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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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)
3500 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X|
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, 2004
----------------------------- --------------------------------
Class A Common Stock 3,651,190
Class B Common Stock 4,608,945
CONGOLEUM CORPORATION
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2004
(unaudited) and December 31, 2003....................................3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2004 and 2003 (unaudited).....................4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2004 and 2003 (unaudited)...............5
Notes to Unaudited Condensed Consolidated Financial
Statements (unaudited)...............................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........29
Item 4. Controls and Procedures.............................................29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................30
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities................................................30
Item 3. Defaults Upon Senior Securities.....................................30
Item 4. Submission of Matters to a Vote of Security Holders.................30
Item 5. Other Information...................................................30
Item 6. Exhibits and Reports on Form 8-K....................................31
Signatures ..................................................................32
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONGOLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2004 2003
- -----------------------------------------------------------------------------------
(unaudited)
- -----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,482 $ 2,169
Restricted cash 1,358 1,757
Accounts receivable, net 19,092 13,560
Inventories 44,670 44,995
Prepaid expenses and other current assets 7,417 9,672
Deferred income taxes 8,752 8,752
- -----------------------------------------------------------------------------------
Total current assets 91,771 80,905
Property, plant, and equipment, net 85,101 87,035
Other assets, net 7,832 7,959
- -----------------------------------------------------------------------------------
Total assets $ 184,704 $ 175,899
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 11,962 $ 4,544
Accrued liabilities 18,635 24,655
Asbestos-related liabilities 8,678 9,819
Revolving Credit Loan - secured debt 11,237 10,232
Accrued taxes 157 130
Deferred income taxes 4,376 4,376
- -----------------------------------------------------------------------------------
Total current liabilities 55,045 53,756
- -----------------------------------------------------------------------------------
Liabilities subject to compromise 151,495 --
Long-term debt -- 99,773
Accrued pension liability -- 24,032
Other liabilities -- 11,222
Deferred income taxes 4,376 4,376
Accrued post retirement benefit obligation -- 8,517
- -----------------------------------------------------------------------------------
Total liabilities 210,916 201,676
- -----------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A common stock, par value $0.01; 20,000,000 shares
authorized; 4,736,950 shares issued and 3,651,190
outstanding as of March 31, 2004 and December 31, 2003,
respectively 47 47
Class B common stock, par value $0.01; 4,608,945 shares
authorized issued and outstanding 46 46
Additional paid-in capital 49,105 49,105
Retained deficit (47,213) (46,778)
Accumulated other comprehensive loss (20,384) (20,384)
Less Class A common stock held in treasury, at cost;
1,085,760 shares 7,813 7,813
- -----------------------------------------------------------------------------------
Total stockholders' equity (deficit) (26,212) (25,777)
- -----------------------------------------------------------------------------------
Total liabilities and stockholders'
equity (deficit) $ 184,704 $ 175,899
- -----------------------------------------------------------------------------------
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
CONGOLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2004 2003
---------------------
(In thousands, except
per share amounts)
Net sales ................................................... $ 52,000 $ 53,581
Cost of sales ............................................... 38,449 40,914
Selling, general and administrative expenses ................ 11,985 13,203
-------- --------
Income (loss) from operations ............................ 1,566 (536)
Other income (expense):
Interest income .......................................... -- 39
Interest expense ......................................... (2,245) (2,235)
Other income ............................................. 244 144
-------- --------
Net loss ................................................. $ (435) $ (2,588)
======== ========
Net loss per common share, basic and diluted .......... $ (0.05) $ (0.31)
======== ========
Weighted average number of common shares outstanding .. 8,260 8,260
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
CONGOLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------
2004 2003
(In thousands)
Cash flows from operating activities:
Net loss ....................................................... $ (435) $ (2,588)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation ................................................ 2,751 2,779
Amortization ................................................ 140 139
Changes in certain assets and liabilities:
Accounts and notes receivable ........................... (5,532) (1,729)
Inventories ............................................. 325 (3,131)
Prepaid expenses and other assets ....................... 2,255 2,304
Accounts payable ........................................ 7,418 (2,497)
Accrued expenses ........................................ 2,053 (12,960)
Asbestos-related expenses ............................... (1,141) (4,177)
Other liabilities ....................................... (28) (382)
-------- --------
Net cash provided by (used in) operating activities .. 7,806 (22,242)
-------- --------
Cash flows from investing activities:
Capital expenditures ........................................ (847) (1,015)
Proceeds from asset retirement .............................. 30 --
-------- --------
Net cash used in investing activities ................ (817) (1,015)
-------- --------
Cash flows from Financing activities:
Net short-term borrowings ................................... 925 14,751
Net change in restricted cash ............................... 399 (3,024)
-------- --------
Net cash provided by financing activities ........... 1,324 11,727
-------- --------
Net increase (decrease) in cash and cash equivalents .............. 8,313 (11,530)
Cash and cash equivalents:
Beginning of period ............................................ 2,169 18,277
-------- --------
End of period .................................................. $ 10,482 $ 6,747
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
CONGOLEUM CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments) considered
necessary for a fair presentation of Congoleum Corporation's (the "Company" or
"Congoleum") consolidated financial position, results of operations and cash
flows have been included. Operating results for the three-month period ended
March 31, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004. For further information, refer
to the consolidated financial statements and related footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Based upon the nature of the Company's operations, facilities and
management structure, the Company considers its business to constitute a single
segment for financial reporting purposes.
Certain amounts appearing in the prior period's condensed consolidated
financial statements have been reclassified to conform to the current period's
presentation.
The financial statements of Congoleum have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Accordingly, the financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern. As described more fully below
and in Note 6, there is substantial doubt about the Company's ability to
continue as a going concern unless it obtains relief from its substantial
asbestos liabilities through a successful reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code").
On December 31, 2003, Congoleum filed a voluntary petition with the United
States Bankruptcy Court for the District of New Jersey (Case No. 03-51524)
seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve
claims asserted against it related to the use of asbestos in its products
decades ago. During 2003, Congoleum obtained the requisite votes of asbestos
personal injury claimants necessary to seek approval of a proposed, pre-packaged
Chapter 11 plan of reorganization. In January 2004, the Company filed its
proposed plan of reorganization and disclosure statement with the Bankruptcy
Court. The Bankruptcy Court has approved the disclosure statement and has
scheduled a hearing on July 22, 2004 to consider approval of the proposed plan
of reorganization. Congoleum is presently involved in litigation with certain
insurance carriers related to disputed insurance coverage for asbestos related
liabilities, and certain insurance carriers have filed various objections to
Congoleum's proposed plan of reorganization and related matters.
6
The proposed, pre-packaged plan of reorganization, if confirmed, would
leave non-asbestos creditors unimpaired and would resolve all pending and future
asbestos claims against the Company. The proposed plan of reorganization would
provide, among other things, for an assignment of certain rights in, and
proceeds of, Congoleum's applicable insurance to a trust (the "Plan Trust") that
would fund the settlement of all pending and future asbestos claims and protect
the Company from future asbestos-related claims and litigation by channeling all
asbestos claims to the Plan Ttrust pursuant to the provisions of Section 524(g)
of the Bankruptcy Code. Other creditors would be unimpaired under the plan. The
Company expects that it will take most of 2004 to obtain confirmation of its
proposed plan of reorganization.
Based on its pre-packaged bankruptcy strategy, the Company has made
provision in its financial statements for the minimum amount of the range of
estimates for its contribution and costs to effect the proposed plan to settle
asbestos liabilities through a Plan Trust established pursuant to the provisions
of Section 524(g) of the Bankruptcy Code. The Company recorded a charge of $17.3
million in the fourth quarter of 2002 and an additional $3.7 million in the
fourth quarter of 2003 to provide for the estimated minimum costs of completing
its reorganization. Actual amounts that will be contributed to the Plan Trust
and costs for pursuing and implementing the plan of reorganization could be
materially higher.
