SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] 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
of 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock - par value $ 1 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 14, 1997 (based on the last sale price on the American
Stock Exchange as of such date) was $134,072,897.
The number of shares of the registrant's Common Stock, Par Value $ 1,
outstanding as of March 14, 1997 was 15,773,282.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on April 29, 1997 are incorporated by reference into Part III.
1
PART I
Item 1. BUSINESS
O'Sullivan Corporation (O'Sullivan or the Corporation) is a Virginia
corporation originally organized in 1896 as O'Sullivan Rubber Company. In
1932 the Corporation was moved to Winchester, Virginia. In 1970 the
corporate name was changed from O'Sullivan Rubber Corporation to O'Sullivan
Corporation to acknowledge the increasing importance of plastics
manufacturing to the Corporation's operations.
Subsequent to the Corporation's name change and through the early 1990's,
the Corporation concentrated on expansion of its plastics manufacturing
operations, both calendering and injection-molding. The expansion was
accomplished by adding additional capacity within the Corporation and the
acquisition or creation of several subsidiaries to gain facilities in other
regions of the United States. In 1986, the Corporation divested itself of
its rubber operations.
In 1994, the Corporation sold the injection-molding operations portion of
its plastics products segment. The sale involved primarily the inventories
and fixed assets of the Corporation associated with injection-molding
operations and the stock of a subsidiary corporation also involved in
injection-molding operations. The sale was for approximately $50 million
net of certain liabilities assumed by the purchaser. The disposal of this
portion of the Corporation's operations has been treated as a discontinued
operation in the accompanying financial statements.
In 1992, the Corporation created a subsidiary, Melnor Inc. (Melnor), to
acquire substantially all the assets of a corporation engaged in the water
sprinkler and lawn and garden business.
The Corporation's activities are now conducted in two business segments:
(i) calendered plastics products which manufactures calendered plastics
products for the automotive and specialty plastics manufacturing industries
and (ii) lawn and garden consumer products which is involved with the
manufacture and distribution of a wide range of lawn and garden products.
For financial information with respect to industry segments, see Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 10 of Notes to Financial Statements included elsewhere
in this Form 10-K.
PLASTICS PRODUCTS BUSINESS
The Corporation's Plastics Products segment manufactures calendered plastics
products for the automotive and specialty plastics manufacturing industries.
Calendered plastics products manufactured include vinyl sheeting for vehicular
dashboard pads, swimming pool liners and covers, notebook binders, luggage,
upholstered furniture, golf bags, floor tile, pond liners, protective
clothing, mine curtains, boat and automobile windows and medical grade
materials. The Plastics Products segment products are sold in markets in
which there is competition from many plastic manufacturers, both domestic
and foreign. While no single competitor offers all of the products produced
by this segment, there are many competitors for any single product. Major
competitors include; Borden, Inc., Canadian General Tower, Ellay, Gencorp
Inc., Haartz, Nanya Plastics Corporation and Uniroyal Technology Corpor-
ation.
2
Distribution of the segment's products is by direct sales to other
manufacturers.
The normal production backlog of the Plastic Products segment is approximately
thirty to forty-five days. The Corporation has various long-term contracts
totaling several million dollars applicable to this segment, but such
contracts are not considered as firm orders until production releases are
received from customers. The business of the segment is not seasonal.
All essential raw materials are readily available to the Plastics Products
segment. For critical raw materials, secondary sources of supply are
available if required. Major suppliers of raw materials to this segment
include the following companies; The Geon Company, General Electric
Specialty Chemicals, Occidental Chemical, Aristech Chemicals, Witco
Corporation, Penn Colors and Toray.
This segment of the Corporation possesses significant technology in the
compounding, formulation and manufacture of its products.
A significant customer of the Plastics Products segment accounting for ten
percent or more of the segment's 1996 sales was Ford Motor Company.
CONSUMER PRODUCTS BUSINESS
The Corporation's Consumer Products segment has as a primary activity the
manufacture, assembly, sale and distribution of lawn and garden products.
The products produced and sold by this segment include; oscillating, rotary and
traveling sprinklers, hose storage units, watering timers, aqua guns, air
spray tanks and snow shovels. A secondary product line representing less
than ten percent of sales volumes is the buy-sell distribution of ceiling
fans and thermostats. The products of its segment are sold in markets in
which there is intense competition from many lawn and garden products
suppliers. While it is believed that no one competitor offers the array of
products offered by the segment, there are numerous competitors for specific
products. Major competitors include; Rain Bird Corporation, Suncast
Company, Gilmour Corporation and Nelson Company.
All essential raw materials utilized by this segment are readily available.
Some raw materials are obtained from foreign sources, but they are not of
significant volume and can be obtained from secondary sources, if necessary.
Purchased components are generally designs that are readily available from
several suppliers. Major suppliers to this segment include; Computime, Ltd.,
Stax Ltd., Landen Enterprises, Jamison Plastic Corp. and CPC of Vermont.
The business in which this segment is involved is highly seasonal in nature.
Lawn and garden products are traditionally shipped to distribution and
retail outlets beginning in late-December or early-January and continuing
through the following May.
This segment holds many patents and trademarks for products produced and sold.
However, due to the rapidly changing nature of the segment's business
activity, the Corporation does not believe that the patents and trademarks
have any significant long-term value or provide any material benefit to the
long-term success of the segment's business operations.
Home Depot, Inc. was the only customer of the Consumer Products segment
accounting for ten percent or more of the segment's sales for 1996.
3
GENERAL
The Corporation anticipates no material effects on the capital expenditures,
earnings or competitive position of the Corporation's businesses from the
enactment or adoption of federal, state or local environmental regulations.
The Corporation has several ongoing environmental programs, including
recycling, waste reduction and environmental audits. The Corporation also
has proactive dialogues with federal and state environmental agencies to
insure continuing compliance with environmental regulations.
The Corporation and its Subsidiaries currently have approximately 1,100
employees.
The Corporation and its Subsidiaries are not engaged in any material
transactions with customers or suppliers located outside North America.
Item 2. PROPERTIES
The Corporation owns approximately 623,000 square feet of manufacturing,
warehouse and office space on approximately 113 acres in Winchester,
Virginia; 76,000 square feet of manufacturing, warehouse and office space on
approximately six acres in Lebanon, Pennsylvania; 110,000 square feet of
manufacturing and warehouse space on approximately five acres in Newton
Upper Falls, Massachusetts; 85,000 square feet of manufacturing and
warehouse space on approximately thirteen acres in Yerington, Nevada; 82,000
square feet of manufacturing, warehouse and office space in Brantford,
Ontario, Canada.
The Corporation leases 40,000 square feet of warehouse space in Winchester,
Virginia, 29,250 square feet of warehouse space in St. Louis, Missouri;
10,000 square feet of warehouse space in Yerington, Nevada and 347,000
square feet of manufacturing, warehouse and office space in Moonachie, New
Jersey. The lease for the property leased in Moonachie, New Jersey expires
June 30, 1997 and will not be renewed. Operations formerly housed in the
New Jersey location were substantially relocated to Winchester, Virginia
during 1995. A subsidiary of the Corporation is a party to an agreement to
utilize additional warehouse space in Winchester, Virginia for the storage
and handling of various inventories. The agreement expires August 31, 1997.
The Corporation also has sales offices located in Chicago, Illinois and
Bloomfield Hills, Michigan.
Management of the Corporation believes that unused capacity existed in both
segments of the Corporation's operations during 1996. Percentage utilization
of the Corporation's facilities is difficult to accurately measure due to
the Corporation's policy of adding facilities as required by business
conditions.
Item 3. 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.
4
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of 1996.
5
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The principal market in which the Corporation's common stock is traded is the
American Stock Exchange. The stock is traded under the symbol OSL.
The quarterly price range of common stock and the quarterly dividends per
share for 1996 and 1995 are included as part of Note 14 of Notes to Consol-
idated Financial Statements included elsewhere in this Form 10-K.
At December 31, 1996 the number of owners of the Corporation's common stock
was 3,000.
The Corporation has paid quarterly dividends since 1958. There are no
restrictions on the payment of dividends at the current time. The payment
and amount of future dividends will depend on the existing conditions,
including such factors as the Corporation's earnings, financial condition
and working capital requirements.
Item 6. SELECTED FINANCIAL DATA (FROM CONTINUING OPERATIONS)
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Net sales $211,363,709 $209,723,562 $194,974,264 $173,345,501 $125,776,914
Net income 10,729,493 14,032,063 10,974,970 10,382,400 8,407,638
Net income
per common
share .66 .85 .67 .63 .51
Total
assets 140,822,440 149,996,525 144,528,888 144,365,419 121,996,656
Long-term
debt 15,790 51,745 1,652,996 1,501,834 4,871,664
Total debt 85,884 1,717,193 1,705,069 13,518,543 12,132,365
Cash dividends
per common
share .32 .31 .28 .28 .28
Return on
equity 9.3% 13.2% 10.1% 10.0% 8.6%
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 VERSUS 1995
Consolidated net sales from continuing operations for 1996 were $211.4 million
compared to $209.7 million for 1995. Consolidated net income from
continuing operations for 1996 was $10.7 million, $ .66 per share, compared
to $14.0 million, $ .85 per share, for 1995.
Income tax expense for continuing operations was $6.9 million for 1996 compared
to $9.6 million for 1995. The decrease was due to a lower pre-tax income for
1996 and a decrease in the Corporation's effective tax rate from 40.7% for
1995 to 39.1% for 1996. The decrease in the effective tax rate was
primarily due to lower charges for state income taxes.
