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, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NON-AFFILIATES WAS $3,273,888.
AS OF MARCH 17, 1997, THERE WERE 376,251 SHARES OF COMMON
STOCK, $.20 PAR VALUE, OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
HOMASOTE COMPANY 1996 ANNUAL REPORT TO STOCKHOLDERS (PARTS II
AND IV).
PROXY STATEMENT DATED MARCH 17, 1997 (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, 1996, 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, 1996, 1995 AND 1994 NO
AMOUNTS WERE SPENT ON RESEARCH AND DEVELOPMENT.
DURING THE YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994 THE REGISTRANT INCURRED QUALITY CONTROL COSTS
OF $80,309, $84,448 AND $ 61,073, RESPECTIVELY.
(XII) ENVIRONMENTAL PROTECTION
AS OF DECEMBER 31, 1996, 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, 1996, THE REGISTRANT EMPLOYED 214
EMPLOYEES, AS COMPARED TO 212 IN 1995.
(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, 1996,
AND APPROXIMATELY 5% AND 4%, IN EACH OF THE TWO YEARS
ENDED DECEMBER 31, 1995 AND 1994, 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 THREE SHIFTS,
SEVEN DAYS A WEEK. OPERATIONAL CAPACITY IS APPROXIMATELY
60% WHILE THE NEW DRYER SYSTEM IS BEING INSTALLED AND IS
DEPENDENT DIRECTLY UPON THE ECONOMIC CONDITION OF THE
HOUSING AND MANUFACTURING INDUSTRIES.
ITEM 3. LEGAL PROCEEDINGS
AS OF DECEMBER 31, 1996, THERE WAS 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 1996
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 1996 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 1996 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
1996 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 17, 1997, 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 25 81
SHANLEY E. FLICKER VICE CHAIRMAN
(1) OF THE BOARD 1/01/95 2 79
WARREN L FLICKER PRESIDENT AND
(2) CHIEF OPERATING
OFFICER 1/01/95 2 53
JOSEPH A BRONSARD EXECUTIVE VICE
(3) PRESIDENT 1/01/95 2 63
NEIL F BACON TREASURER 4/14/88 9 40
(4) CHIEF FINANCIAL
AND ACCOUNTING
OFFICER 3/14/88 9
ASSISTANT
SECRETARY 4/14/88 9
CINDY ADLER SECRETARY 4/21/95 2 40
(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 17, 1997, 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 17, 1997, 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 17, 1997, 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, 1996 AND
1995 INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
13.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS - YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994 INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
13.
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 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 1996 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, 1996.
*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 31, 1997 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 31, 1997
& CEO
NEIL F. BACON TREASURER MARCH 31, 1997
SHANLEY E. FLICKER DIRECTOR MARCH 31, 1997
WARREN FLICKER DIRECTOR MARCH 31, 1997
PATIENCE O. BANISTER DIRECTOR MARCH 31, 1997
JOSEPH A. BRONSARD DIRECTOR MARCH 31, 1997
MICHAEL FLICKER DIRECTOR MARCH 31, 1997
PETER N. OUTERBRIDGE DIRECTOR MARCH 31, 1997
LETTER TO SHAREHOLDERS AND EMPLOYEES
In the letter to shareholders and employees, as seen in the
1995 Annual Report, there were many areas indicated that were being
investigated thoroughly in order to improve the efficiency and
welfare of Homasote Company.
As a result of a change in the philosophy that existed prior
to that point, the sales efforts were modified and expanded
concurrently with some manufacturing changes resulting in
improvements. One of the major changes in this philosophy was to
support the sales efforts of Weyerhauser Company, which is a major
factor in the building products distribution in the United States.
There was a negative note at the beginning of the year. For
example, January 1996's revenues were less than revenues of January
1995. There was a plateau of sales for the first six months,
however, starting with July, there were marked improvements through
December 31, 1996, when sales reflected a better condition than
comparable months in 1995.
