UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
______________________
COMMISSION FILE NUMBER 1-3786
HOMASOTE COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 21-0388986
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
LOWER FERRY ROAD, WEST TRENTON, NJ 08628
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (609) 883-3300
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 November 14, 2002, 348,799 shares of common stock of the
registrant were outstanding.
Results of Operations
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(UNAUDITED)
For the three months For the nine months
ended ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- ---------- ----------
Net sales $5,981,228 $6,414,796 $18,817,814 $20,062,145
Cost of sales 4,778,672 4,845,339 14,333,724 15,050,508
--------- --------- ---------- ----------
Gross profit 1,202,556 1,569,457 4,484,090 5,011,637
Selling, general
and administrative
expenses 1,527,532 1,619,589 4,919,088 4,866,630
--------- --------- ---------- ----------
Operating (loss)
income (324,976) (50,132) (434,998) 145,007
Other (expense) income:
Interest income 3,711 15,536 13,098 67,745
Interest expense (20,876) (25,557) (59,890) (82,433)
Insurance settlement --- --- --- 1,708,472
Other income 2,210 2,570 7,872 12,531
--------- --------- ---------- ----------
(14,955) (7,451) (38,920) 1,706,315
--------- --------- ---------- ----------
(Loss) earnings before
income tax expense (339,931) (57,583) (473,918) 1,851,322
Income tax expense --- --- --- ---
--------- --------- ---------- ---------
Net (loss) earnings (339,931) (57,583) (473,918) 1,851,322
Retained earnings
at beginning of
period 14,993,938 15,482,059 15,127,925 13,608,034
Less dividends
declared and paid
($.0 per share
in 2002 and $0.10
per share in 2001) --- --- --- (34,880)
---------- ---------- ---------- ----------
Retained earnings
at end of period $14,654,007 $15,424,476 $14,654,007 $15,424,476
========== ========== ========== ==========
Basic and diluted net
(loss)earnings per
common share $ (0.97) $ (0.17) $ (1.36) $ 5.31
========== ========== ========== ==========
Weighted average basic
and diluted common
shares outstanding 348,799 348,799 348,799 348,799
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2002 2001
------------ -----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 398,365 $ 927,686
Accounts receivable (net
of allowance for doubtful
accounts of $54,270 in
2002 and $61,392 in 2001) 1,685,113 1,592,103
Inventories 3,673,845 3,506,725
Deferred income taxes 190,017 190,017
Prepaid expenses and
other current assets 328,410 255,707
----------- -----------
Total current assets 6,275,750 6,472,238
----------- -----------
Property, plant and
equipment, at cost 42,740,557 41,969,541
Less accumulated
depreciation 31,898,402 30,925,180
----------- -----------
Net property, plant and
equipment 10,842,155 11,044,361
Restricted cash 118,581 223,468
Prepaid benefit plan costs 2,608,035 2,608,035
Other assets 49,952 47,345
----------- -----------
$ 19,894,473 $ 20,395,447
=========== ===========
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2002 2001
----------- ------------
(UNAUDITED)
CURRENT LIABILITIES
Short-term debt $ 708,000 $ 564,000
Current installments of
long-term debt 458,750 447,500
Accounts payable 1,947,682 1,895,924
Accrued expenses 616,053 475,810
----------- -----------
Total current liabilities 3,730,485 3,383,234
Long-term debt, excluding
current installments 1,513,333 1,858,333
Deferred income taxes 190,017 190,017
Obligations under
benefit plans 6,162,552 6,083,758
Other liabilities 84,073 192,174
----------- -----------
Total liabilities 11,680,460 11,707,516
----------- -----------
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 14,654,007 15,127,925
----------- -----------
15,724,842 16,198,760
Less cost of common shares in
treasury - 515,196 shares in
2002 and 2001 7,510,829 7,510,829
----------- -----------
Total stockholders' equity 8,214,013 8,687,931
----------- -----------
$ 19,894,473 $ 20,395,447
=========== ===========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2002 2001
------------ ------------
Cash flows from operating
activities:
Net (loss) earnings $ (473,918) $ 1,851,322
Adjustments to reconcile net
(loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 980,503 961,153
Changes in assets and liabilities:
Increase in accounts
receivable, net (93,010) (172,979)
Increase in inventories (167,120) (707,620)
(Increase) decrease in prepaid
expenses and other current assets (72,703) 127,310
Increase in other assets (9,888) ---
Increase (decrease) in accounts
payable 51,758 (997,843)
Increase in accrued expenses 140,243 37,198
Increase (decrease) in obligations
under benefit plans 78,794 (4,691)
Decrease in other liabilities (108,101) (369,187)
---------- ----------
Net cash provided by
operating activities 326,558 724,663
---------- ----------
Cash flows from investing
