Congoleum Corporation
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)

                                                                                
<TABLE>                                                  
<CAPTION>                                                        
                               For the years ended        For the ten   For the five   For the year
                                   December 31,           months ended  months ended       ended
                            --------------------------    December 31,  February 28,   September 30,
                             1996       1995      1994      1993(a)     1993(b)(c)(d)     1992(d)           
---------------------------------------------------------------------------------------------------
<S>                       <C>        <C>        <C>       <C>          <C>             <C>                                
Income Statement Data:                                                                             
Net sales                  $ 269,451  $ 263,147  $ 265,784  $ 211,140   $  65,935       $ 164,216  
Cost of sales                180,520    184,621    173,184    141,706      49,307         116,735
Selling, general and                                                                                 
 administrative expenses      63,662     56,989     58,190     45,798      19,723          43,736
Restructuring and                                                                                              
 integration costs                --         --         --         --      18,265              -- 
-------------------------------------------------------------------------------------------------
Income (loss) from                                                                                  
 operations                   25,269     21,537     34,410     23,636     (21,360)          3,745
Interest expense, net         (6,369)    (6,708)    (6,968)    (5,341)     (2,155)         (4,265)
Related party interest                                                                               
 expense                          --         --         --         --        (855)         (1,715)
Other income (expense),                                                                                   
 net                           1,095      1,135      1,184       (562)        125             220
-------------------------------------------------------------------------------------------------
Income (loss) before taxes                                                                         
 and cumulative effect of                                                                         
 changes in accounting                                                                            
 principles                   19,995     15,964     28,626     17,733     (24,245)         (2,015)
Provision (benefit) for                                                                             
 income taxes                  7,898      6,529     11,131      6,561      (7,868)           (401)
-------------------------------------------------------------------------------------------------
Income (loss) before                                                                               
 accounting changes           12,097      9,435     17,495     11,172     (16,377)         (1,614)
Cumulative effect of                                                                               
 changes in accounting                                                                                  
 principles                       --         --         --         --     (10,782)             --   
-------------------------------------------------------------------------------------------------
Net income (loss)          $  12,097  $   9,435  $  17,495  $  11,172   $ (27,159)      $  (1,614)  
=================================================================================================
Net income per common                                                                            
 share                     $    1.21  $     .94  $    1.75  $     .79   $   (4.53)      $    (.27)
Average shares outstanding    10,001     10,000     10,000     11,447       6,000           6,000
                
Balance Sheet Data (at end                                                                         
  of period):                                                                                      
Total assets               $ 219,798  $ 206,842  $ 204,822  $ 175,546   $ 179,723       $ 129,028  
Total debt                    87,750     90,000     90,000     61,423      81,941          55,395
Stockholders' equity          33,667     22,602     19,410      9,017         293          27,644

</TABLE>
[FN]
(a) Includes results of the Tile Division acquired effective February 28, 1993.
(b) In connection with the Acquisition of the Amtico Tile Division of American
Biltrite, the Company adopted a plan of restructuring and integration to combine
its operations with the Tile Division and recorded nonrecurring charges of $18.3
million in February 1993.  The restructuring and integration charges include
provisions for environmental remediation (arising as a result of the change in
ownership of the acquired facilities), transaction costs, product line and
distribution consolidation, severance cost, termination of various lease
commitments, write-off of plant equipment and other assets, and other costs
associated with combining and integrating operations.
(c) Effective October 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109,
"Accounting for Income Taxes" resulting in a one-time charge of $10.8 million,
net of related tax benefits of  $2.5 million.
(d) Prior to the acquisition, the Company's fiscal year ended September 30.  At
the effective date of the acquisition, February 28, 1993, the Company adopted a
December 31 fiscal year end.  Based on the significant impact of the acquisition
on the business and operations of the Company, the period prior to the
acquisition, consisting of five months ended February 28, 1993 is presented as a
transition period.
                               6
<PAGE>

Congoleum Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
=================================================================

RESULTS OF OPERATIONS

   The Company's business is cyclical and is affected by the same
economic  factors  that affect the remodeling and  housing  indus
tries  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.

Year  Ended December 31, 1996 as  Compared  to  Year  Ended  
December 31, 1995

   Net  sales  for the year ended December 31, 1996  were  $269.4
million as compared to $263.1 million for the year ended December
31, 1995, an increase of $6.3 million or 2.4%.  Sales were higher
in   1996  due  to  new  customers,  increased  demand  from  the
manufactured   housing  industry  and  a  2-3%  price   increase.
Partially offsetting this was a decline in purchases by  a  major
retail  customer currently operating under bankruptcy protection.
This decline is expected to continue in 1997.

   Gross  profit for the year ended December 31, 1996  was  $88.9
million,  or 33.0% of sales, compared to $78.5 million, or  29.8%
of  sales for the previous year, an increase of $10.4 million, or
13.3%.   The improvement in gross profit during 1996 was  due  to
lower  raw  material  costs, increased  sales  and  pricing,  and
improved manufacturing productivity.

   Selling, general and administrative expenses amounted to $63.7
million  for the year ended December 31, 1996, compared to  $57.0
million  for 1995, an increase of $6.7 million or 11.7%.   Higher
spending  on  marketing  and  new product  development  programs,
together with costs associated with establishing new distribution
in  Canada, were the primary contributors to the increase,  which
was  partially offset by lower bad debt expense in  1996.   As  a
percent  of sales, selling, general, and administrative  expenses
amounted  to 23.6% for the year ended December 31, 1996, compared
to 21.7% for 1995.

   Income  from operations was $25.3 million (9.4% of net  sales)
for the year ended December 31, 1996, up from $21.5 million (8.2%
of net sales) for 1995, an increase of $3.7 million (17.3%).  The
improvement  in operating income during 1996 was  the  result  of
higher  sales  and gross profit margins, net of the  increase  in
selling, general and administrative costs.

   Interest  income increased from $1.5 million in 1995  to  $1.8
million  in  1996  due  to  higher average  cash  and  short-term
investment balances during the year ended December 31, 1996.  The
provision  for income taxes declined from 40.9% of income  before
income  taxes  for 1995 to 39.5% for 1996 as a  result  of  lower
effective state income taxes.

   Net  income  for the year ended December 31,  1996  was  $12.1
million,  compared  to net income of $9.4 million  for  1995,  an
increase of $2.7 million or 28.2%.

Year  Ended December 31, 1995  as  Compared  to  Year  Ended  
December 31, 1994

      Net  sales for the year ended December 31, 1995 were $263.1
million  as  compared to $265.8 million in the previous  year,  a
decrease  of  $2.7  million, or 1.0%.  Weak consumer  demand  for
residential floor covering, coupled with reduced purchases  by  a
major retailer, more than offset a 3-4% price increase which took
place  January  1,  1995 and greater sales  to  the  manufactured
housing  segment.   Sales of products in  the  mid  to  low-price
segments  were most negatively affected, as the success of  newly
introduced products (Futura and Forum Wood Plank) helped maintain
sales in the high-price segment at levels comparable to 1994.

      Gross profit for the year ended December 31, 1995 was $78.5
million,  or 29.8% of sales, compared to $92.6 million, or  34.8%
of sales, in the same period one year earlier, a decline of $14.1
million  or  15.2%.   The  majority of decline  in  gross  profit
resulted from lower margins, with the balance due to lower sales.
The  decline  in  gross profit margins in 1995  versus  1994  was
primarily  due  to  the Company's inability to  pass  on  to  its
customers  the  sharply higher raw material costs experienced  in
1995, which  were  approximately  12%  higher  than  1994  levels.
The higher proportion  of  relatively  lower margin  sales to the 
manufactured  housing  industry  in  the  sales  mix  was  also a   

                               7
<PAGE>

factor in the margin decline, as were  production  inefficiencies
experienced during the unseasonably hot summer of 1995.

      Selling,  general and administrative expenses  amounted  to
$57.0  million for the year ended December 31, 1995, compared  to
$58.2 million for the same period one year earlier, a decrease of
$1.2 million, or 2.1%.  Management control of operating expenses,
coupled  with  lower marketing and freight costs associated  with
the mix of products sold in 1995, more than offset a $2.5 million
charge to bad debt expense related to the bankruptcy filing of  a
major  retailer.   As  a percent of sales, selling,  general  and
administrative  expenses amounted to 21.7% in the  twelve  months
ended  December  31, 1995 as compared to 21.9% in the  comparable
earlier period.

