UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1996
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)
(540) 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 [ ]
As of October 31, 1996 there were 15,970,722 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)
September 30, December 31,
1996 1995
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 8,767,635 $ 10,400,583
Receivables 30,882,102 30,458,872
Inventories 39,790,712 42,196,303
Deferred income tax assets 2,263,371 2,262,636
Other current assets 3,714,024 3,562,325
------------ ------------
Total current assets $ 85,417,844 $ 88,880,719
------------ ------------
Property, Plant and Equipment $ 47,440,266 $ 48,027,329
------------ ------------
Intangibles $ 396,792 $ 497,251
------------ ------------
Other Assets $ 13,107,607 $ 12,591,226
------------ ------------
Total assets $146,362,509 $149,996,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,772,258 $ 1,665,448
Accounts payable 14,156,560 15,714,112
Accrued expenses 8,576,517 10,574,317
------------ ------------
Total current liabilities $ 24,505,335 $ 27,953,877
------------ ------------
Long-Term Debt $ 22,087 $ 51,745
------------ ------------
Other Long-Term Liabilities $ 2,358,516 $ 2,708,799
------------ ------------
Deferred Income Tax Liabilities $ 3,520,173 $ 3,519,139
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Stockholders' Equity
Common stock, par value $1.00 per
share; authorized 30,000,000
shares $ 15,970,722 $ 16,510,402
Additional paid-in capital 4,778,969 10,182,295
Retained earnings 95,580,628 89,453,514
Cumulative translation adjustments (211,241) (220,566)
Unrecognized pension costs, net of
deferred tax effect (162,680) (162,680)
------------ ------------
Total stockholders' equity $115,956,398 $115,762,965
------------ ------------
Total liabilities and
stockholders' equity $146,362,509 $149,996,525
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
For The Three Months Ended
September 30,
----------------------------------
1996 1995
------------ ------------
Net sales $ 47,552,955 $ 48,551,668
Cost of products sold 40,772,307 39,815,021
------------ ------------
Gross profit $ 6,780,648 $ 8,736,647
------------ ------------
Operating expenses
Selling and warehousing $ 2,425,740 $ 2,170,955
General and administrative 1,851,359 2,046,363
Relocation charge - - 9,783
------------ ------------
$ 4,277,099 $ 4,227,101
------------ ------------
Income from operations $ 2,503,549 $ 4,509,546
------------ ------------
Other income (expense)
Interest income $ 139,657 $ 179,097
Interest expense (19,812) (40,089)
Other, net 27,965 73,574
------------ ------------
$ 147,810 $ 212,582
------------ ------------
Income before income taxes $ 2,651,359 $ 4,722,128
Income taxes 1,104,660 1,937,386
------------ ------------
Net income $ 1,546,699 $ 2,784,742
============ ============
Net income per common share $ .10 $ .17
============ ============
Dividends per common share $ .08 $ .08
============ ============
Average shares outstanding 16,023,372 16,510,549
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
For The Nine Months Ended
September 30,
----------------------------------
1996 1995
------------ ------------
Net sales $167,119,455 $160,674,517
Cost of products sold 136,240,558 128,465,955
------------ ------------
Gross profit $ 30,878,897 $ 32,208,562
------------ ------------
Operating expenses
Selling and warehousing $ 8,662,617 $ 7,907,693
General and administrative 5,976,863 6,078,865
Relocation charge - - 716,650
------------ ------------
$ 14,639,480 $ 14,703,208
------------ ------------
Income from operations $ 16,239,417 $ 17,505,354
------------ ------------
Other income (expense)
Interest income $ 386,347 $ 664,420
Interest expense (95,554) (117,732)
Other, net 203,815 (11,474)
------------ ------------
$ 494,608 $ 535,214
------------ ------------
Income before income taxes $ 16,734,025 $ 18,040,568
Income taxes 6,722,520 7,208,461
------------ ------------
Net income $ 10,011,505 $ 10,832,107
============ ============
Net income per common share $ .62 $ .66
============ ============
Dividends per common share $ .24 $ .23
============ ============
Average shares outstanding 16,244,215 16,501,680
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------------
1996 1995
Cash Flows From Operating Activities ------------ ------------
Net income $ 10,011,505 $ 10,832,107
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,624,780 5,253,559
Provision for doubtful accounts 279,271 362,846
Gain on disposal of assets (507,151) (30,091)
Interest accrual on zero coupon
notes receivable (10,275) (192,575)
Interest accrual on zero coupon
notes payable 112,960 112,632
Foreign currency exchange rate gains (25,421) (117,351)
Unremitted loss from joint venture 70,441 - -
