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 June 30, 2000, 348,799 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 For the six months
ended ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 6,606,570 5,967,301 13,190,082 12,464,242
Cost of sales 4,798,457 4,506,658 9,718,852 9,427,532
--------- --------- ---------- ----------
Gross profit 1,808,113 1,460,643 3,471,230 3,036,710
Selling, general
and administrative
expenses 1,633,916 1,591,687 3,187,057 3,209,032
--------- --------- ---------- ----------
Operating income
(loss) 174,197 (131,044) 284,173 (172,322)
Other income (expense):
Gain on sale of
assets 1,350 331 27,350 584
Interest income 15,349 13,328 30,113 34,676
Interest expense (37,445) (41,789) (64,976) (108,089)
Other income 9,793 4,168 25,584 5,656
--------- --------- ---------- ----------
(10,953) (23,962) 18,071 (67,173)
--------- --------- ---------- ---------
Net earnings (loss) 163,244 (155,006) 302,244 (239,495)
Retained earnings
at beginning of
period 13,468,222 13,631,553 13,329,222 13,716,042
---------- ---------- ---------- ----------
Retained earnings
at end of period 13,631,466 13,476,547 13,631,466 13,476,547
========== ========== ========== ==========
Basic and diluted net
earnings (loss) per
common share 0.47 (0.44) 0.87 (0.69)
========== ========== ========== ==========
Weighted average basic
and diluted common
shares outstanding 348,799 348,599 348,799 348,599
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 67,957 $ 291,729
Accounts receivable (net
of allowance for doubtful
accounts of $51,392 in
2000 and 1999) 2,565,492 2,030,090
Inventories (note 2) 2,719,637 2,980,970
Deferred income
taxes 127,992 127,992
Prepaid expenses and
other current assets 351,918 284,480
----------- -----------
Total current assets 5,832,996 5,715,261
----------- -----------
Property, plant and
equipment, at cost 39,971,358 39,317,872
Less accumulated
depreciation 29,173,448 28,662,731
----------- -----------
Net property, plant and
equipment 10,797,910 10,655,141
Restricted cash 825,914 820,623
Other assets 2,354,553 2,369,507
----------- -----------
$ 19,811,373 $ 19,560,532
=========== ===========
(continued)
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Short term debt $ 427,644 $ ---
Current installments of
long-term debt 425,000 417,500
Accounts payable 1,617,564 2,014,423
Accrued expenses 850,549 719,126
----------- -----------
Total current liabilities 3,320,757 3,151,049
Long-term debt, excluding
current installments 2,523,333 2,738,333
Deferred income taxes 127,992 127,992
Other liabilities 6,647,819 6,657,380
----------- -----------
Total liabilities 12,619,901 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 13,631,466 13,329,222
----------- -----------
14,702,301 14,400,057
Less cost of common shares in
treasury - 515,196 shares in
2000 and 515,396 shares in
1999 7,510,829 7,514,279
----------- -----------
Total stockholders' equity 7,191,472 6,885,778
----------- -----------
$ 19,811,373 $ 19,560,532
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating
activities:
Net earnings (loss) $ 302,244 $ (239,495)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 617,387 917,727
Gain on disposal of fixed assets (27,350) ---
Changes in assets and liabilities:
Increase in accounts receivable,
(net) (535,402) (281,015)
Decrease in inventories 261,333 344,842
Decrease in refundable income taxes --- 44,315
Increase in prepaid expenses and
other current assets (67,438) (106,968)
Increase in other assets --- (425)
(Decrease) increase in accounts
payable (396,859) 91,035
Increase (decrease) in accrued
expenses 131,423 (148,873)
(Decrease) increase in other
liabilities (9,561) 38,994
---------- ----------
Net cash provided by
operating activities 275,777 660,137
---------- ----------
Cash flows from investing
activities:
Proceeds from sale of equipment 27,350 584
Capital expenditures (745,202) (538,146)
(Increase) decrease in restricted
cash (5,291) 55,753
---------- ----------
Net cash used in investing
activities (723,143) (481,809)
---------- ----------
(continued)
Cash flows from financing
activities:
Proceeds from issuance of
(repayment of) short-term debt 427,644 (886,904)
Repayment of long-term debt (207,500) (202,500)
Proceeds from sale of treasury
stock 3,450 ---
---------- ---------
Net cash provided by (used in)
financing activities: 223,594 (1,089,404)
---------- ---------
Net decrease in cash and cash
equivalents (223,772) (911,076)
Cash and cash equivalents
at beginning of period 291,729 1,115,815
---------- ----------
Cash and cash equivalents
at end of period $ 67,957 $ 204,739
========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 64,976 $ 108,089
---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED JUNE 30, 2000
Note 1. The consolidated financial information as of June 30, 2000
and December 31, 1999, and for the three and six-month
periods ended June 30, 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 and six-month periods ended June 30, 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
June 30, 2000 and December 31, 1999:
2000 1999
Finished goods.......$1,804,760 $ 2,098,051
Work in process...... 46,432 25,360
Raw materials........ 868,445 857,559
$2,719,637 $ 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 (4.65% at
June 30, 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 June 30, 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 (9.5% at June
30, 2000) less 0.25%. As of June 30, 2000 and December 31,
1999, $427,644 and $0, respectively, was outstanding under
the line of credit. The demand note line of credit was
amended on July 24, 2000. The line of credit was renewed in
the amount of $1.0 million and expires July 31, 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 with equipment the new dryer
replaced.
