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 June 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 July 31, 1996 there were 16,033,722 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)
June 30, December 31,
1996 1995
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 5,994,130 $ 10,400,583
Receivables 41,726,550 30,458,872
Inventories 38,644,590 42,196,303
Deferred income tax assets 2,262,636 2,262,636
Other current assets 2,152,630 3,562,325
------------ ------------
Total current assets $ 90,780,536 $ 88,880,719
------------ ------------
Property, Plant and Equipment $ 47,416,036 $ 48,027,329
------------ ------------
Intangibles $ 430,062 $ 497,251
------------ ------------
Other Assets $ 12,636,269 $ 12,591,226
------------ ------------
Total assets $151,262,903 $149,996,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,739,931 $ 1,665,448
Accounts payable 16,996,875 15,714,112
Accrued expenses 8,670,485 10,574,317
------------ ------------
Total current liabilities $ 27,407,291 $ 27,953,877
------------ ------------
Long-Term Debt $ 28,158 $ 51,745
------------ ------------
Other Long-Term Liabilities $ 2,583,255 $ 2,708,799
------------ ------------
Deferred Income Tax Liabilities $ 3,519,231 $ 3,519,139
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 16,160,622 $ 16,510,402
Additional paid-in capital 6,633,310 10,182,295
Retained earnings 95,311,557 89,453,514
Cumulative translation adjustments (217,841) (220,566)
Unrecognized pension costs, net of
deferred tax effect (162,680) (162,680)
------------ ------------
Total stockholders' equity $117,724,968 $115,762,965
------------ ------------
Total liabilities and
stockholders' equity $151,262,903 $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 June 30,
-----------------------------------
1996 1995
------------ ------------
Net sales $ 63,409,554 $ 57,070,658
Cost of products sold 51,560,866 45,790,346
------------ ------------
Gross profit $ 11,848,688 $ 11,280,312
------------ ------------
Operating expenses
Selling and warehousing $ 3,252,269 $ 2,824,160
General and administrative 1,927,480 1,797,530
Relocation charge - - 419,333
------------ ------------
$ 5,179,749 $ 5,041,023
------------ ------------
Income from operations $ 6,668,939 $ 6,239,289
------------ ------------
Other income (expense)
Interest income $ 92,047 $ 203,326
Interest expense (35,358) (41,570)
Other, net 282,478 29,821
------------ ------------
$ 339,167 $ 191,577
------------ ------------
Income before income taxes $ 7,008,106 $ 6,430,866
Income taxes 2,777,501 2,467,385
------------ ------------
Net income $ 4,230,605 $ 3,963,481
============ ============
Net income per common share $ .26 $ .24
============ ============
Dividends per common share $ .08 $ .08
============ ============
Average shares outstanding 16,252,022 16,506,684
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
For The Six Months Ended June 30,
--------------------------------
1996 1995
------------ ------------
Net sales $119,566,500 $112,122,849
Cost of products sold 95,468,251 88,650,934
------------ ------------
Gross profit $ 24,098,249 $ 23,471,915
------------ ------------
Operating expenses
Selling and warehousing $ 6,236,877 $ 5,736,738
General and administrative 4,125,504 4,032,502
Relocation charge - - 706,867
------------ ------------
$ 10,362,381 $ 10,476,107
------------ ------------
Income from operations $ 13,735,868 $ 12,995,808
------------ ------------
Other income (expense)
Interest income $ 246,690 $ 485,323
Interest expense (75,742) (77,643)
Other, net 175,850 (85,048)
------------ ------------
$ 346,798 $ 322,632
------------ ------------
Income before income taxes $ 14,082,666 $ 13,318,440
Income taxes 5,617,860 5,271,075
------------ ------------
Net income $ 8,464,806 $ 8,047,365
============ ============
Net income per common share $ .52 $ .49
============ ============
Dividends per common share $ .16 $ .16
============ ============
Average shares outstanding 16,354,637 16,497,245
============ ============
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 Six Months Ended June 30,
---------------------------------
1996 1995
Cash Flows From Operating Activities ------------ ------------
Net income $ 8,464,806 $ 8,047,365
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,717,316 3,523,653
Provision for doubtful accounts 235,065 310,207
Gain on disposal of assets (598,801) - -
Interest accrual on zero coupon
notes receivable (6,825) (189,125)
Interest accrual on zero coupon
notes payable 74,460 74,244
Foreign currency exchange rate gains (31,429) (40,510)