The new dryer is on schedule, and is expected to be completely
installed by June 1, 1997. However, some ancillary equipment that
will feed the new dryer, will only be about 60% completed which
directly affects the yield of this new installation. Part of the
plans of this new dryer, which is designed to accept product from
the feed end of the 3rd Unit, will reduce the overall yield of
product in the Making area to 60% of the expected productivity.
While this is being done, what had been a positive source of
production for Homasote, will no longer exist. However, when this
transition is completed, product made in the mold end of the 3rd
Unit will be transferred to the new dryer and the overall yield
will more than compensate for any losses in product which will have
occurred. Another major advantage to these internal changes will
be the substantial savings in energy due to the change in method of
drying product. On completion of the new dryer, it is anticipated
that a minor shakedown period will transpire.
The removal of two dryer lines had occurred very smoothly.
Some modifications of building structure and a new floor had helped
in the placement of the new equipment, and it is expected that
results of all of these moves will be positive.
In anticipation of these major changes, the Board of Directors
of the Homasote Company also authorized the retention of a
financial advisor to assist it in the investigation of alternatives
to enhance the values of the Company's common stock of the
shareholders. the Board is not aware of any presently proposed
transactions but believes that such alternatives may include stock
repurchases, a going private transaction, a merger, acquisition or
other combination or reorganization of the Company, an issuer or
third party tender offer, or a combination of two or more of the
foregoing transactions or other transactions.
Net earnings for the year after providing $485,242 for income
taxes were $708,489 equal to $1.88 per share. Dividends were paid
at a rate of $.44 per share.
Sales for 1996 were $26,969,869, an increase from $25,536,461
in 1995.
Homasote Company purchased an additional 1,200 shares of
Homasote common stock for our Treasury. Net working capital was
$5,931,981, a decrease of $571,719 from last year.
Retired: Mr. Max J. Leidelmeyer, Mr. Domenico R. Marchetti
and Mr James P. Sciarrotta.
Irving Flicker Shanley E. Flicker
Chairman of the Board Vice Chairman
and Chief Executive Officer of the Board
<TABLE>
Homasote Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1996
----------<S>
<C>
Net sales $ 26,969,869
Depreciation $ 606,830
Net earnings $ 708,489
Weighted average number of common
shares outstanding 376,528
Earnings per share $ 1.88
Dividends-cash $ 165,694
Dividends per share $ 0.44
Working capital $ 5,931,981
Working capital ratio 3.9-1
Capital expenditures $ 2,444,627
Total assets $ 20,067,202
Long-term debt $ 3,987,500
Stockholders' equity $ 8,943,929
Common shares outstanding 376,251
Book value common stock $ 23.77
</TABLE>
<TABLE>
1995
----------<S>
<C>
Net sales $ 25,536,461
Depreciation $ 532,895
Net earnings $ 786,100
Weighted average number of common
shares outstanding 383,756
Earnings per share $ 2.05
Dividends-cash $ 221,087
Dividends per share $ 0.58
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 Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1994
----------
<S> <C>
Net sales $ 25,698,178
Depreciation $ 479,977
Net earnings $ 1,227,226
Weighted average number of common
shares outstanding $ 400,403
Earnings (loss) per share $ 3.06
Dividends-cash $ 199,457
Dividends per share $ 0.50
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>
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 $ 0.50
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 Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
1992
----------
<S> <C>
Net sales $ 23,482,259
Depreciation $ 520,917
Net earnings (loss) $ 340,749
Weighted average number of common
shares outstanding 443,668
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>