activities:
Capital expenditures (771,016) (1,076,239)
Decrease in restricted cash 104,887 361,780
---------- ----------
Net cash used in investing
activities (666,129) (714,459)
---------- ----------
(continued)
Cash flows from financing
activities:
Proceeds from issuance of
short-term debt 144,000 1,443,952
Repayment of long-term debt (333,750) (322,500)
Dividends declared and paid --- (34,880)
---------- ---------
Net cash (used in) provided by
financing activities: (189,750) 1,086,572
---------- ---------
Net (decrease) increase in cash
and cash equivalents (529,321) 1,096,776
Cash and cash equivalents
at beginning of period 927,686 56,204
---------- ----------
Cash and cash equivalents
at end of period $ 398,365 $ 1,152,980
========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 59,890 $ 82,433
---------- ----------
See accompanying notes to consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED SEPTEMBER 30, 2002
Note 1. The unaudited consolidated financial information of Homasote
Company as of September 30, 2002 and for the three and nine-
month periods ended September 30, 2002 and 2001 have been
prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions of Article 10 of
Regulation S-X. In the opinion of management, all adjustments
(none of which were non-recurring) necessary for a fair
presentation of such periods has been included. The
consolidated financial information for the three and nine-
month periods ended September 30, 2002 is not necessarily
indicative of the results of operations that might be expected
for the entire year ending December 31, 2002. This unaudited
consolidated financial information should be read in
conjunction with the consolidated financial statements and
footnotes thereto for the year ended December 31, 2001
included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
Note 2. INVENTORIES
The following are the major classes of inventories as of
September 30, 2002 and December 31, 2001:
2002 2001
Finished goods.......$2,855,503 $2,670,284
Work in process...... 151,472 93,103
Raw materials........ 666,870 743,338
$3,673,845 $3,506,725
Inventories include the cost of materials, direct labor and
manufacturing overhead.
Note 3. NET (LOSS) EARNINGS PER COMMON SHARE
Basic net (loss) earnings per common share has been computed
by dividing net (loss) earnings by the weighted average number
of common shares outstanding during the respective periods.
Diluted net (loss) earnings per share is the same as basic net
(loss) earnings per common share since the Company has a
simple capital structure with only common stock outstanding in
2002 and 2001.
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 (1.75% at
September 30, 2002).
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. 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, of which
$1,972,083 was outstanding at September 30, 2002 and
$2,305,833 at December 31, 2001. Principal and interest are
payable monthly to the trustee in varying amounts through
2006. The Letter of Credit facility contains financial and
other restrictive covenants. The Agreement, as most recently
amended effective as of November 14, 2002 (the "Amended
Agreement"), contains financial and other covenants including
minimum tangible net worth, cash flow coverage, current ratio
and maximum liabilities to tangible net worth (all as
defined). The Company was not in compliance with the cash flow
coverage ratio covenant as of September 30, 2002. On November
6, 2002, the Company received a waiver of such non-compliance
from the Bank. Based on nine months actual and management's
forecasted results of operations for the fourth quarter of
2002, management believes that it will be in compliance with
all covenants as of December 31, 2002. The Amended Agreement
further provides for collateralization of the Letter of Credit
facility with substantially all of the Company's assets
excluding real property.
The Company had a $1.5 million demand note line of credit
agreement with a bank which expired July 31, 2002 and was
extended through November 14 2002. Interest was payable
monthly at the bank's prime rate (4.75% at September 30, 2002)
less 0.25%. As of September 30, 2002 and December 31, 2001,
$708,000 and $564,000, respectively, was outstanding under the
line of credit. The line of credit was renewed and expires
June 30,2003. Under the line of credit agreement, the Company
may borrow up to a specified percentage of eligible
receivables and inventory as defined. Interest is payable
monthly at the bank's prime rate plus 0.25%. The unused credit
available under this facility at September 30, 2002 was
$792,000. The line of credit agreement also provides for an
unused line of credit fee of 0.25% per annum. 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 excluding real
property.
Note 5. RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial
statements in order to conform with the 2002 presentation.
