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
At September 30, 1997, 351,322 shares of common stock of the
registrant were outstanding.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
For the three months For the nine months
ended ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- ---------- ----------<S>
<C> <C> <C> <C>
Net Sales 6,003,206 7,446,056 18,910,875 20,020,415
Cost of sales 4,960,544 5,901,714 14,844,738 15,677,194
--------- --------- ---------- ----------
Gross Profit 1,042,662 1,544,342 4,066,137 4,343,221
Selling, general
and administrative
expenses 1,422,003 1,460,223 4,775,653 4,266,622
--------- --------- ---------- ----------
Operating Income
(loss) (379,341) 84,119 (709,516) 76,599
Other income(expense)
Gain on sale
of assets 2,781 3,408 15,752 10,774
Interest income 63,679 24,647 184,087 66,957
Interest expense (55,213) (20,222) (133,662) (59,272)
--------- --------- ---------- ----------
Earnings (loss)
before income
taxes (368,094) 91,952 (643,339) 95,058
Income tax expense (147,238) 36,780 (257,336) 38,023
--------- --------- ---------- ---------
Net earnings (loss) (220,856) 55,172 (386,003) 57,035
Retained earnings
at beginning of
period 14,694,902 14,318,973 14,950,349 14,407,554
Less cash
dividends paid - (37,625) (90,300) (128,069)
---------- ---------- ---------- ----------
Retained earnings
at end of period 14,474,046 14,336,520 14,474,046 14,336,520
========== ========== ========== ==========
Earnings (loss)
per common share (0.62) 0.15 (1.05) .15
Common shares
outstanding
(weighted average) 358,507 376,251 369,154 376,611
Dividends per share 0.00 0.12 0.24 0.34
</TABLE>
Note 1. Net sales were down by 19.4% for the third quarter of 1997
as compared to the same period of 1996.
Note 2. The consolidated financial data as of September 30, 1997
and 1996 and for the three and nine-month periods ended September
30, 1997 and 1996 includes, in the opinion of management, all
adjustments (none of which were non-recurring) necessary for a fair
presentation of such periods. The consolidated financial data for
the nine months ended September 30, 1997 is not necessarily
indicative of the results of operations that might be expected for
the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 1,745,035 2,680,061
Accounts receivable, net of
allowance for doubtful
accounts of $29,312 and
$41,230 in 1997 and 1996,
respectively) 2,241,946 1,873,340
Inventories 2,782,730 3,085,886
Deferred income taxes 102,760 102,760
Prepaid expenses and
other current assets 253,029 241,253
------------ -----------
Total current assets 7,125,500 7,983,300
------------ -----------
PROPERTY, PLANT AND
EQUIPMENT, at cost 36,196,968 32,625,166
Less accumulated
depreciation 25,821,438 25,085,690
------------ -----------
Net property and
equipment 10,375,530 7,539,476
OTHER ASSETS
Refundable income taxes 395,168 -
Deferred income taxes 57,864 57,864
Debt acquisition costs, net 151,770 226,697
Restricted cash 601,971 2,957,373
Other assets 1,314,492 1,302,492
------------ -----------
20,022,295 20,067,202
============ ===========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS EQUITY
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Current installment of
long-term debt 403,750 152,500
Short-term debt 1,000,000 -
Accounts payable 1,085,663 986,662
Accrued income taxes - 329,228
Accrued expenses 577,384 582,929
------------ -----------
3,066,797 2,051,319
LONG-TERM DEBT, excluding
current installments 3,640,250 3,987,500
OTHER LIABILITIES 5,226,464 5,084,454
------------ -----------
Total liabilities 11,933,511 11,123,273
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, par value
$.20 per share.
