SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                        PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

            |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

            For the transition period from __________ to ___________

                         Commission File Number 1-13612

                              CONGOLEUM CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

DELAWARE                                                              02-0398678
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

                             3500 Quakerbridge Road
                                  P.O. Box 3127
                           Mercerville, NJ 08619-0127
                    (Address of Principal Executive Offices)
                        Telephone number: (609) 584-3000
              (Registrant's telephone number, including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange on
       Title of Each Class                                  Which Registered
       -------------------                                  ----------------

Class A Common Stock, par value $.01 per share     American Stock Exchange, Inc.

        Securities Registered Pursuant to Section 12(g) of the Act: None


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      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      As of March 4, 2002, the aggregate market value of all shares of Class A
Common Stock held by non-affiliates of the Registrant was approximately $7.1
million based on the closing price ($2.05 per share) on the American Stock
Exchange. For purposes of determining this amount, affiliates are defined as
directors and executive officers of the Registrant, American Biltrite Inc. and
Hillside Capital Incorporated. All of the shares of Class B Common Stock of the
Registrant are held by affiliates of the Registrant. As of March 4, 2002, an
aggregate of 3,651,190 shares of Class A Common Stock and an aggregate of
4,608,945 shares of Class B Common Stock of the Registrant were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III. Portions of the Congoleum Corporation's Proxy Statement for the
                Annual Meeting of Shareholders to be held on May 8, 2002

      Some of the information presented in or incorporated by reference in this
report constitutes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Although the Registrant
believes that its expectations are based on reasonable assumptions, within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from its expectations.
Factors that could cause actual results to differ from expectations include: (i)
the future cost and timing of payments associated with and availability of
insurance coverage for asbestos-related personal injury claims, as well as other
environmental, product and general liability claims, (ii) increases in raw
material prices, (iii) increased competitive activity from companies in the
flooring industry, some of which have greater resources and broader distribution
channels than the Registrant, (iv) unfavorable developments in the national
economy or in the housing industry in general, (v) shipment delays, depletion of
inventory and increased production costs resulting from unforeseen disruptions
of operations at any of the Registrant's facilities or distributors, and (vi)
changes in distributors of the Company's products.


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<PAGE>

                                     PART I

Item 1. BUSINESS

      Congoleum Corporation (the "Company") was incorporated in Delaware in
1986, but traces its history in the flooring business back to Nairn Linoleum Co.
(or "Congoleum") which began in 1886. In 1993, the business and assets of the
Company and those of the Amtico Tile Division of American Biltrite Inc. (the
"Tile Division") were combined (the "Acquisition"). The Acquisition was effected
through the organization of a new corporation, Congoleum Holdings Incorporated
("Congoleum Holdings"), to which Hillside Industries Incorporated ("Hillside
Industries") contributed all of the outstanding capital stock of Resilient
Holdings Incorporated ("Resilient"), the owner of all of the outstanding capital
stock of the Company, and to which American Biltrite Inc. ("American Biltrite")
contributed the assets and certain liabilities of the Tile Division. Upon
consummation of the Acquisition, Congoleum Holdings owned all of the outstanding
capital stock of Resilient, which, in turn, owned all of the outstanding capital
stock of the Company, and the Company owned the Tile Division. The assets and
liabilities comprising the Tile Division which were acquired by the Company in
the Acquisition are held directly by the Company. In 1995, the Company completed
a public offering of 4,650,000 shares of Class A Common Stock (the "Offering").
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.

      Congoleum produces both sheet and tile floor covering products with a wide
variety of product features, designs and colors. Sheet flooring, in its
predominant construction, is produced by applying a vinyl gel to a flexible
felt, printing a design on the gel, applying a wearlayer, heating the gel layer
sufficiently to cause it to expand into a cushioned foam and, in some products,
adding a urethane coating. The Company also produces through-chip inlaid
products for both residential and commercial markets. These products are
produced by applying an adhesive coat and solid vinyl colored chips to a felt
backing and laminating the sheet under pressure with a heated drum. Tile
flooring is manufactured by creating a base stock (consisting primarily of
limestone and vinyl resin) which is less flexible than the backings for sheet
flooring, and transferring or laminating to it preprinted colors and designs
followed by a wearlayer and a urethane coating in some cases. Commercial tile is
manufactured by including colored vinyl chips in the pigmented base stock. For
do-it-yourself tile, an adhesive is applied to the back of the tile. The
differences between products within each of the two product lines consist
primarily of content and thickness of wearlayers and coatings, the use of
chemical embossing to impart a texture, the complexity of designs and the number
of colors. Congoleum also purchases wood laminates, sundries, and accessory
products for resale.

Raw Materials

      The principal raw materials used in the manufacture of sheet and tile
flooring are vinyl resins, plasticizers, latex, limestone, stabilizers,
cellulose paper fibers, urethane and transfer print paper. Most of these raw
materials are purchased from multiple sources. The Company has had no difficulty
in obtaining its requirements for these materials, although significant price
increases in certain materials have been experienced at times.

      The Company believes that alternative suppliers are available for
substantially all of its raw material requirements. However, the Company does
not have readily available alternative sources of supply for specific designs of
transfer print paper, which are produced utilizing print cylinders engraved to
the Company's specifications. Although no loss of this source of supply is
anticipated, replacement could take a considerable period of time and interrupt
production of certain products. The Company maintains a raw material inventory
and has an ongoing program to develop new sources which will provide continuity
of supply for its raw material requirements.

Patents and Trademarks

      The Company believes that the Congoleum brand name, as well as the other
trademarks it holds, are important to maintaining competitive position. In 1993,
the Company sold the rights to the Amtico trademark in the United States and
began selling tile under the Congoleum brand name.

      The Company also believes that patents and know-how play an important role
in maintaining competitive position. In particular, the Company utilizes a
proprietary transfer printing process for certain tile products that it


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<PAGE>

believes produces visual effects that only one competitor is presently able to
duplicate.

Distribution

      The Company currently sells its products through approximately 22
distributors providing approximately 57 distribution points in the United States
and Canada, as well as directly to a limited number of mass market retailers.
Net sales to customers outside the United States for the years ended December
31, 2001, 2000, and 1999 were $7.6 million, $7.0 million, and $5.6 million,
respectively.

      The sales pattern is seasonal, with peaks in retail sales typically
occurring during March/April/May and September/October. Orders are generally
shipped as soon as a truckload quantity has been accumulated, and backorders can
be canceled without penalty. At December 31, 2001, the backlog of unshipped
orders was $8.4 million, compared to $5.5 million at December 31, 2000.

      The Company considers its distribution network very important to
maintaining competitive position. While most of its distributors have marketed
the Company's products for many years, replacements are necessary periodically
to maintain the strength of the distribution network. Although the Company has
more than one distributor in some of its distribution territories and actively
manages its credit exposure to its customers, the loss of a major customer could
have a materially adverse impact on the Company's sales, at least until a
suitable replacement was in place. For the year ended December 31, 2001, two
customers each accounted for over 10% of the Company's sales. These customers
were its distributor to the manufactured housing market, LaSalle-Bristol
Corporation, and its distributor, Mohawk Industries, Inc. Together, they
accounted for 48% of the Company's net sales in 2001.

      On September 25, 2000, the Company announced the appointment of Mohawk
Industries, Inc. as a distributor of its products throughout the continental
United States effective November 1, 2000. The Company also announced it would be
phasing out its distribution arrangements with LDBrinkman & Co. As of December
31, 2001, the Company and LDBrinkman have satisfied all contractual commitments
to each other.

Working Capital

      The Company produces goods for inventory and sells on credit to customers.
Generally, the Company's distributors carry inventory as needed to meet local or
rapid delivery requirements. The Company's typical credit terms generally
require payment on invoices within 31 days, with a discount available for
earlier payment. These practices are typical within the industry.

Product Warranties

      The Company offers a limited warranty on all of its products against
manufacturing defects. In addition, as a part of efforts to differentiate mid
and high-end products through color, design and other attributes, the Company
offers enhanced warranties with respect to wear, moisture discoloration and
other performance characteristics which increase with the price points of such
products.

Competition

      The market for the Company's products is highly competitive. Resilient
sheet and tile compete for both residential and commercial customers primarily
with carpeting, hardwood, melamine laminate and ceramic tile. In residential
applications, both tile and sheet products are used primarily in kitchens,
bathrooms, laundry rooms and foyers and, to a lesser extent, in playrooms and
basements. Ceramic tile is used primarily in kitchens, bathrooms and foyers.
Carpeting is used primarily in bedrooms, family rooms and living rooms. Hardwood
flooring and melamine laminate are used primarily in family rooms, foyers and
kitchens. Commercial grade resilient flooring faces substantial competition from
carpeting, ceramic tile, rubber tile, hardwood flooring and stone in commercial
applications. The Company believes, based upon its market research, that
purchase decisions are influenced primarily by fashion elements such as design,
color and style, durability, ease of maintenance, price and ease of
installation. Both tile and sheet resilient flooring are easy to replace for
repair and redecoration and, in the Company's view, have advantages over other
floor covering products in terms of both price and ease of installation and
maintenance.

      The Company encounters competition from three other manufacturers in North
America and, to a much less-


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er extent foreign manufacturers. Certain of the Company's competitors, including
Armstrong World Industries, Inc. in the resilient category, have substantially
greater financial and other resources than the Company.

Research and Development

      The Company's research and development efforts concentrate on new product
development, trying to increase product durability and expanding technical
expertise in the manufacturing process. Expenditures for research and
development for the year ended December 31, 2001 were $3.5 million, compared to
$4.3 million and $4.2 million for the years ended December 31, 2000 and 1999,
respectively.

Environmental Regulation

      Due to the nature of the Company's business and certain of the substances
which are or have been used, produced or discharged by the Company, the
Company's operations are subject to extensive federal, state and local laws and
regulations relating to the generation, storage, disposal, handling, emission,
transportation and discharge into the environment of hazardous substances. The
Company, pursuant to administrative consent orders signed in 1986 and in
connection with a prior restructuring, is in the process of implementing cleanup
measures at its Trenton sheet facility under New Jersey's Environmental Clean-up
Responsibility Act, as amended by the New Jersey Industrial Site Recovery Act.
The Company does not anticipate that the additional costs of these measures will
be material. In connection with the Acquisition of the Tile Division, American
Biltrite signed a similar consent order with respect to the Trenton tile
facility, and the Company agreed to be financially responsible for any cleanup
measures required. In 2001, the Company incurred capital expenditures of
approximately $80 thousand for environmental compliance and control facilities.

      The Company has historically expended substantial amounts for compliance
with existing environmental laws and regulations, including those matters
described above. The Company will continue to be required to expend amounts in
the future, due to the nature of historic activities at its facilities, to
comply with existing environmental laws, and those amounts may be substantial
but should not, in the Company's judgment, have a material adverse effect on the
financial position of the Company. Because environmental requirements have grown
increasingly strict, however, the Company is unable to determine the ultimate
cost of compliance with environmental laws and enforcement policies.

Employees

      At December 31, 2001, the Company employed a total of 1,036 personnel
compared to 1,159 employees at December 31, 2000.

      The Company has entered into collective bargaining agreements with hourly
employees at three of its plants and with the drivers of the trucks that provide
interplant transportation. These agreements cover approximately 650 of the
Company's employees. The Trenton tile plant has a five-year collective
bargaining agreement which expires in May 2003. The Marcus Hook plant has a
five-year collective bargaining agreement which expires in November 2003. The
Trenton sheet plant has a five-year collective bargaining agreement which
expires in February 2006. The Finksburg plant has no union affiliation. In the
past five years, there have been no significant strikes by employees at the
Company and the Company believes that its employee relations are satisfactory.

Executive Officers of the Registrant

      The following information is furnished with respect to each of the
executive officers of the Company, each of whom is elected by and serves at the
pleasure of the Board of Directors. The business experience shown for each
officer has been his principal occupation for at least the past five years. Ages
are shown as of February 1, 2002.

Roger S. Marcus (Age 56)

Roger S. Marcus has been a Director and President and Chief Executive Officer of
the Company since 1993, and Chairman since 1994. Mr. Marcus is also a Director
(since 1981), Chairman of the Board (since 1992) and Chief Executive Officer
(since 1983) of American Biltrite. From 1983 to 1992, Mr. Marcus served as Vice
Chairman of the Board of American Biltrite.


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<PAGE>

Richard G. Marcus (Age 54)

Richard G. Marcus has been Vice Chairman of the Company since 1994 and a
Director since 1993. Mr. Marcus is also a Director (since 1982) and President
(since 1983) and Chief Operating Officer (since 1992) of American Biltrite.

Robert N. Agate (Age 57)

Robert N. Agate has been Executive Vice President of the Company since 1998.
Prior thereto, he was Senior Vice President - Manufacturing of the Company since
1993, and prior to that he was Vice President of Manufacturing of the Tile
Division of American Biltrite (since 1981).

David W. Bushar (Age 55)

David W. Bushar has been Senior Vice President - Manufacturing of the Company
since 1998. Prior thereto, he was Manager, Technical Services since 1997 and
prior to that he was Plant Manager of the Company's Trenton, New Jersey sheet
facility since 1993.

Michael L. Dumont (Age 47)

Michael L. Dumont has been Senior Vice President - Sales of the Company since
1999. Prior thereto, he had served as Regional Sales Manager - Southwest
Territory (since 1995) and prior to that he was Regional Manager - Western
Territory (since 1991).

Howard N. Feist III (Age 45)

Howard N. Feist III has been Chief Financial Officer and Secretary of the
Company since 1988. Mr. Feist is also Vice President - Finance and Chief
Financial Officer of American Biltrite (since 2000).

Dennis P. Jarosz (Age 56)

Dennis P. Jarosz has been Senior Vice President - Marketing since 1995. Prior
thereto, he had served as Vice President - Marketing since 1993 and Vice
President - Sales & Marketing of the Tile Division of American Biltrite (since
1986).

