UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 1-4438
O'SULLIVAN CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0463029
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1944 Valley Avenue, P.O.Box 3510, Winchester, Virginia 22601
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(703) 667-6666
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(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(d) 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 [ ]
At September 30, 1994, there were 16,484,871 shares of the registrant's
common stock outstanding.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1994 1993
Current Assets ------------ ------------
Cash and cash equivalents $ 1,493,955 $ 2,830,015
Receivables 56,924,915 50,178,989
Inventories 29,927,144 29,931,709
Net receivable from disposition of
discontinued operations 46,000,088 - -
Deferred income tax assets 1,492,746 1,492,746
Other current assets 1,153,113 2,562,069
------------ ------------
Total current assets $136,991,961 $ 86,995,528
------------ ------------
Property, Plant and Equipment $ 44,729,342 $ 44,627,362
------------ ------------
Intangibles $ 996,264 $ 1,017,266
------------ ------------
Other Assets
Net assets of discontinued operations $ - - $ 52,994,219
Other 11,498,241 11,725,263
------------ ------------
$ 11,498,241 $ 64,719,482
------------ ------------
Total assets $194,215,808 $197,359,638
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 3,783,026 $ 8,483,977
Current portion of long-term debt 63,437 3,532,732
Accounts payable 26,069,239 21,547,304
Accrued expenses 16,139,739 10,452,305
------------ ------------
Total current liabilities $ 46,055,441 $ 44,016,318
------------ ------------
Long-Term Debt $ 37,118,158 $ 39,501,834
------------ ------------
Other Long-Term Liabilities $ 1,684,191 $ 1,691,753
------------ ------------
Deferred Income Taxes $ 3,394,580 $ 3,396,370
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Shareholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 16,484,871 $ 16,484,948
Additional paid-in capital 9,963,876 9,964,574
Retained earnings 79,790,110 82,524,869
Cumulative translation adjustments (156,123) (101,732)
Unrecognized pension costs, net of
deferred tax effect (119,296) (119,296)
------------ ------------
Total shareholders' equity $105,963,438 $108,753,363
------------ ------------
Total liabilities and shareholders' equity $194,215,808 $197,359,638
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Three Months Ended September 30,
---------------------------------------
1994 1993
------------ ------------
Net sales $ 44,696,455 $ 39,173,305
Cost of products sold 36,144,353 30,986,448
------------ ------------
Gross profit $ 8,552,102 $ 8,186,857
------------ ------------
Operating expenses
Selling and warehousing $ 2,674,369 $ 2,108,826
General and administrative 1,564,979 1,320,107
------------ ------------
$ 4,239,348 $ 3,428,933
------------ ------------
Income from operations $ 4,312,754 $ 4,757,924
------------ ------------
Other income (expense)
Interest expense $ (201,285) $ (281,110)
Other, net (81,367) (195,484)
------------ ------------
$ (282,652) $ (476,594)
------------ ------------
Income from continuing operations
before income taxes $ 4,030,102 $ 4,281,330
Income taxes 1,622,099 1,639,440
------------ ------------
Income from continuing operations $ 2,408,003 $ 2,641,890
------------ ------------
Discontinued operations:
Loss from discontinued operations,
net of taxes $ (971,299) $ (680,212)
Estimated loss on disposal of
discontinued operations, net of taxes (8,220,000) - -
------------ ------------
$ (9,191,299) $ (680,212)
------------ ------------
Net income (loss) $ (6,783,296) $ 1,961,678
============ ============
Net income per common share:
Net income per common share from
continuing operations $ 0.15 $ 0.16
Net loss per common share from
discontinued operations (0.07) (0.04)
Estimated net loss per common share
from disposal of discontinued operations (0.50) - -
------------ ------------
Net income (loss) per common share $ (0.42) $ 0.12
============ ============
Dividends per common share $ 0.07 $ 0.07
============ ============
Average common shares outstanding 16,484,871 16,485,095
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Nine Months Ended September 30,
--------------------------------------
1994 1993
------------ ------------
Net sales $149,128,963 $133,078,261
Cost of products sold 119,405,994 106,559,198
------------ ------------