Authorized 1,500,000
shares; issued 863,995
shares in 1997 and 1996. 172,799 172,799
Additional paid in capital 898,036 898,036
Retained earnings 14,474,046 14,950,349
------------ -----------
15,544,881 16,021,184
Less cost of common shares
in treasury - 512,673
shares in 1997 and
487,744 shares in 1996 7,456,097 7,077,255
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 8,088,784 8,943,929
------------ -----------
20,022,295 20,067,202
============ ===========
</TABLE>
Note 2. The consolidated financial data as of September 30, 1997
and 1996 and for the three and nine-month periods ended September
30, 1997 and 1996 includes, in the opinion of management, all
adjustments (none of which were non-recurring) necessary for a fair
presentation of such periods. The consolidated financial data for
the nine months ended September 30, 1997 is not necessarily
indicative of the results of operations that might be expected for
the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1996
------------ -----------
<S> <C> <C>
Cash flows for operating
activities:
Net earnings (386,003) 57,035
Adjustments to reconcile net
earnings to net cash used
in operating activities:
Depreciation and amortization 803,519 456,113
Gain on disposition of fixed
assets (11,487) (650)
Deferred income taxes - (23,460)
Changes in assets and
liabilities:
Increase in accounts
receivable, net (368,606) (936,621)
Decrease in inventories 303,156 1,070,030
Decrease in prepaid
income taxes - 244,440
Increase in refundable
income taxes (395,168) -
Decrease in debt acquisition
cost, net 74,927 -
Decrease in restricted cash 2,355,402 -
Increase in prepaid
expenses and other
current assets (11,776) (30,987)
Increase in other assets (12,000) -
Decrease in accounts payable 99,001 120,264
(Decrease) Increase in
accrued expenses (5,545) 320,281
Decrease in accrued
income taxes (329,228) -
Increase in other liabilities 142,010 117,207
------------ -----------
Net cash provided by
operating activities 2,258,202 1,403,652
------------ -----------
Cash flows from investing
activities:
Proceeds from sales of
equipment 16,888 650
Additions to plant and
equipment (3,644,974) (1,741,047)
------------ -----------
Net cash used in investing
activities (3,628,086) (1,740,397)
------------ -----------
Cash flows from financing
activities:
Proceeds from issuance of
short term debt 1,000,000 1,000,000
Repayment of short-
term debt - (775,000)
Repayment of long-
term debt (96,000) -
Cash dividends paid (90,300) (128,069)
Proceeds from sale of
treasury stock - -
Purchase of treasury
stock (378,842) (23,700)
------------ -----------
Net cash provided by
financing activities: 434,858 73,231
------------ -----------
Net decrease in cash and
cash equivalents (935,026) (263,514)
Cash and cash equivalents
at beginning of period 2,680,061 2,329,027
------------ -----------
Cash and cash equivalents
as of end of period 1,745,035 2,065,513
------------ -----------
Supplemental information:
cash paid during period for:
Interest 133,662 59,272
------------ -----------
Income taxes 353,790 914,539
------------ -----------
</TABLE>
FORM 10-Q
HOMASOTE COMPANY AND SUBSIDIARY
SEPTEMBER 30, 1997
NOTE # 1
MANAGEMENT'S ANALYSIS OF MATERIAL CHANGE
BY QUARTER AS NOTED
RESULTS OF OPERATIONS
Net sales decreased by 19.4% and 5.5% for the three-month and
nine-month periods ended September 30, 1997 as compared to
September 30, 1996. While demand remained strong through the third
quarter of 1997, production and floor inventories could not keep
pace with orders for Homasote products. This was due to the 40%
reduction in production capacity brought about by the removal of
two production units.
Cost of sales, as a percentage of sales, were 82.6% and 78.5%,
respectively for the three and nine-month periods ended September
30, 1997, as compared to 79.3% and 78.3%, respectively for the
three and nine-month periods ended September 30, 1996. These high
percentages are attributable to increased overhead due to
production inefficiencies, higher maintenance costs on the older
equipment and overtime incurred in an effort to meet demand for our
product.
Selling general and administrative expenses, as a percentage
of sales, were 23.7% and 25.3%, respectively for the three and
nine-month periods ended September 30, 1997, as compared to 19.6%
and 21.3%, respectively for the three and nine-month periods ended
September 30, 1996. SG&A expenses increased in the areas of
salaries, due to the hiring of additional personal for the sales
force, advertising, claims for unsatisfactory material and expenses
related to acquisition of debt for the new dryer.
