UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1944 Valley Avenue
P. O. Box 3510
Winchester, Virginia 22604
(Address of Principal Executive Offices) (Zip Code)
(703) 667-6666
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock-Par Value $1 Per Share American Stock Exchange
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 and (2) has been subject to
such filing requirement for the past 90 days.
Yes /X/ No / /
The aggregate market value of Common Stock, Par Value $1 Per Share held
by non-affiliates (based upon the closing sale price on the American
Stock Exchange) on March 18, 1994 was approximately $160,727,687.
As of March 18, 1994 there were 16,484,891 shares of Common Stock, Par
value $1 Per Share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on April 26, 1994 are incorporated by reference into Part III.
- 1 -
PART I.
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Item 1. Business
---------
(a) O'Sullivan Corporation was established in 1896 as O'Sullivan
Rubber Company in Lowell, Massachusetts as a manufacturer of
rubber heels for the shoe industry. In 1932, O'Sullivan Rubber
Company was moved to Winchester, Virginia. In September 1945,
O'Sullivan Rubber Company was incorporated as O'Sullivan Rubber
Corporation to acquire O'Sullivan Rubber Company, Inc., a Delaware
Company incorporated in 1932. In 1970, the Company changed its
name to O'Sullivan Corporation to reflect the increasing
importance of plastics in the business mix, and in 1986, yielding
to foreign competitive pressure, the Company sold its rubber
manufacturing operations to Vulcan Corporation, located in
Cincinnati, Ohio.
During 1988 the Company began construction of a new plastic
calendering facility, located in Winchester, Virginia. Originally
this facility was scheduled for completion and start-up activity
during the last quarter of 1989. At the end of 1989, this
facility was not yet completed and start-up was delayed until the
second half of 1990. The facility was completed during 1990 and
was in operation during 1991. By the end of 1991 the facility had
reached break even status but was still below projected capacity
levels. During 1992, the new plastic calendering facility was in
operation for the entire year. However, due to the recessionary
economy, this facility was operated at production levels
significantly below its ultimate capacity. During 1993, this
facility contributed positively to Corporate earnings. Significant
improvements were made to capacity utilization due to product mix
changes and the improvement in the general economy. With the
design capabilities of this facility continued improvement in
capacity utilization and profit contribution is expected during
1994.
In February, 1989, the Company announced that it had executed a
purchase contract to buy (70) acres of land in Huron, Ohio. The
proposed purchase of this land was to construct a 175,000 square
foot facility to house an injection molding operation. This
facility was originally scheduled to begin start-up activities
during the second half of 1990. The facility began operations
during the third quarter of 1990, according to plan. However, due
to customer driven program delays, this facility operated well
below optimum capacity levels during 1991. During 1992, this
facility continued to operate at sales and production levels below
original customer driven capacity estimates. In 1993, the Huron
facility performed far below management expectations and
predetermined production standards. The new plant is the most
complex of all O'Sullivan Corporation injection molding plants
because of " In Line Vehicle Sequencing" which is a highly
advanced stage of the " Just-In-Time " concept of delivering parts
to the customer. The impact of this system created unexpected
- 2 -
Item 1. Business
--------
(Continued)
inefficiencies due to the volatile swings in scheduling driven by
significant changes in customer demand. This, coupled with
significantly lower than planned sales volumes, resulted in higher
costs associated with current sales volume. To correct these
problems, the Company has added additional machinery and warehouse
space in order to more efficiently operate equipment for longer
runs and more efficient rates and has agressively pursued
incremental new business for the Huron operations. During the
first half of 1994 the Company does not expect any significant
improvement in operations for the Huron facility. Although sales
volumes will improve compared to 1993, costs of sales will
continue to be greater than original expectations.
During 1992 the Company made a significant departure from its
general line of business activity through an entry into a consumer
products oriented business. On November 24, 1992, O'Sullivan
Corporation acquired substantially all the assets of Melnor
Industries, Inc. and its wholly-owned Canadian subsidiary, Melnor
Manufacturing, Ltd. With this acquisition O'Sullivan Corporation
entered the consumer products manufacturing, marketing and
distribution business. 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. With the
acquisition of Melnor, the Company acquired a well known brand
name in water sprinkler systems and other products. The new
business not only allows for diversification of the Company's
products but allows for the opportunity to develop, manufacture
and sell non-automotive related products through an established
distribution system. During 1992, Melnor was insignificant to
total operations as it was acquired in November of 1992. During
1993, although significant improvements were accomplished, profit
objectives were not achieved. Sales were negatively affected by
extremely unfavorable weather conditions in the Mid-West and
Eastern United States. Currently, the economic outlook for Melnor
is promising for 1994 and management expects positive
contributions to consolidated earnings during 1994.
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. is a wholly-owned subsidiary of O'Sullivan
Corporation and is part of the Plastics Products business segment.
Capitol's largest customer is Honda of North America. During the
Fall of 1993, Capitol Plastics experienced difficulties with the
launch of the 1994 Honda Accord. At the same time the 1993 model
sales were depressed due to anticipation of the new 1994 model.
During 1994, the Company expects Capitol to contribute positively
to Corporate earnings as the economy improves and as no new
program launches are anticipated for this facility.
- 3 -
Item 1. Business
--------
(Continued)
(b) The Corporation's operations are classified principally into two
business segments; Calendered and Molded Plastics Products
("Plastics Products") and Lawn and Garden Consumer Products
("Consumer Products"). The Plastics Products segment primarily
involves the manufacture of calendered and injection-molded
plastics products for the automotive and specialty plastics
manufacturing industries. The Consumer Products segment primarily
involves the manufacture and distribution of a wide range of lawn
and garden products. Operating profit represents net sales less
operating expenses for each segment and excludes general corporate
expenses and non-operating revenues and expenses. Identifiable
assets for each segment represent those assets used in the
Corporation's operations and exclude general corporate assets.
General corporate assets include cash, investments and other non-
operating assets.
Net Sales for the Plastics Products segment to the divisions and
subsidiaries of one customer amounted to $86,589,527 (29.6% of net
sales) in 1993, $84,100,032 (38.5% of net sales) in 1992 and
$76,782,607 (39.1% of net sales) in 1991.
Business Segment Information
1993 1992 1991
------------ ------------ ------------
Net Sales By Classes of
Similar Products
Plastics Products $251,742,441 $216,055,429 $196,374,954
Consumer Products 40,513,273 2,402,836(a) - -
------------ ------------ ------------
Total Net Sales $292,255,714 $218,458,265 $196,374,954
============ ============ ============
Operating Profit (Loss)
Plastics Products $ 26,401,507 $ 23,574,503 $ 7,653,508(b)
Consumer Products 2,057,052 (279,775)(a) - -
------------ ------------ ------------
Total Operating Profit $ 28,458,559 $ 23,294,728 $ 7,653,508
General Corporate
Expenses 9,485,791 5,573,761 4,696,264
Non-operating
Revenue(Expense) (2,175,286) (175,999) (554,330)
------------ ------------ ------------
Income Before Income Taxes
and Cumulative Effect
of Accounting Changes $ 16,797,482 $ 17,544,968 $ 2,402,914
============ ============ ============
- 4 -
Item 1. Business
--------
(Continued)
1993 1992 1991
------------ ------------ ------------
Identifiable Assets
Plastics Products $165,660,063 $135,855,781 $137,413,010
Consumer Products 25,394,702 23,560,028 - -
------------ ------------ ------------
Total Identifiable
Assets $191,054,765 $159,415,809 $137,413,010
General Corporate
Assets 13,820,941 14,646,660 13,169,773
------------ ------------ ------------
Total Assets $204,875,706 $174,062,469 $150,582,783
============ ============ ============
Capital Expenditures
Plastics Products $ 15,193,167 $ 6,384,938 $ 7,180,186
Consumer Products 1,351,516 32,502(a) - -
General Corporate 86,531 299,654 189,371
------------ ------------ ------------
Total Capital
Expenditures $ 16,631,214 $ 6,717,094 $ 7,369,557
============ ============ ============
Depreciation and
Amortization
Plastics Products $ 9,651,506 $ 9,164,057 $ 9,503,197
Consumer Products 1,402,596 104,520(a) - -
General Corporate 384,268 354,635 355,877
------------ ------------ ------------
Total Depreciation
and Amortization $ 11,438,370 $ 9,623,212 $ 9,859,074
============ ============ ============
(a) Includes activity only from acquisition of businesses at
November 24, 1992 through December 31, 1992.
(b) Includes restructuring charge of $5,025,000.
(c) The Corporation's Plastic Products segment manufactures calendered
and molded plastic products for the automotive and specialty
plastics manufacturing industries. Distribution is by direct
sales to manufacturers and distributors. Calendered plastic
products manufactured include vinyl sheeting for automobile
dashboard pads, swimming pool liners and covers, note book
binders, luggage, upholstered furniture, golf bags, floor tile,
pond liners, protective clothing, mine curtains, boat and
automobile windows and medical grade materials. Injection molded
plastic products include exterior and interior plastic trim parts
for the automotive industry; such as door panels, fender
extensions, glove boxes, garnish moldings, map pockets and a
variety of other related products.
- 5 -
Item 1. Business
--------
(Continued)
During the last three years revenues generated by the Plastics
Products segment of the registrant by class of products were as
follows:
1993 1992 1991
------ ------ ------
Calendered Plastic Products 53% 57% 58%
Injection Molded Plastic Products 47% 43% 42%
All essential raw materials are readily available to the Plastics
Products segment of the Corporation. For the most significant raw
materials, the Company has secondary sources of supply if needed.
Major suppliers of raw materials to the segment include: Geon,
Occidental Chemical, Dow Chemical, G.E. Plastics, Magee Carpet
Company, Weyerhaeuser, and Penn Color.
The Plastics Products segment of the Corporation possesses
significant technology in the compounding and formulation as well
as in the manufacture of its products.
The business of the Plastics Products segment of the Corporation
is not seasonal.
Significant customers of the Plastics Products Segment of the
Corporation in 1993 were Ford Motor Company and Honda of North
America. These customers were the only customers accounting for
10 percent ( or more) of the segment's 1993 sales.
Generally, the normal back log consists of thirty to forty five
days of firm orders. Although the Corporation has contracts
totaling several million dollars in orders (some for multi-year
periods), these are not considered firm until specific production
releases are received.
The Plastics Products segment products are sold in markets in
which there is competition from many plastic manufacturers, both
domestic and foreign. While no one competitor offers all of the
products produced by this segment, there are many competitors for
any single product. Some of the segment's major competitors are
Canadian General Tower, Automotive Industries, Inc., Gen Corp.
Polymer Products, Becker Manufacturing, Formosa Plastics Inc.,
Davidson Interior Trim (Division of Textron), as well as wholly-
owned subsidiaries and divisions of Ford, Chrysler, and General
Motors.
The Company's Consumer Products segment was established on
November 24, 1992 with the creation of Melnor Inc., a wholly-owned
subsidiary of O'Sullivan Corporation. Distribution is by direct
sales to distributors and direct retail outlets. The primary
activity of the segment is the manufacture, assembly, sale and
distribution of home lawn and garden watering products. The
products produced and sold by this segment include: oscillating,
rotary and traveling sprinklers, hose storage units, watering
timers, aqua guns and air spray tanks. Secondary product lines
- 6 -
Item 1. Business
--------
(Continued)
which represent less than 10 percent of sales volume include
humidification systems, snow shovels and buy-sell distribution of
ceiling fans and thermostats.
All essential raw materials are readily available to the Consumer
Products segment. Although some raw material items are supplied
by foreign sources, primarily Taiwan and Israel, they are not of
significant volume. In many cases, the components that are
purchased are deemed commodity in nature, representing designs
that are stable and available in other markets, should supply be
threatened. Major raw material suppliers to the segment include:
Diehl PTE, Stax Ltd., Jamieson Plastics, Landen Enterprises,
Armada Tool, CPC of Vermont, Himont Canada, and Concept Plastics.
The Consumer Products segment of the Corporation holds many
patents and trademarks for products produced and sold in the lawn
and garden market. However, due to the nature of the segment's
business activity, the Corporation does not believe that the
nature of these patents and trademarks are significant to the
long-term success of the business operations.
The business of the Consumer Products segment of the Corporation
is seasonal in nature. Lawn and garden products are traditionally
distributed to distribution and retail outlets commencing in late
November and early December reaching peak sales volume during the
months of March and April.
