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 March 31, 2000, 348,599 shares of common stock of the
registrant were outstanding.
<TABLE>
Results of Operations
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
For the three months
ended
March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 6,583,512 $ 6,496,422
Cost of sales 4,920,395 4,920,355
--------- ---------
Gross profit 1,663,117 1,576,067
Selling, general and
administrative expenses 1,553,141 1,617,345
--------- ---------
Operating income (loss) 109,976 (41,278)
Other income(expense):
Gain on sale of assets 26,000 ---
Interest income 14,764 21,348
Interest expense (27,531) (66,300)
Other income 15,791 1,741
--------- ---------
29,024 (43,211)
--------- ---------
Earnings (loss) before
income tax expense 139,000 (84,489)
Income tax expense --- --------- ---------
Net earnings (loss) 139,000 (84,489)
Retained earnings at beginning
of period 13,329,222 13,716,042
---------- ----------
Retained earnings at
end of period $13,468,222 $13,631,553
========== ==========
Basic and diluted net earnings
(loss) per common share $ 0.40 $ (0.24)
========== ==========
Weighted average basic and
diluted common shares
outstanding 348,599 348,599
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 86,753 $ 291,729
Accounts receivable (net
of allowance for doubtful
accounts of $41,392 in
2000 and 1999) 2,150,899 2,030,090
Inventories (note 2) 3,104,378 2,980,970
Deferred income
taxes 127,992 127,992
Prepaid expenses and
other current assets 401,861 284,480
----------- -----------
Total current assets 5,871,883 5,715,261
----------- -----------
Property, Plant And
Equipment, at cost 39,482,016 39,317,872
Less accumulated
depreciation 28,890,224 28,662,731
----------- -----------
Net property, plant and
equipment 10,591,792 10,655,141
Restricted cash 822,651 820,623
Other assets 2,362,030 2,369,507
----------- -----------
$ 19,648,356 $ 19,560,532
=========== ===========
(continued)
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Short term debt $ 299,341 $ -term debt
421,250 417,500
Accounts payable 1,819,614 2,014,423
Accrued expenses 672,081 719,126
----------- -----------
Total current liabilities 3,212,286 3,151,049
Long-term debt, excluding
current installments 2,630,833 2,738,333
Deferred income taxes 127,992 127,992
Other liabilities 6,652,467 6,657,380
----------- -----------
Total Liabilities 12,623,578 12,674,754
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $.20
per share; Authorized
1,500,000 shares;
Issued 863,995 shares in
2000 and 1999 172,799 172,799
Additional paid-in capital 898,036 898,036
Retained earnings 13,468,222 13,329,222
----------- -----------
14,539,057 14,400,057
Less cost of common shares in
treasury - 515,396 shares in
2000 and 1999 7,514,279 7,514,279
----------- -----------
Total stockholders' equity 7,024,778 6,885,778
----------- -----------
$ 19,648,356 $ 19,560,532
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating
activities:
Net earnings (loss) $ 139,000 $ (84,489)
Adjustments to reconcile net
earnings (loss) to net cash
(used in) provided by
operating activities:
Depreciation and amortization 308,358 456,403
Gain on disposal of fixed assets (26,000)
Changes in assets and liabilities:
Increase in accounts
receivable,(net) (120,809) (236,710)
(Increase) decrease in inventories (123,408) 201,824
Decrease in refundable income taxes (117,381) (184,734)
Increase in other assets (2,028) ---
(Decrease) increase in accounts
payable (194,809) 786,222
Decrease in accrued expenses (47,045) (217,445)
(Decrease) increase in other
liabilities (4,913) 51,795
--------- ----------
Net cash (used in) provided by
operating activities (189,035) 817,181
---------- ----------
Cash flows from investing
activities:
Proceeds from sale of equipment 26,000 ---
Capital expenditures (237,532) (271,061)
Increase in restricted cash ---------- ----------
Net cash used in investing
activities (211,532) (272,653)
---------- ----------
(continued)
Cash flows from financing
activities:
Proceeds from issuance of
short-term debt 299,341 ---
Repayment of long-term debt (103,750) (101,250)
---------- ---------
Net cash provided by
(used in) financing activities: 195,591 (101,250)
---------- ---------
Net (decrease) increase in cash
and cash equivalents (204,976) 443,278
Cash and cash equivalents
at beginning of period 291,729 1,115,815
---------- ----------
Cash and cash equivalents
at end of period $ 86,753 $ 1,559,093
========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 27,531 $ 66,300
---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED MARCH 31, 2000
Note 1. The consolidated financial information as of March 31,
2000 and December 31, 1999, and for the three month
periods ended March 31, 2000 and 1999 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 information for
the three months ended March 31, 2000 is not necessarily
indicative of the results of operations that might be
expected for the entire year ending December 31, 2000.