Plastics Products Segment
Net sales for the Plastics Products segment were $171.2 million for 1996 as
compared to $169.5 million for 1995. The 1996 net sales represent an
increase of $1.8 million or 1.0%. The increase was entirely from sales of
automotive-related products. Through the end of the third quarter of 1996,
sales for the segment had increased approximately $6.4 million over 1995.
However, substantial reductions in requirements by major automotive
customers in the fourth quarter reduced the overall 1996 sales increase to
the net $1.8 million increase. 1996 sales of industrial products were
virtually the same as 1995. The sales performance of this group has been
negatively affected by extremely competitive pricing pressures in markets
serviced by the industrial products group. This pressure will continue in
1997. Nevertheless, sales of the Plastics Product segment are expected to
remain strong in 1997. The Corporation does have negotiated agreements with
several major customers allowing for the pass-through of raw material price
increases to enhance unit sales prices. However, the approved increases
frequently lag several months behind increased costs incurred by the
Corporation.
The gross margin for this segment declined from 20.3% in 1995 to 18.1% in 1996.
While the segment continues to succeed in obtaining numerous productivity
improvements through the efforts of its employees and suppliers, the efforts
for 1996 were mitigated due to problems incurred with the raw material
component of the segment's products. Raw materials are a very substantial
part of the unit cost for the segment's products and during the third
quarter of 1996 the contamination of a key raw material resulted in raw
material component costs far in excess of normal. Along with the increased raw
material costs, other manufacturing costs increased as a result of inefficient
production runs, scrapping of defective product and increased control and
review activities to insure product quality. Along with the raw material
contamination problem the Corporation continued to experience pressures from
suppliers to accept raw material price increases. The Corporation resists
the increases whenever possible and continually searches for alternative
materials and suppliers. However, in many instances alternatives are not
available because of customer specifications. In those cases the
Corporation endeavors to pass on increases where agreements and market
conditions permit.
7
Operating profit for the segment decreased by $3.4 million for the year from
$29.4 million for 1995 to $26.0 million for 1996. The decrease primarily
resulted from the operational problem created by the previously discussed
raw material contamination as well as the customer resistance encountered
in attempting to recover higher material and operational costs through
product price increases.
Selling expenses for this segment were $5.0 million for 1996 and $4.9 million
for 1995, 2.9% percent of net sales for both 1996 and 1995. Slight increases
in compensation and benefit costs in this area were offset by a reduction in
the charge for doubtful accounts for 1996. General and administrative
expenses were $6.1 million or 3.6% of net sales for 1996, compared to $5.7
million or 3.4% of net sales for 1995. Increases in benefit costs were the
main reason for increased costs in this area in 1996.
Other income of the Plastics Products segment increased by approximately $600
thousand for 1996. The increase was primarily a result of the gain from the
sales of various assets during 1996.
Management believes its program for the Plastics Products segment could result
in increased market share and entry into additional niches of markets in
1997. Incremental price increases are unlikely due to the competitive
pressures currently existing in markets being served.
Consumer Products Segment
Net sales for the Consumer Products segment were $40.2 million for both 1996
and 1995. The segment's sales for 1996 were depressed by unfavorable weather
conditions in the U.S. for much of its selling season, plus sales lost due
to insufficient inventories of requested products and a further reduction
due to excessive amounts of sales allowances and returns for defective
materials.
This segment experienced a further decline in its gross margin for 1996 as
compared to 1995. The gross margin declined from 17.9% to 11.9%. The decline
resulted from material management inefficiencies that created increased raw
material and component costs, increased freight costs incurred to expedite
shipments of components from overseas suppliers, excessive product rework
costs and freight costs incurred in consolidating inventories.
Selling and warehousing expenses were $5.7 million for 1996 and $5.3 million
for 1995. These amounts represent 14.2% and 13.0% of sales for 1996 and 1995,
respectively. The dollar increase in this category resulted from increased
levels of sales commissions, rebates and advertising costs incurred in an
effort to stimulate sales throughout the year. General and administrative
expenses for this segment were $2.0 million for 1996 and $2.4 million for
1995.
Interest expense for this segment was $105 thousand for 1996 compared to $55
thousand for 1995.
Management has instituted a significant cost containment program and
productivity improvements for this segment and plans to introduce several new
products in 1997.
8
RESULTS OF OPERATIONS 1995 VERSUS 1994
Consolidated net sales from continuing operations for 1995 were $209.7 million
compared to $195.0 million for 1994. Consolidated net income from continuing
operations for 1995 was $14.0 million, $ .85 per share, compared to $11.0
million, $ .67 per share, for 1994.
Income tax expense for continuing operations was $9.6 million for 1995
compared to $7.1 million for 1994. The increase is due to higher pre-tax
income and an increase in the Corporation's effective tax rate from 39.4%
for 1994 to 40.7% for 1995. The increase in the effective tax rate was
primarily due to charges for state income taxes.
Plastics Products Segment
Net sales for the Plastics Products segment were $169.5 million for 1995 as
compared to $149.4 million for 1994. The 1995 net sales represent an increase
of $20.1 million or 13.4%. Approximately 70% of the sales increase was from
automotive-related products. The sales increase in the automotive-related
component of this segment was substantially a result of product mix changes
to shipments of products with greater incremental prices. Competitive
pressures in both automotive and industrial sales components of this segment
continued to preclude unit price increases except for negotiated pass-throughs
of raw material price increases. Approved increases frequently lag several
months behind increased costs incurred by the Corporation.
The gross margin for this segment improved to 20.3% in 1995 from 18.7% in 1994.
The margin improvement was a result of higher sales volumes and reductions in
variable manufacturing expenses.
Operating profit for the segment increased by $7.8 million for the year from
$21.6 million for 1994 to $29.4 million for 1995. The increase was primarily
a result of the volume sales increases experienced in 1995 aided by the
improvements in gross margin and the significant reduction in selling
expenses.
Selling expenses for this segment were $4.9 million or 2.9% as a percent of
net sales for 1995, compared to $6.2 million or 4.2% as a percent of net
sales for 1994. The reduction in selling expenses was a result of
consolidations made within the selling area following the disposal of the
Corporation's Gulfstream Division in December of 1994 along with a
significant reduction in charges for doubtful accounts. General and
administrative expenses were $5.7 million or 3.4% of net sales for 1995,
compared to $5.2 million or 3.5% of net sales for 1994.
Other income of the Plastic Products segment increased marginally over 1994.
Interest income increased by approximately $700 thousand over 1994, but was
offset by reduced income in other non-operating areas including the loss
experienced on a joint venture started in 1995.
Consumer Products Segment
Net sales for the Consumer Products segment were $40.2 million for 1995
compared to $45.5 million for 1994. The 1995 sales represent a decrease of
$5.3 million. Changes in customer purchasing patterns and dramatically
unfavorable weather conditions during 1995 caused sales to fall
considerably below sales levels expected by management.
9
This segment experienced a significant decline in its gross margin for 1995
as compared to 1994. The gross margin declined from 22.3% to 17.9%. The
decline was due to excess rework costs for purchased components, increases
in raw material prices over those anticipated and excess freight costs for
product deliveries from off-shore sources. Operating profit for this
segment decreased by $3.1 million for 1995. The decrease can be directly
attributed to the substantial sales volume reductions experienced by this
segment during 1995.
Selling and warehousing expenses were $5.3 million for 1995 and $5.9 million
for 1994. These amounts represent 13.0% and 12.9% of sales for 1995 and 1994,
respectively. The dollar decrease in these costs was a result of lower sales
commission and advertising costs that are directly related to sales volumes.
General and administrative expenses for this segment were $2.4 million for
1995 and $2.1 million for 1994. During 1995 this segment incurred charges
of $756 thousand in connection with the relocation of US operations.
Interest expense for this segment dropped from $808 thousand for 1994 to
$55 thousand for 1995. The reduction in interest expense of the segment was
primarily related to the utilization of funds received by the Corporation
to pay back funds borrowed under various credit arrangements previously
utilized by the consumer products segment.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $14.1 million for 1996. Cash and
cash equivalents declined by $3.9 million during 1996. The reduction was
primarily due to the Corporation's purchase of approximately 660 thousand
shares of its common stock and the payoff of $1.6 million of debt.
Capital expenditures for property, plant and equipment for 1996 were $6.8
million compared to $10.2 million for 1995. 1997 capital expenditures are
projected to be comparable to 1996. At December 31, 1996, the majority of
the projected outlay was uncommitted. The Corporation presently has
unused capacity in both business operating segments. Future capital
expenditures by the Corporation would be to provide additional capacity or
modernize equipment to meet customer demands for new or improved products or
production processes.
Total corporate debt was $86 thousand at December 31, 1996 and $1.7 million
at December 31, 1995. The Corporation has in place a $35 million line of
credit which expires in June, 1998. At December 31, 1996 the line of credit
was unused except for a $850 thousand stand-by letter of credit commitment.
In 1996, the Corporation's Board of Directors authorized the repurchase of up
to 800 thousand shares of the Corporation's common stock as market conditions
permit. At December 31, 1996 approximately 660 thousand shares had been
repurchased.
Management of the Corporation 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.
10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This page left blank intentionally. See following pages for financial
statements.