Significant customers of the Consumer Products segment of the
Corporation during 1993 were Canadian Tire and Home Depot, Inc.
These customers were the only customers accounting for 10 percent
(or more) of the segment's 1993 sales.
The Consumer Products segment products are sold in markets in
which there is competition from many lawn and garden water
products suppliers. While no one competitor offers all the
products produced by this segment, there are many competitors for
any single product. Some of the segment's major competitors are
Rain Bird Corporation, Suncast Company, Gilmour Corporation and
Nelson Company.
No material effects upon the capital expenditures, earnings and
competitive position of the registrant are anticipated to result
from the enactment or adoption of federal, state or local
environmental laws.
The Corporation currently employs approximately 2,800 full-time
employees.
- 7 -
Item 1. Business
--------
(Continued)
(d) O'Sullivan Corporation is not engaged in any significant
transactions with customers or suppliers located in foreign
countries.
Item 2. Properties
----------
O'Sullivan Corporation owns approximately 969,000 square feet of
manufacturing, warehouse and office space on approximately 144
acres of land in Winchester, Virginia; 76,000 square feet of
manufacturing, warehouse and office space on six acres of land in
Lebanon, Pennsylvania; 110,000 square feet of manufacturing and
warehouse space on approximately 5 acres of land in Newton Upper
Falls, Massachusetts; 85,000 square feet of manufacturing space
on 13 acres of land in Yerington, Nevada; 147,000 square feet of
manufacturing, warehouse and office space on approximately 20
acres in Luray, Virginia; 315,270 square feet of manufacturing,
warehouse and office space on 75 acres of land in Huron, Ohio;
144,000 square feet of manufacturing, warehouse and office space
on approximately 9 acres of land in Bowling Green, Ohio; and
82,000 square feet of manufacturing, warehousing and office space
on approximately 7 acres of land in Brantford, Ontario, Canada.
The Corportion currently leases 29,250 square feet of warehouse
space in St. Louis, Missouri; 15,600 square feet of warehouse
space in Bell, California and 347,000 square feet of
manufacturing, warehousing and office space in Moonachie, New
Jersey. The Corporation also has a sales office located in
Chicago, Illinois.
The percentage utilization of the Corporation's manufacturing
facilities is difficult to measure due to the Corporation's
policy of adding machinery, equipment and other appropriate
facilities as required. During 1993, the Corporation had
additional unused capacity in the Plastic Products and the
Consumer Products segments.
Item 3. Legal Proceedings
-----------------
As of December 31, 1993, O'Sullivan Corporation and its
subsidiaries had no material legal proceedings pending to which
the Corporations were a party or of which any of their property
was the subject.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Executive Officers of the Registrant
------------------------------------
See information provided under Part III, Item 10, included in this
Form 10-K.
- 8 -
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder
----------------------------------------------------------------
Matters.
--------
The principal market on which the Corporation's common stock is
traded is the American Stock Exchange.
The table below presents the high and low market prices, and
dividend information for the Corporation's common shares.
Price Range Cash
Low High Dividend
1993 - 1st quarter 9.250 11.875 .07
2nd quarter 9.625 12.625 .07
3rd quarter 10.000 12.000 .07
4th quarter 8.500 11.375 .07
1992 - 1st quarter 7.500 9.875 .07
2nd quarter 7.875 9.500 .07
3rd quarter 8.250 9.875 .07
4th quarter 7.875 9.875 .07
The approximate number of holders of the Corporation's common
stock as of December 31, 1993 was 3,000.
No change is anticipated regarding the Corporation's dividend
policy.
At the current time, there are no restrictions on the payment of
dividends.
- 9 -
Item 6. Selected Financial Data.
------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
Net sales $292,255,714 $218,458,265 $196,374,954 $198,659,566 $218,609,089
Net income 10,014,456 10,802,412 1,539,500 14,685,324 16,098,800
Net income
per common
share* 0.61 0.66 0.09 0.89 0.98
Cash dividends
per common
share* 0.28 0.28 0.28 0.28 0.27
Total
assets 204,875,706 174,062,469 150,582,783 156,733,681 140,431,056
Long-term
debt 39,565,448 25,487,818 13,670,864 19,804,493 16,500,000
Shareholders'
equity 108,753,363 103,613,242 97,393,079 100,472,453 90,405,516
Return on
equity 9.7% 11.1% 1.5% 16.2% 20.5%
* Amounts reported reflect retroactive adjustments for all stock dividends
and distributions.
- 10 -
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
O'Sullivan Corporation currently operates in two principal
business segments. The primary activity of the Company is the
manufacture of calendered and molded plastics products for the
automotive and specialty plastics manufacturing industries. This
activity includes designing, engineering, compounding, laminating,
printing, painting and assembling a variety of plastics products
for sale to manufacturers and distributors. 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 operations 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 Canadian subsidiary Melnor Manufacturing
Ltd. With this acquisition, O'Sullivan Corporation entered the
consumer products manufacturing, marketing and distribution
business which represents its second business operations 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.
Consolidated net sales for 1993 were $292.3 million, compared to
$218.5 million in 1992, up 33.8%. Sales increases experienced
during 1993 were primarily the result of sales from the newly
acquired consumer products segment of the Company and the
additional sales volume generated by the acquisition of Capitol
Plastics of Ohio, Inc. in the plastics products segment of the
Company's operations. Core business sales, discounting the effect
of Melnor and Capitol Plastics, in the plastics products segment
of the business increased $16.1 million, or 7.5%. In 1994, and
during the next few years, the Company expects continuing sales
growth in all of its business segment operations. Sales prices
for products produced by the Company will be subject to downward
pressure due to extremely competitive conditions. The Company's
proactive supplier and employee involvement programs are expected
to offset this pressure through productivity improvements and cost
savings.
Consolidated net income for the year ended December 31, 1993
decreased 7.3% from $10.8 million in 1992 to $10.0 million in
1993. The primary reasons for this decrease are as follows: the
acquisitions of Melnor Inc. and Capitol Plastics of Ohio Inc.; the
new program launch problems associated with the Huron, Ohio
injection molding plant; and finally, the disruptive effects of
two union organization attempts by the United Auto Workers at our
Huron, Ohio plant and both of our plant operations in Winchester,
Virginia. All of the above-referenced events combined to negative-
ly affect the earnings capability of the Company during 1993.
- 11 -
O'Sullivan Corporation's plastic products business segment
accounted for 86.1% of consolidated sales for the year ended
December 31, 1993. Sales increased 16.5% from $216.1 million in
1992 to $251.7 million in 1993. The major factor responsible for
this increase in sales volume was the acquisition of Capitol
Plastics of Ohio, Inc. Sales generated by Capitol Plastics
accounted for 54.8% of the total increase in volume generated in
the plastics products business segment. The remaining sales
increase registered by the plastics products segment amounted to
7.5%. This increase in sales revenue was primarily volume related
rather than increases in sales prices. For the year ended
December 31, 1993, the plastics products operations segment
contributed $26.4 million in pre-tax operating profit compared to
$23.6 million for the same period last year, up 12.0%.
Contributing to the increase in this income was the reversal of
$1.0 million of estimated restructuring costs provided for during
1991. Selling and warehousing expenses associated with the
plastics products segment increased 19.6% during 1993 when
compared to the same period last year. The increase was directly
related to sales volume increases experienced by the Company.
During 1993, selling and warehousing expenses represented 2.9% of
each sales dollar compared to 2.8% for the same period last year.
During 1994, the Company anticipates that core business sales will
increase at a stronger pace than in 1993. The greatest potential
for increased sales growth for the plastics products segment will
come from those products produced by the Company for the domestic
automobile and truck industries, with modest sales increases in
other product lines within this business segment.
The Company's consumer products segment was established with the
acquisition of Melnor Inc. The primary activity of the consumer
products segment is the manufacture, sale and distribution of home
lawn and garden watering products to distributors and retail
outlets. Financial comparisons for prior operating periods are
not applicable as the new operating segment commenced operations in
November of 1992. Sales for the year ended December 31, 1993 were
$40.5 million which represented 13.9% of the total consolidated
net sales revenue for the Company in 1993. For the period ended
December 31, 1993 the consumer products segment recorded a $2.1
million pre-tax operating profit. After adjusting for general and
administrative expenses, other income and expenses the consumer
products segment of the Company recorded a loss before taxes of
$1.5 million. Selling and warehousing expenses inclusive of bad
debt expense represented 14.1% of net sales for the period ended
December 31, 1993. Although the loss was disappointing to
management, improvements in operations have been accomplished.
Additional work is necessary to bring the combination of product
mix and stable profitability to this business segment. During
1993, sales were negatively affected by extreme wet weather
conditions in the Mid-West and Eastern United States. Currently,
the economic outlook for this business segment is promising for
1994 and management expects the consumer products segment to
contribute to positive earnings in 1994.
- 12 -
Consolidated corporate administration expense increased 70.2% for
the period ended December 31, 1993, compared to the same period
last year. As a percent of net sales, general corporate
administrative expenses represented 3.2% of each sales dollar in
1993 compared to 2.6% in 1992. Melnor Inc. represented 58.0% of
the total increase in general and administrative expenses during
1993 compared to 1992. After eliminating the effects of Melnor
Inc., general and administrative expenses represented 2.8% of each
sales dollar for the period ended December 31, 1993 compared to
2.6% during 1992.
Consolidated non-operating expenses increased during the year
ending December 31, 1993 when compared to the same period last
year, primarily due to the increased debt financing costs incurred
by the Company. The increase in debt was necessary to fund the
acquisition of Capitol Plastics of Ohio Inc., complete the
necessary capital expenditure projects underway by the Company and
to provide adequate working capital for the expansion of
inventories and receivables to meet sales requirements.
Consolidated capital spending increased 147.6% during 1993. For
the year ended December 31, 1993 the Company invested $16.6
million in new property, plant and equipment compared to $6.7
million during 1992. Based upon current capital expenditures
estimates, the Company expects that capital expenditures will be
less in 1994 than experienced during 1993. Currently the Company
has additional capacity in both the plastics products and consumer
products business segment operations. As has been the Company's
practice, additions to property, plant and equipment are
implemented when additional business cannot be absorbed into
existing facilities or product specifications require new or
improved technology.
Total consolidated debt for the Company increased $18.8 million
during 1993. Melnor Inc., had current and long-term debt obliga-
tions totaling $13.5 million or 26.2% of the total debt of the
Company. During 1993 the Company secured long-term debt in the
form of a $25 million senior private note placement, dated May 27,
1993. The notes are for seven years with a five year average life
maturing May 1st in the year 2000. Currently the Company is
negotiating with a financial institution to refinance the debt of
Melnor Inc. The new debt will consist of a two year facility with
terms substantially the same as the current debt structure and is
expected to be closed before the end of the first quarter of 1994.
Also, during 1993 the Company renegotiated its $25 million
unsecured operating line of credit with its principal bank, First
Union National Bank of Virginia, which now has a maturity of June
22, 1995. With the current debt structure and lines of credit that
are available, the Company believes that working capital require-
ments for the short and long-term are adequately provided for.
At the close of 1993, even with additional debt to fund
acquisitions, the Company's financial condition remained strong,
with shareholder's equity at 53.1% of total assets. Current
assets compared to current liabilities were 2.2 to 1. Total debt
to equity of the Company was 47.4% and net worth was $108.8
million, up 5.0% from 1992.
- 13 -
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
This page left blank intentionally. See following pages for
financial Statements.
- 14 -
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of
Directors of O'Sullivan Corporation
We have audited the accompanying consolidated balance sheets of
O'Sullivan Corporation and Subsidiaries as of December 31, 1993 and 1992
and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31,
1993, 1992 and 1991. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 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
O'Sullivan Corporation and subsidiaries as of December 31, 1993 and 1992
and the results of their operations and their cash flows for the years
ended December 31, 1993, 1992 and 1991 in conformity with generally
accepted accounting principles.
