INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED
ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 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. (X)YES ( )NO
AS OF MARCH 17, 1996, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NON-AFFILIATES WAS $4,092,360.
AS OF MARCH 17, 1996, THERE WERE 377,451 SHARES OF COMMON
STOCK, $.20 PAR VALUE, OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
HOMASOTE COMPANY 1995 ANNUAL REPORT TO STOCKHOLDERS (PARTS II
AND IV).
PROXY STATEMENT DATED MARCH 15, 1996 (PART III).
INDEX TO FORM 10-K
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(C) NARRATIVE DESCRIPTION OF BUSINESS
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS, AND EXPORT SALES
ITEM 2. PROPERTIES
ITEM 3 LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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
ITEM IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS
(A) GENERAL BUSINESS DEVELOPMENT
HOMASOTE COMPANY IS IN THE BUSINESS OF MANUFACTURING
INSULATED WOOD FIBRE BOARD AND POLYISOCYANURATE FOAM
PRODUCTS.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
THE COMPANY OPERATES IN ONLY ONE INDUSTRY SEGMENT,
THE MANUFACTURE AND SALE OF RIGID POLYISOCYANURATE
AND STRUCTURAL INSULATING BUILDING MATERIALS AND
PACKAGING PRODUCTS FOR INDUSTRIAL CUSTOMERS.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(I) PRINCIPAL PRODUCTS AND SERVICES
THE PRINCIPAL PRODUCT OF THE REGISTRANT IS
"HOMASOTE" INSULATING AND BUILDING BOARD
MANUFACTURED IN VARIOUS THICKNESSES, SIZES AND
FINISHES. THE BASIC RAW MATERIAL IS WOOD FIBRE
OBTAINED FROM RECONVERTING CLEAN, FLAT FOLDED
NEWSPAPERS. IT IS COMBINED WITH VARIOUS
CHEMICALS TO PRODUCE RIGID, SIDEWALL AND
ROOFING INSULATION IN VARIOUS SHEET SIZES AND
THICKNESSES. THIS PRODUCT HAS NO ASBESTOS AND
NO UREAFORMALDEHYDE ADDITIVES.
THE PRINCIPAL MARKETS FOR THE REGISTRANTS
PRODUCTS ARE BUILDING MATERIAL WHOLESALERS AND
CONTRACTORS AND INDUSTRIAL MANUFACTURERS.
PRODUCTS ARE DISTRIBUTED THROUGH WHOLESALERS OF
BUILDING MATERIALS AND INDUSTRIAL MANUFACTURERS.
THE REGISTRANT IS BROADENING ITS COVERAGE IN THE
AUTOMOTIVE, GLASS AND STEEL MARKETS.
(II) PRODUCT IMPROVEMENTS AND NEW APPLICATIONS
NEW CONCEPTS FOR MACHINING HOMASOTE AND FORMULATING
PRODUCTS ARE OPENING AVENUES IN THE CUSTOMER
BASE.
(III) RAW MATERIALS
THE COMPANY'S PRIMARY RAW MATERIAL, WASTEPAPER, IS
GENERALLY READILY AVAILABLE FROM TWO SUPPLIERS WITH
WHICH THE COMPANY HAS PURCHASE CONTRACTS THAT EXPIRE
IN 2009.
(IV) PATENTS
THERE ARE NO PATENTS, LICENSES, FRANCHISES OR
CONCESSIONS IMPORTANT TO THE CONDUCT OF THE BUSINESS
OF THE REGISTRANT OR ITS SUBSIDIARY.
(V) SEASONAL BUSINESS
NO MATERIAL PORTION OF THE BUSINESS OF THE
REGISTRANT IS SEASONAL.
(VI) WORKING CAPITAL REQUIREMENTS
THE REGISTRANT BELIEVES THAT ITS OPERATION DOES NOT
REQUIRE ANY UNUSUAL WORKING CAPITAL NEEDS.
AVAILABLE CREDIT FACILITIES AND CASH GENERATED FROM
OPERATIONS ARE SUFFICIENT TO MEET WORKING CAPITAL
REQUIREMENTS.
(VII) MATERIAL CUSTOMERS
DURING THE CALENDAR YEAR ENDED DECEMBER 31, 1995, NO
CUSTOMER OF THE REGISTRANT ACCOUNTED FOR SALES OF 5%
OR MORE.
(VIII) BACKLOG
BACKLOG IS NOT MEANINGFUL SINCE MOST CUSTOMERS ORDER
FOR IMMEDIATE AND PROMPT DELIVERY AND ONLY A FEW FOR
SEVERAL WEEKS' SCHEDULED DELIVERIES.
(IX) GOVERNMENT CONTRACTS
NO MATERIAL PORTION OF THE REGISTRANT'S BUSINESS IS
SUBJECT TO RENEGOTIATION OF PROFITS OR TO
TERMINATION OF CONTRACTS BY THE GOVERNMENT.
(X) COMPETITIVE CONDITIONS
IN EXPLAINING THE HOMASOTE COMPANY'S COMPETITIVE
POSITION, IT MUST BE UNDERSTOOD THAT HOMASOTE IS A
MEDIUM DENSITY BOARD - NOT A HARD NOR A SOFT BOARD.
IT CAN BE USED IN THE INTERIOR OR EXTERIOR OF A
HOME. IT IS AN ALL-PURPOSE BOARD AND IS SOLD IN
THAT MANNER. IT TAKES THE PLACE OF PLYWOOD IN MANY
CASES. THE COMPANY'S PRODUCT IS SOLD TO MANY
CUSTOMERS WHERE THEY CAN TAKE ADVANTAGE OF THE
UNIQUE QUALITIES OF THE PRODUCT.
(XI) RESEARCH AND DEVELOPMENT
THE REGISTRANT DEFINES RESEARCH AS THE
EXPERIMENTATION WITH RESPECT TO NEW PRODUCTS OR
DESIGNS. IT DEFINES QUALITY CONTROL AS THE ONGOING
SUPPORT FOR EXISTING PRODUCTS OR DESIGNS. DURING
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NO
AMOUNTS WERE SPENT ON RESEARCH AND DEVELOPMENT.
DURING THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993 THE REGISTRANT INCURRED QUALITY CONTROL COSTS
OF $84,448, $61,073 AND $ 63,782, RESPECTIVELY.
(XII) ENVIRONMENTAL PROTECTION
AS OF DECEMBER 31, 1995, COMPLIANCE WITH FEDERAL,
STATE AND LOCAL PROVISIONS WHICH HAVE BEEN ENACTED
OR ADOPTED TO REGULATE THE PROTECTION OF THE
ENVIRONMENT WILL NOT HAVE A MATERIAL EFFECT UPON THE
CAPITAL EXPENDITURES, EARNINGS OR COMPETITIVE
POSITION OF THE REGISTRANT OR ITS SUBSIDIARY. THE
REGISTRANT DOES NOT EXPECT TO MAKE ANY MATERIAL
CAPITAL EXPENDITURES FOR ENVIRONMENTAL CONTROL
FACILITIES FOR ITS CURRENT FISCAL YEAR.