For more information regarding the Company's asbestos liability and plan
for resolving that liability, please refer to Note 6 of the Notes to Unaudited
Condensed Consolidated Financial Statements. There can be no assurance that the
Company will be successful in realizing its goals in this regard or in obtaining
confirmation of its proposed plan of reorganization. As a result, any
alternative plan of reorganization pursued by the Company or confirmed by the
Bankruptcy Court could vary significantly from the description in this report
and the estimated costs and contributions to effect the contemplated plan of
reorganization could be significantly greater than currently estimated. Any plan
of reorganization pursued by the Company will be subject to numerous conditions,
approvals and other requirements, including Bankruptcy Court approval, and there
can be no assurance that such conditions, approvals and other requirements will
be satisfied or obtained. Delays in getting the Company's plan of reorganization
approved by the Bankruptcy Court could result in a proceeding that takes longer
and is more costly than the Company has estimated.
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"), provides financial
reporting guidance for entities that are reorganizing under the Bankruptcy Code.
The Company has implemented this guidance in its consolidated financial
statements for periods commencing after December 31, 2003.
Pursuant to SOP 90-7, companies are required to segregate pre-petition
liabilities that are subject to compromise and report them separately on the
balance sheet. Liabilities that may be affected by a plan of reorganization are
recorded at the amount of the expected allowed claims, even if they may be
settled for lesser amounts. Liabilities for asbestos claims are recorded based
upon the minimum amount the Company expects to spend for its contribution to,
and costs to settle asbestos liabilities through, a Plan Trust established under
Section 524(g) of the Bankruptcy Code. Obligations arising post-petition, and
pre-petition obligations that are secured or that the Bankruptcy Court has
authorized the Company to pay, are not classified as liabilities subject to
compromise. Other pre-petition claims (liabilities subject to compromise) may
arise due to the rejection of executory contracts or unexpired leases, or as a
result of the allowance of contingent or disputed claims.
7
2. Recent Accounting Principles
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,
which addresses consolidation by business enterprises of variable interest
entities ("VIEs"). In December 2003, the FASB completed deliberations of
proposed modifications to FIN 46 ("Revised Interpretations") resulting in
multiple effective dates based on the nature as well as the creation date of the
VIE. The Revised Interpretations must be applied no later than the second
quarter of fiscal year 2004. The adoption of FIN 46 had no impact on the
Company's consolidated financial statements as of December 31, 2003, and the
Company does not expect there to be an impact on the consolidated financial
statements from the adoption of the deferred provisions in the second quarter of
fiscal year 2004.
The Company discloses stock-based compensation information in accordance
with FASB issued Statement No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation--Transition and Disclosure--an Amendment of FASB Statement No. 123"
and Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation."
SFAS 148 provides additional transition guidance for companies that elect to
voluntarily adopt the provisions of SFAS 123. SFAS 148 does not change the
provisions of SFAS 123 that permit companies to continue to apply the intrinsic
value method of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." The Company has elected to continue
to account for its stock-based plans under APB 25, as well as to provide
disclosure of stock-based compensation as outlined in SFAS 123 as amended by
SFAS 148.
A reconciliation of net income, as reported, to pro forma net income
including compensation expense for the Company's stock-based plans as calculated
based on the fair value at the grant dates for awards made under these plans in
accordance with the provisions of SFAS 123 as amended by SFAS 148, as well as a
comparison of as reported and pro forma basic and diluted EPS follows (in
thousands, except per share data):
For the three months ended March 31,
(dollars in thousands, except per share amounts) 2004 2003
---- ----
Net loss:
As reported $ (435) $ (2,588)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects, pro forma (51) (52)
-------- --------
As adjusted $ (486) $ (2,640)
======== ========
Net loss per share:
As reported $ (0.05) $ (0.31)
Pro forma compensation expense (0.01) (0.01)
-------- --------
As adjusted $ (0.06) $ (0.32)
======== ========
8
3. Inventories
A summary of the major components of inventories is as follows (in
thousands):
March 31, December 31,
2004 2003
--------------------------------------------------------------
Finished goods $ 37,176 $ 37,959
Work-in-process 2,429 1,266
Raw materials and supplies 5,065 5,770
--------------------------------------------------------------
Total inventories $ 44,670 $ 44,995
--------------------------------------------------------------
4. Loss Per Share
Net loss per share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding.
5. Environmental and Other Liabilities
The Company records a liability for environmental remediation claims when
a cleanup program or claim payment becomes probable and the costs can be
reasonably estimated in accordance with SOP 96-1. As assessments and cleanup
programs progress, these liabilities are adjusted based upon the progress in
determining the timing and extent of remedial actions and the related costs and
damages. The recorded liabilities are not reduced by the amount of insurance
recoveries. Such estimated insurance recoveries are reflected in other
noncurrent assets and are considered probable of recovery.
The Company is named, together with a large number (in most cases,
hundreds) of other companies, as a potentially responsible party ("PRP") in
pending proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended, ("CERCLA"), and similar state laws.
In addition, in four other instances, although not named as a PRP, the Company
has received a request for information. These pending proceedings currently
relate to four disposal sites in New Jersey, Pennsylvania, Maryland and
Connecticut 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 in connection with those sites depends on many factors, including the
volume of material contributed to the site, the number of other PRP's 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, the Company, as a PRP, can be held jointly and severally
liable for all environmental costs associated with a site.
The most significant exposure to which the Company has been named a PRP
relates to a recycling facility site in Elkton, Maryland. The PRP group at this
site is made up of 81 companies, substantially all of which are large
financially solvent entities. Two removal actions were 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 estimated that future costs of
9
groundwater remediation, based on engineering and consultant studies conducted,
would be approximately $26 million. Congoleum's proportionate share, based on
waste disposed at the site, is estimated to be approximately 5.8%.
The Company also accrues remediation costs for certain of the Company's
owned facilities on an undiscounted basis. The Company has entered into an
administrative consent order with the New Jersey Department of Environmental
Protection and has self-guaranteed certain remediation funding sources and
financial responsibilities. Estimated total cleanup costs, including capital
outlays and future maintenance costs for soil and groundwater remediation are
primarily based on engineering studies.
The outcome of these matters could result in significant expenses or
judgments that could have a material adverse effect on the financial position of
the Company.
6. Asbestos Liabilities
Claims Settlement and Chapter 11 Reorganization
In early 2003, the Company announced that it was seeking to resolve its
asbestos liabilities through confirmation of a pre-packaged plan of
reorganization under Chapter 11 of the Bankruptcy Code, and later in 2003,
consistent with this strategy, the entered into a settlement agreement with
various asbestos claimants (the "Claimant Agreement"). As contemplated by the
Claimant Agreement, the Company also entered into agreements establishing a
pre-petition trust (the "Collateral Trust") to distribute funds in accordance
with the terms of the Claimant Agreement, and granting the Collateral Trust a
security interest in its rights under applicable insurance coverage and payments
from insurers for asbestos claims.
The Claimant Agreement established a compensable disease valuation matrix
(the "Matrix") and allowed claimants who qualified to participate in the
Claimant Agreement (the "Qualifying Claimants") to settle their claims for the
Matrix value, secured in part (75%) by the security interest in the collateral
granted to the Collateral Trust. The Collateral Trust provides for distribution
of trust assets according to various requirements that give priority (subject to
aggregate distribution limits) to participating claimants who had pre-existing
unfunded settlement agreements ("Pre-Existing Settlement Agreements") with the
Company and participating claimants who qualified for payment under unfunded
settlement agreements entered into by the Company with plaintiffs that had
asbestos claims pending against the Company and which claims were scheduled for
trial after the effective date of the Claimant Agreement but prior to the
commencement of the Company's anticipated Chapter 11 reorganization case
("Trial-Listed Settlement Agreements").
The Claimant Agreement incorporated pre-existing settlement agreements and
settled certain trial-listed claims for a fully secured claim against the
Collateral Trust, and it settled all other claims for a secured claim against
the Collateral Trust equal to 75% of the claim value and an unsecured claim for
the remaining 25%. Under the proposed plan of reorganization, after the
establishment of the Plan Trust, the assets in the Collateral Trust would be
transferred to the Plan Trust. The Company expects that any claims subject to
the Claimant Agreement that are unsatisfied as of the confirmation of the plan
of reorganization by the Bankruptcy Court would be channeled to the Plan Trust.
10
In October 2003, the Company began soliciting acceptances for its proposed
pre-packaged plan of reorganization and the Company received the votes necessary
for acceptance of the plan in late December 2003.