As described in the notes to financial statements, the Company
changed its methods of accounting for income taxes and postretirement
benefits in 1993.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
February 1, 1994
- 15 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 3,099,636 $ 3,545,943
Receivables 53,389,817 35,231,399
Inventories 42,514,692 36,441,982
Deferred income tax assets 2,076,524 1,960,998
Other current assets 1,879,516 1,641,492
------------ ------------
Total current assets $102,960,185 $ 78,821,814
------------ ------------
Property, Plant and Equipment $ 93,847,484 $ 86,761,473
------------ ------------
Intangibles $ 1,017,266 $ 988,438
------------ ------------
Other Assets $ 7,050,771 $ 7,490,744
------------ ------------
Total assets $204,875,706 $174,062,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 8,483,977 $ 6,748,982
Current portion of long-term debt 3,584,142 556,208
Accounts payable 24,011,203 16,036,001
Accrued expenses 11,528,330 12,245,726
------------ ------------
Total current liabilities $ 47,607,652 $ 35,586,917
------------ ------------
Long-Term Debt $ 39,565,448 $ 25,487,818
------------ ------------
Other Long-Term Liabilities $ 1,691,753 $ 1,855,765
------------ ------------
Deferred Income Tax Liabilities $ 7,257,490 $ 7,518,727
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Shareholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 16,484,948 $ 16,485,268
Additional paid-in capital 9,964,574 9,967,758
Retained earnings 82,524,869 77,126,131
Cumulative translation adjustments (101,732) 34,085
Unrecognized pension costs, net of
deferred tax effect (119,296) - -
------------ ------------
Total shareholders' equity $108,753,363 $103,613,242
------------ ------------
Total liabilities and
shareholders' equity $204,875,706 $174,062,469
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 16 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
------------- ------------- -------------
Net sales $ 292,255,714 $ 218,458,265 $ 196,374,954
Cost of products sold 251,803,879 187,993,698 177,532,380
------------- ------------- -------------
Gross profit $ 40,451,835 $ 30,464,567 $ 18,842,574
------------- ------------- -------------
Operating expenses
Selling and warehousing $ 12,752,808 $ 6,459,396 $ 5,614,066
General and administrative 9,485,791 5,573,761 4,696,264
Provision for doubtful
accounts 209,719 710,443 550,000
Provision for (recovery of)
restructuring charge (969,251) - - 5,025,000
------------- ------------- -------------
$ 21,479,067 $ 12,743,600 $ 15,885,330
------------- ------------- -------------
Income from operations $ 18,972,768 $ 17,720,967 $ 2,957,244
------------- ------------- -------------
Other income (expense)
Interest income $ 106,105 $ 242,319 $ 526,243
Interest expense (2,471,269) (785,542) (1,405,430)
Other, net 189,878 367,224 324,857
------------- ------------- -------------
$ (2,175,286) $ (175,999) $ (554,330)
------------- ------------- -------------
Income before income
taxes and cumulative
effect of accounting
changes $ 16,797,482 $ 17,544,968 $ 2,402,914
Income taxes 7,088,364 6,742,556 863,414
------------- ------------- -------------
Income before cumulative
effect of accounting
changes $ 9,709,118 $ 10,802,412 $ 1,539,500
Cumulative effect of
accounting changes 305,338 - - - -
------------- ------------- -------------
Net income $ 10,014,456 $ 10,802,412 $ 1,539,500
============= ============= =============
Net income per common share:
Income before cumulative
effect of accounting
changes $ 0.59 $ 0.66 $ 0.09
Cumulative effect of
accounting changes 0.02 - - - -
------------- ------------- -------------
Net income per
common share $ 0.61 $ 0.66 $ 0.09
============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
- 17 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
------------ ------------ ------------
Cash Flows From Operating Activities
Net income $ 10,014,456 $ 10,802,412 $ 1,539,500
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 11,438,370 9,623,212 9,859,074
Provision for doubtful accounts 209,719 710,443 550,000
Deferred income taxes 938,091 410,313 (1,932,068)
Loss on disposal of assets 210,128 72,906 130,929
Cumulative effect of accounting
changes (305,338) - - - -
Provision for (recovery of)
restructuring and withdrawal
of non-productive assets (969,251) - - 4,055,749
Changes in operating assets and
liabilities, net of effect of
acquisition of business:
Receivables (14,970,510) 1,638,544 882,241
Inventories (4,192,871) (5,139,325) (1,277,985)
Other current assets (967,404) 419,735 (1,384,955)
Accounts payable 3,601,697 (2,080,612) (5,157,428)
Accrued expenses (545,949) 1,159,646 1,893,022
------------ ------------ ------------
Net cash provided by
operating activities $ 4,461,138 $ 17,617,274 $ 9,158,079
------------ ------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant
and equipment $(16,631,214)$ (6,717,094)$ (7,369,557)
Purchase of intangible assets (249,723) - - - -
Acquisition of business, less
cash acquired (1,153,643) (5,708,695) - -
Payments received from non-
operating notes receivable 729,176 624,119 27,278
Proceeds from disposal of assets 127,917 354,123 1,152,503
Other, net (127,956) (368,256) 624,633
------------ ------------ ------------
Net cash (used in)
investing activities $(17,305,443)$(11,815,803)$ (5,565,143)
------------ ------------ ------------
Cash Flows From Financing Activities
Changes in short-term debt $ 1,734,995 $ 4,300,558 $ - -
Cash overdraft reduction - - (413 615) - -
Net change in line of credit
borrowings (7,500,000) 7,000,000 (5,500,000)
Proceeds from long-term debt 25,000,000 - - - -
Repayment of long-term debt (2,152,412) (500,000) (2,000,000)
------------ ------------ ------------
Balance forward $ 17,082,583 $ 10,386,943 $ (7,500,000)
- 18 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
(Continued)
1993 1992 1991
------------ ------------ ------------
Cash Flows From Financing Activities
(Continued)
Balance forwarded $ 17,082,583 $ 10,386,943 $ (7,500,000)
Principal payments under capital
lease obligations (65,338) (270,256) (240,664)
Cash dividends paid (4,615,743) (4,615,791) (4,617,176)
Purchase of common stock (3,504) (550) (3,043)
Advance payments (repayments)
from customers - - (9,729,529) 9,729,529
------------ ------------ ------------
Net cash provided by
(used in) financing
activities $ 12,397,998 $ (4,229,183)$ (2,631,354)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents $ (446,307) $ 1,572,288 $ 961,582
Cash and cash equivalents at
beginning of year 3,545,943 1,973,655 1,012,073
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 3,099,636 $ 3,545,943 $ 1,973,655
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 19 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
Additional
Common Paid-in Retained
Stock Capital Earnings
------------ ------------ ------------
Balance at January 1, 1991 $ 16,485,628 $ 9,970,991 $ 74,015,834
Net income - - - - 1,539,500
Purchase of common stock (300) (2,743) - -
Dividends declared, $.28 per share - - - - (4,615,831)
------------ ------------ ------------
Balance at December 31, 1991 $ 16,485,328 $ 9,968,248 $ 77,126,131
Net income - - - - 10,802,412
Purchase of common stock (60) (490) - -
Dividends declared, $.28 per share - - - - (4,615,784)
Translation adjustments - - - - - -
------------ ------------ ------------
Balance at December 31, 1992 $ 16,485,268 $ 9,967,758 $ 70,939,503
Net income - - - - 10,014,456
Purchase of common stock (320) (3,184) - -
Dividends declared, $.28 per share - - - - (4,615,718)
Translation adjustments - - - - - -
Unrecognized pension costs - - - - - -
------------ ------------ ------------
Balance at December 31, 1993 $ 16,484,948 $ 9,964,574 $ 82,524,869
============ ============ ============
CUMULATIVE UNRECOGNIZED
TRANSLATION PENSION SHAREHOLDERS'
ADJUSTMENTS COSTS EQUITY
------------ ------------ ------------
Balance at January 1, 1991 $100,472,453
Net income 1,539,500
Purchase of common stock (3,043)
Dividends declared, $.28 per share (4,615,831)
------------ ------------ ------------
Balance at December 31, 1991 $ - - $ - - $ 97,393,079
Net income - - - - 10,802,412
Purchase of common stock - - - - (550)
Dividends declared, $.28 per share - - - - (4,615,784)
Translation adjustments 34,085 - - 34,085
------------ ------------ ------------
Balance at December 31, 1992 $ 34,085 $ - - $103,613,242
Net income - - - - 10,014,456
Purchase of common stock - - - - (3,504)
Dividends declared, $.28 per share - - - - (4,615,718)
Translation adjustments (135,817) - - (135,817)
Unrecognized pension costs - - (119,296) (119,296)
------------ ------------ ------------
Balance at December 31, 1993 $ (101,732) $ (119,296) $108,753,363
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 20 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and
transactions of the Corporation and all of its subsidiaries.
Intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Corporation considers all highly liquid investments with a ma-
turity of three months or less at the time of purchase to be cash
equivalents.
Receivables and Concentration of Credit Risk
Receivables from trade customers are generally due within thirty
to sixty days. The Corporation performs periodic reviews of its
major customers' financial condition and grants trade credit based
upon evaluations of the credit worthiness of each customer.
Credit losses have been within the expectations of management.
Receivables are presented net of an allowance for doubtful
accounts of $1,133,793 at December 31, 1993 and $1,804,676 at
December 31, 1992. Accounts receivable balances for automotive
related business at December 31, 1993 and 1992 were $34,341,947
and $23,419,658, respectively.
Inventories
Inventories are valued at the lower of cost or market, with cost
being determined substantially by the first-in, first-out or
average cost method.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at historical cost,
adjusted to current exchange rates where applicable. Depreciation
is computed primarily by the straight-line method over the
estimated useful lives of assets. The estimated useful lives are
twenty to forty years for buildings and three to fourteen years
for machinery and other equipment. Accelerated methods of
depreciation are utilized for tax purposes. Expenditures for
repairs and maintenance are charged to operations as incurred.
Betterments and improvements that extend the useful life of an
asset are capitalized. Upon sale and other dispositions of
assets, the cost and related accumulated depreciation is removed
from the accounts and the resulting gain or loss is reflected in
operations.
- 21 -
Intangibles
Intangible assets are stated at cost less accumulated
amortization. Amortization is determined on a straight-line basis
over the estimated useful lives of the assets that have been
determined to range from two to seven years. Amortization expense
for 1993 and 1992 was $197,224 and $13,047, respectively.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
tax credit carryforwards and deferred tax liabilities are recog-
nized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and lia-
bilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is
more likely than not that some portion of all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on
the date of enactment. Reference should also be made to Note 7
regarding a change in the method in accounting for income taxes.
Research and Development
Product and process research and development are charged to
expense as incurred.
Per Share Information
Net income and dividends per share were calculated on the weighted
average common shares outstanding for 1993, 1992 and 1991 which
were 16,485,103, 16,485,323 and 16,485,504, respectively. Stock
options were not dilutive for 1993, 1992 and 1991.
Foreign Currency Translation
Financial statements for the Corporation's foreign subsidiary are
translated into U.S. dollars at year-end exchange rates as to
assets and liabilities and weighted average exchange rates as to
revenues and expenses. The resulting translation adjustments are
recorded in shareholders' equity. Transaction gains and losses
are reflected in net income.
Pension Plans
The Corporation and its subsidiaries have retirement plans that
cover substantially all employees who meet certain eligibility
requirements. Employees not covered under a retirement plan
maintained by the Corporation and its subsidiaries are generally
participants in multiemployer plans sponsored by other entities.
The plans include noncontributory defined benefit plans providing
benefits to certain salaried employees based on years of service
and final years' average earnings and to certain hourly employees
based on a dollar unit multiplied by years of eligible service.
The Corporation's policy is to fund at least the minimum amounts
required by the applicable governing bodies.
- 22 -
The Corporation also maintains a Retirement Savings Plan ("Plan")
to provide retirement benefits to employees not covered by a
defined benefit plan. The Plan provides that the Corporation will
make a basic contribution of three percent of eligible
compensation for participants. The Plan also provides that the
Corporation will make an additional contribution of up to two
percent of eligible compensation if the participant is making
voluntary contributions to the Plan. Participants may generally
contribute up to five percent of their eligible compensation. The
Corporation is not required to make any contributions during a
plan year if it elects to not do so.
Postretirement Benefits
The Corporation provided health care benefits to certain of its
retired employees under a plan which was terminated January 1,
1993. Upon termination of the plan this group of retired
employees was allowed to continue to be covered by the
Corporation's group insurance plan. Effective January 1, 1993 the
Corporation adopted Financial Accounting Standards Board
Statement No. 106 to account for its share of the costs of
benefits provided to this group. To effect adoption of Statement
No. 106, the Corporation accrued as of January 1, 1993 its share
of the estimated costs to insure this group of retirees. Prior to
January 1, 1993, the Corporation expensed its share of these
expenses as they were incurred.
