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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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)
Telephone number: (609) 584-3000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
Class A Common Stock, par value $.01 per share New York Stock Exchange, Inc.
Securities Registered Pursuant to Section 12(g) of the Act: None
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 3, 1999, the aggregate market value of all shares of Class A
Common Stock held by non-affiliates of the Registrant was approximately $29.2
million based on the closing price ($6.8125 per share) on the New York Stock
Exchange. For purposes of determining this amount, affiliates are defined as
directors and executive officers of the Registrant, American Biltrite Inc. and
Hillside Capital Incorporated. All of the shares of Class B Common Stock of the
Registrant are held by affiliates of the Registrant. As of March 3, 1999, an
aggregate of 4,308,260 shares of Class A Common Stock and an aggregate of
4,676,050 shares of Class B Common Stock of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II. Portions of Congoleum Corporation's Annual Report to
Shareholders for the year ended December 31, 1998
Part III. Portions of the Congoleum Corporation's Proxy Statement for
the Annual Meeting of Shareholders to be held on May 5, 1999
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 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.
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PART I
Item 1. BUSINESS
Congoleum Corporation (the "Company") was incorporated in Delaware in
1986, but traces its history in the flooring business back to Nairn Linoleum Co.
which began in 1886. On March 11, 1993 (effective on February 28, 1993), the
business and assets of the Company and those of the Amtico Tile Division of
American Biltrite Inc. (the "Tile Division") were combined (the "Acquisition").
The Acquisition was effected through the organization of a new corporation,
Congoleum Holdings Incorporated ("Congoleum Holdings"), to which Hillside
Industries Incorporated ("Hillside Industries") contributed all of the
outstanding capital stock of Resilient Holdings Incorporated ("Resilient"), the
owner of all of the outstanding capital stock of the Company, and to which
American Biltrite Inc. ("American Biltrite") contributed the assets and certain
liabilities of the Tile Division. Upon consummation of the Acquisition,
Congoleum Holdings owned all of the outstanding capital stock of Resilient,
which, in turn, owned all of the outstanding capital stock of the Company, and
the Company owned the Tile Division. The assets and liabilities comprising the
Tile Division which were acquired by the Company in the Acquisition are held
directly by the Company. On February 8, 1995, the Company completed a public
offering of 4,650,000 shares of Class A Common Stock (the "Offering"). Upon
completion of the Offering, the Company implemented a Plan of Repurchase
pursuant to which its two-tiered holding company ownership structure was
eliminated through the merger of Congoleum Holdings with and into the Company,
with the Company as the surviving corporation.
Congoleum produces both sheet and tile floor covering products with a wide
variety of product features, designs and colors. Sheet flooring, in its
predominant construction, is produced by applying a vinyl gel to a flexible
felt, printing a design on the gel, applying a wearlayer, heating the gel layer
sufficiently to cause it to expand into a cushioned foam and, in some products,
adding a high-gloss coating. The Company also produces through-chip inlaid
products for both residential and commercial markets. These products are
produced by applying an adhesive coat and solid vinyl colored chips to a felt
backing and laminating the sheet under pressure with a heated drum. Tile
flooring is manufactured by creating a base stock (consisting primarily of
limestone and vinyl resin) which is less flexible than the backings for sheet
flooring, and transferring or laminating to it preprinted colors and designs
followed by a wearlayer and a urethane coating in some cases. Commercial tile is
manufactured by including colored vinyl chips in the pigmented base stock. For
do-it-yourself tile, an adhesive is applied to the back of the tile. The
differences between products within each of the two product lines consist
primarily of content and thickness of wearlayers and coatings, the use of
chemical embossing to impart a texture, the complexity of designs and the number
of colors.
Raw Materials
The principal raw materials used in the manufacture of sheet and tile
flooring are vinyl resins, plasticizers, latex, limestone, stabilizers,
cellulose paper fibers, urethane and transfer print paper. Most of these raw
materials are purchased from multiple sources. The Company has had no difficulty
in obtaining its requirements for these materials, although significant price
increases in certain materials have been experienced at times.
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The Company believes that alternative suppliers are available for
substantially all of its raw material requirements. However, the Company does
not have readily available alternative sources of supply for specific designs of
transfer print paper, which are produced utilizing print cylinders engraved to
the Company's specifications. Although no loss of this source of supply is
anticipated, replacement could take a considerable period of time and interrupt
production of certain products. The Company maintains a raw material inventory
and has an ongoing program to develop new sources which will provide continuity
of supply for its raw material requirements.