     Income from operations was $21.5 million (8.2% of net sales)
in the year ended December 31, 1995, compared to operating income
of $34.4 million (12.9% of net sales) in the year earlier period,
a decrease of $12.9 million, or 37.4%.  The decrease reflects the
impact of lower gross profit margins and sales, partly offset  by
reductions in selling, general and administrative expenses.

      Interest expense, net, was $6.7 million for the year  ended
December  31,  1995, compared to $7.0 million for the  comparable
prior period.  Higher interest expense in 1995, reflecting a full
year  of  interest on the Senior Notes (see Note 5  of  Notes  to
Financial Statements) versus eleven months in 1994, was more than
offset  by higher investment interest income, the result of  both
higher average invested balances and higher rates earned on those
investments.  Other income, net, for the year ended December  31,
1995 was $1.1 million compared to $1.2 million for the year ended
December 31, 1994 reflecting slightly lower royalty income.

      Net  income for the year ended December 31, 1995  was  $9.4
million compared to net income of $17.5 million one year earlier,
a  decrease of $8.1 million, primarily reflecting the  after  tax
decrease in operating income.

LIQUIDITY AND CAPITAL RESOURCES

  On February 8, 1995, the Company completed a public offering of
4,650,000  shares  of a new series of Class A Common  Stock  (the
Class   A  shares)  for  $13  per  share  (the  "Offering")   and
implemented a Plan of Repurchase (see Notes 1 and 17 of Notes  to
Financial  Statements).  The Company's capital stock  outstanding
immediately  prior to the consummation of the merger contemplated
in  the  Plan  of  Repurchase was converted in  the  merger  into
10,000,000  shares (the "Recapitalization") of a  new  series  of
Class  B Common Stock (the Class B shares).  The net proceeds  of
approximately  $55.2 million after deducting fees, together  with
approximately  $5.2 million of other funds of the  Company,  were
used to repurchase 4,650,000 Class B shares held by Hillside.  As
a  result,  the  cash  and stockholders' equity  of  the  Company
immediately following the Offering was approximately $5.2 million
lower than it was immediately prior to the Offering.

   On  February 1, 1994, the Company completed a public  offering
for  $90  million  of Senior Notes due 2001.  The  Senior  Notes,
issued  at  par, bear interest at 9%.  The indenture under  which
the   notes   were   issued  includes  certain  restrictions   on
indebtedness  and  dividend payments.  The net  proceeds  of  the
offering of approximately $85.8 million after deducting fees were
used  for  retirement  of  all  outstanding  long-term  debt  and
mandatory  redeemable  Series  A  and  B  preferred  stock.    In
addition, the Company paid $8.5 million to repurchase outstanding
warrants  on  the Company's Class C common stock.  In  connection
with  the retirement of the existing long-term debt, the  Company
amended  its  revolving credit facility.   The  amended  facility
provides  for  borrowings up to $30 million with interest  at  1%
over  prime,  or  2  3/4% over LIBOR.  This  financing  agreement
contains  certain  covenants  which include  the  maintenance  of
minimum   net  worth  and  restrictions  on  the  incurrence   of
additional   debt.    Borrowings   under   this   facility    are
collateralized by inventory, receivables and documents of  title.
At   December   31,  1996,  the  Company  had  unused   borrowing
availability under the amended revolving credit facility of $26.9
million.

   Cash and cash equivalents, including short-term investments at
December 31, 1996 were $48.1 million, an increase of $8.0 million
over December 31, 1995.  Working capital at December 31, 1996 was
$62.0 million, up from $56.6 million one year earlier.  The ratio
of current assets to current liabilities at December 31, 1996 was
2:1, substantially  the  same as one year earlier.  The  ratio of 
debt to  total capital  at December 31, 1996 was .40, compared to 


                               8
<PAGE>

 .44 one year earlier.  Net cash provided by operations during the 
year  ended December  31, 1996  was $23.1 million, up 38.6%  from  
the  same period one  year earlier.  Capital expenditures in 1996  
totaled $12.8 million.

   During  1996, the Company's Board of Directors authorized  the
repurchase of $5 million of the Company's Class A shares and  $10
million  of  its  9% Senior Notes.  At December  31,  1996,  $2.3
million  had  been  expended on Senior Note repurchases  and  $49
thousand on repurchases of Class A shares.

   The  Company  is  proceeding with a program to  modernize  and
improve  its  plant  and  equipment,  and  has  budgeted  capital
expenditures  of  approximately $20 million for the  year  ending
December  31, 1997.  Annual capital expenditures are expected  to
continue  at approximately this level for the next two  to  three
years.

   The  Company  has  recorded  what  it  believes  are  adequate
provisions  for  environmental  remediation  and  product-related
liabilities,  including  provisions  for  testing  for  potential
remediation  of  conditions  at its own  facilities.   While  the
Company  believes  its  estimate of the future  amount  of  these
liabilities  is  reasonable, that such amounts will  not  have  a
material adverse impact on the Company's financial position,  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  the  effect  of  future
government  regulation  could have a significant  effect  on  the
Company's  costs,  the  Company  is  not  aware  of  any  pending
legislation  which could have a material adverse  effect  on  its
financial position.  There can be no assurances that the costs of
any  future government regulations could be passed along  to  its
customers.

        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,  asbestos-
related   claims,  and  general  liability  claims  (more   fully
discussed  in  "Legal  Proceedings"  in  Part  I  Item   3.   and
"Environmental  Regulation" in Part I Item 1.  of  the  Company's
Annual  Report  on  Form 10-K).  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 clean-up 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,  environmental   and
asbestos-related contingencies.

   The Company records a liability for environmental remediation,
asbestos-related claim costs, and general liability claims when a
clean-up program or claim payment becomes probable and the  costs
can  be  reasonably  estimated.   As  assessments  and  clean-ups
progress,  these liabilities are adjusted based upon progress  in
determining  the  timing and extent of remedial actions  and  the
related  costs  and  damages.  The  extent  and  amounts  of  the
liabilities can change substantially due to factors such  as  the
nature   or   extent  of  contamination,  changes   in   remedial
requirements and technological improvements.  Estimated insurance
recoveries  related to these liabilities are reflected  in  other
noncurrent assets (see Note 16 of Notes to Financial Statements).

    Although  the  outcome  of  these  matters  could  result  in
significant  expenses or judgments, management does  not  believe
based  on  present facts and circumstances that their disposition
will have a material adverse effect on the financial  position of
the Company.

   The  Company's  principal sources  of  capital  are  net  cash
provided by operating activities and borrowings under its Amended
and  Restated  Financing Agreement.  The Company  believes  these
sources  will  be adequate to fund working capital  requirements,
debt  service  payments and planned capital expenditures  through
the foreseeable future.

                               9
<PAGE>

<TABLE>
Congoleum Corporation
BALANCE SHEETS
(dollars in thousands, except per share amounts)
============================================================================= 
<CAPTION>
                                                    December 31,  December 31,
                                                        1996          1995
-----------------------------------------------------------------------------
<S>                                                 <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                          $   30,629    $   40,103
  Short-term investments                                 17,500            --
  Accounts and notes receivable, less allowance for                       
    doubtful accounts and cash discounts of $3,406                      
    and $5,095 as of December 31, 1996 and 1995          18,886        16,755
  Inventories                                            47,450        48,018
  Prepaid expenses and other current assets               1,014           918
  Deferred income taxes                                   2,874         4,210
-----------------------------------------------------------------------------
    Total current assets                                118,353       110,004
Property, plant, and equipment, net                      78,313        74,208
Goodwill, net                                            12,683        13,115
Deferred income taxes                                     3,068         2,873
Other noncurrent assets                                   7,381         6,642
-----------------------------------------------------------------------------
    Total assets                                     $  219,798    $  206,842
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                   $   20,338    $   21,397
  Accrued liabilities                                    32,425        29,634
  Accrued income taxes                                    1,663           346
  Deferred income taxes                                   1,924         2,072
-----------------------------------------------------------------------------
    Total current liabilities                            56,350        53,449
Long-term debt                                           87,750        90,000
Other liabilities                                        19,401        17,601
Noncurrent pension liability                             12,381        12,575
Accrued postretirement benefit obligation                10,249        10,615
-----------------------------------------------------------------------------
    Total liabilities                                   186,131       184,240
-----------------------------------------------------------------------------
STOCKHOLDERS' EQUITY                                                         
Preferred stock, par value $0.01; 1,000,000 shares                           
  authorized; none issued or outstanding                     --            --
Class A common stock, par value $0.01; 20,000,000                              
  shares authorized; 4,650,000 shares issued;                              
  4,645,500 and 4,650,000 outstanding as of                                   
  December 31, 1996 and 1995                                 47            47
Class B common stock, par value $0.01;                                         
  5,350,000 shares authorized, issued and outstanding                          
  as of December 31, 1996 and 1995                           53            53
Additional paid-in capital                               55,172        55,172
Retained deficit                                        (19,561)      (31,658)
Minimum pension liability adjustment                     (1,995)       (1,012)
Common stock held in treasury, at cost; 4,500 shares                    
  at December 31, 1996                                      (49)           --
-----------------------------------------------------------------------------
    Total stockholders' equity                           33,667        22,602
-----------------------------------------------------------------------------
    Total liabilities and stockholders' equity      $   219,798    $  206,842
=============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
                               10
<PAGE>