Reclassification of Amounts
Certain amounts for 1992 and 1991 have been reclassified to
reflect comparability with account classifications for 1993.
Note 2. Inventories
Inventories at December 31 were composed of the following:
1993 1992
------------ ------------
Finished goods $ 12,878,160 $ 10,589,433
Work in process 6,398,783 6,716,121
Raw materials 19,068,449 15,564,262
Supplies 4,169,300 3,572,166
------------ ------------
$ 42,514,692 $ 36,441,982
============ ============
Slow-moving inventories at December 31, 1993 amounted to $640,539
less a reserve of $306,320. At December 31, 1992 slow-moving in-
ventories amounted to $1,588,844 less a reserve of $988,844.
Slow-moving inventories is an estimate of inventory held in excess
of one year's requirements, based on historical sales volumes.
- 23 -
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31 were composed of the
following:
1993 1992
------------ ------------
Land $ 2,053,067 $ 1,931,340
Buildings 49,134,149 43,888,616
Machinery and equipment 102,382,300 89,614,728
Transportation equipment 3,510,243 3,510,186
------------ ------------
$157,079,759 $138,944,870
Less accumulated
depreciation 63,232,275 52,183,397
------------ ------------
$ 93,847,484 $ 86,761,473
============ ============
Depreciation expense totaled $11,241,146, $9,610,165 and
$9,589,074 in 1993, 1992 and 1991, respectively.
Note 4. Accrued Expenses
Accrued expenses at December 31 were composed of the following:
1993 1992
------------ ------------
Accrued compensation $ 3,748,107 $ 2,992,094
Dividends payable 1,153,497 1,152,926
Income taxes payable - - 1,162,443
Other accrued expenses 6,626,726 6,938,263
------------ ------------
$ 11,528,330 $ 12,245,726
============ ============
Note 5. Debt
Short-term debt
Melnor Inc., a subsidiary of the Corporation, had short-term debt
at December 31, 1993 and 1992 consisting of a revolving credit fa-
cility ("revolving loan") with a finance company in an aggregate
amount not to exceed $20,000,000 that expires 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.
- 24 -
The Current Asset Base equals 85% of the face amount of eligible
accounts receivable plus 55% of eligible inventory for Melnor Inc.
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 is-
sued for purchase of inventory and 100% of the face amount of all
other letters of credit outstanding. Total loan availability at
December 31, 1993 and 1992 amounted to $9,000,000 and $7,940,572,
respectively. At December 31, 1993 and 1992 $8,843,977 and
$6,748,982, respectively, was borrowed.
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 immedi-
ately deposit all cash payments made for inventory or other cash
payments constituting proceeds of collateral. All amounts held or
deposited in or payments made to the lock box accounts 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 obliga-
tion then due and payable shall be the property of Melnor Inc. and
its subsidiary and shall promptly be paid over by the lender.
Interest is payable monthly at a fluctuating rate equal to prime
plus 1.5%. The rate at both December 31, 1993 and 1992 was 7.5%.
In addition, underutilization and letter of credit fees are
payable monthly. The loan security agreement provides, among
other things, for certain reporting and collateral requirements.
The loan is collateralized by substantially all assets of Melnor
Inc. and its subsidiary. The loan agreement provides for certain
financial covenants such as maintenance of a certain level of
earnings before interest, depreciation, amortization and income
taxes; interest expense coverage quotient; cash flow coverage;
limitation of capital expenditures and maintenance of net worth.
The financial covenants were originally scheduled to begin October
31, 1993, but were extended during the year ended December 31,
1993 to January 31, 1994. 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.
Long-Term Debt
7.05% Senior Notes dated May 27,
1993, payable to various insurance
companies. The notes bear an inter-
est rate of 7.05% payable semiannu-
ally on the first day of May and
November, commencing November 1,
1993. Interest is due on any over-
due principal, premium amount and
interest installment at the rate of
8.05% per annum until paid.
- 25 -
December 31,
-------------------------
1993 1992
----------- -----------
Principal payments of the lesser of
(a) $5,000,000 or (b) the principal
amounts of the notes then outstand-
ing 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 re-
gard 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, consolida-
tions and sale of assets; and divi-
dends and other distributions. The
Corporation is in compliance with
these covenants. $25,000,000 $ - -
Line of credit notes payable to
First Union National Bank of
Virginia. The Corporation has a
$25,000,000 unsecured line of credit
to support general corporate activi-
ties. Borrowings against the line
of credit are at or below prevailing
prime interest rates, (6.0% at
December 31, 1993 and 5.1% at
December 31, 1992). The line of
credit matures June 22, 1995. 13,000,000 20,500,000
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 and 1992) with the outstanding
balance payable in full on November
24, 1994, collateralized by all as-
sets of Melnor Inc. and its sub-
sidiary. The loan is provided under
the same security agreement as the
revolving credit facility described
in the Short-Term Debt section and
- 26 -
December 31,
-------------------------
1993 1992
----------- -----------
is subject to the same covenants and
items as the revolving
credit facility. 508,000 1,000,000
7.0% senior subordinated note
payable from Melnor Inc. to an in-
surance company due November 24,
1994 with interest payable at the
prime rate plus 1.0% (7.0% at
December 31, 1993 and 1992) on
November 24, 1993, May 24, 1994 and
November 24, 1994. Interest pay-
ments are guaranteed by O'Sullivan
Corporation. The note purchase
agreement provides, among other
things, restrictions on indebtedness
and liens, capital expenditures and
various financial covenants begin-
ning January 31, 1994. 2,695,000 2,695,000
7.0% senior subordinated note
payable from Melnor Inc. to an af-
filiate of Melnor Industries, Inc.
due December 24, 1994 with interest
payable at the prime rate plus 1.0%
(7.0% at December 31, 1993 and 1992)
on December 24, 1993, June 24, 1994
and December 24, 1994. Interest
payments are guaranteed by
O'Sullivan Corporation. 305,000 305,000
Unsecured non-interest bearing
promissory note payable to Melnor
Industries, Inc. discounted at 9.0%
due on November 24, 1996. The
initial principal amount of the note
was $2,900,000 subject to adjustment
for the decrease that occurred in
the net asset values purchased at
November 24, 1992 since August 28,
1992, the date of the purchase
price negotiations. On the basis
of the preliminary closing date
balance sheet, the discounted
amount due under the note was
$611,250. Since the amount of the
note at December 31, 1992 was con-
tingent upon the final closing date
balance sheet that had not been
agreed upon between the Seller and
- 27 -
December 31,
-------------------------
1993 1992
----------- -----------
the Buyer, an additional discounted
value of the note amounting to
$541,258 was included in the
recorded note balance at December
31, 1992 until all contingencies were
removed. During the year ended
December 31, 1993 the final closing
date balance sheet was agreed upon.
The discounted value of the note at
December 31, 1993 reflects the ad-
justed agreed upon balance. 1,243,747 1,152,508
Non-interest bearing obligation
payable to Melnor Industries, Inc.,
discounted at 9.0%. Payment is con-
tingent upon Melnor Industries, Inc.
satisfying its obligation under the
New Jersey Environmental Cleanup
Responsibility Act and the release
by the State of the escrow fund of
$300,000 established to fund envi-
ronmental cleanup activities. 230,966 211,156
Notes payable from Melnor Inc. to
equipment finance companies due in
monthly payments totaling $906 in-
cluding interest at rates from 11.7%
to 15.5%. The notes are secured by
equipment with a book value of
$17,964. 17,052 - -
Capital lease obligations 149,825 180,362
----------- -----------
$43,149,590 $26,044,026
Less current maturities 3,584,142 556,208
----------- -----------
$39,565,448 $25,487,818
=========== ===========
Long-term debt matures as follows:
1994 $ 3,584,142
1995 13,074,272
1996 6,260,210
1997 5,000,000
1998 5,000,000
Later Years 10,230,966
-----------
$43,149,590
===========
- 28 -
Interest incurred and capitalized are as follows:
1993 1992 1991
----------- ----------- -----------
Interest incurred $ 2,552,661 $ 809,647 $ 1,605,364
Less interest capitalized 81,392 24,105 199,934
----------- ----------- -----------
$ 2,471,269 $ 785,542 $ 1,405,430
=========== =========== ===========
Debt Refinancing
Melnor Inc. is currently negotiating with a financial institution
to refinance a majority of its debt. The new debt will consist of
a two year facility with terms substantially the same as the cur-
rent debt structure.
In conjunction with the refinancing Melnor Inc. obtained a loan in
the amount of $12,500,000 from First Union National Bank of
Virginia on January 31, 1994. The proceeds of the loan were used
to pay the short-term debt, the 7.5% promissory note payable to a
finance company and the 7.0% senior subordinated note payable to
an insurance company. Melnor Inc. expects to complete the refi-
nancing of its debt structure during the first quarter of 1994 and
will retire this loan. The loan is guaranteed by O'Sullivan
Corporation.
Note 6. Business Combinations
On April 1, 1993 the Corporation acquired all of the outstanding
stock of Capitol Plastics of Ohio, Inc., a company engaged in the
business of custom injection molding, at an acquisition cost of
$1,153,643. The acquisition was 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 in-
come per common share, assuming the acquisition had occurred as of
the beginning of 1993, would have been approximately as follows:
Pro forma net sales $ 299,000,000
Pro forma net income $ 10,100,000
Pro forma net income per common share $ .61
On November 24, 1992 the Corporation acquired substantially all of
the assets of Melnor Industries, Inc., including the outstanding
stock of Melnor Manufacturing, Ltd., a Canadian corporation owned
100% by Melnor Industries, Inc. The businesses are engaged in the
manufacture and distribution of lawn and garden consumer products.
The total acquisition cost was $13,655,967 adjusted for the as-
sumption of certain liabilities. The acquisition was accounted
for as a purchase and the accounts and transactions of the ac-
quired businesses have been included in the consolidated financial
statements from the date of acquisition.
- 29 -
Unaudited pro forma consolidated net sales, net income and net in-
come per common share, assuming the acquisition had occurred as of
the beginning of 1992 would have been approximately as follows:
Pro forma net sales $ 259,900,000
Pro forma net income $ 9,800,000
Pro forma net income per common share $ .59
Note 7. Income Tax Matters
Pretax income from operations for the years ended December 31,
1993, 1992 and 1991 was taxed by the following jurisdictions:
1993 1992 1991
------------ ------------ ------------
Domestic $ 15,210,035 $ 17,408,510 $ 2,402,914
Foreign 1,587,447 136,458 - -
------------ ------------ ------------
$ 16,797,482 $ 17,544,968 $ 2,402,914
============ ============ ============
Effective January 1, 1993, the Corporation adopted Statement of
Financial Standards No. 109, Accounting for Income Taxes. The
adoption of Statement No. 109 changes the Corporation's method of
accounting for income taxes from the deferred method to a liabil-
ity met hod. Under the deferred method the Corporation deferred
the past tax effects of a timing difference between financial re-
porting and tax reporting. The liability method requires the
recognition of deferred tax assets and liabilities for the ex-
pected future tax consequences of temporary differences between
the reported amounts of assets and liabilities and their tax
bases.
The cumulative effect of the adoption of Statement No. 109 was to
increase net income determined for 1993 by $680,488. Financial
statements for prior years have not been restated.