11
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 6,494,657 $ 10,400,583
Receivables 30,809,386 30,458,872
Inventories 41,787,941 42,196,303
Deferred income tax assets 1,381,957 2,262,636
Other current assets 4,045,365 3,562,325
------------- -------------
Total current assets $ 84,519,306 $ 88,880,719
------------- -------------
Property, Plant and Equipment $ 47,127,292 $ 48,027,329
------------- -------------
Other Assets $ 9,175,842 $ 13,088,477
------------- -------------
Total assets $ 140,822,440 $ 149,996,525
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 70,094 $ 1,665,448
Accounts payable 13,204,916 15,714,112
Accrued expenses 6,994,547 10,180,317
------------- -------------
Total current liabilities $ 20,269,557 $27,559,877
------------- -------------
Long-Term Debt $ 15,790 $ 51,745
------------- -------------
Long-Term Liabilities
Deferred compensation $ 1,685,792 $ 1,384,619
Employee benefits 1,410,848 1,718,180
------------- -------------
$ 3,096,640 $ 3,102,799
------------- -------------
Deferred Income Tax Liabilities $ 3,442,131 $ 3,519,139
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 15,850,562 $ 16,510,402
Additional paid-in capital 3,606,399 10,182,295
Retained earnings 95,022,594 89,453,514
Cumulative translation adjustments (243,791) (220,566)
Unrecognized pension costs, net of
deferred tax effect (237,442) (162,680)
------------- -------------
Total stockholders' equity $ 113,998,322 $ 115,762,965
------------- -------------
Total liabilities and
stockholders' equity $ 140,822,440 $ 149,996,525
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
12
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
Net sales $211,363,709 $209,723,562 $194,974,264
Cost of products sold 175,559,141 168,142,885 156,984,225
------------ ------------ ------------
Gross profit $ 35,804,568 $ 41,580,677 $ 37,990,039
------------ ------------ ------------
Operating expenses
Selling and warehousing $ 10,717,579 $ 10,161,297 $ 12,077,019
General and administrative 8,157,101 8,170,944 7,289,802
Relocation charge -- -- 755,930 -- --
------------ ------------ ------------
$ 18,874,680 $ 19,088,171 $ 19,366,821
------------ ------------ ------------
Income from operations $ 16,929,888 $ 22,492,506 $ 18,623,218
------------ ------------ ------------
Other income (expense)
Interest income $ 686,021 $ 863,530 $ 180,217
Interest expense (108,249) (59,753) (811,676)
Other, net 107,486 364,320 118,720
------------ ------------ ------------
$ 685,258 $ 1,168,097 $ (512,739)
------------ ------------ ------------
Income from continuing opera-
tions before income taxes $ 17,615,146 $ 23,660,603 $ 18,110,479
Income taxes 6,885,653 9,628,540 7,135,509
------------ ------------ ------------
Income from continuing
operations $ 10,729,493 $ 14,032,063 $ 10,974,970
------------ ------------ ------------
Discontinued operations:
Loss from discontinued
operations, net of taxes $ $ $ (125,126)
Loss on disposal of
discontinued operations,
net of taxes (8,220,000)
------------ ------------ ------------
$ -- -- $ -- -- $ (8,345,126)
------------ ------------ ------------
Net income $ 10,729,493 $ 14,032,063 $ 2,629,844
============ ============ ============
Net income (loss) per common share:
Income from continuing
operations $ .66 $ .85 $ .67
Loss from discontinued
operations -- -- -- -- (.01)
Loss on disposal of
discontinued operations -- -- -- -- (.50)
------------ ------------ ------------
Net income per common share $ .66 $ .85 $ .16
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
13
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
Cash Flows from Operating Activities
Net income $ 10,729,493 $ 14,032,063 $ 2,629,844
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,256,543 6,820,128 10,867,275
Provision for doubtful accounts 74,872 439,480 1,138,617
Deferred income taxes 844,660 486,782 (6,064,033)
(Gain)loss on disposal
of assets (644,099) (38,090) 10,964,763
Interest accrual on zero
coupon notes payable 139,111 163,246 138,864
Interest accrual on zero
coupon notes receivable (15,590) (196,025) 25,191
Foreign currency exchange
rate (gains) losses (101,347) (237,018) 37,336
Unremitted (income) loss from
joint venture (19,071) 209,825 -- --
Changes in operating assets
and liabilities:
Receivables (425,386) 9,469,616 8,340,071
Inventories 408,362 (9,721,098) (2,702,071)
Other current assets (483,040) (77,033) (1,169,491)
Accounts payable (2,509,196) (1,015,779) (4,791,149)
Accrued expenses (1,140,971) (3,447,609) 4,099,149
------------ ------------ ------------
Net cash provided by operating
activities $ 14,114,341 $ 16,888,488 $ 23,514,366
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property, plant and
equipment $ (6,804,030) $(10,172,585) $ (8,751,196)
Proceeds from disposal of assets 1,306,488 138,127 46,655,229
Investment in and loan to joint
venture (441,000) (1,128,362) -- --
Decrease in deposits -- -- 463,328 -- --
Purchase of intangible assets -- -- -- -- (211,275)
Disbursements on non-operating
notes receivable -- -- -- -- (150,000)
Payments received from non-
operating notes receivable 2,417,883 -- -- 250,894
Other, net (523,698) (570,635) 286,882
------------ ------------ ------------
Net cash provided by (used in)
investing activities $ (4,044,357) $(11,270,127) $ 38,080,534
------------ ------------ ------------
14
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
(Continued)
1996 1995 1994
------------ ------------ ------------
Cash Flows from Financing Activities
Changes in short-term debt $ -- -- $ -- -- $ (8,483,977)
Net change in line of credit
borrowings -- -- -- -- (13,000,000)
Repayment of long-term debt (1,579,761) (46,322) (28,622,307)
Cash dividends paid (5,160,413) (5,117,607) (4,615,655)
Purchase of common stock (7,235,736) (2,635) (1,175)
Issuance of common stock -- -- 246,985 -- --
------------ ------------ ------------
Net cash (used in)
financing activities $(13,975,910) $ (4,919,579) $(54,723,114)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents $ (3,905,926) $ 698,782 $ 6,871,786
Cash and cash equivalents at
beginning of period 10,400,583 9,701,801 2,830,015
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 6,494,657 $ 10,400,583 $ 9,701,801
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
15
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Additional
Common Paid-in Retained
Stock Capital Earnings
------------ ------------ ------------
Balance at January 1, 1994 $ 16,484,948 $ 9,964,574 $ 82,524,869
Net income -- -- -- -- 2,629,844
Purchase of common stock (117) (1,058) -- --
Dividends declared, $.28 per share -- -- -- -- (4,615,655)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1994 $ 16,484,831 $ 9,963,516 $ 80,539,058
Net income -- -- -- -- 14,032,063
Issuance of common stock 25,811 221,724 -- --
Purchase of common stock (240) (2,395) -- --
Dividends declared, $.31 per share -- -- -- -- (5,117,607)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1995 $ 16,510,402 $ 10,182,295 $ 89,453,514
Net income -- -- -- -- 10,729,493
Purchase of common stock (659,840) (6,575,896) -- --
Dividends declared, $.32 per share -- -- -- -- (5,160,413)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1996 $ 15,850,562 $ 3,606,399 $ 95,022,594
============ ============ ============
16
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(Continued)
Cumulative Unrecognized
Translation Pension Stockholders'
Adjustments Costs Equity
------------ ------------ ------------
Balance at January 1, 1994 $ (101,732) $ (119,296) $108,753,363
Net income -- -- -- -- 2,629,844
Purchase of common stock -- -- -- -- (1,175)
Dividends declared, $.28 per share -- -- -- -- (4,615,655)
Translation adjustments (243,370) -- -- (243,370)
Unrecognized pension costs -- -- 119,296 119,296
------------ ------------ ------------
Balance at December 31, 1994 $ (345,102) $ -- -- $106,642,303
Net income -- -- -- -- 14,032,063
Issuance of common stock -- -- -- -- 246,985
Purchase of common stock -- -- -- -- (2,635)
Dividends declared, $.31 per share -- -- -- -- (5,117,607)
Translation adjustments 124,536 -- -- 124,536
Unrecognized pension costs -- -- (162,680) (162,680)
------------ ------------ ------------
Balance at December 31, 1995 $ (220,566) $ (162,680) $115,762,965
Net income -- -- -- -- 10,729,493
Purchase of common stock -- -- -- -- (7,235,736)
Dividends declared, $.32 per share -- -- -- -- (5,160,413)
Translation adjustments (23,225) -- -- (23,225)
Unrecognized pension costs -- -- (74,762) (74,762)
------------ ------------ ------------
Balance at December 31, 1996 $ (243,791) $ (237,442) $113,998,322
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
17
O'Sullivan Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Nature of Operations-O'Sullivan Corporation is engaged in two business
segments. The Plastics Products segment manufactures calendered plastics
products for the automotive and specialty manufacturing industries. The
Consumer Products segment manufactures and distributes lawn and garden
products. A significant amount of the Corporation's businesses are
conducted in North America. Reference should be made to Note 10 which
provides further information as to the Corporation's operations.
Principles of Consolidation-The consolidated financial statements include
the accounts of all subsidiaries. All significant intercompany 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 losses.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which require the Corporation to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents-The Corporation considers all highly liquid
investments with a maturity of three months or less at the time of purchase
to be cash equivalents.
Receivables and Concentration of Credit Risk-Receivables from trade
customers are generally due within thirty to sixty days. The Corporation
conducts periodic reviews of its major customers' financial condition and
grants trade credit based upon evaluations of the credit worthiness of each
customer. Management performs regular assessments of receivables and makes
estimates as to the adequacy of the allowance for doubtful accounts based
on historical data and knowledge of customers' financial condition. Credit
losses have been within the expectations of management.