The Company's proposed plan of reorganization provides for, among other
things, an assignment of certain rights in, and proceeds of, the Company's
applicable insurance to the Plan Trust that would fund the settlement of all
pending and future asbestos claims and protect the Company from future
asbestos-related litigation by channeling all asbestos claims to the Plan Trust
pursuant to the provisions of Section 524(g) of the Bankruptcy Code. The
Company's other creditors are unimpaired under the proposed plan and will be
paid in the ordinary course of business. In January 2004, the Bankruptcy Court
approved payment of pre-petition obligations to trade creditors in the ordinary
course of business.
The Bankruptcy Court has approved the disclosure statement supporting its
proposed plan of reorganization and has scheduled a hearing on July 22, 2004 to
consider approval of the proposed plan of reorganization.
The Company's proposed plan of reorganization and related documents
provide for the channeling of asbestos property damage claims in addition to
asbestos personal injury claims to the Plan Trust established pursuant to the
provisions of Section 524(g) of the Bankruptcy Code. There were no property
damage claims asserted against the Company at the time of its bankruptcy filing.
The Bankruptcy Court approved an order establishing a bar date of May 3, 2004
for the filing of asbestos property damage claims. The claims agent appointed in
the Company's bankruptcy proceeding has advised the Company that, as of the Bar
date, it received 35 timely filed asbestos property damage claims asserting
liquidated damages in the amount of $0.8 million plus additional unspecified
amounts. The Company is currently reviewing the filed asbestos property damage
claims.
The Company expects to issue a promissory note (the "Company Note") to the
Plan Trust as part of the Company's proposed plan of reorganization. Under the
terms of the proposed plan, the original principal amount of the Company Note
will be $2,738,234.75 (the "Original Principal Amount") and will be subject to
increase as of the later of June 30, 2005 and the last trading day of the 90
consecutive trading day period commencing on the first anniversary of the
effective date of the Company's confirmed pre-packaged Chapter 11 plan of
reorganization (the "Principal Adjustment Date") in an amount equal to the
excess, if any, of the amount by which 51% of the Company's market
capitalization as of the Principal Adjustment Date (based upon (subject to
certain exceptions) the total number of shares of the Company's common stock
outstanding as of such date multiplied by the average of the closing trading
prices of the Company's Class A common stock for the 90 consecutive trading days
ending on the Principal Adjustment Date) exceeds the Original Principal Amount
(the "Additional Principal Amount"), plus any accrued but unpaid interest or
other amounts that may be added to such principal amount pursuant to the terms
of the Company Note. Under the terms of the proposed plan, interest on the
outstanding principal of the Company Note will accrue at a rate of 9% per annum,
interest on the Original Principal Amount will accrue and be payable quarterly
and interest on the Additional Principal Amount will accrue quarterly and be
11
added to the Additional Principal Amount as additional principal. Upon the
earlier of August 1, 2008 and the date that all of the Senior Notes are repaid
in full, interest on the then outstanding Additional Principal Amount will then
accrue and be payable quarterly.
Under the terms of the proposed plan of reorganization all principal on
the Company Note then outstanding together with any accrued but unpaid interest
will be payable in full on the tenth anniversary of the date of the Company
Note, subject to the right of the Plan Trust to accelerate all amounts then owed
on the Company Note following an uncured event of default under the Company
Note. Events of default under the Company Note would include the failure to pay
interest and principal prior to the expiration of a 10-day grace period
following the applicable due date, the occurrence of an event of default under
the indenture governing the Senior Notes, the breach by the Company of any
covenant or agreement contained in the Company Note which remains uncured 30
days following notice by the Plan Trust to the Company and ABI of the breach and
a material breach of the pledge agreement (the "ABI Pledge Agreement") by
American Biltrite, Inc. (ABI) (which agreement is discussed below) which remains
uncured 30 days following notice by the Plan Trust to ABI and the Company of the
breach. The terms of the Company Note would provide that, upon the occurrence of
an event of default under the Company Note, the Company and ABI would have 10
days from the date they receive notice that an event of default has occurred to
cure the event of default. If the event of default remains uncured after the
10-day cure period, the aggregate outstanding principal amount of the Company
Note together with any accrued but unpaid interest thereon would become
immediately due and payable if the event of default relates to an uncured event
of default of the indenture governing the Company's Senior Notes, and with
regard to other events of default of the Company Note, the Plan Trust may, upon
notice to the Company and ABI, declare the aggregate outstanding principal
amount of the Company Note together with any accrued but unpaid interest thereon
to be immediately due and payable. The Plan Trust's rights to payment under the
Company Note will be subordinate and subject in right of payment to the prior
payment in full of all amounts owing and payable pursuant to the Senior Notes
and the Company's credit facility, except that regularly scheduled interest
payments under the Company Note are expected to be payable by the Company so
long as no default or event of default has occurred or is continuing under the
indenture governing the Company's Senior Notes or the Company's credit facility.
The proposed plan of reorganization contemplates that, pursuant to the ABI
Pledge Agreement, ABI will pledge all of the shares of the Company's common
stock that ABI owns, together with any other equity interests and rights ABI may
own or hold in the Company, as of the date of the Company Note, as collateral
for the Company's obligations under the Company Note. As additional security for
the Company Note, the ABI Pledge Agreement and the terms of the Company's
proposed plan of reorganization provide that any amounts that the Plan Trust
would be obligated to pay ABI pursuant to any rights of indemnity that ABI may
have against the Plan Trust for asbestos-related claims pursuant to the
Company's pre-packaged Chapter 11 plan of reorganization or a certain Joint
Venture Agreement, entered into in 1992, as to which both the Company and ABI
are parties to (as amended, the "Joint Venture Agreement"), will not be paid by
the Plan Trust until after any amounts due and payable to the Plan Trust under
the Company Note have been paid in full to the Plan Trust. Until such time, any
such indemnity payments that would otherwise have been payable by the Plan Trust
to ABI, would be set aside by the Plan Trust and held in escrow by the Plan
Trust for ABI's benefit and pledged by ABI as additional collateral securing the
Company's obligations under the Company Note until released from such escrow and
12
paid to ABI, as further provided under the Company's proposed plan of
reorganization, the Company Note and the ABI Pledge Agreement.
The Company Note, the ABI Pledge Agreement and the Company's proposed plan
of reorganization also provide that the Company would be prohibited from making
any payments to ABI pursuant to any rights of indemnity that ABI may have
against the Company for claims pursuant to the Joint Venture Agreement until
after any amounts due and payable to the Plan Trust under the Company Note have
been paid in full to the Plan Trust. Until such time, any such indemnity
payments that would otherwise have been payable to ABI by the Plan Trust, will
be paid by the Company to the Plan Trust and the Plan Trust will set aside and
hold in escrow such amounts for ABI's benefit and ABI will pledge such amounts
as additional collateral securing the Company's obligations under the Company
Note until released from such escrow and paid to ABI, as further provided under
the Company's pre-packaged Chapter 11 plan of reorganization, the Company Note
and the ABI Pledge Agreement.
Under the proposed plan of reorganization ABI would be permitted to prepay
the principal amount of the Company Note, in whole but not in part, without any
penalty or premium at any time following the Principal Adjustment Date and any
interest that may have accrued but not yet paid at the time of any principal
repayment would be due and payable at the time of the principal repayment. The
Company would be obligated to repay ABI for any amounts paid by ABI pursuant to
the Company Note, which repayment obligation would by evidenced by a promissory
note or notes to be issued by the Company to ABI. Any such note would have
similar payment terms as those expected to be afforded to the Plan Trust with
regard to the Company Note, which rights of repayment are expected to be
subordinate and subject in right of payment to the prior payment in full of all
amounts owing and payable to the Plan Trust with regard to the Company Note and
with regard to amounts owing and payable pursuant to the Senior Notes and credit
facility, except that the right of full subordination with regard to the Senior
Notes and credit facility would contain an exception that would allow the
Company to make regularly scheduled interest payments to ABI pursuant to any
such note so long as no default or event of default has occurred or is
continuing under the indenture or the Company's credit facility.