TWO YEAR DIVIDEND AND STOCK PRICE COMPARISON
<CAPTION>
CASH DIVIDENDS
Quarterly cash dividends for the last two years were as follows:
Quarter 1996 1995
---- ----
<S> <C> <C>
First $ 0.12 $ 0.10
Second 0.12 0.12
Third 0.10 0.12
Fourth 0.10 0.24
---- ----
$ 0.44 $ 0.58
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICES
Stock prices for the last two years were as follows:
Quarter 1996 1995
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
First $ 20.25 $ 17.00 $ 16.25 $ 14.00
Second $ 17.88 $ 15.75 $ 20.25 $ 16.25
Third $ 17.50 $ 14.50 $ 21.38 $ 19.50
Fourth $ 15.50 $ 13.00 $ 22.00 $ 19.00
Number of Stockholders at December 31, 1996 and 1995 is 280 and
304, 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>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years ended December 31
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 26,969,869 $ 25,536,461 $ 25,698,178
Cost of sales 20,013,748 18,870,545 18,392,008
---------- ---------- ----------
Gross profit 6,956,121 6,665,916 7,306,170
Selling, general and
administrative expenses 5,850,714 5,465,568 5,333,043
--------- ---------- ----------
Operating income 1,105,407 1,200,348 1,973,127
Other income (expense)
Gain on sale of assets 2,707 4,300 3,575
Interest income 94,730 115,969 87,648
Interest expense (note 4) (89,600) (85,472) (76,610)
Other income 80,487 76,765 2,738
---------- ---------- ----------
88,324 111,562 17,351
---------- ---------- ----------
Earnings before income taxes 1,193,731 1,311,910 1,990,478
Income tax expense (note 5) 485,242 525,810 763,252
---------- ---------- ----------
Net earnings 708,489 786,100 1,227,226
Retained earnings at beginning
of year 14,407,554 13,842,541 12,814,772
less cash dividends paid
($.44 per share in 1996,
$.58 per share in 1995 and
$.50 per share in 1994) (165,694) (221,087) (199,457)
---------- ---------- ----------
Retained earnings at
end of year $ 14,950,349 $ 14,407,554 $ 13,842,541
========== ========== ==========
Earnings per
common share $ 1.88 $ 2.05 $ 3.06
========== ========== ==========
Common shares outstanding
(weighted average) 376,528 383,756 400,403
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,680,061 $ 2,329,027
Accounts receivable net
of allowance for doubtful
accounts of $45,733 and
$62,444 in 1995 and 1994,
respectively) 1,873,340 1,649,357
Inventories (note 2) 3,085,886 3,757,432
Prepaid income taxes - 294,291
Deferred income
taxes (note 5) 102,760 99,623
Prepaid expenses and
other current assets 241,253 295,917
------------ -----------
Total current assets $ 7,983,300 $ 8,425,647
------------ -----------PROPERTY, PLANT AND
EQUIPMENT, at cost
(notes 3 and 4) 32,625,166 30,215,369
Less accumulated
depreciation 25,085,690 24,520,285
------------ -----------
Net property plant and
equipment 7,539,476 5,695,084
------------ -----------
OTHER ASSETS
DEFERRED INCOME
TAXES (NOTE 5) 57,864 103,440
DEBT ACQUISITION COSTS, NET 226,697 -
RESTRICTED CASH (NOTE 4) 2,957,373 -
OTHER ASSETS (NOTE 6) 1,302,492 1,078,795
------------ -----------
$ 20,067,202 $ 15,302,966
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Current installments of
long-term debt (note 4) $ 152,500 $ 775,000
Accounts payable 986,662 727,306
Accrued income taxes 329,228 -
Accrued expenses (note 7) 582,929 419,641
------------ -----------
Total current liabilities $ 2,051,319 $ 1,921,947
LONG-TERM DEBT, excluding
current installments (note 4) 3,987,500 -
OTHER LIABILITIES (note 6) 5,084,454 4,956,185
------------ -----------
Total liabilities 11,123,273 6,878,132
------------ -----------
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 14,950,349 14,407,554
------------ -----------
16,021,184 15,478,389
Less cost of common shares in
treasury-487,744 shares in
1996 and 486,544 shares in
1995 (note 8) 7,077,255 7,053,555
------------ -----------
Total stockholders' equity 8,943,929 8,424,834
------------ -----------
$ 20,067,202 $ 15,302,966
============ ===========
COMMITMENTS (note 11)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 708,489 $ 786,100 $ 1,227,226