Patents and Trademarks
The Company believes that the Congoleum brand name, as well as the other
trademarks it holds, are important to maintaining competitive position. In 1993,
the Company sold the rights to the Amtico trademark in the United States and
began selling tile under the Congoleum brand name.
The Company also believes that patents and know-how play an important role
in maintaining competitive position. In particular, the Company utilizes a
proprietary transfer printing process for certain tile products that it believes
produces visual effects that only one other competitor is presently able to
duplicate.
Distribution
The Company currently sells its products through approximately 30
distributors providing approximately 90 distribution points in the United States
and Canada, as well as directly to a limited number of mass market retailers.
The sales pattern is seasonal, with peaks in retail sales typically occurring
during March/April/May and September/October. Orders are generally shipped as
soon as a truckload quantity has been accumulated, and backorders can be
canceled without penalty. At December 31, 1998, the backlog of unshipped orders
was $13.9 million, compared to $7.5 million at December 31, 1997.
The Company considers its distribution network very important to
maintaining competitive position. While most of its distributors have marketed
the Company's products for many years, replacements are necessary periodically
to maintain the strength of the distribution network. Although the Company has
more than one distributor in some of its distribution territories and actively
manages its credit exposure to its customers, the loss of a major customer could
have a materially adverse impact on the Company's sales, at least until a
suitable replacement was in place. For the year ended December 31, 1998, two
customers each accounted for over 10% of the Company's sales. These customers
were its distributor to the manufactured housing market, LaSalle-Bristol, and
its distributor in the Western U.S., LD Brinkman & Co. Together, they accounted
for 47% of the Company's net sales in 1998.
Working Capital
The Company produces goods for inventory and sells on credit to customers.
Generally, the Company's distributors carry inventory as needed to meet local or
rapid delivery requirements. Credit sales are typically subject to a discount if
paid within terms.
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Product Warranties
The Company offers a limited warranty on all of its products against
manufacturing defects. In addition, as a part of efforts to differentiate mid
and high-end products through color, design and other attributes, the Company
offers enhanced warranties with respect to wear, moisture discoloration and
other performance characteristics which increase with the price points of such
products.
Competition
The market for the Company's products is highly competitive. Resilient
sheet and tile compete for both residential and commercial customers primarily
with carpeting, hardwood, melamine laminate and ceramic tile. In residential
applications, both tile and sheet products are used primarily in kitchens,
bathrooms, laundry rooms and foyers and, to a lesser extent, in playrooms and
basements. Ceramic tile is used primarily in kitchens, bathrooms and foyers.
Carpeting is used primarily in bedrooms, family rooms and living rooms. Hardwood
flooring and melamine laminate are used primarily in family rooms, foyers and
kitchens. Commercial grade resilient flooring faces substantial competition from
carpeting, ceramic tile, rubber tile, hardwood flooring and stone in commercial
applications. The Company believes, based upon its market research, that
purchase decisions are influenced primarily by fashion elements such as design,
color and style, durability, ease of maintenance, price and ease of
installation. Both tile and sheet resilient flooring are easy to replace for
repair and redecoration and, in the Company's view, have advantages over other
floor covering products in terms of both price and ease of installation and
maintenance.
The Company encounters competition from domestic and, to a much lesser
extent foreign manufacturers. Certain of the Company's competitors, including
Armstrong in the resilient category, have substantially greater financial and
other resources than the Company.
Research and Development
The Company's research and development efforts concentrate on new product
development, trying to increase product durability and expanding technical
expertise in the manufacturing process. Expenditures for research and
development for the year ended December 31, 1998 were $3.8 million, compared to
$3.7 million and $4.6 million for the years ended December 31, 1997 and 1996,
respectively.
Environmental Regulation
Due to the nature of the Company's business and certain of the substances
which are or have been used, produced or discharged by the Company, the
Company's operations are subject to extensive federal, state and local laws and
regulations relating to the generation, storage, disposal, handling, emission,
transportation and discharge into the environment of hazardous substances. The
Company, pursuant to administrative consent orders signed in 1986 and in
connection with a prior restructuring, is in the process of implementing cleanup
measures at its Trenton sheet facility under New Jersey's Environmental Clean-up
Responsibility Act, as amended by the New Jersey
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Industrial Site Recovery Act. The Company does not anticipate that the
additional costs of these measures will be material. In connection with the
Acquisition of the Tile Division, American Biltrite signed a similar consent
order with respect to the Trenton tile facility, and the Company agreed to be
financially responsible for any cleanup measures required. In 1998, the Company
incurred capital expenditures of approximately $.3 million for environmental
compliance and control facilities.