The proposed plan of reorganization also provides that if ABI prepays the
Company Note and ABI sells all or substantially all of the shares of the
Company's stock that it holds as of the Principal Adjustment Date during the
three-year period following such date, ABI would be obligated to make a
contribution to the Plan Trust if the equity value of the Company implied by the
price paid to ABI for the shares of the Company's stock exceeded the greater of
$2,738,234.75 or 51% of the Company's market capitalization as of the Principal
Adjustment Date (based upon (subject to certain exceptions) the total number of
shares of the Company's common stock outstanding as of such date multiplied by
the average of the closing trading prices of the Company's Class A common stock
for the 90 consecutive trading days ending on the Principal Adjustment Date). In
such instance, the proposed plan would obligate ABI to pay to the Plan Trust an
amount equal to 50% of such excess amount. Under the terms of the Company's
proposed plan of reorganization, the Company would be obligated to repay ABI for
any amounts paid by ABI to the Plan Trust pursuant to this obligation. In
satisfaction of this repayment obligation, the Company would issue a promissory
note to ABI in a principal amount equal to the amount of any such payments made
by ABI plus any accrued but unpaid interest or other amounts that may be added
to such principal amount pursuant to the terms of the promissory note which
13
would be subordinate and subject in right of payment to the prior payment in
full of all amounts owing and payable pursuant to the Senior Notes and credit
facility, except that regularly scheduled interest payments could be paid on
such note so long as no default or event of default has occurred or is
continuing under the indenture governing the Senior Notes or the Company's
credit facility.
The proposed plan provides that the Plan Trust would be able to transfer
the Company Note, in whole but not in part, at any time following the Principal
Adjustment Date. Upon any transfer of the Company Note, the amounts pledged by
ABI and held in escrow by the Plan Trust for ABI's benefit with regard to ABI's
indemnity rights discussed above, will be paid by the Plan Trust, first, to the
Plan Trust in repayment of principal then outstanding on the Company Note
together with any accrued but unpaid interest thereon and, second, any amounts
remaining would be distributed by the Plan Trust to ABI.
ABI has agreed to make a cash contribution in the amount of $250 thousand
to the Plan Trust upon the formation of the Plan Trust. As previously discussed,
under the expected terms of the Company's proposed plan of reorganization, ABI
would receive certain relief as may be afforded under Section 524(g)(4) of the
Bankruptcy Code from asbestos claims that derive from claims made against the
Company, which claims are expected to be channeled to the Plan Trust. However,
the proposed plan of reorganization does not provide that any other asbestos
claims that may be asserted against ABI would be channeled to the Plan Trust.
While the Company believes its proposed pre-packaged Chapter 11 plan is
feasible and should be confirmed by the Bankruptcy Court, there are sufficient
risks and uncertainties such that no assurances of the outcome can be given. In
addition, the remaining costs to effect the reorganization process, consisting
principally of legal and advisory fees and contributions to the Plan Trust,
including one or more notes expected to be contributed to the Plan Trust by the
Company, are expected to be approximately $8.7 million at a minimum. .
Pending Asbestos Claims
The Company has been served notice that it is one of many defendants in
approximately 22 thousand pending lawsuits (including workers' compensation
cases) involving approximately 106 thousand individuals as of March 31, 2004,
alleging personal injury or death from exposure to asbestos or
asbestos-containing products. Claims involving approximately 80 thousand
individuals have been settled pursuant to the Claimant Agreement and litigation
related to unsettled claims is presently stayed by the bankruptcy statute.
Activity related to asbestos claims was as follows:
Three Months Ended Year Ended
March 31, 2004 December 31, 2003
-----------------------------------------------------------------------
Beginning claims............. 21,886 16,156
New claims................... 114 6,246
Settlements.................. 0 (66)
Dismissals................... 0 (450)
-----------------------------------------------------------------------
Ending claims................ 22,000 21,886
-----------------------------------------------------------------------
14
Nearly all asbestos-related claims that have been brought against the
Company to date allege that various diseases were caused by exposure to
asbestos-containing products, including resilient sheet vinyl and tile
manufactured by the Company (or, in the workers' compensation cases, exposure to
asbestos in the course of employment with the Company). The Company discontinued
the manufacture of asbestos-containing sheet products in 1983 and
asbestos-containing tile products in 1974. In general, governmental authorities
have determined that asbestos-containing sheet and tile products are nonfriable
(i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.
Status of Insurance Coverage
During the period that Congoleum produced asbestos-containing products,
the Company purchased primary and excess insurance policies providing in excess
of $1 billion coverage for general and product liability claims. Through August
2002, substantially all asbestos-related claims and defense costs were paid
through primary insurance coverage. In August 2002, the Company received notice
that its primary insurance limits had been paid in full. The payment of limits
in full by one of the primary insurance companies was based on its contention
that limits in successive policies were not cumulative for asbestos claims and
that Congoleum was limited to only one policy limit for multiple years of
coverage. Certain excess insurance carriers claimed that the non-cumulation
provisions of the primary policies were not binding on them and that there
remained an additional $13 million in primary insurance limits plus related
defense costs before their policies were implicated. On April 10, 2003, the New
Jersey Supreme Court ruled in another case involving the same non-cumulation
provisions as in the Congoleum primary policies (the "Spaulding Case") that the
non-cumulation provisions are invalid under New Jersey law and that the primary
policies provide coverage for the full amount of their annual limits for all
successive policies. Although Congoleum was not a party to this case, the
decision in the Spaulding Case is likely binding on Congoleum and its primary
insurance companies. Thus, based on the Spaulding Case decision, the primary
insurance companies are obligated to provide the additional coverage previously
disputed by the excess carriers. As of December 31, 2002, the Company had
entered into additional settlement agreements with asbestos claimants exceeding
the amount of previously disputed coverage. While the excess carriers have
objected to the reasonableness of several of these settlements, Congoleum
believes that the primary insurance company will now cover these settlements.
Notwithstanding that the primary insurance company will likely pay these
settlements, Congoleum also believes that the excess carriers will continue to
dispute the reasonableness of the settlements and contend that their policies
still are not implicated and will dispute their coverage for that and other
various reasons in ongoing coverage litigation. The excess insurance carriers
have also raised various objections to the Company's proposed plan of
reorganization.
The excess insurance carriers have objected to the global settlement of
the asbestos claims currently pending against Congoleum ("Claimant Agreement")
on the grounds that, among other things, the negotiations leading to the
settlement and the Claimant Agreement violate provisions in their insurance
policies, including but not limited to the carriers' right to associate in the
defense of the asbestos cases, the duty of Congoleum to cooperate with the
carriers and the right of the carriers to consent to any settlement, and also
15
contend the Claimant Agreement is not fair, reasonable or in good faith.
Congoleum disputes the allegations and contentions of the excess insurance
carriers. On November 7, 2003, the court denied a motion for summary judgment by
the excess insurance carriers that the Claimant Agreement was not fair,
reasonable or in good faith, ruling that material facts concerning these issues
were in dispute. On April 19, 2004, the court denied a motion for summary
judgment by the excess carriers that the Claimant Agreement was not binding on
them because Congoleum had breached the consent and cooperation clauses of their
insurance policies by, among other things, entering into the Claimant Agreement
without their consent. Congoleum argues, among other things, that it was
entitled to enter into the Claimant Agreement and/or the Claimant Agreement was
binding on the excess insurance carriers because they were in breach of their
policies and/or had denied coverage and/or had created a conflict with Congoleum
by reserving rights to deny coverage and/or the Claimant Agreement was fair,
reasonable and in good faith and/or there was and is no prejudice to the excess
insurance carriers from the Claimant Agreement and/or the excess insurance
carriers had breached their duties of good faith and fair dealing. Discovery
continues in the coverage litigation.
Given the actions of its excess insurance carriers, the Company believes
it likely that, pending settlement with or payment of re-opened limits by the
primary policies, it will have to continue funding asbestos-related expenses for
defense expense and indemnity itself. However, litigation by asbestos claimants
against the Company is stayed pursuant to the Company's bankruptcy, and the
Company does not anticipate its future expenditures for defense and indemnity of
asbestos related claims, other than expenditures pursuant to its proposed (or an
alternative) plan of reorganization, will be significant.
Payments Related to Asbestos Claims
The following table sets forth amounts paid to defend and settle claims:
Three
Months Year
Ended Ended
March 31, December 31,
(in millions) 2004 2003
---- ----
Indemnity costs paid by the Company's
Insurance carriers $ -- $ --
Indemnity costs paid by the Company -- 0.8
Defense costs paid by the Company 0.4 4.5
The amounts shown in the above table do not include non-cash settlements
using assignments of insurance proceeds, which amounted to $477 million in 2003.