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and amortization 606,830 532,895 479,977
Gain on disposal of fixed assets (2,707) (4,300) (3,575)
Deferred income taxes 42,439 23,460 (202,145)
Changes in assets and
Liabilities:
(Increase) decrease in
accounts receivable, net (223,983) 8,909 (145,389)
Decrease (increase) in
inventories 671,546 (120,265) (170,528)
Decrease (increase) in
prepaid income taxes 294,291 (294,291) -,
Increase in other assets (223,697) (64,241) (98,438)
Decrease (increase) in prepaid
expenses and other current
assets 54,664 (58,781) 5,635
Increase in accounts payable 259,356 82,311 95,021
Increase (decrease) in accrued
expenses 163,288 (135,705) 216,460
Increase (decrease) in accrued
income taxes 329,228 (588,751) 555,367
Increase in other liabilities 128,269 272,815 262,807
---------- ---------- ----------
Net cash provided by
operating activities 2,808,013 440,156 2,222,418
---------- ---------- ----------
Cash flows from investing
activities:
Proceeds from sale of
equipment 2,707 4,300 3,575
Additions to plant and
equipment (2,444,627) (886,221) (189,993)
Restricted cash (2,957,373) - -
---------- ---------- ----------
Net cash used in investing
activities (5,399,293) (881,921) (186,418)
---------- ---------- ----------
Cash flows from financing
activities:
Proceeds from issuance of
short-term debt 1,000,000 - -
Repayment of short-term debt (1,775,000) (3,591) -
Repayments of long-term debt - (150,000) (195,000)
Cash dividends paid (165,694) (221,087) (199,457)
Proceeds from sale of
treasury stock - 3,925 7,425
Purchase of treasury
stock (23,700) (244,085) (325,117)
Proceeds from bond issue 4,140,000 - -
Debt acquisition costs (233,292) - -
---------- ---------- ----------Net cash
provided by (used in)
financing activities: 2,942,314 (614,838) (712,149)
---------- ---------- ----------Net increase
(decrease) in
cash and cash equivalents 351,034 (1,056,603) 1,323,851
Cash and cash equivalents
at beginning of year 2,329,027 3,385,630 2,061,779
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 2,680,061 $ 2,329,027 $ 3,385,630
========== ========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the years for:
Interest $ 90,323 $ 78,855 $ 76,610
---------- ---------- ----------
Income taxes $ 53,294 $ 1,385,330 $ 426,152
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
Homasote Company and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
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 1996 and 1995 as follows:
building material wholesalers and contractors, approximately 75%
and industrial manufacturers, approximately 25%. 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.
DEBT ACQUISITION COSTS: Debt acquisition costs consist
principally of costs associated to secure long-term debt (see note
4). These costs are being amortized using the straight line method
over the term of the related debt.
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, with the remainder spread
throughout the United States and Canada. 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. The
net periodic pension costs are recognized as employees render the
services necessary to earn pension and post-retirement benefits.
INCOME TAXES: Income taxes are accounted for under the asset
and liability method. 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF: Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of" (SFAS
121). This statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS
121 also requires that assets to be disposed of be reported at the
lower of the carrying amount or the fair value less costs to sell.
Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
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, 1996 and 1995:
1996 1995
--------- ---------
<S> <C> <C>
Finished goods $ 1,940,344 $ 2,800,550
Work in process 66,770 14,051
Raw materials 1,078,772 942,831
--------- ---------
$ 3,085,886 $ 3,757,432
========= =========
Inventories include the cost of materials, direct labor and
manufacturing overhead.