Unremitted loss from joint venture 173,481 - -
Change in operating assets and
liabilities:
Receivables (11,502,743) 1,856,354
Inventories 3,551,713 (6,155,893)
Other current assets 1,409,695 736,404
Accounts payable 1,282,763 (1,068,078)
Accrued expenses (1,903,832) (1,328,630)
------------ ------------
Net cash provided by
operating activities $ 4,865,669 $ 5,765,991
------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment $ (3,470,066) $ (4,937,825)
Proceeds from disposal of fixed assets 1,110,788 - -
Decrease in deposits - - 446,271
Loan to joint venture (245,000) - -
Other, net (138,753) (300,676)
------------ ------------
Net cash used in investing activities $ (2,743,031) $ (4,792,230)
------------ ------------
Cash Flows From Financing Activities
Repayment of long-term debt $ (23,564) $ (31,145)
Purchase of common stock (3,898,764) (903)
Issuance of common stock - - 246,985
Cash dividends paid (2,606,763) (2,309,080)
------------ ------------
Net cash used in financing activities $ (6,529,091) $ (2,094,143)
------------ ------------
Decrease in cash and cash equivalents $ (4,406,453) $ (1,120,382)
Cash and cash equivalents at:
beginning of period 10,400,583 9,701,801
------------ ------------
end of period $ 5,994,130 $ 8,581,419
============ ============
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
June 30, 1996 and December 31, 1995 and the results of its operations
and cash flows for the three and six months ended June 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 six months ended June 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
$1,145,858 at June 30, 1996 and $898,648 at December 31, 1995.
Receivable balances for automotive related business were $14,061,999
at June 30, 1996 and $13,825,514 at December 31, 1995.
Note C. Inventories
At June 30, 1996 and December 31, 1995, inventories were composed of
the following:
June 30, December 31,
1996 1995
------------ ------------
Finished goods $ 10,644,523 $ 11,801,242
Work in process 9,357,988 10,754,865
Raw materials 15,366,177 16,373,017
Supplies 3,275,902 3,267,179
------------ ------------
$ 38,644,590 $ 42,196,303
============ ============
Slow-moving inventories at June 30, 1996 amounted to $1,736,080 less a
reserve of $508,171. 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 June 30, 1996 and December 31, 1995, property, plant and equipment
were composed of the following:
June 30, December 31,
1996 1995
------------ ------------
Land $ 1,170,223 $ 1,262,754
Buildings 26,780,351 26,898,482
Machinery and equipment 70,199,048 67,730,663
Transportation equipment 3,622,945 3,626,921
------------ ------------
$101,772,567 $ 99,518,820
Less accumulated
depreciation 54,356,531 51,491,491
------------ ------------
$ 47,416,036 $ 48,027,329
============ ============
Note E. Accrued Expenses
At June 30, 1996 and December 31, 1995, accrued expenses were
comprised of the following:
June 30, December 31,
1996 1995
------------ ------------
Accrued compensation $ 2,082,615 $ 2,633,871
Employee benefits 1,251,533 1,447,905
Dividends payable 1,284,832 1,319,419
Contingency reserve for
discontinued operations 2,331,646 2,417,252
Other accrued expenses 1,719,859 2,755,870
------------ ------------
$ 8,670,485 $ 10,574,317
============ ============
Note F. Debt
Long-Term Debt
June 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. $ 1,402,529 $ 1,340,738
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. 289,000 276,331
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 $7,680. 4,478 5,687
Capital lease obligations 72,082 94,437
----------- -----------
$ 1,768,089 $ 1,717,193
Less current maturities 1,739,931 1,665,448
----------- -----------
$ 28,158 $ 51,745
=========== ===========
Note G. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For the Six Months Ended June 30,
---------------------------------
1996 1995
------------ ------------
Cash payments for interest
net of interest capitalized $ - - $ 185
============ ============
Cash payment for income taxes $ 4,748,203 $ 4,462,617
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Second Quarter, 1996 Versus Second Quarter, 1995)
- ------------------------------------------------------------------------
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales for the second quarter
of 1996 were $63.4 million which represents an increase of $6.3
million (11.1%) over sales of $57.1 million for the second quarter of
1995. Consolidated net income was $4.2 million for the second quarter
of 1996 and $4.0 million for the second quarter of 1995, an increase
of $267 thousand (6.7%).
