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, 1997
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, PO 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. [X] Yes [ ] No
As of April 30, 1997 there were 15,743,282 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,
1997 1996
ASSETS ------------- -------------
Current Assets
Cash and cash equivalents $ 3,953,515 $ 6,494,657
Receivables 34,734,036 30,809,386
Inventories 40,668,796 41,787,941
Deferred income tax assets 1,279,140 1,381,957
Other current assets 2,397,157 4,045,365
------------- -------------
Total current assets $ 83,032,644 $ 84,519,306
------------- -------------
Property, Plant and Equipment $ 46,944,581 $ 47,127,292
------------- -------------
Other Assets $ 9,304,758 $ 9,175,842
------------- -------------
Total assets $ 139,281,983 $ 140,822,440
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 63,721 $ 70,094
Accounts payable 11,359,840 13,204,916
Accrued expenses 7,516,882 6,994,547
------------- -------------
Total current liabilities $ 18,940,443 $ 20,269,557
------------- -------------
Long-Term Debt $ 9,247 $ 15,790
------------- -------------
Other Long-Term Liabilities
Deferred compensation $ 1,641,642 $ 1,685,792
Employee benefits 1,462,379 1,410,848
------------- -------------
$ 3,104,021 $ 3,096,640
------------- -------------
Deferred Income Tax Liabilities $ 3,314,570 $ 3,442,131
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1 per share;
authorized 30,000,000 shares $ 15,743,282 $ 15,850,562
Additional paid-in capital 2,719,876 3,606,399
Retained earnings 95,984,427 95,022,594
Cumulative translation adjustments (296,441) (243,791)
Unrecognized pension costs, net of
deferred tax effect (237,442) (237,442)
------------- -------------
Total stockholders' equity $ 113,913,702 $ 113,998,322
------------- -------------
Total liabilities and stockholders' equity $ 139,281,983 $ 140,822,440
============= =============
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,
-----------------------------------
1997 1996
------------ ------------
Net sales $ 50,814,645 $ 56,156,946
Cost of products sold 42,719,942 43,794,445
------------ ------------
Gross profit $ 8,094,703 $ 12,362,501
------------ ------------
Operating expenses
Selling and warehousing $ 2,577,055 $ 2,984,608
General and administrative 1,963,217 2,198,024
------------ ------------
$ 4,540,272 $ 5,182,632
------------ ------------
Income from operations $ 3,554,431 $ 7,179,869
------------ ------------
Other income (expense)
Interest income $ 136,296 $ 154,643
Interest expense (9,309) (40,384)
Other, net (50,655) (219,568)
------------ ------------
$ 76,332 $ (105,309)
------------ ------------
Income before income taxes $ 3,630,763 $ 7,074,560
Income taxes 1,406,786 2,840,359
------------ ------------
Net income $ 2,223,977 $ 4,234,201
============ ============
Net income per common share $ .14 $ .26
============ ============
Dividends per common share $ .08 $ .08
============ ============
Average shares outstanding 15,803,222 16,457,252
============ ============
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 Three Months Ended March 31,
-----------------------------------
1997 1996
------------ ------------
Cash Flows from Operating Activities
Net income $ 2,223,977 $ 4,234,201
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortizaton 1,903,778 1,850,989
Provision for doubtful acounts 108,113 106,077
Deferred income taxes (23,016) (137,387)
(Gain) on disposal of assets (8,062) -- --
Interest accrual on zero coupon
notes receivable (3,321) (3,413)
Interest accrual on zero coupon
notes payable -- -- 36,813
Foreign currency exchange rate (gains) losses 25,907 (34,642)
Unremitted (income) loss from joint venture (54,903) 105,415
Changes in operating assets and liabilities:
Receivables (4,032,763) (7,407,378)
Inventories 1,119,145 (123,634)
Other current assets 1,648,208 1,822,102
Accounts payable (1,845,076) (840,239)
Accrued expenses 522,335 (69,097)
------------ ------------
Net cash provided by (used in)
operating activities $ 1,584,322 $ (460,193)
------------ ------------
Cash Flows from Investing Activities
Purchase of property, plant and equipment $ (1,716,639) $ (2,086,588)
Proceeds from disposal of assets 17,787 -- --
(Increase) in deposits (12,525) (2,000)
Loan to joint venture -- -- (245,000)
Other, net (145,226) 145,218
------------ ------------
Net cash used in investing activities $ (1,856,603) $ (2,188,370)
------------ ------------
Cash Flows from Financing Activities
Repayment of long-term debt $ (12,914) $ (11,633)
Purchase of common stock (993,803) (1,716,778)
Cash dividends paid (1,262,144) (1,314,514)
------------ ------------
Net cash used in financing activities $ (2,268,861) $ (3,042,925)
------------ ------------
Decrease in cash and cash equivalents $ (2,541,142) $ (5,691,488)
Cash and cash equivalents at beginning
of period 6,494,657 10,400,583
------------ ------------
Cash and cash equivalents at end
of period $ 3,953,515 $ 4,709,095
============ ============
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. Certain information and footnote disclosure 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 1996 Annual
Report to Stockholders and Form 10-K.