</TABLE>
<TABLE>
<CAPTION>
NOTE 3-PROPERTY, PLANT AND EQUIPMENT
December 31, 1996
--------------------------------------
Accumulated Carrying
Cost Depreciation Amount
---------- ---------- ---------
<S> <C> <C> <C>
Land $ 93,543 $ - $ 93,543
Buildings and additions 9,003,571 4,821,514 4,182,057
Machinery and equipment 19,703,379 19,052,722 650,657
Office equipment 981,175 866,773 114,402
Automotive equipment 445,894 344,681 101,213
Construction in progress 2,397,604 - 2,397,604
---------- ---------- ---------
$ 32,625,166 $ 25,085,690 $ 7,539,476
========== ========== =========
</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
========== ========== =========
</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
In November 1996, the Company entered into a loan agreement
(the "Agreement") and promissory note with the New Jersey Economic
Development Authority (the "Authority"). Under the Agreement, the
Authority loaned the Company $4,140,000 out of the proceeds from
the issuance of the Authority's Economic Growth Bonds (Greater
Mercer County Composite Issue) 1996 Series E (the Bonds) to be used
in connection with specified capital expenditures described in the
Agreement. Interest is charged at the variable rate of interest due
on the Bonds (4.4% at December 31, 1996). In connection with the
Agreement, the Authority also entered into a trust indenture with
a bank to serve as trustee and tender agent for the loan proceeds.
Principal and interest are payable monthly to the trustee in
varying amounts through 2006. The funds held by the bank amounted
to $2,957,373 at December 31, 1996 and are classified as a
restricted non-current asset in the accompanying 1996 consolidated
balance sheet. The Company believes these funds will be sufficient
to cover its remaining capital expenditure commitments in 1997.
The trust indenture is secured in part by the Agreement and by a
direct pay Letter of Credit facility issued by another bank in the
face amount of $4,209,000. The Letter of Credit facility contains
financial and other restrictive covenants including minimum
tangible net worth and other financial ratios. In order to reduce
its risks from interest rate fluctuations under the agreement, the
Company entered into a five-year interest rate cap agreement with
a bank. The agreement entitles the Company to receive, on a
monthly basis, the amounts, if any, by which the interest payments
on the Bond exceed 4.5% per annum. The aggregate maturities of
long-term debt for each of the five years subsequent to December
31, 1996 are as follows: 1997, $152,500, 1998, $391,250, 1999,
$405,833, 2000, $416,250, 2001, $431,250, thereafter $2,342,917.
The Company has a $2.0 million unsecured line of credit
agreement with a bank on which interest is charged at the bank's
index rate (8.25% at December 31, 1996) less .25%. As of December
31, 1996 there was no balance outstanding under the line of credit.
In February 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%. The final payment of $762,500
under this loan arrangement was paid on February 12, 1996.
NOTE 5-INCOME TAXES
Income tax expense is computed based on the applicable statutory
rates and is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
Currently payable:
<S> <C> <C> <C>
Federal $ 341,473 $ 387,601 $ 813,665
State 101,330 114,749 151,732
------- ------- -------
442,803 502,350 965,397
------- ------- -------
Deferred:
Federal 36,072 19,941 (171,822)
State 6,367 3,519 (30,323)
------- ------- -------
42,439 23,460 (202,145)
------- ------- -------
Total provision $ 485,242 $ 525,810 $ 763,252
======= ======= =======
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:
1996 1995 1994
------- ------- -------
Computed "expected" tax
expense $ 405,869 $ 446,049 $ 676,763
State income taxes (net of
Federal income tax benefit) 71,080 78,057 80,130
Other 8,293 1,704 6,359
------- ------- -------
$ 485,242 $ 525,810 $ 763,252
======= ======= =======
The tax effect of temporary differences that gives rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1995 are presented below:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 23,910 $ 18,293
Inventories, principally due to
reserves for obsolescence 177,672 161,672
Other liabilities, principally due to
supplemental pension and post-
retirement costs 2,033,782 1,981,244
Nondeductible accrued expense 25,103 10,058
--------- ---------
Total gross deferred tax assets 2,260,467 2,171,267
Less valuation allowance (1,032,940) (1,032,940)
--------- ---------
Net deferred tax assets 1,227,527 1,138,327
--------- ---------
Deferred tax liability:
Fixed assets, due to accelerated
depreciation 522,522 475,686
Other assets, due to pension costs 520,997 431,518
Accumulated DISC income 23,384 28,060
--------- ---------
Total gross deferred tax
liabilities 1,066,903 935,264
--------- ---------
Net deferred tax asset $ 160,624 $ 203,063
========= =========
There was no change in the valuation allowance for the years ended
December 31, 1996 and 1995.