Gross profit $ 29,722,969 $ 26,519,063
------------ ------------
Operating expenses
Selling and warehousing $ 8,917,244 $ 8,382,829
General and administrative 5,206,877 4,741,192
------------ ------------
$ 14,124,121 $ 13,124,021
------------ ------------
Income from operations $ 15,598,848 $ 13,395,042
------------ ------------
Other income (expense)
Interest expense $ (688,842) $ (886,331)
Other, net 104,222 (93,388)
------------ ------------
$ (584,620) $ (979,719)
------------ ------------
Income from continuing operations
before income taxes $ 15,014,228 $ 12,415,323
Income taxes 5,942,115 4,597,821
------------ ------------
Income from continuing operations $ 9,072,113 $ 7,817,502
------------ ------------
Discontinued operations:
Income (loss) from discontinued
operations, net of taxes $ (125,126) $ 716,493
Estimated loss on disposal of
discontinued operations, net of taxes (8,220,000) - -
------------ ------------
$ (8,345,126) $ 716,493
------------ ------------
Net income $ 726,987 $ 8,533,995
============ ============
Net income per common share:
Net income per common share from
continuing operations $ 0.55 $ 0.48
Net income (loss)per common share
from discontinued operations (0.01) 0.04
Estimated net loss per common share
from disposal of discontinued operations (0.50) - -
------------ ------------
Net income per common share $ 0.04 $ 0.52
============ ============
Dividends per common share $ 0.21 $ 0.21
============ ============
Average common shares outstanding 16,484,893 16,485,141
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
--------------------------------------
1994 1993
Cash Flows From Operating Activities ------------ ------------
Net income $ 726,987 $ 8,533,995
(Income) loss from discontinued operations 8,345,126 (716,493)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,017,944 4,833,038
Provision for doubtful accounts 429,349 157,453
Deferred income taxes - - (281,728)
Loss on disposal of assets 3,840 211,639
Interest accrual on zero coupon notes 102,971 70,184
Change in operating assets and liabilities,
net of effect of acquisition and disposition
of businesses:
Receivables (7,175,275) (10,931,599)
Inventories 4,565 2,268,553
Other current assets 919,776 (593,548)
Accounts payable 7,002,142 (3,239,932)
Accrued expenses 2,501,199 (1,001,099)
------------ ------------
Net cash provided by (used in) operating
activities:
Continued operations $ 17,878,624 $ (689,537)
Discontinued operations 2,995,183 6,138,567
------------ ------------
Net cash provided by operating activities $ 20,873,807 $ 5,449,030
------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment $ (4,945,246) $ (2,301,873)
Proceeds from disposal of assets 19,500 129,750
Acquisition of intangible assets (141,119) (234,731)
Net funds received upon redemption of
other assets 125,715 - -
Acquisition of business, less cash and
cash equivalents acquired - - (1,153,643)
Payments received from non-operating
notes receivable 213,827 548,236
Funds advanced to affiliate disposed of as
a part of discontinued operations - - (5,315,179)
------------ ------------
Net cash (used in) investing activities:
Continued operations $ (4,727,323) $ (8,327,440)
Discontinued operations (2,995,183) (9,806,291)
------------ ------------
Net cash (used in) investing activities $ (7,722,506) $(18,133,731)
------------ ------------
The accompanying notes are in integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the Nine Months Ended September 30,
--------------------------------------
1994 1993
------------ ------------
Cash Flows From Financing Activities
Changes in short-term debt $ (4,700,951) $ (112,880)
Net change in line of credit borrowings (2,500,000) (14,000,000)
Proceeds from long-term debt - - 25,000,000
Repayment of debt (3,824,123) (369,000)
Purchase of common stock (775) (2,744)
Cash dividends paid (3,461,512) (3,462,654)
------------ ------------
Net cash provided by (used in) financing
activities:
Continued operations $(14,487,361) $ 7,052,722
Discontinued operations - - 3,667,724
------------ ------------
Net cash provided by (used in) financing
activities $(14,487,361) $ 10,720,446
------------ ------------
Decrease in cash and cash equivalents $ (1,336,060) $ (1,964,255)
Cash and cash equivalents at
beginning of period 2,830,015 3,545,943
------------ ------------
Cash and cash equivalents at
end of period $ 1,493,955 $ 1,581,688
============ ============
The accompanying notes are in integral part of the consolidated financial
statements.