Net earnings decreased from $55,172 to a loss of $220,857 for
the three-month periods ended September 30, 1997 and 1996, and
decreased from $57,035 to a loss of $386,003, for the nine-month
periods ended September 30, 1997 and 1996. These decreases are a
result of increases in the cost of sales and selling, general and
administrative expenses.
Interest income increased by 158.4% and 174.9% respectively,
for the three and nine month periods ended September 30, 1997, as
compared to the same periods ended September 30, 1996, due to the
balance being carried in the restricted cash account. Interest
expense on debt increased by 173.0% and 125.5%, respectively for
the three and nine month periods ended September 30, 1997, as
compared to the same periods ended September 30, 1996. This
increase in interest expense results from debt incurred with
relation to the dryer project.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for new and improved facilities and
equipment, which are financed primarily through debt, were $3.6
million and $1.7 million, respectively for the nine-month periods
ended September 30, 1997 and 1996. Capital expenditures are
expected to approximate $.5 million for the remaining three (3)
months of 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 will include the dryer, renovations to
plant and equipment to install the dryer, rerouting conveyors and
rebuilding and replacing molds. Originally scheduled for partial
completion in June 1997, the new unit started to produce product in
September 1997. On November 1, 1997, a small contained fire broke
out on the newly installed Coe dryer. The fire, although having
burned for a short period of time, caused severe damage to the
rolls at the end of the eight tier dryer. The damaged rolls and
other steel components appear to be all stock items and the dryer
should be back in production within a four to five week period.
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 (4.1% at September 30, 1997). 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 $601,971 at September 30, 1997 and are classified as a
restricted non-current asset in the accompanying 1997 and 1996
consolidated balance sheets. 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 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 (8.5% at September 30, 1997) less .25%. As of September
30, 1997 there was a balance of $1.0 million outstanding under the
line of credit.
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 those factors and the economic condition warrant.
OTHER DEVELOPMENTS
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. Paper purchases through nine
months of 1997 aggregated approximately $689,000 as compared to
$676,000, for the same period of 1996.
In September 1996, the Company signed an agreement with
Weyerhauser Corporation for the joint marketing and distribution of
the Company's products.
In February 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. On May 23, 1997, the Board of
Directors terminated this effort due to developments with respect
to union negotiations.
On May 22, 1997, an election was conducted by the National
Labor Relations Board ("NLRB"), electing Teamsters Local Union No.
701 to be the exclusive bargaining representative for wages, hours
and conditions of employment for the hourly employees of the
Company. Upon certification of the union by the NLRB, the Company
will commence negotiations with the bargaining union to reach a
labor contract covering the employees in the bargaining unit.
Management does not believe that the unionization of the hourly
employees will materially affect the Company's operations.
RECENT ACCOUNTING PRONOUNCEMENTS
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 September 30, 1997 approximate fair value
because of the short maturity of those instruments and with respect
to the Bonds, since their issuance was late in the year 1996.
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.
Earnings per share are computed on the basis of the weighted
average number of shares of common stock outstanding during the
year, including shares issued for non-cash compensation.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share", which is required
to be adopted on December 31, 1997. Such statement is not expected
to have a significant impact on the Company's consolidated
financial statements.
Part 2
Other information
September 30, 1997
Item 9
Exhibits and reports on form 8-K
(B) Reports on form 8-K - There are no reports on form 8-K filed
for the nine months ended for September 30, 1996.
Other information
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
Pursuant of the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto authorized.
HOMASOTE COMPANY
(Registrant)
11/13/97 Neil F Bacon, Treasurer
Date (Chief Financial Officer)
(Signature)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,745
<SECURITIES> 0
<RECEIVABLES> 2,271
<ALLOWANCES> 29
<INVENTORY> 2,783
<CURRENT-ASSETS> 7,126
<PP&E> 36,197
<DEPRECIATION> 25,821
<TOTAL-ASSETS> 20,022
<CURRENT-LIABILITIES> 3,067
<BONDS> 0
<COMMON> 359
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,022
<SALES> 18,911
<TOTAL-REVENUES> 19,111
<CGS> 14,845
<TOTAL-COSTS> 4,776
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (643)
<INCOME-TAX> (257)
<INCOME-CONTINUING> (386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
