FORM 10-K
------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002
OR
[ ] 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.)
932 LOWER FERRY ROAD, WEST TRENTON, NJ 08628
(Address of principal executive office, including zip code)
609-883-3300
(Registrant's telephone number, including area code)
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.
( )Yes (X)No
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Rule 12-b-2 of the Securities Exchange Act).
( )Yes (X)No
As of May 22, 2003, (the last day on which a sale of the common stock
was reported) the Aggregate Market Value of the Voting Stock held by
non-affiliates was $1,652,121.
As of July 14, 2003, there were 348,799 shares of common stock, $.20
par value, outstanding.
Documents Incorporated by Reference
Homasote Company 2002 Annual Report to Stockholders (Parts II And IV).
Proxy Statement of the Company dated August 15, 2003 for the Annual
Meeting to be held on September 15, 2003.
INDEX TO FORM 10-K
PART I
ITEM 1. BUSINESS
(A) GENERAL BUSINESS DEVELOPMENT
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(C) NARRATIVE DESCRIPTION OF BUSINESS
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
ITEM 2. PROPERTIES
ITEM 3 LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. CONTROLS AND PROCEDURES
PART IV
ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS
(A) GENERAL BUSINESS DEVELOPMENT
HOMASOTE COMPANY IS IN THE BUSINESS OF MANUFACTURING
INSULATED WOOD FIBER BOARD AND POLYISOCYANURATE FOAM
PRODUCTS.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
THE COMPANY OPERATES IN ONLY ONE INDUSTRY SEGMENT, THE
MANUFACTURE AND SALE OF RIGID POLYISOCYANURATE AND
STRUCTURAL INSULATING BUILDING MATERIALS AND
PACKAGING PRODUCTS FOR INDUSTRIAL CUSTOMERS.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(I) PRINCIPAL PRODUCTS AND SERVICES
THE PRINCIPAL PRODUCT OF THE REGISTRANT IS"HOMASOTE"
INSULATING AND BUILDING BOARD MANUFACTURED IN VARIOUS
THICKNESSES, SIZES AND FINISHES. THE BASIC RAW
MATERIAL IS WOOD FIBER OBTAINED FROM RECONVERTING
CLEAN, FLAT FOLDED NEWSPAPERS. IT IS COMBINED WITH
VARIOUS CHEMICALS TO PRODUCE RIGID, SIDEWALL, FLOOR AND
ROOFING INSULATION IN VARIOUS SHEET SIZES AND
THICKNESSES. THIS PRODUCT HAS NO ASBESTOS AND NO
UREAFORMALDEHYDE ADDITIVES.
THE PRINCIPAL MARKETS FOR THE REGISTRANT'S PRODUCTS
ARE BUILDING MATERIAL WHOLESALERS AND CONTRACTORS
AND INDUSTRIAL MANUFACTURERS. PRODUCTS ARE DISTRIBUTED
THROUGH WHOLESALERS OF BUILDING MATERIALS AND
INDUSTRIAL MANUFACTURERS. THE REGISTRANT IS CONTINUING
TO BROADEN ITS COVERAGE IN THE AUTOMOTIVE, GLASS AND
STEEL MARKETS.
(II) PRODUCT IMPROVEMENTS AND NEW APPLICATIONS
APPLICATIONS FOR THE USE OF HOMASOTE BOARDS IN FLOOR
AND WALL SYSTEMS FOR SOUND CONTROL ARE OPENING
AVENUES IN THE CUSTOMER BASE. A NEW GLASS SEPARATOR
PRODUCT, Staple-Safe(TM), WAS INTRODUCED IN 2001 AND IS
ENJOYING INCREASING ACCEPTANCE BY DOMESTIC AND
INTERNATIONAL GLASS MANUFACTURERS. SEE "LETTER TO
SHAREHOLDERS AND EMPLOYEES" WHICH IS INCORPORATED
HEREIN BY REFERENCE AS PART OF EXHIBIT 13.
(III)RAW MATERIALS
THE COMPANY'S PRIMARY RAW MATERIAL, WASTEPAPER, IS
GENERALLY READILY AVAILABLE FROM TWO SUPPLIERS WITH
WHICH THE COMPANY HAS PURCHASE CONTRACTS THAT EXPIRE
IN 2009.
(IV) PATENTS
THERE ARE NO PATENTS, LICENSES, FRANCHISES OR
CONCESSIONS IMPORTANT TO THE CONDUCT OF THE BUSINESS
OF THE REGISTRANT OR ITS SUBSIDIARY.
(V) SEASONAL BUSINESS
NO MATERIAL PORTION OF THE BUSINESS OF THE REGISTRANT
IS SEASONAL.
(VI) WORKING CAPITAL REQUIREMENTS
THE REGISTRANT BELIEVES THAT ITS OPERATION DOES NOT
REQUIRE ANY UNUSUAL WORKING CAPITAL NEEDS.
AVAILABLE CREDIT FACILITIES AND CASH GENERATED FROM
OPERATIONS ARE SUFFICIENT TO MEET WORKING CAPITAL
REQUIREMENTS. SEE "LIQUIDITY AND CAPITAL RESOURCES"
UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS",
WHICH IS INCORPORATED HEREIN BY REFERENCE AS PART OF
EXHIBIT 13.
(VII)MATERIAL CUSTOMERS
ONE CUSTOMER ACCOUNTED FOR 10%, 11% AND 10% OF THE
COMPANY'S SALES IN 2002, 2001 AND 2000, RESPECTIVELY,
AND 7% AND 17% OF ACCOUNTS RECEIVABLE AT DECEMBER
31, 2002 AND 2001, RESPECTIVELY.
(VIII) BACKLOG
BACKLOG IS NOT MEANINGFUL SINCE MOST CUSTOMERS ORDER
FOR IMMEDIATE AND PROMPT DELIVERY. A FEW CUSTOMERS
SCHEDULE DELIVERIES SEVERAL WEEKS IN ADVANCE.
(IX) GOVERNMENT CONTRACTS
NO MATERIAL PORTION OF THE REGISTRANT'S BUSINESS IS
SUBJECT TO RENEGOTIATION OF PROFITS OR TO TERMINATION
OF CONTRACTS BY THE GOVERNMENT.
(X) COMPETITIVE CONDITIONS
HOMASOTE IS A MEDIUM DENSITY FIBER BOARD. IT IS USED
AS AN UNDERLAYMENT, PROVIDING SOUND CONTROL IN
BUILDINGS DIRECTLY UNDER MANY TYPES OF FINISHED
FLOORING (I.E., CARPET, SOLID WOOD, CERAMIC).HOMASOTE'S
STRUCTURAL ABILITY ALLOWS THE BOARD TO BE USED AS AN
EXCELLENT TACKABLE SUBSTRATE FOR BULLETIN BOARDS AND
WALL PANELS. THE BOARD'S CHARACTERISTICS ALLOW IT TO
BE UTILIZED IN A VARIETY OF PACKAGING APPLICATIONS. THE
440 SOUND BARRIER TAKES THE PLACE OF GYPCRETE (POURED
CONCRETE) IN FLOOR SYSTEMS FOR SOUND AND FIRE CONTROL.
HOMEX EXPANSION JOINT AND FORMING BOARD COMPETES
DIRECTLY WITH ASPHALT IMPREGNATED EXPANSION MATERIALS.
(XI) RESEARCH AND DEVELOPMENT
THE REGISTRANT DEFINES RESEARCH AS THE EXPERIMENTATION
WITH RESPECT TO NEW PRODUCTS OR DESIGNS. IT DEFINES
QUALITY CONTROL AS THE ONGOING SUPPORT FOR EXISTING
PRODUCTS OR DESIGNS. DURING THE YEARS ENDED DECEMBER
31, 2002, 2001 AND 2000, NO AMOUNTS WERE SPENT ON
RESEARCH AND DEVELOPMENT.
DURING THE YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000, THE REGISTRANT INCURRED QUALITY CONTROL COSTS OF
$95,830, $93,684, AND $148,954, RESPECTIVELY.
(XII)ENVIRONMENTAL PROTECTION
AS OF DECEMBER 31, 2002, COMPLIANCE WITH FEDERAL, STATE
AND LOCAL PROVISIONS WHICH HAVE BEEN ENACTED OR ADOPTED
TO REGULATE THE PROTECTION OF THE ENVIRONMENT WILL NOT
HAVE A MATERIAL EFFECT UPON THE CAPITAL EXPENDITURES,
RESULTS OF OPERATIONS OR COMPETITIVE POSITION OF THE
REGISTRANT OR ITS SUBSIDIARY. THE REGISTRANT DOES NOT
EXPECT TO MAKE ANY MATERIAL CAPITAL EXPENDITURES FOR
ENVIRONMENTAL CONTROL FACILITIES FOR ITS 2003 FISCAL
YEAR.
(XIII)NUMBER OF EMPLOYEES
AS OF DECEMBER 31, 2002, THE REGISTRANT EMPLOYED 194
EMPLOYEES, AS COMPARED TO 213 IN 2001.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
EXPORT SALES, PRIMARILY IN CANADA AND THE UNITED KINGDOM,
ACCOUNTED FOR APPROXIMATELY 6% IN THE YEAR ENDED DECEMBER
31, 2002 AND 13% AND 11% IN THE YEARS ENDED DECEMBER 31,
2001 AND 2000, RESPECTIVELY, OF THE REGISTRANT'S TOTAL
SALES. THE REGISTRANT IS CONTINUING ITS EFFORTS TO EXPAND
SALES WORLDWIDE.
ITEM 2. PROPERTIES
THE REGISTRANT'S PLANT AND MAIN OFFICES ARE LOCATED AT 932
LOWER FERRY ROAD, EWING TOWNSHIP, WEST TRENTON, NEW JERSEY.
THE PROPERTY CONSISTS OF APPROXIMATELY 28 ACRES WITH PRIVATE
RAILROAD SIDINGS ENTERING THE SHIPPING AND MANUFACTURING
AREAS. BUILDINGS ARE OF CINDER BLOCK AND BRICK
CONSTRUCTION, WITH A FLOOR AREA OF APPROXIMATELY 600,000
SQUARE FEET, WHICH ARE ARRANGED FOR THE MANUFACTURE AND
FINISHING OF ALL THE REGISTRANT'S PRODUCTS. THE ENTIRE
AREA IS PROTECTED WITH AN ENCLOSURE OF CYCLONE FENCING AND
GUARD HOUSE. ALL MANUFACTURING OPERATIONS AND THE OFFICE
COMPLEX ARE PROTECTED BY FIRE SPRINKLERS AND ARE MONITORED
BY A SECURITY COMPANY FOR FIRE PROTECTION. ALL PROPERTY IS
HELD IN FEE SIMPLE. THE MANUFACTURING OPERATION GENERALLY
RUNS THREE SHIFTS, FIVE DAYS A WEEK. PRODUCTION SCHEDULING
AND ACTIVITY IS DEPENDENT DIRECTLY UPON THE ECONOMIC
CONDITION OF THE BUILDING CONSTRUCTION AND MANUFACTURING
INDUSTRIES.
ITEM 3. LEGAL PROCEEDINGS
FROM TIME TO TIME THE COMPANY IS INVOLVED IN LEGAL
PROCEEDINGS RELATING TO CLAIMS ARISING OUT OF THE NORMAL
COURSE OF BUSINESS. THE COMPANY BELIEVES THAT THERE ARE NO
MATERIAL LEGAL PROCEEDINGS PENDING OR THREATENED AGAINST THE
COMPANY AS OF DECEMBER 31, 2002. HOWEVER, SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS" RESPECTING THE SETTLEMENT IN 2001
OF CERTAIN LITIGATION, INCLUDING THAT BROUGHT BY THE
REGISTRANT AGAINST ITS INSURANCE CARRIER RELATIVE TO LOSSES
INCURRED AS A RESULT OF FIRES INVOLVING A DRYER USED IN THE
MANUFACTURING PROCESS, WHICH DISCUSSION IS INCORPORATED
HEREIN BY REFERENCE TO EXHIBIT 13.