O'Sullivan Corporation and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
O'Sullivan Corporation's consolidated financial statements represent the
combination of two principal manufacturing business segments. The primary
segment of the Company is the plastics products business segment. This segment
manufactures calendered and molded plastics products for the automotive and
specialty plastics manufacturing industries. On April 1, 1993, the Company
acquired Capitol Plastics of Ohio, Inc. Capitol Plastics is a custom injection
molding manufacturing operation with one plant located in Bowling Green, Ohio.
Capitol Plastics of Ohio, Inc., which is a wholly-owned subsidiary of
O'Sullivan Corporation, is part of the plastics products business segment of
the Company. On November 24, 1992, O'Sullivan Corporation acquired
substantially all of the assets of Melnor Industries, Inc. and its wholly-owned
subsidiary Melnor Manufacturing, LTD. With this acquisition, O'Sullivan
Corporation entered the consumer products manufacturing, marketing and
distribution business, which represents its second business segment. The new
Company, which is a wholly-owned subsidiary of O'Sullivan Corporation, is now
called Melnor Inc., and has as its wholly-owned subsidiary Melnor Canada, LTD.
The principal source of income for the Company is from sales of those products
produced by each business segment to manufacturers, distributors and retail
outlets.
On October 3, 1994, the Company announced that it had signed a letter of intent
dated September 30, 1994, with Automotive Industries, Inc. concerning the sale
of the Company's Gulfstream Division. The assets of the Gulfstream Division
being sold consists primarily of property, plant and equipment, inventories and
the capital stock of Capitol Plastics of Ohio, Inc. which are all part of the
Company's plastics products business segment. The consolidated financial
statements of the Company have been adjusted and comparable periods restated to
reflect the sale of the Gulfstream Division's assets, as of September 30, 1994.
The results of discontinued operations are discussed and disclosed in footnote
(B.).
Consolidated sales revenue on continuing operations increased to $44.7 and
$149.1 million during the quarter and nine months ended September 30, 1994,
compared to $39.2 and $133.1 million for the same periods last year, up 14.1%
and 12.1%, respectively. Sales revenues for the primary plastics products
segment of the Company increased to $37.0 and $111.9 million for the quarter
and nine months ended September 30, 1994, compared to $33.0 and $100.0 million
for the same periods last year, up 12.0% and 11.9%, respectively. Although
sales increases for the quarter and nine months were experienced in virtually
all product lines, the majority of sales increase experienced by the plastics
products segment was for products produced for distribution to the automotive
industry. The consumer products segment of the Company contributed $7.7 and
$37.2 million in sales revenues for the quarter and nine months ended September
30, 1994, compared to $6.1 and $33.0 million for the same periods last year, up
25.2% and 12.7%, respectively. Consumer products sales increases experienced
during the quarter ended September 30, 1994, were the direct results of
increased sales and market penetration of counter-cyclical product lines,
primarily snow shovels, as opposed to the regular lawn and garden watering
products, produced and distributed by Melnor Canada, LTD., Melnor Inc.'s
wholly-owned Canadian subsidiary.
Consolidated net income on continuing operations for the quarter and nine
months ended September 30, 1994, was $2.4 and $9.1 million compared to $2.6 and
$7.8 million for the same periods last year, down and up 8.8% and 16.0%,
respectively. The primary reason for the decline in net income for the quarter
ended September 30, 1994, compared to last year was the decline in gross profit
experienced by the plastics products business segment of the Company. Gross
profit on operations was $6.6 and $21.4 million for the quarter and nine months
ended September 30, 1994, compared to $7.5 and $20.2 million for the same
periods last year, down 12.1% and up 5.7%, respectively. The plastics products
business segment's cost of products sold increased 16.6%, on sales increases of
12.0%, resulting in reduced gross profit on operations of $1.8 million, when
compared to the same period last year. Costs of products sold for the segment
represented 82.2% of sales for the quarter ended September 30, 1994, compared
to 77.3% for the same period last year. The plastics products business segment
was negatively affected by raw material costs and mixed compound costs
increasing substantially faster than the Company's ability to pass price
increases through to it's customer base, and the start-up of new and improved
flexible vinyl compounds, all of which contributed to the increase in costs of
products sold. Management considers these problems to be short-term in nature
and that they will be corrected in the near future. Gross profit from
operations for the consumer products segment of the Company showed significant
improvement for the quarter and nine months ended September 30, 1994, with
gross profit of $1.9 and $8.3 million compared to $701 thousand and $6.3
million for the same periods last year, up 181.1% and 32.7%, respectively. The
primary reasons for the improvement in gross profit margins for the quarter
ended September 30, 1994, were the increase in counter-cyclical sales volume
and their associated added contribution margins for Melnor Canada, LTD.,
compared to the same period last year. Also, significant reductions in labor
related overhead in cost of products sold have contributed to increased gross
profit margins.