</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 $14.75 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% (7.25% and 8% in 1995 and 1994, respectively)
for the assumed discount rate used to determine the present value
of future benefits, (7.25% for expense) and 8.5% for expected long-term rate of
return on plan assets. The assumed rate of average
future increases in pension benefit compensation was 5.5% for
disclosure and 5% for expense (5% in 1995 and 1994, respectively).
Employer costs for the Pension and Supplemental Plans amounted
to $145,707, $289,870 and $268,841 in 1996, 1995 and 1994,
respectively. Net periodic pension cost in 1996, 1995 and 1994 was
composed of the following:
<TABLE>
<CAPTION>
1996
Pension Supplemental
Net periodic pension cost Plan Plan
------------------------- ----------- ------------
<S> <C> <C>
Service cost-benefits earned
during the period $ 93,276 $ 38,549
Interest cost on projected
benefit obligation 332,931 204,758
Actual return on plan assets (1,313,346) -
Net amortization and deferral 663,442 126,097
--------- ---------
$ (223,697) $ 369,404
========= =========
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
========= =========
</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, 1996 and 1995, 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:
1996
Pension Supplemental
Reconciliation of funded status Plan Plan
------------------------------- ----------- ------------
<S> <C> <C>
Actuarial present value of benefit
obligations as of December 31:
Vested benefit obligation $(4,796,768) $(2,193,562)
Accumulated benefit obligation (4,845,123) (2,458,153)
========= =========
Projected benefit obligation for
service rendered to date (4,845,123) (3,026,893)
Plan assets at fair market value
as of December 31 8,123,079 -
--------- ---------
Assets in excess of (less than) pro-
jected benefit as of December 31 3,277,956 (3,026,893)
Unamortized net transition (asset)
obligation as of December 31 (143,933) 683,891
Unrecognized prior service cost
as of December 31 147,264 -
Unrecognized net gain from past
experience different from that
assumed as of December 31 (1,978,795) (401,008)
--------- ---------
(Accrued)/prepaid pension cost as
of December 31 $ 1,302,492 $(2,744,010)
========= =========
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)
projected 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)
========= =========
</TABLE>
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 1996, 1995 and 1994
amounted to approximately $29,000, $29,000 and $20,000,
respectively.
The Company also 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. 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, 1996, and 1995
the plan was unfunded.
<TABLE>
<CAPTION>
The postretirement benefit cost for 1996, 1995 and 1994 was
composed of the following:
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost $ 3,681 $ 3,006 $ 3,484
Interest cost 65,432 150,542 149,320
Net amortization
and deferral (141,435) (31,228) (7,097)
------- ------- -------
Net postretirement cost $ (72,322) $ 122,320 $ 145,707
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The actuarial present value of benefit obligations and the amount
recognized in the consolidated balance sheets, included in other
liabilities, as of December 31, 1996 and 1995 are as follows:
1996 1995
--------- ---------
<S> <C> <C>
Retirees $ 859,062 $ 1,183,470
Fully eligible active plan
participants 43,581 39,134
Other active plan participants 33,796 33,478
--------- ---------
Accumulated postretirement
benefit obligation 936,439 1,256,082
Unrecognized actuarial gain 1,404,005 1,238,783
--------- ---------
Accrued postretirement benefit
obligation $ 2,340,444 $ 2,494,865
========= =========
</TABLE>
Effective in June 1995, the Company changed its insurance
carrier providing health care benefits for retirees, at a cost
savings to the Company. This change did not impact upon the
benefits 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 unrecognized actuarial gain will
be based on the remaining life expectancy of the retirees.
The assumed annual rate of future increases in the per capita
cost of health care benefits was 10% for both disclosure and
expense in 1996 (11% in 1995), 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 benefit obligation
and the interest cost $49,000 and $3,300, respectively, for 1996.