(XIII) NUMBER OF EMPLOYEES
AS OF DECEMBER 31, 1995, THE REGISTRANT EMPLOYED 212
EMPLOYEES, AS COMPARED TO 233 IN 1994.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
FOREIGN SALES, PRIMARILY IN CANADA, ACCOUNTED FOR
APPROXIMATELY 5%, FOR THE YEAR ENDED DECEMBER 31, 1995,
AND APPROXIMATELY 4% FOR EACH OF THE TWO YEARS ENDED
DECEMBER 31, 1994 AND 1993, RESPECTIVELY, OF THE
REGISTRANT'S TOTAL SALES. THE REGISTRANT IS CONTINUING
ITS EFFORTS TO EXPAND SALES WORLDWIDE.
ITEM 2. PROPERTIES
THE REGISTRANT'S PLANT AND MAIN OFFICES ARE LOCATED OFF
LOWER FERRY ROAD, EWING TOWNSHIP, TRENTON, NEW JERSEY.
THE PROPERTY CONSISTS OF APPROXIMATELY 27 ACRES WITH
PRIVATE RAILROAD SIDING (CONSOLIDATED RAIL CORPORATION)
ENTERING THE SHIPPING AREA. BUILDINGS ARE OF CINDER
BLOCK AND BRICK CONSTRUCTION, WITH A FLOOR AREA OF
APPROXIMATELY 531,000 SQUARE FEET, WHICH ARE PROPERLY
ARRANGED FOR THE MANUFACTURE AND FINISHING OF ALL THE
REGISTRANT'S PRODUCTS. THE WHOLE AREA IS PROTECTED WITH
A COMPLETE ENCLOSURE OF CYCLONE FENCING AND GUARD HOUSE.
THE ENTIRE MANUFACTURING OPERATION AND OFFICE COMPLEX
CONTAINS FIRE SPRINKLERS AND IS MONITORED BY A SECURITY
COMPANY FOR FIRE PROTECTION. ALL PROPERTY IS HELD IN FEE
SIMPLE. THE MANUFACTURING OPERATION RUNS TWO SHIFTS,
FIVE DAYS A WEEK. OPERATIONAL CAPACITY IS 75% TO 80% AND
IS DEPENDENT DIRECTLY UPON THE ECONOMIC CONDITION OF THE
HOUSING AND MANUFACTURING INDUSTRIES.
ITEM 3. LEGAL PROCEEDINGS
AS OF DECEMBER 31, 1995, THERE WERE NO MATERIAL PENDING
LITIGATION AGAINST THE REGISTRANT.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
THIS INFORMATION IS INCLUDED IN THE HOMASOTE COMPANY 1995
ANNUAL REPORT TO STOCKHOLDERS. SEE THE TWO YEAR DIVIDEND
AND STOCK PRICE COMPARISON SECTION OF SUCH REPORT
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 6. SELECTED FINANCIAL DATA
SEE CONSOLIDATED FIVE YEAR HIGHLIGHTS SECTION OF THE
HOMASOTE COMPANY 1995 ANNUAL REPORT TO STOCKHOLDERS
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEE MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION OF THE
HOMASOTE COMPANY 1995 ANNUAL REPORT TO STOCKHOLDERS
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS OF THE HOMASOTE COMPANY
1995 ANNUAL REPORT TO STOCKHOLDERS INCORPORATED
HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) DIRECTORS
A DEFINITIVE PROXY STATEMENT DATED MARCH 15, 1996, WAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
INCLUDING THE INFORMATION REQUIRED BY THESE ITEMS.
(B) EXECUTIVE OFFICERS
EXPERIENCE
STARTED IN YEARS
IN AT
NAME TITLE (6) POSITION POSITION AGE
- ------------------ --------- -------- -------- ---
IRVING FLICKER CHAIRMAN OF
(1) THE BOARD AND
CHIEF EXECUTIVE
OFFICER 2/16/72 24 80
SHANLEY E. FLICKER VICE CHAIRMAN
(1) OF THE BOARD 1/01/95 1 78
WARREN L FLICKER PRESIDENT AND
(2) CHIEF OPERATING
OFFICER 1/01/95 1 52
JOSEPH A BRONSARD EXECUTIVE VICE
(3) PRESIDENT 1/01/95 1 62
NEIL F BACON TREASURER 4/14/88 8 39
(4) CHIEF FINANCIAL
AND ACCOUNTING
OFFICER 3/14/88 8
ASSISTANT
SECRETARY 4/14/88 8
CINDY ADLER SECRETARY 4/21/95 1 39
(5)
(1) IRVING FLICKER AND SHANLEY FLICKER ARE BROTHERS.
(2) WARREN FLICKER IS THE SON OF IRVING FLICKER.
(3) EMPLOYED BY THE COMPANY SINCE 1968.
(4) EMPLOYED BY THE COMPANY SINCE 1979.
(5) EMPLOYED BY THE COMPANY SINCE 1988.
(6) THE OFFICERS MENTIONED ABOVE ARE RE-ELECTED EACH YEAR BY
THE BOARD OF DIRECTORS AT THEIR ANNUAL MEETING.
ITEM 11. EXECUTIVE COMPENSATION
A DEFINITIVE PROXY STATEMENT DATED MARCH 15, 1996, WAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
INCLUDING THE INFORMATION REQUIRED BY THIS ITEM.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A DEFINITIVE PROXY STATEMENT DATED MARCH 15, 1996, WAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
INCLUDING THE INFORMATION REQUIRED BY THIS ITEM.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A DEFINITIVE PROXY STATEMENT DATED MARCH 15, 1996, WAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
INCLUDING THE INFORMATION REQUIRED BY THIS ITEM.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) (1) FINANCIAL STATEMENTS INCORPORATED HEREIN BY
REFERENCE AS EXHIBIT 13.
INDEPENDENT AUDITORS' REPORT INCORPORATED HEREIN BY
REFERENCE AS EXHIBIT 13.
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1995 AND
1994 INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
13.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS - YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993 INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
13.
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 INCORPORATED
HEREIN BY REFERENCE AS EXHIBIT 13.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
(2) FINANCIAL STATEMENT SCHEDULES
NONE REQUIRED
(3) EXHIBITS
3 ARTICLES OF INCORPORATION AND BYLAWS *
13 HOMASOTE COMPANY 1995 ANNUAL REPORT TO
STOCKHOLDERS
(B) REPORT ON FORM 8-K
NO REPORTS ON FORM 8-K WERE FILED IN THE THREE
MONTHS ENDED DECEMBER 31, 1995.
*PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
HOMASOTE COMPANY
DATED: MARCH 29, 1996 BY IRVING FLICKER
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE
ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES ON THE
DATE INDICATED.
IRVING FLICKER CHAIRMAN, DIRECTOR MARCH 29, 1996
& CEO
NEIL F. BACON TREASURER MARCH 29, 1996
SHANLEY E. FLICKER DIRECTOR MARCH 29, 1996
WARREN FLICKER DIRECTOR MARCH 29, 1996
PATIENCE O. BANISTER DIRECTOR MARCH 29, 1996
JOSEPH A. BRONSARD DIRECTOR MARCH 29, 1996
MICHAEL FLICKER DIRECTOR MARCH 29, 1996
PETER N. OUTERBRIDGE DIRECTOR MARCH 29, 1996
LETTER TO SHAREHOLDERS AND EMPLOYEES
The beginning of 1995 showed active sales conditions that were
substantially ahead of 1994, which were partially the result of the
trade shows that we had attended and exhibited.