Consolidated operating expenses on continuing operations for the quarter and
nine months ended September 30, 1994, were $4.2 and $14.1 million compared to
$3.4 and $13.1 million for the same periods last year, up 23.6% and 7.6%,
respectively. Selling and warehousing expenses were $2.7 and $8.9 million for
the quarter and nine months ended September 30,1994, compared to $2.1 and $8.4
million for the same periods last year, up 26.8% and 6.3%, respectively.
Selling and warehousing expenses represented 6.0% of each sales dollar for both
the quarter and nine months ended September 30, 1994, compared to 5.4% and 6.3%
for the same periods last year, for the combined primary plastics products and
the consumer products business segments of the Company. General and
administrative expenses for the quarter and nine months ended September 30,
1994, were $1.6 and $5.2 million compared to $1.3 and $4.7 million for the same
periods last year, up 18.5% and 9.8%, respectively. General and administrative
expenses represented 3.5% of each sales dollar for both the quarter and nine
months ended September 30, 1994, compared to 3.4% and 3.6% for the quarters and
nine months ended September 30, 1993.
Non-operating expenses decreased $194 thousand and $395 thousand during the
quarter and nine months ended September 30, 1994, compared to the same periods
last year, primarily due to lower amounts of external debt necessary to finance
the Companies associated with the consumer products business segment.
Total consolidated debt decreased $14.2 and $10.6 million compared to June 30,
1994, and December 31, 1993, respectively. As of September 30, 1994, the
consumer products segment, Melnor Inc., had external short and long-term debt
obligations of $5.5 million, representing 13.3% of the total debt of the
Company. During the first quarter of 1994, the company successfully completed
negotiations with a financial institution for the debt restructuring of Melnor
Inc. The new debt structure consists of a revolving credit facility
substantially the same as before with standard negative operating covenants.
This debt is secured by the assets of Melnor Inc. and does not represent any
liability to the parent company. During the month of June, 1994, the Company
renegotiated its $25.0 million unsecured line of credit with its principal
bank, First Union National Bank of Virginia. The new unsecured line of credit
is now $35.0 million and has a maturity date of June 30, 1997. The purpose of
increasing this line of credit was to insure adequate capital for corporate
liquidity, finance growth of trading assets, and to finance capital
expenditures and/or acquisitions. With the current debt structure and lines of
credit that are available, the Company believes that working capital
requirements for the short and long-term are adequately provided for.
Currently, with prevailing bond market interest rates, the Company expects that
the holders of the Company's $25.0 million in long-term Senior Notes, in
accordance with the note agreement, will require payment in full upon
completion of the sale of the Gulfstream Division to Automotive Industries,
Inc. Although the Company is in compliance with all of the note agreement
negative covenants as of September 30, 1994, the prepayment option is available
to the note holders because of the nature of the announced sale. It is
therefore expected that part of the cash proceeds from the sale of the
Gulfstream Division will be used to retire the $25.0 million in long-term
senior notes.
The Company's financial position and liquidity continue to remain strong at
September 30, 1994, with shareholder's equity at 54.6% of total assets.
Current assets compared to current liabilities were 3.0 to 1.0. Total debt to
equity of the Company was 38.7% and net worth, although down $2.8 million from
December 31, 1993, due to the loss recorded on the sale of discontinued
operations, was still at $106.0 million.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Preparation
The accompanying unaudited consolidated financial statements include
the accounts of O'Sullivan Corporation and its wholly-owned
subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
In the opinion of management of the Corporation, the unaudited
consolidated financial statements contain all material adjustments
necessary to fairly present the Corporation's financial position as
of September 30, 1994, and December 31, 1993, and the results of its
operations and cash flows for the three and nine months ended
September 30, 1994, and 1993. Such adjustments consist only of
normal recurring items.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have not been included with these statements.