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. THE
SUPPLIER FILED AN ANSWER, AFFIRMATIVE DEFENSES AND
COUNTERCLAIM AGAINST THE COMPANY, SEEKING DAMAGES OF
$171,000 PLUS INTEREST AND ATTORNEY'S FEES FOR BREACH OF
CONTRACT OF THE NATURAL GAS SALES CONTRACT AND FOR BREACH OF
THE IMPLIED OBLIGATION OF GOOD FAITH AND FAIR DEALING AS
WELL. THE MATTER WAS TRIED IN JUNE, 2003. POST-TRIAL
SUBMISSIONS ARE DUE JULY 18,2003 AND AUGUST 1, 2003. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NOT
APPLICABLE.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
THIS INFORMATION IS INCLUDED IN THE HOMASOTE COMPANY 2002
ANNUAL REPORT TO STOCKHOLDERS. SEE THE TWO YEAR DIVIDEND
AND STOCK PRICE COMPARISON SECTION OF SUCH REPORT
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SEE CONSOLIDATED FIVE YEAR HIGHLIGHTS SECTION OF THE
HOMASOTE COMPANY 2002 ANNUAL REPORT TO STOCKHOLDERS
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEE MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION OF THE
HOMASOTE COMPANY 2002 ANNUAL REPORT TO STOCKHOLDERS
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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 DECEMBER 31,
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 DECEMBER 31, 2002. CHANGES IN THE
PRIME INTEREST RATE DURING FISCAL 2003 WILL HAVE A POSITIVE
OR NEGATIVE EFFECT ON THE COMPANY'S INTEREST EXPENSE. THE
COMPANY HAD $2,455,333 OF DEBT OUTSTANDING AT DECEMBER 31,
2002. FURTHER INFORMATION SPECIFIC TO THE COMPANY'S DEBT
IS PRESENTED IN NOTE 4 TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
ESTIMATED CARRYING YEAR OF INTEREST
DESCRIPTION FAIR VALUE AMOUNT MATURITY RATE
DEMAND NOTE $ 597,000 $ 597,000 2002 4.5 %
LONG-TERM DEBT
INCLUDING CURRENT
INSTALLMENTS $ 462,500 $ 462,500 2003
477,500 477,500 2004
493,333 493,333 2005
425,000 425,000 2006
_________ _________
$ 1,858,333 $1,858,333 1.65%
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS OF THE HOMASOTE COMPANY
2002 ANNUAL REPORT TO STOCKHOLDERS INCORPORATED HEREIN BY
REFERENCE AS EXHIBIT 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) DIRECTORS
INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY
STATEMENT OF THE COMPANY DATED AUGUST 15, 2003 FOR THE
ANNUAL MEETING TO BE HELD ON SEPTEMBER 15, 2003, WHICH IS
ATTACHED HERETO AS EXHIBIT 99.3.
(B) EXECUTIVE OFFICERS
EXPERIENCE
STARTED IN YEARS
IN AT
NAME (5) TITLE POSITION POSITION AGE
- ------------------ --------- -------- -------- ---
WARREN L. FLICKER CHAIRMAN OF
(1) THE BOARD AND
CHIEF EXECUTIVE
OFFICER 1/01/00 3 59
PETER J. MCELVOGUE PRESIDENT 7/1/00 3 40
(2)
JAMES M. REISER VICE PRESIDENT 3/01/99 4 60
(3) AND CHIEF
FINANCIAL
OFFICER
JENNIFER D. BARTKOVICH
(4) SECRETARY 5/03/01 2 34
(1) EMPLOYED BY THE COMPANY SINCE 1965.
(2) EMPLOYED BY THE COMPANY SINCE 2000.
(3) EMPLOYED BY THE COMPANY SINCE 1999.
(4) EMPLOYED BY THE COMPANY SINCE 2000.
(5) THE OFFICERS MENTIONED ABOVE ARE RE-ELECTED EACH YEAR
BY THE BOARD OF DIRECTORS AT THEIR ANNUAL MEETING.
ITEM 11. EXECUTIVE COMPENSATION
INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY
STATEMENT OF THE COMPANY DATED AUGUST 15, 2003 FOR THE
ANNUAL MEETING TO BE HELD ON SEPTEMBER 15, 2003, WHICH IS
ATTACHED HERETO AS EXHIBIT 99.3.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY
STATEMENT OF THE COMPANY DATED AUGUST 15, 2003 FOR THE
ANNUAL MEETING TO BE HELD ON SEPTEMBER 15, 2003, WHICH IS
ATTACHED HERETO AS EXHIBIT 99.3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INCORPORATED BY REFERENCE FROM THE DEFINITIVE PROXY
STATEMENT OF THE COMPANY DATED AUGUST 15, 2003 FOR THE
ANNUAL MEETING TO BE HELD ON SEPTEMBER 15, 2003, WHICH IS
ATTACHED HERETO AS EXHIBIT 99.3.
ITEM 14. 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 IV
ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED HEREIN
BY REFERENCE AS PART OF EXHIBIT 13.
INDEPENDENT AUDITORS' REPORT INCORPORATED HEREIN BY
REFERENCE AS PART OF EXHIBIT 13.
CONSOLIDATED STATEMENTS OF OPERATIONS - YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000 INCORPORATED HEREIN
BY REFERENCE AS PART OF EXHIBIT 13.
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002 AND
2001 INCORPORATED HEREIN BY REFERENCE AS PART OF
EXHIBIT 13.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY - DECEMBER 31, 2002 AND 2001 INCORPORATED
HEREIN BY REFERENCE AS PART OF EXHIBIT 13.
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000 INCORPORATED HEREIN
BY REFERENCE AS PART OF EXHIBIT 13.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED
HEREIN BY REFERENCE AS PART OF EXHIBIT 13.
(2) FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT-INCORPORATED BY REFERENCE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS -
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
INCORPORATED BY REFERENCE TO EXHIBIT 13.
NO OTHER SCHEDULES ARE REQUIRED.
(3) EXHIBITS
3 ARTICLES OF INCORPORATION AND BYLAWS*
13 HOMASOTE COMPANY 2002 ANNUAL REPORT TO
STOCKHOLDERS
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.
99.3 DEFINITIVE PROXY STATEMENT OF THE COMPANY DATED
AUGUST 15, 2003 FILED PURSUANT TO SECTION 14 (A)
OF THE SECURITIES EXCHANGE ACT OF 1934.
(B) REPORT ON FORM 8-K
NO REPORTS ON FORM 8-K WERE FILED IN THE THREE
MONTHS ENDED DECEMBER 31, 2002.
*PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) 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: JULY 28, 2003
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES ON THE DATE INDICATED.
/S/ WARREN FLICKER CHAIRMAN, CEO JULY 28, 2003
& DIRECTOR
/S/ PETER J. MCELVOGUE PRESIDENT JULY 28, 2003
/S/ JAMES M. REISER VICE PRESIDENT JULY 28, 2003
CFO & DIRECTOR
/S/ JOSEPH A. BRONSARD DIRECTOR JULY 28, 2003
/S/ MICHAEL FLICKER DIRECTOR JULY 28, 2003
/S/ IRENE T. GRAHAM DIRECTOR JULY 28, 2003
/S/ PETER N. OUTERBRIDGE DIRECTOR JULY 28, 2003
/S/ CHARLES A. SABINO DIRECTOR JULY 28, 2003
/S/ NORMAN SHARLIN DIRECTOR JULY 28, 2003
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 annual report on Form 10-K of
Homasote Company;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: July 28, 2003
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 annual report on Form 10-K of
Homasote Company;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: July 28, 2003
By: /s/ James M. Reiser
James M. Reiser
Vice-President and
Chief Financial Officer
TO SHAREHOLDERS AND EMPLOYEES EXHIBIT 13
Herewith is presented the annual report of Homasote Company for the year
ended December 31, 2002. It is evident that the country is facing a
year of economic challenge. Our Company's customers in both
construction and packaging have expressed their concern over an
uncertain business climate.
Homasote's major markets in millboard are multi-family housing and
commercial construction, both of which showed periodic signs of growth,
but were flat overall for the year. One major export customer was lost,
but through the success of our millboard marketing sales effort,
comparable volume suffered only slightly. Industrial (Pak-Line(R))
sales were also affected by the loss of a major export account. The
loss of these two customers account for the majority of the sales
decline in 2002.
On the millboard side, applications of Homasote building products have
significantly changed over the last decade. We had traditionally sold
our products into commodity applications with declining success due to
competitive pressure from pricing and new products. Our products,
marketing efforts and sales force now target the specification
professional, such as the architectural, design and builder communities.
In order to successfully sell to this type of customer, the Company must
first have additional fire ratings and code approvals in place as well
as third party independent testing to substantiate our marketing claims.
We have completed a substantial portion of this transformation.
We proudly promote that our products are made from 100% recycled
materials and have a finished product recycled content that is second to
none in the building industry. We are also moving towards long-term
sustainability through our products, our manufacturing process and our
goal to achieve increased energy efficiency, all of which will improve
our products life-cycle benefits.
Homasote has an historic opportunity in the market. Our Company is a
member of the United States Green Building Council (USGBC), a consensus
organization whose mission is to champion the cause of green design in
building. The USGBC developed a rating system called LEED (Leadership
in Energy & Environmental Design), under which buildings are rated based
on six categories: sustainable sites, water efficiency, energy and
atmosphere, materials & resources, indoor air quality and innovation &
design process. Each category has an accumulated potential point value.
A building can achieve a rating based on the number of points it
achieves during construction or renovation. Homasote products offer an
opportunity to achieve points in several of the six categories mentioned
above. There is tremendous momentum and exponential growth in this
market, both in the public and private sectors, to achieve a LEED- rated
building. Homasote's marketing plan, to be a specification-driven
product line and offer unsurpassed environmental advantages, provides an
unprecedented opportunity to market our products to the USGBC audience,
which consists of architects, design professionals, federal, state and
local governments, schools and universities, and the high end private
sector, all of whom are focused on sustainable construction.
On the industrial packaging side, we have focused our sales and
marketing to provide a product line approach in specific industries such
as glass, steel and paper. In the past, we have focused on providing
packaging on a job basis, which has been a declining part of our
business. Our Staple-Safe(TM) glass strip, is an innovative new product
for use as a glass pad during shipping. It is now widely accepted in
the market. Both new and existing customers are now stocking this
product. A specialized saw has been ordered so smaller lengths can be
supplied to our customers, thereby adding value to our strip lines of
Staple-Safe(TM) and Homex 300(R). Similar steps have been taken to
expand existing product lines in the paper and steel industries. There
is also opportunity to use Homasote packaging in the returnable and
sustainable packaging markets, which will fit in well with our efforts
on the building products side and further enhance our Company's "green"
image.
Net sales for 2002 were $25,067,400 versus 2001 sales of $25,721,385, a
decrease of $653,985 or 2.5%. Net loss for the year was $(500,411)
resulting in diluted net loss per common share of $(1.43). Working
capital was $2,448,499, a decrease of $640,505 from the previous year.
Best wishes for a long and happy retirement to Les Kugler who retired at
the end of 2002.
We wish to thank our loyal shareholders, directors, officers,
management, employees, customers, and suppliers for their continued
support.