Change in operating assets and liabilities:
Receivables (702,501) 6,604,260
Inventories 2,405,591 (9,481,814)
Other current assets (151,699) 1,125,322
Accounts payable (1,557,552) 516,766
Accrued expenses (1,997,800) (1,635,411)
------------ ------------
Net cash provided by
operating activities $ 13,552,149 $ 13,350,250
------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment $ (5,465,838) $ (7,878,539)
Proceeds from disposal of fixed assets 1,038,722 129,627
Decrease in deposits - - 353,245
Loan to joint venture (441,000) - -
Other, net (454,736) (336,843)
------------ ------------
Net cash used in investing activities $ (5,322,852) $ (7,732,510)
------------ ------------
Cash Flows From Financing Activities
Repayment of long-term debt $ (35,808) $ (21,449)
Purchase of common stock (5,942,046) (1,348)
Issuance of common stock - - 246,985
Cash dividends paid (3,884,391) (3,629,899)
------------ ------------
Net cash used in financing activities $ (9,862,245) $ (3,405,711)
------------ ------------
Increase (decrease) in cash and
cash equivalents $ (1,632,948) $ 2,212,029
Cash and cash equivalents at:
beginning of period 10,400,583 9,701,801
------------ ------------
end of period $ 8,767,635 $ 11,913,830
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Presentation
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
September 30, 1996 and December 31, 1995 and the results of its
operations and cash flows for the three and nine months ended
September 30, 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 nine months ended September 30, 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
$1,128,207 at September 30, 1996 and $898,648 at December 31, 1995.
Receivable balances for automotive related business were $13,775,200
at September 30, 1996 and $13,825,514 at December 31, 1995.
Note C. Inventories
At September 30, 1996 and December 31, 1995, inventories were composed
of the following:
September 30, December 31,
1996 1995
------------ ------------
Finished goods $ 12,863,154 $ 11,801,242
Work in process 9,749,013 10,754,865
Raw materials 13,952,695 16,373,017
Supplies 3,225,850 3,267,179
------------ ------------
$ 39,790,712 $ 42,196,303
============ ============
Slow-moving inventories at September 30, 1996 amounted to $1,529,881
less a reserve of $464,663. 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 September 30, 1996 and December 31, 1995, property, plant and
equipment were composed of the following:
September 30, December 31,
1996 1995
------------ ------------
Land $ 1,170,289 $ 1,262,754
Buildings 27,359,695 26,898,482
Machinery and equipment 71,000,872 67,730,663
Transportation equipment 3,622,944 3,626,921
------------ ------------
$103,153,800 $ 99,518,820
Less accumulated
depreciation 55,713,534 51,491,491
------------ ------------
$ 47,440,266 $ 48,027,329
============ ============
Note E. Accrued Expenses
At September 30, 1996 and December 31, 1995, accrued expenses were
comprised of the following:
September 30, December 31,
1996 1995
------------ ------------
Accrued compensation $ 1,865,639 $ 2,633,871
Employee benefits 1,086,100 1,447,905
Dividends payable 1,276,011 1,319,419
Contingency reserve for
discontinued operations 2,182,511 2,417,252
Other accrued expenses 2,166,256 2,755,870
------------ ------------
$ 8,576,517 $ 10,574,317
============ ============
Note F. Debt
Long-Term Debt
September 30, December 31,
1996 1995
---------- ----------
Unsecured non-interest bearing
promissory note payable to Melnor
Industries, Inc. discounted at 9.00%
due on November 24, 1996. The
principal amount of the note is
$1,463,037. $1,434,477 $1,340,738
September 30, December 31,
1996 1995
---------- ----------
Non-interest bearing obligation payable
to Melnor Industries, Inc., discounted
at 9.00%. 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. 295,552 276,331
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 $6,720. 3,861 5,687
Capital lease obligations 60,455 94,437
---------- ----------
$1,794,345 $1,717,193
Less current maturities 1,772,258 1,665,448
---------- ----------
$ 22,087 $ 51,745
========== ==========
Note G. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For the Nine Months Ended September 30,
--------------------------------------
1996 1995
---------- ----------
Cash payments for interest,
net of interest capitalized $ -- -- $ 6,097
========== ==========
Cash payment for income taxes $5,681,229 $6,236,454
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Third Quarter, 1996 versus Third Quarter, 1995)
- ----------------------------------------------------------------------
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales for the third quarter of
1996 were $47.6 million which was a decrease of $1.0 million (2.1%)
when compared to sales of $48.6 million for the third quarter of 1995.