Our net income followed this trend during these early months
of 1995. The primary factor in a leveling off of later months
during this year was essentially due to the increased cost of our
raw materials, including wastepaper. These costs spiraled such
that not only were they reflected in our net income, but also
hampered our ability, at certain times, to obtain sufficient
wastepaper due to exportation and a greater volume demanded by new
facilities coming on stream and general business conditions.
The reversal of our net income began occurring in April and
net income values were erratic throughout the balance of the year.
With all of these prevailing conditions, the Company fared
reasonably well.
As is Homasote's policy, our Company is constantly researching
new methods seeking to reduce costs and increase productivity. A
major change was resolved when our studies indicated that it
behooves our Company to change its method of processing our
product.
After a long period of intense searching and with the
recommendation of machine manufacturers, we placed an order in
November for a new dryer which uses a different and less expensive
energy source than currently being used.
Concurrent with all this, we received approvals from the EPA
and DEP. We are told that the new dryer will be shipped and put in
the appropriate layout eighteen months from the time we placed the
order. Some complexities arise that involve a number of ancillary
pieces of equipment. However, all of these are readily
surmountable. This new dryer will be positioned in our factory
where some of our current dryers are which means a substantial
amount of existing equipment will have to be removed and sections
of our existing equipment will be required to be integrated into
the layout of the new dryer.
It is a monumental task, and we will be required to complete
its installation and shakedown period without affecting our
productivity.
Net earnings for the year after providing $525,810 for income
taxes were $786,100 equal to $2.05 per share. Dividends were paid
at a rate of $.58 per share.
Sales for 1995 were $25,536,461, a decrease from $25,698,178
in 1994.
Homasote Company purchased an additional 13,505 shares (net of
shares sold) of Homasote common stock for our Treasury. Net
working capital was $6,503,700, a decrease of $599,168 from last
year.
Retired: Ms. Irene T. Graham, Ms. Lois H. Miller, Mr. P.
Daniel Petrino, Mr. Robert H. Tettemer, and Mr. Allen V. Vandegrift
III.
Irving Flicker Shanley E. Flicker
Chairman of the Board Vice Chairman
and Chief Executive Officer of the Board
<TABLE>
Homasote Comapany and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1995
----------<S>
<C>
Net sales $ 25,536,461
Depreciation $ 532,895
Earnings before cumulative effect
of changes in accounting principles $ 786,100
Cumulative effect of changes in
accounting principles -
Net earnings (loss) $ 786,100
Weighted average number of common
shares outstanding 383,756
Earnings per share, before cumulative effect
of changes in accounting principles $ 2.05
Per share, cumulative effect of changes in
accounting principles -
Earnings (loss) per share $ 2.05
Dividends-cash $ 221,087
Dividends per share $ . 58
Working capital $ 6,503,700
Working capital ratio 4.4-1
Capital expenditures $ 886,221
Total assets $ 15,302,966
Long-term debt $ -
Stockholders' equity $ 8,424,834
Common shares outstanding 377,451
Book value common stock $ 22.32
</TABLE>
<TABLE>
Homasote Comapany and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1994
----------
<S> <C>
Net sales $ 25,698,178
Depreciation $ 479,977
Earnings before cumulative effect
of changes in accounting principles $ 1,227,226
Cumulative effect of changes in
accounting principles -
Net earnings (loss) $ 1,227,226
Weighted average number of common
shares outstanding $ 400,403
Earnings per share, before cumulative effect
of changes in accounting principles $ 3.06
Per share, cumulative effect of changes in
accounting principles -
Earnings (loss) per share $ 3.06
Dividends-cash $ 199,457
Dividends per share $ .50
Working capital $ 7,102,868
Working capital ratio 4.7-1
Capital expenditures $ 189,993
Total assets $ 15,501,034
Long-term debt $ 775,000
Stockholders' equity $ 8,099,981
Common shares outstanding 390,956
Book value common stock $ 20.72
</TABLE>
<TABLE>
Homasote Comapany and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1993
----------
<S> <C>
Net sales $ 23,850,504
Depreciation $ 474,863
Earnings before cumulative effect
of changes in accounting principles $ 475,702
Cumulative effect of changes in
accounting principles $ 2,299,730
Net earnings (loss) $ (1,824,028)
Weighted average number of common
shares outstanding 426,248
Earnings per share, before cumulative effect
of changes in accounting principles $ 1.12
Per share, cumulative effect of changes in
accounting principles $ (5.40)
Earnings (loss) per share $ (4.28)
Dividends-cash $ 211,610
Dividends per share $ .50
Working capital $ 6,254,861
Working capital ratio 6.6-1
Capital expenditures $ 250,049
Total assets $ 14,253,593
Long-term debt $ 932,158
Stockholders' equity $ 7,389,904
Common shares outstanding 411,874
Book value common stock $ 17.94
</TABLE>
<TABLE>
Homasote Comapany and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1992
----------
<S> <C>
Net sales $ 23,482,259
Depreciation $ 520,917
Earnings before cumulative effect
of changes in accounting principles $ 340,749
Cumulative effect of changes in
accounting principles -
Net earnings (loss) $ 340,749
Weighted average number of common
shares outstanding 443,668
Earnings per share, before cumulative effect
of changes in accounting principles $ 0.77
Per share, cumulative effect of changes in
accounting principles -
Earnings (loss) per share $ 0.77
Dividends-cash $ 21,949
Dividends per share $ 0.05
Working capital $ 6,159,325
Working capital ratio 5.3-1
Capital expenditures $ 506,273
Total assets $ 14,605,649
Long-term debt $ 1,123,591
Stockholders' equity $ 9,832,332
Common shares outstanding 438,810
Book value common stock $ 22.41
</TABLE>
<TABLE>
Homasote Comapany and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1991
----------
<S> <C>
Net sales $ 23,492,934
Depreciation $ 682,185
Earnings before cumulative effect
of changes in accounting principles $ 7,157
Cumulative effect of changes in
accounting principles -
Net earnings (loss) $ 7,157
Weighted average number of common
shares outstanding 484,502
Earnings per share, before cumulative effect
of changes in accounting principles $ 0.01
Per share, cumulative effect of changes in
accounting principles -
Earnings (loss) per share $ 0.01
Dividends-cash $ 49,010
Dividends per share $ 0.10
Working capital $ 5,227,041
Working capital ratio 4.3-1
Capital expenditures $ 102,826
Total assets $ 14,179,159
Long-term debt $ 587,617
Stockholders' equity $ 9,630,020
Common shares outstanding 446,791
Book value common stock $ 21.55
</TABLE>
<TABLE>
TWO YEAR DIVIDEND COMPARISON
<CAPTION>
CASH DIVIDENDS
Quarterly cash dividends for the last two years were as follows:
Quarter 1995 1994
---- ----
<S> <C> <C>
First $ 0.10 $ 0.10
Second 0.12 0.10
Third 0.12 0.10
Fourth 0.24 0.20
---- ----
$ 0.58 $ 0.50
</TABLE>
<TABLE>
TWO YEAR STOCK PRICE COMPARISON
<CAPTION>
STOCK PRICES
Stock prices for the last two years were as follows:
Quarter 1995 1994
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
First $ 16.25 $ 14.00 $ 16.00 $ 14.00
Second $ 20.25 $ 16.25 $ 15.25 $ 14.50
Third $ 21.38 $ 19.50 $ 16.00 $ 14.75
Fourth $ 22.00 $ 19.00 $ 15.75 $ 14.88
Number of Stockholders at December 31, 1995 and 1994 is 304 and
323, respectively.