The Company has historically expended substantial amounts for compliance
with existing environmental laws and regulations, including those matters
described above. The Company will continue to be required to expend amounts in
the future, due to the nature of historic activities at its facilities, to
comply with existing environmental laws, and those amounts may be substantial
but should not, in the Company's judgment, have a material adverse effect on the
financial position of the Company. Because environmental requirements have grown
increasingly strict, however, the Company is unable to determine the ultimate
cost of compliance with environmental laws and enforcement policies.
Employees
At December 31, 1998, the Company employed a total of 1,250 personnel
compared to 1,234 employees at December 31, 1997.
The Company has entered into collective bargaining agreements with hourly
employees at three of its plants and with the drivers of the trucks that provide
interplant transportation. These agreements cover approximately 702 of the
Company's employees. The Trenton tile plant has a five-year collective
bargaining agreement which expires in May 2003. The Marcus Hook plant has a
five-year collective bargaining agreement which expires in November 2003. The
Trenton sheet plant has a five-year collective bargaining agreement which
expires in February 2001. The Finksburg plant has no union affiliation. In the
past five years, there have been no significant strikes by employees at the
Company and the Company believes that its employee relations are satisfactory.
Year 2000
The information required by this item is incorporated by reference to all
information under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 23 and 24 of the Company's Annual
Report to Shareholders for the year ended December 31, 1998 (included as Exhibit
13.1 to this Annual Report on Form 10-K).
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Executive Officers of the Registrant
The following information is furnished with respect to each of the
executive officers of the Company, each of whom is elected by and serves at the
pleasure of the Board of Directors. The business experience shown for each
officer has been his principal occupation for at least the past five years. Ages
are shown as of February 1, 1999.
Roger S. Marcus (Age 53)
Roger S. Marcus has been a Director and President and Chief Executive Officer of
the Company since 1993, and Chairman since 1994. Mr. Marcus is also a Director
(since 1981), Chairman of the Board (since 1992) and Chief Executive Officer
(since 1983) of American Biltrite. From 1983 to 1992, Mr. Marcus served as Vice
Chairman of the Board of American Biltrite.
Richard G. Marcus (Age 51)
Richard G. Marcus has been Vice Chairman of the Company since 1994, and a
Director since 1993. Mr. Marcus is also a Director (since 1982) and President
(since 1983) and Chief Operating Officer (since 1992) of American Biltrite.
Robert N. Agate (Age 54)
Robert N. Agate has been Executive Vice President of the Company since 1998.
Prior thereto, he was Senior Vice President - Manufacturing of the Company since
1993, and was Vice President of Manufacturing of the Tile Division of American
Biltrite (since 1981).
David W. Bushar (Age 52)
David W. Bushar has been Senior Vice President - Manufacturing of the Company
since 1998. Prior thereto, he was Manager, Technical Services since 1997 and as
Plant Manager of the Company's Trenton, New Jersey sheet facility since 1993.
Howard N. Feist III (Age 42)
Howard N. Feist III has been Senior Vice President - Finance and Secretary of
the Company since 1993. Prior thereto, he had served as Vice President Finance
and Secretary of the Company since 1988.
Dennis P. Jarosz (Age 53)
Dennis P. Jarosz has been Senior Vice President - Marketing since 1995. Prior
thereto, he had served as Vice President - Marketing since 1993 and Vice
President - Sales & Marketing of the Tile Division of American Biltrite (since
1986).
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James K. Morando (Age 35)
James K. Morando has been Senior Vice President - Sales of the Company since
1998. Prior thereto, he had served as National Sales Manager (since 1995) and
Regional Sales Manager (since 1991).
Peter J. Rohrbacher (Age 47)
Peter J. Rohrbacher has been Senior Vice President - Research and Engineering of
the Company since 1997. Prior thereto, he had served as Senior Vice President -
Engineering (since 1993), Vice President - Coatings of the Company (since 1993),
and Vice President - Research & Development of the Tile
Division of American Biltrite (since 1988).