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, consisting only of
normal recurring accruals and adjustments, necessary to fairly present the
Corporation's financial position as of March 31, 1997 and December 31, 1996
and the results of its operations and cash flows for the three months ended
March 31, 1997 and 1996. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of the operating results for the
full year.
Per share information was calculated on the weighted average common shares
outstanding at March 31, 1997 and 1996 that were 15,803,222 and 16,457,252,
respectively.
Certain amounts for 1996 have been reclassified to reflect comparability with
account classifications for 1997.
Note B. Supplementary Balance Sheet Detail
March 31, December 31,
1997 1996
------------ ------------
Receivables
Accounts receivable $ 35,487,559 $ 31,612,778
Less allowance for doubtful accounts 753,523 803,392
------------ ------------
$ 34,734,036 $ 30,809,386
============ ============
Receivable balances for automotive related business were $14,327,583 at
March 31, 1997 and $12,736,630 at December 31, 1996.
Note B. Supplementary Balance Sheet Detail (Continued)
March 31, December 31,
1997 1996
------------ ------------
Inventories
Finished goods $ 13,997,241 $ 14,780,621
Work in process 8,883,581 9,000,680
Raw materials 14,441,416 14,794,005
Supplies 3,346,558 3,212,635
------------ ------------
$ 40,668,796 $ 41,787,941
============ ============
Slow moving inventories were $767,951 at March 31, 1997 and $695,265 at
December 31, 1996. Slow moving inventories is an estimate of inventory held
in excess of one year's requirements, based on historical sales volumes.
Property, Plant and Equipment
Land $ 1,213,984 $ 1,214,544
Buildings 28,276,616 27,701,240
Machinery and equipment 72,239,655 71,370,912
Transportation equipment 3,875,321 3,838,249
------------ ------------
$105,605,576 $104,124,945
Less accumulated depreciation 58,660,995 56,997,653
------------ ------------
$ 46,944,581 $ 47,127,292
============ ============
Accrued Expenses
Accrued compensation $ 2,181,979 $ 2,680,035
Employee benefits 1,207,505 945,277
Dividends payable 1,263,436 1,274,621
Marketing and selling expenses 1,506,939 1,521,449
Other accrued expenses 1,357,023 573,165
------------ ------------
$ 7,516,882 $ 6,994,547
============ ============
Note C. Debt
March 31, December 31,
1997 1996
------------ ------------
Non-interest bearing obligation to
Melnor Industries, Inc. $ 34,138 $ 34,138
Capital lease obligations and other debt 38,830 51,746
------------ ------------
$ 72,968 $ 85,884
Less current maturities 63,721 70,094
------------ ------------
$ 9,247 $ 15,790
============ ============
Note D. Investment in Unconsolidated Joint Venture
The Corporation has a 49% equity interest in Kiefel Technologies, Inc. Kiefel
designs, manufactures and distributes thermoforming and radio frequency welding
machines and related machinery and tools. Summary income statement information
for Kiefel is as follows:
For The Three Months Ended March 31,
------------------------------------
1997 1996
------------ ------------
Net sales $ 1,753,383 $ 55,568
Gross profit (loss) $ 322,964 $ (30,963)
Net income (loss) $ 112,046 $ (215,133)
Corporation's share of net income (loss) $ 54,903 $ (105,415)
Note E. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For The Three Months Ended March 31,
------------------------------------
1997 1996
----------- ------------
Cash payments for interest,
net of interest capitalized $ 8,939 $ 3,240
=========== ============
Cash payments for income taxes $ 242,945 $ 427,612
=========== ============
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
O'Sullivan Corporation
Winchester, Virginia
We have reviewed the accompanying condensed consolidated balance sheet of
O'Sullivan Corporation and Subsidiaries as of March 31, 1997, and the related
condensed consolidated statements of income and cash flows for the three month
periods ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of O'Sullivan Corporation and Subsidiaries as of
December 31, 1996, and the related statements of income and cash flows for the
year then ended (not presented herein); and in our report dated January 24,
1997, we expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
April 29, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (First Quarter, 1997 versus First Quarter, 1996)
- ----------------------------------------------------------------------
Consolidated Operating Results
O'Sullivan Corporation's consolidated net sales for the first quarter of 1997
were $50.8 million, a decrease of $5.3 million or 9.5%, compared to net
sales of $56.2 million for the first quarter of 1996. Consolidated net income
was $2.2 million for the first quarter of 1997 and $4.2 million for the
first quarter of 1996, a decrease of $2.0 million or 47.5%.