Inventories-Inventories are valued at the lower of cost or market, with cost
being determined substantially by the first-in, first-out or average cost
method.
Property, Plant and Equipment and Depreciation-Property, plant and equipment
are stated at historical cost, adjusted to current exchange rates where
applicable. Depreciation is computed primarily by the straight-line method
over the estimated useful lives of assets. The estimated useful lives are
twenty to forty years for buildings and three to fourteen years for
machinery and other equipment. Accelerated methods of depreciation are
utilized for tax purposes. Expenditures for repairs and maintenance are
charged to operations as incurred. Betterments and improvements that extend
the useful life of an asset are capitalized. Upon sale and other
dispositions of assets, the cost and related accumulated depreciation is
removed from the accounts and the resulting gain or loss is reflected in
operations.
18
Intangibles-Intangible assets are stated at historical cost less accumulated
amortization. Amortization is determined on a straight-line basis over the
estimated useful lives of the assets that have been determined to range from
two to seven years. Amortization expense for 1996, 1995 and 1994 was
$134,828, $266,718 and $447,770, respectively.
Income Taxes-Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Advertising Costs-Costs incurred for producing and communicating advertising
are expensed when incurred, including costs incurred in connection with
cooperative advertising programs with distributors and other customers.
Advertising costs were $1,685,862 for 1996, $1,203,141 for 1995 and
$1,649,788 for 1994.
Research and Development-Product and process research and development are
charged to expense as incurred.
Per Share Information-Net income and dividends per share were calculated on
the weighted average common shares outstanding for 1996, 1995 and 1994 which
were 16,169,162, 16,503,877 and 16,484,879, respectively. Stock options were
not dilutive for 1996, 1995 or 1994.
Foreign Currency Translation-Financial statements for the Corporation's
foreign subsidiary are translated into US dollars at year-end exchange
rates as to assets and liabilities and weighted average exchange rates as
to revenues and expenses. The resulting translation adjustments are
recorded in stockholders' equity. Transaction gains and losses are
reflected in net income.
Pension Plans-The Corporation and its subsidiaries have retirement plans
that cover substantially all employees who meet certain eligibility
requirements. Employees not covered under a retirement plan maintained by
the Corporation and its subsidiaries are generally participants in
multiemployer plans sponsored by other entities. The plans include
non-contributory defined benefit plans providing benefits to certain salaried
employees based on years of service and final years' average earnings and
to certain hourly employees based on a dollar unit multiplied by years of
eligible service. The Corporation's policy is to fund at least the minimum
amounts required by the applicable governing bodies.
The Corporation also maintains a Retirement Savings Plan (Plan) to provide
retirement benefits to employees not covered by a defined benefit plan. The
Plan provides that the Corporation will make a basic contribution of three
percent of eligible compensation for participants. The Plan also provides
that the Corporation will make an additional contribution of up to two
percent of eligible compensation if the participant is making voluntary
contributions to the Plan. Participants may generally contribute up to five
percent of their eligible compensation. The Corporation is not required to
make any contributions during a plan year if it elects to not do so.
19
Postretirement Benefits-The Corporation provided health care benefits to
certain of its retired employees under a plan which was terminated January
1, 1993. Upon termination of the plan this group of retired employees was
allowed to continue to be covered by the Corporation's group insurance
plan. Effective January 1, 1993 the Corporation adopted Financial
Accounting Standards Board Statement No. 106 to account for its share of
the costs of benefits provided to this group. To effect adoption of
Statement No. 106, the Corporation accrued as of January 1, 1993 its share
of the estimated costs to insure this group of retirees. Prior to January
1, 1993, the Corporation expensed its share of these expenses as they were
incurred.
Reclassification of Amounts-Certain amounts for 1995 and 1994 have been
reclassified to reflect comparability with account classifications for 1996.
2. Supplementary Balance Sheet Detail
Balances at December 31, 1996 1995
------------ ------------
Receivables
Accounts receivable $ 31,612,778 $ 31,357,520
Less allowance for doubtful accounts 803,392 898,648
------------ ------------
$ 30,809,386 $ 30,458,872
============ ============
Receivable balances for automotive related business were $12,736,630 at
December 31,1996 and $13,825,514 at December 31, 1995.
Inventories
Finished goods $ 14,780,621 $ 11,801,242
Work in process 9,000,680 10,754,865
Raw materials 14,794,005 16,373,017
Supplies 3,212,635 3,267,179
------------ ------------
$ 41,787,941 $ 42,196,303
============ ============
Slow moving inventories were $695,265 at December 31, 1996 and $1,169,628 at
December 31, 1995. 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 $ 1,214,544 $ 1,262,754
Buildings 27,701,240 26,898,482
Machinery and equipment 71,370,912 67,730,663
Transportation equipment 3,838,249 3,626,921
------------ ------------
$104,124,945 $ 99,518,820
Less accumulated depreciation 56,997,653 51,491,491
------------ ------------
$ 47,127,292 $ 48,027,329
============ ============
Depreciation expense totaled $7,121,715, $6,553,410 and $10,419,505 in 1996,
1995 and 1994, respectively.
20
Accrued Expenses
Accrued compensation $ 2,680,035 $ 2,633,871
Employee benefits 945,277 1,053,905
Dividends payable 1,274,621 1,319,419
Contingency reserve for
discontinued operations 70,598 2,417,252
Other accrued expenses 2,024,016 2,755,870
------------ ------------
$ 6,994,547 $ 10,180,317
============ ============
The contingency reserve for discontinued operations is an allowance for
potential adjustments relating to the sale of the Corporation's former
Gulfstream Division.
3. Debt
December 31,
------------
1996 1995
Long-Term Debt ------------ ------------
Non-interest bearing obligation to Melnor
Industries, Inc. $ 34,138 $ 276,331
Unsecured non-interest bearing promissory
note to Melnor Industries, Inc. -- -- 1,340,738
Capital lease obligations and other debt 51,746 100,124
------------ ------------
$ 85,884 $ 1,717,193
Less current maturities 70,094 1,665,448
------------ ------------
$ 15,790 $ 51,745
============ ============
The non-interest bearing obligation payable to Melnor Industries, Inc. is
discounted at 9.0%. The final payment of the obligation is contingent on
Melnor Industries, Inc. satisfying its obligation under the New Jersey
Environmental Cleanup Act.
The unsecured non-interest bearing promissory note to Melnor Industries,
Inc. was discounted at 9.0%. The note was paid in full in November of 1996.
The debt remaining at December 31, 1996 matures as follows; $70,094 in 1997
and $15,790 in 1998.
Interest incurred and capitalized are as follows:
1996 1995 1994
--------- --------- ---------
Interest incurred $ 147,708 $ 143,825 $ 914,211
Less interest capitalized 39,459 84,072 102,535
--------- --------- ---------
$ 108,249 $ 59,753 $ 811,676
========= ========= =========
21
The Corporation has a $35,000,000 unsecured line of credit through First
Union National Bank of Virginia to support general corporate activities.
Interest rates for the line of credit vary based on the Corporation's
choice of rate options provided by the lender. All available rates are at
or below prevailing prime interest rates. The line of credit matures June
30, 1998. At December 31, 1996 the Corporation has utilized $850,000 of the
line of credit to provide a standby letter of credit in that amount for a
subsidiary corporation.
4. Investment in Unconsolidated Joint Venture
The Corporation acquired a 49% equity interest in Keifel Technologies, Inc.