<TABLE>
Congoleum Corporation
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
=============================================================================
<CAPTION>
                                                  For the years ended
                                                      December 31,
                                          ------------------------------------
                                             1996         1995          1994
------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>
Net sales                                $  269,451    $  263,147   $  265,784
Cost of sales                               180,520       184,621      173,184
Selling, general and administrative                                      
  expenses                                   63,662        56,989       58,190
------------------------------------------------------------------------------   
        Income from operations               25,269        21,537       34,410
                                                                             
Other income (expense):                                                         
  Interest income                             1,784         1,479          879
  Interest expense                           (8,153)       (8,187)      (7,847)
  Other income                                1,436         1,407        1,818
  Other expense                                (341)         (272)        (634)
------------------------------------------------------------------------------
        Income before income taxes           19,995        15,964       28,626
  Provision for income taxes                  7,898         6,529       11,131
==============================================================================   
        Net income                       $   12,097    $    9,435   $   17,495
==============================================================================  
        Net income per common share      $     1.21    $      .94   $     1.75
==============================================================================
        Weighted average number of 
          common and equivalent 
          shares outstanding                 10,001        10,000       10,000
==============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.

                               11
<PAGE>

<TABLE>
Congoleum Corporation
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
==============================================================================
<CAPTION>
                       Common Stock      Common Stock                              Minimum           
                       par value $1     par value $0.01    Additional              Pension      
                     ----------------   ----------------     Paid-in   Retained   Liability   Treasury
                     Class A  Class B   Class A  Class B     Capital    Deficit   Adjustment    Stock     Total
---------------------------------------------------------------------------------------------------------------   
<S>                  <C>      <C>       <C>      <C>       <C>         <C>        <C>         <C>      <C>           
Balance, December 31,                                                                                                          
 1993                 $ 4      $ 5                          $  55,661   $ (46,331) $  (322)             $  9,017
                                                                                                               
Repurchase of                                                                                                                       
 outstanding warrants                                                      (7,199)                        (7,199)                
                                                                                                                              
Dividends accrued on                                                                                                        
 redeemable Series A                                                                                            
 and Series B                                                                                                                 
 preferred stock                                                             (225)                          (225)           
                                                                                                                             
Minimum pension                                                                                                                   
 liability adjustment,                                                                                                   
 net of tax benefit                                                                    322                   322     
                                                                                                                      
Net income                                                                 17,495                         17,495
                                                                                                                         
Recapitalization in                                                                                                   
 conjunction with the                                                                                          
 public offering                                                                                               
 (Note 17)             (4)      (5)               $  100          (91)                                        --
----------------------------------------------------------------------------------------------------------------                    
Balance, December 31,                                                                                                  
 1994                  --       --                   100       55,570     (36,260)      --                19,410 
                                                                                                                                  
Initial public offering                                                                                                    
 of 4,650,000 shares of                                                                                              
 Class A common stock                    $  47                 55,172                                     55,219             
                                                                                                                                  
Repurchase and                                                                                                            
 retirement of 4,650,000                                                                                                 
 shares of Class B                                                                                                       
 common stock                                        (47)     (55,570)     (4,833)                       (60,450)
                                                                                                               
                                                                                                                
Minimum pension                                                                                                                     
 liability adjustment,                                                                                                
 net of tax benefit                                                                 (1,012)               (1,012)                
                                                                                                                    
Net income                                                                  9,435                          9,435                    
----------------------------------------------------------------------------------------------------------------            
Balance, December 31,                                                                                             
 1995                  --       --          47        53       55,172     (31,658)  (1,012)               22,602
                                                                                                                  
Purchase of treasury                                                                                           
 stock                                                                                         $ (49)        (49)            
                                                                                                                
Minimum pension                                                                                                                
 liability adjustment,                                                                                                   
 net of tax benefit                                                                   (983)                 (983)               
                                                                                                                
Net income                                                                 12,097                         12,097  
----------------------------------------------------------------------------------------------------------------
Balance, December 31,                                                                                          
 1996                  --       --       $  47    $   53    $  55,172   $ (19,561) $(1,995)    $ (49)   $ 33,667 
--------------------------------------------------------------------------------------------------------------- 
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
                               12
<PAGE>

Congoleum Corporation
STATEMENTS OF CASH FLOWS
(dollars in thousands)
=============================================================================
<TABLE>
<CAPTION>
                                                   For the years ended
                                                       December 31,
                                            ---------------------------------
                                             1996         1995         1994
-----------------------------------------------------------------------------
<S>                                      <C>          <C>          <C> 
Cash flows from operating activities:
  Net income                              $  12,097    $  9,435     $  17,495
  Adjustments to reconcile net income                                      
   to net cash provided (used) by                                             
   operating activities:                                                       
     Depreciation                             8,696       7,593         7,687
     Amortization                             1,087       1,025         1,054
     Provision for doubtful accounts            600       2,800           817
     Deferred income taxes                      994       1,107         1,665
     Loss on disposition of assets               16          94            16
     Changes in certain assets and                                      
      liabilities:                                                             
        Accounts and notes receivable        (2,731)     (2,107)        2,126
        Inventories                             568      (1,124)       (1,723)
        Prepaid expenses and other                                             
         current assets                        (140)        239          (257)
        Accounts payable                     (1,059)       (350)        1,004
        Accrued liabilities                   4,108      (1,422)       (3,269)
        Other liabilities                    (1,094)       (596)        2,428
-----------------------------------------------------------------------------
          Net cash provided by                                                
           operating activities              23,142      16,694        29,043
-----------------------------------------------------------------------------
Cash flows from investing activities:                                         
  Capital expenditures                      (12,817)    (10,178)      (10,726)
  Purchase of short-term investments        (45,000)    (12,500)      (40,500)
  Maturities of short-term investments       27,500      36,500        16,500
-----------------------------------------------------------------------------
          Net cash provided (used) by                                      
           investing activities             (30,317)     13,822       (34,726)
-----------------------------------------------------------------------------
Cash flows from financing activities:                                           
  Decrease in revolving credit facility          --          --          (473)
  Proceeds from issuance of long-term debt       --          --        90,000
  Retirement of long-term debt and                                            
   redeemable preferred stock                    --          --       (59,874)
  Debt issuance costs                            --          --        (3,387)
  Payments to reduce long-term debt          (2,250)         --            --
  Equity offering cost                           --      (1,000)           --
  Proceeds from equity offering                  --      56,219            --
  Purchase of Class B shares                     --     (60,450)           --
  Repurchase of common stock warrants            --          --        (8,500)
  Purchase of treasury stock                    (49)         --            --
-----------------------------------------------------------------------------
          Net cash provided (used) by                                        
           financing activities              (2,299)     (5,231)       17,766
-----------------------------------------------------------------------------
Net increase (decrease) in cash              (9,474)     25,285        12,083
Cash and cash equivalents:                                                  
  Beginning of year                          40,103      14,818         2,735
-----------------------------------------------------------------------------
  End of year                             $  30,629    $ 40,103     $  14,818
=============================================================================
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
                               13
<PAGE>

Congoleum Corporation
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
=============================================================================

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Nature  of Business  and Basis of  Presentation - Congoleum
     Corporation (the "Company" or "Congoleum") manufactures and
     sells resilient sheet vinyl and vinyl tile flooring products
     primarily to wholesale  distributors and  major retailers in 
     the  United States  and  Canada.  Prior to the  closing of a 
     public offering in February 1995 (the "Offering" - Note 17), 
     the Company was an indirect subsidiary of Congoleum Holdings 
     Incorporated ("Holdings"),  which was controlled  jointly by 
     Hillside Industries Incorporated  ("Hillside") and  American 
     Biltrite Inc. ("ABI").

