The agreement in principle also contemplates a Chapter 11 reorganization seeking confirmation of a pre-packaged plan that would leave non-asbestos creditors unimpaired and would resolve all pending and future personal injury asbestos claims against Congoleum and its distributors and affiliates. Approval of such a plan will require the supporting vote of at least 75 percent of the asbestos claimants with claims against Congoleum.
"Additional effort and challenges lie ahead, but we believe we are proceeding successfully with our plan to put the asbestos problem permanently behind us in 2003,” said company Chairman Roger S. Marcus. “Based on this progress, we have recorded a charge of $17.3 million in our 2002 results for the resolution of our asbestos liabilities through a reorganization plan. While the charge is substantial, we believe taking this initiative now is the most favorable and economical approach for the company."
In other business, Congoleum also announced its financial results for 2002. Sales for the year ended Dec. 31, 2002 were $237.2 million, an increase of 8.4 percent over the $218.8 million reported in 2001. The net loss for 2002 was $29.8 million, which included the $17.3 million charge for asbestos liabilities and a $10.5 million non-cash goodwill impairment charge. In 2001, Congoleum posted a loss of $1.6 million. The net loss per share in 2002 was $3.60, compared to a loss of 20 cents per share in 2001. The asbestos and goodwill charges accounted for virtually all the increase in the net loss from 2001 to 2002.
"Even without the asbestos issue, we faced a very challenging environment last year,” Marcus noted. “Our sales performance in that climate demonstrates that our product development and marketing strategies are enabling us to gain market share. I believe our decision to continue to invest aggressively in the development and introduction of new products and expanding sales at the expense of short term profitability will serve us well in the long run." The ongoing strong performance of Congoluem’s DuraStone and Ultima product lines, introduction of new builder products and the establishment of a tile and sheet program with Lowe's were cited by Marcus as positive factors in the company’s performance. “We were able to institute price increases in August ranging from 2 to 6 percent, the first meaningful increase our industry has had in years,” Marcus added.
"Unfortunately, a number of negative factors kept our sales and profitability improvements from being what they would otherwise have been. Our sales to the manufactured housing business, where we have a predominant market share and which comprises a large portion of our sales volume, declined again in 2002 reflecting the continued troubles of that industry.” In addition, he said, Home Depot phased out the Congoleum product line, and Sears made a strategic decision to discontinue selling all installed flooring products, including Congoleum’s.
"While our operating results in 2002 were below 2001, our cash flow improved,” Marcus added. “Cash from operations increased $10 million and exceeded our capital requirements. We generated $3 million after capital spending, and our year-end cash balance was $18 million. We believe that cash, together with the additional $17 million available at Dec. 31 under our revolving credit facility, should provide us more than adequate resources to execute both our business and asbestos restructuring plans in 2003.
"I am very much looking forward to seeing the asbestos cloud removed from the company.”
The agreement in principle with asbestos claimants and related plan of reorganization are subject to, among other things, the parties entering into a definitive agreement, acceptances of the requisite amount of holders of asbestos claims to a plan of reorganization, and court approval. Under the terms of the agreement in principle and related plan of reorganization, Congoleum would contribute its insurance for asbestos related claims to a trust established pursuant to section 524(g) of the United States Bankruptcy Code to which all present and future asbestos claims would be channeled, and in order to meet the requirements of section 524(g), Congoleum and/or American Biltrite Inc. would also contribute to the trust one or more notes.
The $17.3 million charge recorded by Congoleum for its asbestos liability reflects the minimum estimated cost to the company for resolving these liabilities through its plan of reorganization. Estimates of Congoleum's liability for asbestos claims absent a reorganization are considerably greater, and Congoleum believes its present and future asbestos liabilities can only be effectively resolved through the provisions of the Bankruptcy Code.