Thomas A. Sciortino (Age 52)
Thomas A. Sciortino has been Senior Vice President - Administration of the
Company since 1993. Prior thereto, he was Vice President - Finance of the Tile
Division of American Biltrite (since 1982).
Merrill M. Smith (Age 73)
Merrill M. Smith has been Senior Vice President - Technology of the Company
since 1993. Prior thereto, he was Vice President - Technology of American
Biltrite (since 1985).
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Item 2. PROPERTIES
The Company owns four manufacturing facilities located in Maryland,
Pennsylvania and New Jersey and leases corporate and marketing offices in
Mercerville, New Jersey, where it has a lease expiring in 2000, as well as
storage space in Trenton, New Jersey, which are described below:
Location Owned/Leased Usage Square Feet
-------- ------------ ----- -----------
Finksburg, MD Owned Felt 107,000
Marcus Hook, PA Owned Sheet Flooring 1,000,000
Trenton, NJ Owned Sheet Flooring 1,050,000
Trenton, NJ Owned Tile Flooring 282,000
Trenton, NJ Leased Warehousing 20,000
Mercerville, NJ Leased Corporate Offices 33,597
The Finksburg facility consists primarily of a 16-foot wide felt
production line.
The Marcus Hook facility is capable of manufacturing rotogravure printed
sheet flooring in widths of up to 16 feet. Major production lines at this
facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide
printing press and a 16-foot wide printing press.
The Trenton sheet facility is capable of manufacturing rotogravure printed
and through-chip inlaid sheet products in widths up to 6 feet. Major production
lines, all six-foot wide, include an oven, a rotary laminating line and a press.
The examination, packing and warehousing of all sheet products (except products
for the manufactured housing segment) occur at the Trenton plant distribution
center.
The Trenton tile facility consists of three major production lines, a
four-foot wide commercial tile line, a two-foot wide residential tile line and a
one-foot wide residential tile line.
Productive capacity and extent of utilization of the Company's facilities
are dependent on a number of factors, including the size, construction, and
quantity of product being manufactured, some of which also dictate which
production line(s) must be utilized to make a given product. The Company's major
production lines were operated an average of 76% of the hours available on a
five-day, three-shift basis in 1998, with the corresponding figure for
individual production lines ranging from 13% to 120%.
Although many of the Company's manufacturing facilities have been
substantially depreciated, the Company has generally maintained and improved the
productive capacity of these facilities over time through a program of regular
capital expenditures. The Company considers its manufacturing facilities to be
adequate for its present and anticipated near-term production needs.
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Item 3. LEGAL PROCEEDINGS
As of December 31, 1998 the Company was named as a defendant, together in
most cases with numerous other defendants, in approximately 657 pending lawsuits
(including workers' compensation cases) involving approximately 1,984
individuals alleging personal injury from exposure to asbestos or
asbestos-containing products. The plaintiffs in these cases seek compensation
for injuries sustained in the course of their employment by third parties (or,
in the workers' compensation cases, by the Company) as a result of exposure to
asbestos in products manufactured by the Company or the Tile Division of
American Biltrite. The Company discontinued the manufacture of
asbestos-containing sheet vinyl flooring products in 1983 and the Tile Division
ceased manufacturing asbestos-containing vinyl tile flooring products in 1984.
In general, asbestos-containing products have not been found to pose a health
risk unless significant amounts of free asbestos fibers become airborne. All of
the asbestos in the asbestos-containing products previously sold by the Company
and the Tile Division was fully bonded or encapsulated during the manufacturing
process. During 1998 approximately 200 personal injury cases involving the
Company were either settled or dismissed and approximately 203 new cases were
commenced against the Company. The total indemnity costs incurred during 1998 to
settle personal injury claims involving the Company (other than the cost of the
partial settlement in the personal injury case described below) was
approximately $2.2 million. All of these costs were paid by the Company's
insurance carriers. The average indemnity cost per resolved personal injury
claim was $11 thousand in 1998. Costs per claim vary depending on a number of
factors, including the number of plaintiffs, the nature of their alleged
exposure and the forum in which the claim is brought. In 1997 a judgment was
entered by the Superior Court of California in Los Angeles following a jury
trial holding the Company and another defendant jointly and severally liable for
$3.3 million in damages, subject to any applicable setoffs for previous
settlements and proportionate liability under California law. The jury found
that the Company was only liable for 25% of the non-economic damages sustained
by the plaintiff. However, as a result of post-verdict motions the court ruled
that California Proposition 51 establishing proportionate liability for
non-economic damages did not apply. The Company has appealed this decision to
the Court of Appeals of the State of California. The Company's insurance carrier
has paid the Company's defense costs in this matter and has indicated that it
would be responsible for paying the ultimate judgment in this case, subject to
the insurance carrier's denial of liability with respect to a partial settlement
of certain related claims effected by the Company which the company is
contesting. Although there can be no assurance, the Company believes, based upon
the nature of the asbestos-containing products formerly manufactured by the
Company and the Tile Division and its experience with cases to date, that any
potential liabilities it may have with respect to these personal injury cases
will not have a material adverse effect on the results of operations or
financial condition of the Company.