Warren L. Flicker Peter J. McElvogue
Chairman of the Board, President
Chief Executive Officer
Homasote Company and Subsidiary
Consolidated Five Year Highlights
2002
-----------
Net sales $ 25,067,400
Depreciation and amortization $ 1,290,700
Net(loss)earnings $ (500,411)
Common shares outstanding
(weighted average basic and diluted) 348,799
Basic and diluted net (loss) earnings
per common share $ (1.43)
Dividends-declared and paid $ 0.00
Dividends per share $ 0.00
Working capital $ 2,448,499
Working capital ratio 1.7:1
Capital expenditures $ 861,723
Total assets $ 17,560,726
Long-term debt, excluding current
portion $ 1,395,833
Stockholders' equity $ 6,106,967
Common shares outstanding 348,799
Per share book value of common stock $ 17.51
2001 (a)
-----------
Net sales $ 25,721,385
Depreciation and amortization $ 1,279,645
Net (loss) earnings $ 1,554,771
Common shares outstanding
(weighted average basic and diluted) 348,799
Basic and diluted net (loss) earnings
per common share $ 4.46
Dividends-declared and paid $ 34,880
Dividends per share $ .10
Working capital $ 3,089,004
Working capital ratio 1.9:1
Capital expenditures $ 1,355,098
Total assets $ 20,395,447
Long-term debt, excluding current
portion $ 1,858,333
Stockholders' equity $ 8,687,931
Common shares outstanding 348,799
Per share book value of common stock $ 24.91
Homasote Company and Subsidiary
Consolidated Five Year Highlights
2000
-----------
Net sales $ 27,744,946
Depreciation and amortization $ 1,262,672
Net (loss) earnings $ 313,692
Common shares outstanding
(weighted average basic and diluted) 348,799
Basic and diluted net (loss) earnings
per common share $ .90
Dividends-declared and paid $ 34,880
Dividends per share $ .10
Working capital $ 1,928,925
Working capital ratio 1.5:1
Capital expenditures $ 1,519,990
Total assets $ 19,750,205
Long-term debt, excluding current
portion $ 2,305,833
Stockholders' equity $ 7,168,040
Common shares outstanding 348,799
Per share book value of common stock $ 20.55
Homasote Company and Subsidiary
Consolidated Five Year Highlights
1999
-----------
Net sales $ 25,018,201
Depreciation and amortization $ 1,533,583
Net (loss) earnings $ (386,820)
Common shares outstanding
(weighted average basic and diluted) 348,599
Basic and diluted net (loss) earnings
per common share $ (1.11)
Dividends-declared and paid $ 0.00
Dividends per share $ 0.00
Working capital $ 2,564,212
Working capital ratio 1.8:1
Capital expenditures $ 1,282,412
Total assets $ 19,560,532
Long-term debt, excluding current
portion $ 2,738,333
Stockholders' equity $ 6,885,778
Common shares outstanding 348,599
Per share book value of common stock $ 19.75
Homasote Company and Subsidiary
Consolidated Five Year Highlights
1998
-----------
Net sales $ 24,302,836
Depreciation and amortization $ 1,365,692
Net (loss) earnings $ (698,229)
Common shares outstanding
(weighted average basic and diluted) 348,599
Basic and diluted net (loss) earnings
per common share $ (2.00)
Dividends-declared and paid $ 0.00
Dividends per share $ 0.00
Working capital $ 2,902,215
Working capital ratio 1.6:1
Capital expenditures $ 1,284,154
Total assets $ 21,621,616
Long-term debt, excluding current
portion $ 3,155,833
Stockholders' equity $ 7,272,598
Common shares outstanding 348,599
Per share book value of common stock $ 20.86
(a) Net earnings and per share amounts include $1,708,472 related to
an insurance settlement.
TWO YEAR DIVIDEND AND STOCK PRICE COMPARISON
CASH DIVIDENDS
Quarterly cash dividends for the last two years were as follows:
Quarter 2002 2001
---- ----
First $ 0.00 $ 0.05
Second 0.00 0.05
Third 0.00 0.00
Fourth 0.00 0.00
---- ----
$ 0.00 $ 0.10
STOCK PRICES
Quarterly stock prices for the Company's Common Stock for the last two
years were as follows:
2002 2001
Quarter High Low High Low
----- ----- ----- -----
First $ 11.50 $ 10.35 $ 9.50 $ 9.13
Second $ 11.00 $ 10.10 $ 11.25 $ 9.25
Third $ 10.35 $ 10.00 $ 12.00 $ 9.90
Fourth $ 10.15 $ 9.30 $ 11.50 $ 10.10
The Common Stock of the Company is traded over-the-counter.
The number of Stockholders of record of the Company at December 31, 2002
and 2001 is 221 and 223, respectively.
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
2002 2001 2000
--------- ---------- ---------
Net sales $ 25,067,400 $ 25,721,385 $27,744,946
Cost of sales 19,275,712 19,608,879 20,978,855
---------- ---------- ----------
Gross profit 5,791,688 6,112 506 6,766,091
Selling, general and
administrative expenses 6,239,838 6,270,149 6,460,247
--------- ---------- ----------
Operating (loss) income (448,150) (157,643) 305,844
Other income (expense):
Gain on sale of assets 900 13,600 27,350
Interest income 13,369 75,962 65,315
Interest expense (77,182) (102,212) (130,003)
Insurance settlement --- 1,708,472 ---
Other income 10,652 16,592 45,186
---------- ---------- ----------
(Loss) earnings before
income tax expense (500,411) 1,554,771 313,692
Income tax expense --- --- ---
---------- ---------- ----------
Net (loss) earnings $ (500,411)$ 1,554,771 $ 313,692
========== ========== ==========
Basic and diluted net
(loss) earnings per
common share $ (1.43)$ 4.46 $ .90
========== ========== ==========
Weighted average basic and
diluted common shares
outstanding 348,799 348,799 348,799
========== ========== ==========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2002 2001
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 210,091 $ 927,686
Accounts receivable (net
of allowance for doubtful
accounts of $54,270 in 2002
and $61,392 in 2001) 2,095,099 1,592,103
Inventories 3,417,984 3,506,725
Deferred income taxes 118,147 190,017
Prepaid expenses and
other current assets 329,559 255,707
------------ -----------
Total Current Assets 6,170,880 6,472,238
Property, plant and
equipment, net 10,625,092 11,044,361
Restricted cash 34,375 223,468
Prepaid benefit plan costs --- 2,608,035
Intangible pension asset 682,855 ---
Other assets 47,524 47,345
------------ -----------
Total Assets $ 17,560,726 $ 20,395,447
============ ===========
See accompanying notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
2002 2001
------------ -----------
CURRENT LIABILITIES:
Short term debt $ 597,000 $ 564,000
Current installments of
long-term debt 462,500 447,500
Accounts payable 2,138,889 1,895,924
Accrued expenses 523,992 475,810
------------ -----------
Total Current Liabilities 3,722,381 3,383,234
Long-term debt, excluding
current installments 1,395,833 1,858,333
Deferred income taxes 118,147 190,017
Obligations under
benefit plans 6,217,398 6,083,758
Other liabilities --- 192,174
------------ -----------
Total Liabilities 11,453,759 11,707,516
------------ -----------
COMMITMENTS AND CONTINGENCIES
(notes 4 and 10)
STOCKHOLDERS' EQUITY
Common stock, par value $0.20
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 14,627,514 15,127,925
Accumulated other
comprehensive loss (2,080,553) ---
------------ -----------
13,617,796 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 6,106,967 8,687,931
------------ -----------
Total Liabilities and
Stockholders' Equity $ 17,560,726 $ 20,395,447
============ ===========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
COMMON STOCK
------------
PAR
SHARES VALUE
------ -----
Balances at January 1, 2000 348,799 $ 172,799
Net earnings ---
Other comprehensive income
Reissuance of 200 shares of
treasury stock ---
Dividends declared and paid
($0.10 per share) ---
---------- ----------
Balances at December 31, 2000 348,799 172,799
Net earnings ---
Other comprehensive income
Dividends declared and paid
($0.10 per share) ---
---------- ----------
Balances at December 31, 2001 348,799 172,799
Net loss ---
Net unrealized change in:
Minimum pension liability
adjustment ---
Other comprehensive loss
---------- ----------
Balances December 31, 2002 348,799 $ 172,799
========== ==========
ADDITIONAL
PAID IN RETAINED
CAPITAL EARNINGS
---------- -----------
Balances at January 1, 2000 $ 898,036 $13,329,222
Net earnings --- 313,692
Other comprehensive income
Reissuance of 200 shares of
treasury stock --- ---
Dividends declared and paid
($0.10 per share) --- (34,880)
---------- -----------
Balances at December 31, 2000 898,036 13,608,034
Net earnings --- 1,554,771
Other comprehensive income
Dividends declared and paid
($0.10 per share) --- (34,880)
---------- -----------
Balances at December 31, 2001 898,036 15,127,925
Net loss --- (500,411)
Net unrealized change in:
Minimum pension liability
adjustment --- ---
Other comprehensive loss
---------- -----------
Balances December 31, 2002 $ 898,036 $14,627,514
========== ===========
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
LOSS STOCK
---------- -----------
Balances at January 1, 2000 $ --- $(7,514,279)
Net earnings --- ---
Other comprehensive income
Reissuance of 200 shares of
treasury stock
Dividends declared and paid --- 3,450
(0.10 per share)
---------- -----------
Balances at December 31, 2000 --- (7,510,829)
Net earnings --- ---
Other comprehensive income
Dividends declared and paid
($0.10 per share) --- ---
---------- ----------
Balances at December 31, 2001 --- (7,510,829)
Net loss --- ---
Net unrealized change in:
Minimum pension liability
adjustment (2,080,553) ---
Other comprehensive loss
---------- ----------
Balances December 31, 2002 $(2,080,553) $(7,510,829)
========== ==========
TOTAL
STOCKHOLDERS'
EQUITY
-----------
Balances at January 1, 2000 $ 6,885,778
Net earnings 313,692
-----------
Other comprehensive income 313,692
Reissuance of 200 shares of
treasury stock
Dividends declared and paid 3,450
(0.10 per share)
-----------
Balances at December 31, 2000 7,168,040
-----------
Net earnings 1,554,771
-----------
Other comprehensive income 1,554,771
Dividends declared and paid
($0.10 per share) (34,880)
-----------
Balances at December 31, 2001 8,687,931
-----------
Net loss (500,411)
Net unrealized change in:
Minimum pension liability
adjustment (2,080,553)
-----------
Other comprehensive loss (2,580,964)
-----------
Balances December 31, 2002 $ 6,106,967
===========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
2002 2001 2000
----------- ---------- -----------
Cash flows from operating
activities:
Net (loss) earnings $ (500,411) $ 1,554,771 $ 313,692
Adjustments to reconcile net
(loss) earnings to net cash
provided by operating
activities:
Depreciation and amortization 1,290,700 1,279,645 1,262,672
Change in allowance on
accounts receivable (7,122) 10,000 ---
Gain on disposal of fixed
assets (900) (13,600) (27,350)
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable, net (495,874) 685,913 (257,926)
Decrease (increase) in
inventories 88,741 (582,266) 56,511
(Increase) decrease in prepaid
expenses and other current
assets (73,852) (13,184) 41,957
Decrease (increase) in prepaid
benefit plan costs 527,482 (106,432) (235,890)
Increase in intangible pension
asset (682,855) --- ---
Increase in other assets (9,887) --- ---
Increase (decrease) in accounts
payable 242,965 (545,636) 427,137
Increase (decrease) in accrued
expenses 48,182 (261,776) 18,460
Increase in obligations under
benefit plans 133,640 117,627 119,573
Decrease in other liabilities (192,174) (477,012) (141,636)
---------- ---------- ---------
Net cash provided by operating
activities 368,635 1,648,050 1,577,200
---------- ---------- ---------
Cash flows from investing
activities:
Proceeds from sale of
equipment 900 13,600 27,350
Capital expenditures (861,723) (1,355,098) (1,519,990)
Decrease in restricted cash 189,093 468,310 128,845
---------- ---------- ---------
Net cash used in investing
activities (671,730) (873,188) (1,363,795)
---------- ---------- -----------
Cash flows from financing
activities:
Net proceeds from issuance of
short-term debt 33,000 564,000 ---
Repayment of long-term debt (447,500) (432,500) (417,500)
Dividends declared and paid --- (34,880) (34,880)
Proceeds from sale of
treasury stock --- --- 3,450
---------- ---------- ----------
Net cash (used in) provided by
financing activities (414,500) 96,620 (448,930)
---------- ---------- ----------
Net (decrease) increase in
cash and cash equivalents (717,595) 871,482 (235,525)
Cash and cash equivalents
at beginning of year 927,686 56,204 291,729
---------- ---------- ---------
Cash and cash equivalents
at end of year $ 210,091 $ 927,686 $ 56,204
========== ========== =========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 77,182 $ 102,212 $ 130,003
========== ========== =========
See accompanying notes to consolidated financial statements.