Note 6. RECENTLY ISSUED ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement No. 141, Business Combinations
("SFAS 141") and Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142") and in August 2001 the FASB
issued statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 141
requires that the purchase method of accounting be used for
all business combinations initiated or completed after June
30, 2001. SFAS 141 also specifies criteria that intangible
assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill. SFAS
142 requires, commencing January 1, 2002, that goodwill and
intangible assets with indefinite useful lives no longer be
amortized. Instead, they will be tested for impairment at
least annually in accordance with the provisions of SFAS 142.
SFAS 142 will also require that intangible assets with
definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144. The
Company's implementation of SFAS 144 had no impact on the
Company's consolidated financial statements. As the Company
has no goodwill or intangible assets, the adoption of SFAS 141
and 142 had no effect on the Company's consolidated financial
statements.
Note 7: The Company is engaged in a dispute with a former energy
supplier regarding the efforts of the supplier to change the
method of pricing. The Company has filed a declaratory
judgment action in the Superior Court of the State of New
Jersey seeking a judgment that the supplier repudiated the
contract with the Company by endeavoring to implement a method
of pricing that was inconsistent with the provisions of the
contract. The defendant has removed the case to the Federal
District Court for the District of New Jersey. Discovery is
complete and the matter is being scheduled for trial. The
Company believes that the outcome of this dispute will not
have a material effect on the Company's financial position,
results of operations and liquidity.
FORM 10-Q
HOMASOTE COMPANY AND SUBSIDIARY
September 30, 2002
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 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;
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.
RESULTS OF OPERATIONS
The Company's sales are derived from building material wholesalers
and industrial manufacturers. Sales during the three months ended
September 30, 2002 decreased by $433,568 or 6.8% to $5,981,228 from
$6,414,796 in the three months ended September 30, 2001. Sales for the
nine month period ended September 30, 2002 decreased by $1,244,331 or
6.2% to $18,817,814 from $20,062,145 in the nine months ended September
30, 2001. The decrease has been attributable in part to deteriorated
economic conditions in the packaging industry in general and the closing
of plants and replacement of Homasote product by a former principal
export customer, in particular, offset by increasing acceptance of the
Company's new glass separator product, Staplesafe (patent pending). An
international customer ceased purchases of private label millboard
product from the Company in the fourth quarter of 2001 due to their
purchase and conversion of a plant to produce their own product,
significantly reducing our sales in the current year period as compared
to the prior year. Additionally, sales in the 2001 period were affected
positively by the implementation of a necessary 7% energy surcharge by
the Company, effective for shipments during the first seven months of
2001. These factors were partially offset by improved shipments of the
Company's polyisocyanurate and Nova product lines in the current year
period.
Gross profit as a percentage of sales, was 20.1% and 24.5%,
respectively, for the three-month periods ended September 30, 2002 and
2001 and 23.8% and 25.0%, respectively, for the nine-month periods ended
September 30, 2002 and 2001. Third quarter margins during 2002 were
substantially lower than those of the second quarter and the comparable
year ago period due to production interruptions and inefficiencies
caused by unplanned machine downtime in our board making lines and
primary cutting operation and a planned ten day maintenance shutdown
period. These events resulted in abnormally low levels of board
production and under-absorption of manufacturing overhead. Decreased
demand for product as discussed above also contributed to a reduction in
realized gross profit, partially offset by reduced costs of fuel and
labor.
Selling, general and administrative expenses as a percentage of
sales were 25.5% and 25.2%, respectively, for the three-month periods
ended September 30, 2002 and 2001 and 26.1% and 24.3%, respectively, for
the nine-month periods ended September 30, 2002 and 2001. Selling,
general and administrative expenses decreased to $1,527,532 for the
three-month period ended September 30, 2002, as compared to $1,619,589
for the three-month period ended September 30, 2001 and increased to
$4,919,088 for the nine-month period ended September 30, 2002, compared
to $4,866,630 for the nine-month period ended September 30, 2001. The
increase in the relative percentage of selling, general and
administrative expenses is primarily attributable to the reduced volume
of sales in the current year period. Selling, general and
administrative expenses decreased in the third quarter of 2002 primarily
in the areas of Company-placed advertising and promotion, cooperative
advertising, sales incentive programs and administration and other
compensation, partially offset by increased sales agent commission
costs, professional fees, retirement costs, outside contracts for
product performance and building code approval testing and franchise
taxes.
