Roger S. Marcus, Chairman of the Board, commented "First quarter sales grew from 2004 to 2005 due to higher selling prices coupled with increased unit volume. Unit volume improved through growth in builder products and upper end residential tile, partly offset by declines in sales of do-it-yourself tile through home centers. Selling price increases we instituted in 2004 and early 2005 to pass along raw material cost increases accounted for just over 7percent of the total sales growth.
"Unfortunately, the rampant inflation in the cost of raw materials, particularly resins, amounted to more than eight points in gross margin versus the first quarter of last year, significantly more than what we passed along in our pricing. We continue to improve manufacturing efficiency and control operating expenses. However, the combined effect of these improvements, our higher unit volume, and increases in selling prices, merely offset the surge in raw material prices. We had hoped the raw material cost inflation would moderate, but it has not abated."
"As we indicated last month, we continue to make positive progress with our reorganization. We reached an agreement in principle with representatives of the Asbestos Claimants' Committee and the Future Claimants' Representative to make certain modifications to our proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Our attorneys are preparing an amended plan and disclosure statement which we expect to submit to the court in the near future. We remain committed to overcoming the inevitable challenges, getting a plan confirmed, and putting the financial and management burden of our asbestos liabilities behind us."