Note 2. INVENTORIES
The following are the major classes of inventories as of
March 31, 2000 and December 31, 1999:
2000 1999
Finished goods.......$1,984,214 $ 2,098,051
Work in process...... 39,718 25,360
Raw materials........ 1,080,446 857,559
$3,104,378 $ 2,980,970
Inventories include the cost of materials, direct labor
and manufacturing overhead.
Note 3. NET EARNINGS (LOSS) PER COMMON SHARE
Basic net earnings (loss) per common share has been
computed by dividing net earnings (loss) by the weighted
average number of common shares outstanding during the
respective periods. Diluted net earnings (loss) per
share is the same as basic net earnings (loss) per common
share since the Company has a simple capital structure
with only common stock outstanding in 2000 and 1999.
Note 4. DEBT
The Company is party to 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 (3.75% at
March 31, 2000).
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 trust indenture is secured in part by the Agreement
and by a direct pay Letter of Credit facility in the face
amount of $4,209,000. The Letter of Credit facility
contains financial and other restrictive covenants. The
Agreement, as currently amended, contains financial and
other covenants including tangible net worth, cash flow
coverage, current ratio and liabilities to tangible net
worth (all as defined) with which the Company was in
compliance at March 31, 2000 and December 31, 1999. The
Amended Agreement further provides for collateralization
of the Letter of Credit facility by substantially all of
the Company's assets. On April 4, 2000 the Company and
the bank agreed to amend certain financial covenants for
the fiscal quarters and year 2000, with which management
believes the Company will be in compliance through
December 31, 2000.
The Company has a $2.0 million unsecured demand note line
of credit agreement with a bank which expires July 28,
2000. Interest is charged at the bank's index rate (9.0%
at March 31, 2000) less 0.25%. As of March 31, 2000 and
December 31, 1999, $299,341 and $0, respectively, was
outstanding under the line of credit. The Company
believes that the demand note line of credit will be
extended in the normal course of business into 2001. The
note provides for prepayments and advances as required to
satisfy working capital needs. The note is
collateralized by substantially all of the Company's
assets. Interest is payable monthly at the prime lending
rate (as defined) less 0.25%.
Management believes that cash flows from operations,
coupled with its bank credit facilities, are adequate for
the Company to meet its obligations.
Note 5. CONTINGENCIES
The Company installed a new dryer that was originally
scheduled for partial completion in June 1997, but was
placed into modified production during the last week of
September 1997 for an initial shakedown period in order
to surface potential operating problems. However, on
November 1, 1997, a fire occurred in the new dryer,
causing severe damage to the rolls, insulation and other
structural steel components, rendering it inoperable and
resulting in an interruption of the Company's anticipated
productivity of its major product line, which adversely
affected revenues and profitability.
The dryer was placed in a temporary state of repair and
production resumed on January 12, 1998. On January 30,
1998, there was another fire in the new dryer that was
restricted to an area at the end of the dryer. The
damage was repaired in a short period of time with a
resumption of production on February 9, 1998. Once back
into production, the new dryer produced at a level of 40%
of its anticipated production capability, which level is
equivalent to the Company's previous capacity in running
five units.
The Company believes that recovery under its business
interruption policy, when finally received, should
provide the wherewithal to cover a substantial portion of
lost revenues.
Management believes that insurance will cover
substantially all of the Company's property and business
losses relating to the fires. However, the Company may
incur costs as a result of the fires which will not be
covered by insurance. Management is unable to estimate
at this time the magnitude of such costs. The insurance
claims process is lengthy, and its outcome cannot be
predicted with certainty.
The Company is presently in litigation with the insurance
company over coverage and the amount to be paid. The
matter is being considered by a Federal judge in the U.S.
District Court-District of New Jersey. Subsequent to the
end of the first quarter ended March 31, 2000, the
Company was notified that the judge had ordered the
maximum insurance liability of the insurance company to
be 105% of certain property and business interruption
values reported by the Company and that coinsurance
applies to any losses payable. The Company is currently
reassessing the projected recovery based on such
decision. The matter is currently subject to discovery
and a final resolution is expected during the 2000 fiscal
year.
Based on its present assessment of the situation,
management believes that the fires have had an adverse
effect on the Company's financial position and operating
results which can be expected to continue well into 2000.
