UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 22601
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(703) 667-6666
--------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
At April 30, 1996 there were 16,340,702 shares of Common Stock,
Par Value $1, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 4,709,095 $ 10,400,583
Receivables 37,760,173 30,458,872
Inventories 42,319,937 42,196,303
Deferred income tax assets 2,262,636 2,262,636
Other current assets 1,740,223 3,562,325
------------ ------------
Total current assets $ 88,792,064 $ 88,880,719
------------ ------------
Property, Plant and Equipment $ 48,301,980 $ 48,027,329
------------ ------------
Intangibles $ 465,024 $ 497,251
------------ ------------
Other Assets $ 12,726,388 $ 12,591,226
------------ ------------
Total assets $150,285,456 $149,996,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,702,882 $ 1,665,448
Accounts payable 14,873,873 15,714,112
Accrued expenses 10,505,220 10,574,317
------------ ------------
Total current liabilities $ 27,081,975 $ 27,953,877
------------ ------------
Long-Term Debt $ 39,491 $ 51,745
------------ ------------
Other Long-Term Liabilities $ 2,658,237 $ 2,708,799
------------ ------------
Deferred Income Tax Liabilities $ 3,519,782 $ 3,519,139
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Stockholders' Equity
Common stock, par value $1.00 per
share; authorized 30,000,000
shares $ 16,348,702 $ 16,510,402
Additional paid-in capital 8,627,217 10,182,295
Retained earnings 92,373,201 89,453,514
Cumulative translation adjustments (200,469) (220,566)
Unrecognized pension costs, net of
deferred tax effect (162,680) (162,680)
------------ ------------
Total stockholders' equity $116,985,971 $115,762,965
------------ ------------
Total liabilities and
stockholders' equity $150,285,456 $149,996,525
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Three Months Ended March 31,
-----------------------------------
1996 1995
----------- -----------
Net sales $56,156,946 $55,052,191
Cost of products sold 43,907,385 42,792,024
----------- -----------
Gross profit $12,249,561 $12,260,167
----------- -----------
Operating expenses
Selling and warehousing $ 2,984,608 $ 2,963,646
General and administrative 2,198,024 2,252,468
Relocation charge - - 287,534
----------- -----------
$ 5,182,632 $ 5,503,648
----------- -----------
Income from operations $ 7,066,929 $ 6,756,519
----------- -----------
Other income (expense)
Interest income $ 154,643 $ 281,997
Interest expense (40,384) (36,073)
Other, net (106,628) (114,869)
----------- -----------
$ 7,631 $ 131,055
----------- -----------
Income before income taxes $ 7,074,560 $ 6,887,574
Income taxes 2,840,359 2,803,690
----------- -----------
Net income $ 4,234,201 $ 4,083,884
=========== ===========
Net income per common share $ .26 $ .25
=========== ===========
Dividends per common share $ 0.08 $ 0.08
=========== ===========
Average common shares outstanding 16,457,252 16,487,807
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
1996 1995
Cash Flows From Operating Activities ------------ ------------
Net income $ 4,234,201 $ 4,083,884
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,850,989 1,721,985
Provision for doubtful accounts 106,077 156,201
Interest accrual on zero coupon
notes receivable (3,413) (91,653)
Interest accrual on zero coupon
notes payable 36,813 36,706
Foreign currency exchange rate gains (34,642) (10,509)
Unremitted loss from joint venture 105,415 - -
Change in operating assets and
liabilities:
Receivables (7,407,378) (1,724,933)
Inventories (123,634) (6,433,844)
Other current assets 1,822,102 450,455
Accounts payable (840,239) 2,324,031
Accrued expenses (69,097) 256,082
------------ ------------
Net cash provided by (used in)
operating activities $ (322,806) $ 768,405
------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment $ (2,086,588) $ (2,753,143)
Decrease in deposits (2,000) 192,951
Loan to joint venture (245,000) - -
Other, net 7,831 (73,160)
------------ ------------
Net cash (used in) investing
activities $ (2,325,757) $ (2,633,352)
------------ ------------
Cash Flows From Financing Activities
Repayment of long-term debt (11,633) (12,804)
Purchase of common stock (1,716,778) (190)
Sale of common stock - - 171,813
Cash dividends paid (1,314,514) (1,153,912)
------------ ------------
Net cash (used in)
financing activities $ (3,042,925) $ (995,093)
------------ ------------
Decrease in cash and cash equivalents $ (5,691,488) $ (2,860,040)
Cash and cash equivalents at:
beginning of period 10,400,583 9,701,801
------------ ------------
end of period $ 4,709,095 $ 6,841,761
============ ============
The accompanying notes are in integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Preparation
The accompanying unaudited consolidated financial statements include
the accounts of O'Sullivan Corporation and its wholly-owned
subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
Investments in affiliates in which the Corporation has a 20% to 50%
interest are carried at cost adjusted for the Corporation's
proportionate share of the affiliate's undistributed earnings or loss.