Together with a large number (in most cases, hundreds) of other companies,
the Company is named as a "Potentially Responsible Party" ("PRP") in pending
proceedings under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws. In two instances, although
not named as a PRP, the Company has received a request for information. These
pending proceedings currently relate to seven disposal sites in New Jersey,
Pennsylvania, Maryland, Connecticut and Delaware in which recovery from
generators of hazardous substances is sought for the cost of cleaning up the
contaminated waste sites. The Company's ultimate liability, if any, in
connection with these sites will depend on many factors, including the
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volume of material contributed to the site, the number of other PRPs and their
financial viability, the remediation methods and technology to be used and the
extent to which costs may be recoverable from insurance. However, under CERCLA
and certain other laws, as a PRP the Company could be held jointly and severally
liable for all remediation costs associated with a site.
The most significant disposal site environmental matter in which the
Company has been named as a PRP relates to a recycling facility in Elkton,
Maryland. Two removal actions are substantially complete as of December 31,
1998, however, the groundwater remediation phase has not begun and the remedial
investigation/feasibility study related to the groundwater remediation has not
been approved. The PRP group for this site has estimated that the future costs
of groundwater remediation would be approximately $26 million of which, based on
waste allocations among members of the PRP group, the Company's share was
estimated to be approximately 5.5%. At December 31, 1998, the Company believes
its probable liability with respect to this site, based upon present facts and
circumstances, will be approximately $.5 million ($2 million estimated liability
net of anticipated insurance recoveries of $1.5 million). Although there can be
no assurance, the Company does not believe, based upon present facts and
circumstances, that its probable liability with respect to any of the other
pending disposal site environmental remediation matters to which it is a party
will be material to the results of operations or financial condition of the
Company.
The Company is also a party to a pending proceeding relating to the
investigation and potential remediation of soil and groundwater contamination at
its manufacturing facility located at 1945 East State Street in Trenton, New
Jersey. The investigation of the nature and extent of any contamination at this
site has not been completed and the Company is therefore unable to estimate the
amount, if any, of its probable liability with respect to the potential
remediation of this site.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to all
information under the caption "Market Information" on page 41 of the Company's
Annual Report to Shareholders for the year ended December 31, 1998 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
Item 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to all
information under the heading "Selected Financial Data" on page 20 of the
Company's Annual Report to Shareholders for the year ended December 31, 1998
(included as Exhibit 13.1 to this Annual Report on Form 10-K).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to all
information under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 21 through 24 of the Company's
Annual Report to Shareholders for the year ended December 31, 1998 (included as
Exhibit 13.1 to this Annual Report on Form 10-K).
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 December 31, 1998 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are incorporated by reference and
the financial statement schedule is included in this report on Form 10-K, as
listed in Item 14(a) Part IV of this report.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by these Items (except for the information
regarding executive officers called for by Item 401 of Regulation S-K which is
included in Part I hereof in accordance with General Instruction G(3)), is
hereby incorporated by reference to the Registrant's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held on May 5, 1999.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company and the report of
independent auditors are incorporated herein by reference in the
Company's Annual Report to Shareholders for the year ended December
31, 1998 (included as Exhibit 13.1 to this Annual Report on Form
10-K).
Annual Report
Page Number
-----------
Report of Independent Auditors 40
Balance Sheets at December 31, 1998 and December 31, 1997 25
Statements of Operations for each of the three years ended
December 31, 1998, 1997 and 1996 26
Statements of Changes in Stockholders' Equity for each of
the three years ended December 31, 1998,
1997 and 1996 27
Statements of Cash Flows for each of the three years
ended December 31, 1998, 1997 and 1996 28
Notes to Financial Statements 29
Supplementary Data
Quarterly Financial Data (Unaudited) 39
(2) The following financial statement schedule is included in this
report on Form 10-K:
Page Number
-----------
Schedule II - Valuation and Qualifying Accounts 23
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial
statements or notes thereto.