Income tax expense was $2.8 million for the second quarter of 1996 and
$2.5 million for the second quarter of 1995. The increase in income
tax expense resulted from an increase in the Corporation's effective
tax rate as compared to the second quarter of 1995 along with the
increase in income before income taxes.
Net other income increased by approximately $150 thousand compared to
the second quarter of 1995. Pre-tax gains from the sale of assets
were approximately $600 thousand for the quarter and offset the
reduced amount of interest income earned. The decline in interest
income 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 $47.8 million for the
second quarter of 1996 and $44.0 million for the second quarter of
1995. The 1996 sales represent an increase of $3.8 million (8.7%).
The sales increase recorded during the second quarter was primarily
due to increased sales of automotive related products. Although sales
of industrial products exceeded sales recorded during the first
quarter of 1996, continued economic weakness in this market produced
sales below that of the second quarter of 1995.
The gross margin for this segment showed a decline when compared to
the second quarter of 1995 (17.5% versus 21.0%). The decline was
primarily the result of increased raw material costs and competitive
pressures that prevented these costs from being passed on to both
automotive and industrial customers.
Selling expenses for the second quarter of 1996 were $1.3 million,
representing 2.7% of net sales. Selling expenses for the second
quarter of 1995 were also $1.3 million, representing 2.9% of net sales
for the segment. General and administrative expenses for the second
quarter of 1996 were $1.4 million as compared to $1.3 million for the
second quarter of 1995. As a percent of net sales for this segment,
these expenses were 2.9% for both 1996 and 1995.
Consumer Products Segment Operating Results
Net sales were $15.5 million for the Consumer Products segment for the
second quarter of 1996. Net sales for the second quarter of 1995 were
$13.0 million. The net sales for 1996 represents an increase of $2.5
million (19.4%). Sales increased due to the recovery of sales lost in
the first quarter due to better availability of product. 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 during the first quarter of 1996.
This segment experienced an improvement in its gross margin for the
second quarter of 1996 (22.2%) as compared to the second quarter of
1995 (15.6%). The improvement resulted from the increased sales
volume generated by the recovery of previously lost sales in the first
quarter of 1996. However, gross profits were not up to management's
expectations due to higher than normal transportation costs.
Selling expenses for this segment were $2.0 million for the second
quarter of 1996 as compared to $1.5 million for the second quarter of
1995. Selling expenses represented 12.7% and 11.7% of each sales
dollar respectively for the quarters ended June 30, 1996 and 1995.
The increase in selling expenses resulted from increased rebates and sales
allowances to recover those sales not shipped during the first quarter of
1996. General and administrative expenses for the segment were $532
thousand and $502 thousand for the second quarter of 1996 and 1995,
respectively.