In the opinion of management of the Corporation, the unaudited
consolidated financial statements contain all material adjustments
necessary to fairly present the Corporation's financial position as of
March 31, 1996 and December 31, 1995 and the results of its operations
and cash flows for the three months ended March 31, 1996 and 1995.
Such adjustments consist only of normal recurring items.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have not been included in these statements.
These statements should be read in conjunction with the financial
statements, notes and other disclosures thereto included in the
Corporation's 1995 Annual Report to Stockholders and Form 10-K.
The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the operating results for the full
year.
Note B. Receivables
Receivables are presented net of an allowance for doubtful accounts of
$1,279,131 at March 31, 1996 and $898,648 at December 31, 1995.
Receivable balances for automotive related business were $12,356,596
at March 31, 1996 and $13,825,514 at December 31, 1995.
Note C. Inventories
At March 31, 1996 and December 31, 1995 inventories were composed of
the following:
March 31, December 31,
1996 1995
------------ ------------
Finished goods $ 11,930,181 $ 11,801,242
Work in process 10,777,562 10,754,865
Raw materials 16,261,836 16,373,017
Supplies 3,350,358 3,267,179
------------ ------------
$ 42,319,937 $ 42,196,303
============ ============
Slow-moving inventories at March 31, 1996 amounted to $1,803,163 less
a reserve of $113,959. At December 31, 1995 slow-moving inventories
amounted to $1,268,587 less a reserve of $98,959. Slow-moving
inventories is an estimate of inventory held in excess of one year's
requirements, based on historical sales volumes.
Note D. Property, Plant and Equipment
At March 31, 1996 and December 31, 1995 property, plant and equipment
were composed of the following:
March 31, December 31,
1996 1995
------------ ------------
Land $ 1,262,963 $ 1,262,754
Buildings 27,233,004 26,898,482
Machinery and equipment 69,354,983 67,730,663
Transportation equipment 3,626,921 3,626,921
------------ ------------
$101,477,871 $ 99,518,820
Less accumulated
depreciation 53,175,891 51,491,491
------------ ------------
$ 48,301,980 $ 48,027,329
============ ============
Note E. Accrued Expenses
At March 31, 1996 and December 31, 1995 accrued expenses were
comprised of the following:
March 31, December 31,
1996 1995
------------ ------------
Accrued compensation $ 2,091,864 $ 2,633,871
Employee benefits 1,383,076 1,447,905
Dividends payable 1,313,086 1,319,419
Contingency reserve for
discontinued operations 2,339,845 2,417,252
Other accrued expenses 3,377,349 2,755,870
------------ ------------
$ 10,505,220 $ 10,574,317
============ ============
Note F. Debt
Long-Term Debt
March 31, December 31,
1996 1995
---------- ----------
Unsecured non-interest bearing
promissory note payable to Melnor
Industries, Inc. discounted at 9.0% due
on November 24, 1996. The principal
amount of the note is $1,463,037. $1,371,287 $1,340,738
March 31, December 31,
1996 1995
---------- ----------
Non-interest bearing obligation payable
to Melnor Industries, Inc., discounted
at 9.0%. Payment is contingent upon
Melnor Industries, Inc. satisfying its
obligation under the New Jersey
Environmental Cleanup Responsibility
Act and the release by the State of the
escrow fund of $300,000 established to
fund environmental cleanup activities. $ 282,595 $ 276,331
Notes payable from Melnor Inc. to
equipment finance companies due in
monthly payments totaling $223
including interest at rates from 4.9%
to 5.1%. The notes are secured by
equipment with a book value of $8,640 5,086 5,687
Capital lease obligations 83,405 94,437