</TABLE>
PROFILE
Homasote Company manufacturers building and industrial products
used in various construction and manufacturing industries.
Homasote International Sales Co., Inc. is an export company.
<TABLE>
Results of Operations
<CAPTION>
Consolidated Statements of Operations and Retained Earnings
Years ended December 31
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 25,536,461 $ 25,698,178 $ 23,850,504
COST OF SALES 18,870,545 18,392,008 17,914,018
---------- ---------- ----------
GROSS PROFIT 6,665,916 7,306,170 5,936,486
SG&A EXPENSES 5,465,568 5,333,043 5,106,222
--------- ---------- ----------
OPERATING INCOME 1,200,348 1,973,127 830,264
OTHER INCOME(EXPENSE)
GAIN ON SALE OF ASSETS 4,300 3,575 17,462
INTEREST INCOME 115,969 87,648 34,958
INTEREST EXPENSE (NOTE 4) (85,472) (76,610) (79,088)
OTHER INCOME 76,765 2,738 796
---------- ---------- ----------
111,562 17,351 (25,872)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
PRINCIPLES 1,311,910 1,990,478 804,392
INCOME TAX EXPENSE (NOTE 5) 525,810 763,252 328,690
---------- ---------- ----------
EARNINGS BEFORE CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 786,100 1,227,226 475,702
CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES
(NOTES 5 AND 6) - - (2,299,730)
---------- ---------- ----------
NET EARNINGS (LOSS) 786,100 1,227,226 (1,824,028)
RETAINED EARNINGS AT BEGINNING
OF YEAR LESS CASH DIVIDENDS
PAID ($.58 PER SHARE IN 1995
AND $.50 PER SHARE IN 1994
AND 1993) 13,842,541 12,814,772 14,850,410
LESS: CASH
DIVIDENDS PAID (221,087) (199,457) (211,610)
---------- ---------- ----------
RETAINED EARNINGS
AT END OF YEAR $ 14,407,554 $ 13,842,541 $ 12,814,772
========== ========== ==========
EARNINGS PER COMMON SHARE,
BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
PRINCIPLES 2.05 3.06 1.12
LOSS PER COMMON SHARE,
CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES - - (5.40)
---------- ---------- ----------
EARNINGS (LOSS) PER
COMMON SHARE $ 2.05 $ 3.06 $ (4.28)
========== ========== ==========
COMMON SHARES OUTSTANDING
(WEIGHTED AVERAGE) 383,756 400,403 426,248
========== ========== ==========
SEE ACCOMPANYING NOTE TO CONSOLIDATED STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 2,329,027 $ 3,385,630
ACCOUNTS RECEIVABLE (NET
OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $45,733 AND
$62,444 IN 1995 AND 1994,
RESPECTIVELY) 1,649,357 1,658,266
INVENTORIES (NOTE 2) 3,757,432 3,637,167
PREPAID INCOME TAXES 294,291 -
DEFERRED INCOME
TAXES (NOTE 5) 99,623 127,352
PREPAID EXPENSES AND
OTHER CURRENT ASSETS 295,917 237,136
------------ -----------
TOTAL CURRENT ASSETS $ 8,425,647 $ 9,045,551
------------ -----------PROPERTY, PLANT AND
EQUIPMENT, AT COST
(NOTES 3 AND 4) 30,215,369 29,406,435
LESS ACCUMULATED
DEPRECIATION 24,520,285 24,064,677
------------ -----------
NET PROPERTY PLANT AND
EQUIPMENT AT COST
(NOTES 3 AND 4) 5,695,084 5,341,758
DEFERRED INCOME
TAXES (NOTE 5) 103,440 99,171
OTHER ASSETS (NOTE 6) 1,078,795 1,014,554
------------ -----------
$ 15,302,966 $ 15,501,034
============ ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
CURRENT INSTALLMENTS OF
LONG-TERM DEBT (NOTE 4 $ 775,000 $ 153,591
ACCOUNTS PAYABLE 727,306 644,995
ACCRUED INCOME TAXES - 588,75
ACCRUED EXPENSES (NOTE 7) 419,641 555,346
------------ -----------
TOTAL CURRENT LIABILITIES $ 1,921,947 $ 1,942,683
LONG-TERM DEBT, EXCLUDING
CURRENT INSTALLMENTS (NOTE 4) - 775,000
OTHER LIABILITIES 4,956,185 4,683,370
------------ -----------
TOTAL LIABILITIES (NOTE 6) 6,878,132 7,401,053
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.20
PER SHARE.
AUTHORIZED 1,500,000
SHARES; ISSUED 863,995 SHARES 172,799 172,799
ADDITIONAL PAID IN CAPITAL 898,036 898,036
RETAINED EARNINGS 14,407,554 13,842,541
------------ -----------
15,478,389 14,913,376
LESS COST OF COMMON SHARES
TREASURY-486,544 SHARES
IN 1995 AND 473,039 SHARES
IN 1994 (NOTE 8) 7,053,555 6,813,395
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 8,424,834 8,099,981
------------ -----------
TOTAL $ 15,302,966 $ 15,501,034
============ ===========
COMMITMENTS (NOTE 11)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET EARNINGS (LOSS) $ 786,100 $ 1,227,226 $(1,824,028)
ADJUSTMENTS TO RECONCILE
NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 532,895 479,977 474,863
GAIN ON DISPOSITION OF FIXED
ASSETS (4,300) (3,575) (14,242)
CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES - - 2,299,730
DEFERRED INCOME TAXES 23,460 (202,145) (24,378)
CHANGES IN ASSETS AND
LIABILITIES:
DECREASE (INCREASE) IN
ACCOUNTS RECEIVABLE, NET 8,909 (145,389) 285,250
(INCREASE) DECREASE IN
INVENTORIES (120,265) (170,528) 237,354
INCREASE IN PREPAID
INCOME TAXES (294,291) - (24,067)
INCREASE IN OTHER ASSETS (64,241) (98,438) (115,089)
(INCREASE) DECREASE IN PREPAID
EXPENSES AND OTHER CURRENT
ASSETS (58,781) 5,635 38,144
INCREASE IN ACCOUNTS PAYABLE 82,311 95,021 154,973
(DECREASE) INCREASE IN ACCRUED
EXPENSES (135,705) 216,460 (24,766)
(DECREASE) INCREASE IN ACCRUED
INCOME TAXES (588,751) 555,367 33,384
INCREASE IN OTHER LIABILITIES 272,815 262,807 315,218
---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 440,156 2,222,418 1,812,346
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
PROCEEDS FROM SALE OF
EQUIPMENT 4,300 3,575 15,250
ADDITIONS TO PLANT AND
EQUIPMENT (886,221) (189,993) (250,049)
---------- ---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (881,921) (186,418) (234,799)
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
REPAYMENT OF SHORT-TERM DEBT (3,591) - -
REPAYMENTS OF LONG-TERM DEBT (150,000) (195,000) (664,026)
CASH DIVIDENDS PAID (221,087) (199,457) (211,610)
PROCEEDS FROM SALE OF
TREASURY STOCK 3,925 7,425 1,425
PURCHASE OF TREASURY
STOCK (244,085) (325,117) (408,215)
---------- ---------- ----------NET CASH USED IN
FINANCING ACTIVITIES: (614,838) (712,149) (1,282,426)
---------- ---------- ----------NET (DECREASE)
INCREASE IN
CASH AND CASH EQUIVALENTS (1,056,603) 1,323,851 295,121
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,385,630 2,061,779 1,766,658
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,329,027 $ 3,385,630 $ 2,061,779
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
CASH PAID DURING THE YEARS FOR:
INTEREST $ 78,855 $ 76,610 $ 79,000
---------- ---------- ----------
INCOME TAXES $ 1,385,330 $ 426,152 $ 352,000
---------- ---------- ----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Homasote Company is in the business
of manufacturing insulated wood fibre board and polyisocyanurate
foam products, and operates in only one industry segment, the
manufacture and sale of rigid polyisocyanurate and structural
insulating building materials and packaging products for industrial
customers. Sales were distributed for 1995 and 1994 as follows:
building material wholesalers and contractors - 77% and industrial
manufacturers - 23%. The Company's primary basic raw material,
wastepaper, is generally readily available from two suppliers with
which the Company has purchase contracts that expire in 2009. (See
note 11)
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiary, Homasote International Sales Co., Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS: The Company considers all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
INVENTORY VALUATION COST: Inventories are valued at the lower
of weighted average actual cost, which approximates first-in,
first-out (FIFO), or market.