Sidharth Nayar (Age 41)

Sidharth Nayar has been Senior Vice President - Finance of the Company since
1999. Prior thereto, he had served as Vice President - Controller since 1994 and
prior to that he was Controller since 1990.

Thomas A. Sciortino (Age 55)

Thomas A. Sciortino has been Senior Vice President - Administration of the
Company since 1993. Prior thereto, he was Vice President - Finance of the Tile
Division of American Biltrite (since 1982).

Merrill M. Smith (Age 76)

Merrill M. Smith has been Senior Vice President - Technology of the Company
since 1993. Prior thereto, he was Vice President - Technology of American
Biltrite (since 1985).


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<PAGE>

Item 2. PROPERTIES

      The Company owns four manufacturing facilities located in Maryland,
Pennsylvania and New Jersey and leases corporate and marketing offices in
Mercerville, New Jersey, as well as storage space in Trenton, New Jersey, which
are described below:

Location             Owned/Leased            Usage                   Square Feet
--------             ------------            -----                   -----------

Finksburg, MD            Owned               Felt                        107,000
Marcus Hook, PA          Owned               Sheet Flooring            1,000,000
Trenton, NJ              Owned               Sheet Flooring            1,050,000
Trenton, NJ              Owned               Tile Flooring               282,000
Trenton, NJ              Leased              Warehousing                 111,314
Mercerville, NJ          Leased              Corporate Offices            47,082

      The Finksburg facility consists primarily of a 16-foot wide felt
production line.

      The Marcus Hook facility is capable of manufacturing rotogravure printed
sheet flooring in widths of up to 16 feet. Major production lines at this
facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide
printing press and a 16-foot wide printing press.

      The Trenton sheet facility is capable of manufacturing rotogravure printed
and through-chip inlaid sheet products in widths up to 6 feet. Major production
lines, all six-foot wide, include an oven, a rotary laminating line and a press.
The examination, packing and warehousing of all sheet products (except products
for the manufactured housing segment) occur at the Trenton plant distribution
center.

      The Trenton tile facility consists of three major production lines, a
four-foot wide commercial tile line, a two-foot wide residential tile line and a
one-foot wide residential tile line.

      Productive capacity and extent of utilization of the Company's facilities
are dependent on a number of factors, including the size, construction, and
quantity of product being manufactured, some of which also dictate which
production line(s) must be utilized to make a given product. The Company's major
production lines were operated an average of 89% of the hours available on a
five-day, three-shift basis in 2001, with the corresponding figure for
individual production lines ranging from 37% to 116%.

      Although many of the Company's manufacturing facilities have been
substantially depreciated, the Company has generally maintained and improved the
productive capacity of these facilities over time through a program of regular
capital expenditures. The Company considers its manufacturing facilities to be
adequate for its present and anticipated near-term production needs.


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<PAGE>

Item 3. LEGAL PROCEEDINGS

      The Company is named, together with a large number (in most cases,
hundreds) of other companies, as a potentially responsible party ("PRP") in
pending proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, and similar state laws.
In two instances, although not named as a PRP, the Company has received a
request for information. These pending proceedings currently relate to seven
disposal sites in New Jersey, Pennsylvania, Maryland, Connecticut and Delaware
in which recovery from generators of hazardous substances is sought for the cost
of cleaning up the contaminated waste sites. The Company's ultimate liability in
connection with those sites depends on many factors, including the volume of
material contributed to the site, the number of other PRPs and their financial
viability, the remediation methods and technology to be used and the extent to
which costs may be recoverable from insurance. However, under CERCLA, and
certain other laws, as a PRP, the Company can be held jointly and severally
liable for all environmental costs associated with a site.

      The most significant exposure to which the Company has been named a PRP
relates to a recycling facility site in Elkton, Maryland. The PRP group at this
site is made up of 51 companies, substantially all of which are large
financially solvent entities. Two removal actions were substantially complete as
of December 31, 1998; however, the groundwater remediation phase has not begun
and the remedial investigation/feasibility study related to the groundwater
remediation has not been approved. The PRP group estimated that future costs of
groundwater remediation, based on engineering and consultant studies conducted,
would be approximately $26 million. Congoleum's proportionate share, based on
waste disposed at the site, was estimated to be approximately 6.1%.

      The Company also accrues remediation costs for certain of the Company's
owned facilities on an undiscounted basis. Estimated total cleanup costs,
including capital outlays and future maintenance costs for soil and groundwater
remediation are primarily based on engineering studies.

      Although there can be no assurance, the Company anticipates that these
matters will be resolved over a period of years for amounts (including legal
fees and other defense costs) which the Company believes based on current
estimates of liability and, in part, on insurance coverage, and based on advice
from counsel, will not have a material adverse effect on the financial position
of the Company.

Asbestos-Related Liabilities: The Company is one of many defendants in
approximately 6,563 pending claims (including workers' compensation cases)
involving approximately 23,139 individuals as of December 31, 2001, alleging
personal injury or death from exposure to asbestos or asbestos-containing
products. There were 1,754 claims at December 31, 2000 that involved
approximately 12,079 individuals. Activity related to asbestos claims during the
years ended December 31, 2001 and 2000 was as follows:

                                           2001              2000
            -----------------------------------------------------
            Claims at Jan. 1              1,754               670
            New Claims                    5,048             1,302
            Settlements                     (40)              (76)
            Dismissals                     (199)             (142)
            -----------------------------------------------------
            Claims at Dec. 31             6,563             1,754
            -----------------------------------------------------

      The total indemnity costs incurred to settle claims during 2001 and 2000
were $1.1 million and $3.9 million, respectively, which were paid by the
Company's insurance carriers, as were the related defense costs. Costs per claim
vary depending on a number of factors, including the nature of the alleged
exposure and the jurisdiction where the claim was litigated. As of December 31,
2001, the Company has incurred asbestos-related claims of $11.4 million, to
resolve claims of over 33,000 claimants, substantially all of which have been
paid by the Company's insurance carriers. The average indemnity cost per
resolved claimant is $340. Over 99% of claims incurred by the Company have
settled, on average, for amounts less than $100 per claimant.

      Nearly all claims allege that various diseases were caused by exposure to
asbestos-containing products, including sheet vinyl and resilient tile
manufactured by the Company (or, in the workers' compensation cases,


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exposure to asbestos in the course of employment with the Company). The Company
discontinued the manufacture of asbestos-containing sheet vinyl products in 1983
and asbestos-containing tile products in 1974. In general, governmental
authorities have determined that asbestos-containing sheet and tile products are
nonfriable (i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.

      The Company regularly evaluates its estimated liability to defend and
resolve current and reasonably anticipated future asbestos-related claims. It
reviews, among other things, recent and historical settlement and trial results,
the incidence of past and recent claims, the number of cases pending against it,
and asbestos litigation developments that may impact the exposure of the
Company. One such development, the declarations of bankruptcy by several
companies that were typically lead defendants in asbestos-related cases, is
likely to have a negative impact on the Company's claim experience. The
estimates developed are highly uncertain due to the limitations of the available
data and the difficulty of forecasting the numerous variables that can affect
the range of the liability.

      The Company periodically updates its evaluation of the range of potential
defense and indemnity costs for asbestos-related liabilities and the insurance
coverage in place to cover these costs. The Company believes that its range of
probable and estimable undiscounted losses for asbestos-related claims through
the year 2049 is $53.3 million to $195.6 million before considering the effects
of insurance recoveries. As discussed previously, it is very difficult to
forecast a liability for the Company's ultimate exposure for asbestos-related
claims as there are multiple variables that can affect the timing, severity, and
quantity of claims. As such, the Company has concluded that no amount within
that range is more likely than any other, and therefore has determined that the
amount of the gross liability it should record for asbestos-related claims is
equal to $53.3 million in accordance with accounting principles generally
accepted in the United States.

      During the period that Congoleum produced asbestos-containing products,
the Company purchased primary and excess insurance policies providing in excess
of $1 billion coverage for bodily injury asbestos claims. To date, all claims
and defense costs have been paid through primary insurance coverage. At December
31, 2001, the Company had $2.6 million in remaining primary insurance coverage
for bodily injury asbestos claims. Once all primary coverage is exhausted, the
Company expects its defense and indemnity costs to be covered by its excess
insurance policies. However, it is likely that the Company will share in these
costs. The first layer of excess insurance policies provides for $135 million in
coverage. Of this layer, approximately 16% to 28% (depending on the method used
to allocate losses) was underwritten by carriers who are presently insolvent.
The Company anticipates that it will have to pay some or all of the portion of
costs for resolving asbestos-related claims that are allocable to such insolvent
carriers, and that it may in turn be able to recover a portion of such payments
from the estates or insurance guaranty funds responsible for the obligations of
these carriers.

      The same factors that affect developing forecasts of potential defense and
indemnity costs for asbestos-related liabilities also affect estimates of the
total amount of insurance that is probable of recovery, as do a number of
additional factors. These additional factors include the financial viability of
some of the insurance companies, the method in which losses will be allocated to
the various insurance policies and the years covered by those policies, how
legal and other loss handling costs will be covered by the insurance policies,
and interpretation of the effect on coverage of various policy terms and limits
and their interrelationships. Congoleum has filed suit regarding insurance
coverage issues against certain of its primary insurance carriers, the carriers
comprising its first layer of excess insurance, state guaranty funds
representing insolvent carriers, and its insurance brokers and has begun
settlement negotiations with several of these parties.

      The Company has determined, based on its review of its insurance policies
and the advice of legal counsel, that approximately $42.5 million of the
estimated $53.3 million gross liability is probable of recovery. This
determination was made after considering the terms of the available insurance
coverage, the financial viability of the insurance companies and the status of
negotiations with its carriers. The Company further believes that the criteria,
as defined by accounting principles generally accepted in the United States, to
offset the estimated gross liability with a portion of the probable insurance
recovery, equal to $35.5 million, have been met. Additionally, in


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<PAGE>

2001, the Company recorded an asset of $2.5 million for the probable settlement
of disputed insurance coverage. The Company also recognized a liability for
asbestos product liability of $2.8 million. The balance of the estimated gross
liability of $17.8 million has been reflected in the balance sheet as a
long-term liability. The Company has also recorded in the balance sheet an
insurance receivable of $9.6 million that represents an estimate of probable
insurance recoveries that do not qualify for offsetting against the gross
liability and for the probable insurance settlement discussed previously. This
insurance receivable has been recorded in other long-term assets.

      Since many uncertainties exist surrounding asbestos litigation, the
Company will continue to evaluate its asbestos-related estimated liability and
corresponding estimated insurance assets as well as the underlying assumptions
used to derive these amounts. It is reasonably possible that the Company's total
liability for asbestos-related claims may be greater than the recorded liability
and that insurance recoveries may be less than the recorded asset. These
uncertainties may result in the Company incurring future charges to income to
adjust the carrying value of recorded liabilities and assets. Additionally,
since the Company has recorded an amount representing the low end of the range
of exposure for asbestos-related claims, it is possible that over time another
amount within the range will be a better estimate of the actual losses. Although
resolution of these claims is anticipated to take decades, amounts recorded for
the liability are not discounted, and the effect on results of operations in any
given year from a revision to these estimates could be material. Congoleum does
not believe, however, that asbestos-related claims will have a material adverse
effect on its financial position or liquidity.

      The total balances of environmental and asbestos-related liabilities and
the related insurance receivables deemed probable of recovery at December 31 are
as follows:

                                  2001                         2000
------------------------------------------------------------------------------
(in millions)           Liability     Receivable      Liability     Receivable
------------------------------------------------------------------------------
Environmental
   liabilities            $ 5.0         $ 2.0           $ 5.1          $2.0
Asbestos product
   liability               17.8           9.6            15.3           7.1
Other                       1.2            .2             1.3           0.1
------------------------------------------------------------------------------
Total                     $24.0         $11.8           $21.7          $9.2
------------------------------------------------------------------------------

Other: In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, product liability claims, and other
matters. In some of these proceedings, plaintiffs may seek to recover large and
sometimes unspecified amounts and the matters may remain unresolved for several
years. On the basis of information furnished by counsel and others, the Company
does not believe that these matters, individually or in the aggregate, will have
a material adverse effect on its business or financial condition.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                        10
<PAGE>

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

      The Company's Class A common stock is listed on the American Stock
Exchange. The following table reflects the high and low prices (rounded to the
nearest one-hundredth) based on American and New York Stock Exchange trading
over the past two years.

                  2001                    High               Low
            -------------------------------------------------------
              First Quarter               3.13              1.75
              Second Quarter              3.85              1.75
              Third Quarter               3.28              1.75
              Fourth Quarter              2.25              1.55

                  2000                    High               Low
            -------------------------------------------------------
              First Quarter               4.00              2.94
              Second Quarter              4.19              2.81
              Third Quarter               5.00              3.75
              Fourth Quarter              4.63              2.13

      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 Company's Class A
common stock on February 10, 2002 was approximately 1,000.