(3) Exhibits
These exhibits, required to be filed by Item 601 of Regulation S-K,
are listed in the Exhibit Index included in this report at pages 20
through 22.
Exhibit
Number Exhibit
------ -------
2.1 Plan of Repurchase dated as of February 1, 1995 by and among
American Biltrite Inc., Hillside Industries Incorporated
("Hillside"), Congoleum Holdings Incorporated ("Congoleum
Holdings"), Resilient Holdings Incorporated ("Resilient Holdings")
and the Company.
15
Exhibit
Number Exhibit
------ -------
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Amended and Restated Bylaws of the Company.
4.1 Financing Agreement, dated April 19, 1991 (the "CIT Financing
Agreement"), by and among the CIT Group/Business Credit, Inc.
("CIT"), The Bank of New York Commercial Corporation ("BONY/CC"),
Chemical Bank ("Chemical") and The Chase Manhattan Bank, N.A.
("Chase") (collectively, the "Senior Lenders") and the Company.
4.2 First Amendment, dated March 11, 1993, to the CIT Financing
Agreement by and among the Senior Lenders and the Company.
4.3 Indenture, dated as of February 1, 1994, between the Company and
Chemical, as trustee.
4.4 Registration Rights Agreement, dated as of February 8, 1995 by and
between the Company and Hillside.
4.5 Indenture, dated as of August 3, 1998 (the "1998 Indenture"), by
and between the Company and First Union National Bank, as trustee.
4.6 Loan and Security Agreement, dated December 18, 1998 (the "First
Union Loan Agreement"), by and between First Union National Bank
(the "Lender") and the Company.
4.6.1 Joinder Amendment, dated December 21, 1998 (the "Joinder
Agreement"), by and among the Company, Congoleum Intellectual
Properties, Inc., Congoleum Financial Corporation and the Lender.
10.1 The CIT Financing Agreement (see Exhibit 4.1).
10.2 First Amendment to the CIT Financing Agreement (see Exhibit 4.2).
10.8 Joint Venture Agreement, dated as of December 16, 1992, by and
among Resilient Holdings, Hillside, the Company (collectively the
"Congoleum Group"), Hillside Capital Incorporated ("Hillside
Capital") and American Biltrite.
10.9 Closing Agreement, dated as of March 11, 1993, by and among the
Congoleum Group, Hillside Capital and American Biltrite.
10.12 Stockholders Agreement, dated as of March 11, 1993 (the
"Stockholders Agreement"), by and among the Congoleum Group,
American Biltrite and Congoleum Holdings.
10.12.1 First Amendment, dated February 8, 1995, to the Stockholders
Agreement, by and among Hillside, American Biltrite and the
Company.
10.13 Personal Services Agreement, dated as of March 11, 1993 (the
"Personal Services Agreement"), by and between American Biltrite
and the Company.
10.13.1 First Amendment, dated February 8, 1995, to Personal Services
Agreement, by and between American Biltrite and the Company.
10.13.2 Second Amendment, dated November 15, 1996, to Personal Services
Agreement, by and between American Biltrite and the Company.
16
Exhibit
Number Exhibit
------ -------
10.13.3 Third Amendment, dated as of March 15, 1998, to Personal Services
Agreement, by and between American Biltrite and the Company.
10.14 Business Relations Agreement, dated as of March 11, 1993, by and
between American Biltrite and the Company.
10.14.1 First Amendment, dated August 19, 1997, to Business Relations
Agreement, by and between American Biltrite and the Company.
10.15 Tax Sharing and Indemnification Agreement, dated as of March 11,
1993, by and among Congoleum Holdings, Resilient Holdings, Hillside
Capital and the Company.
10.15.1 Tax Sharing Agreement, dated as of November 1, 1996, between
American Biltrite and the Company.
10.19 Commitment Letter, dated January 19, 1994 regarding Financing
Agreement dated April 19, 1991, as amended, by and among CIT,
BONYCC and the Company.
10.20 Trademark Purchase Agreement, dated November 29, 1993, by and
between the Company and The Amtico Company LTD ("Amtico Company").