Income tax expense was $1.4 million for the first quarter of 1997 and $2.8
million for the first quarter of 1996. The reduction in the provision for
income taxes resulted from the reduced level of pre-tax income for the first
quarter of 1997 and a reduced charge for state income taxes as a percentage
of pre-tax income for the same period. The Corporation's effective tax rate
for the first quarter of 1997 was 38.7% compared to 40.2% for the first
quarter of 1996.
Net other income increased by approximately $181 thousand compared to the first
quarter of 1996. The increase was the result of a decline in interest expense
and an improvement in earnings of a non-consolidated affiliate when compared to
the first quarter of 1996.
Plastics Products Segment Operating Results
Net sales for the Plastics Products segment were $40.5 million for the first
quarter of 1997 and $42.8 million for the first quarter of 1996. The 1997
sales represent a decrease of $2.4 million or 5.5%. The sales decrease
recorded during the first quarter was a result of sales volume decreases in
substantially all products produced by this segment, both automotive and non-
automotive businesses. Automotive sales declines were the results of lower
consumer demand for those products, such as Ford Motor Company's Taurus and
Sable, produced by this segment. Due to changes in consumer demand the
customer base serviced by this segment was required to adjust and make
inventory corrections which resulted in lower than anticipated sales volume.
Sales of non-automotive products declined during the quarter due to a general
slowness and weakness in the markets serviced by this segment.
The gross margin for this segment was 15.1% for the first quarter of 1997 and
21.9% for the first quarter of 1996. The decline was substantially a result
of price increases absorbed by the segment for key raw materials.
Competitive pressures in the markets served by the Plastics Products segment
have generally prevented passing through any raw material price increases
for an extended period of time although the increases have accelerated in
recent months. The gross margin was also detrimentally affected by the
decline in the net sales of the segment that caused higher unit costs for
fixed charges and certain indirect labor and benefit costs.
Selling expenses were 3.1% of net sales the for first quarter of both 1997
and 1996. The total selling expenses decreased from 1996 to 1997 by approx-
imately $81 thousand due to lower charges for compensation and benefits,
sales commissions and bad debts. General and administrative expenses as a
percentage of sales declined from 3.9% for the first quarter of 1996 to
3.8% for the first quarter of 1997. The decreased costs resulted from
reductions in administrative compensation costs related to the performance
incentive program.
Consumer Products Segment Operating Results
Net sales were $10.4 million for the Consumer Products segment for the first
quarter of 1997. Net sales for the first quarter of 1996 were $13.3 million.
The net sales for the first quarter of 1997 were a decline of $2.9 million
compared to the first quarter of 1996, or 22.3%. Sales declines for this
business segment are primarily the results of business lost due to price,
delivery and quality problems associated with last year's selling season.
Also, orders for this business segment have been slow to materialize due to
the unusual cold weather experienced in the northern hemisphere.
The gross margin for the first quarter of 1997 was 19.3% compared to 22.5% for
the first quarter of 1996. The gross margins were negatively affected by the
decline in net sales of this segment that caused higher unit costs for other
fixed charges and certain indirect labor and benefit costs.
Selling expenses for this segment decreased by $327 thousand when compared to
the first quarter of 1996. The reduction was primarily due to lower charges
for selling compensation and benefits, sales commissions and rebates, and
co-op advertising costs. Selling expenses were 12.8% of net sales for the
first quarter of 1997 and 12.4% of net sales for the first quarter of 1996.
General and administrative expenses for the segment were $433 thousand and
$519 thousand for the first quarter of 1997 and 1996, respectively. The costs
declined due to staffing reductions resulting in lower compensation and
benefit costs.
Liquidity and Capital Resources
Operating activities provided net cash of $1.6 million for the first quarter of
1997 compared to net cash used in operating activities of $460 thousand for the
first quarter of 1996. Reductions in inventory levels and lower seasonal
accounts receivable requirements for the consumer products segment offset the
reduced net income for the quarter as compared to 1996 and a substantial
reduction in the level of accounts payable for the first quarter of 1997. The
Corporation made expenditures of $994 thousand to purchase the Corporation's
stock under a plan previously authorized by the Board of Directors.
Capital outlay was $1.7 million for the first quarter of 1997. 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 1997 is expected to be between $7 and $9 million.
The Corporation 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 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and its Subsidiaries are involved in legal proceedings
incidental to their normal business activities. While the outcome of these
proceedings cannot be completely predicted, the Corporation does not believe
the ultimate resolution of any existing matters will have a material adverse
effect on its financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of O'Sullivan Corporation was held on
April 29, 1997, 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
10.3 The O'Sullivan Corporation 1995 Stock Option Plan filed
as exhibit 99.1 to the Corporation's Form S-8 registra-
tion statement (Registration Number 033-58895) filed
with the Commission on April 28, 1995 and incorporated
herein by reference.
10.4 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.
10.5 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.)
27 Article 5 of Regulation S-X, Financial Data Schedule
for the first quarter, 1997 Form 10-Q.
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 1997.
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
May 9, 1997
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