FORM 10-Q
HOMASOTE COMPANY AND SUBSIDIARY
March 31, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis and statements made
elsewhere in this Form 10-Q may include forward-looking statements
about the future that are necessarily subject to various risks and
uncertainties. These statements are based on the beliefs and
assumptions of management and on information currently available to
management. These forward-looking statements are identified by
words such as "estimates", "expects", "anticipates", "plans",
"believes", and other similar expressions.
Factors that could cause future results to differ materially
from those expressed in or implied by the forward-looking
statements or historical results include the impact or outcome of:
- events or conditions which affect the building and
manufacturing industries in general and the Company in
particular, such as general economic conditions,
employment levels, inflation, weather, strikes and other
factors;
- competitive factors such as changes in choices regarding
structural building materials by architects and builders
and packing products by industrial firms;
- the undue delay in receipt of insurance proceeds for
business interruption relating to the Company's fires in
its new dryer; and
- unanticipated disruption in production caused by delays
in repairs or replacement of the fire-damaged dryer and
the resulting pressure of heightened usage of other older
equipment.
Although the ultimate impact of the above and other factors
are uncertain, these and other factors may cause future earnings to
differ materially from results or outcomes we currently seek or
expect. These factors are discussed in greater detail below.
RESULTS OF OPERATIONS
The Company's sales are derived from building material
wholesalers and industrial manufacturers. Sales during the three
months ended March 31, 2000 increased by $87,090 or 1.3%, to
$6,583,512, from $6,496,422 in the three months ended March 31,
1999. There were no significant changes in the components of net
sales.
Gross profit as a percentage of sales, was 25.3% for the
three-month period ended March 31, 2000, as compared to 24.3% for
the three-month period ended March 31, 1999. This increase is
attributable primarily to a decrease in depreciation expense and
overtime costs in 2000, which was partially offset by an increase
in wage rates.
Selling, general and administrative expenses as a percentage
of sales were 23.6% in 2000 as compared to 24.9% in 1999. The
decrease in selling, general and administrative expenses is
attributable primarily to a refund of state sales taxes and a
reduction in the cost of officers' salaries and professional fees,
partially offset by increases in other compensation costs.
Interest income decreased to $14,764 for the three-month
period ended March 31, 2000, as compared to $21,348 for the three
month period ended March 31, 1999. The decrease in interest income
is attributable primarily to a change in the nature of investing
excess cash balances. Prior to April 1, 1999 such balances were
invested daily in a money market fund. Effective April 1, 1999
these balances are applied daily against the Company's outstanding
demand line of credit, resulting in reduced interest income and
interest expense.
Interest expense on debt decreased to $27,531 for the three-
month period ended March 31, 2000, as compared to $66,300 for the
three-month period ended March 31, 1999. The decrease is due
primarily to the change in investment of excess cash balances as
discussed above.
Other income increased from $1,741, for the three-month period
ended March 31, 1999, to $15,791 for the three month period ended
March 31, 2000.
There was no income tax expense during the three month
period ended March 31, 2000 due to the availability of federal and
state operating loss carryforwards. Management believes that these
operating loss carryforwards will be sufficient to offset current
estimated taxable income in 2000.
As a result of the foregoing, net income increased to $139,000
for the three-month period ended March 31, 2000, from a net loss of
$(84,489) for the three month period ended March 31, 1999.
The Company installed a new dryer that was originally
scheduled for partial completion in June 1997, but was placed into
modified production during the last week of September 1997 for an
initial shakedown period in order to surface potential operating
problems. However, on November 1, 1997, a fire occurred in the new
dryer, causing severe damage to the rolls, insulation and other
structural steel components, rendering it inoperable and resulting
in an interruption of the Company's anticipated productivity of its
major product line, which adversely affected revenues and
profitability.
The dryer was placed in a temporary state of repair and production
resumed on January 12, 1998. On January 30, 1998, there was
another fire in the new dryer that was restricted to an area at the
end of the dryer. The damage was repaired in a short period of
time with a resumption of production on February 9, 1998. Once
back into production, the new dryer produced at a level of 40% of
its anticipated production capability, which level is equivalent to
the Company's previous capacity in running five units.
The Company believes that recovery under its business
interruption policy, when finally received, should provide the
wherewithal to cover a substantial portion of lost revenues.
Management believes that insurance will cover substantially
all of the Company's property and business losses relating to the
fires. However, the Company may incur costs as a result of the
fires which will not be covered by insurance. Management is unable
to estimate at this time the magnitude of such costs. The
insurance claims process is lengthy, and its outcome cannot be
predicted with certainty.