Homasote Company and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Homasote Company is in the business of
manufacturing insulated wood fiberboard and polyisocyanurate foam
products, and operates in only one industry segment: the manufacture
and sale of rigid polyisocyanurate and structural insulating building
materials and packing products for industrial customers. Sales in 2002
were distributed as follows: Building material wholesalers and
contractors, approximately 72%; industrial manufacturers, approximately
28%; in 2001, building material wholesalers and contractors,
approximately 69%; industrial manufacturers, approximately 31%; in 2000,
building material wholesalers and contractors, approximately 71%;
industrial manufacturers, approximately 29%. The Company's primary
basic raw material, wastepaper, is generally readily available from two
suppliers with which the Company has purchase contracts that expire in
2009 (see note 10).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
Homasote International Sales Co., Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Homasote International Sales Co., Inc. was dissolved as of December 31,
2002.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORY VALUATION: Inventories are valued at the lower of weighted
average actual cost, which approximates first-in, first-out (FIFO), or
market.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated
at cost. Depreciation of plant and equipment is computed using the
straight-line and various accelerated methods at rates adequate to
depreciate the cost of applicable assets over their expected useful
lives. Maintenance and repairs are charged to operations as incurred
and major improvements are capitalized. The cost of assets retired or
otherwise disposed of and the accumulated depreciation thereon is
removed from the accounts with any gain or loss realized upon sale or
disposal charged or credited to operations.
PRODUCT WARRANTIES: Product warranty costs are accrued when the covered
products are delivered to the customer. Product warranty expense is
recognized based on the terms of the product warranty and the related
estimated costs, considering historical claims expense. Accrued
warranty costs are reduced as these costs are incurred and as the
warranty period expires. The table below presents the changes in the
Company's accrual for product warranties, which is included in accrued
expenses, for the year ended December 31, 2002.
Balance at January 1, 2002 $ 113,621
Accruals for product warranties issued
during fiscal 2002 20,000
Settlements made during the period (54,145)
---------
Balance at December 31, 2002 $ 79,476
=========
REVENUE RECOGNITION: Revenue from product sales is recognized when the
related goods are shipped and title and risk of loss pass to the buyer.
The Company generally has no obligations after the product is shipped
except for routine and customary warranties. Consequently, the point at
which the Company recognizes revenue is subject to very little judgment
and subjectivity.
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,
2001 and 2000.
BUSINESS AND CREDIT CONCENTRATIONS: Sales of the Company's products are
dependent upon the economic conditions of the housing and manufacturing
industries. Changes in these industries may significantly affect
management's estimates and the Company's performance.
The majority of the Company's customers are located in the northeastern
United States, with the remainder spread throughout the United States
and abroad. Export sales, primarily to Canada and the United Kingdom,
accounted for approximately 6% in the year ended December 31, 2002 and
13% and 11% in the years ended December 31, 2001 and 2000, respectively,
of the Company's sales. One customer accounted for 10%, 11% and 10% of
the Company's sales in 2002, 2001 and 2000, respectively, and 7% and 17%
of accounts receivable at December 31, 2002 and 2001,respectively.
The Company estimates an allowance for doubtful accounts based upon the
actual payment history of each individual customer. Consequently, an
adverse change in the financial condition of a particular customer or
the local economy could affect the Company's estimate of its bad debts.
EMPLOYEE BENEFIT PLANS: The Company has a non-contributory pension plan
covering substantially all of its employees who meet age and service
requirements. Additionally, a supplemental non-contributory plan covers
certain key employees of the Company. The Company also provides certain
health care and life insurance benefits to retired employees. The net
periodic pension costs are recognized as employees render the services
necessary to earn pension and post-retirement benefits.
INCOME TAXES: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets, such as property, plant, and equipment are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset, which is generally based on
discounted cash flows.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement No. 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This Statement requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable in a manner similar to the Company's policy described above.
Statement No. 144 requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that
either has been disposed of (by sale, abandonment, or in a distribution
to owners) or is classified as held for sale. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less
costs to sell. The Company adopted Statement No. 144 on January 1, 2002
and such adoption had no effect on the Company's consolidated financial
statements.
RECENTLY ADOPTED ACCOUNTING STANDARDS:
On January 1, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
eliminates the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. The adoption of SFAS Nos.
141 and 142 did not impact the Company's financial position or results
of operations.
On January 1, 2002, the Company adopted the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 requires that long-lived assets to be disposed
of by sale, including those of discontinued operations, be measured at
the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. SFAS
No. 144 also broadens the reporting of discontinued operations to
include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
adoption of SFAS No. 144 did not impact the Company's financial position
or results of operations.
On January 1, 2002, the Company adopted the provisions of Emerging
Issues Task Force ("EITF") Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's
Products" which is codified within EITF Issue No. 01-09, "Accounting for
Consideration Given by a Vendor to a Customer". The adoption of EITF
No. 00-25 did not impact the Company's financial position or results of
operations.
USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Areas in which the Company makes such estimates
include inventory valuation, the valuation of long-lived assets,
accounts receivable, deferred tax assets and pension and postretirement
benefits. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain reclassifications have been made to the
prior years' financial statements in order to conform with the current
year presentation.
NOTE 2-INVENTORIES
The following are the major classes of inventories as of December 31,
2002 and 2001:
2002 2001
--------- ---------
Finished goods $ 2,777,248 $ 2,670,284
Work in process 52,484 93,103
Raw materials 588,252 743,338
--------- ---------
$ 3,417,984 $ 3,506,725
========= =========
Inventories include the cost of materials, labor and manufacturing
overhead.
NOTE 3-PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
Estimated
2002 2001 Useful Lives
---------- ---------- ------------
Land $ 591,492 $ 591,492
Buildings and additions 9,057,465 9,057,465 10-50 years
Machinery and equipment 31,317,297 29,862,918 5-20 years
Office equipment 1,373,903 1,435,474 3-10 years
Automotive equipment 328,005 328,005 3-5 years
Construction in progress 71,326 694,187
---------- ----------
42,739,488 41,969,541
Less accumulated
depreciation 32,114,396 30,925,180
---------- ----------
$ 10,625,092 $ 11,044,361
========== ==========
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 (1.0% to 1.9% in 2002 and
1.1% to 4.3% in 2001).
In connection with the Agreement, the Authority also entered into a
trust indenture with a bank (the "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 $1,858,333 was outstanding at December 31,
2002. Principal and interest are payable monthly to the trustee in
varying amounts through 2006. The Letter of Credit facility, which
expires on November 15, 2003, 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
Agreement was amended effective as of November 14, 2002 (the "Amended
Agreement"). 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 was
not in compliance with the minimum tangible net worth and maximum
liabilities to tangible net worth covenants as of December 31, 2002.
This noncompliance was primarily attributable to the fluctuation in 2002
in accumulated other comprehensive loss resulting from a significant
increase in the minimum pension liability. On April 29, 2003, the
Company received a waiver of such non-compliance from the Bank as well
as a commitment (the "Commitment") for a prospective amendment to the
definition of equity for purposes of the financial covenants. In future
periods, the definition of tangible net worth for purposes of covenant
calculations will exclude accumulated other comprehensive income or loss
attributable to the minimum pension liability. The Commitment further
provides for an extension of the Letter of Credit facility through March
31, 2004, provided the Company is in compliance with all financial
covenants and certain other conditions as defined. The Amended
Agreement, which was further amended on May 29, 2003 (the "May 2003
Amendment"), revises the definition of tangible net worth, in accordance
with the Commitment as previously discussed. The May 2003 Amendment
also modifies prospectively the covenants relating to tangible net
worth, cash flow coverage and current ratio. On July 24, 2003 the
Company received from the Bank a waiver respecting the Company's
noncompliance as of June 30, 2003 with the Cash Flow Coverage Ratio.
Other than such noncompliance as of June 30, 2003, management believes
it will be in compliance with the May 2003 amendment through December
31, 2003.
The balance of long-term debt outstanding (including current
installments) at December 31, 2002 and 2001 was $1,858,333 and
$2,305,833, respectively. The aggregate maturities of long-term debt
at December 31, 2002, are as follows: 2003, $462,500; 2004, $477,500;
2005, $493,333; 2006, $425,000.
The Company had a $1.5 million demand note line of credit agreement with
the Bank, the expiration of which was November 14, 2002. Interest was
payable monthly at the Bank's prime rate less 0.25%. On November 14,
2002 the line of credit was renewed with an expiration date of June 30,
2003. Under the line of credit note, 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 (4.25% at December
31, 2002) plus 0.25%. As of December 31, 2002, $597,000 was outstanding
under the line of credit. The unused credit available under this
facility at December 31, 2002 was $903,000. The line of credit note
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. On May 29, 2003 the
line of credit note was amended and restated to provide for an
expiration date of March 31, 2004. All other terms of the note continue
as provided in the renewal dated November 14, 2002.
Total interest costs incurred during 2002, 2001 and 2000 were
approximately $77,000, $102,000 and $130,000, respectively.
NOTE 5-INCOME TAXES
During 2002, 2001 and 2000, the Company has no current tax (benefit)
expense as a result of current losses incurred or utilization of net
operating loss carryforwards coupled with a change in the deferred tax
valuation allowance which was equal to the change in deferred tax assets
and liabilities.
The actual income tax (benefit) expense differs from the amounts
computed by applying the U.S. federal income tax rate of 34% to (loss)
earnings before income tax (benefit) expense as a result of the
following:
2002 2001 2000
------- ------- -------
Computed "expected" tax
(benefit) expense $(170,140) $ 528,622 $ 106,655
State income taxes, net of
federal income tax
(benefit) expense (24,133) 97,554 21,776
Change in valuation allowance 162,269 (655,943) (146,419)
Other 32,004 29,767 17,988
------- ------- -------
$ --- $ --- $ ---
======= ======= =======
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 are
presented below:
2002 2001
------- -------
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 21,675 $ 24,520
Inventories 152,311 154,969
Other liabilities, principally due to
supplemental pension and post-
retirement costs 2,409,267 2,431,979
Nondeductible accrued expenses 31,744 48,233
Net operating loss carryforwards-
Federal and State 859,775 521,556
Alternative minimum tax credit 26,000 26,000
--------- ---------
Total deferred tax assets 3,500,772 3,207,257
Less valuation allowance (1,490,327) (497,085)
--------- ---------
Net deferred tax assets 2,010,445 2,710,172
--------- ---------
Deferred tax liabilities:
Fixed assets, due to accelerated
depreciation 1,814,385 1,668,416
Other assets, due to pension costs 196,060 1,041,756
Other --- ---
--------- ---------
Total deferred tax liabilities 2,010,445 2,710,172
--------- ---------
Net deferred tax asset $ --- $ ---
========= =========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon this
assessment, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net
of existing valuation allowances at December 31, 2002. The amount of
net deferred tax asset considered realizable, however, could be reduced
in the near term if estimates of future taxable income are reduced.
The net change in the total valuation allowance for the years ended
December 31, 2002 and 2001 was an increase of $993,242 of which $830,973
relates to the Other Accumulated Comprehensive Loss charged to
stockholders' equity and a decrease of ($655,943), respectively. In
addition, at December 31, 2002, the Company has net operating loss
carryforwards for federal and state income tax purposes of approximately
$1,811,000 and $4,057,000, respectively, which are available to reduce
future income taxes, if any. The net operating loss carryforwards will
begin to expire in year 2019 for federal and 2005 for state tax
purposes.
NOTE 6-OTHER LIABILITIES
The Company has a noncontributory defined benefit retirement plan (the
"Pension Plan") covering all eligible employees. Benefits under the
Pension Plan are calculated at a rate of $23.00 per month per year of
service, as defined. Additionally, a supplemental non-contributory plan
(the "Supplemental Plan") covering certain key employees of the Company
provides retirement benefits based upon the employee's compensation, as
defined, during the highest five of the last ten consecutive years
preceding retirement.