Net deferred tax liabilities at December 31, 1993 consisted of the
following components:
Deferred tax assets:
Provision for doubtful accounts $ 318,425
Employee benefits 1,890,949
Inventory basis differences 344,057
Other 460,823
------------
$ 3,014,254
------------
Deferred tax liabilities:
Property, plant and equipment $ 7,940,364
Like-kind exchange 254,856
------------
$ 8,195,220
------------
$ (5,180,966)
============
- 30 -
The deferred tax amounts mentioned above have been classified on
the accompanying balance sheet as of December 31, 1993 as follows:
Noncurrent (liabilities) $ (7,257,490)
Current assets 2,076,524
------------
$ (5,180,966)
============
The provision for income taxes charged to operations for the year
ended December 31, 1993 consists of the following:
Current:
Federal $ 4,175,706
Foreign 611,451
State 1,363,116
------------
$ 6,150,273
============
Deferred:
Federal $ 786,459
Foreign - -
State 151,632
------------
$ 938,091
============
$ 7,088,364
============
The income tax provision differs from the amount of income tax de-
termined by applying the U.S. federal income tax rate to pretax
income for the year ended December 31, 1993 due to the following:
% Income
Before Taxes
------------
Computed "expected" tax expense 35.0%
Increase (reduction) in taxes resulting from:
Income taxed at lower U.S. federal rates (.6%)
State taxes, net of federal benefit 6.2%
Higher rate on earnings of foreign
operations .3%
Federal tax credits (.6%)
Other 1.9%
------------
42.2%
============
- 31 -
As discussed above, the Corporation accounted for income taxes us-
ing the deferred method as prescribed by APB 11 for the years
ended December 31, 1992 and 1991. The provision for income taxes
charged to operations for the years ended December 31, 1992 and
1991 consist of the following:
1992 1991
------------ ------------
Current:
Federal $ 5,341,103 $ 2,282,490
Foreign 58,014 - -
State 933,126 512,992
------------ ------------
$ 6,332,243 $ 2,795,482
============ ============
Deferred:
Federal (benefit) $ 337,681 $ (1,719,902)
Foreign - - - -
State (benefit) 72,632 (212,166)
------------ ------------
$ 410,313 $ (1,932,068)
============ ============
$ 6,742,556 $ 863,414
============ ============
The components of deferred income taxes (benefits) are as follows:
1992 1991
------------ ------------
Depreciation $ 978,439 $ 316,389
Provision for
doubtful accounts (131,092) 130,613
Employee benefits (223,157) (198,208)
Inventory basis
differences (152,242) 67,488
Provision for
restructuring charge - - (378,008)
Differences arising
from asset disposals - - (1,870,342)
Other (61,635) - -
------------ ------------
$ 410,313 $ (1,932,068)
============ ============
- 32 -
A comparison of the federal statutory tax rate for 1992 and 1991
to the Corporation's effective tax rate is as follows:
1992 1991
------------ ------------
U.S. Federal income tax rate 34.0% 34.0%
Increases (reductions) in taxes
resulting from:
State taxes, net of federal benefit 3.9% 5.3%
Federal tax credits (.2%) (3.4%)
Other .7% - -
------------ ------------
Effective tax rate 38.4% 35.9%
============ ============
Note 8. Benefit Plans
Defined Benefit Plans
The net pension cost for defined benefit plans included the fol-
lowing components:
1993 1992 1991
---------- ---------- ----------
Benefits earned during the year $ 242,837 $ 332,385 $ 150,752
Interest cost on projected
benefit obligation 654,682 376,887 274,856
Actual (return) on assets (592,401) (238,740) (541,640)
Net amortization and deferral 94,403 (76,955) 324,714
---------- ---------- ----------
Net pension cost $ 399,521 $ 393,577 $ 208,682
========== ========== ==========
The funded status of the defined benefit pension plans as of
December 31, 1993 was as follows:
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 3,621,125 $ 4,872,868
Nonvested benefit obligation 33,993 135,445
------------ ------------
Accumulated benefit obligation $ 3,655,118 $ 5,008,313
Effect of projected compensation
increases 245,505 835,731
------------ ------------
Projected benefit obligation $ 3,900,623 $ 5,844,044
Fair value of plan assets 4,515,461 3,559,672
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 614,838 $ (2,284,372)
Unrecognized net loss 26,088 681,322
Unrecognized prior service costs - - 629,931
Unrecognized net (asset) obligation
at initial adoption of FAS 87 (436,385) 30,286
Adjustment required to recognize
minimum liability - - (505,808)
------------ ------------
Prepaid (accrued) pension cost $ 204,541 $ (1,448,641)
============ ============
- 33 -
The funded status of the defined benefit pension plans as of
December 31, 1992 was as follows:
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 3,180,848 $ 4,429,309
Nonvested benefit obligation 35,393 118,666
------------ ------------
Accumulated benefit obligation $ 3,216,241 $ 4,547,975
Effect of projected compensation
increases 239,882 987,956
------------ ------------
Projected benefit obligation $ 3,456,123 $ 5,535,931
Fair value of plan assets 4,255,962 3,306,366
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 799,839 $ (2,229,565)
Unrecognized net (gain) loss (265,771) 790,874
Unrecognized prior service costs - - 692,336
Unrecognized net (asset) obligation at
initial adoption of FAS 87 (395,048) 142,482
Adjustment required to recognize
minimum liability - - (729,969)
------------ ------------
Prepaid (accrued) pension cost $ 139,020 $ (1,333,842)
============ ============
Discount rates for the plans ranged from 7% to 8%. The assumed
long-term rates of return on plan assets were also 7% to 8%. The
assumed rate of increase in future compensation levels ranged from
5% to 7%. The unrecognized asset(liability) at the initial adop-
tion of FAS 87 is being amortized on a straight-line basis over
the average remaining service period of plan participants. Plan
assets consist of listed common stocks, corporate and government
bonds and short-term investments.
Retirement Savings Plan
The expense associated with the Retirement Savings Plan was
$2,218,558 for 1993, $1,685,623 for 1992 and $848,112 for 1991.
Deferred Compensation Plan
During 1985, the Corporation initiated a deferred compensation
program for key employees of the Corporation. Under this program,
the Corporation has agreed to pay each covered employee a certain
sum annually for fifteen years upon their retirement or, in the
event of their death, to their designated beneficiary. A benefit
is also paid if the employee terminates employment (other than by
his voluntary action or discharge for cause) before they attain
age 65. In that event, the amount of the benefit depends on the
employee's years of service with the Corporation (with full bene-
fit paid only if the employee has completed 25 years of service).
The Corporation has purchased individual life insurance contracts
with respect to each employee covered by this program.
- 34 -
The Corporation is the owner and beneficiary of the insurance con-
tracts. The employees are general creditors of the Corporation
with respect to these benefits. The expense associated with the
Deferred Compensation plan was $196,064 for 1993, $91,213 for 1992
and $41,472 for 1991.
Postretirement Benefit Plan
At January 1, 1993 the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement re-
quires the Corporation to recognize the estimated costs of provid-
ing certain postretirement benefits to former employees of the
Corporation. The Corporation elected to recognize the transition
obligation immediately as the effect of an accounting change.
This change resulted in a one-time charge to income in 1993 of
$375,150, net of deferred income taxes of $239,850. Annual net
postretirement benefit costs are determined on a actuarial basis.
Net periodic postretirement benefit cost included the following
components for the year ended December 31, 1993: Interest expense
on accumulated postretirement benefit obligation of $40,000 and
net experience gains of $95,000.
Postretirement benefit obligations at December 31, 1993, none of
which are funded, are summarized as follows:
Accumulated postretirement benefit
obligation, retirees $ 460,000
Plan assets - -
------------
Accumulated postretirement benefit
obligation in excess of plan assets $ 460,000
Unrecognized transition obligation - -
Unrecognized net experience losses (gains) - -
------------
Accrued postretirement benefit obligation $ 460,000
============
For measurement purposes, a 16% annual rate of increase in per
capita health care costs of covered benefits was assumed for 1993,
with such annual rate of increase gradually declining to 6% in
2003. If assumed health care cost trend rates were increased by
one percentage point in each year, the accumulated postretirement
benefit obligation at December 31, 1993 would be increased by
$12,000 and the interest cost component of net periodic postre-
tirement benefit cost for the year ended December 31, 1993 would
be increased by $1,000.
Note 9. Leases
The Corporation and its subsidiaries lease various plant and ware-
house facilities along with various equipment. Leases for the
plant and warehouse facilities and capitalized leases for machin-
ery and equipment generally require the payment of appropriate
taxes, insurance and maintenance costs. Most non-capitalized
- 35 -
leases, except for the lease of facilities in New Jersey by a sub-
sidiary, are cancelable within a limited period of time. The
facility in New Jersey is leased under a noncancelable agreement
that expires June 30, 1997.
Minimum
Rental Capitalized
Commitments Leases
------------ ------------
1994 $ 462,922 $ 80,426
1995 444,629 72,103
1996 439,717 16,981
1997 219,672 - -
1998 735 - -
------------ ------------
$ 1,567,675 $ 169,510
============
Less amount representing interest 19,685
------------
Present value of net minimum lease payments $ 149,825
============
Net rental expense for all non-capitalized leases for the years
ended 1993, 1992 and 1991 was $1,283,084, $471,795 and $435,208,
respectively.
Note 10. Research and Development
Research and development costs charged to expense were $2,126,346
in 1993, $1,572,547 in 1992 and $1,292,722 in 1991.
Note 11. Restructuring of Operations
In 1991, in response to economic pressures, the Corporation
implemented a business strategy designed to improve operating
efficiency. Activities associated with the restructuring in-
cluded the abandonment and disposal of non-productive assets,
consolidation of operations including rigging and relocation
of molding machines and related support facilities and severance
costs associated with terminated employees. During 1993, the
Corporation reduced operating expenses $969,251 due to a change in
accounting estimate for restructuring charges that the Corporation
recorded against operations in 1991. The effect of the change in
accounting estimate was to increase net income $591,243, net of
related income tax effect of $378,008. Net income per common
share increased by $0.04 due to the change.
Note 12. Commitments and Contingencies
Environmental Matters
The Corporation continues to modify, on an ongoing, regular basis,
certain of its processes which may have an environmental impact.
The Corporation's efforts in this regard include the removal of
many of its underground storage tanks and the reduction or elimi-
nation of certain chemicals and wastes in its operations.
- 36 -
Although it is very difficult to quantify the potential impact of
compliance with environmental protection laws, the Corporation's
financial statements reflect the cost of these ongoing modifica-
tions. Management believes that the continuing costs to the
Corporation of environmental compliance will not result in a mate-
rial adverse effect on its future financial condition or results
of operations.
Note 13. Business Segment Information
The Corporation's operations are classified principally into two
business segments; Calendered and Molded Plastics Products
("Plastics Products") and Lawn and Garden Consumer Products
("Consumer Products"). The Plastics Products segment primarily
involves the manufacture of calendered and injection-molded plas-
tics products for the automotive and specialty plastics manufac-
turing industries. The Consumer Products segment primarily in-
volves the manufacture and distribution of a wide range of lawn
and garden products. Operating profit represents net sales less
operating expenses for each segment and excludes general corporate
expenses and non-operating revenues and expenses. Identifiable as-
sets for each segment represent those assets used in the
Corporation's operations and exclude general corporate assets.
General corporate assets include cash, investments and other non-
operating assets.
Net Sales for the Plastics Products segment to the divisions and
subsidiaries of Ford Motor Company amounted to $86,589,527 (29.6%
of net sales) in 1993, $84,100,032 (38.5% of net sales) in 1992
and $76,782,607 (39.1% of net sales) in 1991.
Receivables at December 31, 1993 and 1992 from Ford Motor Company
were $20,285,433 and $13,927,855, respectively.
Business Segment Information
1993 1992 1991
------------ ------------ ------------
Net Sales By Classes of
Similar Products
Plastics Products $251,742,441 $216,055,429 $196,374,954
Consumer Products 40,513,273 2,402,836(a) - -
------------ ------------ ------------
Total Net Sales $292,255,714 $218,458,265 $196,374,954
============ ============ ============
Operating Profit (Loss)
Plastics Products $ 26,401,507 $ 23,574,503 $ 7,653,508(b)
Consumer Products 2,057,052 (279,775)(a) - -
------------ ------------ ------------
Total Operating Profit $ 28,458,559 $ 23,294,728 $ 7,653,508
General Corporate Expenses 9,485,791 5,573,761 4,696,264
Non-operating
Revenue(Expense) (2,175,286) (175,999) (554,330)
------------ ------------ ------------
Income Before Income Taxes
and Cumulative Effect
of Accounting Changes $ 16,797,482 $ 17,544,968 $ 2,402,914
============ ============ ============
- 37 -
1993 1992 1991
------------ ------------ ------------
Identifiable Assets
Plastics Products $165,660,063 $135,855,781 $137,413,010
Consumer Products 25,394,702 23,560,028 - -
------------ ------------ ------------
Total Identifiable Assets $191,054,765 $159,415,809 $137,413,010
General Corporate
Assets 13,820,941 14,646,660 13,169,773
------------ ------------ ------------
Total Assets $204,875,706 $174,062,469 $150,582,783
============ ============ ============
Capital Expenditures
Plastics Products $ 15,193,167 $ 6,384,938 $ 7,180,186
Consumer Products 1,351,516 32,502(a) - -
General Corporate 86,531 299,654 189,371
------------ ------------ ------------
Total Capital
Expenditures $ 16,631,214 $ 6,717,094 $ 7,369,557
============ ============ ============
Depreciation and
Amortization
Plastics Products $ 9,651,506 $ 9,164,057 $ 9,503,197
Consumer Products 1,402,596 104,520(a) - -
General Corporate 384,268 354,635 355,877
------------ ------------ ------------
Total Depreciation
and Amortization $ 11,438,370 $ 9,623,212 $ 9,859,074
============ ============ ============
(a) Includes activity only from acquisition of business at
November 24, 1992 through December 31, 1992.