The Company is presently in litigation with the insurance
company over coverage and the amount to be paid. The matter is
being considered by a Federal judge in the U.S. District Court-
District of New Jersey. Subsequent to the end of the first quarter
ended March 31, 2000, the Company was notified that the judge had
ordered the maximum insurance liability of the insurance company to
be 105% of certain property and business interruption values
reported by the Company and that coinsurance applies to any losses
payable. The Company is currently reassessing the projected
recovery based on such decision. The matter is currently subject
to discovery and a final resolution is expected during the 2000
fiscal year.
Based on its present assessment of the situation, management
believes that the fires have had an adverse effect on the Company's
financial position and operating results which can be expected to
continue well into 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities and bank borrowings are
the primary sources of liquidity. Net cash (used in) provided by
operating activities amounted to $0.2 million in the three months
ended March 31, 2000 and $0.8 million in the three months ended
March 31, 1999.
Working capital was $2,659,597 at March 31, 2000, as compared
to $2,564,212 at December 31, 1999, an increase of $95,385.
Capital expenditures for new and improved facilities and
equipment, which are financed primarily through internally
generated funds and debt, were $0.2 million and $0.3 million in
2000 and 1999, respectively. The Company has estimated capital
expenditures for the remaining nine (9) months of 2000 in the
amount of $1.2 million. Such amounts may be revised based on the
timing of receipts of payments or settlements from its insurance
carrier on the fire loss described under "Results of Operations".
Cash flows from financing activities increased from $(0.1)
million used in 1999 to $0.2 million provided in 2000, primarily as
a result of the increase in short term debt of $0.3 million during
the period ended March 31, 2000.
The Company is party to 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 (3.75%
at March 31, 2000).
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 trust indenture is secured in part by the Agreement and by
a direct pay Letter of Credit facility in the face amount of
$4,209,000. The Letter of Credit facility contains financial and
other restrictive covenants. The Agreement, as currently amended,
contains financial and other covenants including tangible net
worth, cash flow coverage, current ratio and liabilities to
tangible net worth (all as defined) with which the Company was in
compliance at March 31, 2000 and December 31, 1999. The Amended
Agreement further provides for collateralization of the Letter of
Credit facility by substantially all of the Company's assets. On
April 4, 2000 the Company and the bank agreed to amend certain
financial covenants for the fiscal quarter and year 2000, with
which management believes the Company will be in compliance through
December 31, 2000.
The Company has a $2.0 million unsecured demand note line of
credit agreement with a bank which expires July 28, 2000. Interest
is charged at the bank's index rate (9.0% at March 31, 2000) less
0.25%. As of March 31, 2000 and December 31, 1999, $299,341 and
$0, respectively, was outstanding under the line of credit. The
Company believes that the demand note line of credit will be
extended in the normal course of business into 2001. The note
provides for prepayments and advances as required to satisfy
working capital needs. The note is collateralized by substantially
all of the Company's assets. Interest is payable monthly at the
prime lending rate (as defined) less 0.25%.
Management believes that cash flows from operations, coupled
with its bank credit facilities, are adequate for the Company to
meet its obligations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement on Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the
accounting for derivative instruments by requiring that an entity
recognize derivatives as assets or liabilities in the statement of
financial position and measure them at fair value.
In June 1999 the FASB issued SFAS No. 137. This statement
defers the effective date of SFAS No. 133, which is now effective
for all quarters of all fiscal years beginning after June 15, 2000.
The Company is currently evaluating the effects of SFAS No. 133.
INFLATION AND ECONOMY
The Company will continue to maintain a policy of constantly
monitoring such factors as product demand and costs, and will
adjust prices as these factors and the economic conditions warrant.
OTHER DEVELOPMENTS
The Company is a party to 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
require minimum quantity purchases by the Company which are
generally below the Company's normal usage. Purchases in the three
months ended March 31, 2000 and the three months ended March 31,
1999, aggregated approximately $231,000 and $197,000, respectively.
The contracts expire in 2009.
Part 2
OTHER INFORMATION
March 31, 2000
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 three months ended March 31, 2000.
OTHER INFORMATION
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 thereunto
duly authorized.
HOMASOTE COMPANY
(Registrant)
James M. Reiser, Vice President
Date and Chief Financial Officer
(Signature)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 2,192
<ALLOWANCES> 41
<INVENTORY> 3,104
<CURRENT-ASSETS> 5,872
<PP&E> 39,482
<DEPRECIATION> 28,890
<TOTAL-ASSETS> 19,648
<CURRENT-LIABILITIES> 3,212
<BONDS> 0
<COMMON> 349
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,648
<SALES> 6,584
<TOTAL-REVENUES> 6,685
<CGS> 4,920
<TOTAL-COSTS> 1,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 139
<INCOME-TAX> 0
<INCOME-CONTINUING> 139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-BASIC> .40
<EPS-DILUTED> .40
</TABLE>