Results of Operations (Six Months Ended June 30, 1996 Versus Six
- ----------------------------------------------------------------
Months Ended June 30, 1995)
---------------------------
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales for the six months ended
June 30, 1996 were $119.6 million compared to $112.1 million for the
six months of 1995, an increase of $7.5 million (6.6%). Consolidated
net income was $8.5 million for the first six months of 1996 and $8.1
million for the first six months of 1995, an increase of 5.2%.
Income tax expense was $5.5 million for the six months ended June 30,
1996 and $5.3 million for the six months ended June 30, 1995. The
increase in income tax expense primarily resulted from the increase 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 six months of 1996 included
approximately $600 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 $90.7 million for the
first six months of 1996 and $85.7 million for the first six months of
1995. The 1996 sales represent an increase of $5.0 million (5.9%).
The sales increase recorded during the six months ended June 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 June 30, 1996 being
marginally below sales for the first six months of 1995.
The gross margin for this segment showed a decline when compared to
the first six months of 1995 (19.6% versus 20.8%). As described in
the analysis of operations for the second quarter, gross margins
declined due to increased raw material costs which could not be passed
through to customers because of competitive pressures.
Selling expenses year to date through June 30, 1996 were $2.6 million,
representing 2.9% of net sales. Selling expenses for the first six
months of 1995 were also $2.6 million, representing 3.1% of net sales
for the segment. General and administrative expenses through June 30,
1996 were $3.1 million as compared to $3.0 million through June 30,
1995. As a percent of net sales for this segment, these expenses
were 3.4% for 1996 and 3.5% for 1995.
Consumer Products Segment Operating Results
Net sales were $28.9 million for the Consumer Products segment for the
first six months of 1996. Net sales for the first six months of 1995
were $26.5 million. The net sales for 1996 represents an increase of
$2.4 million (9.2%). 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.
This segment experienced an improvement in its gross margin for the
six months ended June 30, 1996 (22.0%) as compared to the six months
ended June 30, 1995 (21.3%). The improvement resulted primarily from
the increase in sales volumes, particularly from the introduction of a
new product line during the period.
Selling expenses for this segment were $3.6 million year to date
through June 30, 1996 as compared to $3.1 million through June 30,
1995. The increased selling costs can be attributed to increased
rebates and sales allowances granted to recover sales lost during the
first quarter of 1996. General and administrative expenses for the
segment were $1.1 million for boh 1996 and 1995.
Liquidity and Capital Resources
Cash flows for the six months ended June 30, 1996 resulted in a net
decrease in cash and cash equivalents of $4.4 million. The primary
reasons for the decrease for this period are increases in receivables
and the repurchase of corporate stock. The increase in receivables is
substantially a result of the normal credit terms offered by the
Consumer Products segment of the Corporation. During the third
quarter of the year the receivables of this segment can expect to be
collected.
Net cash provided by operating activities was $4.9 million for the six
months ended June 30, 1996. For the six months ended June 30, 1995
net cash provided by operating activities was $5.8 million.
Capital outlay was $3.5 million for the first six 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 June 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 June 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
August 12, 1996
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<PERIOD-TYPE> 6-MOS
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<PERIOD-END> JUN-30-1996
<CASH> 5,994,130
<SECURITIES> 0
<RECEIVABLES> 42,872,408
<ALLOWANCES> 1,145,858
<INVENTORY> 38,644,590
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<BONDS> 1,768,089
<COMMON> 16,160,622
0
0
<OTHER-SE> 101,564,346
<TOTAL-LIABILITY-AND-EQUITY> 151,262,903
<SALES> 119,566,500
<TOTAL-REVENUES> 119,989,040
<CGS> 95,468,251
<TOTAL-COSTS> 95,468,251
<OTHER-EXPENSES> 10,127,316
<LOSS-PROVISION> 235,065
<INTEREST-EXPENSE> 75,742
<INCOME-PRETAX> 14,082,666
<INCOME-TAX> 5,617,860
<INCOME-CONTINUING> 8,464,806
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