These statements should be read in conjunction with the financial
statements, notes and other disclosures thereto included in the
Corporation's 1993 Annual Report to Stockholders and Form 10-K.
The results of operations for the three and nine months ended
September 30, 1994, are not necessarily indicative of the operating
results for the full year.
Note B. Discontinued Operations
On October 3, 1994, the Corporation announced that it had signed a
letter of intent on September 30, 1994, with Automotive Industries,
Inc. to sell certain assets of the Corporation's Gulfstream Division,
which is part of the Company's plastics products business segment.
The assets of the Gulfstream Division being sold consists primarily
of property, plant, and equipment, inventories and the capital stock
of Capitol Plastics of Ohio, Inc., a subsidiary of O'Sullivan
Corporation operating as part of the Gulfstream Division. The
disposal of the above assets is expected to be completed prior to
December 31, 1994.
The estimated loss on the disposal of the division of $8,220,000 (net
of income tax benefit of $5,480,000) represents the estimated loss on
the disposal of the assets of the division, along with expenses
associated with disposal activities, including severance costs,
environmental clean-up costs, professional fees and various other
costs associated with the disposal, net of expected operating income
of $1,400,000, during the phase-out period.
Operating results of the Gulfstream Division for the three and nine
months ended September 30, 1994, are shown separately in the
accompanying income statements. Income statements for the three and
nine months ended September 30, 1993, have been restated to show the
results of the Gulfstream Division separately. Income taxes
(benefit) applicable to the three and nine months ended September 30,
1994, were $(634,339) and $(86,439), respectively. For the three and
nine months ended September 30,1993, the income taxes (benefit) were
$(319,863) and $481,488, respectively.
Net sales of the Gulfstream Division were $37,773,755 and
$120,604,004 for the three and nine months ended September 30, 1994,
respectively. Net sales were $27,333,910 and $84,520,798 for the
three and nine months ended September 30, 1993, respectively. These
amounts are not included in net sales in the accompanying income
statements. Assets and liabilities of the Gulfstream Division
consisted of the following at September 30, 1994, and December 31,
1993.
September 30, December 31,
1994 1993
------------ ------------
Current Assets $ 15,399,262 $ 17,076,667
Net property, plant and equipment 47,377,818 49,220,122
Other assets 2,096,107 876,519
Liabilities and deferred taxes 13,260,469 14,179,089
------------ ------------
Net assets of Gulfstream Division $ 51,612,718 $ 52,994,219
============ ============
Note C. Receivables
Receivables at September 30, 1994, and December 31, 1993, include
accumulated work in process and amounts due from automotive customers
and suppliers for funds advanced by O'Sullivan Corporation and its
subsidiaries to support mold and tooling activities. These amounts
were $7,302,247 at September 30, 1994, and $8,688,543 at December 31,
1993.
Receivables are presented net of an allowance for doubtful accounts
of $1,255,835 at September 30, 1994, and $1,133,793 at December 31,
1993.
Note D. Inventories
At September 30, 1994, and December 31, 1993, inventories were
composed of the following:
September 30, December 31,
1994 1993
------------ ------------
Finished goods $ 7,132,792 $ 9,453,982
Work in process 7,849,634 4,947,924
Raw materials 12,165,883 13,024,695
Supplies 2,778,835 2,505,108
------------ ------------
$ 29,927,144 $ 29,931,709
============ ============
Slow-moving inventories at September 30, 1994, and December 31, 1993,
amounted to $877,209 and $640,539, respectively, less a reserve at
September 30, 1994, and December 31, 1993, of $502,329 and $306,320,
respectively. Slow-moving inventories is an estimate of inventory
held in excess of one year's requirements, based on historical sales
volumes.