     Upon  completion  of the Offering, the Company implemented a 
     Plan  of Repurchase pursuant to which its two-tiered holding 
     company ownership structure was eliminated through the merger  
     of  Congoleum  Holdings with and into the  Company,  with the 
     Company as the surviving corporation.  Consequently, the 1994 
     financial  statements  included  herein  are  presented  on a 
     combined basis with Holdings which was formed on February 26,
     1993.  All significant intercompany transactions and accounts 
     have been eliminated.

     Use of Estimates - Some of the  information  presented in this 
     report constitutes "forward-looking statements" within meaning
     of the Private Securities Litigation Reform  Act of 1995.  The 
     preparation  of  financial   statements  in   conformity  with 
     generally accepted accounting principles  requires  management 
     to make  estimates and  assumptions  that  affect the reported 
     amounts of assets and liabilities and disclosure of contingent 
     assets and liabilities at the date of the financial statements 
     and the  reported  amounts of revenues and expenses during the 
     reporting  period.   Actual  results  could  differ from those 
     estimates.

     Revenue Recognition - Revenue is recognized when products are
     shipped.  Net  sales  are comprised of the total sales billed
     during  the  period  less  the sales value of  goods returned, 
     trade discounts and customers' allowances.

     Cash and Cash Equivalents - All highly liquid debt instruments
     with  a  maturity  of  three  months  or  less at  the time of 
     purchase are considered to be cash equivalents.

     Short-Term Investments - Investments in A1/P1 Commercial Paper
     with a maturity  greater than three  months, but less than six
     months at the time of purchase are considered to be short-term
     investments.   The  carrying  amount  of the  Commercial Paper
     approximates fair value due to its short maturity.

     Inventories - Inventories  are  stated  at the lower of cost or
     market.  The  LIFO  (last-in, first-out)  method of determining 
     cost is used for substantially all inventories.

     Property, Plant, and Equipment - Property, plant, and equipment
     are  recorded at cost and are  depreciated over their estimated
     useful lives (30 years for buildings and building improvements,
     15 years for production equipment and heavy duty vehicles, 4 to
     10 years for light  duty  vehicles  and  office furnishings and
     equipment) on the straight-line method for  financial reporting
     and accelerated methods for income tax purposes. Costs of major
     additions  and  betterments are  capitalized;  maintenance  and
     repairs which  do not improve or  extend the life of respective
     assets are charged to operations as incurred.  When an asset is
     sold, retired  or otherwise  disposed of, the cost of the asset
     and the related  accumulated  depreciation are removed from the
     respective accounts and any resulting gain or loss is reflected
     in operations.

     Debt  Issue  Costs - Costs  incurred  in  connection  with  the 
     issuance of long-term debt have been  capitalized and are being
     amortized over the  life of the related  debt agreements.  Such
     costs, net of accumulated  amortization, amounted to $2,359 and
     $3,014  at December  31, 1996  and 1995, respectively, and  are 
     included in other noncurrent assets.

     Goodwill - The  excess  of purchase  cost over the fair value of
     net assets acquired (goodwill)is being  amortized on a straight-
     line  basis  over 40  years.   At  each  balance sheet date, the 
     Company  evaluates  the  recoverability  of  its  goodwill using 
     certain  financial  indicators,  such  as  historical and future

                               14
<PAGE>

     ability  to  generate  income  from  operations.    Accumulated 
     amortization amounted to $4,409 and $3,977 at December 31, 1996 
     and 1995, respectively.

     Income Taxes -  The  provision  for  income  taxes  is based on 
     earnings  reported  in the  financial statements under an asset 
     and  liability  approach  in  accordance  with  SFAS  No.  109, 
     "Accounting for Income Taxes," that requires the recognition of 
     deferred tax assets and liabilities and their  reported amounts 
     for financial statement purposes.

     Income Per Share - Net income per  common share has been computed
     by dividing net income applicable to common stock by the weighted 
     average number of common and common equivalent shares outstanding 
     during the year, giving  effect  to dilutive  stock options.  For 
     the periods ending December 31, 1996, 1995 and  1994, there is no 
     difference  between  primary  and  fully  dilutive net income per 
     common share.

     Changes  in  Accounting  Principles - Effective  January 1, 1996,
     the Company adopted  Statement of Financial  Accounting Standards
     ("SFAS")  No.  123,  "Accounting  for  Stock-Based Compensation."
     SFAS No. 123 requires  the  recognition  of,  or  disclosure  of,
     compensation expense for grants of stock  options or other equity
     instruments issued to employees based on  their fair value at the
     date of grant.  As permitted by SFAS No. 123, the Company elected 
     the disclosure requirements instead of recognition of compensation 
     expense and therefore will continue to  apply existing  accounting 
     rules. Effective January 1, 1995, the Company adopted SFAS No. 121 
     which establishes accounting standards for the impairment of long-
     lived  assets,  certain  identifiable  intangibles   and  goodwill 
     related to those assets.  The  adoption of these  standards had no 
     effect on the Company's statement of financial position, income or 
     liquidity.

     In  October  1996,  the  Accounting  Standards Executive Committee 
     (AcSEC) of the American Institute of Certified  Public Accountants 
     issued SOP 96-1, "Environmental Remediation Liabilities." SOP 96-1 
     provides authoritative  guidance on the  recognition, measurement, 
     display and  disclosure of  environmental  remediation liabilities 
     and is effective  on January 1, 1997 for the Company. The adoption 
     of SOP  96-1  is not  expected  to  have a  material effect on the 
     Company's financial condition.


2.   INVENTORIES:

     A summary of the major components of inventories is as follows:
<TABLE>
<CAPTION>
                                       December 31,      December 31,
                                          1996              1995
---------------------------------------------------------------------                                         
<S>                                   <C>              <C>                                                     
 Finished goods                        $  34,920        $  34,122
 Work-in-process                           2,089            4,298
 Raw materials and supplies               10,441            9,598
---------------------------------------------------------------------
 Total inventories                     $  47,450        $  48,018
=====================================================================
</TABLE>                                                           
                                                                    
     If  the FIFO  (first-in, first-out) method of inventory accounting
     (which approximates current cost) had been used, inventories would 
     have been approximately $2,027 lower and $226 higher than reported 
     at December 31, 1996 and 1995, respectively. The carrying value of 
     certain LIFO inventories was reduced by market  valuation reserves 
     of $650 and $354 at December 31, 1996 and 1995, respectively.
                                                                    
                                                                     
                                                                   
3.   PROPERTY, PLANT, AND EQUIPMENT:                                 
                                                                      
     A summary of the major components of property, plant, and equipment 
     is as follows:                                                
                                                                   
<TABLE>                                                              
<CAPTION>                                                              
                                       December 31,     December 31,
                                           1996             1995
------------------------------------------------------------------------
<S>                                   <C>              <C>       
Land                                   $   2,960        $   2,960
Buildings and improvements                27,706           25,014
Machinery and equipment                  113,352          108,514
Construction-in-progress                  11,844            6,607
------------------------------------------------------------------------
                                         155,862          143,095
Less accumulated depreciation            (77,549)         (68,887)
------------------------------------------------------------------------
Total property, plant, and                                       
  equipment, net                       $  78,313        $  74,208
========================================================================
</TABLE>
                               15
<PAGE>

     The  amount  of  approved but unexpended capital appropriations at
     December 31,1996 was $5,684, substantially all of which is planned 
     to be expended during 1997.