The Company's funding policy for the Pension Plan is to contribute
amounts sufficient to meet minimum funding requirements set forth in
U.S. employee benefit and tax laws. The Company's policy for funding
the Supplemental Plan is to contribute benefits in amounts as determined
at the discretion of management. As of December 31, 2002 and 2001, the
Supplemental Plan was unfunded.
The Company also provides a portion of certain health care and life
insurance benefits for retired employees who have reached the age of 65.
Partial benefits were previously provided to early retirees who had not
reached the age of 65. The Company's policy is to fund the cost of
health care and life insurance benefits for retirees in amounts
determined at the discretion of management. As of December 31, 2002 and
2001, the plan was unfunded.
The following table sets forth the Company's defined benefit pension
plans' benefit obligations, fair value of assets, funded status and
other information:
2002
Pension Other
Change in benefit obligation Benefits Benefits
---------------------------- ----------- ------------
Benefit obligation at beginning
of year $8,414,014 $2,508,954
Service cost 156,816 54,530
Interest cost 587,649 159,749
Plan amendments --- (1,370,064)
Actuarial loss 408,540 1,237,264
Benefits paid (590,105) (166,267)
--------- ---------
Benefit obligation at end of year $8,976,914 $2,424,166
========= =========
2001
Pension Other
Change in benefit obligation Benefits Benefits
---------------------------- ----------- ------------
Benefit obligation at beginning
of year $7,803,328 $2,303,756
Service cost 125,035 60,956
Interest cost 590,268 173,587
Plan amendments --- ---
Actuarial loss 505,257 107,581
Benefits paid (609,874) (136,926)
--------- ---------
Benefit obligation at end of year $8,414,014 $2,508,954
========= =========
2002
Pension Other
Change in plan assets Benefits Benefits
------------------------- ----------- ------------
Fair value of plan assets at
beginning of year $8,175,474 $ ---
Actual return on plan assets (903,298) ---
Employer contributions 146,769 166,267
Administrative expenses (53,127) ---
Benefits paid (590,105) (166,267)
--------- ---------
Fair value of plan assets at end
of year $6,775,713 $ ---
========= =========
2001
Pension Other
Change in plan assets Benefits Benefits
------------------------- ----------- ------------
Fair value of plan assets at
beginning of year $9,092,468 $ ---
Actual return on plan assets (429,232) ---
Employer contributions 171,172 136,926
Administrative expenses (49,060) ---
Benefits paid (609,874) (136,926)
--------- ---------
Fair value of plan assets at end
of year $8,175,474 $ ---
========= =========
2002
Pension Other
Reconciliation of funded status Benefits Benefits
- ------------------------------- ----------- -------------
Funded status $(2,201,201) $(2,424,166)
Unrecognized transition asset --- ---
Unrecognized prior service cost 669,520 (144,141)
Unrecognized actuarial loss (gain) 1,032,409 (386,411)
--------- ---------
Net amount recognized at year-end $ (499,272) $(2,954,718)
========= =========
2001
Pension Other
Reconciliation of funded status Benefits Benefits
- ------------------------------- ----------- ------------
Funded status $ (238,540) $(2,508,954)
Unrecognized transition asset (5,543) ---
Unrecognized prior service cost 754,938 1,214,609
Unrecognized actuarial loss (gain) (1,052,819) (1,639,414)
--------- ----------
Net amount recognized at year-end $ (541,964) $(2,933,759)
========= ==========
2002
Amounts recognized in the
consolidated balance sheet Pension Other
consist of: Benefits Benefits
- ------------------------------- ----------- -------------
Prepaid benefit cost $ --- $ ---
Accrued benefit liability (3,262,680) (2,954,718)
Intangible asset 682,855 ---
Accumulated other comprehensive
income 2,080,553 ---
--------- -----------
Net amount recognized at year-end $ (499,272) $(2,954,718)
========= ===========
Other comprehensive income
attributable to change in additional
minimum liability recognition $ 2,080,553 N/A
2001
Amounts recognized in the
consolidated balance sheet Pension Other
consist of: Benefits Benefits
- ------------------------------- ----------- -------------
Prepaid benefit cost $ 2,608,035 $ ---
Accrued benefit liability (3,149,999) (2,933,759)
Intangible asset --- ---
Accumulated other comprehensive
income --- ---
--------- -----------
Net amount recognized at year-end $ (541,964) $ (2,933,759)
========= ===========
Other comprehensive income
attributable to change in additional
minimum liability recognition --- N/A
2002
Additional year-end information
for plans with benefit obligations Pension Other
in excess of plan assets: Benefits Benefits
- ------------------------------- ----------- ------------
Benefit obligation $ 8,976,914 N/A
Fair value of plan assets 6,775,713 N/A
2001
Additional year-end information
for plans with benefit obligations Pension Other
in excess of plan assets: Benefits Benefits
- ------------------------------- ----------- ------------
Benefit obligation $ 1,993,529 N/A
Fair value of plan assets --- N/A
2002
Additional year-end information
for pension plans with accumulated
benefit obligations in excess of Pension Other
plan assets: Benefits Benefits
- ------------------------------- ----------- ------------
Projected benefit obligation $ 8,976,914 N/A
Accumulated benefit obligation 8,692,985 N/A
Fair value of plan assets 6,775,713 N/A
2001
Additional year-end information
for pension plans with accumulated
benefit obligations in excess of Pension Other
plan assets: Benefits Benefits
- ------------------------------- ----------- -----------
Projected benefit obligation $ 1,993,529 N/A
Accumulated benefit obligation 1,775,527 N/A
Fair value of plan assets --- N/A
2002
Components of net periodic benefit Pension Other
cost Benefits Benefits
- ------------------------------- ----------- ------------
Service cost $ 190,816 $ 54,530
Interest cost 587,649 159,749
Expected return on plan assets (671,592) ---
Amortization of transitional
(asset) obligation (5,543) ---
Amortization of prior service cost 85,418 (11,314)
Recognized actuarial gain (82,671) (15,739)
--------- ---------
Net periodic benefit cost $ 104,077 $ 187,226
========= =========
2001
Components of net periodic benefit Pension Other
cost Benefits Benefits
- ------------------------------- ----------- -----------
Service cost $ 180,035 $ 60,956
Interest cost 590,268 173,587
Expected return on plan assets (749,370) ---
Amortization of transitional
(asset) obligation 109,101 ---
Amortization of prior service cost 85,418 142,624
Recognized actuarial gain (169,328) (103,998)
--------- ---------
Net periodic benefit cost $ 46,124 $ 273,169
========= =========
2000
Components of net periodic benefit Pension Other
cost Benefits Benefits
- ------------------------------- ----------- ------------
Service cost $ 139,882 $ 78,997
Interest cost 578,487 182,214
Expected return on plan assets (779,985) ---
Amortization of transitional
(asset) obligation 109,100 ---
Amortization of prior service cost 85,418 165,121
Recognized actuarial gain (257,042) (113,550)
--------- ---------
Net periodic benefit cost $ (124,140) $ 312,782
========= =========
2002
Weighted-Average Assumptions as Pension Other
of December 31 Benefits Benefits
- ------------------------------- ----------- ------------
Discount rate 6.75% 6.75%
Expected long-term
return on plan assets 8.50% N/A
2001
Weighted-Average Assumptions as Pension Other
of December 31 Benefits Benefits
- ------------------------------- ----------- ------------
Discount rate 7.25% 7.25%
Expected long-term
return on plan assets 8.50% N/A
2000
Weighted-Average Assumptions as Pension Other
of December 31 Benefits Benefits
- ------------------------------- ----------- ------------
Discount rate 7.75% 7.75%
Expected long-term
return on plan assets 8.50% N/A
Assumed health care cost trend
For measurement purposes, a 12.0% annual rate of increase was assumed
for 2003 for Staff (executive class) employees and grandfathered AARP
(American Association of Retired Persons) groups. This rate was assumed
to decrease gradually to 5.0% in 2017. No trend was assumed for other
participant groups.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects at year-end 2002:
One-Percentage- One-Percentage-
Point Increase Point Decrease
------------- ------------
Effect on postretirement benefit
obligation $ 96,352 $ (82,686)
Effect on total of service and
interest cost components 11,018 (9,161)
The Company has a voluntary savings plan for which all employees are
eligible. The Plan provides for the Company to contribute a minimum of
$0.25 for every dollar contributed by employees, up to 4% of their
compensation, as defined. Effective November 1, 2000, the Company
amended and restated the Savings Plan in its entirety to convert the
Savings Plan to a plan that qualifies and meets the requirements under
Section 401(k) of the Internal Revenue Code. Company contributions
charged to operations under this Plan amounted to approximately $50,142
in 2002, $60,162 in 2001 and $29,933 in 2000.
NOTE 7-ACCRUED EXPENSES
Accrued expenses as of December 31, 2002 and 2001 consist of the
following:
2002 2001
------- -------
Commissions $ 118,138 $ 80,281
Payroll 153,060 131,724
Other 252,794 263,805
------- -------
$ 523,992 $ 475,810
======= =======
NOTE 8-TREASURY STOCK
The Company has a policy of offering directors, officers, and
employees the option to purchase reacquired shares of Homasote Company
common stock on the date acquired and at the purchase price paid by the
Company. A summary of activity for the years 2002, 2001 and 2000
follows:
Acquired Sold Retained in Treasury
---------------- ------------- ------------------
Shares Cost Shares Cost Shares Cost
------ ---- ------ ---- ------ ----
2002 2,000 $20,800 2,000 $20,800 --- $ ---
2001 --- $ --- --- $ --- --- $ ---
2000 --- $ --- 200 $ 3,450 --- $ ---
NOTE 9-FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, trade accounts receivable, trade accounts
payable and accrued expenses are reflected in the consolidated financial
statements at carrying value, which approximates fair value due to the
short-term nature of these instruments. The carrying value of the
Company's borrowings approximates their fair value based on the current
rates available to the Company for similar instruments.
NOTE 10-COMMITMENTS AND CONTINGENCIES
The Company's primary basic raw material, wastepaper, is generally
readily available from two suppliers with which the Company has purchase
contracts that expire in 2009. Under the terms of the contracts, the
Company is required to make purchases at a minimum price per ton, as
defined, or at the prevailing market price, whichever is greater. The
contracts require the Company to purchase all of the wastepaper offered
by the suppliers which is generally below the Company's normal usage.
Purchases in 2002, 2001 and 2000 aggregated approximately $666,000,
$844,000 and $936,000, respectively.
The Company is party to an agreement with a contractor for the
construction by the contractor of an on-site co-generation facility to
supply substantially all of the Company's electricity requirements and
thermal energy for the pulping process. The project cost to the
contractor is estimated at approximately $4.2 million. As presently
contemplated, the company would lease the facility under an operating
lease with a term of ten years. The construction agreement is subject to
the Company's obtaining construction and environmental permits and
consummation of a definitive leasing agreement. The environmental permit
application is currently under review by the New Jersey Department of
Environmental Protection. There are no assurances that such agreement or
lease will be consummated.
During the normal course of business, the Company is from time to time
involved in various claims and legal actions. In the opinion of
management, uninsured losses, if any, resulting from the ultimate
resolution of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
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. The supplier filed an answer,
affirmative defenses and counterclaim against the Company, seeking
damages of $171,000 plus interest and attorney's fees for breach of
contract of the natural gas sales contract and for breach of the implied
obligation of good faith and fair dealing as well. The matter was tried
in June, 2003. Post-trial submissions are due July 18,2003 and August
1, 2003. The Company believes that the outcome of this dispute will not
have a material effect on the Company's financial position, results of
operations or liquidity.
NOTE 11-INSURANCE SETTLEMENT
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 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 the
proceeds received, $1,708,472, was recorded in 2001 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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
HOMASOTE COMPANY:
We have audited the accompanying consolidated balance sheets of Homasote
Company and subsidiary as of December 31, 2002 and 2001, and the related
consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Homasote Company and subsidiary as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of
America.
/S/ KPMG LLP
March 4, 2003, except as to the second
paragraph of note 4, which is as of
July 24, 2003.