Note E. Property, Plant and Equipment
At September 30, 1994, and December 31, 1993, property, plant and
equipment were composed of the following:
September 30, December 31,
1994 1993
------------ ------------
Land $ 1,246,105 $ 1,226,403
Buildings 23,835,167 25,279,956
Machinery and equipment 62,063,123 57,751,673
Transportation equipment 3,491,888 3,468,575
------------ ------------
$ 90,636,283 $ 87,726,607
Less accumulated
depreciation 45,906,941 41,099,245
------------ ------------
$ 44,729,342 $ 44,627,362
============ ============
Note F. Accrued Expenses
At September 30, 1994, and December 31, 1993, accrued expenses were
comprised of the following:
September 30, December 31,
1994 1993
------------ ------------
Accrued compensation $ 6,038,092 $ 3,358,883
Employee benefits 3,431,850 2,827,832
Dividends payable 1,152,275 1,153,497
Other accrued expenses 5,517,522 3,112,093
------------ ------------
$ 16,139,739 $ 10,452,305
============ ============
Note G. Debt
Short-Term Debt
Short-term debt at September 30, 1994, consisted of a revolving
credit facility ("revolving loan") with a financial institution in
the amount not to exceed $15,000,000 which expires March 3, 1996, and
shall be automatically renewed for one year periods thereafter,
unless terminated by either party as provided for in the loan
agreement. The maximum principal amount at any time outstanding of
the revolving loan is equal to the "Borrowing Base" at such time. At
any date of determination thereof, the borrowing base is an amount
equal to the lesser of: (i) the revolving credit facility amount; or
(ii) the sum of: (a) 80% of the net amount of eligible accounts
receivable outstanding at such time; plus (b)the lesser of (A)
$5,500,000 during the period commencing on November 1 in each year
and ending on March 31 in the following year, and $4,500,000 at all
other times in each year or (B) the sum of (x) the lesser of (1) 45%
of the value of eligible inventory at such date consisting of raw
materials or (2) the maximum inventory of raw materials, plus (y) the
lesser of (1) $100,000 or (2) 45% of the value of eligible inventory
at such date consisting of work-in-process inventory, plus (z) the
lesser of (1) 55% of the value of borrower's eligible inventory at
such date consisting of finished goods or (2) the maximum inventory
borrowing base value of such eligible inventory of finished goods;
minus (c) with respect to any letter of credit obligations
outstanding at such date, the sum of (A) the product of (1) the face
amount of any documentary letter of credit obligation, times (2) 100%
less the applicable percentage advance rate for the eligible
inventory whose purchase is being supported by the documentary letter
of credit obligation, plus (B) 100% of the face amount of all other
letter of credit obligations outstanding at such date; minus (d) any
amounts which lender may pay pursuant to any of the loan documents
for the account of borrower. Interest is payable monthly at a
fluctuating rate equal to prime plus 1.25%, but at no time shall the
rate be less than 6%. The rate of September 30, 1994 was 9.0%. In
addition, underutilization and letter of credit fees are payable
monthly. Total loan availability at September 30, 1994, was
$4,854,939. At September 30, 1994, $3,783,026 was borrowed on this
note.
Melnor Inc. and its subsidiary have established lock box accounts to
which all account debtors shall directly remit all payments on
accounts and in which Melnor Inc. and its subsidiary will
immediately deposit all cash payments made for inventory or other
cash payments constituting proceeds of collateral. For as long as no
default or event of default exists, Melnor Inc.'s subsidiary, Melnor
Canada Ltd. shall be permitted to receive all payments or other
remittances of its accounts and other proceeds of its collateral
deposited in the lock box account. If a default or event of default
exists, the lender may direct that all payments or other remittances
deposited in the Melnor Canada Ltd. lock box be remitted to the
lender. All amounts held or deposited in or payments made to the
Melnor Inc. lock box account, and all funds deposited in the Melnor
Canada Ltd. lock box account, after being directed by lender are the
sole and exclusive property of the lender and shall be applied to the
loan balance. Any amounts contained in the lock box accounts or
otherwise received by the lender in excess of the loan obligation
then due and payable shall be the property of Melnor Inc. and its
subsidiary and shall promptly be paid over by the lender. The loan
is collateralized by substantially all assets of Melnor Inc. and its
subsidiary. The loan security agreement provides, among other
things, for certain reporting and collateral requirements and for
certain financial covenants in regard to Melnor Inc. and its
subsidiary, such as maintenance of a certain level of net worth;
current ratio; earnings; and cash flow coverage. Negative covenants
provide, among other things, limitations on encumbrances,
indebtedness, merger or other acquisition, disposal of property,
compensation plans, dividend or other distributions and lease
obligations.