4.  ACCRUED LIABILITIES:

     Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
                                       December 31,     December 31,
                                          1996             1995
-----------------------------------------------------------------------
<S>                                   <C>              <C>
 Accrued marketing and                                        
   sales promotion                     $  16,565        $  15,089
 Employee compensation                                        
   and related benefits                    8,305            7,205
 Interest                                  3,362            3,453
 Environmental remediation                                      
   and product-related liabilities           957              957
 Other                                     3,236            2,930
----------------------------------------------------------------------
 Total accrued liabilities             $  32,425        $  29,634
======================================================================
</TABLE>                                                       
                                                                
                                                                
5.  LONG-TERM DEBT:                                             
                                                                   
     Long-term debt consists of the following:                   
<TABLE>                                                             
<CAPTION>                                                        
                                       December 31      December 31
                                          1996             1995
----------------------------------------------------------------------
<S>                                   <C>              <C>
 9% Senior Notes due 2001              $  87,750        $  90,000

</TABLE>

     On February 1, 1994,  the  Company completed a public offering for
     $90,000 of Senior Notes  (the "Senior Notes") due 2001. The Senior 
     Notes, issued at par, bear interest at 9.0%.  The  Indenture under
     which  the  notes  were  issued  includes  certain restrictions on 
     additional indebtedness and dividend payments.

     A portion  of the  net  proceeds of  approximately  $85,850, after
     deducting  fees,  of the  Senior  Note  Offering  was used for the
     retirement of all outstanding long-term debt and the redemption of 
     all  of the  redeemable preferred  stock held by Hillside and ABI.  
     In addition, the Company paid $8,500 to repurchase the outstanding 
     warrants on the Company's Class C common stock.

     The  Senior Notes are  redeemable at the option of the Company, in
     whole  or in  part, at  any time on or after February 1, 1998 at a
     predetermined  redemption  price (ranging from 103% to 100%), plus
     accrued and unpaid interest to the date of redemption.

     During 1996, the Company announced that its Board of Directors had 
     approved a program to repurchase up to  $10,000 of its outstanding 
     Senior Notes either in the open market or in  privately negotiated 
     transactions.  At December 31, 1996, the  Company had  repurchased 
     $2,250 of its  Senior  Notes.  In connection  with the repurchase, 
     the  Company  also  wrote  off a portion of the debt issuance cost 
     associated  with  the  repurchased  Senior  Notes.  The  net  loss 
     associated  with the Senior  Note repurchase was immaterial to the 
     financial  statements, and is  included in  other  expense for the 
     period ended December 31, 1996.

     The Company has a revolving credit facility which expires in  2000 
     that  provides  for  borrowings  up to $30,000 with interest at 1% 
     over prime, or 2-3/4%  over  LIBOR, at the Company's option.  This 
     agreement provides for a commitment fee based on the average daily 
     unused  portion  of  the  commitment  equal  to one quarter of one 
     percent  per  annum.   This financing  agreement  contains certain 
     covenants which include the maintenance of minimum  net  worth and 
     restrictions  on the  incurrence of  additional  debt.  Borrowings 
     under  this   facility   are   collateralized   by   inventory and 
     receivables. There  were  no  borrowings  outstanding  under  this  
     facility at December  31, 1996,   however, the  facility  provides  
     for  standby  letters of credit which totals $3,100 at December 31, 
     1996.

                               16
<PAGE>

     The fair value of the Senior Notes, estimated  based on the quoted 
     market price, was approximately $87,311 at December 31, 1996.


6.  REDEEMABLE PREFERED STOCK:

     In  connection with the  formation of Congoleum Holdings (Note 1),
     Holdings  issued  50  shares  of $100,000 par value  9% cumulative
     redeemable Series A preferred  stock  (Series A stock) and  233.24
     shares of  $100,000  par value  9% cumulative  redeemable Series B
     preferred stock (Series B stock).  All of the outstanding Series A 
     and Series B preferred stock was redeemed in February 1994 (Note 5) 
     at the  redemption  price of  $100,000  per share plus accrued but 
     unpaid dividends.

7.  OTHER LIABILITIES:

     Other liabilities consists of the following:
<TABLE>
<CAPTION>
                                       December 31,     December 31,
                                           1996            1995
-----------------------------------------------------------------------
<S>                                   <C>             <C>
 Environmental remediation
   and product-related
   liabilities                         $  10,926       $  10,415
 Accrued workers'
   compensation claims                     4,871           4,462
 Other                                     3,604           2,724
-----------------------------------------------------------------------
 Total other liabilities               $  19,401       $  17,601
=======================================================================
</TABLE>

8. RESEARCH AND DEVELOPEMENT COSTS:

     Total  research  and  development   costs  charged  to  operations 
     amounted to $4,552, $3,683 and $3,487 for the years ended December 
     31, 1996, 1995 and 1994, respectively.


9. OPERATING LEASE COMMITMENTS AND RENT EXPENSE:

     The  Company  leases certain office facilities and equipment under
     leases with varying terms.

     Future  minimum   lease  payments  of  significant,  noncancelable
     operating leases having initial or remaining lease terms in excess
     of one year as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Years Ending
-----------------------------------------------------------------------
<S>                                              <C>
 1997                                             $  1,515
 1998                                                  604
 1999                                                  296
 2000                                                   25
 2001                                                   --
 Thereafter                                             --
-----------------------------------------------------------------------
 Total minimum lease payments                     $  2,440
=======================================================================
</TABLE>

     Rent  expense  was $1,772, $1,791  and  $1,593 for the years ended
     December 31, 1996, 1995 and 1994, respectively.


10. RETIREMENT PLANS:

     Retirement  benefits  are provided  for substantially all employees
     under  Company-sponsored  defined benefit pension plans.  The plans 
     are noncontributory and generally provide monthly lifetime payments, 
     normally commencing at age 65.  Benefits under the  plans are based 
     upon  the  provisions  of negotiated  labor  contracts and years of 
     service.  It is the Company's policy to make contributions to these 
     plans  sufficient  to  meet  the  minimum  funding  requirements of 
     applicable  laws and regulations plus  such  additional amounts, if 
     any,  as  the   Company's   actuarial   consultants  advise  to  be 
     appropriate.  The  projected  unit  credit  and unit credit methods 
     were utilized for determination of the actuarial cost.

                               17
<PAGE>

     Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>
                                           For the years ended
                                               December 31,
-----------------------------------------------------------------------
                                    1996         1995         1994
<S>                                <C>          <C>          <C>      
 Benefits earned
   during the year
   (service cost)                   $  1,113     $   919      $  1,075
 Interest cost on                                                       
   projected benefit                                                   
   obligation                          3,743       3,797         3,646
 Return on plan assets                (2,515)     (6,088)        1,506
 Net amortization                                                        
   and deferral                       (1,088)      2,745        (5,265)
------------------------------------------------------------------------
 Net periodic                                                   
   pension cost                     $  1,253     $ 1,373      $    962
========================================================================
</TABLE>

     The following tables present a reconciliation of the Plans'status 
     at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                    Plan(s) Whose
                                                     Accumulated
                                                       Benefits
                                                    Exceed Assets
-------------------------------------------------------------------------
<S>                                                <C>                    
 December 31, 1996:
   Actuarial present value
     of benefit obligations:
   Vested benefit obligations                       $  54,168
-------------------------------------------------------------------------
   Accumulated benefit obligations                  $  55,678
-------------------------------------------------------------------------
   Projected benefit obligations                    $  56,182
   Plan assets at fair market value                    41,010
-------------------------------------------------------------------------
   Projected benefit obligations                                
     in excess of plan assets                         (15,172)
   Unrecognized net loss                                7,108
   Unrecognized net obligation                            161
   Unrecognized prior service cost                     (2,463) 
   Adjustment required to                                      
     recognize minimum liability                       (4,302)
-------------------------------------------------------------------------
   Accrued pension liability                                      
      ($2,287 included in                                    
      accrued liabilities)                          $ (14,668)
=========================================================================
 December 31, 1995:                                      
   Actuarial present value                               
     of benefit obligations:                              
   Vested benefit obligations                       $  53,507
-------------------------------------------------------------------------
   Accumulated benefit obligations                  $  54,980
-------------------------------------------------------------------------
   Projected benefit obligations                    $  55,216
   Plan assets at fair market value                    40,683
-------------------------------------------------------------------------
   Projected benefit obligations                                
     in excess of plan assets                         (14,533)
   Unrecognized net loss                                5,905
   Unrecognized net obligation                            237
   Unrecognized prior service cost                     (2,821)
   Adjustment required to                                              
     recognize minimum liability                       (3,085)
------------------------------------------------------------------------
   Accrued pension liability                                    
      ($1,722 included in                              
      accrued liabilities)                          $ (14,297)           
========================================================================
</TABLE>

  Plan assets which are deposited with a trustee consist principally of 
  fixed income, equity and short-term investments and cash equivalents.