DEPRECIATION: Depreciation of plant and equipment is computed
using the straight-line and various accelerated methods at rates
adequate to depreciate the cost of applicable assets over their
expected useful lives. Maintenance and repairs are charged to
operations as incurred and major improvements are capitalized. The
cost of assets retired or otherwise disposed of and the accumulated
depreciation thereon are removed from the accounts with any gain or
loss realized upon sale or disposal charged or credited to
operations.
REVENUE RECOGNITION: Revenue from product sales is recognized
when the related goods are shipped and all significant obligations
of the Company have been satisfied.
EARNINGS PER SHARE: Earnings per share are computed based on
the weighted average number of shares outstanding during the year.
BUSINESS AND CREDIT CONCENTRATIONS: Sales of the Company's
products are dependent upon the economic condition of the housing
and manufacturing industries. Changes in these industries may
significantly affect management's estimates and the Company's
performance. The majority of the Company's customers are located
in the northeastern United States and Canada, with the remainder
spread throughout the United States. No single customer accounted
for more than five percent of the Company's sales. The Company
estimates an allowance for doubtful accounts based upon the actual
payment history of each individual customer. Consequently, an
adverse change in the financial condition or the local economy of
a particular customer could affect the Company's estimate of its
bad debts.
EMPLOYEE BENEFIT PLANS: The Company has a noncontributory
pension plan covering substantially all employees who meet age and
service requirements. Additionally, the Company provides certain
health care and life insurance benefits to retired employees. In
1993, the Company adopted Statement of Financial Accounting
Standards No. 106 (FAS 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions" and has reported the
cumulative effect of that change in the method of accounting for
postretirement benefits other than pensions in the 1993 statement
of operations.
INCOME TAXES: Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, (FAS 109)
"Accounting for Income Taxes" and has reported the cumulative
effect of that change in the method of accounting for income taxes
in the 1993 statement of operations. Accordingly, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under FAS
109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes
the enactment date. Pursuant to the deferred method under APB
Opinion 11, which was applied prior to 1993, deferred income taxes
are recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rates applicable for the year of the
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in the tax rates.
RECLASSIFICATIONS: Certain amounts contained in the 1993
consolidated financial statements have been reclassified to conform
to the 1994 and 1995 presentations.
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVENTORIES
<TABLE>
<CAPTION>
The following are the major classes of inventories as of
December 31, 1995 and 1994:
1995 1994
--------- ---------
<S> <C> <C>
Finished goods $ 2,800,550 $ 2,834,659
Work in process 14,051 38,740
Raw materials 942,831 763,768
--------- ---------
$ 3,757,432 $ 3,637,167
========= =========
Inventories include the cost of materials, direct labor and
manufacturing overhead.
</TABLE>
<TABLE>
<CAPTION>
NOTE 3-PROPERTY, PLANT AND EQUIPMENT
December 31, 1995
--------------------------------------
Accumulated Carrying
Cost Depreciation Amount
---------- ---------- ---------
<S> <C> <C> <C>
Land $ 93,543 $ - $ 93,543
Buildings and additions 8,934,264 4,616,430 4,317,834
Machinery and equipment 19,805,566 18,773,320 1,032,246
Office equipment 981,175 807,186 173,989
Automotive equipment 400,821 323,349 77,472
---------- ---------- ---------
$ 30,215,369 $ 24,520,285 $ 5,695,084
========== ========== =========
December 31, 1994
--------------------------------------
Accumulated Carrying
Cost Depreciation Amount
---------- ---------- ---------
Land $ 93,543 $ - $ 93,543
Buildings and additions 8,934,264 4,409,366 4,524,898
Machinery and equipment 19,153,361 18,527,015 626,346
Office equipment 808,218 767,823 40,395
Automotive equipment 417,049 360,473 56,576
---------- ---------- ---------
$ 29,406,435 $ 24,064,677 $ 5,341,758
========== ========== =========
</TABLE>
Estimated useful lives and depreciation methods are as follows:
Estimated Predominate
useful lives methods in use
------------ --------------
Buildings and additions 10-50 years Straight-line
Machinery and equipment 5-20 years Sum-of-the years digits
Office equipment 10 years Sum-of-the years digits
Automotive equipment 3-5 years Declining balance
NOTE 4-DEBT
The Company had an agreement with the New Jersey Economic
Development Authority covering indebtedness in the original amount
of $300,000. The loan was collateralized by machinery and
equipment used in production. Interest on this loan was at a rate
of 6% per annum and repayable in equal monthly installments of
principal and interest of $3,602. The final installment was paid
on February 15, 1995.
On February 11, 1992, the Company refinanced $1,000,000 of
existing debt and borrowed an additional $700,000 bearing interest
at the bank's index rate plus .25% (8.75% at December 31, 1995).
Repayment terms were $500,000 due on February 11, 1993 with the
balance due in monthly installments of $12,500 beginning in March
1993 through February 1996, at which time the balance of the loan
was due. The final payment of $762,500 under this loan arrangement
was paid on February 12, 1996.
On February 20, 1996, the Company entered into a $2.0 million
unsecured line of credit agreement with a bank. The note is
payable on demand and bears interest at the bank's index rate less
.25%
NOTE 5-INCOME TAXES
As discussed in note 1, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109) as of January 1,
1993. The cumulative effect of this change in accounting for
income taxes of $168,565 or $.40 per share, determined as of
January 1, 1993, is reported in the consolidated statement of
operation for the year ended December 31, 1993. Prior years'
financial statements have not been restated to apply the provisions
of FAS 109.