                                        11
<PAGE>

Item 6. SELECTED FINANCIAL DATA
        (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                 For the years ended
                                                                    December 31,
-------------------------------------------------------------------------------------------------------------
                                          2001           2000           1999          1998          1997
-------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>            <C>          <C>
Income Statement Data:
Net sales .........................    $223,250       $ 224,644      $ 246,006      $ 259,126    $ 252,526

Cost of sales .....................     165,683         170,373        176,559        181,997      180,093
Selling, general and
    administrative expenses .......      53,442          54,395         57,428         56,839       57,094
Distributor transition expenses ...          --           7,717             --             --           --
-------------------------------------------------------------------------------------------------------------
Income (loss) from operations .....       4,125          (7,841)        12,019         20,290       15,339

Interest expense, net .............      (7,591)         (5,714)        (6,101)        (5,758)      (5,258)

Other income, net .................       1,320           1,450          1,729            984          974
-------------------------------------------------------------------------------------------------------------
Income (loss) before taxes
    and extraordinary item ........      (2,146)        (12,105)         7,647         15,516       11,055

Provision (benefit) for income
    taxes .........................        (506)         (3,976)         2,719          5,663        4,035
-------------------------------------------------------------------------------------------------------------
Income (loss) before
    extraordinary item ............      (1,640)         (8,129)         4,928          9,853        7,020
Extraordinary item ................          --              --             --         (2,413)        (279)

-------------------------------------------------------------------------------------------------------------
Net income (loss)                      $ (1,640)      $  (8,129)     $   4,928      $   7,440    $   6,741
-------------------------------------------------------------------------------------------------------------

Income (loss) per common share
    before extraordinary item .....    $  (0.20)      $   (0.98)     $    0.57      $    1.09    $    0.72

Extraordinary item ................          --              --             --          (0.27)       (0.03)

Net income (loss) per common share,
    basic and diluted .............    $  (0.20)      $   (0.98)     $    0.57      $    0.82    $    0.69
-------------------------------------------------------------------------------------------------------------
Average shares outstanding ........       8,260           8,267          8,699          9,038        9,839
-------------------------------------------------------------------------------------------------------------

Balance Sheet Data (at end of period):
Total assets ......................    $229,883       $ 238,662      $ 231,817      $ 231,865    $ 196,581
Total long-term debt ..............      99,674          99,625         99,575         99,526       76,594
Stockholders' equity ..............    $ 25,053       $  29,310      $  40,130      $  37,853    $  31,783
</TABLE>


                                        12
<PAGE>

Item 7. 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 industries in general, including
the availability of credit, consumer confidence, changes in interest rates,
market demand and general economic conditions.

      In addition to external economic factors, the Company's results are
sensitive to sales and manufacturing volume, competitors' pricing, consumer
preferences for flooring products, raw material costs and the mix of products
sold. The manufacturing process is capital intensive and requires substantial
investment in facilities and equipment. The cost of operating these facilities
generally does not vary in direct proportion to production volume and,
consequently, operating results fluctuate disproportionately with changes in
sales volume.

Year ended December 31, 2001 as compared to year ended December 31, 2000

      Net sales for the year ended December 31, 2001 were $223.3 million as
compared to $224.6 million for the year ended December 31, 2000, a decrease of
$1.3 million or 0.6%. The decrease resulted primarily from lower sales of
products for the manufactured housing industry and lower sales to the southwest
and west coast regions as a result of the distributor transition in that area.
These declines were largely offset by improved sales in the balance of the U.S.
and Canada resulting primarily from sales of the Company's Ultima and new
Durastone product lines.

      Gross profit for the year ended December 31, 2001 was $57.6 million, or
25.8% of sales, compared to $54.3 million in 2000, or 24.2% of sales, an
increase of $3.3 million or 6.1%. Gross profit increased primarily due to
improved manufacturing efficiencies, reductions in manufacturing overhead costs,
and a more profitable mix of sales.

      Selling, general and administrative expenses were $53.4 million for the
year ended December 31, 2001 as compared to $54.4 million for the year ended
December 31, 2000, a decrease of $1.0 million or 1.8%. As a percent of net
sales, selling, general and administrative expenses remained at approximately
24%. Cost reduction initiatives instituted in the first quarter, including a 13%
reduction in the workforce, were partly offset by product launch costs for the
new Durastone product line.

      Income from operations was $4.1 million for the year ended December 31,
2001, compared to a loss of $7.8 million for the year ended December 31, 2000,
an increase of $11.9 million. Of this $11.9 million improvement, $7.7 million is
attributable to the impact of costs incurred for a distributor transition in
2000. The remainder of the improvement is primarily due to the improvements in
margins and reductions in selling, general and administrative costs previously
discussed.

      Interest income declined from $1.8 million in 2000 to $708 thousand in
2001 due to a combination of lower average cash equivalent and short-term
investment balances and lower interest rates. Interest expense increased from
$7.5 million in 2000 to $8.3 million in 2001, primarily due to lower capitalized
interest in 2001 compared to 2000.

      The effective tax rate for 2001 was 23.6% resulting in a tax benefit of
$506 thousand. The tax benefit includes a reduction of $273 thousand for a tax
valuation allowance. For 2000, the effective tax rate was 32.9% resulting in a
tax benefit of $4.0 million which includes a reduction for a tax valuation
allowance of $1.1 million.

Year ended December 31, 2000 as compared to year ended December 31, 1999

      Net sales for the year ended December 31, 2000 were $224.6 million as
compared to $246.0 million for the year ended December 31, 1999, a decrease of
$21.4 million or 8.7%. The decrease resulted primarily from declines in sales of
promotional goods and products for the manufactured housing industry. Sales of
running line residential sheet products increased on the strength of new product
sales, but most of this increase


                                        13
<PAGE>

was offset by sales declines in the southwestern United States, where the
Company has made a major distributor change.

      Gross profit for the year ended December 31, 2000 was $54.3 million
compared to $69.4 million in 1999, a decrease of $15.1 million or 21.9%. Gross
profit declined primarily due to lower sales and higher raw material costs.
Gross profit margins declined from 28.2% of net sales in 1999 to 24.2% of net
sales in 2000. The decline in gross profit margins was due to having less
production volume over which to spread fixed manufacturing overhead expenses,
coupled with higher costs for raw materials and energy.

      Selling, general and administrative expenses were $54.4 million for the
year ended December 31, 2000 as compared to $57.4 million for the year ended
December 31, 1999, a decrease of $3.0 million or 5.3%. As a percent of net
sales, selling, general and administrative expenses increased from 23.3% in 1999
to 24.2% in 2000. The Company initiated expense reductions during the second
quarter of 2000 in response to weaker sales, resulting in lower spending. In
addition, as a result of the distributor change, the Company performed a
periodic analysis of its allowance for doubtful accounts in the fourth quarter
of 2000. This analysis considered both quantitative and qualitative criteria of
our existing customer base, among which is the relative financial strength of
our distributors. The Company reversed $1.8 million of its allowance for
doubtful accounts upon the completion of its analysis, which also contributed to
the reduction in selling, general and administrative expenses in 2000.

      Distributor transition costs include transition expenses of $7.7 million
related to the previously announced distributor change from LDBrinkman & Co. to
Mohawk Industries, Inc. The charge consisted of two components. First was the
Company's share of the costs of establishing Mohawk as a distributor, which
included training, meetings, displays and similar costs. Second were the costs
to be paid pursuant to the settlement agreement with LDBrinkman. Additionally, a
provision for the estimated amount of goods to be returned to the Company in
2001 under the terms of the settlement agreement was recorded. Sales and margin
were reduced by $4.0 million and $1.3 million, respectively, reflecting these
estimated returns. Of the $7.7 million distributor transition charge, $4.7
million remained accrued at December 31, 2000 and consisted primarily of
termination costs to be paid to LDBrinkman. These costs were paid in 2001 and
were funded by operating cash flows.

      The loss from operations was $7.8 million for the year ended December 31,
2000, compared to income of $12.0 million for the year ended December 31, 1999,
a decrease of $19.9 million, primarily due to the decline in sales and the
impact of the distributor transition.

      Interest expense (net) decreased from $6.1 million in 1999 to $5.7 million
in 2000, primarily due to higher capitalized interest in 2000 compared to 1999.
Other income (net) decreased from $1.7 million in 1999 to $1.5 million in 2000,
due to lower royalty income.

      The effective tax rate for 2000 was 32.9% resulting in a tax benefit of
$4.0 million. The tax benefit includes a reduction of $1.1 million for a tax
valuation allowance. For 1999, the effective tax rate was 35.6% resulting in tax
expense of $2.7 million, including a valuation allowance of $469 thousand.

Liquidity and Capital Resources

      Cash and equivalents, including short-term investments at December 31,
2001, were $16.7 million, a decrease of $8.1 million from December 31, 2000.
Working capital was $51.7 million at December 31, 2001, up from $49.2 million
one year earlier. The ratio of current assets to current liabilities at December
31, 2001 was 2.0 to one, compared to 1.8 to one a year earlier. The ratio of
debt to total capital at December 31, 2001 was .43 compared to .42 in 2000. Net
cash used by operations during the year ended December 31, 2001 was $0.2
million, down from cash provided by operations of $0.9 million in 2000. Cash
from operations decreased from 2000 to 2001 due to increased inventory to
support new product introductions in late 2001 and early 2002, expenditures for
marketing materials related to these introductions, and payments made in
settlement of distributor termination costs, offset by increased operating
income and the collection of extended term receivables outstanding at the start
of 2001. Capital expenditures in 2001 totaled $7.9 million. The Company is
currently planning capital expenditures of approximately $10.0 million in 2002
and $8.0 million in 2003.


                                        14
<PAGE>

      In December 2001, the Company entered into a new three-year revolving
credit facility which provides for borrowings up to $30.0 million. Interest is
based on .25% above prime or 2.75% over LIBOR as applicable. This financial
agreement contains certain covenants which include the maintenance of a minimum
tangible net worth if borrowing availability falls below a certain level. It
also includes restrictions on the incurrence of additional debt and limitations
on capital expenditures. Borrowings under this facility are collateralized by
inventory and receivables. At December 31, 2001, based on the level of
receivables and inventory, the Company had borrowing availability of $30.0
million, of which $1.8 million was utilized for outstanding letters of credit.

      In 1998, the Company's Board of Directors approved a new plan to
repurchase up to $5.0 million of the Company's common stock. As of December 31,
2001, the Company had repurchased 777,665 shares of its common stock for an
aggregate cost of $4.3 million pursuant to this plan.

      Collective bargaining agreements with hourly employees at the Company's
facilities expire in 2003 and 2006. In the past five years, there have been no
strikes by employees at the Company, and the Company believes that its employee
relations are satisfactory.

      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 one of many defendants in 6,563 pending claims involving
23,139 individuals as of December 31, 2001 alleging personal injury from
exposure to asbestos-containing products. The Company estimates the potential
cost of defense and indemnity for claims of this type could range from $53.3
million to $195.6 million through the year 2049, before insurance coverage.
During the period that Congoleum produced asbestos-containing products, it
purchased primary and excess policies providing in excess of $1 billion for
bodily injury asbestos claims. Although certain of its excess carriers are
insolvent and there are some disputes among the Company and its carriers with
respect to certain coverage issues, the Company expects insurance will cover the
majority of cost for resolving these claims. At December 31, 2001, the Company
had recorded a liability of $17.8 million for the estimated potential liability,
and a related insurance receivable of $9.6 million representing an estimate of
the probable amount of related insurance recovery.

      The indemnity cost incurred to settle claims during 2001 was $1.1 million,
all of which was paid by the Company's primary insurance carriers. At December
31, 2001, the Company had $2.6 million in remaining primary insurance coverage.
Once all primary coverage is exhausted, the Company expects the defense and
indemnity costs to be covered by its excess insurance policies. However, it is
likely that the Company will share in these costs due to the insolvency of
certain carriers. The Company is presently in negotiation with several of its
excess insurance carriers to determine what portion of defense and indemnity
costs will be paid by the Company once its primary insurance coverage is
exhausted. Although the number of new claims rose significantly in 2001, and
although there is a high degree of uncertainty in estimating both the potential
liability and the amount of related insurance coverage available, the Company
does not believe these claims will have a material adverse effect on its
financial position.

      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).
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


                                        15
<PAGE>

property damage. The exact amount of such future cost and timing of payments are
indeterminable due to such unknown factors as the magnitude of cleanup costs,
the timing and extent of the remedial actions that may be required, the
determination of the Company's liability in proportion to other potentially
responsible parties, and the extent to which costs may be recoverable from
insurance. The Company has recorded provisions in its financial statements for
the estimated probable loss associated with all known general, environmental and
asbestos-related contingencies.

      The Company records a liability for environmental remediation,
asbestos-related claim costs, and general liability claims when a cleanup
program or claim payment becomes probable and the costs can be reasonably
estimated. As assessments and cleanups 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 15 of Notes to Financial Statements).

      Although the outcome of these matters could result in significant expenses
or judgments, the Company 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 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. However, it is possible that certain adverse developments, particularly
in the area of asbestos litigation, could have a material adverse effect on the
Company's ability to fund its operating and investing requirements.

      The following table summarizes the Company's obligation for future
principal payments on its debt and future minimum rental payments on its
noncancelable operating leases at December 31, 2001.

<TABLE>
<CAPTION>
                                      Payments Due by Period
                                      (amounts in thousands)
-------------------------------------------------------------------------------------------------
                  Total      Less than 1 year     1 - 3 years      4 - 5 years      After 5 years
-------------------------------------------------------------------------------------------------
  <S>           <C>                <C>               <C>              <C>             <C>
  Long-term
  debt          $100,000                                                              $100,000

  Operating
  leases          14,754            2,833             4,104            2,685             5,132
-------------------------------------------------------------------------------------------------
  Total         $114,754           $2,833            $4,104           $2,685          $105,132
-------------------------------------------------------------------------------------------------
</TABLE>

Critical Accounting Policies

      The Company has identified a number of its accounting policies that it has
determined to be critical. These critical accounting policies primarily relate
to financial statement assertions that are based on the estimates and
assumptions of management and the effect of changing those estimates and
assumptions could have a material effect on the Company's financial statements.
Following is a summary of those critical accounting policies.

Valuation of Deferred Tax Assets - The Company provides for valuation reserves
against its deferred tax assets when it becomes more likely than not that the
Company will not be able to realize the tax benefit underlying the asset. In
evaluating the recovery of deferred tax assets, the Company makes certain
assumptions as to future


                                       16
<PAGE>

events such as the ability to generate future taxable income. It is possible
that the facts underlying these assumptions may not materialize in future
periods, which may require the Company to record additional deferred tax
valuation allowances.