     The  provisions of  FASB Statement  No. 87, "Employers' Accounting 
     for Pensions,"  require the  recognition of an  additional minimum
     liability  for  plans  whose accumulated  benefits  exceed  assets. 
     These amounts  have been recorded as a long-term liability with an
     offsetting  intangible  asset included in other  noncurrent assets
     amounting  to  $1,005 and  $1,375 at  December  31, 1996  and 1995,
     respectively.   Because the asset  recognized  may not  exceed the 
     amount of  unrecognized prior  service cost, the balance of $1,995, 
     net of tax benefits of $1,303, is reported as a separate reduction 
     of stockholders' equity at December 31, 1996.

     The weighted  average discount rate and rate of increase in future 
     compensation  levels  used in  determining  the  actuarial present
     value of the projected benefit obligations are 7.0% and 5.5% as of
     December 31, 1996 and 1995,  respectively.  The expected long-term
     rate of return on plan assets is 9.0% for all years presented.

                                18
<PAGE>

     The  Company  also has two 401(k)  defined contribution retirement
     plans that  cover substantially all employees.  Eligible employees 
     may  contribute up to 15%  of compensation with partially matching 
     Company contributions.  Defined  contribution  pension expense for 
     the Company was  $1,363,  $1,128 and  $1,107 for the  years  ended 
     December 31, 1996, 1995 and 1994, respectively.




11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:

     The  Company  provides  certain  health  care  and life insurance 
     benefits for certain retirees.  The determination of benefit cost 
     for  postretirement  plans  is  based on  plan  provisions. These 
     benefits are provided through insurance companies whose  premiums 
     are based on benefits paid or claims experience.

     Net periodic postretirement benefits cost, calculated in accordance 
     with SFAS No. 106, is as follows:

<TABLE>
<CAPTION>
                                              For the years ended
                                                  December 31,
                                          ---------------------------      
                                          1996        1995       1994
------------------------------------------------------------------------
<S>                                     <C>        <C>        <C> 
 Service cost-benefits                           
   earned during                                
   the year                              $  141     $  137     $  185
 Interest cost on                                                   
   postretirement                                                 
   benefit obligations                      484        480        487
 Amortization of                                                           
   prior service cost                      (447)      (524)      (524)
 Amortization                                                            
   of losses                                 90         47         21
------------------------------------------------------------------------
 Net periodic                                                          
   postretirement                                                         
   benefits cost                         $  268     $  140     $  169
========================================================================
</TABLE>

     At  December  31,  1996  and  1995,  the  actuarial  and  recorded
     liabilities for these  postretirement benefits, none of which have 
     been funded, were as follows:

<TABLE>
<CAPTION>
                                         December 31,    December 31,
                                             1996            1995
----------------------------------------------------------------------  
<S>                                      <C>             <C>
 Accumulated present                            
   value of postretirement    
   benefit obligations:        
 Retirees and                             
   dependents                             $  (4,136)      $  (3,319)
 Fully eligible active                                               
   plan participants                           (999)         (1,076)
 Other active plan                                       
   participants                              (2,355)         (2,432)
 Unrecognized prior                                          
   service cost                              (3,633)         (4,944)
 Unrecognized                                                
   net loss                                     303             648
----------------------------------------------------------------------
 Accrued                                                                
   postretirement                                                      
   benefit obligations                      (10,820)        (11,123)
 Less current                                                           
   portion                                      571             508
----------------------------------------------------------------------
 Noncurrent                                                    
   postretirement                                                         
   benefit obligations                    $ (10,249)      $ (10,615)
======================================================================       
</TABLE>

     A  weighted  average  assumed  discount rate  of 7.0% was used to 
     measure the  accumulated postretirement benefit obligations as of
     December 31, 1996 and 1995.  The  annual  rate of increase in the
     per capita cost of covered health care benefits was assumed to be 
     10.1% in 1996; the rate was assumed to decrease gradually to 5.0% 
     over the next 10 years and  remain level thereafter.  An increase 
     of one  percentage  point in the   assumed health care cost trend 
     rates for each future year would have increased  the aggregate of 
     service  and interest cost components of net periodic postretire-
     ment  benefits  cost by  $86,  $87 and  $69 for  the years  ended 
     December 31, 1996, 1995  and  1994, respectively, and  would have 
     increased the accumulated  postretirement  benefit obligations by 
     $798 and $783 as of December 31, 1996 and 1995, respectively.

                               19                               
<PAGE>

12.  INCOME TAXES:

     The  provision  (benefit)  for  income  taxes  as  shown  in  the 
     accompanying   statements  of  operations  is  comprised  of  the 
     following:

<TABLE>
<CAPTION>
                                               For the years ended
                                                   December 31,
                                        --------------------------------  
                                           1996        1995        1994
------------------------------------------------------------------------
<S>                                    <C>         <C>         <C> 
 Current:
   Federal                              $  5,591    $  4,114    $  8,394
   State                                     711         608       1,262
 Deferred:
   Federal                                 1,348       1,272       1,816
   State                                     248         535        (341)
--------------------------------------------------------------------------
 Provision for 
   income taxes                         $  7,898    $  6,529    $ 11,131
==========================================================================
</TABLE>

     The following is a reconciliation of the statutory federal income 
     tax  rate to  the Company's  effective  tax  rate  expressed as a 
     percentage of income before income taxes:

<TABLE>
<CAPTION>
                                               For the years ended
                                                   December 31,
                                            --------------------------                                             
                                            1996       1995       1994
----------------------------------------------------------------------                                                           
<S>                                       <C>         <C>        <C>          
 Statutory federal                                  
   income tax rate                         35.0%       35.0%      35.0%
 State income taxes,                                
   net of federal benefit                   3.5         4.4        2.1
 Goodwill                                   0.8         1.0        0.5
 Other                                      0.2         0.5        1.3
----------------------------------------------------------------------                                                        
 Effective tax rate                        39.5%       40.9%      38.9%
=======================================================================
</TABLE>

     Deferred  taxes are  recorded using  enacted tax rates based upon
     differences  between financial  statement and tax bases of assets
     and  liabilities.   Valuation  allowances  are  established  when 
     necessary to reduce  deferred  tax assets to the  amount expected 
     to be  realized.   The  components of the  deferred tax asset and 
     liability relate to the following temporary differences:
     
<TABLE>
<CAPTION>
                                       December 31,    December 31,
                                           1996            1995
----------------------------------------------------------------------
<S>                                   <C>               <C>
 Deferred tax asset:
   Accounts receivable                 $  1,021          $  1,633
   Unfunded pension                                            
     liability                            5,264             4,796
   Environmental                                                
     remediation and                                              
     product-related                                               
     reserves                             8,009             7,324 
   Postretirement                                               
     benefit obligations                  4,241             4,349 
   Other accruals                           974             1,727
-----------------------------------------------------------------------
   Total deferred                                                  
     tax asset                           19,509            19,829
-----------------------------------------------------------------------
 Deferred tax liability:                                             
   Depreciation and                                                    
     amortization                       (12,023)          (11,896)
   Inventory                             (1,924)           (2,072)
   Other                                 (1,544)             (850)
-----------------------------------------------------------------------
   Total deferred                                                      
     liability                          (15,491)          (14,818)
-----------------------------------------------------------------------
 Net deferred                                                          
     tax asset                         $  4,018          $  5,011
=======================================================================
</TABLE>

13. SUPPLEMENTAL CASH FLOW INFORMATION:

    Cash payments for interest were $8,168, $8,102 and $4,751 for the
    years  ended December 31, 1996, 1995 and 1994, respectively. Cash
    payments for income taxes were $4,335, $6,183 and $12,326 for the
    years ended December 31, 1996, 1995 and 1994, respectively.