Interest income decreased to $3,711 for the three-month period ended
September 30, 2002, as compared to $15,536 for the three-month period
ended September 30, 2001. Interest income decreased to $13,098 for the
nine-month period ended September 30, 2002 as compared to $67,745 for
the nine-month period ended September 30, 2001. The decrease in interest
income is attributable to reduced earnings from an investment of funds
received in the insurance settlement discussed elsewhere in this report,
resulting from lower levels of invested funds and prevailing interest
rates.
Interest expense on debt decreased to $20,876 and $59,890
respectively, for the three and nine-month periods ended September 30,
2002, as compared to $25,557 and $82,433, respectively, for the three
and nine-month periods ended September 30, 2001. The decrease is
primarily attributable to reductions in the Company's cost of borrowed
funds on its variable rate debt, partially offset by the Company's
increase in net borrowings.
As previously reported, on January 24, 2001, the Company received
$2,039,286 related to an insurance settlement, which was net of $210,714
due, or potentially due, to an insurance adjuster. The amount due to
the adjuster is in dispute. The Company and its bank agreed that
$330,814 of the proceeds received were to be restricted for use under
the terms of its loan agreement with the New Jersey Economic Development
Authority to pay costs incurred to repair and make certain improvements
to the dryer damaged in the fires. Such amount was recorded in
restricted cash and other liabilities upon receipt. The balance of such
funds as of September 30, 2002 is $276,635. The balance of the proceeds
received, $1,708,472, was recorded under other income. The Company is in
the process of reinvesting the proceeds of this settlement in like kind
assets (as defined by the Internal Revenue Code) and, as such, the
proceeds are not currently taxable.
Other income decreased to $2,210 for the three-month period ended
September 30, 2002, as compared to $2,570 for the three-month ended
September 30, 2001 and to $7,872 for the nine-month period ended
September 30, 2002, as compared to $12,531 for the nine-month period
ended September 30, 2001. The decrease is due primarily to decreases in
the net price and quantity of corrugated paper sold as scrap.
As a result of the foregoing, net losses were $(339,931)and
$(473,918), respectively, for the three and nine-month periods ended
September 30, 2002, as compared to net (loss) earnings of $(57,583) and
$1,851,322, respectively, for the three and nine-month periods ended
September 30, 2001.
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 nine-month periods
ended September 30, 2002 and 2001, respectively.
Working capital was $2.5 million at September 30, 2002, as compared
to $3.1 million at December 31, 2001, a decrease of $0.6 million, due
primarily to the use of funds to finance capital expenditures.
Capital expenditures for new and improved facilities and equipment,
which are financed primarily through internally generated funds and
debt, were $0.8 million and $1.1 million in 2002 and 2001, respectively.
The Company has estimated capital expenditures for the remaining three
(3) months of 2002 in the amount of $0.1 million.
Cash flows from financing activities decreased from $1.1 million
provided in 2001 to $0.2 million used in 2002, primarily as a result of
the increase in short term debt of $1.4 million during the period ended
September 30, 2001 compared to an increase in short-term debt of $0.1
million during the period ended September 30, 2002.
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 (1.75% at September 30,
2002).
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. 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, of which $1,972,083 was outstanding at September
30, 2002 and $2,305,833 at December 31, 2001. Principal and interest
are payable monthly to the trustee in varying amounts through 2006. The
Letter of Credit facility contains financial and other restrictive
covenants. The Agreement, as most recently amended effective as of
November 14, 2002 (the "Amended Agreement"), contains financial and
other covenants including minimum tangible net worth, cash flow
coverage, current ratio and maximum liabilities to tangible net worth
(all as defined). The Company was not in compliance with the cash flow
coverage ratio covenant as of September 30, 2002. On November 6, 2002,
the Company received a waiver of such non-compliance from the Bank.
Based on nine months actual and management's forecasted results of
operations for the fourth quarter of 2002, management believes that it
will be in compliance with all covenants as of December 31, 2002. The
Amended Agreement further provides for collateralization of the Letter
of Credit facility with substantially all of the Company's assets
excluding real property.
The Company had a $1.5 million demand note line of credit agreement
with a bank which expired July 31, 2002 and was extended through
November 14, 2002. Interest was payable monthly at the bank's prime rate
(4.75% at September 30, 2002) less 0.25%. As of September 30, 2002 and
December 31, 2001, $708,000 and $564,000, respectively, was outstanding
under the line of credit. The line of credit was renewed and expires
June 30,2003. Under the line of credit agreement, the Company may borrow
up to a specified percentage of eligible receivables and inventory as
defined. Interest is payable monthly at the bank's prime rate plus
0.25%. The unused credit available under this facility at September 30,
2002 was $792,000. The line of credit agreement also provides for an
unused line of credit fee of 0.25% per annum. 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
excluding real property.