(b) Includes restructuring charge of $5,025,000.
Note 14. Incentive Stock Option Plan
The Corporation has an incentive stock option plan under which
options may be granted to certain key employees for the purchase
of the Corporation's common stock. The effective date of the plan
was January 29, 1985. The plan will expire on January 28, 1995
unless terminated by the Board of Directors at an earlier date.
The original number of shares authorized under the plan totaled
50,000 shares. Antidulutive provisions in the plan required an
increase in authorized shares to 165,886 shares for stock
dividends and distributions that occurred during 1989, 1988, 1987,
1986 and 1985. The option price covered by an option cannot be
less than 100% of fair market value of the common stock on the
date of grant.
As of December 31, 1993, options for 161,018 shares remained unex-
ercised and 4,868 shares are reserved for the grant of future
options. Options for 1,000 shares at an exercise price of $10.50
per share were granted during 1993. Options for 55,820 shares at
an exercise price of $8.42 per share were granted during 1992.
No options were granted during 1991.
- 38 -
Options for 2,000 shares during 1993, 41,831 shares in 1992 and
13,500 shares in 1991 were forfeited. No options were exercised
during 1993, 1992 or 1991.
Note 15. Fair Value of Financial Instruments
The Corporation estimates that each category of financial
instruments; including cash, trade receivables and payables,
investments and debt instruments, approximate current value at
December 31, 1993.
Note 16. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1993 1992 1991
---------- ---------- ----------
Cash payments for interest,
net of interest capitalized $2,028,606 $ 777,636 $1,398,337
========== ========== ==========
Cash payment for income taxes $7,964,853 $5,356,385 $3,166,256
========== ========== ==========
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
============
The Corporation's 1992 business acquisition involved the
following:
Fair value of assets acquired, other than
cash and cash equivalents $ 20,803,464
Liabilities assumed (7,288,802)
Notes issued to others (6,143,424)
Notes issued to sellers (1,662,543)
------------
Cash payments made $ 5,708,695
============
In 1991 the Corporation received notes receivable totaling
$1,215,000 as the proceeds from the sale of certain business
operations.
- 39 -
Note 17. Supplemental Financial Data (Unaudited)
Quarter Ended
--------------------------------------------------
1993 March 31 June 30 September 30 December 31
----------- ----------- ----------- -----------
Net sales $70,847,999 $80,243,845 $66,507,215 $74,656,655
Gross profit $ 9,704,477 $13,607,242 $ 7,812,656 $ 9,327,460
Net income $ 2,290,286 $ 4,282,031 $ 1,961,678 $ 1,480,461
Earnings per share $ .14 $ .26 $ .12 $ .09
Dividends declared $ .07 $ .07 $ .07 $ .07
Market price per
share:
High 11 7/8 12 5/8 12 11 3/8
Low 9 1/4 9 5/8 10 8 1/2
Quarter Ended
--------------------------------------------------
1992 March 31 June 30 September 30 December 31
----------- ----------- ----------- -----------
Net sales $52,491,921 $56,628,552 $52,636,445 $56,701,347
Gross profit $ 5,811,959 $ 8,029,174 $ 7,706,237 $ 8,917,197
Net income $ 1,705,374 $ 3,222,212 $ 2,930,266 $ 2,944,560
Earnings per share $ .10 $ .20 $ .18 $ .18
Dividends declared $ .07 $ .07 $ .07 $ .07
Market price per
share:
High 9 7/8 9 1/2 9 7/8 9 7/8
Low 7 1/2 7 7/8 8 1/4 7 7/8
- 40 -
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
- 41 -
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
For information with respect to the Corporation's Directors and
Director nominees, see pages 3 through 6 of the Corporation's
definitive Proxy Statement dated April 1, 1994, which pages are
incorporated herein by reference.
Executive Officers of the Registrant
The names, ages, and positions of the executive officers of
O'Sullivan Corporation as of January 31, 1994, are listed below.
All officers are elected by the Board for a one-year term. There
are no family relationships among officers, or any arrangement or
understanding between any officer and any other person pursuant to
which the officer was elected.
Served as
Officer
Name Age Office Since
--------------------- --- --------------------------- --------
Arthur H. Bryant, II 51 Chairman of the Board 1975
James T. Holland 53 President 1976
Anthony A. Barone 44 Vice President and Secretary 1984
Robert C. Westfall 51 Vice President 1979
John S. Campbell 43 Vice President 1986
James L. Tremoulis 40 Vice President 1986
Phillip S. Griffin 55 Vice President 1975
William O. Bauserman 50 Vice President 1987
Dee S. Johnston 57 Vice President 1992
Ewen A. Campbell 46 Vice President 1993
Edgar W. Roller 64 Vice President 1994
C. Bryant Nickerson 47 Treasurer 1986
Mr. Bryant held the office of Executive Vice President from April,
1975 until his election as President in April, 1976. He was
elected Chairman of the Board and Chief Executive Officer in April,
1984.
Mr. Holland was elected Treasurer in July, 1976, Vice President
and Treasurer in April, 1979, Executive Vice President and Chief
Operating Officer in April, 1984 and President and Chief Operating
Officer in April, 1986. He also was elected to the Board of
Directors in October, 1984.
- 42 -
Mr. Barone joined O'Sullivan Corporation in 1984 serving as
Treasurer and Chief Financial Officer. He was elected Secretary
of the Corporation in July, 1985 and Vice President and Secretary
in April, 1986.
Mr. Westfall has been employed by the Corporation since 1965. He
has progressed from chemist, to quality control manager, to plant
manager, to Vice President, Research and Development in April,
1979.
Mr. J. S. Campbell has been employed by the Corporation since
1973. He has served the Corporation both in the sales area and in
the management of manufacturing operations for the calendered
plastics products area of the Corporation. He has served as Vice
President since April, 1986.
Mr. Tremoulis has been employed by the Corporation since 1980 in
the sales area. He has served as Vice President since April,
1986.
Mr. Griffin has been employed by the Corporation since 1968. Mr.
Griffin has served the Company in various capacities in sales,
manufacturing and management related areas. Elected as Vice
President in 1975, Mr. Griffin now serves as President of Melnor
Inc., a subsidiary of O'Sullivan Corporation.
Mr. Bauserman has been employed by the Corporation since 1968.
During his employment he has served in various capacities within
the data processing environment. He has served as Vice President,
Management Information Services since April, 1987.
Mrs. Johnston has been employed by the Corporation since 1976.
During that time she has served in various capacities within the
corporate purchasing department, most recently as Director of
Purchasing for O'Sullivan Corporation. Mrs. Johnston has served
as Vice President since January, 1992.
Mr. E. A. Campbell has been employed by the Corporation since
1991, as Director of Technical Services. Mr. Campbell received
his BSC. in chemistry and his PhD. in Organic Chemistry from the
University of Edinburg, Scotland. Prior to his employment with
O'Sullivan Corporation he was employed with Duraplex Industries,
in Scotland, Tenneco Chemicals and Haygro Sales, Inc. in the
United States. Mr. Campbell's technical background in chemistry
has allowed him to work in various areas of the Company's
compounding and research and development activities. Mr. Campbell
has served as Vice President since July, 1993.
Mr. Roller has been employed by the Corporation since 1986,
originally as an industrial engineer. In 1988, Mr. Roller was
reassigned to the Human Resources Department where he became
Corporate Manager of Compensation. He remained in that position
until his promotion to Vice President of Human Resources in
January, 1994. Prior to his employment with O'Sullivan
Corporation, Mr. Roller was employed by U.S. Steel in various
industrial engineering capacities.
- 43 -
Mr. Nickerson has been employed by the Corporation since 1973. He
has held various responsibilities within the corporate financial
area, progressing from general accountant, to Controller, to
Treasurer and Chief Accounting Officer in April, 1986.
- 44 -
Item 11. Executive Compensation.
-----------------------
See Page 7 through 11 of the Corporation's Proxy Statement dated
April 1, 1994, which pages are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
See Pages 3 through 6 of the Corporation's Proxy Statement dated
April 1, 1994, which information in incorporated herein by
reference.
- 45 -
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
There were no transactions during 1993 that would be applicable
for disclosure under this item.
- 46 -
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
Page
----
(a) 1. Financial Statements
--------------------
Included in Part II, Item 8, of this report:
Report of Independent Auditors 15
Consolidated Balance Sheets at December 31, 1993
and 1992 16
Consolidated Statements of Income for the years
ended December 31, 1993, 1992 and 1991 17
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1992 and 1991 18-19
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991 20
Consolidated Notes to Financial Statements 21-40
(a) 2. Financial Statement Schedules
-----------------------------
Included in Part IV of this report:
Report of Independent Auditors on
Financial Statement Schedules 49
For the years ended December 31, 1993, 1992
and 1991:
Schedule V - Property, Plant and Equipment 50-51
Schedule VI - Accumulated Depreciation of
Property, Plant and Equipment 52
Schedule VIII - Valuation and Qualifying
Accounts and Reserves 53
Schedule IX - Short-Term Borrowings 54
Schedule X - Supplementary Income Statement
Information 55
- 47 -
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(Continued)
(a) 3. Exhibits: Page
--------- ----
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 stock-
holders 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 bylaws 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.)
23. Consent of Experts - filed herewith.
24. Power of Attorney - filed herewith.
99.2 Form 11-K for 1985 Incentive Stock Option Plan -
filed herewith.
99.3 1985 Incentive Stock Option Plan. Amended and
Restated as of July 27, 1993, and filed herewith
as part of the Form 11-K for the fiscal year
ended December 31, 1993.
(b). Reports on Form 8-K.
--------------------
There were no Form 8-K filings during 1993.
(c). Index to Exhibits. 58
------------------
- 48 -
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Board of Directors
of the O'Sullivan Corporation
The examination referred to in our opinion dated February 1, 1994 of
the consolidated financial statements as of December 31, 1993 and 1992 and
for the three years ended December 31, 1993, 1992 and 1991 included the
related supplemental financial schedules as listed in Item 14(a)2, which,
when considered in relation to the basic financial statements, present
fairly in all material respects the information shown therein.
/s/ YOUNT, HYDE & BARBOUR, P.C.
- 49 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule V
PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
Column A Column B Column C Column D Column E Column F
- ------------ ----------- ----------- ----------- ----------- ------------
Balance at Other Balance
Beginning Additions Changes at End
Class of Year at Cost Retirements Add (Deduct) of Year
- ------------ ----------- ------------ ----------- ----------- ------------
1993:
Land $ 1,931,340 $ 124,050 $ - - $ (2,323) $ 2,053,067
Buildings 43,888,616 5,288,407 - - (42,874) 49,134,149
Machinery and
Equipment 88,729,643 11,924,651 564,296 2,292,302 102,382,300
Transportation
Equipment 3,510,186 57 - - - - 3,510,243
Property under
Capital Leases 885,085 - - - - (885,085) - -
------------ ------------ ----------- ----------- ------------
Totals $138,944,870 $ 17,337,165(A)$ 564,296 $ 1,362,020(E)$157,079,759
============ ============ =========== =========== ============
1992:
Land $ 1,690,713 $ 239,985 $ - - $ 642 $ 1,931,340
Buildings 40,769,034 3,107,726 - - 11,856 43,888,616
Machinery and
Equipment 78,983,605 11,066,850 1,340,358 19,546 88,729,643
Transportation
Equipment 3,449,578 77,650 17,042 - - 3,510,186
Property under
Capital Leases 871,585 13,500 - - - - 885,085
------------ ------------ ----------- ----------- ------------
Totals $125,764,515 $ 14,505,711(B)$ 1,357,400 $ 32,044(F)$138,944,870
============ ============ =========== =========== ============
1991:
Land $ 1,738,713 $ - - $ 48,000 $ - - $ 1,690,713
Buildings 41,389,720 280,313 165,131 (735,868) 40,769,034
Machinery and
Equipment 78,142,330 4,121,222 10,771,053 7,491,106 78,983,605
Transportation
Equipment 3,417,177 545,990 540,437 26,848 3,449,578
Property under
Capital Lease 724,765 146,820 - - - - 871,585
Construction in
Progress 4,353,661 2,428,425 - - (6,782,086) - -
------------ ------------ ----------- ----------- ------------
Totals $129,766,366 $ 7,522,770(C)$11,524,621(D)$ - -(G)$125,764,515
============ ============ =========== =========== ============
- 50 -
Note (A) - Represents additions purchased for cash, except for assets with
a value of $59,202 acquired through the incurring of capital
lease obligations and long-term debt.