                               20
<PAGE>

14. RELATED PARTY TRANSACTIONS:

    The  Company and  ABI provide  certain goods and services to  each
    other pursuant to agreements which were negotiated at arm's length 
    at  the  time of  the  acquisition.  The Company had the following 
    transactions with  ABI:

<TABLE>
<CAPTION>
                                           For the years ended
                                                December 31,
                                    ----------------------------------
                                    1996           1995           1994
-------------------------------------------------------------------------
<S>                              <C>            <C>            <C>
 Sales                            $  1,213       $  1,409       $  1,527
 Raw material
   transfers to ABI                  3,115          2,899          2,247
 Computer service
   income                              226            262            397
 Material purchases
   from ABI                          5,814          3,817          4,471
 Management fees                     1,265            993            920
==========================================================================
</TABLE>

     Amounts  as  of  December  31,  1996,  1995 and  1994 due from an 
     affiliate  of  ABI  totaled  $620,  $236  and  $94,  respectively.  
     Amounts as of December 31, 1996, 1995 and 1994 due to ABI and its
     affiliates totaled $1,586, $1,586 and $1,054, respectively.

     For the years ended December 31, 1995 and 1994 management fees to 
     Hillside totaled $19 and $180, respectively.


15.  MAJOR CUSTOMERS:

     Substantially  all  the  Company's sales  are to  select flooring
     distributors and retailers located in the United States. Economic 
     and  market  conditions,  as  well  as the  individual  financial 
     condition  of each  customer,  are  considered  when establishing 
     allowances for losses from doubtful accounts.

     Two  customers  accounted  for  22% and  20% of the Company's net 
     sales for the  year  ended December 31, 1996, 21% and 21% for the
     year ended December  31, 1995, and 16% and 18% for the year ended
     December  31, 1994  and  accounted  for 41%  and 34%  of accounts
     receivable at December 31, 1996 and 1995, respectively.


16.  CONTINGENT AND OTHER LIABILITIES:

     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, asbestos-related claims,
     and  general  liability  claims.  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 clean-up 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  records a  liability for environmental remediation,
     asbestos-related claim costs, and  general  liability claims when
     a  clean-up  program or  claim  payment  becomes probable and the 
     costs can be reasonably estimated.   As assessments and clean-ups
     progress,  these  liabilities are adjusted based upon progress in
     determining  the  timing and  extent of  remedial actions and the
     related  costs  and  damages.   The  extent  and  amounts  of the
     liabilities  can  change  substantially  due  to  factors such as 
     the nature  or  extent  of  contamination,  changes  in  remedial
     requirements  and  technological   improvements.   The   recorded
     liabilities  (Notes 4 and 7)  are  not  discounted for  delays in
     future  payments  and  are not reduced by the amount of estimated
     insurance  recoveries.   Such  estimated  insurance recoveries of
     $3,939  and  $2,176  are reflected in other  noncurrent assets at
     December  31,  1996  and  1995  and  are  considered  probable of 
     recovery.

     Although the outcome of these matters could result in significant 
     expenses  or  judgments,  management  does  not  believe based on 
     present facts and circumstances that their disposition  will have 
     a  material  adverse  effect  on  the  financial  position of the 
     Company.

                               21
<PAGE>

17.  INITIAL PUBLIC EQUITY OFFERING:

     On  February  8, 1995, the Company completed a public  offering of
     4,650,000  shares  of a new  series of  Class A common  stock (the
     Class A shares) for $13 per share (the "Offering") and implemented 
     a  Plan  of  Repurchase  (Note 1).   The Company's  capital  stock 
     outstanding  immediately  prior  to the consummation of the merger 
     contemplated in the Plan of Repurchase was converted in the merger 
     into 10,000,000 shares (the "Recapitalization") of a new series of 
     Class  B  common stock  (the Class B shares).  Hillside and ABI as 
     holders of the  Class B shares are entitled to two votes per share 
     on  all  matters  submitted  to a  vote of stockholders other than 
     certain extraordinary matters.   The holders of the Class A shares 
     are  entitled to  one vote per share on all matters submitted to a
     vote  of  stockholders.   In addition, the Stockholders' Agreement
     among the  Company,  Holdings, ABI and Hillside, and certain other
     agreements  were  either  amended or terminated, and Hillside made
     a  cash  payment  of  $2,000  to  ABI  in  consideration  of ABI's 
     agreement  to  enter  into  the  Plan of Repurchase and consummate 
     the  transactions  contemplated  thereby.   The  net  proceeds  of 
     approximately   $55,219   after  deducting   fees,  together  with
     approximately  $5,231  of other funds of the Company, were used to
     repurchase  4,650,000  Class B shares held by Hillside.  Following
     the  completion  of  the offering and the  Plan of Repurchase, ABI
     owns  4,395,605  Class B shares that represent 57.3% of the voting
     control of the Company.

     The  accompanying  financial statements have been adjusted to show
     the  effects  of  the  Recapitalization  as if it  had occurred on
     December 31, 1994.   All  references to weighted average number of
     common and  equivalent shares and related per share amounts in the 
     statements of operations have been similarly adjusted.


18.  1995 STOCK OPTION PLAN:

     Effective with the public offering  (Note 17), the Company adopted 
     the 1995 stock option plan  ("The Plan").  Under the Plan, options 
     to purchase up to  550,000  shares of the Company's Class A common 
     stock may be  issued to  officers  and key employees.  The Company 
     has  proposed to amend the  plan to increase  the number of shares 
     authorized  to be issued from  550,000 to  800,000, an increase of 
     250,000  shares,  subject to  shareholder approval.  These options 
     may be  either  incentive  stock  options  or  nonqualified  stock 
     options, and the options price  must be at least equal to the fair 
     value of the  Company's Class A common stock on the date of grant. 
     All options granted have  ten-year  terms and vest over five years 
     at the rate of  20%  per year beginning on  the first  anniversary 
     of the date of grant.

     Effective  January  1,  1996,  the Company adopted the disclosure-
     only option  under  SFAS  No.  123,  "Accounting  for  Stock-Based 
     Compensation." The Company continues to use the  accounting method 
     under  APB  Opinion  No. 25  (APB 25)  and related interpretations 
     for its  employee  stock  options. Under APB 25, when the exercise 
     price  of  the   Company's  employee   stock  options  equals  the 
     market price of the  underlying  stock on the  date  of  grant, no 
     compensation expense is recognized.

     Pro  forma  disclosure, as required by SFAS No. 123, regarding net
     income  and  earnings  per  share  has  been  determined as if the 
     Company  had  accounted  for  its employee stock options under the
     fair value method of the statement.

     The  fair  value  for  these  options was estimated at the date of
     grant  using  a  Black-Scholes  option  pricing  model (one of the 
     acceptable  methods   under  SFAS  No.  123)  with  the  following 
     weighted-average  assumptions  for  1996  and  1995, respectively: 
     option  forfeiture  of  15%; risk-free interest rates of 5.99% and 
     5.9%;  no dividends;  volatility  factors  of the  expected market 
     price of the Company's common stock of .388; and a weighted-average 
     expected life of the options of 7 years.

     For purposes of pro forma disclosures, the estimated fair value of 
     the options ($103 for the 1996 grant and $2,832 for the 1995 grant) 
     is  amortized  to  expense  over  the options' vesting period. The 
     initial  impact  on pro forma net income may not be representative 
     of compensation  expense  in  future years, when the effect of the 
     amortization of  multiple  awards  would  be reflected in the pro- 
     forma disclosures. The Company's pro forma information follows:

<TABLE>
<CAPTION>
                                            For the years ended
                                                December 31,
                                          ----------------------             
                                          1996            1995
-----------------------------------------------------------------------
<S>                                     <C>             <C>     
 Net income                              $  12,097       $  9,435
 Estimated pro forma                                            
   compensation expense                                         
   from stock options:                                              
     1995 grant                               (566)          (518)
     1996 grant                                (19)             -
-----------------------------------------------------------------------
 Pro forma net income                    $  11,512       $  8,917
=======================================================================                                                   
 Pro forma earnings                            
   per share                             $    1.15       $   0.89
=======================================================================
</TABLE> 

     A summary of the Company's stock option activity, and related
     information is as follows:

<TABLE>
<CAPTION>
                                       1996                1995
-----------------------------------------------------------------------
                                          Weighted            Weighted
                                           average             average
                                          exercise            exercise
                                 Shares     price    Shares     price
-----------------------------------------------------------------------      
<S>                            <C>        <C>       <C>       <C>
 Options outstanding                                          
   beginning of year            481,000         --         --        --
 Options granted                 22,000    $ 10.63    498,000  $  13.00
 Options exercised                   --         --         --        --
 Options forfeited              (18,500)     13.00    (17,000)    13.00
 Options outstanding                                          
   end of year                  484,500    $ 12.89    481,000  $  13.00
========================================================================    
 Exercisable at                                               
   end of year                   94,100    $ 13.00         --        --
                                                                  
 Stock options                                                
   available for                               
   future issuance               65,500                69,000
========================================================================
</TABLE>
 


19.  QUARTERLY FINANCIAL DATA (UNAUDITED):

     The  following  table  sets  forth  certain  unaudited  quarterly
     financial information.