---------- ----------
$1,742,373 $1,717,193
Less current maturities 1,702,882 1,665,448
---------- ----------
$ 39,491 $ 51,745
========== ==========
Note G. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For the Three Months Ended March 31,
------------------------------------
1996 1995
---------- ----------
Cash payments for interest,
net of interest capitalized $ 3,240 $ 182
========== ==========
Cash payment for income taxes $ 427,612 $ 489,015
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (First Quarter, 1996 versus First Quarter, 1995)
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales for the first quarter of
1996 were $56.2 million which represents an increase of $1.1 million
(2.0%) over sales of $55.1 million for the first quarter of 1995.
Consolidated net income was $4.2 million for the first quarter of 1996
and $4.1 million for the first quarter of 1995, an increase of $150
thousand (3.7%).
Income tax expense was $2.8 million for the first quarter of both 1996
and 1995. Income before income taxes was marginally higher for the
first quarter of 1996. However, the Corporation's effective tax rate
for the quarter was lower than the first quarter of 1995 ( 40.2%
versus 40.7%) and effectively negated most of the increased income tax
from the higher income before income taxes.
Net other income decreased by approximately $125 thousand compared to
the first quarter of 1995. The primary cause for the reduction was
the decline in interest income. This decline resulted from reductions
in discretionary cash funds available for short-term investment.
Plastics Products Segment Operating Results
Net sales for the Plastics Products segment were $42.8 million for the
first quarter of 1996 and $41.6 million for the first quarter of 1995.
The 1996 sales represent an increase of $1.2 million (2.9%). The
sales increase recorded during the first quarter was a result of increased
sales of automotive related products. Sales of industrial products
declined during the quarter primarily due to economic weakness in the
markets serviced by this business segment.
The gross margin for this segment showed an improvement over the first
quarter of 1995 (21.9% versus 20.6%). The improvement was primarily a
result of volume sales increases for automotive related products.
Selling expenses for the first quarter of 1996 were $1.3 million,
representing 3.1% of net sales. Selling expenses for the first
quarter of 1995 were also $1.3 million, representing 3.2% of net sales
for the segment. General and administrative expenses for the first
quarter of 1996 were $1.7 million as compared to $1.7 million for the
first quarter of 1995. As a percent of net sales for this segment,
these expenses were 3.9% for 1996 and 4.0% for 1995.
Consumer Products Segment Operating Results
Net sales were $13.3 million for the Consumer Products segment for the
first quarter of 1996. Net sales for the first quarter of 1995 were
$13.4 million. The net sales for 1996 represents a decrease of .7%.
Delays in the receipt of new materials and components from overseas
suppliers prevented the timely introduction of new products and
depressed sales of existing products due to difficulties in meeting
time-sensitive product shipping schedules required by customers.
This segment experienced a marked decline in its gross margin for the
first quarter of 1996 (21.7%) as compared to the first quarter of 1995
(27.4%). The decline resulted from excessive product rework costs,
raw material price increases, air freight costs for shipment of
components from overseas suppliers and product sales reductions
resulting primarily from the lack of sufficient inventories to meet
required shipping schedules.