There were no non-cash settlements with assignment of insurance proceeds in the
three months ended March 31, 2004.
The Company's primary insurance carriers paid defense costs in addition to
the above amounts through August 2002. Such amounts were not reported to the
Company by year of payment, and have not been included in the table.
16
At December 31, 2003, there were no additional settlements outstanding
that the Company had agreed to fund other than settlements pursuant to the
Claimant Agreement.
The Company is seeking recovery from its insurance carriers of the amounts
it has paid for defense and indemnity, and intends to seek recovery for any
future payments of defense and indemnity. In light of the assignment of the
rights to its applicable insurance proceeds to the Collateral Trust and the
planned reorganization, the Company does not anticipate recovering these costs.
Accounting for Asbestos-Related Claims
Under the terms of the Claimant Agreement, the Company's claims processing
agent processed 79,630 claims meeting the requirements of the Claimant Agreement
with a settlement value of $466 million. In addition, pre-existing settlements
agreements and trial listed settlement agreements with claims secured by the
Collateral Trust total $25 million.
The Company's gross liability of $491 million for these settlements is
substantially in excess of both the total assets of the Company as well as the
Company's previous estimates made in prior periods of the maximum liability for
both known and unasserted claims. The Company believes that it does not have the
necessary financial resources to litigate and/or fund judgments and/or
settlements of the asbestos claims in the ordinary course of business.
Therefore, the Company believes the most meaningful measure of its probable loss
due to asbestos litigation is the amount it will have to contribute to the Plan
Trust plus the costs to effect its reorganization under Chapter 11. At March 31,
2004, the Company estimates the minimum remaining amount of the contributions
and costs to be $8.7 million, which it has recorded as a current liability.
During the fourth quarter of 2003, the Company recorded a charge of $3.7 million
to increase its recorded liability to the minimum estimated amount, no
additional charge was recorded in the first quarter of 2004. The maximum amount
of the range of possible asbestos-related losses is limited to the going concern
or liquidation value of the Company, an amount which the Company believes is
substantially less than the minimum gross liability for the known claims against
it.
The Company has not attempted to make an estimate of its probable
insurance recoveries given the accounting for its estimate of future
asbestos-related costs. Substantially all future insurance recoveries have been
assigned to the Collateral or Plan Trust.
Amounts Recorded in Financial Statements
The table below provides an analysis of changes in the Company's asbestos
reserves and related receivables from December 31, 2003 to March 31, 2004:
Spending Recoveries
Balance at Against From Balance at
(in thousands) 12/31/03 Additions Reserve Insurance 3/31/04
-------------------------------------------------------
Reserves $9,819 $-- $(1,141) $-- $8,678
Receivables (3,586) -- -- (3,586)
- --------------------------------------------------------------------------------
Net Asbestos Liability $6,233 $ 0 $(1,141) $ 0 $5,092
====== === ======== === ======
17
7. Product Warranties
The Company provides product warranties for specific product lines and
accrues for estimated future warranty cost in the period in which the revenue is
recognized. The following table sets forth activity in the Company's warranty
reserves (in millions):
March 31, December 31
2004 2003
---- ----
Beginning balance $ 2.7 $ 2.6
Accruals 1.4 6.3
Charges (1.4) (6.2)
----- -----
Ending balance $ 2.7 $ 2.7
===== =====
8. Liabilities Subject to Compromise
As a result of the Company's Chapter 11 filing (see Notes 1 and 6 to the
Unaudited Condensed Consolidated Financial Statements), pursuant to SOP 90-7,
the Company is required to segregate pre-petition liabilities that are subject
to compromise and report them separately on the consolidated balance sheet.
Liabilities that may be affected by a plan of reorganization are recorded at the
amount of the expected allowed claims, even if they may be settled for lesser
amounts. Substantially all of the Company's pre-petition debt is recorded at
face value and is classified within liabilities subject to compromise. In
addition, the Company's accrued interest expense on its Senior Notes is also
recorded in liabilities subject to compromise. See Notes 1 and 6 to the
Unaudited Condensed Consolidated Financial Statements for further discussion of
the Company's asbestos liability.
Liabilities subject to compromise at March 31, 2004 are as follows:
(dollars in thousands)
Debt (at face value) $100,000
Pre-petition other payables and accrued interest 7,752
Pension liability 23,865
Other post-retirement benefit obligation 8,413
Pre-petition other liabilities 11,465
--------
Total liabilities subject to compromise $151,495
========
Additional pre-petition claims (liabilities subject to compromise) may
arise due to the rejection of executory contracts or unexpired leases, or as a
result of the allowance of contingent or disputed claims.
18
9. Accrued Liabilities
A summary of the significant components of accrued liabilities consists of
the following (in thousands):
March 31, December 31,
2004 2003
-----------------------------------------------------------------
Accrued warranty, marketing and
sales promotion $14,138 $14,918
Employee Compensation and
related benefits 4,397 3,474
Interest -- 3,677
Environmental remediation and
Product related liabilities -- 834
Other 100 1,752
-----------------------------------------------------------------
Total accrued liabilities $18,635 $24,655
-----------------------------------------------------------------
10. Other Liabilities
A summary of the significant components of other liabilities consists of
the following (in thousands):
March 31, December 31,
2004 2003
-----------------------------------------------------------------
Environmental remediation and
product-related liabilities $ -- $ 5,105
Accrued workers' Compensation
Claims -- 5,130
Other -- 987
-----------------------------------------------------------------
Total other liabilities $ -- $11,222
-----------------------------------------------------------------
Pursuant to SOP 90-7, the other liabilities at March 31, 2004, have been
included in liabilities subject to compromise. See Note 8 to the unaudited
condensed Consolidated Financial Statements for further discussion of
liabilities subject to compromise.
11. Pension Plans
The Company sponsors several non-contributory defined benefit pension
plans covering most of the Company's employees. Benefits under the plan are
based on years of service and employee compensation. Amounts funded annually by
the Company are actuarially determined using the projected unit credit and unit
credit methods and are equal to or exceed the minimum required by government
regulations. The Company also maintains health and life insurance programs for
retirees (reflected in the table below in "Other Benefits").
19
The following summarizes the components of the net periodic benefit cost
for the Pension and Other Benefit Plans the first quarters of 2004 and 2003:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
-------------- --------------
Other Other
Pension Benefits Pension Benefits
(In thousands)
Components of Net Periodic Benefit Cost:
Service cost ........................... $ 359 $ 50 $ 293 $ 47
Interest cost .......................... 1,108 140 1,056 137
------- ----- ------- -----
Expected return on plan assets ......... (853) -- (692) --
Recognized net actuarial loss .......... 400 11 399 9
Amortization of transition obligation .. (18) -- (18) --
Amortization of prior service cost ..... (71) (116) (71) (116)
------- ----- ------- -----
Net periodic benefit cost .................. $ 925 $ 85 $ 967 $ 77
======= ===== ======= =====
The weighted average assumptions used to determine net periodic benefit
cost were as follows:
Discount rate........................... 6.25% 6.75% 6.25% 6.75%
Expected long-term return on
plan assets........................... 7.00% -- 7.00% --
Rate of compensation increase........... 4.00% - 5.50% -- 4.00% - 5.50% --
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed Consolidated Financial Statements and notes thereto contained in Item
1 of this Quarterly Report on Form 10-Q.
The Company's business is cyclical and is affected by the same economic
factors that affect the remodeling and housing industries in general, including
the availability of credit, consumer confidence, changes in interest rates,
market demand and general economic conditions.
In addition to external economic factors, the Company's results are
sensitive to sales and manufacturing volume, competitors' pricing, consumer
preferences for flooring products, raw material costs and the mix of products
sold. The manufacturing process is capital intensive and requires substantial
investment in facilities and equipment. The cost of operating these facilities
generally does not vary in direct proportion to production volume and,
consequently, operating results fluctuate disproportionately with changes in
sales volume.