<TABLE>
<CAPTION>
                                        Year ended December 31, 1996
                                   -----------------------------------------
                                    First     Second      Third     Fourth
                                   Quarter    Quarter    Quarter   Quarter(a)
----------------------------------------------------------------------------
<S>                               <C>        <C>        <C>       <C>
 Net sales                         $ 54,118    $ 74,380  $ 71,900  $ 69,053
 Gross profit                        14,348      25,529    24,969    24,085
 Net income                                                                
  (loss)                             (1,044)      4,850     4,392     3,899
 Net income                                                                   
  (loss) per                                                                 
  share                                (.10)        .48       .44       .39
============================================================================
                                                                            
                                        Year ended December 31, 1995
                                   -----------------------------------------   
                                    First     Second      Third     Fourth
                                   Quarter    Quarter    Quarter   Quarter(b)
----------------------------------------------------------------------------
<S>                               <C>       <C>         <C>       <C>
 Net sales                         $ 63,221  $ 68,703    $ 64,813  $ 66,410
 Gross profit                        20,293    21,166      18,217    18,850
 Net income                           2,519     3,821       1,745     1,350
 Net income
   per share                            .25       .38         .17       .14
============================================================================
</TABLE>
[FN]
 (a)  Fourth quarter  1996  includes a $0.6 million (after tax) charge 
      for accelerated depreciation of certain machinery and equipment.
 (b)  Fourth  quarter 1995 includes a  $1.5 million (after tax) charge
      to bad debt expense.

                               23
<PAGE>

CONGOLEUM CORPORATION
REPORT OF INDEPENDENT AUDITORS


To the Board of Directors
and Shareholders of
Congoleum Corporation:

We   have   audited  the  accompanying  balance  sheet  of  Congoleum
Corporation  as of December 31, 1996, and the related  statements  of
operations, changes in stockholders' equity, and cash flows  for  the
year  then  ended.  These financial statements are the responsibility
of  the  Company's management.  Our responsibility is to  express  an
opinion  on  these  financial statements based  on  our  audit.   The
balance  sheet of Congoleum Corporation as of December 31,  1995  and
the  related  statements  of  operations,  changes  in  stockholders'
equity, and cash flows for each of the two years in the period  ended
December  31, 1995 were audited by other auditors whose report  dated
February  20,  1996,  expressed  an  unqualified  opinion  on   those
statements.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a
test  basis, evidence supporting the amounts and disclosures  in  the
financial   statements.   An  audit  also  includes   assessing   the
accounting  principles  used  and  significant  estimates   made   by
management,  as  well  as evaluating the overall financial  statement
presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

In  our opinion, the 1996 financial statements present fairly, in all
material respects, the financial position of Congoleum Corporation as
of  December 31, 1996, and the results of its operations and its cash
flows  for the year then ended, in conformity with generally accepted
accounting principles.



/S/ERNST & YOUNG LLP
--------------------

Philadelphia, Pennsylvania
February 21, 1997

                               24
<PAGE>

DIRECTORS AND OFFICERS
======================================================================

BOARD OF DIRECTORS

Roger S. Marcus
Chairman of the Board, President and Chief Executive Officer of
Congoleum  Corporation  and  Chairman  of  the  Board and Chief 
Executive Officer of American Biltrite Inc.

Cyril C. Baldwin, Jr.
Chairman of the Board of Cambrex Corporation

David N. Hurwitz
President and Chief Executive Officer of Goodson Newspaper Group

John N. Irwin III
Managing Director of Hillside Capital Incorporated

Mark N. Kaplan
Partner, Skadden, Arps, Slate, Meagher & Flom (Attorneys)

Richard G. Marcus
Vice Chairman of Congoleum Corporation and President and Chief 
Operating Officer of American Biltrite Inc.  

William M. Marcus
Executive Vice President and Treasurer of American Biltrite Inc.

C. Barnwell Straut
Managing Director of Hillside Capital Incorporated

CORPORATE OFFICERS

Roger S. Marcus
Chairman of the Board, President and Chief Executive Officer

Richard G. Marcus
Vice Chairman

Robert N. Agate
Senior Vice President - Manufacturing

Howard N. Feist III
Senior Vice President - Finance and Secretary

Dennis P. Jarosz
Senior Vice President - Marketing

Anthony C. Prestipino
Senior Vice President - Sales

Peter J. Rohrbacher 
Senior Vice President - Engineering

Thomas A. Sciortino
Senior Vice President - Administration

Joseph Silbermann
Senior Vice President - Research and developement

Merrill M. Smith
Senior Vice President - Technology

=====================================================================

CORPORATE INFORMATION

CORPORATE HEADQUARTERS
Congoleum Corporation
3705 Quakerbridge Road
P.O. Box 3127
Mercerville, NJ  08619-0127
(609) 584-3000

ANNUAL MEETING
The 1997 Annual Meeting of the Stockholders of Congoleum
Corporation will be held on Monday, May 12, 1997 in the
America Room, 2nd Floor, The First National Bank of Boston,
100 Federal Street, Boston, Massachusetts at 9:30 a.m. local
time.

GENERAL COUNSEL
Patterson, Belknap, Webb & Tyler L.L.P.
1133 Avenue of the Americas
New York, NY  10036-6710

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square, Suite 4000
2001 Market Street
Philadelphia, PA  19103

MARKET INFORMATION
The Company's Class A common stock is listed on the New York
Stock Exchange.  The following table reflects the high and
low prices (rounded to the nearest one-eighth) based on New
York Stock Exchange trading since February 2, 1995.

The Company does not anticipate paying any cash dividends in
the foreseeable future.  Any future change in the Company's
dividend policy is within the discretion of the Board of
Directors and will depend, among other things, on the
Company's earnings, debt service and capital requirements,
restrictions in financing agreements, business conditions
and other factors that the Board of Directors deem relevant.
The payment of cash dividends is limited under the terms of
the Indenture relating to the Company's Senior Notes and the
terms of the Company's existing revolving credit facility,
subject to the Company's cumulative earnings and other
factors.

The number of registered and beneficial holders of the Class
A common stock on February 7, 1997 was approximately 2,000.

<TABLE>
<CAPTION>
1996                                             High         Low
-------------------------------------------------------------------
<S>                                            <C>         <C>
First Quarter                                   12  3/4      9  1/8
Second Quarter                                  12  5/8      8  7/8
Third Quarter                                   13          11  1/8
Fourth Quarter                                  14  1/4     12  1/2
                                                                  
1995                                             High         Low  
-------------------------------------------------------------------
First Quarter                                   15  3/8     13
Second Quarter                                  15  5/8     11  1/4
Third Quarter                                   13  3/4      9  7/8
Fourth Quarter                                  12 1/8       8

</TABLE>

STOCKHOLDER INFORMATION
The Company will supply any owner of common stock, upon
written request to Mr. Howard N. Feist III of the Company at
the address set forth herein, and without charge, a copy of
the Annual Report on Form 10-K for the year ended December
31, 1996, which has been filed with the Securities and
Exchange Commission.

REGISTRAR AND TRANSFER AGENT
Bank of Boston
c/o Boston EquiServe L.P.
P.O. Box 8040
Boston, MA  02266-8040
(617) 575-3100