(Keifel) during 1995. Keifel designs, manufactures and distributes
thermoforming and radio frequency welding machines and related machinery
and tools. Financial information for Keifel is as follows:
Income Statement Data For The Year Ended December 31, 1996 And For
The Period August 9, 1995 Through December 31, 1995
Period
Ended
December 31,
1996 1995
------------ ------------
Net sales $ 5,986,996 $ 213,312
Gross profit (loss) $ 1,174,687 $ (27,439)
Net income (loss) $ 38,920 $ (428,214)
Corporation's share of net
income (loss) $ 19,071 $ (209,825)
Balance Sheet Data at December 31, 1996 1995
- ---------------------------------- ------------ ------------
Assets
Current assets $ 3,134,561 $ 736,317
Property, plant and equipment, net 1,950,801 1,525,028
Other assets 9,500 9,500
------------ -------------
Total assets $ 5,094,862 $ 2,270,845
============ =============
Liabilities and Equity
Current liabilities $ 2,384,526 $ 399,059
Notes payable 2,496,000 1,800,000
Other long-term liabilities 103,623 -- --
Stockholders' equity 110,713 71,786
------------ -------------
Total liabilities and equity $ 5,094,862 $ 2,270,845
============ =============
Corporation's share of equity $ 54,249 $ 35,175
============ =============
22
5. Income Tax Matters
Pretax income for the years ended December 31, 1996, 1995
and 1994 was taxed by the following jurisdictions:
1996 1995 1994
------------ ------------ ------------
Domestic $ 17,581,047 $ 22,800,687 $ 16,934,578
Foreign 34,099 859,916 1,175,901
------------ ------------ ------------
$ 17,615,146 $ 23,660,603 $ 18,110,479
============ ============ ============
Net deferred tax liabilities at December 31, 1996 and 1995 consisted of the
following components
1996 1995
------------ ------------
Deferred tax assets
Provision for doubtful accounts $ 288,861 $ 279,344
Employee benefits 1,707,436 1,580,115
Inventory basis differences 167,400 191,775
Contingency reserve for
discontinued operations 28,239 966,901
Marketing expenses 168,711 153,419
Other 169,416 175,377
------------ ------------
$ 2,530,063 $ 3,346,931
------------ ------------
Deferred tax liabilities
Property, plant and equipment $ 4,133,758 $ 4,181,375
Like-kind exchange 254,856 254,856
Employee benefits 201,623 167,203
------------ ------------
$ 4,590,237 $ 4,603,434
------------ ------------
Net deferred tax liabilities $ (2,060,174) $ (1,256,503)
============ ============
The deferred tax amounts included above have been classified on the balance
sheets for December 31, 1996 and 1995 as follows
1996 1995
------------ ------------
Noncurrent liabilities $ (3,442,131) $ (3,519,139)
Current assets 1,381,957 2,262,636
------------ ------------
Net deferred tax liabilities $ (2,060,174) $ (1,256,503)
============ ============
23
The provision for income taxes charged to operations for the years ended
December 31, 1996, 1995 and 1994 includes the following
1996 1995 1994
------------ ------------ ------------
Current
Federal $ 5,050,010 $ 6,728,076 $ 5,478,787
Foreign (21,617) 301,072 472,492
State 1,012,600 2,112,610 960,462
------------ ------------ ------------
$ 6,040,993 $ 9,141,758 $ 6,911,741
------------ ------------ ------------
Deferred
Federal $ 706,102 $ 403,589 $ 190,369
Foreign -- -- 28,853 21,387
State 138,558 54,340 12,012
------------ ------------ ------------
$ 844,660 $ 486,782 $ 223,768
------------ ------------ ------------
$ 6,885,653 $ 9,628,540 $ 7,135,509
============ ============ ============
The income tax provision differs from the amount of income tax determined
by applying the US federal income tax rate to pretax income for the years
ended December 31, 1996, 1995 and 1994 due to the following
1996 1995 1994
-------- -------- --------
Statutory federal tax rate 35.0% 35.0% 35.0%
Income taxed at lower federal tax rate (.6%) -- -- (.6%)
State taxes, net of federal benefit 4.3% 6.0% 3.5%
Rate differential on foreign income (.1%) .1% .5%
Business credits -- -- -- -- (.4%)
Other .5% (.4%) 1.4%
-------- -------- --------
39.1% 40.7% 39.4%
======== ======== ========
6. Benefit Plans
Defined Benefit Plans
The net pension cost for defined benefit plans included the following
components
1996 1995 1994
----------- ----------- -----------
Benefits earned during the year $ 117,775 $ 100,835 $ 228,417
Interest cost on projected
benefit obligations 634,168 607,454 678,236
Actual (return) on assets (585,470) (1,082,007) (222,158)
Net amortization and deferral (28,149) 549,493 (312,142)
Settlement (gain) -- -- (81,954) (92,961)
----------- ----------- -----------
Net pension cost $ 138,324 $ 93,821 $ 279,392
=========== =========== ===========
24
The funded status of the defined benefit pension plans as of December 31,
1996 was as follows
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 3,020,775 $ 5,940,487
Nonvested benefit obligation 2,699 101,829
------------ ------------
Accumulated benefit obligation $ 3,023,474 $ 6,042,316
Effect of projected compensation
increases 300,710 -- --
------------ ------------
Projected benefit obligation $ 3,324,184 $ 6,042,316
Fair value of plan assets 4,020,901 4,961,943
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 696,717 $ (1,080,373)
Unrecognized net loss 67,841 158,338
Unrecognized prior service costs -- -- 525,489
Unrecognized net (asset) liability
at initial adoption of FAS 87 (258,896) 20,191
Adjustment required to recognize
minimum liability -- -- (704,018)
------------ ------------
Prepaid (accrued) pension cost $ 505,662 $ (1,080,373)
============ ============
The funded status of the defined benefit pension plans as of December 31,
1995 was as follows
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 2,334,090 $ 6,193,084
Nonvested benefit obligation -- -- 101,795
------------ ------------
Accumulated benefit obligation $ 2,334,090 $ 6,294,879
Effect of projected compensation
increases -- -- 269,707
------------ ------------
Projected benefit obligation $ 2,334,090 $ 6,564,586
Fair value of plan assets 2,860,196 5,288,778
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 526,106 $ (1,275,808)
Unrecognized net loss 144,980 80,676
Unrecognized prior service costs -- -- 594,823
Unrecognized net (asset) liability
at initial adoption of FAS 87 (253,080) (3,268)
Adjustment required to recognize
minimum liability -- -- (691,139)
------------ ------------
Prepaid (accrued) pension cost $ 418,006 $ (1,294,716)
============ ============
25
Discount rates for the plans ranged from 7% to 8%. The assumed long-term
rates of return on plan assets were 8%. The assumed rate of increase in
future compensation levels was 7%. The unrecognized asset (liability) at
the initial adoption of FAS 87 is being amortized on a straight-line basis
over the average remaining service period of plan participants. Plan
assets consist of listed common stocks, corporate and government bonds and
short-term investments.
Retirement Savings Plan
The expense associated with the Retirement Savings Plan was $1,434,095 for
1996, $1,312,222 for 1995 and $1,268,087 for 1994.
Deferred Compensation Plan
The Corporation has a deferred compensation program for key employees of the
Corporation. Under this program, the Corporation has agreed to pay each
covered employee a certain sum annually for fifteen years upon their
retirement or, in the event of their death, to their designated beneficiary.
A benefit is also paid if the employee terminates employment other than
by his voluntary action or discharge for cause before they attain age 65.
In that event, the amount of the benefit depends on the employee's years of
service with the Corporation with full benefit paid only if the employee has
completed 25 years of service. The Corporation has purchased individual
life insurance contracts with respect to each employee covered by this
program. The Corporation is the owner and beneficiary of the insurance
contracts. The employees are general creditors of the Corporation with
respect to these benefits. The expense associated with the Deferred
Compensation plan was $493,773 for 1996, $397,798 for 1995 and $295,299
for 1994.
Postretirement Benefit Plan
At January 1, 1993 the Corporation adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. This statement requires the Corporation to recognize the
estimated costs of providing certain postretirement benefits to former
employees of the Corporation. The Corporation elected to recognize the
transition obligation immediately as the effect of an accounting change.
Annual net postretirement benefit costs are determined on an actuarial
basis. Net periodic postretirement benefit cost included the following
components for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
Interest expense on accumulated
postretirement benefit obligation $ 28,000 $ 27,000 $ 29,000
Other amortization and deferrals 2,000 (16,000) (12,000)
---------- ---------- ----------
$ 30,000 $ 11,000 $ 17,000
========== ========== ==========
26
Postretirement benefit obligations at December 31, 1996 and 1995, none of
which are funded, are as follows
1996 1995
------------ ------------
Accumulated postretirement
benefit obligation, retirees $ 332,000 $ 394,000
Plan assets -- -- -- --
------------ ------------
Accumulated postretirement benefit
obligation in excess of plan assets $ 332,000 $ 394,000
Unrecognized transition obligation -- -- -- --
Unrecognized net experience losses (gains) -- -- -- --
------------ ------------
Accrued postretirement benefit obligation $ 332,000 $ 394,000
============ ============
For measurement purposes, a 13% annual rate of increase in per capita health
care costs of covered benefits was assumed for 1996, with such annual rate of
increase gradually declining to 6% in 2003.
7. Leases
The Corporation and its subsidiaries lease various plant and warehouse
facilities along with various equipment. Leases for the plant and warehouse
facilities and capitalized leases for machinery and equipment generally
require the payment of appropriate taxes, insurance and maintenance costs.
Most noncapitalized leases, except for the lease of facilities in New
Jersey by a subsidiary, are cancelable within a limited period of time.
The facility in New Jersey is leased under a noncancelable agreement that
expires June 30, 1997. The net minimum rental commitment for the New Jersey
facility through June 30, 1997 is $48,226.
Net rental expense for all noncapitalized leases for the years ended 1996,
1995, and 1994 was $768,680, $738,588 and $858,213, respectively.
8. Research and Development
Research and development costs charges to expense were $3,105,546 in 1996,
$3,545,330 in 1995 and $3,423,175 in 1994.
9. Commitments and Contingencies
Environmental Matters
The Corporation continues to modify, on an ongoing, regular basis, certain
of its processes which may have an environmental impact. The Corporation's
efforts in this regard include the removal of many of its underground storage
tanks and the reduction or elimination of certain chemicals and wastes in its
operations. Although it is very difficult to quantify the potential impact
of compliance with environmental protection laws, the Corporation's
financial statements reflect the cost of these ongoing modifications.
Management believes that the continuing costs to the Corporation of
environmental compliance will not result in a material adverse effect on
its future financial condition or results of operations.
27
10. Business Segment Information
The Corporation's operations are classified principally into two business
segments; Calendered Plastics Products (Plastics Products) and Lawn and
Garden Consumer Products (Consumer Products). The Plastics Products
segment primarily involves the manufacture of calendered plastics products
for the automotive and specialty plastics manufacturing industries. The
Consumer Products segment primarily involves the manufacture and
distribution of a wide range of lawn and garden products. Operating profit
represents net sales less operating expenses for each segment and excludes
general corporate expenses and non-operating revenues and expenses.
Identifiable assets for each segment represent those assets used in the
Corporation's operations and exclude general corporate assets. General
corporate assets include cash, investments and other non-operating assets.
Net sales for the Plastics Products segment to the divisions and subsidiaries
of Ford Motor Company amounted to $44,186,054 (20.9% of net sales) in 1996,
$40,622,615 (19.4% of net sales) in 1995 and $24,385,299 (12.5% of net sales)
in 1994.