10.21 First Right of Refusal, dated November 29, 1993, by and between
American Biltrite (Canada) Limited and Amtico Company.
10.22 Undertaking Concerning Amtico Trademark, dated November 29, 1993,
by and between American Biltrite and Amtico Company.
10.23 Form of 1995 Stock Option Plan.
10.23.1 Form of Amendment to 1995 Stock Option Plan.
10.24 License Agreement, dated as of September 20, 1995 between Congoleum
Intellectual Properties, Inc. and the Company.
10.25 Registration Rights Agreement, dated as of August 3, 1998, by and
among the Company, Goldman, Sachs & Co., Credit Suisse First Boston
Corporation and ING Barings Furman Selz LLC.
10.26 The First Union Loan Agreement (see Exhibit 4.6).
10.26.1 The Joinder Agreement (see Exhibit 4.6.1).
11.1 Statement regarding computation of earnings per common share.
13.1 Pages 20 through 41 of the Congoleum Annual Report to Shareholders
for the year ended December 31, 1998.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
17
(b) Reports on Form 8-K.
During the quarter ended December 31, 1998 the Company filed
no current reports on Form 8-K.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 26th day of
March, 1999.
CONGOLEUM CORPORATION
By: /s/
-------------------------------
Roger S. Marcus
President, Chairman & Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ President, Chairman, Chief Executive March 26, 1999
- -------------------- Officer and Director (Principal
Roger S. Marcus Executive Officer)
/s/ Senior Vice President - Finance March 26, 1999
- -------------------- (Principal Financial and
Howard N. Feist Accounting Officer)
/s/ Vice Chairman and Director March 26, 1999
- --------------------
Richard G. Marcus
/s/ Director March 26, 1999
- --------------------
William M. Marcus
/s/ Director March 26, 1999
- --------------------
John N. Irwin III
/s/ Director March 26, 1999
- --------------------
Cyril C. Baldwin, Jr.
/s/ Director March 26, 1999
- --------------------
David N. Hurwitz
/s/ Director March 26, 1999
- --------------------
Mark N. Kaplan
/s/ Director March 26, 1999
- --------------------
C. Barnwell Straut
19
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
***2.1 Plan of Repurchase dated as of February 1, 1995 by and among
American Biltrite Inc., Hillside Industries Incorporated
("Hillside Industries"), Congoleum Holdings Incorporated
("Congoleum Holdings"), Resilient Holdings Incorporated
("Resilient Holdings") and the Company.
*****3.1 Certificate of Incorporation of the Company, as amended.
*****3.2 Amended and Restated Bylaws of the Company.
**4.1 Financing Agreement, dated April 19, 1991 (the "CIT Financing
Agreement"), by and among the CIT Group/Business Credit, Inc.
("CIT"), The Bank of New York Commercial Corporation
("BONY/CC"), Chemical Bank ("Chemical") and The Chase Manhattan
Bank, N.A. ("Chase") (collectively, the "Senior Lenders") and
the Company.
**4.2 First Amendment, dated March 11, 1993, to the CIT Financing
Agreement by and among the Senior Lenders and the Company.
**4.3 Indenture, dated as of February 1, 1994, between the Company and
Chemical, as trustee.
***4.4 Registration Rights Agreement, dated as of February 8, 1995 by
and between the Company and Hillside.
******4.5 Indenture, dated as of August 3, 1998 (the "1998 Indenture"), by
and between the Company and First Union National Bank, as
trustee.
4.6 Loan and Security Agreement, dated December 18, 1998 (the "First
Union Loan Agreement"), by and between First Union National Bank
(the "Lender") and the Company.
4.6.1 Joinder Amendment, dated December 21, 1998 (the "Joinder
Agreement"), by and among the Company, Congoleum Intellectual
Properties, Inc., Congoleum Financial Corporation and the
Lender.
**10.1 The CIT Financing Agreement (see Exhibit 4.1).
**10.2 First Amendment to the CIT Financing Agreement (see Exhibit
4.2).
**10.8 Joint Venture Agreement, dated as of December 16, 1992, by and
among Resilient Holdings, Hillside, the Company (collectively,
the "Congoleum Group"), Hillside Capital Incorporated ("Hillside
Capital") and American Biltrite.
**10.9 Closing Agreement, dated as of March 11, 1993, by and among the
Congoleum Group, Hillside Capital and American Biltrite.