Short-term debt at December 31, 1993, consisted of a revolving credit
facility ("revolving loan") with a finance company in an aggregate
amount not to exceed $20,000,000 which was due to expire November 24,
1994. The aggregate amount of the revolving loan cannot exceed the
lesser of (i) the Current Asset Base minus the Letter of Credit
Reserve and (ii) the Total Seasonal Revolving Loan Facility of
$20,000,000 during the period of February 1 through July 31 of each
year and the Total Permanent Revolving Loan Facility of $11,000,000
during the period of August 1 through January 31 of the succeeding
calendar year. The Current Asset Base equals 85% of the face amount
of eligible accounts receivable plus 55% of eligible inventory for
Melnor Inc. and its subsidiary.
Eligible inventory cannot exceed $6,500,000 between August 1 and
January 31 of the succeeding calendar year and $7,500,000 between
February 1 and July 31 of each year. The Letter of Credit Reserve
equals the sum of 45% of the face amount of letters of credit issued
for purchase of inventory and 100% of the face amount of all other
letters of credit outstanding. Interest is payable monthly at a
fluctuating rate equal to prime plus 1.5%. The rate at and December
31, 1993, was 7.5%. In addition, underutilization and letter of
credit fees are payable monthly. Total loan availability at December
31, 1993, amounted to $9,000,000. At December 31, 1993, $8,483,977
was borrowed.
Long-Term Debt September 30, December 31,
1994 1993
------------ ------------
7.05% Senior Notes dated May 27, 1993,
payable to various insurance companies.
The notes bear an interest rate of
7.05% payable semiannually on the first
day of May and November, commencing
November 1, 1993. Interest is due on
any overdue principal, premium amount
and interest installment at the rate of
8.05% per annum until paid. Principal
payments of the lesser of (a)
$5,000,000 or (b) the principal amounts
of the notes then outstanding are due
on May 1 of each year, commencing May
1, 1996, and ending May 1, 1999.
Prepayment of the notes may be done at
any time prior to the scheduled payment
dates with a prepayment premium. The
entire remaining principal amount of
the notes shall become due and payable
on May 1, 2000. The note agreement
provides, among other things, for
certain financial covenants in regard
to the Corporation, such as
consolidated net worth requirements,
interest charge coverage ratios and
limitations on liens and additional
debt. Negative covenants provide for,
among other things, limitations on
indebtedness; mergers, consolidations
and sale of assets; and dividends and
other distributions. The Corporation
is in compliance with these covenants. $ 25,000,000 $ 25,000,000
Line of credit notes payable to First
Union National Bank of Virginia. The
Corporation has a $35,000,000 unsecured
line of credit to support general
corporate activities. The note
agreement provides for certain
financial covenants in regard to the
Corporation. The Corporation is in
compliance with those covenants.
Borrowings against the line of credit
are at or below prevailing prime
interest rates, (5.6% at September
September 30, December 31,
1994 1993
------------ ------------
30, 1994, and 6.0% at December 31,
1993). The line of credit matures
June 30,1997. 10,500,000 13,000,000
7.5% promissory note payable from
Melnor Inc. to a finance company due in
monthly payments of $41,000 plus
interest at a fluctuating rate equal to
1.5% per annum in excess of the prime
rate (7.5% at December 31, 1993) with
the outstanding balance payable in full
on November 24, 1994, collateralized by
all assets of Melnor Inc. and its
subsidiary. The loan was provided
under the same security agreement as
the revolving loan as of December 31,
1993 described in the Short-Term Debt
section and was subject to the same
covenants and items as the revolving loan. - - 508,000
7.0% senior subordinated note payable
from Melnor Inc. to an insurance
company due November 24, 1994, with
interest payable at the prime rate plus
1.0% (7.0% at December 31, 1993) on
November 24, 1993, May 24, 1994, and
November 24, 1994. Interest payments
were guaranteed by O'Sullivan
Corporation. The note purchase
agreement provided, among other things,
restrictions on indebtedness and liens,
capital expenditures and various
financial covenants. - - 2,695,000
7.0% senior subordinated note payable
from Melnor Inc. to an affiliate of
Melnor Industries, Inc. due December
24, 1994, with interest payable at the
prime rate plus 1.0% (7.0% at December
31, 1993) on June 24, 1994, and
December 24, 1994. Interest payments
were guaranteed by O'Sullivan
Corporation. - - 305,000
Unsecured non-interest bearing
promissory note payable from Melnor
Inc. to Melnor Industries, Inc.