Receivables at December 31, 1996, 1995 and 1994 from Ford Motor Company were
$5,006,569, $6,275,579 and $3,396,054, respectively.
Business Segment Information
1996 1995 1994
Net sales by classes of similar ------------ ------------ ------------
products
Plastics products $171,218,487 $169,455,886 $149,438,108
Consumer products 40,145,222 40,267,676 45,536,156
------------ ------------ ------------
$211,363,709 $209,723,562 $194,974,264
============ ============ ============
Operating profit (loss)
Plastics products $ 26,038,371 $ 29,443,430 $ 21,630,468
Consumer products (951,382) 1,220,020 4,282,552
------------ ------------ ------------
Total operating profit $ 25,086,989 $ 30,663,450 $ 25,913,020
General corporate expenses 8,157,101 8,170,944 7,289,802
Nonoperating revenue (expense) 685,258 1,168,097 (512,739)
------------ ------------ ------------
Income from continuing
operations before income
taxes $ 17,615,146 $ 23,660,603 $ 18,110,479
============ ============ ============
Identifiable assets
Plastics products $ 92,003,894 $ 91,139,594 $ 92,203,867
Consumer products 29,825,140 30,056,412 27,318,222
------------ ------------ ------------
Total identifiable assets $121,829,034 $121,196,006 $119,522,089
General corporate assets 18,993,406 28,800,519 25,006,799
------------ ------------ ------------
$140,822,440 $149,996,525 $144,528,888
============ ============ ============
28
Capital expenditures
Plastics products $ 5,779,111 $ 7,617,926 $ 7,477,833
Consumer products 915,792 2,382,011 1,205,377
General corporate 109,127 172,648 67,986
------------ ------------ ------------
$ 6,804,030 $ 10,172,585 $ 8,751,196
============ ============ ============
Depreciation and amortization
Plastics products $ 4,915,452 $ 4,391,048 $ 8,644,205
Consumer products 2,078,816 1,958,777 1,719,307
General corporate 262,275 470,303 503,763
------------ ------------ ------------
$ 7,256,543 $ 6,820,128 $ 10,867,275
============ ============ ============
11. Incentive Stock Option Plan
1985 Incentive Stock Option Plan
The 1985 option plan expired on January 28, 1995. Options previously granted
may be exercised by the participants until the options expire, which is ten
years after the date of the original option grant. The option price of
grants under this plan could not be less than the fair market value of the
common stock on the date of grant.
1995 Stock Option Plan
In 1995 the Corporation adopted a new incentive stock option plan under
which options may be granted to certain key employees for the purchase of
the Corporation's common stock. The effective date of the Plan was February
7, 1995 with an expiration date of February 6, 2005. The Plan reserves for
issuance an aggregate of 200,000 shares of the Corporation's common stock.
The option price for options granted cannot be less than 100% of fair
market value of the common stock on the date of the grant. The Plan contains
an antidilutive provision providing for adjustments to the options
previously granted in the event of changes in the Corporation's capital
structure.
1995 Outside Directors Stock Option Plan
In 1995 the Corporation adopted an incentive stock plan under which
options may be granted to members of the Corporation's Board of Directors
for the purchase of the Corporation's common stock. The effective date of
the Plan was April 25, 1995 with an expiration date of April 24, 2005.
The Plan reserves for issuance an aggregate of 200,000 share of the
Corporation's common stock. Each eligible director received an option for
10,000 shares common stock on the effective date of the Plan. On each April
25 thereafter each eligible director will receive an option for 1,000 shares
of common stock. Directors who become eligible after April 25, 1995 will
receive an option for 10,000 shares as of the date they become eligible for
the Plan and will receive an option for 1,000 shares on each April 25
thereafter. The option price for options granted cannot be less than 100%
of fair market value of the common stock on the date of the grant. The
plan contains an antidilutive provision providing for adjustments to the
options previously granted in the event of changes in the Corporation's
capital structure.
29
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996 and 1995. Dividend rate of 2.9% for both
years, price volatility of 25% for 1996 and 26% for 1995, risk-free
interest rate of 5.31% for 1996 and 6.50% for 1995 and expected lives of
7.75 years for both years.
The Corporation applies APB Opinion 25 in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for 1996
and 1995. Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net income and earnings per share would
have been as follows
1996 1995
------------ ------------
Net income
As reported $ 10,729,493 $ 14,032,063
============ ============
Proforma $ 16,688,056 $ 13,847,180
============ ============
Earnings per share
As reported $ .66 $ .85
============ ============
Proforma $ .66 $ .84
============ ============
The status of the stock option plans during 1996 and 1995 is as follows
1995 Directors
1985 Option Plan 1995 Option Plan Option Plan
---------------- ---------------- --------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at
January 1, 1996 96,965 $ 10.99 102,000 $ 10.31 80,000 $ 10.31
Granted during
1996 -- -- -- -- 24,000 11.19 8.000 11.13
Exercised during
1996 -- -- -- -- -- -- -- -- -- -- -- --
Forfeited during
1996 (2,000) 10.10 (1,000) 10.31 -- -- -- --
--------- ---------- ---------
Outstanding at
December 31, 1996 94,965 11.01 125,000 10.48 88,000 10.39
========= ========== =========
All outstanding options were exercisable at December 31, 1996
Weighted average fair
value of options granted
during 1996 N/A $ 11.19 $ 11.13
======== ======== ========
30
1995 Directors
1985 Option Plan 1995 Option Plan Option Plan
---------------- ---------------- --------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at
January 1, 1995 153,062 $ 10.59 -- -- $ -- -- -- -- $ -- --
Granted during
1995 -- -- -- -- 102,000 10.31 80,000 10.31
Exercised during
1995 (25,811) 9.57 -- -- -- -- -- -- -- --
Forfeited during
1995 (30,286) 10.21 -- -- -- -- -- -- -- --
--------- ---------- ---------
Outstanding at
December 31, 1995 96,965 10.99 102,000 10.31 80,000 10.31
========= ========== =========
All outstanding options were exercisable at December 31, 1995
Weighted average fair
value of options granted
during 1995 N/A $ 10.31 $ 10.31
======== ======== ========
The status of the options outstanding at December 31, 1996 is as follows
Remaining
Exercise Contractual
Price Number Life
-------- -------- -----------
$ 11.47 21,595 .3 Years
15.90 18,750 2.1 Years
10.88 17,000 3.1 Years
8.32 36,620 5.8 Years
9.69 1,000 6.3 Years
10.31 181,000 8.3 Years
11.18 32,000 9.3 Years
12. Fair Value of Financial Instruments
The Corporation estimates that each category of financial instruments;
including cash, trade receivables and payables, investments and debt
instruments, approximate current value at December 31, 1996 and 1995.
31
13. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1996 1995 1994
------------ ------------ ------------
Cash payments for interest,
net of interest capitalized $ 2,976 $ 59,753 $ 3,199,018
============ ============ ============
Cash payments for income taxes $ 5,689,279 $ 8,375,829 $ 8,797,775
============ ============ ============
Supplemental Schedule of Noncash Investment Activities
In 1996 notes receivable of $654,794 were received as part of the proceeds
from the sale of property and equipment.
14. Supplemental Financial Data (Unaudited)
Quarter Ended
------------------------------------------------------
1996 March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
Net sales $ 56,156,946 $ 63,409,554 $ 47,552,955 $ 44,244,254
Gross profit $ 12,249,561 $ 11,848,688 $ 6,780,648 $ 4,925,671
Net income $ 4,234,201 $ 4,230,605 $ 1,546,699 $ 717,988
Earnings per share $ .26 $ .26 $ .10 $ .04
Dividends declared $ .08 $ .08 $ .08 $ .08
Market price per
share
High 11 1/4 12 3/4 12 1/8 11 3/4
Low 9 3/4 10 5/8 10 5/8 10
1996
Total
------------
Net sales $211,363,709
Gross profit $ 35,804,568
Net income $ 10,729,493
Earnings per share $ .66
Dividends declared $ .32
Market price per
share
High 12 3/4
Low 9 3/4
32
Quarter Ended
------------------------------------------------------
1995 March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
Net sales $ 55,052,191 $ 57,070,658 $ 48,551,668 $ 49,049,045
Gross profit $ 12,191,603 $ 11,280,312 $ 8,736,647 $ 9,372,115
Net income $ 4,083,884 $ 3,963,481 $ 2,784,742 $ 3,199,956
Earnings per share $ .25 $ .24 $ .17 $ .19
Dividends declared $ .07 $ .08 $ .08 $ .08
Market price per
share
High 10 5/8 12 3/8 12 11 7/8
Low 9 1/4 9 7/8 10 3/8 9 7/8
1995
Total
------------
Net sales $209,723,562
Gross profit $ 41,580,677
Net income $ 14,032,063
Earnings per share $ .85
Dividends declared $ .31
Market price per
share
High 12 3/8
Low 9 1/4
33
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of O'Sullivan Corporation
We have audited the accompanying consolidated balance sheets of O'Sullivan
Corporation and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
O'Sullivan Corporation and Subsidiaries as of December 31, 1996 and 1995
and the results of their operations and their cash flows for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
January 24, 1997
34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
35
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Corporation's Directors and Director
nominees, see pages 3 through 5 of the Corporation's definitive Proxy
Statement dated March 28, 1997 which pages are incorporated herein by
reference. For information concerning the compliance by directors,
officers and beneficial owners of more than 10% of the Corporation's stock
with the requirement of Section 16(a) of the Securities Exchange Act of
1934, see page 6 of the Corporation's Definitive Proxy Statement dated
March 28, 1997, which page is incorporated herein by reference.