Income tax expense is computed based on the applicable statutory
rates and is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
Currently payable:
<S> <C> <C> <C>
Federal $ 387,601 $ 813,665 $ 284,167
State 114,749 151,732 68,901
------- ------- -------
502,350 965,397 353,068
------- ------- -------
Deferred:
Federal 19,941 (171,822) (20,721)
State 3,519 (30,323) (3,657)
------- ------- -------
23,460 (202,145) (24,378)
------- ------- -------
Total provision $ 525,810 $ 763,252 $ 328,690
======= ======= =======
The actual income tax expense differs from the amounts computed by
applying the U.S. Federal income tax rate of 34% to earnings before
income taxes as a result of the following:
1995 1994 1993
------- ------- -------
Computed "expected" tax
expense $ 446,049 $ 676,763 $ 273,515
State income taxes (net of
Federal income tax benefit) 78,057 80,130 43,061
Other 1,704 6,359 12,114
------- ------- -------
$ 525,810 $ 763,252 $ 328,690
======= ======= =======
The tax effect of temporary differences that gives rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994 are presented below:
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 18,293 $ 12,978
Inventories, principally due to
reserves for obsolescence 161,672 217,671
Other liabilities, principally due to
supplemental pension and post-
retirement costs 1,981,244 1,870,448
Nondeductible accrued expense 10,058 17,834
--------- ---------
Total gross deferred tax assets 2,171,267 2,118,931
Less valuation allowance (1,032,940) (1,032,940)
--------- ---------
Net deferred tax assets 1,138,327 1,085,991
--------- ---------
Deferred tax liability:
Fixed assets, due to accelerated
depreciation 475,686 422,580
Other assets, due to pension costs 431,518 404,151
Accumulated DISC income 28,060 32,737
--------- ---------
Total gross deferred tax
liabilities 935,264 859,468
--------- ---------
Net deferred tax asset $ 203,063 $ 226,523
========= =========
There was no change in the valuation allowance for the years ended
December 31, 1995 and 1994.
</TABLE>
NOTE 6-EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit retirement
plan (the Pension Plan) covering all eligible employees. Benefits
under the Pension Plan are calculated at a rate of $14,.0 per year
of service, as defined. Effective January 1, 1996, the Company
raised the benefit rate to $14.75 per year of service, as defined.
Additionally, a supplemental noncontributory plan (the Supplemental
Plan) covering certain key employees of the Company provides
benefits based upon the employee's compensation, as defined, during
the highest five of the last ten consecutive years preceding
retirement.
Actuarial assumptions for both the Pension and Supplemental
Plan include 7.25% (8% and 7% in 1994 and 1993, respectively) for
the assumed discount rate used to determine the present value of
future benefits, 8% for expense (7% and 8.5% in 1994 and 1993,
respectively) and 8.5% for expected long-term rate of return on
plan assets. The assumed rate of average future increases in
pension benefit compensation for the Supplemental Plan was 5.5% for
disclosure and 5% for expense (5% in 1994 and 1993, respectively).
<TABLE>
<CAPTION>
Employer costs for the Pension and Supplemental Plans amounted
to $289,870, $268,841 and $249,042 in 1995, 1994 and 1993,
respectively. Net periodic pension cost in 1995, 1994 and 1993 was
composed of the following:
1995
Pension Supplemental
Net periodic pension cost Plan Plan
------------------------- ----------- ------------
<S> <C> <C>
Service cost-benefits earned
during the period $ 79,782 $ 35,561
Interest cost on projected
benefit obligation 333,473 207,047
Actual return on plan assets (1,828,743) -
Net amortization and deferral 1,347,071 115,679
--------- ---------
$ (68,417) $ 358,287
========= =========
1994
Pension Supplemental
Net periodic pension cost Plan Plan
------------------------- ----------- ------------
<S> <C> <C>
Service cost-benefits earned
during the period $ 91,425 $ 49,679
Interest cost on projected
benefit obligation 319,045 184,106
Actual return on plan assets (42,406) -
Net amortization and deferral (466,502) 133,494
--------- ---------
$ (98,438) $ 367,279
========= =========
1993
Pension Supplemental
Net periodic pension cost Plan Plan
------------------------- ----------- ------------
<S> <C> <C>
Service cost-benefits earned
during the period $ 85,314 $ 42,224
Interest cost on projected
benefit obligation 315,782 199,444
Actual return on plan assets (500,616) -
Net amortization and deferral (15,569) 122,463
--------- ---------
$ (115,089) $ 364,131
========= ========
</TABLE>
<TABLE>
<CAPTION>
The Company's funding policy for the Pension Plan is to
contribute amounts sufficient to meet minimum funding requirements
set forth in U.S. employee benefit and tax laws. The Company's
policy for funding the Supplemental Plan is to contribute benefits
in amounts as determined at the discretion of management. As of
December 31, 1995 and 1994, the Supplemental Plan was unfunded. A
schedule reconciling the projected benefit obligation of the
Company's two pension plans with recorded pension asset (liability)
is as follows:
1995
Pension Supplemental
Reconciliation of funded status Plan Plan
------------------------------- ----------- ------------
<S> <C> <C>
Actuarial present value of benefit
obligations as of December 31:
Vested benefit obligation $(4,702,437) $(2,208,732)
Accumulated benefit obligation (4,753,577) (2,370,949)
========= =========
Projected benefit obligation for
service rendered to date (4,753,577) (2,987,929)
Plan assets at fair market value
as of December 31 7,146,162 -
--------- ---------
Assets in excess of (less than) pro-
jected benefit as of December 31 2,392,585 (2,987,929)
Unamortized net transition (asset)
obligation as of December 31 (171,611) 820,669
Unrecognized prior service cost
as of December 31 130,887 -
Unrecognized net gain from past
experience different from that
assumed as of December 31 (1,273,066) (294,060)
Adjustment to recognize minimum
liability - -
--------- ---------
(Accrued)/prepaid pension cost as
of December 31 $ 1,078,795 $(2,461,320)
========= =========
1994
Pension Supplemental
Reconciliation of funded status Plan Plan
------------------------------- ----------- ------------
Actuarial present value of benefit
obligations as of December 31:
Vested benefit obligation $(4,311,724) $(2,070,855)
Accumulated benefit obligation (4,346,940) (2,181,711)
========= =========
Projected benefit obligation for
service rendered to date (4,346,940) (2,679,892)
Plan assets at fair market value
as of December 31 5,653,922 -
--------- ---------
Assets in excess of (less than) pro-
jected benefits as of December 31 1,306,982 (2,679,892)
Unamortized net transition (asset)
obligation as of December 31 (199,289) 957,447
Unrecognized prior service cost
as of December 31 116,678 -
Unrecognized net gain from past
experience different from that
assumed as of December 31 (213,993) (455,090)
Adjustment to recognize minimum
liability - (4,176)
--------- ---------
(Accrued)/prepaid pension cost as
of December 31 $ 1,010,378 $(2,181,711)
========= =========
</TABLE>
At December 31, 1989, an additional minimum liability and
concomitant intangible asset were recognized in the consolidated
balance sheets at an amount equal to the excess of the unfunded
accumulated benefit obligation of the supplemental pension plan
over the unfunded accrued pension cost of the supplemental pension
plan. The liability and asset, amounting to $4,176 at December 31,
1994 (none at December 31, 1995), are included in the other
liabilities and other assets, respectively, in the accompanying
consolidated balance sheets.