The weighted average discount rate used in determining the
accumulated benefit obligation was 7.25% for both disclosure and
expense in 1996 (7.25% and 8.00%, respectively, in 1995).
NOTE 7-ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses as of December 31, 1996 and 1995 consist of
the following:
1996 1995
------- -------
<S> <C> <C>
Commissions $ 213,626 $ 197,805
Payroll 116,165 81,490
Other 253,138 140,346
------- -------
$ 582,929 $ 419,641
======= =======
</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 1996, 1995 and 1994 is as
follows:
Acquired Sold Retained in Treasury
---------------- ------------- ----------------
Shares Cost Shares Cost Shares Cost
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
1996 1,200 $ 23,700 - $ - 1,200 $ 23,700
1995 13,755 $ 244,085 250 $ 3,925 13,505 $ 240,160
1994 21,418 $ 325,117 500 $ 7,425 20,918 $ 317,692
</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, 1996 and 1995 approximate
fair value because of the short maturity of those instruments and
with respect to the Bonds (see note 4) since their issuance was
late in the year 1996.
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 1996 and 1995
aggregated approximately $929,000 and $1,147,000, respectively.
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, 1996 and 1995,
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, 1996. 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 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Homasote Company and subsidiary as of December 31, 1996
and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
February 21, 1997 KPMG Peat Marwick LLP
Princeton, N.J.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996-1995
The Company's sales are derived from building material
wholesalers and industrial manufacturers. 1996 sales increased by
$1,443,000, or 5.6%, to $27.0 million, from $25.5 million in 1995.
This was due primarily to a change in marketing strategy, which
included a September 1996 agreement with Weyerhauser Corporation
for the joint marketing and distribution in the United States, of
the Company's building products, contributing to an increase in
sales volume in the third and fourth quarters of 1996. The
approximate sales mix of products in 1996 remains unchanged from
1995, with sales to Millboard wholesalers at 75% and Industrial
manufacturers at 25%. Cost of goods sold, as a percentage of
sales, increased from 73.9% in 1995, to 74.2% in 1996, a change of
$1,143,000. Net earnings as a percentage of sales decreased from
3.1% in 1995 to 2.6% in 1996, a change of $78,000. While the
fourth quarter 1996 cost of goods sold percentage reflected
improvements in production volumes and manufacturing efficiencies,
it was not sufficient to offset the higher costs incurred during
the first nine months of the year resulting in the full year 1996
cost of sales percentage being higher than 1995.
Selling, general and administrative expenses as a percentage
of sales were comparable from 1996 to 1995, at 21.6% and 21.4%,
respectively.
Interest income decreased by 18.3% to $94,730 in 1996, from
$115,969, in 1995, due to lower average balance of funds available
for investment.
Interest expense on debt increased by 4.8% to $89,600 in 1996,
from $85,500, in 1995, due to increasing interest rates on an
increasing average balance of debt outstanding. The effective
income tax expense rate increased to 40.6% in 1996 as compared to
40.1% in 1995, primarily as a result of a higher effective rate for
state income taxes.
RESULTS OF OPERATION 1995-1994
The Company's sales are derived from building material
wholesalers 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 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 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the primary
source of liquidity, and amounted to $2.8 million in 1996, $.4
million in 1995, and $2.2 million in 1994.
Capital expenditures for new and improved facilities and
equipment, which are financed primarily through internally
generated funds and debt, were $2.4 million in 1996, $0.9 million
in 1995 and $0.2 million in 1994, and are expected to approximate
$3.0 million in 1997.
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 conveyors
and rebuilding and replacing molds is expected to be completed in
May 1997, at a total cost to the Company of approximately $5.0
million.
In November 1996, the Company entered into a loan agreement
(the Agreement") and promissory note with the New Jersey Economic
Authority (the "Authority"). Under the Agreement, the Authority
loaned the Company $4,140,000 out of the proceeds from the issuance
of the Authority's Economic Growth Bonds (Greater Mercer County
Composite Issue) 1996 Series E (the Bonds) to be used in connection
with specified capital expenditures, described in the Agreement.