Executive Officers of the Registrant
The names, ages and positions of the executive officers of O'Sullivan
Corporation at December 31, 1996 are listed below. All officers are
elected by the Board of Directors for a one year term. There are no
family relationships among officers or any other arrangement or
understanding between any officer and any other person pursuant to which
the officer was elected.
Served As
Name Age Office Officer Since
- --------------------- ---- --------------------- -------------
James T. Holland 56 President 1976
C. Bryant Nickerson 50 Secretary & Treasurer 1986
Phillip S. Griffin 58 Vice President 1975
John S. Campbell 46 Vice President 1986
Mr. Holland has served in the following capacities for the Corporation;
Treasurer, 1976-1979, Vice President and Treasurer, 1979-1984, Executive
Vice President and Chief Operating Officer, 1984-1986, President and Chief
Operating Officer, 1986-1995, President and Chief Executive Officer, 1995
to the Present.
Mr. Nickerson has been employed by the Corporation since 1973 serving in
various capacities within the corporate financial area. He has served as
Controller and Treasurer and Chief Accounting Officer before being elected
as Secretary, Treasurer and Chief Financial Officer in 1995.
Mr. Griffin has served the Corporation in various capacities in sales,
manufacturing and corporate management since 1968. He has served as a Vice
President since 1975 and also served as the President of Melnor Inc., a
subsidiary of the Corporation. Mr. Griffin retired from the Corporation
effective January 31, 1997.
Mr. John S. Campbell has served as a Vice President since 1986. He has been
employed by the Corporation since 1973 and has been involved in both the
sales and manufacturing operations of the calendered plastics products
business of the Corporation.
36
Other Officers of the Registrant
Served As
Name Age Office Officer Since
- --------------------- ---- --------------------- -------------
William O. Bauserman 53 Vice President 1987
Ewen A. Campbell 49 Vice President 1993
Dee S. Johnston 60 Vice President 1992
Michael J. Meissner 57 Vice President 1995
James L. Tremoulis 43 Vice President 1986
Robert C. Westfall 54 Vice President 1979
Mr. Bauserman has been employed by the Corporation since 1968 and has served
as a Vice President since 1987. Mr. Bauserman has been employed in various
capacities within the data processing and management information services
areas during his tenure with the Corporation.
Mr. Ewen A. Campbell has an extensive background in chemistry and plastics
compounding. He has been employed by the Corporation since 1991 in the areas
of compounding and research and development activities. He has served as a
Vice President since 1993. Mr. Ewen Campbell and Mr. John Campbell are
not related.
Mrs. Johnston has been employed by the Corporation since 1976 and has served
as a Vice President since 1992. Mrs. Johnston has been involved in all
phases of the Corporation's purchasing function during her employment.
Mr. Meissner has been employed by the Corporation since 1995. Prior to that
time he was employed by and was a principal with a business that served as
a manufacturers' representative to the automotive industry for the
Corporation.
Mr. Tremoulis has served in various capacities in the sales area for
calendered plastics products since his employment by the Corporation in
1980. He was elected as a Vice President in 1986.
Mr. Westfall has been employed by the Corporation since 1965. He was a
chemist, the Quality Control Director and a Plant Manager for the Corporation
prior to being elected as a Vice President of Research and Development in
1979.
Item 11. EXECUTIVE COMPENSATION
See Pages 7 through 12 of the Corporation's Proxy Statement dated March 28,
1997, which pages are incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Pages 3 through 6 of the Corporation's Proxy Statement dated March 28,
1997, which pages are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1996 that would be applicable for
disclosure under this item.
37
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a). (1) Financial Statements Page
Included in Part II, Item 8, of this report:
Report of Independent Auditors 34
Consolidated Balance Sheets at December 31, 1996
and 1995 12
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994 13
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 14-15
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 16-17
Consolidated Notes to Financial Statements 18-33
(a). (2) Financial Statement Schedules
Included in part IV of this report:
Report of Independent Auditors on Financial
Statement Schedule 40
Schedule II - Valuation and Qualifying Accounts
and Reserves for the Years Ended December 31,
1996, 1995 and 1994 41
(a). (3) 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.)
38
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (continued)
Page
3.3 O'Sullivan Corporation Amended and Restated
Articles of Incorporation dated April 29, 1989,
filed with the State Corporation Commission
dated April 29, 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.)
10.1 Compensatory arrangement with executive officers
of the registrant. See Pages 7 through 12 of the
Corporation's Proxy Statement dated March 28, 1997
which pages are incorporated herein by reference.
10.2 Form of Employment Continuity Agreement between the
Registrant and James T. Holland, John S. Campbell,
C. Bryant Nickerson, William O. Bauserman, Ewen A.
Campbell, Dee S. Johnston, Michael M. Meissner,
James L. Tremoulis and Robert C. Westfall.
10.3 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.
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, 1994.)
21. Subsidiaries of the Registrant - filed herewith
23. Consent of Independent Auditors - filed herewith
24. Powers of Attorney - filed herewith
27. Financial Data Schedule - filed herewith
(b). Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended December 31, 1996.
39
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of the O'Sullivan Corporation
The examination referred to in our opinion dated January 24, 1997 of the
consolidated financial statements as of December 31, 1996 and 1995 and for
the three years ended December 31 ,1996, 1995 and 1994 included the related
supplemental financial schedule as listed in Item 14(a) 2, which, when
considered in relation to the basis financial statements, present fairly
in all material respects the information shown therein.
/s/ YOUNT, HYDE & BARBOUR, P.C.
40
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Column A Column B Column C Column D Column E
- ---------- ---------- ------------------------ ----------- -----------
Additions
------------------------
(1) (2)
Balance Charged Charged Balance
at to costs to at
Beginning and Other End
Description of Year Expense Accounts Deductions of Year
- ---------- ---------- ---------- ------------ ----------- -----------
1996:
Allowance
for
Doubtful
Accounts $ 898,648 $ 74,872 $ -- -- $ 170,128(A)$ 803,392
========== ========== =========== =========== ===========
1995:
Allowance
for
Doubtful
Accounts $ 884,467 $ 439,480 $ -- -- $ 425,299(A)$ 898,648
========== ========== =========== =========== ===========
1994:
Allowance
for
Doubtful
Accounts $1,133,793 $1,138,617 $ -- -- $ 1,387,943(A)$ 884,467
========== ========== =========== =========== ===========
Note (A) - Write-offs of uncollectible accounts, net of recoveries.
Column D for 1994 also includes a reduction of $27,013 for a
bad debt allowance pertaining to a subsidiary disposed of
during 1994.
41
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 27, 1997 O'SULLIVAN CORPORATION
- -------------- By: /s/ C. Bryant Nickerson
Date --------------------------
C. Bryant Nickerson
Secretary, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the dates given.
Arthur H. Bryant, II * March 27, 1997
- ------------------------ --------------
Arthur H. Bryant, II Chairman and Director Date
/s/ James T. Holland March 27, 1997
- ------------------------ --------------
James T. Holland President, Chief Executive Date
Officer and Director
/s/ C. Bryant Nickerson March 27, 1997
- ----------------------- --------------
C. Bryant Nickerson Secretary, Treasurer and Date
Chief Financial Officer
John J. Armstrong * March 27, 1997
- ------------------------ --------------
John J. Armstrong Director Date
C. Hugh Bloom * March 27, 1997
- ------------------------ --------------
C. Hugh Bloom Director Date
Magalen O. Bryant * March 27, 1997
- ------------------------ --------------
Magalen O. Bryant Director Date
Robert L. Burrus, Jr. * March 27, 1997
- ------------------------ --------------
Robert L. Burrus, Jr. Director Date
Max C. Chapman, Jr. * March 27, 1997
- ------------------------ --------------
Max C. Chapman, Jr. Director Date
R. Michael McCullough * March 27, 1997
- ------------------------ --------------
R. Michael McCullough Director Date
42
Stephen P. Munn * March 27, 1997
- ------------------------ --------------
Stephen P. Munn Director Date
* By: /s/ James T. Holland
---------------------
James T. Holland
Attorney-In-Fact
43
EXHIBIT INDEX
Page
10.2 Employment Continuity Agreement 45-56
21. Subsidiaries of the Registrant 57
23. Consent of Experts 58
24. Powers of Attorney 59-66
27. Financial Data Schedule 67
44
EMPLOYMENT CONTINUITY AGREEMENT
AGREEMENT by and between O'SULLIVAN CORPORATION, a Virginia corporation
(the "Company"), and (the "Executive"), dated as of the
3rd day of March, 1997.
NOW, THEREFORE, in consideration of the mutual undertakings contained in
this Agreement, the parties agree as follows:
The Company's Board of Directors (the "Board") acknowledges that the
Executive's contributions to the past and future growth and success of the
Company have been and will continue to be substantial. As a publicly held
corporation, the Board recognizes that there exists a possibility of a change
in control of the Company. The Board also recognizes that the possibility of
such a change in control may contribute to uncertainty on the part of senior
management and may result in the departure or distraction of senior management
from operating responsibilities.
Outstanding management of the Company is always essential to advancing the
best interests of the Company and its stockholders. In the event of a threat
or occurrence of a bid to acquire or change control of the Company or to
effect a business combination, it is particularly important that the Company's
business be continued with a minimum of disruption. The Board believes that
the objective of securing and retaining outstanding management will be
achieved if the Company's key management employees are given assurances of
employment security so they will not be distracted by personal uncertainties
and risks created by such circumstances.