Consolidated net income was $1.6 million for the third quarter of 1996
and $2.8 million for the third quarter of 1995, a decrease of $1.2
million (44.5%).
Income tax expense was $1.1 million for the third quarter of 1996 and
$1.9 million for the third quarter of 1995. The decrease in income
tax expense resulted from the decrease in income before income taxes
as the Corporation's effective tax rate was essentially the same for
both periods.
Net other income decreased by approximately $65 thousand compared to
the third quarter of 1995.
Plastics Products Segment Operating Results
Net sales for the Plastics Products segment were $41.6 million for the
third quarter of 1996 and $42.0 million for the third quarter of 1995.
The 1996 sales represent a decrease of $364 thousand. The sales
decrease recorded during the third quarter was primarily the result of
lower sales of automotive related products. While major automotive
programs continue to show strong demand, overall changes in the
product mix of products produced by the Corporation resulted in
slightly lower sales volume. Industrial products continue to be very
competitively priced due to the general weakness of demand in this
market and sales for the quarter ended September 30, 1996 were
relatively flat.
The gross margin for this segment showed a decline when compared to
the third quarter of 1995 (16.1% versus 19.5%). The decline in gross
operating margins were due to a combination of cost increases that
were incurred as a result of a contamination of a key raw material
supplied to the Corporation and the general competitive pressures
associated with this business segment that prevent increased operating
and material costs from being passed on to both automotive and
industrial customers.
Selling expenses for the third quarter of 1996 were $1.2 million,
representing 2.9% of net sales. Selling expenses for the third
quarter of 1995 were $1.1 million, representing 2.7% of net sales for
the segment. General and administrative expenses for the third
quarter of 1996 were $1.4 million as compared to $1.5 million for the
third quarter of 1995. As a percent of net sales for this segment,
these expenses were 3.3% for 1996 and 3.5% for 1995.
Consumer Products Segment Operating Results
Net sales were $5.9 million for the Consumer Products segment for the
third quarter of 1996. Net sales for the third quarter of 1995 were
$6.6 million. The net sales for 1996 represents a decrease of $635
thousand (9.7%). Sales decreased during the quarter ended September
30, 1996 due to excessive returns, defective material allowances and a
general slow-down in the industry as a result of unfavorable weather
conditions.
This segment experienced a decline in its gross margin for the third
quarter of 1996 (1.5%) as compared to the third quarter of 1995
(8.2%). The decline in gross operating margin was the result of
extraordinary returns and allowances resulting in significantly lower
net sales and excessive freight-out costs incurred by the Corporation
to relocate finished goods from New Jersey to Virginia.
Selling expenses for this segment were $1.2 million for the third
quarter of 1996 as compared to $1.1 million for the third quarter of
1995. Selling expenses represented 20.8% and 16.1% of each sales
dollar respectively for the quarters ended September 30, 1996 and
1995. The increase in selling expenses resulted primarily from
increased commission, rebate and co-op advertising rates implemented
to stimulate sales. General and administrative expenses for the
segment were $495 thousand and $581 thousand for the third quarter of
1996 and 1995, respectively.