Environmental Contingencies - As discussed previously, the Company has incurred
liabilities related to environmental remediation costs at both third-party sites
and Company-owned sites. Management has recorded both liabilities and insurance
receivables in its financial statements for its estimate of future remediation
activities. These estimates are based on certain assumptions such as the extent
of cleanup activities to be performed, the methods employed in the cleanup
activities, the Company's relative share in costs at sites where other parties
are involved, and the ultimate insurance coverage available. These projects tend
to be long-term in nature, and these assumptions are subject to refinement as
facts change. As such, it is possible that the Company may need to revise its
recorded liabilities and receivables for environmental costs in future periods
resulting in potentially material adjustments to the Company's earnings in
future periods.

Asbestos Liabilities - As discussed previously, the Company is a party to a
significant number of lawsuits stemming from its manufacture of
asbestos-containing products. The Company has recorded in its balance sheet a
liability and corresponding insurance receivable based on its estimates of the
future costs and related insurance recoveries to settle asbestos litigation and
pay for related legal and loss handling costs. These estimates are based on a
number of subjective assumptions, including the anticipated costs to settle
claims, the cost to litigate claims, the number of claims expected to be
received, and the applicability and allocation of insurance coverage to these
costs. Due to the highly subjective nature of these assumptions, the Company has
estimated a wide range of potential future costs and insurance recoveries, and,
because the Company believes that no amount within the range is more likely than
any other, has recorded a liability and insurance receivable based on the low
end of the range in accordance with accounting principles generally accepted in
the United States. As such, the selection of a different amount within the range
could have a material effect on the Company's financial statements, as could
future developments which differ from the assumptions used in developing the
Company's estimates.

Pension Plans and Postretirement Benefits - The Company accounts for its defined
benefit pension plans in accordance with SFAS No. 87, "Employers' Accounting for
Pensions," which requires that amounts recognized in financial statements be
determined on an actuarial basis. As permitted by SFAS No. 87, the Company uses
a calculated value of plan assets (which is further described below). SFAS No.
87 requires that the effects of the performance of the pension plan's assets and
changes in pension liability discount rates on the Company's computation of
pension income (expense) be amortized over future periods.

      The most significant element in determining the Company's pension income
(expense) in accordance with SFAS No. 87 is the expected return on plan assets.
In 2001, the Company has assumed that the expected long-term rate of return on
plan assets will be 9%. The assumed long-term rate of return on assets is
applied to a calculated value of plan assets, which recognizes changes in the
fair value of plan assets in a systematic manner over four years. This produces
the expected return on plan assets that is included in pension income (expense).
The difference between this expected return and the actual return on plan assets
is deferred. The net deferral of past asset gains (losses) affects the
calculated value of plan assets and, ultimately, future pension income
(expense).

      At the end of each year, the Company determines the discount rate to be
used to calculate the present value of plan liabilities. The discount rate is an
estimate of the current interest rate at which the pension liabilities could be
effectively settled at the end of the year. In estimating this rate, the Company
looks to rates of return on high-quality, fixed-income investments that receive
one of the two highest ratings given by a recognized ratings agency. At December
31, 2001, the Company determined this rate to be 7.25%.

      The Company accounts for its postretirement benefits other than pensions
in accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," which requires that amounts recognized in
financial statements be determined on a actuarial basis. These amounts are
projected based on the


                                        17
<PAGE>

January 1, 2000 SFAS No. 106 valuation and the 2001 year-end disclosure
assumptions, including a discount rate of 7.25% and health care cost trend rates
of 8% in 2002 reducing to an ultimate rate of 5% in 2007.

Pending Adoption of Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 applies to all business
combinations completed after June 30, 2001 and requires the use of the purchase
method of accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately from goodwill. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001,
however, companies with fiscal years beginning after March 15, 2001 may elect to
adopt the statement early. SFAS No. 142 provides that goodwill and intangible
assets with indefinite lives will not be amortized, but rather will be tested
for impairment on an annual basis. Adoption of SFAS No. 141 did not have an
impact on the results of operations or financial position of Congoleum
Corporation. SFAS No. 142 will be effective for the Company as of January 1,
2002. While Congoleum has not fully evaluated the impact of adopting SFAS No.
142, adoption of this standard is expected to result in the elimination of
approximately $0.4 million of goodwill amortization expense per year, or $.05
per share.

      In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144") was issued. Congoleum will adopt SFAS No. 144 effective January 1, 2002
when adoption is mandatory. Among other things, SFAS No. 144 significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. This statement supersedes Statement of Financial Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the provisions of Accounting Principles Board
Opinion 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" that relate to reporting the effects of a
disposal of a segment of a business. The Company is currently assessing the
impact of adopting SFAS No. 144 on its combined financial statements.

      In November 2001, Emerging Issues Task Force (EITF) issue 01-9,
"Accounting for Consideration Given by a Vendor to a Customer or Reseller of the
Vendor's Products ("EITF 01-9"), was issued. Congoleum will adopt EITF 01-9
effective January 1, 2002 when adoption is mandatory. This issue addresses the
manner in which companies account for sales incentives to their customers. The
Company's current accounting policies for the recognition of costs related to
these programs, which is to accrue for costs as benefits are earned by the
Company's customers, are already in accordance with the consensus reached in
this issue. The Company does record certain costs relating to these programs in
selling, general and administrative expenses that will be reclassified to a
reduction of sales in its March 31, 2002 10-Q for all periods presented.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to changes in prevailing market interest rates
affecting the return on its investments but does not consider this risk exposure
to be material to its financial condition or results of operations. The Company
invests primarily in highly liquid debt instruments with strong credit ratings
and short-term (less than one year) maturities. The carrying amount of these
investments approximates fair value due to the short-term maturities.
Substantially all of the Company's outstanding long-term debt as of December 31,
2001 consisted of indebtedness with a fixed rate of interest which is not
subject to change based upon changes in prevailing market interest rates. Under
its current policies, the Company does not use derivative financial instruments,
derivative commodity instruments or other financial instruments to manage its
exposure to changes in interest rates, foreign currency exchange rates,
commodity prices or equity prices.


                                        18
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)

                                                      December 31,  December 31,
                                                          2001          2000
--------------------------------------------------------------------------------
ASSETS
Current assets:
  Cash and cash equivalents........................   $ 15,257        $ 12,637
  Short-term investments ..........................      1,416          12,097
  Accounts receivable, less allowance for
    doubtful accounts and cash discounts of
    $1,859 and $1,934 as of December 31, 2001 and
    2000, respectively.............................     17,932          25,527
  Inventories......................................     55,782          52,907
  Prepaid expenses and other current assets........      6,403           3,966
  Deferred income taxes............................      6,375           3,637
--------------------------------------------------------------------------------
    Total current assets...........................    103,165         110,771
Property, plant, and equipment, net................     95,904          99,410
Goodwill, net......................................     10,523          10,955
Deferred income taxes..............................      1,334           1,530
Other noncurrent assets............................     18,957          15,996
--------------------------------------------------------------------------------
    Total assets...................................   $229,883        $238,662
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................    $17,911         $19,617
  Accrued liabilities..............................     29,585          38,300
  Accrued taxes....................................        353             440
  Deferred income taxes............................      3,597           3,211
--------------------------------------------------------------------------------
    Total current liabilities......................     51,446          61,568
Long-term debt.....................................     99,674          99,625
Other liabilities..................................     30,080          27,044
Accrued pension liability..........................     14,658          11,786
Accrued postretirement benefit obligation..........      8,972           9,329
--------------------------------------------------------------------------------
    Total liabilities..............................    204,830         209,352
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Class A common stock, par value $0.01;
  20,000,000 shares authorized; 4,736,950
  shares issued as of December 31, 2001 and
  2000.............................................         47              47
Class B common stock, par value $0.01;
  4,608,945 shares authorized, issued and
  outstanding at December 31, 2001 and 2000........         46              46
Additional paid-in capital.........................     49,105          49,105
Retained deficit...................................    (10,221)         (8,581)
Accumulated minimum pension liability adjustment...     (6,111)         (3,494)
                                                       -------         -------
                                                        32,866          37,123
Less Class A common stock held in treasury,
  at cost; 1,085,760 shares at December 31,
  2001 and 2000....................................      7,813           7,813
--------------------------------------------------------------------------------
     Total stockholders' equity....................     25,053          29,310
--------------------------------------------------------------------------------
     Total liabilities and stockholders' equity....   $229,883        $238,662
================================================================================

The accompanying notes are an integral part of the financial statements.


                                        19
<PAGE>

Consolidated Statements of Operations
(in thousands, except per share amounts)

                                                    For the years ended
                                                        December 31,

                                                2001       2000       1999
--------------------------------------------------------------------------------
Net sales...................................  $223,250   $224,644   $246,006
Cost of sales...............................   165,683    170,373    176,559
Selling, general and administrative expenses    53,442     54,395     57,428
Distributor transition expenses.............        --      7,717         --
--------------------------------------------------------------------------------
     Income (loss) from operations..........     4,125     (7,841)    12,019
Other income (expense):
   Interest income..........................       708      1,797      1,837
   Interest expense.........................    (8,299)    (7,511)    (7,938)
   Other income.............................     1,350      1,459      1,819
   Other expense............................       (30)        (9)       (90)
--------------------------------------------------------------------------------
     (Loss) income before income taxes......    (2,146)   (12,105)     7,647
(Benefit) provision for income taxes........      (506)    (3,976)     2,719
--------------------------------------------------------------------------------
     Net (loss) income......................  $ (1,640)  $ (8,129)  $  4,928
================================================================================
     Net (loss) income per common share,
       basic and diluted....................  $  (0.20)  $  (0.98)  $   0.57
--------------------------------------------------------------------------------
     Weighted average number of common
     shares outstanding.....................     8,260      8,267      8,699
================================================================================

The accompanying notes are an integral part of the financial statements.


                                        20
<PAGE>

Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                 Common Stock                               Accumulated
                                par value $0.01    Additional             Minimum Pension
                                ----------------    Paid-in     Retained     Liability        Treasury              Comprehensive
                                Class A  Class B    Capital     Deficit      Adjustment        Stock     Total      Income (Loss)
------------------------------------------------------------------------------------------------------------------  -------------
<S>                               <C>      <C>      <C>         <C>           <C>             <C>        <C>         <C>
Balance, December 31, 1998.....   $47      $47      $49,574     $(5,380)      $(2,302)        $(4,133)   $37,853
Purchase of treasury stock.....                                                                (3,483)    (3,483)
Purchase and retirement of
  Class B stock................             (1)        (469)                                                (470)
Minimum pension liability
  adjustment, net of tax of
  $748.........................                                                 1,302                      1,302     $  1,302
Net income.....................                                   4,928                                    4,928        4,928
                                                                                                                     --------
Net comprehensive income.......                                                                                      $  6,230
------------------------------------------------------------------------------------------------------------------   ========
Balance, December 31, 1999.....    47       46       49,105        (452)       (1,000)         (7,616)    40,130
Purchase of treasury stock.....                                                                  (197)      (197)
Minimum pension liability
  adjustment, net of tax benefit
  of $1,434....................                                                (2,494)         (2,494)               $ (2,494)
Net loss.......................                                  (8,129)                                  (8,129)      (8,129)
                                                                                                                     --------
Net comprehensive loss                                                                                               $(10,623)
------------------------------------------------------------------------------------------------------------------   ========
Balance, December 31, 2000.....    47       46       49,105      (8,581)       (3,494)         (7,813)    29,310
Purchase of treasury stock.....
Minimum pension liability
  adjustment, net of tax benefit
  of $1,504....................                                                (2,617)                    (2,617)    $ (2,617)
Net loss.......................                                  (1,640)                                  (1,640)      (1,640)
                                                                                                                     --------
Net comprehensive loss.........                                                                                      $ (4,257)
------------------------------------------------------------------------------------------------------------------   ========
Balance, December 31, 2001.....   $47      $46      $49,105    $(10,221)      $(6,111)        $(7,813)   $25,053
==================================================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                        21
<PAGE>

Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                           For the years ended
                                                                                December 31,

                                                                    2001           2000           1999
--------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>            <C>
Cash flows from operating activities:
   Net (loss) income...........................................  $ (1,640)       $ (8,129)      $ 4,928
   Adjustments to reconcile net (loss)
     income to net cash (used) provided by
     operating activities:
        Depreciation...........................................    11,363          10,919        10,220
        Amortization...........................................       818             818           818
        Deferred income taxes..................................      (652)         (1,769)        2,350
        Changes in certain assets and liabilities:
           Accounts and notes receivable.......................     7,595         (11,782)        2,135
           Inventories.........................................    (2,875)          1,692        (9,407)
           Prepaid expenses and other current assets...........    (4,870)             93        (1,147)
           Accounts payable....................................    (1,706)            457         4,761
           Accrued liabilities.................................    (8,802)          8,364        (2,218)
           Other liabilities...................................       566             193        (2,161)
--------------------------------------------------------------------------------------------------------
           Net cash (used) provided by operating activities....      (203)            856        10,279
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures, net ..................................    (7,858)        (13,925)      (18,670)
   Purchase of short-term investments..........................    (4,175)        (23,392)      (51,044)
   Maturities of short-term investments........................    14,856          30,527        31,812
--------------------------------------------------------------------------------------------------------
           Net cash provided (used) by investing activities....     2,823          (6,790)      (37,902)
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Purchase of treasury stock..................................        --            (197)       (3,483)
   Purchase and retirement of Class B stock....................        --              --          (470)
--------------------------------------------------------------------------------------------------------
           Net cash used by financing activities                       --            (197)       (3,953)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents...........     2,620          (6,131)      (31,576)
Cash and cash equivalents:
   Beginning of year...........................................    12,637          18,768        50,344
--------------------------------------------------------------------------------------------------------
   End of year.................................................  $ 15,257         $12,637      $ 18,768
========================================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                        22
<PAGE>

Notes to Consolidated 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 resilient sheet and tile flooring
products. These products, together with a limited quantity of related products
purchased for resale, are sold primarily to wholesale distributors and major
retailers in the United States and Canada.