Selling expenses for this segment were $1.7 million for the first
quarter of 1996 as compared to $1.6 million for the first quarter of
1995. General and administrative expenses for the segment were $519
thousand and $572 thousand for the first quarter of 1996 and 1995,
respectively.
Liquidity and Capital Resources
Cash flows for the quarter ended March 31, 1996 resulted in a net
decrease in cash and cash equivalents of $5.7 million. The primary
reasons for the decrease for this period are increases in receivables
and the repurchase of corporate stock. Such a reduction is not
unusual for the first quarter of each year due to seasonal account
receivable and inventory requirements of the Consumer Products segment
of the Corporation. The reduction can be expected to reverse itself
by the third quarter as accounts receivable are collected and
inventory requirements are reduced.
Net cash used in operating activities was $323 thousand for the first
quarter of 1996. For the first quarter of 1995 net cash provided by
operating activities was $768 thousand.
Capital outlay was $2.1 million for the first quarter of 1996.
Current capital expenditures are primarily to provide additional
capacity and modernize present equipment to produce products for which
orders currently exist. Total capital outlay for 1996 is expected to
be between $8 and $10 million.
Total corporate debt was $1.7 million at both March 31, 1996 and
1995. Substantially all of the debt will be retired before the end of
1996. The Corporation still has in place a $35 million line of credit
to provide capital to finance capital outlay and/or acquisitions.
Management believes that net cash flow from operating activities,
along with available financing capabilities will be adequate to meet
the Corporation's funding requirements for 1996.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of O'Sullivan Corporation was held
on April 30, 1996, for the purpose of electing a board of directors
and approving the appointment of independent auditors. Proxies for
the meeting were solicited pursuant to Section 14(a) of the Securities
Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitation. All of management's nominees for directors
as listed in the proxy statement were elected.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 O'Sullivan Corporation Amended and Restated
Articles of Incorporation, including the
Articles of Amendment, dated April 30, 1985,
filed with the State Corporation Commission of
Virginia on May 6, 1985, adopted by stockholders
of O'Sullivan Corporation at the annual meeting
held April 30, 1985. (Incorporated by reference
to the March 31, 1985 Quarterly Report on Form
10-Q of the Corporation.)
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 Corporation.)
3.3 O'Sullivan Corporation Amended and Restated
Articles of Incorporation dated April 25, 1989,
filed with the State Corporation Commission of
Virginia on May 5, 1989, adopted by stockholders
of O'Sullivan Corporation at the annual meeting
held April 25, 1989. (Incorporated by reference
to the March 31, 1989 Quarterly Report on Form
10-Q of the Corporation.)
27 Article 5 of Regulation S-X, Financial Data
Schedule for the first quarter Form 10-Q.
99.1 The O'Sullivan Corporation 1995 Stock Option
Plan filed as exhibit 99.1 to the Corporation's
Form S-8 registration statement (Registration
Number 033-58895) filed with the Commission on
April 28, 1995 and incorporated herein by
reference.
99.2 The O'ullivan Corporation 1995 Outside
Directors Stock Option Plan filed as exhibit
99.2 to the Corporation's Form S-8 registration
statement (Registration Number 033-58895) filed
with the Commission on April 28, 1995 and
incorporated herein by reference.
99.3 1985 Incentive Stock Option Plan, Amended and
Restated as of July 27, 1993. (Incorporated by
reference to the Annual Report on Form 10-K for
the Year Ended December 31, 1993.)
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
O'SULLIVAN CORPORATION
/s/ James T. Holland
-------------------------------------
James T. Holland
President and Chief Operating Officer
/s/ C. Bryant Nickerson
-------------------------------------
C. Bryant Nickerson
Secretary, Treasurer and
Chief Financial Officer
May 14, 1996
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<PERIOD-END> MAR-31-1996
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<RECEIVABLES> 39,039,304
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<OTHER-SE> 100,637,269
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