Interest is charged at the variable rate of interest due on the
Bonds (4.4% at December 31, 1996). In connection with the
Agreement, the Authority also entered into a trust indenture with
a bank to serve as trustee and tender agent for the loan proceeds.
Principal and interest are payable monthly to the trustee in
varying amounts through 2006. The funds held by the bank amounted
to $2,957.373 and are classified as a restricted non-current asset
at December 31, 1996. The trust indenture is secured in part by
the Agreement and by a direct pay Letter of Credit facility issued
by another bank in the face amount of $4,209,000. The Letter of
Credit facility contains financial and other restrictive covenants
including minimum tangible net worth and other financial ratios.
In order to reduce its risks from interest rate fluctuations under
the Agreement, the Company entered into a five-year interest rate
cap agreement with a bank. The agreement entitles the Company to
receive, on a monthly basis, the amounts, if any, by which the
interest payments on the Bond exceed 4.5% per annum.
The Company has a $2.0 million unsecured line of credit
agreement with a bank on which interest is charged at the bank's
index rate (8.25% at December 31, 1996) less .25%. As of December
31, 1996 there was no balance outstanding under the line of credit.
In February 1992, the Company refinanced $1,00,000 of existing
debt and borrowed an additional $700,000 bearing interest at the
bank's index rate plus .25%. The final payment of $762,500 under
this loan arrangement was paid on February 12, 1996.
INFLATION AND 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 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 1996 and 1995
aggregated approximately $929,000 and $1,147,000, respectively.
The contracts expire in 2009.
In September 1996, the Company signed an agreement with
Weyerhauser Corporation for the joint marketing and distribution of
the Company's products.
On February 21, 1997, the Board of Directors of the Company
authorized the retention of a financial advisor to assist in the
investigation of alternatives to enhance the value of the Company's
common stock to the shareholders. Such alternatives may include
stock repurchases, a going private transaction, a merger,
acquisition or other combination or reorganization of the Company,
an issuer or third party tender offer, or a combination of two or
more of the foregoing transactions or other transactions.
<TABLE>
<CAPTION>
SUMMARIZED (unaudited) QUARTERLY FINANCIAL DATA OF THE COMPANY FOR
THE YEARS 1996 AND 1995 ARE AS FOLLOWS:
(in thousands of dollars except per share data)
1996
-----------------------------------
<S> <C> <C> <C> <C>
First Second Third Fourth
----- ----- ----- -----
Net Sales $ 6,143 $ 6,431 $ 7,446 $ 6,950
===== ===== ===== =====
Gross Profit $ 1,485 $ 1,346 $ 1,544 $ 2,581
===== ===== ===== =====
Net Earnings $ 17 $ (15) $ 55 $ 651
===== ===== ===== =====
Net earnings(loss) $ 0.05 $ (0.04) $ 0.15 $ 1.73
per common share ===== ===== ===== =====
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(loss) $ 1.11 $ 0.31 $ 0.34 $ 0.27
per common share ===== ===== ===== =====
</TABLE>
The fourth quarter 1996 reflects an improved gross profit margin
compared to prior 1996 quarters, due primarily to higher production
volume, improved manufacturing efficiencies, sales product mix and
a reduction of pension costs and property taxes. Also, net
earnings benefited in the fourth quarter of 1996 as a result of the
reversal of unused customer volume rebates of approximately
$100,000 before income taxes.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,680
<SECURITIES> 0
<RECEIVABLES> 1,933
<ALLOWANCES> 60
<INVENTORY> 3,086
<CURRENT-ASSETS> 7,983
<PP&E> 32,625
<DEPRECIATION> 25,086
<TOTAL-ASSETS> 20,067
<CURRENT-LIABILITIES> 2,051
<BONDS> 0
<COMMON> 376
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,067
<SALES> 26,970
<TOTAL-REVENUES> 27,148
<CGS> 20,014
<TOTAL-COSTS> 5,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 1,193
<INCOME-TAX> 485
<INCOME-CONTINUING> 708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 708
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