      Based upon the nature of the Company's operations, facilities and
management structure, the Company considers its business to constitute a single
segment for financial reporting purposes.

Basis of Consolidation - The accompanying consolidated financial statements
reflect the operations, financial position and cash flows of Congoleum
Corporation and include the accounts of the Company and its subsidiaries after
elimination of all significant intercompany transactions in consolidation.

Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 estimated
sales value of goods returned, trade discounts and customers' allowances. The
Company defers recognition of revenue for its estimate of potential sales
returns under right-of-return agreements with its distributors until the
right-of-return period lapses.

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. The carrying amount reported in the balance sheets for cash and
cash equivalents approximates its fair value.

Short-Term Investments - The Company invests in highly liquid debt instruments
with strong credit ratings. Commercial Paper investments with a maturity greater
than three months, but less than one year at the time of purchase, are
considered to be short-term investments. The carrying amount of the investments
approximates fair value due to their short maturity. The Company maintains cash
and cash equivalents and short-term investments with certain financial
institutions. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy.

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, 15 years for building improvements, production equipment and
heavy-duty vehicles, 3 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 the 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. Such costs at December 31, 2001 and 2000 amounted to $2.2 million and $2.5
million, respectively, net of accumulated amortization of $1.1 million and $812
thousand, 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.
Accumulated amortization amounted to $6.6 million and $6.1 million at December
31, 2001 and 2000, respectively.


                                       23
<PAGE>

      The Company periodically evaluates goodwill to ensure it is fully
recoverable from projected undiscounted cash flows of the related business
operations. There have been no impairment adjustments to goodwill through
December 31, 2001.

Environmental Remediation and Asbestos Liabilities - The Company is subject to
federal, state and local environmental laws and regulations. The Company records
a liability for environmental remediation claims when a cleanup program or claim
payment becomes probable and the costs can be reasonably estimated. The recorded
liabilities are not discounted for delays in future payments (see Notes 4, 6,
and 15). The Company is a party to a number of lawsuits stemming from its
manufacture of asbestos-containing products. The Company records a liability for
these cases based on its estimate of costs to resolve both open and
incurred-but-not-reported claims. The Company also records an insurance
receivable based on its estimate of insurance recoveries for these costs. In
estimating the Company's asbestos-related exposures, the Company analyzes and
considers the possibility of any uncertainties regarding the legal sufficiency
of insurance claims or solvency of insurance carriers. (See Note 15.)

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," which requires the recognition
of deferred tax assets and liabilities for the difference between the tax basis
of assets and liabilities and their reported amounts for financial statement
purposes.

Shipping and Handling Costs - Shipping costs at December 31, 2001, 2000 and 1999
were $3.5 million, $4.2 million and $4.2 million, respectively, and are included
in selling, general and administrative expenses.

Earnings Per Share - The calculation of basic earnings per share is based on the
average number of common shares outstanding during the period. Diluted earnings
per share reflect the effect of all potentially diluted securities which consist
of outstanding common stock options. For all periods presented, basic and
diluted shares outstanding are the same.

      In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 applies to all business
combinations completed after June 30, 2001 and requires the use of the purchase
method of accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately from goodwill. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001,
however, companies with fiscal years beginning after March 15, 2001 may elect to
adopt the statement early. SFAS No. 142 provides that goodwill and intangible
assets with indefinite lives will not be amortized, but rather will be tested
for impairment on an annual basis. Adoption of SFAS No. 141 did not have an
impact on the results of operations or financial position of Congoleum. SFAS No.
142 will be effective for the Company as of January 1, 2002. While Congoleum has
not fully evaluated the impact of adopting SFAS No. 142, adoption of this
standard is expected to result in the elimination of approximately $0.4 million
of goodwill amortization expense per year, or $.05 per share.

      In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144") was issued. Congoleum will adopt SFAS No. 144 effective January 1, 2002
when adoption is mandatory. Among other things, SFAS No. 144 significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. This statement supersedes Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the provisions of Accounting
Principles Board Opinion 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," that relate to reporting
the effects of a disposal of a segment of a business. The Company is currently
assessing the impact of adopting SFAS No. 144 on its consolidated financial
statements.

       In November 2001, Emerging Issues Task Force (EITF) issue 01-9,
"Accounting for Consideration Given by a Vendor to a Customer or Reseller of the
Vendor's Products ("EITF 01-9") was issued. Congoleum will adopt EITF 01-9
effective January 1, 2002 when adoption is mandatory. This issue addresses the
manner in which companies account for sales incentives to their customers. The
Company's current accounting policies for the


                                       24
<PAGE>

recognition of costs related to these programs, which is to accrue for costs as
benefits are earned by the Company's customers, are already in accordance with
the consensus reached in this issue. The Company does record certain costs
relating to these programs in selling, general and administrative expenses that
will be reclassified to a reduction of sales in its March 31, 2002 10-Q for all
periods presented.

Reclassifications - Certain amounts appearing in the prior years' financial
statements have been reclassified to conform to the current year's presentation.

2. Inventories:

A summary of the major components of inventories is as follows (in 000s):

                                     December 31,       December 31,
                                        2001               2000
      ----------------------------------------------------------------
      Finished goods                  $ 43,680           $ 41,879
      Work-in-process                    4,425              3,600
      Raw materials and supplies         7,677              7,428
      ----------------------------------------------------------------
      Total inventories               $ 55,782           $ 52,907
      ================================================================

      If the FIFO (first-in, first-out) method of inventory accounting (which ap
proximates current cost) had been used, inventories would have been ap
proximately $731 thousand lower and $26 thousand higher than reported at De
cember 31, 2001 and 2000, respectively.

3. Property, Plant, and Equipment:

A summary of the major components of property, plant, and equipment is as
follows (in 000s):

                                     December 31,       December 31,
                                        2001               2000
      ----------------------------------------------------------------
      Land                           $   2,930           $  2,930
      Buildings and improvements        44,335             42,133
      Machinery and equipment          166,002            158,829
      Construction-in-progress           6,594             10,177
      ----------------------------------------------------------------
                                       219,861            214,069
      Less accumulated
           depreciation                123,957            114,659
      ----------------------------------------------------------------
      Total property, plant,
        and equipment, net            $ 95,904           $ 99,410
      ----------------------------------------------------------------

      Interest is capitalized in connection with the construction of major
facilities and equipment. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life. Capitalized interest cost was $330 thousand, $1.1 million, and $691
thousand for 2001, 2000, and 1999, respectively.

      The amount of approved but unexpended capital appropriations at December
31, 2001 was $4.2 million, substantially all of which is planned to be expended
during 2002.


                                       25
<PAGE>

4. Accrued Liabilities:

Accrued liabilities consists of the following (in 000s):

                                      December 31,       December 31,
                                         2001               2000
      ---------------------------------------------------------------
      Accrued warranty,
        marketing and sales
        promotion                      $19,449            $19,236
      Employee
        compensation and
        related benefits                 3,678              3,165
      Interest                           3,595              3,595
      Environmental
        remediation and product-
        related liabilities              1,140              1,140
      Distributor termination costs         --              4,659
      Reserve for sales returns             --              4,034
      Other                              1,723              2,471
      ---------------------------------------------------------------
      Total accrued liabilities        $29,585            $38,300
      ===============================================================

5. Long-Term Debt:

Long-term debt consists of the following (in 000s):

                                     December 31,       December 31,
                                        2001               2000
      ---------------------------------------------------------------
      8 5/8% Senior Notes
        due 2008                       $99,674            $99,625
      ---------------------------------------------------------------

      On August 3, 1998, the Company issued $100 million of 8 5/8% Senior Notes
maturing August 1, 2008 priced at 99.505 to yield 8.70%. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after August 1, 2003 at predetermined redemption prices (ranging from 104% to
100%), plus accrued and unpaid interest to date of redemption. The Indenture
under which the notes were issued includes certain restrictions on additional
indebtedness and uses of cash, including dividend payments.

      The fair value of the Company's long-term debt is based on the quoted
market prices for publicly traded issues. The estimated fair value of the 8 5/8%
Senior Notes was approximately $65 million and $50 million at December 31, 2001
and 2000, respectively.

      In December 2001, the Company entered into a revolving credit facility
which expires in 2004 that provides for borrowings up to $30.0 million depending
on levels of the Company's inventory and receivables. This agreement provides
for a monthly commitment fee based on the average daily unused portion of the
commitment equal to three-eighths of one percent and a monthly servicing fee of
$2,500. This financing agreement contains certain covenants which include the
maintenance of a minimum tangible net worth if borrowing availability falls
below a certain level. It also includes restrictions on the incurrence of
additional debt and limitations on capital expenditures. Borrowings under this
facility are collateralized by inventory and receivables. There were no
borrowings outstanding under this facility at December 31, 2001; however, the
facility provides for standby letters of credit which total $1.8 million at
December 31, 2001.


                                       26
<PAGE>

6. Other Liabilities:

Other liabilities consists of the following (in 000s):

                                     December 31,       December 31,
                                        2001               2000
      --------------------------------------------------------------
      Environmental remediation
        and product-related
        liabilities                    $22,864            $20,553
      Accrued workers'
        compensation claims              5,971              5,196
      Other                              1,245              1,295
      --------------------------------------------------------------
      Total other liabilities          $30,080            $27,044
      ==============================================================

7. Research and Development Costs:

      Total research and development costs charged to operations amounted to
$3.5 million, $4.3 million and $4.2 million for the years ended December 31,
2001, 2000, and 1999, respectively.

8. Operating Lease Commitments and Rent Expense:

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

      Future minimum lease payments of noncancelable operating leases having
initial or remaining lease terms in excess of one year as of December 31, 2001
are as follows (in 000s):

      Years Ending
      -------------------------------------------------------------
      2002                                                 $2,833
      2003                                                  2,142
      2004                                                  1,962
      2005                                                  1,389
      2006                                                  1,296
      Thereafter                                            5,132
      -------------------------------------------------------------
      Total minimum lease payments                        $14,754
      =============================================================

      Rent expense was $3.6 million, $2.8 million and $3.0 million for the years
ended December 31, 2001, 2000, and 1999, respectively.


                                       27
<PAGE>

9. 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, the Company's
actuarial consultants advise to be appropriate.

      Net periodic pension cost includes the following components (in 000s):

                                         For the years ended December 31,
                                         --------------------------------------
                                             2001         2000          1999
      -------------------------------------------------------------------------

      Service cost                       $ 1,089        $ 1,079        $ 1,152
      Interest cost                        4,140          4,063          3,920
      Expected return on
        plan assets                       (4,068)        (4,329)        (4,100)
      Amortization of
        transition amount                     76             76             76
      Amortization of prior
        service benefit                     (242)          (242)          (242)
      Recognized actuarial
        (gain) loss                          363            (44)           186
      -------------------------------------------------------------------------
      Net periodic
        pension cost                     $ 1,358        $   603        $   992
      =========================================================================

Weighted-average assumptions as of December 31 were as follows:

                                            2001           2000          1999
      -------------------------------------------------------------------------

      Discount rate                         7.25%          7.25%         7.25%
      Rate of compensation
        increase                            5.00%          5.00%         5.00%
      Expected long-term
        rate of return
        on assets                           9.00%          9.00%         9.00%


                                       28
<PAGE>

      The following table sets forth the components of the change in projected
benefit obligation and fair value of plan assets during 2001 and 2000 as well as
funded status of the plans at December 31, 2001 and 2000 (in 000s):

                                                December 31,       December 31,
                                                    2001               2000
      ------------------------------------------------------------------------
      Accumulated benefit
        obligation at end of year                 $ 58,662          $ 57,721
      ========================================================================
      Change in projected benefit
        obligation:
        Projected benefit obligation
           at beginning of year                   $ 58,799          $ 58,281
        Service cost                                 1,089             1,079
        Interest cost                                4,140             4,063
        Actuarial gain                                 512               (99)
        Benefits paid                               (4,601)           (4,525)
      ------------------------------------------------------------------------
      Projected benefit obligation
        at the end of the year                    $ 59,939          $ 58,799
      ========================================================================
      Change in plan assets:
        Fair value of plan assets
             at beginning of year                 $ 46,346          $ 49,177
        Actual return on assets                       (345)             (713)
        Employer contributions                       2,603             2,407
        Benefit paid                                (4,601)           (4,525)
      ------------------------------------------------------------------------
      Fair value of plan assets
        at end of year                            $ 44,003          $ 46,346
      ========================================================================
      Funded status                               $(15,936)         $(12,453)
      Unrecognized transition
        amount                                        (219)             (143)
      Unrecognized prior
        service benefit                             (1,251)           (1,493)
      Unrecognized net
        actuarial loss                              12,932             8,370
      ------------------------------------------------------------------------
      Net amount recognized                       $ (4,474)         $ (5,719)
      ========================================================================
      Amounts recognized in the
        financial statements
        consist of:
          Accrued benefit liability               $(14,658)         $(11,786)
          Intangible asset                             560               564
          Deferred tax asset                         3,513             2,009
      ------------------------------------------------------------------------
          Accumulated other
             comprehensive
             income                                  6,111             3,494
      ------------------------------------------------------------------------
      Net amount recognized                       $ (4,474)         $ (5,719)
      ========================================================================


                                       29
<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. The charge to
income relating to the Company match was $1.4 million, $1.1 million and $1.4
million for the years ended December 31, 2001, 2000, and 1999, respectively.