Note (B) - 1992 additions include the following assets acquired as part of
a business acquisition treated as a purchase: Land - $58,078;
Buildings - $1,422,842; and Machinery and Equipment -
$6,294,197.
Note (C) - Represents additions purchased for cash, except for the incur-
ring of capital lease obligations in the amount of $146,820.
Additions for Construction in Progress includes $2,428,425 in
current year expenditures to complete projects initiated in
prior years. These expenditures include $2,179,464 for
completion of injection molding machines committed for under a
machine replacement program.
Note (D) - Retirements include $6,221,214 of machinery and equipment with-
drawn as non-productive assets as part of a restructuring plan,
net of estimated salvage value.
Note (E) - Includes foreign currency translation adjustments of $(122,186),
net account reclassifications of $(70,096) and other adjustments
of $1,554,302 resulting from a business acquisition.
Note (F) - Foreign currency translation adjustment.
Note (G) - Reclassification of accounts.
Note (H) - The method and rates used in computing the annual provision for
depreciation are described in Note 1. of the Accompanying Notes
to Consolidated Financial Statements.
- 51 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
Column A Column B Column C Column D Column E Column F
- -------------- ----------- ----------- ---------- ---------- -----------
Additions
Balance at Charged to Other Balance
Beginning Costs and Changes at End
Classification of Year Expense Retirements Add(Deduct) of Year
- -------------- ----------- ----------- ---------- ---------- -----------
1993:
Buildings $10,213,511 $ 1,861,690 $ - - $ (10,956) $12,064,245
Machinery and
Equipment 39,284,640 9,260,867 226,251 715,549 49,034,805
Transportation
Equipment 2,084,505 48,720 - - - - 2,133,225
Property under
Capital Leases 600,741 69,869 - - (670,610) - -
----------- ----------- ---------- ---------- -----------
Totals $52,183,397 $11,241,146 $ 226,251 $ 33,983(C)$63,232,275
=========== =========== ========== ========== ===========
1992:
Buildings $ 8,359,646 $ 1,851,024 $ - - $ 2,841 $10,213,511
Machinery and
Equipment 31,165,589 8,949,852 843,927 13,126 39,284,640
Transportation
Equipment 2,053,412 43,753 12,660 - - 2,084,505
Property under
Capital Leases 399,856 200,885 - - - - 600,741
----------- ----------- ----------- ---------- -----------
Totals $41,978,503 $11,045,514(A)$ 856,587 $ 15,967(D)$52,183,397
=========== =========== =========== ========== ===========
1991:
Buildings $ 7,116,916 $ 1,569,445 $ 30,394 $ (296,321) $ 8,359,646
Machinery and
Equipment 27,283,418 7,918,264 4,326,964 290,871 31,165,589
Transportation
Equipment 2,280,038 113,976 346,052 5,450 2,053,412
Property under
Capital Leases 142,467 257,389 - - - - 399,856
----------- ----------- ----------- ---------- -----------
Totals $36,822,839 $ 9,859,074 $ 4,703,410(B)$ - -(E)$41,978,503
=========== =========== =========== ========== ===========
Note (A) - 1992 additions include the following accumulated depreciation amounts
established in conjunction with a business acquisition treated as a
purchase: Buildings - $256,322; Machinery and Equipment - $1,179,027.
Note (B) - Retirements include accumulated depreciation of $2,165,466 for
machinery and equipment withdrawn as non-productive assets as
part of a restructuring plan.
Note (C) - Includes foreign currency translations adjustment of $(63,385),
account reclassifications and other adjustment of $97,368
resulting from a business acquisition.
Note (D) - Foreign currency translation adjustments.
Note (E) - Reclassification of accounts.
- 52 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1993, 1992 and 1991
Column A Column B Column C Column D Column E
- ------------ ---------- ----------------------------- ---------- ----------
Additions
-----------------------------
(1) (2) (3)
Addition
Balance at Charged to Charged from Balance
Beginning Costs and To Other Business At End
Description of Year Expense Accounts Acquisition Deductions of Year
- ------------ ---------- -------- -------- -------- ---------- ----------
1993:
Allowance for
Doubtful
Accounts $1,804,676 $209,719 $118,633(A)$ 27,013(B)$1,026,248(C)$1,133,793
========== ======== ======== ======== ========== ==========
1992:
Allowance for
Doubtful
Accounts $ 683,601 $710,443 $ 40,614(A)$871,056(B)$ 501,038(C)$1,804,676
========== ======== ======== ======== ========== ==========
1991:
Allowance for
Doubtful
Accounts $1,018,487 $550,000 $ 5,241(A)$ - - $ 890,127(C)$ 683,601
========== ======== ======== ======== ========== ==========
Note (A) - Recoveries of accounts written off.
Note (B) - Allowance for doubtful accounts established at acquisition date
for businesses acquired in 1993 and 1992.
Note (C) - Write-offs of uncollectible accounts.
- 53 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule IX
SHORT-TERM BORROWINGS
Years Ended December 31, 1993, 1992 and 1991
Column A Column B Column C Column D Column E Column F
- ---------------------- ----------- ------- ----------- ----------- -------
Weighted
Maximum Average Average
Category of Balance Weighted Amount Amount Interest
Aggregate at Average Outstanding Outstanding Rate
Short-Term End of Interest During the During the During
Borrowings Year Rate Year Year the Year
- ---------------------- ----------- ------- ----------- ----------- -------
1993:
Notes payable to
finance company (A) $ 8,483,977 7.50% $13,562,380 $ 9,533,571(B) 7.50%
Notes payable to
banks (C) $ - - - - $ - - $ - - - -
1992:
Notes payable to
finance company (A) $ 6,748,982 7.50% $ 6,748,982 $ 4,843,479(B) 7.50%
Notes payable to
banks (C) $ - - - - $ - - $ - - - -
1991:
Notes payable to
banks (C) $ - - - - $ - - $ - - - -
Note (A) - Refer to Note 5. (Short-Term Debt section) of the Accompanying
Notes to Consolidated Financial Statements for a detailed
explanation of Notes Payable to a finance company, including
interest rates.
Note (B) - The average amount outstanding during the year was computed by
dividing the total of daily outstanding principal balances by
the number of days short-term borrowing was utilized (365 days
for 1993 and 37 days for 1992).
Note (C) - The line of credit against which the Corporation has obtained
funds is scheduled to expire June 22, 1995. Note 5. of the
Accompanying Notes to Consolidated Financial Statements
contains additional pertinent information regarding the line of
credit loans.
- 54 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended December 31, 1993, 1992 and 1991
Column A Column B
----------------------- ---------------------------------------
Charged to Costs and Expenses
---------------------------------------
Item 1993 1992 1991
----------- ----------- -----------
Maintenance and Repairs $ 6,073,207 $ 4,611,707 $ 4,962,780
----------- ----------- -----------
Depreciation and Amortization
of Intangible Assets * * *
Taxes, Other than Payroll
and Income Taxes * * *
Royalties * * *
Advertising * * *
* Less than 1% of Net Sales
- 55 -
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.
O'SULLIVAN CORPORATION
March 29, 1994 By: /s/ Anthony A. Barone
--------------- ---------------------------
Date Anthony A. Barone
Vice President, Secretary
and Chief Financial Officer
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 indicated on the dates given.
Arthur H. Bryant, II * March 29, 1994
---------------------- --------------
Arthur H. Bryant, II Chairman, Chief Executive Date
Officer and Director
/s/ James T. Holland March 29, 1994
---------------------- --------------
James T. Holland President, Chief Operating Date
Officer and Director
/s/ Anthony A. Barone March 29, 1994
---------------------- --------------
Anthony A. Barone Vice President, Secretary Date
and Chief Financial Officer
/s/ C. Bryant Nickerson March 29, 1994
---------------------- --------------
C. Bryant Nickerson Treasurer and Chief Date
Accounting Officer
John J. Armstrong * March 29, 1994
---------------------- --------------
John J. Armstrong Director Date
Harry F. Byrd, Jr. * March 29, 1994
---------------------- --------------
Harry F. Byrd, Jr. Director Date
Max C. Chapman, Jr. * March 29, 1994
---------------------- --------------
Max C. Chapman, Jr. Director Date
James P. Jamieson * March 29, 1994
---------------------- --------------
James P. Jamieson Director Date
Paul Terretta * March 29, 1994
---------------------- --------------
Paul Terretta Director Date
Alexander W. Neal, Jr. * March 29, 1994
---------------------- --------------
Alexander W. Neal, Jr. Director Date
- 56 -
Magalen O. Bryant * March 29, 1994
---------------------- --------------
Magalen O. Bryant Director Date
C. Hugh Bloom, Jr. * March 29, 1994
---------------------- --------------
C. Hugh Bloom, Jr. Director Date
C. Ridgely White * March 29, 1994
---------------------- --------------
C. Ridgely White Director Date
* By: /s/ James T. Holland
---------------------
James T. Holland
Attorney - In - Fact
- 57 -
EXHIBIT INDEX
Page
-----
21. Subsidiaries of the Registrant 59
23. Consent of Experts 60
24. Powers of Attorney 61-71
99.2 Form 11-K for 1985 Incentive
Stock Option Plan 72-74
99.3 1985 Incentive Stock Option
Plan, Amended and Restated
as of July 27, 1993 75-80
- 58 -
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OR JURISDICTION NAME UNDER WHICH
OF INCORPORATION SUBSIDIARY DOES BUSINESS
------------------------------ ---------------- ------------------------------
Regalite Plastics Corporation Massachusetts Regalite Plastics Corporation
O'Sullivan Plastics Corporation Nevada O'Sullivan Plastics Corporation
O'Sullivan Engineering, Inc. Michigan O'Sullivan Engineering, Inc.
Capitol Plastics of Ohio, Inc. Ohio Capitol Plastics of Ohio, Inc.
Melnor Inc. Virginia Melnor Inc.
- 59 -
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of Registration Statement on form S-8 filed December 29,
1987 of O'Sullivan Corporation of our report dated February 1, 1994,
appearing on page 15 of this Annual Report on Form 10-K.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
March 28, 1994
- 60 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/26/94 /s/ Arthur H. Bryant, II
------------- ------------------------------
DATE DIRECTOR
- 61 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ John J. Armstrong
------------- ------------------------------
DATE DIRECTOR
- 62 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/26/94 /s/ Harry F. Byrd, Jr.
------------- ------------------------------
DATE DIRECTOR
- 63 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
2/3/94 /s/ Max C. Chapman, Jr.
------------- ------------------------------
DATE DIRECTOR
- 64 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ James J. Jamieson
------------- ------------------------------
DATE DIRECTOR
- 65 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ James T. Holland
------------- ------------------------------
DATE DIRECTOR
- 66 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ Paul Terretta
------------- ------------------------------
DATE DIRECTOR
- 67 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ Alexander W. Neal, Jr.
------------- ------------------------------
DATE DIRECTOR
- 68 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ Magalen O. Bryant
------------- ------------------------------
DATE DIRECTOR
- 69 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/25/94 /s/ C. Hugh Bloom, Jr.
------------- ------------------------------
DATE DIRECTOR
- 70 -
POWER OF ATTORNEY
I hereby appoint James P. Jamieson and James T. Holland, or either of them,
my true and lawful attorney-in-fact to sign on my behalf, as an individual
and in the capacity stated below, the Annual Report on Form 10-K of
O'Sullivan Corporation for its fiscal year ended December 31, 1993 and any
amendment which such attorney or attorney-in-fact may deem appropriate or
necessary.
1/26/94 /s/ C. Ridgely White
------------- ------------------------------
DATE DIRECTOR
- 71 -
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 11-K
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities and Exchange Act of 1934
For The Fiscal Year Ended December 31, 1993
O'Sullivan Corporation
1985 Incentive Stock Option Plan
--------------------------------
(Full Title of the Plan)
O'Sullivan Corporation
----------------------------------------------------------------
(Name of the Issuer of the Securities Held Pursuant to the Plan)
1944 Valley Avenue
Winchester, Virginia 22601
---------------------------------------
(Address of Principal Executive Office)
- 72 -
Item 1. Changes in the Plan.