20
On December 31, 2003, Congoleum filed a voluntary petition with the United
States Bankruptcy Court for the District of New Jersey (Case No. 03-51524)
seeking relief under Chapter 11 of the United States Bankruptcy Code as a means
to resolve claims asserted against it related to the use of asbestos in its
products decades ago. During 2003, Congoleum obtained the requisite votes of the
asbestos personal injury claimants necessary to seek approval of a proposed
pre-packaged Chapter 11 plan of reorganization. In January 2004, the Company
filed its proposed pre-packaged plan of reorganization and disclosure statement
with the court. The Bankruptcy Court has approved the disclosure statement
supporting its proposed plan of reorganization and has scheduled a hearing on
July 22, 2004 to consider approval of the proposed plan of reorganization. The
Company is presently involved in litigation with certain insurance carriers
related to disputed insurance coverage for asbestos related liabilities, and
certain insurance carriers have filed various objections to the Company's
proposed plan of reorganization and related matters.
The pre-packaged plan of reorganization, if confirmed, would leave
non-asbestos creditors unimpaired and would resolve all pending and future
asbestos claims against the Company. The plan of reorganization would provide
for, among other things, an assignment of certain rights in, and proceeds of,
Congoleum's applicable insurance to a trust that would fund the settlement of
all pending and future asbestos claims and protect the Company from future
asbestos-related claims and litigation by channeling all asbestos claims to the
Plan Trust pursuant to the provisions of Section 524(g) of the Bankruptcy Code.
Other creditors would be unimpaired under the plan. The Bankruptcy Court has
authorized the Company to pay trade creditors in the ordinary course of
business. The Company expects that it will take most of 2004 to obtain
confirmation of its proposed plan of reorganization.
Based on its pre-packaged bankruptcy strategy, the Company has made
provision in its financial statements for the minimum amount of the range of
estimates for its contribution and costs to effect its plan to settle asbestos
liabilities through a Plan Trust established pursuant to the provisions of
Section 524(g) of the Bankruptcy Code. The Company recorded charges of $17.3
million in the fourth quarter of 2002 and an additional $3.7 million in the
fourth quarter of 2003 to provide for the estimated minimum costs of completing
its reorganization. Actual amounts that will be contributed to the Plan Trust
and costs for pursuing and implementing the plan of reorganization could be
materially higher if the Company is not successful in obtaining confirmation of
the pre-packaged plan of reorganization in a timely manner. The maximum amount
potentially available to settle asbestos liabilities is the going concern or
liquidation value of the Company.
For more information regarding the Company's asbestos liability and plan
for resolving that liability, please refer to Notes 1 and 6 of the Notes to
Unaudited Condensed Consolidated Financial Statements contained in this Report.
In addition, please refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors that May Affect Future
Results - The Company has significant asbestos liability and funding exposure,
and its proposed pre-packaged plan of reorganization may not be confirmed" for a
discussion of certain factors that could cause actual results to differ from the
Company's goals for resolving its asbestos liability through the proposed plan
of reorganization.
21
Results of Operations
Three months ended March 31, 2004 as compared to three months ended
March 31, 2003.
Net sales for the quarter ended March 31, 2004 were $52.0 million as
compared to $53.6 million for the quarter ended March 31, 2003, a decrease of
$1.6 million or 3%. The decrease resulted primarily from lower resilient sheet
sales to general line distributors. The Company's largest distributor reduced
its inventory of Congoleum products by $2.1 million in the first quarter of 2004
compared with a $2.5 million increase in the first quarter of 2003. Partially
offsetting this decline was improved sales to manufactured housing distributors.
Gross profit for the quarter ended March 31, 2004 totaled $13.5 million,
or 26.1% of net sales, compared to $12.7 million, or 23.6% of net sales for the
same period last year. The improvement in gross margin reflects an improvement
in sales mix, the benefit of cost reduction programs and a price increase
instituted in late 2003, partially offset by the unfavorable impact of lower
production volumes over which to spread fixed manufacturing costs.
Selling, general and administrative expenses were $12.0 million for the
quarter ended March 31, 2004 as compared to $13.2 million for the quarter ended
March 31, 2003, a decrease of $1.2 million. The reduction in expenses reflects
cost savings initiatives implemented in 2003, which helped reduce
personnel-related compensation costs by approximately $0.8 million, during the
quarter, coupled with lower sales and marketing support costs of approximately
$0.2 million. As a percent of net sales, selling, general & administrative costs
were 23.0% for the quarter ended March 31, 2004 compared to 24.6% for the same
period last year.
Income from operations was $1.6 million for the quarter ended March 31,
2004 compared to a loss of $0.5 million for the quarter ended March 31, 2003.
The improvement in operating income was a result of the improved gross margins
and lower selling, general and administrative expenses.
Liquidity and Capital Resources
The consolidated financial statements of the Company have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Accordingly, the
condensed consolidated financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
As described more fully in the Notes to the unaudited condensed Consolidated
Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q,
there is substantial doubt about the Company's ability to continue as a going
concern unless it obtains relief from its substantial asbestos liabilities
through a successful reorganization under Chapter 11 of the Bankruptcy Code.
The Company is a defendant in a large number of asbestos-related lawsuits
and, on December 31, 2003, filed a pre-packaged plan of reorganization under
Chapter 11 of the United States Bankruptcy Code as part of its strategy to
resolve this liability. See Notes 1 and 6 of the Notes to Consolidated Financial
Statements, which are contained in Item 1 of the Quarterly Report on Form 10-Q.
These matters will have a material adverse impact on liquidity and capital
22
resources. During 2003, the Company paid $5.3 million in defense and indemnity
costs related to asbestos-related claims and $13.5 million in fees and expenses
related to implementation of its planned reorganization under Chapter 11 and
litigation with certain insurance companies. During the first quarter of 2004,
the Company spent $1.1 million and during the balance of 2004, expects to spend
a further $8.7 million at a minimum in fees, expenses, and trust contributions
in connection with obtaining confirmation of its plan. The Company also expects
to recover $3.6 million from the Collateral Trust or its successor pursuant to
terms of the Claimant Agreement and related documents, which provide for the
Collateral Trust to reimburse certain expenses of the Company. Timing of such
recovery will depend on when the trust receives funds from insurance settlements
or other sources.
Unrestricted cash and cash equivalents, including short-term investments
at March 31, 2004, were $10.5 million, an increase of $8.3 million from December
31, 2003. Under the terms of its revolving credit agreement, payments on the
Company's accounts receivable are deposited in an account assigned by the
Company to its lender and the funds in that account are used by the lender to
pay down any loan balance. Restricted cash represents funds deposited in this
account but not immediately applied to the loan balance. Working capital was
$36.7 million at March 31, 2004, up from $27.1 million at December 31, 2003. The
ratio of current assets to current liabilities at March 31, 2004 and December
31, 2003, was 1.7 to one, compared to 1.5 to one, respectively. Net cash
provided by operations during the first three months of 2004 was $7.8 million,
as compared to cash used by operations of $22.2 million in 2003. The increase in
cash provided by operations in the first three months of 2004 versus the first
three months of 2003 was primarily due to the unusually low level of accounts
payable and accrued expenses at December 31, 2003. This unusually low level was
due to limited manufacturing activity, coupled with creditors managing their
pre-petition credit exposure and Congoleum prepaying certain expenses prior to
its December 31, 2003, bankruptcy filing. As a result of its bankruptcy filing,
the Company was not permitted to make the $4.3 million interest payment on its
Senior Notes that was due February 1, 2004, which also reduced cash usage in the
first quarter of 2004 compared to 2003. Expenditures related to asbestos
liabilities and the Company's reorganization plan were $1.1 million in 2004,
compared to $ 4.2 million in 2003, which also contributed to the increase in
cash. Capital expenditures in the first three months of 2004 totaled $0.8
million. The Company is currently planning capital expenditures of approximately
$6 million in 2004.