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 2001.
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
June 30, 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 and amount of insurance proceeds
for business interruption relating to the Company's fires in
its new dryer;
- 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 operating results
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 June 30, 2000 increased by $639,269 or 10.7% to
$6,606,570 from, $5,967,301 in the three months ended June 30, 1999.
Sales for the six month period ended June 30, 2000 increased by
$725,840 or 5.8% to $13,190,082 from $ 12,464,242 in the six months
ended June 30, 1999. The increase is attributable primarily to
improved demand for the Company's millboard and industrial packaging
products. However, shipments in the year earlier three and six-month
periods were adversely affected by reduced millboard production due to
the overhaul of a millboard production line.
Gross profit as a percentage of sales, was 27.4% and 24.5%,
respectively, for the three-month periods ended June 30, 2000 and 1999
and 26.3% and 24.4%, respectively, for the six-month periods ended
June 30, 2000 and 1999. This increase is attributable primarily to
improved coverage of fixed costs due to an increase in sales and a
decrease in depreciation expense and non-essential 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 24.7% and 26.7%, respectively, for the three-month periods
ended June 30, 2000 and 1999 and 24.2% and 25.7%, respectively, for
the six-month periods ended June 30, 2000 and 1999. The decrease in
the relative percentage of 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 and
the cost of customer rebate programs.
Interest income increased to $15,349 for the three-month period
ended June 30, 2000, as compared to $13,328 for the three-month period
ended June 30, 1999. Interest income decreased to $30,113 for the
six-month period ended June 30, 2000 as compared to $34,676 for the
six-month period ended June 30, 1999. The decrease in interest income
for the six-month period 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 $37,445 and $64,976,
respectively, for the three and six-month periods ended June 30, 2000,
as compared to $41,789 and $108,089, respectively, for the three and
six-month periods ended June 30, 1999. The decrease for the six-month
period is due primarily to the change in investment of excess cash
balances as discussed above.
Other income increased from $4,168 and $5,656, respectively,
for the three and six-month periods ended June 30, 1999, to $9,793 and
$25,584 for the three and six-month periods ended June 30, 2000, due
primarily to increases in the net price of corrugated paper sold as
scrap.
There was no income tax expense during the three and six-
month periods ended June 30, 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 $163,244
and $302,244 for the three and six-month periods ended June 30, 2000,
from a net loss of ($155,006) and ($239,495) for the three and six
month periods ended June 30, 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 with equipment that the new dryer
replaced.
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 2001.
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 provided by operating
activities amounted to $0.3 million and $0.7 million in the six-month
periods ended June 30, 2000 and 1999, respectively.
Working capital was $2,512,239 at June 30, 2000, as compared to
$2,564,212 at December 31, 1999, a decrease of $51,973.
Capital expenditures for new and improved facilities and
equipment, which are financed primarily through internally generated
funds and debt, were $0.7 million and $0.5 million in 2000 and 1999,
respectively. The Company has estimated capital expenditures for the
remaining six (6) months of 2000 in the amount of $0.8 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 ($1.1)
million used in 1999 to $0.2 million provided in 2000, primarily as a
result of the increase in short term debt of $0.4 million during the
period ended June 30, 2000 and a decrease in short-term debt of $0.9
million during the period ended June 30, 1999.
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 (4.65% at
June 30, 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 is in compliance at June 30, 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 (9.5% at June 30, 2000) less
0.25%. As of June 30, 2000 and December 31, 1999, $427,644 and $0,
respectively, was outstanding under the line of credit. The demand
note line of credit was amended on July 24, 2000. The line of credit
was renewed in the amount of $1.0 million and expires July 31, 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 all 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 six months ended June 30, 2000 and the
six-months ended June 30, 1999, aggregated approximately $515,000 and
$359,000, respectively. The contracts expire in 2009.
Part 2
OTHER INFORMATION
June 30, 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 six months ended June 30, 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)