Short Hills, New Jersey
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This annual report, including our Letter to Shareholders and Employees
and this Management's Discussion and Analysis, contains 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, international unrest,
terrorist acts 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.
This Annual Report was delayed as the result of the need by the Company
to negotiate the modification and extension of its existing bank
arrangements, as described under the "Liquidity and Capital Resources"
section of this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS 2002-2001
The Company's sales are derived from building material wholesalers and
industrial manufacturers. Net sales in 2002 decreased by $653,985 or
2.5% to $25,067,400 from $25,721,385. The decrease was attributable in
part to deteriorated economic conditions in the packaging industry in
general and the closing of plants, and the replacement of Homasote
product by a former principal export customer. Additionally, 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. These factors were partially offset by increasing
acceptance of the Company's new glass separator product, Staple-Safe(TM)
(patent pending) and by improved shipments of the Company's
polyisocyanurate and Nova product lines in the current year period.
Gross profit as a percentage of sales decreased to 23.1% in 2002 from
23.8% in 2001. The decrease resulted primarily from production
interruptions and inefficiencies due to extended maintenance shutdowns
of board making lines and the primary saw operation. These events
resulted in abnormally low levels of board production and under-
absorption of manufacturing overhead. Significant reductions in the cost
of fuel and labor and associated fringe costs as compared to the year
earlier period were partially offset by increases in the cost of
depreciation and insurance. Decreased demand for product as discussed
above also contributed to a reduction of gross profit dollars.
Selling, general and administrative expenses decreased $30,311 from
$6,270,149 in 2001 to $6,239,838 in 2002, and as a percentage of sales
were 24.9% in 2002 as compared to 24.4% in 2001. The increase in the
relative percentage of selling, general and administrative expenses is
primarily attributable to the reduced volume of sales in 2001. Decreases
in administration, bonus and other compensation were partially offset by
increases in the cost of Company-placed advertising and sales incentive
programs, increased sales agent commission costs due to the substitution
of house accounts with commissionable sales, and professional fees.
Interest income decreased to $13,369 in 2002 as compared to $75,962 in
2001. The decrease in interest income is attributable to lower levels
of invested funds received in the insurance settlement during 2001 as
discussed below and lower prevailing interest rates.
Interest expense on debt decreased to $77,182 in 2002 from $102,212 in
2001. The decrease is primarily attributable to reductions in the cost
of borrowed funds, partially offset by an increase in average
borrowings.
As discussed below, in 2001 the Company received an insurance settlement
in the amount of $1,708,472. No such proceeds were received in 2002.
Other income decreased to $10,652 in 2002 from $16,592 in 2001 due
primarily to decreases in the net price of corrugated paper sold as
scrap.
As a result of the foregoing, net loss in 2002 was $(500,411) as
compared to net income of $1,554,771 in 2001.
RESULTS OF OPERATIONS 2001-2000
The Company's sales are derived from building material wholesalers
and industrial manufacturers. Net sales in 2001 decreased by $2,023,561
or 7.3% to $25,721,385 from $27,744,946. The decrease is attributable
primarily to deteriorating economic conditions in the building products
and packaging industries. Additionally, the implementation of a
necessary 7% energy surcharge by the Company effective for shipments
during the first seven months of 2001 encountered significant resistance
from millboard and industrial distributors, retailers and end users. In
the industrial division, the energy surcharge and other price
adjustments adversely affected the specification of Homasote in
packaging products, principally major appliances. A key industrial
account of the Company that supplies the appliance industry closed
several of its manufacturing facilities which also contributed to the
shortfall in sales. The severe downturn in the steel industry,
partially due to the impact of imports, resulted in reduced sales of
steel separators. Lower sales in the fourth quarter of 2001 as compared
to 2000 were the result of factors discussed above as well as reductions
of customer inventory levels in response to economic conditions and the
cessation of sales to an international customer.
Gross profit as a percentage of sales decreased to 23.8% in 2001 from
24.4% in 2000. The decrease resulted primarily from increased energy
costs in the first quarter of 2001, partially offset by the energy
surcharge discussed above, and extended maintenance shutdowns of a
production line in both the first and third quarters. Increased
productivity and efficiencies realized from the production line
overhauls were partially offset by increases in wage rates and health
and general insurance costs.
Selling, general and administrative expenses decreased $190,098 from
$6,460,247 in 2000 to $6,270,149 in 2001, and as a percentage of sales
were 24.4% in 2001 as compared to 23.3% in 2000. The increase in the
relative percentage of selling, general and administrative expenses is
due primarily to the lower level of sales in 2001. Decreases in the
level of sales agent commission costs, Company-placed advertising and
customer incentive programs were partially offset by increases in the
cost of compensation, retirement benefits and a new cooperative
advertising program.
Interest income increased to $75,962 in 2001 as compared to $65,315 in
2000. The increase in interest income is attributable primarily to the
earnings from an investment of funds received in the insurance
settlement discussed elsewhere in this discussion and analysis.
Interest expense on debt decreased to $102,212 in 2001 from $130,003 in
2000. The decrease is primarily attributable to reductions in the
Company's cost of borrowed funds 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 are 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 the proceeds
received, $1,708,472, has been 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 $16,592 in 2001 from $45,186 in 2000 due
primarily to decreases in the net price of corrugated paper sold as
scrap.
There was no income tax expense in 2001 due to a decrease in the
deferred tax valuation allowance and the utilization of federal and
state operating loss carryforwards.
As a result of the foregoing, net income in 2001 improved to
$1,554,771 from $313,692 in 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 $0.4 million in 2002, and $1.6 million in 2001. At December
31, 2002, the Company had working capital of $2,448,499, as compared to
$3,089,004 at December 31, 2001, a decrease of $640,505.
Capital expenditures for new and improved facilities and equipment,
financed primarily through debt and the insurance proceeds discussed
above, were $0.9 million in 2002, $1.4 million in 2001 and $1.5 million
in 2000. The Company has estimated capital expenditures for 2003 in the
amount of $0.6 million, to implement manufacturing equipment replacement
and improvement projects. Such expenditures include the complete
overhaul of a production line mold and other Coe Dryer related projects,
utilizing in part, funds available from the settlement with its
insurance carrier.
Cash flows used in financing activities was $0.4 million in 2002
compared to $0.1 million provided in 2001, primarily as a result of the
repayment of long-term debt of $0.4 million.
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 (1.0% to 1.9% in 2002 and
1.1% to 4.3% in 2001).
In connection with the Agreement, the Authority also entered into a
trust indenture with a bank (the "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 $1,858,333 was outstanding at December 31,
2002. Principal and interest are payable monthly to the trustee in
varying amounts through 2006. The Letter of Credit facility, which
expires on November 15, 2003, 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
Agreement was amended effective as of November 14, 2002 (the "Amended
Agreement"). 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 was
not in compliance with the minimum tangible net worth and maximum
liabilities to tangible net worth covenants as of December 31, 2002.
This noncompliance was primarily attributable to the fluctuation in 2002
in accumulated other comprehensive loss resulting from a significant
increase in the minimum pension liability. On April 29, 2003, the
Company received a waiver of such non-compliance from the Bank as well
as a commitment (the "Commitment") for a prospective amendment to the
definition of equity for purposes of the financial covenants. In future
periods, the definition of tangible net worth for purposes of covenant
calculations will exclude accumulated other comprehensive income or loss
attributable to the minimum pension liability. The Commitment further
provides for an extension of the Letter of Credit facility through March
31, 2004, provided the Company is in compliance with all financial
covenants and certain other conditions as defined. The Amended
Agreement, which was further amended on May 29, 2003 (the "May 2003
Amendment"), revises the definition of tangible net worth, in accordance
with the Commitment as previously discussed. The May 2003 Amendment
also modifies prospectively the covenants relating to tangible net
worth, cash flow coverage and current ratio. On July 24, 2003 the
Company received from the Bank a waiver respecting the Company's
noncompliance as of June 30, 2003 with the Cash Flow Coverage Ratio.
Other than such noncompliance as of June 30, 2003, management believes
it will be in compliance with the May 2003 amendment through December
31, 2003.
The Company had a $1.5 million demand note line of credit agreement with
the Bank, the expiration of which was November 14, 2002. Interest was
payable monthly at the Bank's prime rate less 0.25%. On November 14,
2002 the line of credit was renewed with an expiration date of June 30,
2003. Under the line of credit note, 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 (4.25% at December
31, 2002) plus 0.25%. As of December 31, 2002, $597,000 was outstanding
under the line of credit. The unused credit available under this
facility at December 31, 2002 was $903,000. The line of credit note
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. On May 29, 2003 the
line of credit note was amended and restated to provide for an
expiration date of March 31, 2004. All other terms of the note continue
as provided in the renewal dated November 14, 2002.
Management believes that cash flows from operations, coupled with its
bank credit facilities, are adequate for the Company to meet its
obligations through the first quarter of 2004.
Disclosures About Contractual Obligations and Commercial Commitments:
Cash Payments Due by Period
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
------- ------- ------- ------- -------
Short-term debt $ 597,000 $ 597,000 $ --- $ --- $ ---
Long-term debt
including
current
installments 1,858,333 462,500 1,395,833 --- ---
Employment
contracts 2,392,000 350,000 1,050,000 700,000 292,000
--------- --------- --------- --------- ----------
$4,847,333 $1,409,500 $2,445,833 $ 700,000 $ 292,000
========= ========= ========= ========= ==========
In addition to the aforementioned contractual obligations and commercial
commitments, the Company has certain benefit plan obligations (see note
6 of the Company's consolidated financial statements) the timing of
which is presently unknown and is contingent upon the retirement dates
of the respective participants.
The Company is party to an agreement with a contractor for the
construction of an on-site co-generation facility to supply
substantially all of the Company's electricity requirements and thermal
energy for the pulping process. The project cost to the contractor is
estimated at approximately $4.2 million, to be financed through an
operating lease with a term of ten years. The agreement is subject to
the Company's obtaining construction and environmental permits and
consummation of a definitive financing agreement. The environmental
permit application is currently under review by the New Jersey
Department of Environmental Protection. There are no assurances that
such agreement or lease will be consummated.
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 2002, 2001 and 2000 aggregated
approximately $666,000, $844,000 and $936,000, respectively. The
contracts expire in 2009.
RECENTLY 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 requires the
Company 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.
The Company also records a corresponding asset that 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 will
adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 is
not expected to have a material effect on the Company's consolidated
financial statements.
On January 1, 2003, the Company will adopt the provisions of SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS No. 146 amends existing accounting rules for these
costs by requiring that a liability be recorded at fair value when
incurred. The liability would be reviewed regularly for changes in fair
value with adjustments recorded in the consolidated financial
statements. SFAS No. 146 also provides specific guidance for lease
termination costs and one-time employee termination benefits when
incurred as part of an exit or disposal activity. SFAS No. 146 will
change the measurement and timing of costs associated with exit and
disposal activities initiated after December 31, 2002. The provisions of
SFAS No. 146 will be applied prospectively to all such costs, and are
not expected to impact the Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". FIN 46 provides guidance
on the identification of variable interest entities, entities for which
control is achieved through means other than through voting rights, and
how to determine whether a variable interest holder should consolidate
the variable interest entities. This interpretation applies immediately
to all variable interest entities created after January 31, 2003. The
effective date for applying FIN 46's consolidation requirements to
variable interest entities acquired before February 1, 2003 is the
beginning of the Company's third quarter 2003. The Company does not
expect the adoption of FIN 46 to have a material impact on the Comany's
consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance or modification of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has issued,
including a roll-forward of the entity's product warranty liabilities.
The Company has adopted the provisions of FIN 45 and has included the
required disclosures in Note 1, "Product Warranties". FIN 45 is not
expected to have a material effect on the Company's consolidated results
of operations and financial position.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission has issued disclosure guidance
for "critical accounting policies". The SEC defines "critical
accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.
Management is required to make certain estimates and assumptions during
the preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of
America. These estimates and assumptions impact the reported amount of
assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the consolidated financial statements.