In January 2004, the Bankruptcy Court authorized entry of a final order
approving Congoleum's debtor-in-possession financing, which replaced its
pre-petition credit facility on substantially similar terms. The
debtor-in-possession financing provides a one-year revolving credit facility
with borrowings up to $30.0 million. Interest is based on .75% above the prime
rate. This financing agreement contains certain covenants, which include the
maintenance of a minimum tangible net worth and EBITDA. It also includes
restrictions on the incurrence of additional debt and limitations on capital
expenditures. The covenants and conditions under this financial agreement must
be met in order for the Company to borrow from the facility. The Company was in
compliance with these covenants at March 31, 2004. Borrowings under this
facility are collateralized by inventory and receivables. At March 31, 2004,
based on the level of receivables and inventory, $26.6 million was available
under the facility, of which $4.0 million was utilized for outstanding letters
of credit and $11.2 million was utilized by the revolving loan. The Company
anticipates that its debtor-in-possession financing facility will be replaced
with a revolving credit facility on substantially similar terms upon
confirmation of its plan of reorganization. While the Company expects the
23
facilities discussed above will provide it with sufficient liquidity, there can
be no assurances that it will continue to be in compliance with the required
covenants, that the Company will be able to obtain a similar or sufficient
facility upon exit from bankruptcy, or that the debtor-in-possession facility
would be renewed if the Company's plan of reorganization is not confirmed by
that facility's expiration on December 31, 2004.
In addition to the provision for asbestos litigation discussed previously,
the Company has also recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities (other than
asbestos-related claims), including provisions for testing for potential
remediation of conditions at its own facilities. 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 (more fully discussed in Note 5 to the unaudited
cCondensed Consolidated Financial Statements). These actions include possible
obligations to remove or mitigate the effects on the environment of wastes
deposited at various sites, including Superfund sites and certain of the
Company's owned and previously owned facilities. The contingencies also include
claims for personal injury and/or property damage. The exact amount of such
future cost and timing of payments are indeterminable due to such unknown
factors as the magnitude of cleanup 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 has recorded provisions in
its financial statements for the estimated probable loss associated with all
known general and environmental contingencies. While the Company believes its
estimate of the future amount of these liabilities is reasonable, 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
future government regulation could have a significant effect on the Company's
costs, the Company is not aware of any pending legislation, which would
reasonably have such an effect. There can be no assurances that the costs of any
future government regulations could be passed along to customers. Estimated
insurance recoveries related to these liabilities are reflected in other
non-current assets.
The outcome of these environmental matters could result in significant
expenses incurred by, or judgments assessed against, the Company.
The Company's principal sources of capital are net cash provided by
operating activities and borrowings under its financing agreement. Although the
Company did not generate cash from operations in 2003, the Company anticipates
that it will generate cash from operations in 2004. The Company believes these
sources will be adequate to fund working capital requirements, debt service
payments, and planned capital expenditures for the foreseeable future, plus its
current estimates for costs to settle and resolve its asbestos liabilities
through its pre-packaged Chapter 11 plan of reorganization. The Company's
inability to obtain confirmation of the proposed plan in a timely manner would
have a material adverse effect on the Company's ability to fund its operating,
investing and financing requirements. The Company also anticipates it will be
able to obtain exit financing upon confirmation of its proposed plan. Such
financing will be required to replace its debtor-in-possession credit facility
and permit the Company to pay accrued interest on its Senior Notes and other
obligations needed to be satisfied in connection with the confirmation of the
proposed plan of reorganization.
24
Risk Factors That May Affect Future Results
The Company has significant asbestos liability and funding exposure, and its
proposed pre-packaged plan of reorganization may not be confirmed.
As more fully set forth in Notes 1 and 6 of the Notes to the Consolidated
Financial Statements, which are included in this report, the Company has
significant liability and funding exposure for asbestos claims. The Company has
entered into settlement agreements with various asbestos claimants totaling $491
million. Satisfaction of these obligations pursuant to the terms of the
pre-packaged plan is dependent on a determination by the Bankruptcy Court that
the plan has satisfied certain criteria under the Bankruptcy Code, among other
things.
There can be no assurance that the Company will be successful in obtaining
confirmation of its pre-packaged plan in a timely manner or at all, and any
alternative plan of reorganization pursued by the Company or confirmed by the
Bankruptcy Court could vary significantly from the description in this report
(including descriptions incorporated by reference in this report). Furthermore,
the estimated costs and contributions to effect the contemplated plan of
reorganization or an alternative plan could be significantly greater than
currently estimated. Any plan of reorganization pursued by the Company will be
subject to numerous conditions, approvals and other requirements, including
Bankruptcy Court approvals, and there can be no assurance that such conditions,
approvals and other requirements will be satisfied or obtained.
Some additional factors that could cause actual results to differ from the
Company's goals for resolving its asbestos liability through the prepackaged
plan of reorganization bankruptcy filing include: (i) the future cost and timing
of estimated asbestos liabilities and payments and availability of insurance
coverage and reimbursement from insurance companies, which underwrote the
applicable insurance policies for the Company for asbestos-related claims and
other costs relating to the execution and implementation of any plan of
reorganization pursued by the Company, (ii) timely reaching agreement with other
creditors, or classes of creditors, that exist or may emerge, (iii) satisfaction
of the conditions and obligations under the Company's outstanding debt
instruments, (iv) the response from time-to-time of the Company's and its
controlling shareholder's, American Biltrite Inc.'s, lenders, customers,
suppliers and other constituencies to the ongoing process arising from the
Company's strategy to settle its asbestos liability, (v) the Company's ability
to maintain debtor-in-possession financing sufficient to provide it with funding
that maybe needed during the pendency of its Chapter 11 case and to obtain exit
financing sufficient to provide it with funding that maybe needed for its
operations after emerging from the bankruptcy process, in each case, on
reasonable terms, (vi) timely obtaining sufficient creditor and court approval
of any reorganization plan pursued by the Company, (vii) developments in, and
the outcome of, insurance coverage litigation pending in New Jersey State Court
involving Congoleum, ABI, and certain insurers, and (viii) compliance with the
Bankruptcy Code, including Section 524(g). In any event, if the Company is not
successful in obtaining sufficient creditor and court approval of its
pre-packaged plan of reorganization, such failure would have a material adverse
effect upon its business, results of operations and financial condition.
In addition, there has been federal legislation proposed that, if adopted,
would establish a national trust to provide compensation to victims of
asbestos-related injuries and channel all current and future asbestos-related
25
personal injury claims to that trust. Due to the uncertainties involved with the
pending legislation, the Company does not know what effects any such
legislation, if adopted, may have upon its business, results of operations or
financial condition, or upon any plan of reorganization it may decide to pursue.
To date, the Company has expended significant amounts pursuant to resolving its
asbestos liability relating to its proposed prepackaged Chapter 11 plan of
reorganization. To the extent any federal legislation is enacted, which does not
credit the Company for amounts paid by the Company pursuant to its plan of
reorganization or requires the Company to pay significant amounts to any
national trust or otherwise, such legislation could have a material adverse
effect on the Company's business, results of operations and financial condition.
As a result of the Company's significant liability and funding exposure for
asbestos claims, there can be no assurance that if it were to incur any
unforecasted or unexpected liability or disruption to its business or operations
it would be able to withstand that liability or disruption and continue as an
operating company.
For further information regarding the Company's asbestos liability,
insurance coverage and strategy to resolve its asbestos liability, please see
Notes 1 and 6 of Notes to Consolidated Financial Statements, which are included
in this report.
The Company may incur substantial liability for environmental, product and
general liability claims in addition to asbestos-related claims, and its
insurance coverage and its likely recoverable insurance proceeds may be
substantially less than the liability incurred by the Company for these claims.
Environmental Liabilities. 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 has historically expended substantial amounts
for compliance with existing environmental laws or regulations, including
environmental remediation costs at both third-party sites and Company-owned
sites. The Company will continue to be required to expend amounts in the future
for costs related to prior activities at its facilities and third party sites,
and for ongoing costs to comply with existing environmental laws; such amounts
may be substantial. There is no certainty that these amounts will not have a
material adverse effect on its business, results of operations and financial
condition because, as a result of environmental requirements becoming
increasingly strict, the Company is unable to determine the ultimate cost of
compliance with environmental laws and enforcement policies. Moreover, in
addition to potentially having to pay substantial amounts for compliance, future
environmental laws or regulations may require or cause the Company to modify or
curtail its operations, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Product and General Liabilities. In the ordinary course of its business,
the Company becomes involved in lawsuits, administrative proceedings, product
liability claims (in addition to asbestos-related claims) and other matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts and the matters may remain unresolved for several years.
