared
with income of $1.2 million for the same period last year, reflecting the lower
sales and operating income. Year-to-date net loss through June 30, 2000 was $4.1
million, as compared with income of $1.9 million in the first six months of
1999.
9
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments declined $13.0 million
for the six months ended June 30, 2000 to $25.0 million. Working capital at June
30, 2000 was $52.7 million, down from $59.7 million at December 31, 1999. The
ratio of current assets to current liabilities at June 30, 2000 was 2.0 compared
to 2.1 at December 31, 1999. The ratio of debt to total capital at June 30, 2000
was .44 compared to .43 at December 31, 1999. Cash used by operations was $4.9
million for the first six months of 2000, compared to cash used by operations of
$4.2 million in the first six months of 1999. Cash generated from improved
inventory management substantially offset lower cash from net income and lower
payables and accrued expenses growth.
Capital expenditures were $7.9 million for the first six months of 2000.
Total 2000 capital spending is projected to be approximately $13.0 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,
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 half 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 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 June 30, 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:
At the Annual Meeting of Stockholders held on May 9,
2000, the following actions were taken:
Two nominees were elected as Class A Directors who will
hold office until the Annual Meeting of Stockholders in 2003
and until their successors are duly elected and qualify.
Name Votes For Votes Withheld
---- --------- --------------
William M. Marcus 10,907,130 72,997
C. Barnwell Straut 10,907,320 72,807
The following persons are the other directors of the
Company whose term of office as a director continued after the
meeting:
Roger S. Marcus Cyril C. Baldwin, Jr.
Richard G. Marcus John N. Irwin III
Mark N. Kaplan
Item 5. Other Information:
Effective May 5, 2000 David N. Hurwitz, a Board of
Director and member of the Audit Committee, resigned. On
August 1, 2000 Mark Newman, Chairman of the Board, President &
CEO of DRS Technologies, Inc., was appointed by the Board to
replace Mr. Hurwitz as both a Board of Director and Audit
Committee member.
On June 28, 2000, the Company filed a Form 8-A/A
amending the Company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on January
31, 1995. It was filed in connection with the listing of the
Company's Class A common stock changing from the New York
Stock Exchange to the American Stock Exchange.
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: August 14, 2000 By: /s/ Howard 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