Estimates and assumptions are reviewed periodically and the effects of
revisions are reflected in the consolidated financial statements in the
period they are determined to be necessary. Actual results could differ
from those estimates.
The significant accounting policies are described in Note 1 of the notes
to consolidated financial statements included in the Company's 2002
Annual Report on Form 10-K. Not all of these significant accounting
policies require management to make difficult, subjective or complex
judgments or estimates. However, management considers the following
policies to be critical within the SEC definition.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The costs and obligations of the Company's pension and retiree medical
plans are calculated using many assumptions to estimate the benefit that
the employee earns while working, the amount of which cannot be
completely determined until the benefit payments cease. The most
significant assumptions, as presented in Other Liabilities (Note 6) in
the Notes to Consolidated Financial Statements, include discount rate,
expected return on plan assets, mortality rates, future trends in health
care costs and future pay increases (Supplemental Plan only). The
selection of assumptions is based on historical trends and known
economic and market conditions at the time of valuation. Actual results
may differ substantially from these assumptions. These differences may
significantly impact future pension or retiree medical expenses.
Annual pension and retiree expense is principally the sum of four
components: 1) value of benefits earned by employees for working during
the year; 2) increase in liability from interest; less 3) expected
return on plan assets (Pension Plan only); and 4) other gains and losses
as described below. The expected return on plan assets is calculated by
applying an assumed long-term rate of return to the fair value of plan
assets. In any given year, actual returns can differ significantly from
the expected return. Differences between the actual and expected return
on plan assets are combined with gains or losses resulting from the
revaluation of plan liabilities. Plan liabilities are revalued
annually, based on updated assumptions and information about the
individuals covered by the plan. The combined gain or loss is generally
expensed evenly over the remaining years that employees are expected to
work.
If the value of pension plan assets is less than the accumulated pension
benefit obligation, accounting standards require a company's balance
sheet to include a pension liability equal to the difference. The
adjustment to record this additional liability is charged to accumulated
other comprehensive loss in stockholders' equity. The Company recorded
a charge of $2.1 million to accumulated other comprehensive loss in 2002
to reflect required minimum pension liabilities.
The Company's funding policy for the Pension Plan is to contribute
amounts sufficient to meet minimum funding requirements set forth in
U.S. employee benefit and tax laws. The Company does not expect cash
contributions to the Pension Plan to be required in 2003. The Company's
policy for funding the Supplemental Plan and Postretirement Benefit Plan
is to contribute benefits in amounts as determined at the discretion of
management. As of December 31, 2002 and 2001, these Plans were
unfunded.
INVENTORIES
Inventories are valued at the lower of weighted average actual cost,
which approximates first-in, first-out (FIFO), or market value and have
been reduced by an allowance for excess and obsolete inventories. The
estimate is based on management's review of inventories on hand compared
to estimated future usage and sales. Cost includes material, labor and
manufacturing overhead.
LONG-LIVED ASSETS
Long-lived assets, such as property, plant, and equipment, are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
The Company does not have any goodwill or identifiable intangible
assets.
DEFERRED INCOME TAX
A portion of the deferred tax assets, which have been recorded by the
Company, represent net operating loss carry-forwards. A valuation
allowance has been recorded for certain capital losses and other
deferred tax assets. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based
upon this assessment, management believes it is more likely than not
that the Company will realize the benefits of these deductible
differences, net of existing valuation allowances at December 31, 2002.
The amount of net deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income
are reduced.
ACCOUNTS RECEIVABLE
The Company estimates an allowance for doubtful accounts after
considering the collectibility of balances due, the credit worthiness of
the customer and its current level of business with the customer.
Actual results could differ from these estimates.
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
As of December 31, 2002 the Company ceased the manufacture of foam
products at the Company's West Trenton facility. Prior to this date,
the Company negotiated a contract to private label these products with
another manufacturer. The Company does not expect any change in demand
for these products which continue to be sold. The manufacturing assets
were fully depreciated. The Company intends to sell these manufacturing
assets to third parties in future periods. Gains on these sales, if
any, will be recorded in the period sold.
SUMMARIZED (unaudited) QUARTERLY FINANCIAL DATA OF THE COMPANY FOR THE
YEARS 2002 AND 2001 ARE AS FOLLOWS:
(in thousands of dollars except per share data)
2002
-----------------------------------
First Second Third Fourth
----- ----- ----- -----
Net sales $ 6,449 $ 6,387 $ 5,981 $ 6,250
===== ===== ===== =====
Gross profit $ 1,411 $ 1,870 $ 1,203 $ 1,308
===== ===== ===== =====
Net (loss) earnings $ (319)$ 185 $ (340)$ (26)
===== ===== ===== =====
Basic and diluted net
(loss)earnings
per common share $ (0.92) $ 0.53 $(0.97) $(0.08)
===== ===== ===== =====
2001
-----------------------------------
First Second Third Fourth
----- ----- ----- -----
Net sales $ 6,868 $ 6,779 $ 6,415 $ 5,659
===== ===== ===== =====
Gross profit $ 1,450 $ 1,992 $ 1,569 $ 1,101
===== ===== ===== =====
Net (loss) earnings $ 1,540 $ 369 $ (58) $ (296)
===== ===== ===== =====
Basic and diluted net
(loss) earnings
per common share $ 4.42 $ 1.06 $ (0.17) $ (0.85)
===== ===== ===== =====
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
HOMASOTE COMPANY
Under date of March 4, 2003, except as to the second paragraph of Note
4, which is as of July 24, 2003, we reported on the consolidated balance
sheets of Homasote Company and subsidiary as of December 31, 2002 and
2001, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-
year period ended December 31, 2002 as contained in the 2002 annual
report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related Schedule of Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001 and 2000. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement
schedule based on our audits.
In our opinion, such financial statement schedule when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/S/ KPMG LLP
March 4, 2003
Short Hills, New Jersey
Homasote Company and Subsidiary
Schedule II, Valuation and Qualifying Accounts
Years Ended December 31, 2002, 2001 and 2000
Col A Col B Col C Col D Col E
Balance
at Additions Other
Beginning Charged Additions Balance
of to or End of
Description Period Expenses (Subtractions)(a) Period
Allowance for
Doubtful
Accounts
Year ended
December 31,
2002 $61,392 $ --- $ (7,122) $54,270
Year ended
December 31,
2001 $51,392 $10,000 --- $61,392
Year ended
December 31,
2000 $51,392 $ --- --- $51,392
(a) Principally bad debts written-off, less recoveries.
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 Annual Report of Homasote Company (the "Company")
on Form 10-K for the year ended December 31, 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: July 28, 2003
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 Annual Report of Homasote Company (the "Company")
on Form 10-Q for the year ended December 31, 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: July 28, 2003
By: /s/ James M. Reiser
James M. Reiser
Vice-President and
Chief Financial Officer
Exhibit 99.3
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
HOMASOTE COMPANY
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
-------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
---------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
---------------------------------------------------
(4) Date Filed:
- ----------------------------------------------------------------------
HOMASOTE COMPANY
LOWER FERRY ROAD, PO BOX 7240
WEST TRENTON, NJ 08628
Notice of Annual Meeting of Stockholders
September 15, 2003
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Homasote Company will be held at
the Office of the Company, 932 Lower Ferry Road, West Trenton, New
Jersey, on Monday, September 15, 2003, at 10:00 a.m. for the following
purposes:
1.To elect 9 directors to hold office for one year and until
their successors shall be elected and shall qualify, and
2.To transact such other business as may properly come before
the meeting or any adjournment thereof.
Pursuant to the provisions of the Bylaws, the Board of Directors has
fixed the close of business on August 1, 2003 as the record date for the
determination of the stockholders entitled to notice of and to vote at
the meeting and at any adjournments thereof. Only stockholders of
record at the close of business on that date will be entitled to notice
of and to vote at the meeting. The stock transfer books will not be
closed.
By Order of the Board of Directors
JENNIFER D. BARTKOVICH
Secretary
Trenton, New Jersey
August 15, 2003
Whether or not you expect to be present at the meeting, please sign the
accompanying Proxy and return it promptly in the enclosed self-addressed
envelope, which requires no postage if mailed in the United States, so
that your shares may be represented at the meeting.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Homasote Company (the "Company") of Proxies to
be voted at the Annual Meeting of Stockholders of the Company to be held
September 15, 2003.
The Company's Annual Report for the year ended December 31, 2002, Notice
of Meeting, and a form of Proxy accompany this Proxy Statement. The
Proxy may be revoked by the person giving it at any time prior to its
use by voting in person at the meeting, by filing a later dated proxy
with Jennifer D. Bartkovich, Secretary, Homasote Company, P. O. Box
7240, West Trenton, New Jersey 08628-0240, or by giving written notice
of such revocation to the Secretary of the Company.
The mailing address of the Company is P.O. Box 7240, West Trenton, New
Jersey 08628-0240. It is anticipated that the Proxy Statement and
accompanying Proxy will first be sent to the Stockholders on or about
August 15, 2003.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of August 1, 2003, the Company had 348,799 shares of outstanding
common stock, 20 cents par value, which constitutes all of the
outstanding voting securities of the Company. Only holders of common
stock of record at the close of business on August 1, 2003, will be
entitled to one vote per share on all business of the meeting.
Abstentions and any shares as to which a broker or nominee indicates
that it does not have discretionary authority to vote on a particular
matter will be treated as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as unvoted for
purposes of determining whether the approval of stockholders has been
obtained with respect to any such matter and thus will have the effect
of a vote to "Withhold" in the election of directors.
The following table sets forth certain information as of August 1, 2003,
with respect to the only persons known to the Company who beneficially
owned more than 5% of the Company's voting securities.
Shares of Common Stock Percent
Name and Address of of the Company Beneficially of
Beneficial Owner Owned Directly or Indirectly Class
Warren L. Flicker 90,414 25.92
14 Pond View Lane
Titusville, NJ 08560
Michael R. Flicker, Esquire 56,092 16.08
120-B Santa Margarita Ave.
Menlo Park, CA 94025
Estate of Shanley E. Flicker 18,000 5.16
18 Edgewood Road
Yardley, PA 19067
ELECTION OF DIRECTORS
The Company currently has nine Directors (Irving Flicker who was
formerly a Director, became deceased on May 27, 2002) who were elected
for one-year terms and serve until their respective successors are duly
elected and qualified. Unless marked to the contrary, it is intended
that votes will be cast pursuant to the Proxies hereby solicited for the
election of the nine nominees listed in the table below to serve until
the Company's Annual Meeting in 2004 and until their respective
successors are duly elected and qualified. Each of the nominees listed
is currently a Director of the Company, having been elected to serve as
a Director at the Company's Annual Meeting in 2002. Directors will be
elected by a plurality vote. The Management is informed that all of the
nominees are willing to serve as Directors, but if at the time of
election any of the nominees should be unavailable for election, a
circumstance which is not anticipated by the Board of Directors, the
Proxies will be voted for such substituted nominee or nominees as may be
designated by the Board of Directors. The following table sets forth
certain information with respect to the Directors and Officers of the
Company. Except as otherwise provided, each of the following executive
officers of the Company has served in his or her present capacity or
capacities for more than the past five years.