10. Postretirement Benefits Other Than Pensions:

Net periodic postretirement benefits cost is as follows (in 000s):

                                          For the years ended December 31,
                                          -------------------------------------
                                            2001          2000           1999
      -------------------------------------------------------------------------
      Service cost                        $ 142          $ 134          $ 148
      Interest cost                         474            461            480
      Amortization of
        prior service benefit              (462)          (417)          (409)
      Amortization of
        net (gain) loss                      (9)            (3)            71
      -------------------------------------------------------------------------
      Net periodic benefits
        cost                              $ 145          $ 175          $ 290
      =========================================================================
      Weighted average
        discount rate                      7.25%          7.25%          7.25%
      =========================================================================

      The change in benefit obligation and the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded in
2001 and 2000, were as follows (in 000s):

                                                  December 31,      December 31,
                                                     2001              2000
      -------------------------------------------------------------------------
      Change in benefit obligation:
        Benefit obligation at end
        of prior year                              $ 6,800          $ 7,141
      Service cost
        (with interest)                                142              134
      Interest cost                                    474              461
      Actuarial loss (gain)                            121             (449)
      Benefits paid                                   (504)            (487)
      -------------------------------------------------------------------------
      Benefit obligation at end
        of year                                    $ 7,033          $ 6,800
      =========================================================================
      Funded status                                $(7,033)         $(6,800)
      Unrecognized net gain                           (829)            (959)
      Unrecognized prior
        service benefit                             (1,527)          (1,989)
      -------------------------------------------------------------------------
      Accrued postretirement
        benefit cost                                (9,389)          (9,748)
      Less current portion                             417              419
      -------------------------------------------------------------------------
      Noncurrent
        postretirement
        benefit obligations                        $(8,972)         $(9,329)
      =========================================================================


                                       30
<PAGE>

      The annual rate of increase in the per capita cost of covered health care
benefits was assumed to be 8.0% in 2001; the rate was assumed to decrease
gradually to 5.0% over the next 5 years and remain level thereafter. An increase
of one percentage point in the assumed health care cost trend rates for each
future year would increase the aggregate of the service and interest cost
components of net periodic postretirement benefits cost by $52 thousand for the
year ended December 31, 2001, and would increase the accumulated postretirement
benefit obligations by $492 thousand at December 31, 2001.

11. Income Taxes:

The provision (benefit) for income taxes is comprised of the following (in
000s):

                                          For the years ended December 31,
                                          -------------------------------------
                                            2001          2000          1999
      -------------------------------------------------------------------------
      Current:
        Federal                           $  40         $(2,297)        $  259
        State                               106              88            113
      Deferred:
        Federal                            (652)         (1,633)         2,123
        State                              (273)         (1,220)          (245)
        Valuation allowance                 273           1,086            469
      -------------------------------------------------------------------------
      Provision (benefit) for
        income taxes                      $(506)        $(3,976)        $2,719
      =========================================================================

      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:

                                             For the years ended December 31,
                                             ----------------------------------
                                              2001        2000           1999
      -------------------------------------------------------------------------
      Statutory federal
        income tax rate                       34.0%       34.0%         34.0%
      State income taxes,
        net of federal benefit                 7.5         5.5           2.7
      Goodwill                                (6.8)       (1.2)          1.9
      Other                                  (11.1)       (5.4)         (3.0)
      -------------------------------------------------------------------------
      Effective tax rate                      23.6%       32.9%         35.6%
      =========================================================================

      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 (in 000s):


                                       31
<PAGE>

                                               December 31,       December 31,
                                                   2001               2000
      ------------------------------------------------------------------------
      Deferred tax asset:
        Accounts receivable                      $    195          $    198
        Unfunded pension liability                  4,810             4,225
      Environmental remediation
        and product-related
        reserves                                   10,034             9,743
      Postretirement benefit
        obligations                                 4,138             4,313
      Tax credit and other
        carryovers                                  5,739             2,788
      Other accruals                                2,380             2,437
      ------------------------------------------------------------------------
      Deferred tax asset                           27,296            23,704
      Valuation allowance                          (1,828)           (1,555)
      ------------------------------------------------------------------------
      Net deferred tax asset                       25,468            22,149
      ------------------------------------------------------------------------
      Deferred tax liability:
        Depreciation and
           amortization                           (12,659)          (11,987)
        Inventory                                  (3,363)           (3,211)
        Other                                      (5,334)           (4,995)
      ------------------------------------------------------------------------
      Total deferred tax liability                (21,356)          (20,193)
      ------------------------------------------------------------------------
      Net deferred tax asset                     $  4,112          $  1,956
      =========================================================================

      At December 31, 2001 and 2000, the Company had federal available net
operating loss carryforwards of approximately $8.7 million and $3.2 million
respectively, to offset future taxable income. The federal loss carry-forward
will expire in 2021.

12. Supplemental Cash Flow Information:

      Cash payments for interest were $8.6 million for each of the years ended
December 31, 2001, 2000 and 1999, respectively. Net cash payments (refunds) for
income taxes were $(145) thousand, $(3.5) million and $903 thousand for the
years ended December 31, 2001, 2000, and 1999, respectively.

13. Related Party Transactions:

      The Company and its controlling shareholder, American Biltrite Inc.
("ABI"- see Note 17) provide certain goods and services to each other pursuant
to negotiated agreements. The Company had the following transactions with ABI
(in 000s):

                                   For the years ended December 31,
                                   -----------------------------------
                                     2001          2000          1999
      ----------------------------------------------------------------
      Sales to ABI                 $ 214          $ 361         $ 568
      Raw material
        transfers to ABI           3,413          3,384         4,637
      Computer service
        income from ABI               22             20            17
      Material purchases
        from ABI                   8,330          6,762         7,306
      Management fees
        to ABI                       580            562           900
      ================================================================

      Amounts as of December 31, 2001 and 2000 due from ABI totaled $301
thousand and $820 thousand, respectively, and are included in accounts
receivable. Amounts as of December 31, 2001 and 2000 due to ABI totaled $464
thousand and $1.4 million, respectively, and are included in accounts payable.


                                       32
<PAGE>

14. Major Customers:

      Substantially all the Company's sales are to select flooring distributors
and retailers located in the United States and Canada. 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 25% and 23% of the Company's net sales for the
year ended December 31, 2001, 26% and 18% for the year ended December 31, 2000,
and 28% and 21% for the year ended December 31, 1999. One of these customers
accounted for 31% and 42% of accounts receivable at December 31, 2001 and 2000,
respectively, while another unrelated customer accounted for 14% of accounts
receivable at December 31, 2001.

15. Environmental and Other Liabilities:

      The Company records a liability for environmental remediation claims when
a cleanup program or claim payment becomes probable and the costs can be
reasonably estimated. As assessments and cleanup programs progress, these
liabilities are adjusted based upon the progress in determining the timing and
extent of remedial actions and the related costs and damages. The recorded
liabilities are not reduced by the amount of insurance recoveries. Such
estimated insurance recoveries are reflected in other noncurrent assets and are
considered probable of recovery.

      The Company is named, together with a large number (in most cases,
hundreds) of other companies, as a potentially responsible party ("PRP") in
pending proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, and similar state laws.
In two instances, although not named as a PRP, the Company has received a
request for information. These pending proceedings currently relate to seven
disposal sites in New Jersey, Pennsylvania, Maryland, Connecticut and Delaware
in which recovery from generators of hazardous substances is sought for the cost
of cleaning up the contaminated waste sites. The Company's ultimate liability in
connection with those sites depends on many factors, including the volume of
material contributed to the site, the number of other PRPs and their financial
viability, the remediation methods and technology to be used and the extent to
which costs may be recoverable from insurance. However, under CERCLA, and
certain other laws, as a PRP, the Company can be held jointly and severally
liable for all environmental costs associated with a site.

      The most significant exposure to which the Company has been named a PRP
relates to a recycling facility site in Elkton, Maryland. The PRP group at this
site is made up of 51 companies, substantially all of which are large
financially solvent entities. Two removal actions were substantially complete as
of December 31, 1998; however, the groundwater remediation phase has not begun
and the remedial investigation/feasibility study related to the groundwater
remediation has not been approved. The PRP group estimated that future costs of
groundwater remediation, based on engineering and consultant studies conducted,
would be approximately $26 million. Congoleum's proportionate share, based on
waste disposed at the site, was estimated to be approximately 6.1%.

      The Company also accrues remediation costs for certain of the Company's
owned facilities on an undiscounted basis. Estimated total cleanup costs,
including capital outlays and future maintenance costs for soil and groundwater
remediation are primarily based on engineering studies.

      Although there can be no assurance, the Company anticipates that these
matters will be resolved over a period of years for amounts (including legal
fees and other defense costs) which the Company believes based on current
estimates of liability and, in part, on insurance coverage, and based on advice
from counsel, will not have a material adverse effect on the financial position
of the Company.

Asbestos-Related Liabilities: The Company is one of many defendants in
approximately 6,563 pending claims (including workers' compensation cases)
involving approximately 23,139 individuals as of December 31, 2001, alleging
personal injury or death from exposure to asbestos or asbestos-containing
products. There were 1,754 claims at December 31, 2000 that involved
approximately 12,079 individuals. Activity related to asbestos claims during the
years ended December 31, 2001 and 2000 was as follows:


                                       33
<PAGE>

                                    2001            2000
      ----------------------------------------------------
      Claims at Jan. 1             1,754             670
      New Claims                   5,048           1,302
      Settlements                    (40)            (76)
      Dismissals                    (199)           (142)
      ----------------------------------------------------
      Claims at Dec. 31            6,563           1,754
      ====================================================

      The total indemnity costs incurred to settle claims during 2001 and 2000
were $1.1 million and $3.9 million, respectively, which were paid by the
Company's insurance carriers, as were the related defense costs. Costs per claim
vary depending on a number of factors, including the nature of the alleged
exposure and the jurisdiction where the claim was litigated. As of December 31,
2001, the Company has incurred asbestos-related claims of $11.4 million, to
resolve claims of over 33,000 claimants, substantially all of which have been
paid by the Company's insurance carriers. The average indemnity cost per
resolved claimant is $340. Over 99% of claims incurred by the Company have
settled, on average, for amounts less than $100 per claimant.

      Nearly all claims allege that various diseases were caused by exposure to
asbestos-containing products, including sheet vinyl and resilient tile
manufactured by the Company (or, in the workers' compensation cases, exposure to
asbestos in the course of employment with the Company). The Company discontinued
the manufacture of asbestos-containing sheet vinyl products in 1983 and
asbestos-containing tile products in 1974. In general, governmental authorities
have determined that asbestos-containing sheet and tile products are nonfriable
(i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.

      The Company regularly evaluates its estimated liability to defend and
resolve current and reasonably anticipated future asbestos-related claims. It
reviews, among other things, recent and historical settlement and trial results,
the incidence of past and recent claims, the number of cases pending against it,
and asbestos litigation developments that may impact the exposure of the
Company. One such development, the declarations of bankruptcy by several
companies that were typically lead defendants in asbestos-related cases, is
likely to have a negative impact on the Company's claim experience. The
estimates developed are highly uncertain due to the limitations of the available
data and the difficulty of forecasting the numerous variables that can affect
the range of the liability.

      The Company periodically updates its evaluation of the range of potential
defense and indemnity costs for asbestos-related liabilities and the insurance
coverage in place to cover these costs. The Company believes that its range of
probable and estimable undiscounted losses for asbestos-related claims through
the year 2049 is $53.3 million to $195.6 million before considering the effects
of insurance recoveries. As discussed previously, it is very difficult to
forecast a liability for the Company's ultimate exposure for asbestos-related
claims as there are multiple variables that can affect the timing, severity, and
quantity of claims. As such, the Company has concluded that no amount within
that range is more likely than any other, and therefore has determined that the
amount of the gross liability it should record for asbestos-related claims is
equal to $53.3 million in accordance with accounting principles generally
accepted in the United States.

      During the period that Congoleum produced asbestos-containing products,
the Company purchased primary and excess insurance policies providing in excess
of $1 billion coverage for bodily injury asbestos claims. To date, all claims
and defense costs have been paid through primary insurance coverage. At December
31, 2001, the Company had $2.6 million in remaining primary insurance coverage
for bodily injury asbestos claims. Once all primary coverage is exhausted, the
Company expects defense and indemnity costs to be covered by its excess
insurance policies. However, it is likely that the Company will share in these
costs. The first layer of excess insurance policies provides for $135 million in
coverage. Of this layer, approximately 16% to 28% (depending on the method used
to allocate losses) was underwritten by carriers who are presently insolvent.
The Company antici-


                                       34
<PAGE>

pates that it will have to pay some or all of the portion of costs for resolving
asbestos-related claims that are allocable to such insolvent carriers, and that
it may in turn be able to recover a portion of such payments from the estates or
insurance guaranty funds responsible for the obligations of these carriers.

      The same factors that affect developing forecasts of potential defense and
indemnity costs for asbestos-related liabilities also affect estimates of the
total amount of insurance that is probable of recovery, as do a number of
additional factors. These additional factors include the financial viability of
some of the insurance companies, the method in which losses will be allocated to
the various insurance policies and the years covered by those policies, how
legal and other loss handling costs will be covered by the insurance policies,
and interpretation of the effect on coverage of various policy terms and limits
and their interrelationships. Congoleum has filed suit regarding insurance
coverage issues against certain of its primary insurance carriers, the carriers
comprising its first layer of excess insurance, state guaranty funds
representing insolvent carriers, and its insurance brokers and has begun
settlement negotiations with several of these parties.

      The Company has determined, based on its review of its insurance policies
and the advice of legal counsel, that approximately $42.5 million of the
estimated $53.3 million gross liability is probable of recovery. This
determination was made after considering the terms of the available insurance
coverage, the financial viability of the insurance companies and the status of
negotiations with its carriers. The Company further believes that the criteria,
as defined by accounting principles generally accepted in the United States, to
offset the estimated gross liability with a portion of the probable insurance
recovery, equal to $35.5 million, have been met. Additionally, in 2001, the
Company recorded an asset of $2.5 million for the probable settlement of
disputed insurance coverage. The Company also recognized a liability for
asbestos product liability of $2.8 million. The balance of the estimated gross
liability of $17.8 million has been reflected in the balance sheet as a
long-term liability. The Company has also recorded in the balance sheet an
insurance receivable of $9.6 million that represents an estimate of probable
insurance recoveries that do not qualify for offsetting against the gross
liability and for the probable insurance settlement discussed previously. This
insurance receivable has been recorded in other long-term assets.