discounted at 9.0% due on November
24, 1996. 1,330,654 1,243,747
Non-interest bearing obligation payable
to Melnor Industries, Inc., discounted
at 9.0%. Payment is contingent upon
Melnor Industries, Inc. satisfying its
obligation under the New Jersey
Environmental Cleanup Responsibility
Act and the release by the State of the
September 30, December 31,
1994 1993
------------ ------------
escrow fund of $300,000 established to
fund environmental cleanup activities. 247,031 230,966
Notes payable from Melnor Inc. to
equipment finance companies due in
monthly payments totaling $906
including interest at rates from
11.7% to 15.5%. 10,185 17,052
Capital lease obligations 93,725 34,081
------------ ------------
$ 37,181,595 $ 43,034,566
Less current maturities 63,437 3,532,732
------------ ------------
$ 37,118,158 $ 39,501,834
============ ============
Note H. Business Combination
On April 1, 1993, the Corporation acquired all of the outstanding
stock of Capitol Plastics of Ohio, Inc. for $1,000,000. Capitol
Plastics is engaged in the business of custom injection molding. The
transaction has been accounted for as a purchase and the accounts and
transactions of the acquired business have been included in the
consolidated financial statements from the date of acquisition.
Unaudited pro forma consolidated net sales, net income and net income
per common share for discontinued operations, assuming the
acquisition had occurred as of the beginning of 1993, would have been
approximately as follows:
Pro forma net sales $ 91,200,000
Pro forma net income $ 766,000
Pro forma net income per common share $ 0.05
Note I. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For the Nine Months Ended September 30,
---------------------------------------
1994 1993
---------- ----------
Cash payments for interest,
net of interest capitalized $1,970,758 $ 925,026
========== ==========
Cash payment for income taxes $5,470,173 $7,220,293
========== ==========
Supplemental Schedule of Noncash Investment Activities
The Corporation's 1993 business acquisition involved the following:
Fair value of assets acquired, other
than cash and cash equivalents $ 8,173,416
Liabilities assumed (7,019,773)
-----------
Cash payments made $ 1,153,643
===========
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 O'Sullivan Corporation Amended and Restated Articles of
Incorporation, including the Articles of Amendment, dated April
30, 1985, filed with the State Corporation Commission of Virginia
on May 6, 1985, adopted by stockholders of O'Sullivan Corporation
at the annual meeting held April 30, 1985. (Incorporated by
reference to the March 31,1985, Quarterly Report on Form 10-Q of
the Company.)
3.2 O'Sullivan Corporation Bylaws as amended to January 29, 1985.
(Incorporated by reference to the March 31, 1985, Quarterly
Report on Form 10-Q of the Company.)
3.3 O'Sullivan Corporation Amended and Restated Articles of
Incorporation dated April 25, 1989, filed with the State
Corporation Commission of Virginia on May 5, 1989, adopted by
stockholders of O'Sullivan Corporation at the annual meeting held
April 25, 1989. (Incorporated by reference to the March 31, 1989
Quarterly Report on Form 10-Q of the Company.)
99.3 1985 Incentive Stock Option Plan, Amended and Restated as of July
27, 1993, (Incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1993.)
(b) Reports on Form 8-K - Report dated October 3, 1994, disclosing the
signing of the letter of intent for the proposed sale of the
Gulfstream Division of O'Sullivan Corporation to Automotive
Industries, Inc.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
O'SULLIVAN CORPORATION
/s/ Anthony A. Barone
---------------------------
Anthony A. Barone
Vice President, Secretary
and Chief Financial Officer
/s/ C. Bryant Nickerson
---------------------------
C. Bryant Nickerson
Treasurer and
Chief Accounting Officer
November 14, 1994
