Congoleum Posts a Small Profit in 2006

Mercerville, NJ, March 21, 2007--Sales for the year ended December 31, 2006 were $ 219.5 million, a decrease of 7.6% compared with the $237.6 million reported in 2005.

Net income for 2006 was $0.7 million compared with a net loss of $21.6 million in 2005. The 2006 net income included a $1.3 million gain related to replacement of a major production line component required as a result of an explosion in August 2006. The cost of the replacement equipment, which was covered by insurance, exceeded the depreciated book value of the line by this amount. The 2005 net loss included $25.3 million in charges for asbestos-related reorganization costs. The net income per share in 2006 was $0.08, compared with a net loss per share of $2.61 in 2005.

Roger S. Marcus, chairman of the board, commented "Even without the travails of our reorganization, which I will address below, 2006 was one of the most difficult years I can recall. As the year began, retail conditions were fair, and we were still enjoying some remnants of manufactured housing demand arising from the 2005 hurricane season. Unfortunately, the hurricanes also contributed to sharp increases in raw material and energy costs, as well as materials shortages that forced us to change some suppliers. The need to qualify alternate materials on an expedited basis hurt our productivity and costs."

"As we were resuming normal manufacturing efficiencies in the third quarter and seeing some moderation in inflation, we had an explosion that destroyed a major production line providing 50% of our sheet flooring capacity. Fortunately no one was hurt and our insurance covered the cost of replacing the line, but we believe the disruption probably cost us $1 million to $2 million in sales before our inventories were back to a good service position."

"Finally, business declined sharply in the last four months of 2006. After being ahead of prior year sales through August, we ended up with $18.1 million less in sales for the full year as compared to 2005, despite achieving $10 million in price increases. Fourth quarter sales were down 25% from the fourth quarter of 2005. We experienced a $7 million decrease in fourth quarter sales to the manufactured housing industry versus 2005. Sales to this industry were unusually high in the fourth quarter of 2005 due to demand for replacement housing necessitated by that year's hurricane season. In addition, sales to the remodel and new construction markets decreased. The end use demand decline was compounded by inventory reductions in the distribution channel. Our distributors reported all categories of flooring products have suffered from the housing slowdown."

Mr. Marcus continued "Despite sharply higher raw material costs, the difficulty of changing materials, an explosion on our major production line, and an $18 million sales decline, we managed to earn a slight profit of $0.7 million. This performance is testimony to the resolve of our employees who continue to rise to the challenges we face and tighten their belts when needed. We reduced operating expenses by $2 million from 2005 to 2006 despite $1 million of increases in medical and pension costs."

"While we do not anticipate 2007 will see a repeat of the significant inflation, materials shortages, distributor inventory reductions or production disruptions that plagued 2006, we are concerned about the continuing sales softness since last September. To help mitigate the effect of lower sales, we took steps in January 2007 to further reduce our costs and breakeven point. These actions, including an 11% workforce reduction, are expected to save approximately $8.7 million in costs in 2007 (after a $0.4 million severance charge). Because of the timing and the severance charge, we only expect to realize $1.3 million savings in the first quarter of 2007, while the savings for the balance of 2007 should be approximately $2.4 million per quarter."

"We are also pursuing other steps to achieve major reductions in manufacturing costs as well as further improvements in efficiency. At the same time, we are introducing a brand new product line in March that we expect should add to our top line, and our sales and marketing department is implementing additional plans to increase sales or minimize their erosion despite a weak economy. With the lean cost structure we have put in place, we believe we are positioned to weather a continued downturn or benefit significantly from any improvement in market conditions, whichever 2007 may bring."

Mr. Marcus finished "Finally, the saga of our Chapter 11 journey continues. As we reported last month, the bankruptcy judge overseeing our reorganization issued a ruling that our latest plan did not meet certain legal requirements under the asbestos provisions of the bankruptcy code. While this ruling will delay any confirmation until late in the third quarter at the earliest, at least we understand what we need to address so a plan can be approved. We have resumed the court-authorized mediation process to accomplish this."

On December 31, 2003, Congoleum Corporation 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.