These matters could have a material adverse effect on the Company's business,
results of operations and financial condition if the Company is unable to
successfully defend against or settle these matters; its insurance coverage is
26
insufficient to satisfy unfavorable judgments or settlements relating to these
matters; or the Company is unable to collect insurance proceeds relating to
these matters.
The Company is dependent upon a continuous supply of raw materials from third
party suppliers and would be harmed if there were a significant, prolonged
disruption in supply or increase in its raw material costs.
The Company's business is dependent upon a continuous supply of raw
materials from third party suppliers. The principal raw materials used by the
Company in its manufacture of sheet and tile flooring are vinyl resins,
plasticizers, latex, limestone, stabilizers, cellulose paper fibers, urethane
and transfer print paper. The Company purchases most of these raw materials from
multiple sources. Although the Company has generally not had difficulty in
obtaining its requirements for these materials, it has occasionally experienced
significant price increases for some of these materials.
The Company believes that suitable 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 some of the Company's products. In an attempt to protect against
this risk of loss of supply, the Company maintains a raw material inventory and
continually seeks to develop new sources, which will provide continuity of
supply for its raw material requirements. However, there is no certainty that
the Company's maintenance of its raw material inventory or its ongoing efforts
to develop new sources of supply would be successful in avoiding a material
adverse effect on its business, results of operations and financial condition if
it were to realize an extended interruption in the supply of its raw materials.
In addition, the Company could incur significant increases in the costs of
its raw materials. Although the Company generally attempts to pass on increases
in the costs of its raw materials to its customers, the Company's ability to do
so is, to a large extent, dependent upon the rate and magnitude of any increase,
competitive pressures and market conditions for its products. There have been in
the past, and may be in the future, periods of time during which increases in
these costs cannot be recovered. During those periods of time, there could be a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company operates in a highly competitive flooring industry and some of its
competitors have greater resources and broader distribution channels than the
Company.
The market for the Company's products is highly competitive. The Company
encounters competition from three other manufacturers in North America and, to a
much lesser extent, foreign manufacturers. Some of the Company's competitors
have greater financial and other resources and access to capital than the
Company. Furthermore, like the Company, one of the Company's major competitors
has sought protection under Chapter 11 of the Bankruptcy Code. When such
competitor emerges from bankruptcy as a continuing operating company it may have
shed much of its pre-filing liabilities and have a competitive cost advantage
over the Company as a result of having shed those liabilities. In addition, in
27
order to maintain its competitive position, the Company may need to make
substantial investments in its business, including its product development,
manufacturing facilities, distribution network and sales and marketing
activities. Competitive pressures may also result in decreased demand for the
Company's products and in the loss of the Company's market share for its
products. Moreover, due to the competitive nature of the Company's industry, the
Company may be commercially restricted from raising or even maintaining the
sales prices of its products, which could result in the Company incurring
significant operating losses if its expenses were to increase or otherwise
represent an increased percentage of the Company's sales.
The Company's business is subject to general economic conditions and conditions
specific to the remodeling and housing industries.
The Company is subject to the effects of general economic conditions. A
sustained general economic slowdown could have serious negative consequences for
the Company's business, results of operations and financial condition. Moreover,
the Company's business is cyclical and is affected by the economic factors that
affect the remodeling and housing industries in general and the manufactured
housing industry specifically, including the availability of credit, consumer
confidence, changes in interest rates, market demand and general economic
conditions.
The Company could realize shipment delays, depletion of inventory and increased
production costs resulting from unexpected disruptions of operations at any of
the Company's facilities.
The Company's business depends upon its ability to timely manufacture and
deliver products that meet the needs of its customers and the end users of the
Company's products. If the Company were to realize an unexpected, significant
and prolonged disruption of its operations at any of its facilities, including
disruptions in its manufacturing operations, it could result in shipment delays
of its products, depletion of its inventory as a result of reduced production
and increased production costs as a result of taking actions in an attempt to
cure the disruption or carry on its business while the disruption remains. Any
resulting delay, depletion or increased production cost could result in
increased costs, lower revenues and damaged customer and product end user
relations, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company offers limited warranties on its products, which could result in the
Company incurring significant costs as a result of warranty claims.
The Company offers a limited warranty on all of its products against
manufacturing defects. In addition, as a part of its 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 generally increase with the price
of such products. If the Company were to incur a significant number of warranty
claims, the resulting warranty costs could be substantial.
28
The Company is heavily dependent upon its distributors to sell the Company's
products and the loss of a major distributor of the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company currently sells its products through approximately 17
distributors providing approximately 53 distribution points in the United States
and Canada, as well as directly to a limited number of mass market retailers.
The Company considers its distribution network very important to maintaining its
competitive position. Although the Company has more than one distributor in some
of its distribution territories and actively manages its credit exposure to its
distributors, the loss of a major distributor could have a materially adverse
impact on the Company's business, results of operations and financial condition.
The Company derives a significant percentage of its sales from two of its
distributors, LaSalle-Bristol Corporation and Mohawk Industries, Inc.
LaSalle-Bristol Corporation serves as the Company's distributor in the
manufactured housing market, and Mohawk Industries, Inc. serves as a retail
market distributor of the Company. These two distributors accounted for 65% of
the Company's net sales for the twelve months ended December 31, 2003 and 59% of
the Company's net sales for the year ended December 31, 2002.
Item 3. 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 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. Over 90%
of the Company's outstanding long-term debt as of March 31, 2004 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 and does not hold any instruments for trading purposes.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by
this quarterly report (the "Evaluation Date"). Based on this evaluation,
such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to the Company
required to be included in the Company's reports filed or submitted under
the Exchange Act.
29
(b) Changes in Internal Control Over Financial Reporting. There have not been
any changes in the Company's internal controls over financial reporting
during the last quarter covered by this annual report that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: The information contained in Note 5
"Environmental and Other Liabilities" and Note 6 "Asbestos
Liabilities" of the Notes to Unaudited Condensed Consolidated
Financial Statements is incorporated herein by reference.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities: None
Item 3. Defaults Upon Senior Securities: The commencement of the
Chapter 11 proceedings constituted an event of default under the
indenture governing the Company's 8 5/8% Senior Notes. In
addition, due to the Chapter 11 proceedings, the Company was
precluded from making the interest payment due February 1, 2004 on
the Senior Notes. The amount of accrued interest that was not paid
on the Senior Notes on that date is approximately $4.3 million. As
of March 31, 2004, the principal amount of the Senior Notes is
approximately $100 million. These amounts, plus $61,000 of accrued
interest on the interest due on February 1, 2004 are included in
"Liabilities Subject to Compromise."
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
30
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit
Number Exhibits
------ --------
3.1 Amended Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
Ratification and Amendment Agreement dated January 7,
2004, by and between the Company and Congress
10.1 Financial Corporation
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
32.1 Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
32.2 Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(i) On January 12, 2004, the Company filed a Current Report on Form
8-K, dated December 31, 2003, disclosing that on December 31, 2003,
the Company and certain of its subsidiaries had filed voluntary
petitions with the United States Bankruptcy Court for the District
of New Jersey seeking relief under Chapter 11 of the United States
Bankruptcy Code. In addition, the Company reported certain actions
of the Bankruptcy Court.
(ii) On February 24, 2004, the Company filed a Current Report on
Form 8-K, dated the same date, disclosing how persons may obtain
information filed by the Company from time-to-time with the
Bankruptcy Court.
(iii) On March 12, 2004, the Company filed a Current Report on Form
8-K, dated March 11, 2003, disclosing that it had, on March 11,
2004, issued a press release announcing its financial results for
the three and twelve months ended December 31, 2003.
31
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 14, 2004 By: /s/ Howard N. Feist III
------------------------------
(Signature)
Howard N. Feist III
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial & Accounting Officer)
32
Exhibit Index
Exhibit
Number Exhibits
------ --------
3.1 Amended Certificate of Incorporation of the Company (1)
3.2 Amended and Restated Bylaws of the Company (1)
Ratification and Amendment Agreement dated January 7,
2004, by and between the Company and Congress
10.1 Financial Corporation (2)
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
32.1 Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
32.2 Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference to the exhibit bearing the same description
filed with the Company's Quareterly Report on Form 10-Q for the period
ended June 30, 1996.
(2) Incorporated by reference to the exhibit bearing the same description
filed with the Company's Annual Report on Form 10-K for the period ended
December 31, 2004.
33