The plan was amended April 28, 1987, to conform the Plan to
changes contained in the 1986 Tax Reform Act. The Plan was
amended October 27, 1987, to reflect housekeeping amendments that
clarified that options granted under the Plan are exercisable in
accordance with the terms set forth in the optionee's Stock Option
Agreement. The Plan was amended as of July 27, 1993, giving the
authority to grant options to the Company's Compensation and Stock
Option Committee, a committee comprised only of disinterested
directors. No amendments to the plan were made during 1988, 1989,
1990, 1991 and 1992.
Item 2. Changes in Investment Policy.
Not applicable.
Item 3. Contributions Under the Plan.
Not applicable.
Item 4. Participating Employees.
There were twenty-three employees who were participants in the
Plan as of December 31, 1993.
Item 5. Administration of the Plan.
(a) The following is a list of names and addresses and positions
or offices held with the Employer-Issuer of all persons who are
members of the Committee which administers the Plan:
John J. Armstrong
6371 SW Thistle Terrace Outside Director
Palm City, FL 33490
Harry F. Byrd, Jr.
2 North Kent Street Outside Director
Winchester, VA 22601
Max C. Chapman, Jr.
P. O. Box 194 Outside Director
Scarborough, NY 10510
Alexander W. Neal, Jr.
McGuire, Woods, Battle & Boothe Outside Director
One James Center
Richmond, VA 23219
(b) None of the members of the Committee received any
compensation for services to the Plan during 1993.
Item 6. Custodian of Investments.
Not applicable.
- 73 -
Item 7. Reports to Participating Employees.
O'Sullivan will furnish without charge, upon written of oral
request, a copy of its Annual Report to Stockholders for its last
fiscal year to each option holder who has not otherwise received
such report. Additionally, O'Sullivan will furnish to each
participant all information and material that is sent to
stockholders of the Company.
Item 8. Investment of Funds.
Not applicable.
Item 9. Financial Statements and Exhibits.
(a) Not applicable.
(b) 4. The Plan, attached herewith, as amended and restated
as of July 27, 1993.
5. Opinion of Counsel (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8 filed
September 20, 1985).
23. (a) Consent of Certified Public Accountants filed as
exhibit to Form 10-K for December 31, 1993; to
which this Form 11-K is filed as an exhibit.
23. (b) Consent of Counsel (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8
filed September 20, 1985).
24. Powers of Attorney (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8
filed September 20, 1985, and Post-Effective
Amendment No. 1 to Registration Statement No. 33-
00411 on Form S-8 filed December 29, 1987).
99.2(b) Additional Exhibit - Companies whose employees are
eligible to participate in the O'Sullivan
Corporation 1985 Incentive Stock Option Plan
(Incorporated by reference to the Registration
Statement on form S-8 filed September 20, 1985).
- 74 -
O'SULLIVAN CORPORATION
1985 INCENTIVE STOCK OPTION PLAN
Amended and Restated as of July 27, 1993
Section 1. Purpose. The O'Sullivan Corporation 1985
Incentive Stock Option Plan (the "Plan") is intended to provide
key employees of O'Sullivan Corporation (the "Company") and its
subsidiaries an opportunity to acquire common stock of the
Company. The Plan is expected to help the Company attract,
retain, and motivate key employees to work for the success of the
Company. Options granted under this Plan are intended to be
incentive stock options within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
Section 2. Administration.
(a) Committee. The Plan will be administered by a
committee (the "Committee") appointed by the Board of Directors
of the Company. Unless the Board of Directors directs otherwise,
the Company's Compensation and Stock Option Committee will serve
as the Committee for the Plan. The Committee will consist of at
least three members of the Board of Directors who are
"disinterested persons" for purposes of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
Under Rule 16b-3, a "disinterested person" is a Director who has
not been granted or awarded equity securities pursuant to the
Plan or any other plan of the Company or any affiliate of the
Company during the one-year period prior to his appointment as a
member of the Committee. The Committee members may be removed or
replaced at any time by the Board of Directors. Members of the
Committee may resign at any time upon thirty days' written notice
to the Board of Directors.
(b) Authority. The Committee will have authority to
interpret the provisions of the Plan. When appropriate, the
Committee may prescribe rules and regulations under the Plan.
The Committee will also determine the form of each Stock Option
Agreement.
(c) Grant of Options. The Committee will determine the key
employees of the Company and its subsidiaries to whom options
shall be granted under the Plan. The Committee will determine
the time at which options shall be granted, the number of shares
for which options shall be granted, and any terms and conditions
of options granted under the Plan. The Committee shall have the
- 75 -
exclusive and final authority to determine which employees shall
receive options, the number of shares subject to the options, and
the terms of the options. Actions taken by the Committee in
interpreting the Plan and carrying out its terms will be
conclusive. No member of the Committee may be held accountable
for any action taken in good faith.
(d) No Options for Committee. Options may not be granted
under this Plan to members of the Committee.
Section 3. Eligibility.
(a) In General. Options may be granted to key employees of
the Company, or any of its subsidiaries, within the meaning of
Section 424(f) of the Code, exclusive of any employee who at the
time an option is granted owns directly or indirectly stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any parent or
subsidiary corporation. Indirect ownership of stock will be
determined in accordance with Section 424(d) of the Code.
(b) Directors. Options may not be granted to any director
of the Company or its subsidiaries unless the director is also a
key employee of the Company or one of its subsidiaries.
Section 4. Stock.
(a) Common Stock. Options may be granted under this Plan
for shares of the $1.00 par value common stock of the Company
(the "Stock"). Stock issued under this Plan may be authorized
but unissued shares. It may also be treasury shares held by the
Company.
(b) Aggregate Share Limitation. The aggregate number of
shares which may be issued upon the exercise of options under
this Plan may not exceed [165,886] shares (which number reflects
the Company's May 31, 1985, May 30, 1986, December 1, 1987, May
31, 1988, and May 31, 1989 stock distributions). Upon the
expiration or termination of any unexercised options, the Stock
subject to these options will be available for the grant of other
options under this Plan.
(c) Recapitalization of the Company. The limitations
established by this section may be adjusted in accordance with
Section 6 (relating to recapitalization of the Company).
Section 5. Terms and Conditions of Options. Each option
granted under the Plan will be evidenced by a Stock Option
Agreement (the "Agreement") between the Company and the
- 76 -
individual to whom the option is granted (the "Optionee"). Each
option will comply with the following conditions:
(a) Option Price. The option purchase price of the shares
of the Company Stock covered by a Stock Option Agreement will not
be less than 100% of the fair market value of such shares on the
date of the grant. Fair market value of the Stock will be the
mean between the highest and lowest quoted selling prices of the
Stock on the American Stock Exchange on the day the option is
granted or, if no sale of the Stock shall have been made on such
stock exchange on that day, on the next preceding day on which
there was a sale of such stock.
(b) Dollar Limitation. An option granted on or after
January 1, 1987, by its terms, shall be exercisable in a calendar
year only to the extent that the aggregate fair market value
(determined at the time the option is granted) of the stock with
respect to which incentive stock options under Section 422 of the
Code are exercisable for the first time during the calendar year
by the Optionee does not exceed $100,000 (the "Limitation
Amount"). Incentive stock options granted after 1986 under this
Plan and all other plans of the Company and any parent and
subsidiary corporations shall be aggregated for purposes of the
Limitation Amount. The Committee may impose such limitations as
it deems appropriate on an option in order to ensure that the
foregoing limitation is met. The Committee may determine that if
any incentive stock options exceed the Limitation Amount, the
excess options may be treated as non-qualified stock options to
the extent permitted by law.
(c) Ten-Year Limitation. No option may be exercised more
than ten years after it is granted. Each Agreement must contain
this limitation. However, the Committee may grant options which
may only be exercised during a period of less than ten years. In
the case of any options which may only be exercised during a
period of less than ten years, each Agreement must contain this
shorter limitation.
(d) Exercise of Options. Options may be exercised in whole
or in part. Options shall become exercisable according to the
terms set forth in the optionee's Stock Option Agreement and may
only be exercised in accordance with the Agreement. Subject to
the terms of the Agreement, an exercisable option may be
exercised on any business day until it expires. However, no
option may be exercised for less than ten shares unless the
option is exhausted upon its exercise. The option price must be
paid in cash or check when an option is exercised and before
shares are issued under the option. An Optionee will not have
any of the rights of a shareholder by reason of an option until
it is exercised.
- 77 -
(e) Seriatim Exercise. An option granted before January 1,
1987 may not be exercised by an Optionee if there is an
outstanding incentive stock option granted to the Optionee at an
earlier time under this Plan (or another plan of the Company or
any of its parent or subsidiary corporations). The term
"outstanding" shall have the meaning described in section 422A of
the Internal Revenue Code, as in effect before January 1, 1987.
(f) Employment Requirement. Except as otherwise provided
in subsections 5(g) and 5(h), no option granted under this Plan
may be exercised unless the Optionee is employed by the Company
or a parent or subsidiary corporation at the time of exercise and
has been employed by the Company or a parent or subsidiary
corporation at all times since the grant of the option.
(g) Termination of Employment. Except in the case of the
death or disability of an Optionee, an option may not be
exercised after the employment relationship between the Optionee
and the Company and its parent and subsidiary corporations
terminates.
(h) Death or Disability of Optionee. If an Optionee's
employment is terminated by reason of death, an option may be
exercised within three months after the Optionee's death by the
person to whom the Optionee's rights under the option shall have
passed by will or by the laws of descent and distribution. If an
Optionee's employment is terminated by reason of the Optionee's
disability, the option may be exercised within one year of the
Optionee's termination of employment. However, neither death nor
disability shall act to extend the period during which an option
is to be exercised as measured from the date of grant and as
contained in the Agreement. The Committee will determine whether
an Optionee is disabled, in accordance with Internal Revenue Code
requirements.
(i) Transferability of Option. Options shall not be
transferable by the Optionee except by will or by the laws of
descent and distribution and shall be exercised during the
Optionee's lifetime only by the Optionee.
Section 6. Recapitalization of Company. The number of
shares of common Stock covered by each outstanding option, and
the price per share thereof in each such option, shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of common Stock of the Company resulting
from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the common Stock) or any other
increase or decrease in the number of such shares effected
without receipt of consideration by the Company.
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If the Company shall be the surviving corporation in any
merger or consolidation, each outstanding option shall pertain to
and apply to the securities to which a holder of the number of
shares of common Stock subject to the option would have been
entitled.
A dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving
corporation, shall cause each outstanding option to terminate.
Suspension of the option privilege will occur at the earlier of
the public announcement of any potential dissolution,
termination, liquidation, merger or consolidation in which the
Company would not be the surviving corporation or upon receipt by
the Optionee of written notice of such possible occurrence from
the Committee chairman. Termination of the option will occur on
the day actual ratification of the event by stockholders of the
Company occurs. If the stockholders fail to approve such event,
the suspension of option privileges will be lifted on the day
such ratification fails.
In the event of a change in the common Stock of the Company
as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the
common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by
the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each option granted
pursuant to this Plan shall not be adjusted in a manner that
causes the option to fail to continue to qualify as an incentive
stock option within the meaning of section 422 of the Code, if
applicable.
Section 7. Effective Date of Plan. The original Plan was
effective as of January 29, 1985, which is the date on which the
Board of Directors of the Company adopted the Plan, subject to
approval of the Plan by the stockholders of the Company. The
amended and restated Plan is effective as of July 27, 1993.
Section 8. Termination, Modification. If not sooner
terminated by the Board of Directors, this Plan shall terminate
on January 28, 1995. No option shall be granted under this Plan
after termination. The Board of Directors may terminate this
Plan or may amend the Plan in such respects as it shall deem
advisable; provided, however, that the stockholders of the
Company must approve any amendment that would (i) materially
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increase the benefits accruing to participants under the Plan,
(ii) materially increase the number of securities that may be
issued under the Plan or (iii) materially modify the requirements
as to eligibility for participation in the Plan.
A termination or amendment of the Plan shall not, without
the consent of the Optionee, affect an Optionee's rights under an
option previously granted to him. Notwithstanding the foregoing,
the Board of Directors may amend the Plan, without stockholder
approval, to the extent necessary to cause incentive stock
options granted under the Plan to meet the requirements of the
Code and regulations thereunder.
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