The Company has a voluntary savings plan for which all
employees are eligible. The Plan provides for the Company to
contribute a minimum of $.25 for every dollar contributed by
employees, up to 4% of their salaries. Company contributions
charged to operations under this plan in 1995, 1994 and 1993
amounted to approximately $29,000, $20,000 and $28,000,
respectively.
The Company provides certain health care and life insurance
benefits for retired employees. Only Company employees retired on
or before May 1, 1992 are eligible for the health care benefit.
During the first quarter of 1993, the Company adopted Statement of
Accounting Standards No. 106 (FAS 106), "Employers' Accounting for
Post-retirement Benefits Other than Pensions". FAS 106 requires an
employer to recognize the cost of retiree health and life insurance
benefits over the employees' period of service. Prior to 1993,
expense was recognized on a "pay as you go" basis. The cumulative
effect of adopting FAS 106 of $2,131,165 (net of deferred income
tax benefit of $387,835) or $5.00 per share was determined as of
January 1, 1993 and reported as a one time charge to the
consolidated statement of operations for the year ended December
31, 1993. The Company's policy is to fund the cost of health care
and life insurance benefits for retirees in amounts determined at
the discretion of management. As of December 31, 1995, and 1994
the plan was unfunded.
<TABLE>
<CAPTION>
The postretirement benefit cost for 1995, 1994 and 1993 was
composed of the following:
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost $ 3,006 $ 3,484 $ 3,000
Interest cost 150,542 149,320 202,000
Net amortization
and deferral (31,228) (7,097) -
------- ------- -------
Net postretirement cost $ 122,320 $ 145,707 $ 205,000
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The actuarial present value of benefit obligations and the amount
recognized in the consolidated balance sheet, included in other
liabilities, as of December 31, 1995 and 1994 are as follows:
1995 1994
--------- ---------
<S> <C> <C>
Retirees $ 1,183,470 $ 1,987,449
Fully eligible active plan
participants 39,134 41,949
Other active plan participants 33,478 29,169
--------- ---------
Accumulated postretirement
benefit obligation 1,256,082 2,058,567
Unrecognized actuarial gain 1,238,783 443,092
--------- ---------
Accrued postretirement benefit
obligation $ 2,494,865 $ 2,501,659
========= =========
</TABLE>
In June, 1995, the Company changed its insurance carrier
providing health care benefits for retirees, which resulted in cost
savings to the Company. This change did not impact benefits being
offered to retirees. The result of this change on the actuarial
present value of benefit obligations was to reduce the accumulated
postretirement benefit obligation and increase the unrecognized
actuarial gain.
The assumed annual rate of future increases in the per capita
cost of health care benefits was 11% for disclosure and expense in
1995 (12% in 1994), the rate was assumed to decline gradually to
5.5% for expense and for disclosure in 2001, and remain level
thereafter. Increasing the health care cost trend by 1% in each
year would increase the accumulated postretirement benefit
obligation and the interest cost $74,000 and $9,100, respectively,
for 1995. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% for
disclosure and 8% for expense in 1995 (8% and 7%, respectively, in
1994).
NOTE 7-ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses as of December 31, 1995 and 1994 consist of
the following:
1995 1994
------- -------
<S> <C> <C>
Commissions $ 197,805 $ 284,434
Payroll 81,490 96,659
Other 140,346 174,253
------- -------
$ 419,641 $ 555,346
======= =======
</TABLE>
NOTE 8-TREASURY STOCK
The Company has a policy of offering directors, officers, and
employees the option to purchase reacquired shares of Homasote
Company common stock on the date acquired and at the purchase price
paid by the Company.
<TABLE>
<CAPTION>
A summary of activity for the years 1995, 1994 and 1993 is as
follows:
Acquired Sold Retained in Treasury
---------------- ------------- ----------------
Shares Cost Shares Cost Shares Cost
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
1995 13,755 $ 244,085 250 $ 3,925 13,505 $ 240,160
1994 21,418 $ 325,117 500 $ 7,425 20,918 $ 317,692
1993 27,036 $ 408,215 100 $ 1,425 26,936 $ 406,790
</TABLE>
NOTE 9-RELATED PARTY TRANSACTIONS
On June 23, 1995, the Company made a short-term loan to Warren
L. Flicker, President and COO of Homasote Company in the amount of
$656,000, for the purpose of purchasing a principal residence and
obtaining a mortgage. Interest was due monthly, at a rate of 6% or
at the federal short-term lending rate, whichever was greater. The
loan was repaid in full on September 18, 1995.
NOTE 10-FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107
"Disclosures about the Fair Value of Financial Instruments",
defines the fair value of a financial instrument as the amount
which the instrument could be exchanged in a current transaction
between willing parties. The carrying amounts of the Company's
financial instruments at December 31, 1995 and 1994 approximate
fair value because of the short maturity of those instruments.
NOTE 11-COMMITMENTS
The Company's primary basic raw material, wastepaper, is
generally readily available from two suppliers with which the
Company has purchase contracts that expire in 2009. Under the
terms of the contracts, the Company is required to make purchases
at a minimum price per ton, as defined, or at the prevailing market
price, whichever is greater. The contracts do not require minimum
quantity purchases by the Company. Purchases in 1995 and 1994
aggregated approximately $1,147,000 and $345,000, respectively.
In November 1995, the Company entered into a contract with a
manufacturer for the purchase of a new board dryer. This expansion
project which will include the dryer, renovations to plant and
equipment to install the dryer, rerouting conveyers and mold
replacements is expected to take approximately eighteen months, at
a cost to the Company of approximately $5.0 million. Current costs
for the expansion are being funded through internally generated
operating funds, while negotiations are taking place for financing
through either a conventional bank loan or a bond placement.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
HOMASOTE COMPANY
We have audited the accompanying consolidated balance sheets of
Homasote Company and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations and retained
earnings and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Homasote Company and subsidiary as of December 31, 1995
and 1994, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in note 6 to the consolidated financial statements, as
of January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions". Additionally, as
discussed in note 5 to the consolidated financial statements, as of
January 1, 1993, the Company changed its method of accounting for
income taxes to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
February 20, 1996 KPMG Peat Marwick LLP
Princeton, N.J.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1995-1994
The Company's sales are derived from building material
wholesalers and contractors and industrial manufacturers. 1995
sales decreased by $162,000 or .6%, to $25.5 million, from $25.7
million in 1994. This decrease is the result of a noticeable
slowing of the economy. The sales mix of products in 1995, remains
unchanged from 1994, with sales of Millboard at 59%, Industrial at
23% and Foam at 18%. Cost of goods sold, as a percentage of sales,
increased from 71.6% in 1994, to 73.9% in 1995, a change of
$478,000, while net earnings as a percentage of sales decreased
from 4.8% in 1994 to 3.1% in 1995, a change of $441,000. This is
due primarily to the escalating cost of all raw materials,
including wastepaper.
Selling, general and administrative expenses as a percentage
of sales were comparable from 1994 to 1995, at 21.4% and 20.8%,
respectively.