NOMINEES FOR ELECTION AS DIRECTORS
Shares of Common Stock
of the Company
Beneficially Owned
Year Directly or Percent
Name and Principal Became Indirectly as of of
Occupation Director Age August 1, 2003 Class
Joseph A. Bronsard(3) 1995 70 1,100 0.32
Professional Engineer
and Consultant, 2002-
present; Executive Vice
President, Homasote
Company, 1995-2001;
Plant Manager,
1983-2000
Michael R. Flicker(1) 1983 62 56,092 16.08
Attorney-at-Law,
Flicker & Kerin,
Attorneys at Law,
Menlo Park, CA, 1990-
present; Private
practice of law,
1969-present
Warren L. Flicker(1,2) 1974 59 90,414 25.92
Chairman and Chief
Executive Officer,
Homasote Company,
2000-present;
President and Chief
Operating Officer,1995-
2000; Executive Vice
President, 1979-1994
Irene T. Graham, CPS 2000 81 2,000 0.57
Corporate Secretary,
Homasote Company,
2000; Retired, Former
Corporate Secretary
and member of the
Board of Directors,
Homasote Company,
1985-1994
Peter J. McElvogue 2001 40 1,848 0.53
President, Homasote
Company, June 2000-
present; President,
MMI, manufacturers'
representative firm,
Bensalem, PA, 1992-
June 2000; Building
Product Manager,
Homasote Company,
1986-1991
Peter N. Outerbridge 1960 74 1,363 0.39
Chairman of the Board,
Chelston Management
Ltd., a provider of
investment holding and
management services,
St. John's,
Newfoundland, Canada,
1996-present
James M. Reiser, C.P.A. 1999 60 2,742 0.79
Vice President & Chief
Financial Officer,
Homasote Company, March
1999-present; Controller,
Trenton Alloy
Fabricating, Inc., a
metal fabricator,
Trenton, NJ, 1996-1999;
Financial Consultant,
Tumi Luggage, a
manufacturer and
distributor of luggage
products, Middlesex, NJ,
1995-1996; Controller,
York Luggage Co., a
manufacturer and distributor
of luggage products
Lambertville, NJ 1977-1995.
Charles A. Sabino, 1998 63 7,671 2.20
C.P.A., J.D. Tax
Consultant, Self-
Employed, 1997-present;
Managing Partner,
KPMG Peat Marwick LLP,
Princeton, NJ 1967-1997,
Certified Public
Accountants for
the Company
Norman Sharlin 1998 62 2,000 0.57
President and
Chief Operating
Officer, Sharlin
Lite Corporation of
America, distributor
of lighting products,
Ewing Twp., NJ,
1978-present
All Directors and Officers as a 165,230 47.37
group (9) including those named
above
(1) Michael R. Flicker is the brother of Warren L. Flicker.
(2) Includes shares owned by the Estate of Irving Flicker of which
Warren Flicker is an executor and beneficiary.
(3) Joseph A. Bronsard provided consulting services to the Company
in 2002 for aggregate fees of $5,188.
OTHER INFORMATION
The Board of Directors held four meetings in 2002. With the exception
of Michael R. Flicker, Peter Outerbridge and Irving Flicker (deceased
May 27, 2002), who attended 50% of the meetings, all of the Directors
attended 100% of the meetings. The Directors who are not employees of
the Company are each compensated with a retainer fee of $4,000 and, in
addition, $500 per Board meeting attended. Directors who are employees
of the Company are each compensated with a retainer fee of $1,000, but
are not separately compensated for attendance at Board meetings.
Warren L. Flicker, James M. Reiser, and Norman Sharlin are Trustees of
The Homasote Foundation, a non-profit corporation which distributes
payments made by the Company for charitable and educational purposes.
The Homasote Foundation owns 1,052 shares of the common stock of the
Company.
The Company does not have a standing Nominating Committee or any
standing committee performing a similar function. The functions
customarily performed by such a committee are considered the
responsibility of the Board of Directors as a whole.
Report of Audit Committee
The Board of Directors of the Company maintains an Audit Committee, the
primary functions of which are to assist the Board in fulfilling its
responsibility to (i) oversee management's conduct of the Company's
financial reporting process, (ii) assist the Board in carrying out its
fiduciary duties, and (iii) provide a channel of communication between
the Board and the Company's outside auditors. On December 1, 2000, the
Board of Directors adopted a written Charter of the Audit Committee.
Since the beginning of 2002, the Audit Committee has done the following:
(1) reviewed and discussed the audited financial statements of the
Company for the year ended December 31, 2002 (the "Audited Financial
Statements") with management of the Company,
(2) discussed with the independent auditors the matters required to
be discussed by SAS 61 (Communications with Audit Committees), as may
be modified or supplemented, and
(3) received the written disclosure and the letter from the
independent auditors of the Company required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as may be modified or supplemented, and has discussed
with the independent auditors their independence.
Based on the review and discussions referred to in items (1) through (3)
above, the Audit Committee recommended to the Board of Directors that
the Audited Financial Statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, for
filing with the Securities and Exchange Commission.
Peter N. Outerbridge, Charles A. Sabino and Norman Sharlin, Directors of
the Company, are the members of the Company's Audit Committee, which
held two meetings during 2002. Mr. Sabino serves as Chairman of the
Audit Committee.
All members of the Audit Committee are independent as defined in Rule
4200(a)(15) of the NASD's listing standards, as such Rule may be
modified or supplemented.
Audit And Non-Audit Fees
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of the Company's Audited Financial
Statements for 2002, and fees billed for other services rendered by KPMG
LLP.
Audit Fees, excluding audit related $80,500
======
Financial information systems design
and implementation fees $ 0
======
All other fees:
Audit related fees (1) $12,000
Other non-audit services fees 0
______
Total all other fees $12,000
======
(1) Audit related fees consisted of audits of financial statements of
certain employee benefit plans.
EXECUTIVE COMPENSATION
Compensation for the Company's executive officers is the responsibility
of the Board of Directors, based on recommendations of the Company's
Compensation Committee. The members of the Compensation Committee are
Warren L. Flicker, James M. Reiser and Charles A. Sabino. Each
executive officer's salary is based on his specific responsibilities,
overall performance, and employment contract when applicable. The
Compensation Committee also periodically recommends awards of
discretionary bonuses to executive officers. The bonuses are based upon
the performance of the individual executive and the financial results of
the Company.
The following table sets forth certain information with regard to
compensation awarded to, earned by, or paid by the Company in each of
the Company's last three fiscal years to (i) the Chief Executive Officer
of the Company, and (ii) the two highest compensated executive officers
of the Company (other than the Company's Chief Executive Officer) who
were serving as executive officers of the Company at December 31, 2002.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other All
Annual Other
Name and Principal Year Salary Bonus Compensation Compensation
Position (1,2) (3,6)
($) ($) ($) ($)
Warren L. Flicker(4) 2002 210,000 --- 1,000 8,010
Chairman and Chief 2001 210,000 31,500 1,000 8,010
Executive Officer 2000 200,000 40,000 1,000 424
Peter J. McElvogue(5) 2002 150,000 --- 1,000 2,750
President 2001 150,000 15,000 1,000 2,750
2000 67,500 3,000 --- 584
James M. Reiser 2002 90,000 --- 1,000 1,548
Vice President and 2001 90,000 18,000 1,000 1,398
Chief Financial 2000 90,000 13,500 1,000 799
Officer
(1) The incremental cost to the Company of perquisites and other
personal benefits did not for any year exceed 10% of any named
executive's total annual salary and bonus.
(2) Fees paid for service as Directors.
(3) Amounts for 2002 represent (i) Company contributions to its
Savings Plan on behalf of Peter J. McElvogue ($1,500) and James M.
Reiser ($900), and (ii) amounts paid by the Company for life
insurance on Warren L. Flicker ($8010), Peter J. McElvogue ($1250)
and James M. Reiser ($648).
(4) The Company has an employment contract with Warren L. Flicker
dated and effective as of May 7, 1999, providing for his continued
employment in a full-time capacity until May 6, 2009, at an annual
salary of $200,000, adjusted biennially for changes in the
Consumer Price Index (as defined), with the right to receive such
additional executive compensation as may be granted by the Board
of Directors of the Company and its subsidiary.
(5) The Company has an employment contract with Peter J. McElvogue
dated and effective as of July 1, 2000, providing for his
continued employment in a full-time capacity until June 30, 2010,
at an annual salary rate in 2000 of $135,000, increasing to
$150,000 in 2001, adjusted biennially thereafter for changes in
the Consumer Price Index (as defined), with the right to receive
such additional executive compensation as may be granted by the
Board of Directors of the Company and its subsidiary.
(6) The Company instituted a Supplemental Retirement Plan effective
January 1, 1978, for certain key employees. Payment is based on
"average annual earnings," which is defined as the average basic
earnings in the five calendar years out of the ten calendar years
of employment prior to the employee's retirement for which the
employee received the highest earnings. As of this date, the Plan
is unfunded.
(Table on next page)
ANNUAL BENEFIT FOR YEARS OF CREDITED SERVICE
PRIOR TO REDUCTION FOR SOCIAL SECURITY AND
COMPANY PROVIDED PENSION BENEFITS
FIVE YEAR
AVERAGE
ANNUAL
EARNINGS
10 Years 15 Years 20 Years 30 Years 40 Years
$ 50,000 $12,500 $ 18,750 $ 25,000 $ 25,000 $ 25,000
100,000 25,000 37,500 50,000 50,000 50,000
150,000 37,500 56,250 75,000 75,000 75,000
200,000 50,000 75,000 100,000 100,000 100,000
250,000 62,500 93,750 125,000 125,000 125,000
300,000 75,000 112,500 150,000 150,000 150,000
350,000 87,500 131,250 175,000 175,000 175,000
The current years of credited service of the individual set forth in
the table above are:
Warren L. Flicker, 37
In November 1975, the Board of Directors adopted a Savings Plan
effective April 1, 1976, in which all employees are eligible to
participate. Under the Savings Plan, each employee may contribute up to
50% of his or her total monetary compensation, limited to a maximum of
$11,000 ($12,000 in 2003). The Savings Plan provides for contributions
by the Company of 25% of the first 4% or fraction thereof contributed by
each participating employee. Effective November 1, 2000, the Company
amended and restated the Savings Plan in its entirety to convert the
Savings Plan to a plan that qualifies and meets the requirements under
Section 401(k) of the Internal Revenue Code. Additionally, as of such
date, the Company appointed Vanguard Fiduciary Trust Company, Inc. as
trustee of the Savings Plan, with funds of the Savings Plan to be
invested in those mutual funds of the Vanguard Group selected by the
Company's Savings Plan Administrative Committee and as designated by the
participating employee.
FIVE-YEAR COMPARISONS
PERFORMANCE GRAPH
The following graph compares for the five years ended December 31, 2002,
the cumulative total shareholder return on the Company's Common Stock
with the cumulative total return on the Lipper Small Company Index and
with the cumulative total return on the Russell 2000 Index. The graph
assumes that $100 was invested on December 31, 1997, in each of the
Company's Common Stock, the Lipper Small Company Index and the Russell
2000 Index, and that all dividends were reinvested.
INFORMATION CONCERNING THE COMPANY'S AUDITORS
The Board of Directors has not, as of the date hereof, selected the
auditors for the fiscal year ending December 31, 2003. KPMG LLP acted
as the Company's independent auditors for the fiscal year ended December
31, 2002. A member of the firm of KPMG LLP is expected to be present at
the meeting and, if present, will have an opportunity to make a
statement if he/she desires to do so and to respond to appropriate
questions.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented at
the Annual Meeting other than that which is specifically referred to in
the Proxy and this Proxy Statement. However, if any other matter should
properly come before the meeting, it is intended that votes will be cast
pursuant to the Proxy in respect thereto in accordance with the best
judgment of the persons acting as Proxies.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual Meeting in
2004 must be received by the Company at its executive offices (please
address to the attention of Jennifer D. Bartkovich, Secretary), P.O. Box
7240, West Trenton, New Jersey 08628-0240, for inclusion in the Proxy
Statement and form of Proxy relating to that meeting by December 4,
2003. Any such proposal must comply with Rule 14a-8 of Regulation 14A
of the Proxy Rules of the Securities and Exchange Commission.
EXPENSE OF SOLICITATION OF PROXIES
The cost of this solicitation of Proxies will be borne by the Company.
The Proxies will be solicited principally through the use of the mails,
but officers and regular employees of the Company may solicit Proxies
personally or by telephone or facsimile. The Company reimburses banks,
brokerage houses and other custodians, nominees, and fiduciaries for
their reasonable expenses in forwarding proxy material to their
principals.
A copy of the Company's Annual Report on Form 10-K including the
financial statements and schedules thereto is available, without charge,
on written request directed to Jennifer D. Bartkovich, Secretary,
Homasote Company, P.O. Box 7240, West Trenton, New Jersey 08628-0240.
By Order of the Board of Directors
JENNIFER D. BARTKOVICH
Secretary
August 15, 2003