Management believes that all cash flows from operations, coupled
with its bank credit facilities, are adequate for the Company to meet
its obligations through 2003.
RECENT ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No.
143 requires companies to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or
normal use of the assets. Companies also record a corresponding asset
which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the
obligation. The Company is required to adopt SFAS No. 143 on January 1,
2003 and the Company does not anticipate that the statement will have a
material impact on the Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Such costs covered by the
standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation,
plant closing, or other exit or disposal activity. SFAS No. 146
replaces the previous accounting guidance provided by the Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
to be applied prospectively to exit or disposal activities initiated
after December 31, 2002, and the Company does not anticipate that the
statement will have a material impact on the Company's consolidated
financial statements.
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. Management
believes the business operations of the Company have been affected by
the general decline in the economy.
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 the Company to purchase all of the
wastepaper offered by the suppliers, which is generally below the
Company's normal usage. Purchases in the nine months ended September
30, 2002 and 2001, aggregated approximately $518,000 and $652,000,
respectively. The contracts expire in 2009.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to
fluctuations in interest rates and equity market risks as the Company
seeks debt and equity capital to sustain its operations.
The information below summarizes the Company's market risk
associated with its debt obligations as of September 30, 2002. Fair
value included herein has been estimated taking into consideration the
nature and term of the debt instrument and the prevailing economic and
market conditions at the balance sheet date. The table below presents
principal cash flows by year of maturity based on the terms of the debt.
The variable interest rate disclosed represents the rate at September
30, 2002. Changes in the prime interest rate during fiscal 2002 will
have a positive or negative effect on the Company's interest expense.
The Company had $2,680,083 of debt outstanding as of September 30, 2002.
Further information specific to the Company's debt is presented in note
4 to the unaudited consolidated financial statements.
ESTIMATED CARRYING YEAR OF INTEREST
DESCRIPTION FAIR VALUE AMOUNT MATURITY RATE
DEMAND NOTE $ 708,000 $ 708,000 2002 4.5 %
LONG TERM DEBT
INCLUDING CURRENT
INSTALLMENTS $ 113,750 $ 113,750 2002
462,500 462,500 2003
477,500 477,500 2004
493,333 493,333 2005
425,000 425,000 2006
__________ __________
$1,972,083 $1,972,083 1.75%
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13-a-15 under the Exchange Act, within the
90 days prior to the filing date of this report, the Company carried out
an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of the
Company's management including the Company's Chief Executive Officer
along with the Company's Chief Financial Officer. Based upon that
evaluation, the Company's Chief Executive Officer along with the
Company's Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. There have been no
significant changes in the Company's internal controls or in other
factors, which could significantly affect internal controls subsequent
to the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be
disclosed in Company reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed in Company reports filed under the Exchange Act is accumulated
and communicated to management, including the Company's Chief Executive
Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
under 18 U.S.C. Section 1350,as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer under 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - There are no reports on Form
8-K filed for the nine months ended September 30, 2002.
SIGNATURES
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)
/s/ Warren L. Flicker /s/ James M. Reiser
Warren L. Flicker James M. Reiser
Chairman of the Board and Vice President and
Chief Executive Officer Chief Financial Officer
Date: November 14, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Warren L. Flicker, certify that:
1. I have reviewed this quarterly report of Form 10-Q of
Homasote Company;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /s/ Warren L. Flicker
Warren L. Flicker
Chairman of the Board and
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Reiser, certify that:
1. I have reviewed this quarterly report of Form 10-Q of
Homasote Company;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /s/ James M. Reiser
James M. Reiser
Vice-President and
Chief Financial Officer
Exhibit 99.1
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Homasote Company (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Warren L. Flicker, Chief Executive Officer of the Company,
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations
of the Company at the dates and for the periods shown in such report.
Date: November 14, 2002
By: /s/ Warren L. Flicker
Warren L. Flicker
Chairman of the Board and
Chief Executive Officer
Exhibit 99.2
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Homasote Company (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, James M. Reiser, Chief Financial Officer of the Company,
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations
of the Company at the dates and for the periods shown in such report.
Date: November 14, 2002
By: /s/ James M. Reiser
James M. Reiser
Vice-President and
Chief Financial Officer