Interest income increased by 32.3% to $115,969 in 1995, from
$87,648, in 1994, due to higher rates of interest on funds
available for investment.
Interest expense on debt increased by 11.6% to $85,472 in
1995, from $76,610, in 1994, due to increasing interest rates on a
declining balance of debt outstanding.
Other income increased to $76,765 in 1995, from $2,738 in
1994, due to the sale in 1995 of corrugated materials which were
separated from the wastepaper and sold.
RESULTS OF OPERATIONS 1994-1993
1994 sales increased by 7.7% to $25.7 million, over 1993 sales
of $23.9 million. This increase is the result of an improvement in
the economy in general, and to management's restructuring of the
Industrial sales department into the Millboard sales department.
This restructuring removes the restriction of sales by
department, and allows all Company salesmen and agents to sell all
products nationwide. Earnings before cumulative effect of changes
in accounting principles increased 158%, to $1,227,226 in 1994,
from $475,702 in 1993. This increase is due to a number of
factors. A product mix where Millboard and Industrial sales had
increases of 13.6% and 21.7%, respectively, for the year 1994 over
1993, and 8.4% and 18.1%, respectively, for the fourth quarter 1994
over the fourth quarter 1993. Foam sales, where income is marginal
at best, had decreases of 6% and 11%, for the year and the fourth
quarter 1994, over the same periods in 1993. Product reformulating
reduced by 45% for the fourth quarter of 1994, and 20% for the year
1994 the number of jams occurring in the dryers. This decrease in
jams reduced the number of lost production hours by 15% for the
year 1994, and by 57% in the fourth quarter of 1994 as compared to
the same periods in 1993. These jams have a significant impact on
the overhead costs by knocking down a production unit and diverting
labor resources to clear the unit of jammed production.
Efficiencies were developed during the fourth quarter of 1994
through changes in production to accommodate a new delivery
schedule for raw materials and through production during what
normally would have been a two week shutdown at year end. As a
percentage of sales, cost of goods sold decreased from 75.1% in
1993, to 71.6% in 1994.
Selling, general and administrative expenses as a percentage
of sales were comparable from 1994 to 1993, at 20.8% and 21.4%,
respectively.
Interest income increased by 150.7% to $87,648 in 1994, from
$34,958 in 1993, due to higher rates of interest on an increased
balance of funds available for investment.
Interest expense on debt decreased by 3.1% to $76,610 in 1994,
from $79,088, in 1993, due to a declining balance of debt
outstanding, combined with increasing interest rates on borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the primary
source of liquidity, and amounted to $.4 million in 1995, $2.2
million in 1994, and $1.8 million in 1993. In February 1992, the
Company refinanced $1.0 million of existing debt and borrowed an
additional $700,000. As of December 31, 1995 the Company had
$775,000 outstanding under these loan arrangements. The final
payment of $762,500 was paid on February 12, 1996.
On February 20, 1996, the Company entered into a $2.0 million
unsecured line of credit agreement with a bank to cover extended
terms, which are granted to customers placing orders during the
winter trade shows. The note is payable on demand and bears
interest at the bank's index rate less .25%
Capital expenditures for new and improved facilities and
equipment, which are financed primarily through internally
generated funds and debt, were $0.9 million in 1995, $0.2 million
in 1994 and $0.3 million in 1993, and are expected to approximate
$3.0 million in 1996. In November 1995, the Company entered into
a contract with a manufacturer for the purchase of a new gas fired
board dryer. The entire expansion project, which will include the
dryer, renovations to plant and equipment to install the dryer,
rerouting conveyers and rebuilding and replacing molds is expected
to take approximately eighteen months, at a cost to the Company of
approximately $5.0 million. Current costs for the expansion are
being funded through internally generated operating funds, while
negotiations are taking place for financing using a conventional
bank loan or through a bond placement.
INFLATION AND THE ECONOMY
The Company will continue to maintain a policy of constantly
monitoring such factors as demand and costs, and adjusting prices
as these factors and the economic condition warrant.
OTHER DEVELOPMENTS
During 1994, demand for wastepaper, the primary raw material
for the Company's products, surpassed the supply for the first
time. This situation was due primarily to demand by new industries
created to handle the volume of wastepaper generated by mandated
municipal recycling, and as a result, effective in September, 1994,
the Company entered into purchase agreement contracts, to purchase
readily available wastepaper from two suppliers. Under the terms
of the contracts, the Company is required to make purchases at a
minimum price per ton, as defined, or at the prevailing market
price, whichever is greater. The contracts do not require minimum
quantity purchases by the Company. Purchases in 1995 and 1994
aggregated approximately $1,147,000 and $345,000, respectively.
The contracts expire in 2009.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards (SFAS)
NO. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of", which is effective for financial statements issued
for the fiscal years beginning after December 15, 1995. In October
1995, FASB issued SFAS NO. 123, "Accounting for Stock Based
Compensation", which is effective for the fiscal years beginning
after December 15, 1995. These standards are not expected to have
a significant effect on either the results of operations or the
financial position of the Company.
<TABLE>
<CAPTION>
SUMMARIZED QUARTERLY FINANCIAL DATA OF THE COMPANY FOR THE YEARS
1995 AND 1994 ARE AS FOLLOWS:
(in thousands of dollars except per share data)
1995
-----------------------------------
<S> <C> <C> <C> <C>
First Second Third Fourth
----- ----- ----- -----
Net Sales $ 7,116 $ 6,329 $ 6,316 $ 5,775
===== ===== ===== =====
Gross Profit $ 2,251 $ 1,622 $ 1,530 $ 1,263
===== ===== ===== =====
Net Earnings $ 434 $ 121 $ 129 $ 102
===== ===== ===== =====
Net earnings per $ 1.11 $ 0.31 $ 0.34 $ 0.27
common share ===== ===== ===== =====
1994
-----------------------------------
First Second Third Fourth
----- ----- ----- -----
Net Sales $ 6,417 $ 6,701 $ 6,758 $ 5,822
===== ===== ===== =====
Gross Profit $ 1,643 $ 1,697 $ 1,760 $ 2,205
===== ===== ===== =====
Net Earnings $ 153 $ 93 $ 188 $ 793
===== ===== ===== =====
Net earnings per $ 0.37 $ 0.23 $ 0.47 $ 1.98
common share ===== ===== ===== =====
</TABLE>
The fourth quarter 1994 reflects an improved gross profit margin
compared to prior 1994 quarters due primarily to favorable year-end
inventory adjustments amounting to approximately $605,000. These
adjustments, whose effects on prior quarters are not readily
determinable, had the effect of increasing fourth quarter net
earnings by approximately $362,000 or $.92 per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,329
<SECURITIES> 0
<RECEIVABLES> 1,695
<ALLOWANCES> 46
<INVENTORY> 3,757
<CURRENT-ASSETS> 8,426
<PP&E> 30,215
<DEPRECIATION> 24,520
<TOTAL-ASSETS> 15,303
<CURRENT-LIABILITIES> 1,922
<BONDS> 0
<COMMON> 377
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,303
<SALES> 25,536
<TOTAL-REVENUES> 25,733
<CGS> 18,870
<TOTAL-COSTS> 5,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 1,312
<INCOME-TAX> 526
<INCOME-CONTINUING> 786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>
