By Steven Feldman
While Congoleum has been flying under the radar for the last few years as it seeks to emerge from Chapter 11 protection, the one thing that has emerged in recent months are rumors surrounding its health and industry position.

Five-plus years into the company’s bankruptcy filing, a stressed economy and a few court decisions have left people questioning Congoleum’s vitality—and viability—going forward. At the same time, others believe Congoleum occupies somewhat of a pre-emptive position because unlike its competitors, the resilient manufacturer does not significantly participate in a declining commercial segment, nor is it involved in the residential categories currently under the most pressure: wood, ceramic and laminate.

Much of the recent banter regarding the company’s long-term prospects are a result of the recent Chapter 11 dismissal order issued by Judge Kathryn Ferguson that, in essence, could have set Congoleum back to where it was prior to the filing of its reorganization plan, meaning it was responsible for all asbestos claims with very limited resources to handle them.

According to Roger Marcus, president and CEO of Congoleum, many took the ruling out of context. “If you looked closely at the dismissal order, the judge stated she was putting forth this order to give Congoleum the opportunity to appeal several key decisions she had reached. In my opinion, she perceived that a dismissal order was a less onerous vehicle than a liquidation order. She was giving us a vehicle for appeal.”

Marcus noted there is not much separating Congoleum from an emergence from Chapter 11. “We are down to the 1-yard line, and the difference between the 1- yard line and goal line is approximate $3.5 million. Hopefully, the appeals court decision will bind everyone to get this behind us.”

Congoleum’s lawyers estimate a decision sometime during third quarter 2009. And once a decision is reached, it should take 90 to 180 days to confirm a plan out of bankruptcy assuming no further appeals.

Specifically, there are only two issues that constitute the $3.5 million: the payment of fees to the two attorneys who were involved in the original reorganization plan, and $800,000 in payment to each of two plaintiffs as part of a settlement 16 months before Congoleum filed its plan.

“There is a contention that the money should be owed back to the trust,” Marcus said, adding the only party contesting the issues, as part of a global settlement agreement, are the insurers. “The insurers have been contesting every plan we have written since we entered into reorganization. Why? Once we get confirmed, they could owe a substantial amount of money. The longer this process takes, the longer the insurers keep their money.”

The impact on Congoleum

While Marcus had hoped to have this in his rear view mirror long before now, the fact is, the average length of these types of bankruptcy cases is five to six years, “which is where we are at this juncture.” How has it impacted the company? Marcus believes there are only three issues where Chapter 11 protection can hurt a company:

1. The perception of customers, suppliers and employees by being in bankruptcy. “But to the best of my knowledge, we have not lost one major customer, supplier or key employee in the last five years.”

2. Cash flow. “What is basically happening is our legal fees are somewhat equivalent to what we would pay in interest if we were confirmed out of bankruptcy. So it is not having a significant affect on our cash flow.”

3. The occasional misrepresentation of a company’s viability by either the financial press or competition.

Marcus added that there are other areas where observers perceive the bankruptcy has impacted business, but he assured this is clearly not the case. For example:

• The decision to exit Surfaces. “The bankruptcy should not be confused with strategic decisions the company has made to maintain its viability under these difficult economic times.”

• Personnel. “Yes, we have cut back, but that has been economy related. The first three years we were in bankruptcy there were no steps taken.”

• New products. “As a matter of fact, probably the best product we have brought out in the past couple of years was introduced at the beginning of this year: AirStep Plus. This product has all the advantages of fiberglass-backed products and overcomes some of the inherent detriments of fiberglass.”

• Focus. “I have made it my absolute priority to immerse myself within the operational mode of the company inclusive of visiting with key customers, making myself accessible to all our employees and communicating with our suppliers as I have done in the past. I have stayed as active in all facets of our business as I was before the reorganization took place.”

So how exactly is Congoleum doing today? Of course, the economy is playing havoc with its business, but it is not suffering any more so than its competitors, Marcus said. “Basically, we have seen four downturns since this thing has started. And with each of these downturns, we’ve adjusted our spending levels to at worst come close to a break-even scenario.”

He noted that the company was plagued this year by a first-quarter downturn in the manufactured housing and recreation vehicle business. “If we throw out the effects from that, we would have come close to expectations.”

The spending adjustments have been varied, but effective. “First you start cutting the fat, and then you cut slightly into the muscle,” Marcus said. “It ranges from having fewer people do more work to some very creative manufacturing cost reductions to watching every single expenditure to ensure we receive the payback.”

But even in a difficult economy, Marcus pointed to a number of positives. For example:

• Congoleum has put itself in a break-even mode for the last three quarters assuming first quarter 2009 level of activity maintains itself.

• The company’s new AirStep Plus product introduction has been highly successful.

• Enhancements to the DuraCeramic franchise, such as a new display that offers customization opportunities and a new product called Dura-CeramicPlus with 3M Scotchgard protection.

• The rollout of at least one major new product by year’s end that will have a significant impact for Congoleum and its distributors and retailers.

Marcus also hinted at one more trick up his sleeve, although he was very vague. “We have one rabbit in our hat that could be very significant. I won’t mention what it is—product, procedure or marketing technique—but there is a strong likelihood the rabbit will jump out of the hat before the summer ends.”

Stay tuned.