**10.12 Stockholders Agreement, dated as of March 11, 1993 (the
"Stockholders Agreement"), by and among the Congoleum Group,
American Biltrite and Congoleum Holdings.
***10.12.1 First Amendment, dated February 8, 1995, to the Stockholders
Agreement, by and among Hillside, American Biltrite and the
Company.
20
Exhibit
Number Exhibit
------ -------
**10.13 Personal Services Agreement, dated as of March 11, 1993 (the
"Personal Services Agreement"), by and between American Biltrite
and the Company.
***10.13.1 First Amendment, dated February 8, 1995, to Personal Services
Agreement, by and between American Biltrite and the Company.
*******10.13.2 Second Amendment, dated November 15, 1996, to Personal Services
Agreement, by and between American Biltrite and the Company.
*******10.13.3 Third Amendment, dated as of March 10, 1998, to Personal
Services Agreement, by and between American Biltrite and the
Company.
**10.14 Business Relations Agreement, dated as of March 11, 1993, by and
between American Biltrite and the Company.
*******10.14.1 First Amendment, dated August 19, 1997, to Business Relations
Agreement, by and between American Biltrite and the Company.
**10.15 Tax Sharing and Indemnification Agreement, dated as of March 11,
1993, by and among Congoleum Holdings, Resilient Holdings,
Hillside Capital and the Company.
*******10.15.1 Tax Sharing Agreement, dated as of November 1, 1996, between
American Biltrite and the Company.
**10.19 Commitment Letter, dated January 19, 1994 regarding Financing
Agreement dated April 19, 1991, as amended, by and among CIT,
BONYCC and the Company.
***10.20 Trademark Purchase Agreement, dated November 29, 1993, by and
between the Company and The Amtico Company LTD ("Amtico
Company").
***10.21 First Right of Refusal, dated November 29, 1993, by and between
American Biltrite (Canada) Limited and Amtico Company.
***10.22 Undertaking Concerning Amtico Trademark, dated November 29,
1993, by and between American Biltrite and Amtico Company.
***10.23 Form of 1995 Stock Option Plan.
********10.23.1 Form of Amendment to 1995 Stock Option Plan.
****10.24 License Agreement, dated as of September 20, 1995 between
Congoleum Intellectual Properties, Inc. and the Company.
******10.25 Registration Rights Agreement, dated as of August 3, 1998, by
and among the Company, Goldman, Sachs & Co., Credit Suisse First
Boston and ING Barings Furman Selz LLC.
10.26 The First Union Loan Agreement (see Exhibit 4.6).
10.26.1 The Joinder Agreement (see Exhibit 4.6.1).
11.1 Statement regarding computation of earnings per common share.
21
Exhibit
Number Exhibit
------ -------
13.1 Pages 20 through 41 of the Congoleum Annual Report to
Shareholders for the year ended December 31, 1998.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
- -------------
** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Registration Statement on Form S-1 (File No.
33-71836) declared effective by the Securities and Exchange Commission
on January 25, 1994.
*** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Registration Statement on Form S-1 (File No.
33-87282) declared effective by the Securities and Exchange Commission
on February 1, 1995.
**** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
***** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
****** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998.
******* Incorporated by reference to the exhibit bearing the same number filed
with the Company's Annual Report on Form 10-K for the fiscal period
ended December 31, 1997.
******** Incorporated by reference to the exhibit bearing the same number filed
with the Company's Annual Report on Form 10-K for the fiscal period
ended December 31, 1996.
22
SCHEDULE II
CONGOLEUM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
-------
Additions
--------------------------
Balance at Charged Balance
Beginning to Costs/ Other at end
of Period Expenses (a) Changes Deductions (b) of Period
--------- ------------ ------- -------------- ---------
Year ended December 31, 1998:
Allowance for doubtful
accounts and cash
discounts $(3,294) $ -- $ (39)(c) $ (3) $(3,336)
Year ended December 31, 1997:
Allowance for doubtful
accounts and cash
discounts $(3,406) $ -- $ 33 (c) $ 79 $(3,294)
Year ended December 31, 1996:
Allowance for doubtful
accounts and cash
discounts $(5,095) $ (600) $ -- $2,289 $(3,406)
(a) Uncollectible accounts charged to bad debt expense.
(b) Balances written-off, net of recoveries.
(c) Represents reduction of the allowance for doubtful accounts and cash
discounts.
23