      Since many uncertainties exist surrounding asbestos litigation, the
Company will continue to evaluate its asbestos-related estimated liability and
corresponding estimated insurance assets as well as the underlying assumptions
used to derive these amounts. It is reasonably possible that the Company's total
liability for asbestos-related claims may be greater than the recorded liability
and that insurance recoveries may be less than the recorded asset. These
uncertainties may result in the Company incurring future charges to income to
adjust the carrying value of recorded liabilities and assets. Additionally,
since the Company has recorded an amount representing the low end of the range
of exposure for asbestos-related claims, it is possible that over time another
amount within the range will be a better estimate of the actual losses. Although
the resolution of these claims is anticipated to take decades, amounts recorded
for the liability are not discounted, and the effect on results of operations in
any given year from a revision to these estimates could be material. Congoleum
does not believe, however, that asbestos-related claims will have a material
adverse effect on its financial position or liquidity.

      The total balances of environmental and asbestos-related liabilities and
the related insurance receivables deemed probable of recovery at December 31 are
as follows (in millions):

                                       2001                     2000

                             Liability     Receivable    Liability   Receivable
      --------------------------------------------------------------------------
      Environmental
          liabilities         $ 5.0         $ 2.0         $5.1           $2.0
      Asbestos product
          liability            17.8           9.6         15.3            7.1
      Other                     1.2            .2          1.3            0.1
      ==========================================================================
      Total                   $24.0         $11.8        $21.7          $ 9.2
      ==========================================================================


                                       35
<PAGE>

Other: In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, product liability, and other matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts and the matters may remain unresolved for several years. On
the basis of information furnished by counsel and others, the Company does not
believe that these matters, individually or in the aggregate, will have a
material adverse effect on its business or financial condition.

16. Stock Option Plans:

      Under the Company's 1995 Stock Option Plan, as amended, (the "1995 Plan")
options to purchase up to 800,000 shares of the Company's Class A common stock
may be issued to officers and key employees. Such options may be either
incentive stock options or nonqualified stock options, and the options' exercise
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 under the 1995 Plan 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.

      In December 2001, the Company offered its eligible option holders to
exchange all options then outstanding and granted to them under the 1995 Plan or
the Company's 1999 Stock Option Plan For Non-Employee Directors, as amended (the
"1999 Plan"), for new stock options to be granted under those plans not earlier
than six months and one day after the date the Company canceled any options
tendered to and accepted by it pursuant to the offer to exchange. On January 4,
2002, the Company accepted and canceled 667,500 options that had been previously
granted under the 1995 Plan and all options that had been previously granted
under the 1999 Plan that were tendered to and accepted by the Company pursuant
to the offer to exchange. The Company expects to issue the new options on or
about July 5, 2002. The new options will be exercisable for the same number of
shares of the Company's Class A common stock as the canceled options were
exercisable for. The exercise price of the new options will be equal to the fair
market value as of the date of grant as determined under the applicable stock
option plan pursuant to which the new option is granted. The new options granted
under the 1995 Plan will generally vest annually in equal installments over a
five-year period beginning on the first anniversary of the date of grant, and
the new options granted under the 1999 Plan will generally vest 100% six months
from the date of grant.

      Pro forma disclosure 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 SFAS No. 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2000, and 1999 respectively:
option forfeiture of 15%; risk-free interest rates of 5.08% and 6.61%; no
dividends; volatility factors of the expected market price of the Company's
common stock of .597 for 2000 and .576 for 1999; and a weighted-average expected
life of the options of 7 years. There were no options granted in 2001. The
exercise prices of options outstanding at December 31, 2001 are as follows:
96,000 shares @ $3.50 to $3.63; 280,000 shares @ $7.19 to $9.00; and 300,000
shares @ $13.00 per share.

      For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
estimated pro forma compensation expense from stock options for the years ended
December 31, 2001, 2000, and 1999, respectively, was $381, $388, and $684. The
Company's pro forma net (loss) income for the years ended December 31, 2001,
2000, and 1999, respectively, is as follows: 2001, $(2.0) million or $(0.24) per
share; 2000, $(8.5) million, or $(1.03) per share; and 1999, $4.2 million, or
$0.49 per share.

      A summary of the Company's 1995 Stock Option Plan activity, and related
information, is as follows:


                                       36
<PAGE>

      December 31, 2001:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
        beginning of year                      693,000             $   9.93
      Options granted                               --                   --
      Options exercised                             --                   --
      Options forfeited                        (17,000)                7.87
                                              --------
      Options outstanding
        end of year                            676,000             $   9.98
      ==========================================================================
      Exercisable at end of year               486,200             $  11.27
      Weighted average remaining
        contractual life                       5 years                   --
      Stock options available
        for future issuance                    122,000                   --
      ==========================================================================

      December 31, 2000:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
        beginning of year                      617,000             $  10.93
      Options granted                           99,500                 3.54
      Options exercised                             --                   --
      Options forfeited                        (23,500)                9.00
                                              --------
      Options outstanding
        end of year                            693,000             $   9.93
      ==========================================================================
      Exercisable at end of year               416,400             $  11.87
      Weighted average remaining
        contractual life                       6 years                   --
      Stock options available
        for future issuance                    105,000                   --
      ==========================================================================

      December 31, 1999:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
          beginning of year                    626,000             $  10.91
      Options granted                            5,000                 7.19
      Options exercised                             --                   --
      Options forfeited                        (14,000)                9.00
                                              --------
      Options outstanding
          end of year                          617,000             $  10.93
      ==========================================================================
      Exercisable at end of year               306,200             $  12.12
      Weighted average remaining
        contractual life                       7 years                   --
      Stock options available
        for future issuance                    181,000                   --
      ==========================================================================


                                       37
<PAGE>

      The weighted average grant date fair value of options granted under the
1995 Plan in 2000 and 1999 was $2.28 and $4.67, respectively. There were no
options granted in 2001.

      On July 1, 1999, the 1999 Plan was established, under which non-employee
directors may be granted options to purchase up to 50,000 shares of the
Company's Class A common stock. Options granted under the 1999 Plan have
ten-year terms and vest 6 months from the grant date.

      The exercise price of options granted under the 1999 Plan and outstanding
at December 31, 2001 range from $3.00 to $7.19 per share.

      A summary of the 1999 Plan activity, and related information, is as
follows:

      December 31, 2001:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
        beginning of year                       8,000                $6.02
      Options granted                           2,500                 3.00
      Options exercised                            --                   --
      Options forfeited                            --                   --
                                               ------
      Options outstanding
        end of year                            10,500                $5.30
      ==========================================================================

      December 31, 2000:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
        beginning of year                       5,000                $7.19
      Options granted                           3,000                 4.08
      Options exercised                            --                   --
      Options forfeited                            --                   --
                                               ------
      Options outstanding
        end of year                             8,000                $6.02
      ==========================================================================

      December 31, 1999:
      --------------------------------------------------------------------------
                                                Shares         Weighted average
                                                                exercise price
      --------------------------------------------------------------------------
      Options outstanding
        beginning of year                          --                   --
      Options granted                           5,000                $7.19
      Options exercised                            --                   --
      Options forfeited                            --                   --
                                               ------
      Options outstanding
        end of year                             5,000                $7.19
      ==========================================================================

      The weighted average grant date fair value of options granted under the
1999 Plan in 2001, 2000, and 1999 was $1.67, $1.79, and $3.15, respectively.

17. Stockholders' Equity:

      Holders of shares of the Company's Class B common stock are entitled to
two votes per share on all matters submitted to a vote of stockholders other
than certain extraordinary matters. The holders of shares of the


                                       38
<PAGE>

Company's Class A common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders.

      In November 1998, the Board of Directors authorized the Company to
repurchase an additional $5.0 million of the Company's common stock (Class A and
Class B shares) through the open market or through privately negotiated
transactions, bringing the total authorized common share repurchases to $15.0
million. Under the total plan, Congoleum has repurchased shares of its common
stock at an aggregate cost of $14.0 million through December 31, 2001. Shares of
Class B stock repurchased (totaling 741,055 shares) have been retired. As of
December 31, 2001, ABI owned 151,100 Class A shares and 4,395,605 Class B shares
that represented an aggregate 69.5% of the voting interest of the Company.

18. Distributor Transition Costs:

      During the third quarter of 2000, the Company announced the appointment of
Mohawk Industries, Inc. as a national distributor. At the same time, the Company
announced it was terminating its distribution arrangements with LDBrinkman &
Co., who had been its exclusive distributor in much of the southwestern United
States, accounting for 21% of the Company's sales in 1999. LDBrinkman & Co.
contested the Company's right to terminate its distributor agreement and the
matter went to arbitration in the fourth quarter of 2000. The parties signed a
final settlement agreement in February 2001.

      The Company recorded a charge of $7.7 million in the fourth quarter of
2000 to provide for the nonrecurring costs associated with the transition.
Included in this charge were certain costs incurred by the Company for
establishing Mohawk as a distributor, which included training, meetings, and
legal costs. The Company also agreed to subsidize a portion of the costs of
merchandising materials for Mohawk such as samples and displays. Also included
in the charge are certain termination payments to be made to LDBrinkman pursuant
to the terms of the settlement agreement.

      The Company also re-evaluated its allowance for doubtful accounts in light
of the settlement agreement and concluded it should be reduced by $1.8 million,
which was recorded as a credit to bad debt expense in the fourth quarter of
2000.

      The Company provided right-of-return provisions to LDBrinkman in the
termination agreement whereby LDBrinkman could return certain unsold inventory
purchased from the Company that met minimum size and quality requirements. The
Company deferred the recognition of revenue for its estimate of returns of
inventory under this right-of-return agreement. Inventory was returned pursuant
to this agreement during the third quarter of 2001 and the Company has no
further obligations under this provision. The resolution of this matter did not
have a material effect on the results of operations for the year ended December
31, 2001.

      A summary of the distributor transition costs appears below (in 000s):

        -------------------------------------------------------------
        Costs of establishing Mohawk
          as a distributor                                   $3,076
        LDBrinkman termination costs                          4,641
        -------------------------------------------------------------
                                                              7,717
        Impact on gross margin of
          estimated sales returns                             1,291
        -------------------------------------------------------------
        Total reduction in pretax
          income                                              9,008
        Tax effect                                            2,959
        -------------------------------------------------------------
        Total reduction in net income                        $6,049
        =============================================================

      Of the $7.7 million in costs, $4.7 million remained unpaid as of December
31, 2000 and was included in accrued expenses. Accrued expenses and inventory
were increased by the provision for returned goods. These costs have all been
paid as of December 31, 2001.


                                       39
<PAGE>

19. Fair Value of Financial Instruments

      The Company's cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and long-term debt are financial instruments. With
the exception of the Company's long-term debt, the carrying value of these
financial instruments approximates their fair value at December 31, 2001. The
Company's long-term debt had a book value of $99.7 million and the fair market
value of $65.0 million at December 31, 2001. The Company's long-term debt had a
book value of $99.6 million and a fair market value of $50.0 million at December
31, 2000.

      The fair value of the Company's long-term debt is determined based on
quoted market values. The fair value of the Company's other financial
instruments is determined based on discounted cash flows. Due to the short
period over which the cash flows are expected to be realized, the carrying value
of the financial instruments approximates the net present value of cash flows
and changes in interest rate assumptions would not have a material effect on the
calculation.

20. Quarterly Financial Data (Unaudited):

      The following table summarizes unaudited quarterly financial information
(in 000s).

                               Year ended December 31, 2001
                               -------------------------------------------------
                                 First       Second        Third      Fourth
                                Quarter      Quarter      Quarter     Quarter
      --------------------------------------------------------------------------

      Net sales                $ 53,183     $ 55,535     $57,881    $ 56,651
      Gross profit               10,573       14,872      16,250      15,872
      Net income
        (loss)                   (3,677)         155       1,170         712
      Net income
        (loss) per
        common share           $   (.45)    $    .02     $   .14    $    .09
      ==========================================================================

                               Year ended December 31, 2000
                               -------------------------------------------------
                                 First       Second        Third      Fourth
                                Quarter      Quarter      Quarter     Quarter
      --------------------------------------------------------------------------

      Net sales                $ 56,868     $ 55,262     $60,979    $ 51,535
      Gross profit               12,663       12,328      15,509      13,771
      Net income
        (loss)                   (1,934)      (2,203)      1,725      (5,717)(1)
      Net income
        (loss) per
        common share           $   (.23)    $   (.27)    $   .21    $   (.69)
      ==========================================================================

(1) The loss in 2000 includes $6.0 million or $.73 per share for the after-tax
cost of a major distributor change referred to in Note 18 of the Financial
Statements.


                                       40
<PAGE>

                         Report of Independent Auditors

To the Board of Directors
and Stockholders of
Congoleum Corporation:

      We have audited the accompanying consolidated balance sheets of Congoleum
Corporation as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Congoleum
Corporation at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.


                                               /s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 15, 2002


                                       41
<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      Not applicable.

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information called for by these Items (except for the information
regarding executive officers called for by Item 401 of Regulation S-K which is
included in Part I hereof in accordance with General Instruction G(3)), is
hereby incorporated by reference to the Registrant's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held on May 8, 2002.

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

   (a)

      (1)   The following financial statements of the Company are included in
            this report on Form 10-K:

                                                                     Page Number
                                                                     -----------

            Report of Independent Auditors                                41
            Balance Sheets at December 31, 2001 and December 31, 2000     19
            Statements of Operations for each of the three years ended
                    December 31, 2001, 2000 and 1999                      20
            Statements of Changes in Stockholders Equity for each of the
                    three years ended December 31, 2001, 2000 and 1999    21
            Statements of Cash Flows for each of the three years ended
                    December 31, 2001, 2000 and 1999                      22
            Notes to Consolidated financial Statements                    23
            Supplementary Data
                    Quarterly Financial Data (Unaudited)                  40

      (2)   The following financial statement schedule is included in this
            report on Form 10-K:

                                                                     Page Number
                                                                     -----------
            Schedule II - Valuation and Qualifying Accounts               48

            All other schedules are omitted because they are not
            required, inapplicable, or the information is otherwise
            shown in the financial statements or notes thereto.