Results of Operations (Nine Months Ended September 30, 1996 versus
- ------------------------------------------------------------------
Nine Months Ended September 30, 1995)
-------------------------------------
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales for the nine months
ended September 30, 1996 were $167.1 million compared to $160.7
million for the first nine months of 1995, an increase of $6.4 million
(4.0%). Consolidated net income was $10.0 million for the first nine
months of 1996 and $10.8 million for the first nine months of 1995, a
decrease of 7.6%.
Income tax expense was $6.7 million for the nine months ended
September 30, 1996 and $7.2 million for the nine months ended
September 30, 1995. The decrease in income tax expense primarily
resulted from the decrease in the Corporation's income before income
taxes as the effective tax rate was substantially the same for both
periods.
Net other income for the first nine months of 1996 included
approximately $500 thousand in pre-tax gains from the sale of assets.
This income offset reductions in interest income when compared to the
same period for 1995.
Plastics Products Segment Operating Results
Net sales for the Plastics Products segment were $132.3 million for
the first nine months of 1996 and $127.7 million for the first nine
months of 1995. The 1996 sales represent an increase of $4.6 million
(3.6%). The sales increase recorded during the nine months ended
September 30, 1996 can be attributed primarily to increases in sales
of automotive-related products. The overall weakening in the market
demand for industrial products resulted in sales through September 30,
1996 being relatively flat as compared to the first nine months of
1995.
The gross margin for this segment showed a decline when compared to
the first nine months of 1995 (18.5% versus 20.4%). As described in
the analysis of operations for the second and third quarters, gross
margins declined due to a combination of increased raw material costs,
contamination problems and competitive pressures which prevented the
Corporation from passing costs on to the customer base.
Selling expenses year to date through September 30, 1996 were $3.8
million, representing 2.9% of net sales. Selling expenses for the
first nine months of 1995 were also $3.8 million, representing 2.9% of
net sales for the segment. General and administrative expenses for
the nine months ended September 30,1996 and 1995 were $4.4 million.
As a percent of net sales for this segment, these expenses were 3.3%
for 1996 and 3.5% for 1995.
Consumer Products Segment Operating Results
Net sales were $34.8 million for the Consumer Products segment for the
first nine months of 1996. Net sales for the first nine months of
1995 were $33.0 million. The net sales for 1996 represents an increase
of $1.8 million (5.4%).Factors contributing to the sales increases
were weather conditions more conducive to sales of the product lines,
introduction of a new product line and product shipments during the
second quarter of 1996 which recovered sales lost during the first
quarter of 1996.
The gross margin for the nine months ended September 30, 1996 and 1995
was substantially the same (18.5% versus 18.7%). The decline resulted
primarily from extraordinary returns, sales allowances and excessive
freight-out expenses incurred by the Corporation.
Selling expenses for this segment were $4.9 million year to date
through September 30, 1996 as compared to $4.2 million through
September 30, 1995. The increased selling expenses resulted primarily
from increased commissions, rebates and co-op advertising rates
implemented to stimulate sales that were lost as a result of not
having product to deliver during the first quarter of 1996. General
and administrative expenses for the segment were $1.5 million for the
nine months ended September 30, 1996 and $1.6 million for the nine
months ended September 30, 1995.
Liquidity and Capital Resources
Cash flows for the nine months ended September 30, 1996 resulted in a
net decrease in cash and cash equivalents of $1.6 million. The
primary reason for the decrease for this period was the repurchase of
corporate stock.
Net cash provided by operating activities was $13.6 million for the
nine months ended September 30, 1996. For the nine months of 1995 net
cash provided by operating activities was $13.4 million.
Capital outlay was $5.5 million for the first nine months 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 $7 and $9 million.
Total corporate debt was $1.8 million at September 30, 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 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 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'Sullivan 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 September 30, 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 Executive Officer
/s/ C. Bryant Nickerson
-------------------------------------
C. Bryant Nickerson
Secretary, Treasurer
and Chief Financial Officer
November 12, 1996
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