      (3)   Exhibits

            These exhibits, required to be filed by Item 601 of
            Regulation S-K, are listed in the Exhibit Index included
            in this report at pages 46 through 47.


                                       42
<PAGE>

                                    Exhibits
                                    --------

Number
Exhibit
-------
         2.1   Plan of Repurchase dated as of February 1, 1995 by and among
               American Biltrite Inc., Hillside Industries Incorporated
               ("Hillside"), Congoleum Holdings Incorporated ("Congoleum
               Holdings"), Resilient Holdings Incorporated ("Resilient
               Holdings") and the Company.
         3.1   Certificate of Incorporation of the Company, as amended.
         3.2   Amended and Restated Bylaws of the Company.
         4.4   Registration Rights Agreement, dated as of February 8, 1995 by
               and between the Company and Hillside.
         4.5   Indenture, dated as of August 3, 1998 (the "1998 Indenture"), by
               and between the Company and First Union National Bank, as
               trustee.
         4.6   Loan and Security Agreement, dated December 18, 1998 (the "First
               Union Loan Agreement"), by and between First Union National Bank
               (the "Lender") and the Company.
       4.6.1   Joinder Agreement, dated December 21, 1998 (the "Joinder
               Agreement"), by and among the Company, Congoleum Intellectual
               Properties, Inc., Congoleum Financial Corporation and the Lender.
         4.7   Loan and Security Agreement, dated December 10, 2001 (the
               "Congress Financial Loan Agreement") by and between Congress
               Financial Corp. (the "Lender") and the Company.
        10.8   Joint Venture Agreement, dated as of December 16, 1992, by and
               among Resilient Holdings, Hillside, the Company (collectively,
               the "Congoleum Group"), Hillside Capital Incorporated ("Hillside
               Capital") and American Biltrite.
        10.9   Closing Agreement, dated as of March 11, 1993, by and among the
               Congoleum Group, Hillside Capital and American Biltrite.
       10.12   Stockholders Agreement, dated as of March 11, 1993 (the
               "Stockholders Agreement"), by and among the Congoleum Group,
               American Biltrite and Congoleum Holdings.
     10.12.1   First Amendment, dated February 8, 1995, to the Stockholders
               Agreement, by and among Hillside, American Biltrite and the
               Company.
       10.13   Personal Services Agreement, dated as of March 11, 1993 (the
               "Personal Services Agreement"), by and between American Biltrite
               and the Company.
     10.13.1   First Amendment, dated February 8, 1995, to Personal Services
               Agreement, by and between American Biltrite and the Company.
     10.13.2   Second Amendment, dated November 15, 1996, to Personal Services
               Agreement, by and between American Biltrite and the Company.
     10.13.3   Third Amendment, dated as of March 15, 1998, to Personal Services
               Agreement, by and between American Biltrite and the Company.
       10.14   Business Relations Agreement, dated as of March 11, 1993, by and
               between American Biltrite and the Company.
     10.14.1   First Amendment, dated August 19, 1997, to Business Relations
               Agreement, by and between American Biltrite and the Company.
       10.15   Tax Sharing and Indemnification Agreement, dated as of March 11,
               1993, by and among Congoleum Holdings, Resilient Holdings,
               Hillside Capital and the Company.
     10.15.1   Tax Sharing Agreement, dated as of November 1, 1996, between
               American Biltrite and the Company.
       10.20   Trademark Purchase Agreement, dated November 29, 1993, by and
               between the Company and The Amtico Company LTD ("Amtico
               Company").
       10.21   First Right of Refusal, dated November 29, 1993, by and between
               American Biltrite (Canada) Limited and Amtico Company.
       10.22   Undertaking Concerning Amtico Trademark, dated November 29, 1993,
               by and between American Biltrite and Amtico Company.
       10.23   Form of 1995 Stock Option Plan.
     10.23.1   Form of Amendment to 1995 Stock Option Plan.
       10.24   License Agreement, dated as of September 20, 1995 between
               Congoleum Intellectual Properties, Inc. and the Company.
       10.25   Registration Rights Agreement, dated as of August 3, 1998, by and
               among the Company, Goldman, Sachs & Co., Credit Suisse First
               Boston Corporation and ING Barings Furman Selz LLC.
       10.26   The First Union Loan Agreement (see Exhibit 4.6).
     10.26.1   The Joinder Agreement (see Exhibit 4.6.1).
       10.27   Form of Non-Qualified, Non-Employee Directors Stock Option Plan.
     10.27.1   Form of Amendment to Non-Qualified, Non-Employee Directors Stock
               Option Plan.
       10.28   Loan and Security Agreement, dated December 10, 2001 (the
               "Congress Financial Loan Agreement") by and between Congress
               Financial Corp. (the "Lender") and the Company.
        12.1   Statement Regarding Computation of Ratio of Earnings to Fixed
               Charges.
        21.1   Subsidiaries of the Company.



                                       43
<PAGE>

      23.1     Consent of Independent Auditors, Ernst & Young LLP.

      (b)   Reports on Form 8-K.
            During the quarter ended December 31, 2001 the Company filed no
            current reports on Form 8-K.


                                       44
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 27th day of
March, 2002.

                                  CONGOLEUM CORPORATION

                                  By: /s/
                                      -----------------------------------------

                                  Roger S. Marcus
                                  President, Chairman & Chief Executive Officer
                                  (Principal Executive Officer)

      Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                               Title                                              Date
---------                               -----                                              ----

<S>                                     <C>                                                <C>
/s/                                     President, Chairman, Chief Executive Officer       March 27, 2002
--------------------------              and Director (Principal Executive Officer)
Roger S. Marcus


/s/                                     Chief Financial Officer                            March 27, 2002
--------------------------              (Principal Financial and Accounting Officer)
Howard N. Feist III


/s/                                     Vice Chairman and Director                         March 27, 2002
--------------------------
Richard G. Marcus


/s/                                     Director                                           March 27, 2002
--------------------------
William M. Marcus


/s/                                     Director                                           March 27, 2002
--------------------------
John N. Irwin III


/s/                                     Director                                           March 27, 2002
--------------------------
Cyril C. Baldwin, Jr.


/s/                                     Director                                           March 27, 2002
--------------------------
Mark S. Newman


/s/                                     Director                                           March 27, 2002
--------------------------
Mark N. Kaplan


/s/                                     Director                                           March 27, 2002
--------------------------
C. Barnwell Straut
</TABLE>


                                       45
<PAGE>


                                INDEX TO EXHIBITS

      Exhibit
      Number

                                    Exhibits
                                    --------

            ***2.1 Plan of Repurchase dated as of February 1, 1995 by and among
                   American Biltrite Inc., Hillside Industries Incorporated
                   ("Hillside Industries"), Congoleum Holdings Incorporated
                   ("Congoleum Holdings"), Resilient Holdings Incorporated
                   ("Resilient Holdings") and the Company.
          *****3.1 Certificate of Incorporation of the Company, as amended.
          *****3.2 Amended and Restated Bylaws of the Company.
            ***4.4 Registration Rights Agreement, dated as of February 8, 1995
                   by and between the Company and Hillside.
         ******4.5 Indenture, dated as of August 3, 1998 (the "1998 Indenture"),
                   by and between the Company and First Union National Bank, as
                   trustee.
      *********4.6 Loan and Security Agreement, dated December 18, 1998 (the
                   "First Union Loan Agreement"), by and between First Union
                   National Bank (the "Lender") and the Company.
    ***********4.7 Loan and Security Agreement, dated December 10, 2001 (the
                   "Congress Financial Loan Agreement") by and between Congress
                   Financial Corp. (the "Lender") and the Company.
    *********4.6.1 Joinder Agreement, dated December 21, 1998 (the "Joinder
                   Agreement"), by and among the Company, Congoleum Intellectual
                   Properties, Inc., Congoleum Financial Corporation and the
                   Lender.
            **10.8 Joint Venture Agreement, dated as of December 16, 1992, by
                   and among Resilient Holdings, Hillside, the Company
                   (collectively, the "Congoleum Group"), Hillside Capital
                   Incorporated ("Hillside Capital") and American Biltrite.
            **10.9 Closing Agreement, dated as of March 11, 1993, by and among
                   the Congoleum Group, Hillside Capital and American Biltrite.
           **10.12 Stockholders Agreement, dated as of March 11, 1993 (the
                   "Stockholders Agreement"), by and among the Congoleum Group,
                   American Biltrite and Congoleum Holdings.
        ***10.12.1 First Amendment, dated February 8, 1995, to the Stockholders
                   Agreement, by and among Hillside, American Biltrite and the
                   Company.
           **10.13 Personal Services Agreement, dated as of March 11, 1993 (the
                   "Personal Services Agreement"), by and between American
                   Biltrite and the Company.
        ***10.13.1 First Amendment, dated February 8, 1995, to Personal Services
                   Agreement, by and between American Biltrite and the Company.
    *******10.13.2 Second Amendment, dated November 15, 1996, to Personal
                   Services Agreement, by and between American Biltrite and the
                   Company.
    *******10.13.3 Third Amendment, dated as of March 10, 1998, to Personal
                   Services Agreement, by and between American Biltrite and the
                   Company.
           **10.14 Business Relations Agreement, dated as of March 11, 1993, by
                   and between American Biltrite and the Company.
    *******10.14.1 First Amendment, dated August 19, 1997, to Business
                   Relations Agreement, by and between American Biltrite and the
                   Company.
           **10.15 Tax Sharing and Indemnification Agreement, dated as of March
                   11, 1993, by and among Congoleum Holdings, Resilient
                   Holdings, Hillside Capital and the Company.
    *******10.15.1 Tax Sharing Agreement, dated as of November 1, 1996,
                   between American Biltrite and the Company.
          ***10.20 Trademark Purchase Agreement, dated November 29, 1993, by and
                   between the Company and The Amtico Company LTD ("Amtico
                   Company").


                                       46
<PAGE>

          ***10.21 First Right of Refusal, dated November 29, 1993, by and
                   between American Biltrite (Canada) Limited and Amtico
                   Company.
          ***10.22 Undertaking Concerning Amtico Trademark, dated November 29,
                   1993, by and between American Biltrite and Amtico Company.
          ***10.23 Form of 1995 Stock Option Plan.
   ********10.23.1 Form of Amendment to 1995 Stock Option Plan.
         ****10.24 License Agreement, dated as of September 20, 1995 between
                   Congoleum Intellectual Properties, Inc. and the Company.
       ******10.25 Registration Rights Agreement, dated as of August 3, 1998, by
                   and among the Company, Goldman, Sachs & Co., Credit Suisse
                   First Boston and ING Barings Furman Selz LLC.
    *********10.26 The First Union Loan Agreement (see Exhibit 4.6).
  *********10.26.1 The Joinder Agreement (see Exhibit 4.6.1).
   **********10.27 Form of Non-Qualified, Non-Employee Directors Stock Option
                   Plan.
***********10.27.1 Form of Amendment to Non-Qualified, Non-Employee Directors
                   Stock Option Plan.
  ***********10.28 Loan and Security Agreement, dated December 10, 2001 (the
                   "Congress Financial Loan Agreement") by and between Congress
                   Financial Corp. (the "Lender") and the Company.
              12.1 Statement Regarding Computation of Ratio of Earnings to
                   Fixed Charges.
     *********21.1 Subsidiaries of the Company.
              23.1 Consent of Independent Auditors, Ernst & Young LLP

        ----------
                ** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Registration
                   Statement on Form S-1 (File No. 33-71836) declared
                   effective by the Securities and Exchange Commission on
                   January 25, 1994.
               *** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Registration
                   Statement on Form S-1 (File No. 33-87282) declared
                   effective by the Securities and Exchange Commission on
                   February 1, 1995.
              **** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Annual Report on
                   Form 10-K for the year ended December 31, 1995.
             ***** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Quarterly Report on
                   Form 10-Q for the period ended June 30, 1996.
            ****** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Quarterly Report on
                   Form 10-Q for the period ended June 30, 1998.
           ******* Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Annual Report on
                   Form 10-K for the fiscal period ended December 31, 1997.
          ******** Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Annual Report on
                   Form 10-K for the fiscal period ended December 31, 1996.
         ********* Incorporated by reference to the exhibit bearing the
                   same number filed with the Company's Annual Report on
                   Form 10-K for the fiscal period ended December 31, 1998.
        ********** Incorporated by reference to the exhibit bearing
                   the same number filed with the Company's Registration
                   Statement on Form S-8 (File No. 33-84387) declared
                   effective by the Securities and Exchange Commission on
                   August 3, 1999.
       *********** Incorporated by reference to the exhibit bearing
                   the same number filed with the Company's Annual Report
                   on Form 10-K for the fiscal period ended December 31,
                   2001.


                                       47
<PAGE>

                                                                     SCHEDULE II

                              CONGOLEUM CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                     Balance at     Reversed to                                 Balance
                                     Beginning       Income        Other                         at end
                                     of Period      Statement     Changes     Deductions(a)    of Period
                                     ---------      ---------     -------     -------------    ---------
<S>                                   <C>             <C>         <C>             <C>           <C>
Year ended December 31, 2001:
Allowance for doubtful accounts
and cash discounts                    $(1,934)       $   --       $  67(b)        $  8          $(1,859)

Year ended December 31, 2000:
Allowance for doubtful accounts
and cash discounts                    $(3,283)       $1,785       $(562)(b)       $126          $(1,934)

Year ended December 31, 1999:
Allowance for doubtful accounts
and cash discounts                    $(3,336)       $   --       $  53(b)        $ --          $(3,283)
</TABLE>

(a)   Balances written off, net of recoveries.
(b)   Represents net provision (utilization) of the allowance for doubtful
      accounts and cash discounts.


                                       48