The Board believes that such assurances will secure the continued services
of the Company's key operational and management executives in the performance
of both their regular duties and such extra duties as may be required of them
during such periods of uncertainty, enable the Company to rely on such
executives to manage its affairs during any such period with less concern for
their personal risks, and enhance the Company's ability to attract new key
executives as needed.
The Compensation and Stock Option Committee (the "Committee") of the Board
has recommended, and the Board has approved, entering into employment
agreements with the Company's key management executives in order to achieve
the foregoing objectives; and the Executive is a key management executive of
the Company.
The Company and the Executive enter into this Agreement to induce the
Executive to remain an employee of the Company and to continue to devote
Executive's full energy to the Company's affairs.
1. Certain Definitions.
(a) The "Effective Date" shall be the first date during the "Change
of Control Period" (as defined in Section 1(b)) on which a Change
of Control occurs. Notwithstanding, anything in this Agreement to
the contrary, if the Executive's employment with the Company is
terminated or the Executive ceases to be an officer of the Company
prior to the date on which a Change of Control occurs, and it is
reasonably demonstrated that such termination of employment (1) was
at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (2) otherwise arose
45
in connection with or anticipation of the Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean
the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" is the period commencing on the
date of this Agreement and ending on the third anniversary of such
date; provided, however, that commencing on the date that is one
year after the date of this Agreement, and on each annual
anniversary of such date (such date and each annual anniversary is
hereinafter referred to as the "Renewal Date"), the Change of
Control Period shall be automatically extended so as to terminate
three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Company Voting
Securities"), provided, however, that any acquisition by (x)
the Company or any of its subsidiaries, or any employee benefit
plan (or related trust) sponsored or maintained by the Company
or any of its subsidiaries or (y) any corporation with respect
to which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Company Voting Securities immediately prior to
such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Company Voting Securities,
as the case may be, shall not constitute a Change of Control;
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose
election or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
46
with an actual or threatened election contest relating to the
election of the Directors of the Company (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act);
(c) Approval by the stockholders of the Company of a
reorganization, merger, share exchange or consolidation (a
"Business Combination"), with respect to which all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such
Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination in substantially the
same proportion as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Company Voting Securities, as the case may be; or
(d) (i) a complete liquidation or dissolution of the Company or
(ii) sale or other disposition of all or substantially all of
the assets of the Company other than to a corporation with
respect to which, following such sale or disposition, more than
60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors is then owned beneficially, directly or indirectly,
by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities immediately
prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Company Common
Stock and Company Voting Securities, as the case may be,
immediately prior to such sale or disposition.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, for the period commencing on the Effective Date and
ending on the first anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 90-
day period immediately preceding the Effective Date. The
Executive's services shall be performed during the Employment
Period at the location where the Executive was employed
immediately preceding the Effective Date or any other location
less than 35 miles from such location.
47
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to serve on corporate, civic or charitable boards or committees,
deliver lectures, fulfill speaking engagements or teach at
educational institutions, and manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the
Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal
to twelve times the highest monthly base salary paid or payable
to the Executive by the Company and its affiliated companies for
the twelve-month period immediately preceding the month in which
the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall
be increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded in
the ordinary course of business to other peer executives of the
Company and its affiliated companies. Any increase in Annual
Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase, and the term
Annual Base Salary as used in this Agreement shall refer to
Annual Base Salary as so increased. For purposes of this
Agreement, the term "affiliated companies" includes any company
controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year beginning or
ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash of an amount not less than the total amount of the
bonuses paid to the Executive during the twelve-month period
immediately preceding the Effective Date (the "Pre-Change Annual
Bonus"). Each such Annual Bonus shall be paid no later than the
end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded.
48
(iii) Employee Benefit Plans. In addition to Annual Base
Salary and Annual Bonus, the Executive (and, to the extent
applicable, the Executive's dependents) shall be entitled to
participate during the Employment Period in all employee benefit
plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies,
including, but not limited to, stock and cash incentive, profit
sharing, savings and retirement, deferred compensation, medical,
dental, disability, and life insurance (including split dollar
life insurance) plans, practices, policies and programs. However,
in no event shall such plans, practices, policies and programs
provide the Executive with benefits, in each case, that are less
favorable, in the aggregate, than (A) the most favorable of those
provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in
effect at any time during the 90-day period immediately preceding
the Effective Date or (B) if more favorable to the Executive,
those provided at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive
at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(v) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with
the most favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the Executive
at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the
Executive by the Company and its affiliated companies at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at
any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect at any
time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to
other peer incentives of the Company and its affiliated
companies.
49
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during
the Employment Period. If the Company determines in good
faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day
following receipt of such notice by the Executive (the
"Disability Effective Date"), provided that the Executive
has not returned to full-time performance of the
Executive's duties within the 30 days after receipt of such
notice. For purposes of this Agreement, "Disability" means
the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or
physical illness which is determined to be total and
permanent by a physician selected by the Company or its
insurers and reasonably acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For
purposes of this Agreement, "Cause" means (i) an action
taken by the Executive involving willful and wanton
malfeasance involving a wholly wrongful and unlawful act,
or (ii) the Executive being convicted of a felony.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive
for Good Reason. For purposes of this Agreement, "Good
Reason" means (i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive; (ii) any failure by the
Company to comply with any of the provisions of Section
4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive; (iii) the
Company's requiring the Executive to be based at any office
or location other than that described in Section 4(a)(i) of
this Agreement; (iv) any purported termination by the
Company of the Executive's employment otherwise than as
expressly permitted by this Agreement; or (v) any failure
by the Company to comply with and satisfy Section 11(c) of
this Agreement. For purposes of this Agreement, any good
faith determination of Good Reason made by the Executive
shall be conclusive. 50
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
specific termination provision of this Agreement upon which
the termination is based upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the
termination date (which date shall be not more than fifteen
days after the giving of such notice). In the case of a
termination of the Executive's employment for Cause, a
Notice of Termination shall include a copy of a resolution
duly adopted by the affirmative vote of not less than two-
thirds of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after
reasonable notice to the Executive and reasonable
opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board prior to
such vote), finding that in the good faith opinion of the
Board the Executive was guilty of conduct constituting
Cause. No purported termination of the Executive's
employment for Cause shall be effective without a Notice of
Termination. The failure by the Executive to set forth in
the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any
right of the Executive hereunder or preclude the Executive
from asserting such fact or circumstance in enforcing the
Executive's rights hereunder.
(e) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later
date specified in such notice, as the case may be;
provided, however, that (i) if the Executive's employment
is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
Agreement, other than the following obligations:
(i) payment of the Executive's Annual Base Salary through
the Date of Termination to the extent not already paid;
51
(ii) payment of the product of (A) the greater of (1) the
largest Annual Bonus paid or payable (and annualized for any
fiscal year consisting of less than twelve full months or for
which the Executive has been employed for less than twelve full
months) during the Employment Period, if any, and (2) the Pre-
Change Annual Bonus and (B) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365; and
(iii) payment of any compensation previously deferred at the
election of the Executive (together with any accrued interest
thereon) and not yet paid by the Company (other than pursuant to
a qualified cash or deferred arrangement within the meaning of
Section 401(k) of the Internal Revenue Code of 1986, as amended
(the Code)) and any accrued vacation pay not yet paid by the
Company.
The amounts described in paragraphs (i), (ii) and (iii) above are
hereafter referred to as "Accrued Obligations". All Accrued
Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination. Notwithstanding anything in this
Agreement to the contrary, the Executive's estate and family shall
be entitled to receive benefits at least equal to the most
favorable benefits provided generally by the Company and any of
its affiliated companies to the estates and surviving families of
peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to death
benefits, if any, as in effect generally with respect to other
peer executives and their estates and families at any time during
the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's dependents,
as in effect on the date of the Executive's death generally with
respect to other peer executives of the Company and its affiliated
companies and their dependents.
(b) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued
Obligations. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination. Notwithstanding anything in this Agreement to the
contrary, the Executive shall be entitled after the Disability
Effective Date to receive disability and other benefits at
least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer
executives and their families at any time during the 90-day
period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's dependents,
as in effect at any time thereafter generally with respect to
other peer executives of the Company and its affiliated
companies and their dependents.
52
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay
to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent unpaid.
If the Executive terminates employment during the Employment
Period other than for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other
than for Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum cash
payment within 30 days of the Date of Termination.
(d) Good Reason; Other Than for Cause or Disability. If, during
the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability, or
if the Executive shall terminate employment under this
Agreement for Good Reason:
(i) The Company shall pay to the Executive a lump sum cash
payment within 30 days after the Date of Termination equal to the
sum of the following amounts:
A. the amounts described in Sections 6(a)(i) and
6(a)(iii);
B. the largest Annual Base Salary paid or payable to
the Executive during the Employment Period (and
annualized for any fiscal year consisting of less
than twelve full months or for which the Executive
has been employed for less than twelve full months);
and
C. the greater of (1) the largest Annual Bonus paid or
payable (and annualized for any fiscal year
consisting of less than twelve full months or for
which the Executive has been employed for less than
twelve full months) during the Employment Period,
if any, and (2) the Pre-Change Annual Bonus.
(ii) The Company shall continue the automobile allowance that
is in effect for the Executive as of the Date of Termination for
the twelve-month period immediately following the Date of
Termination.
7. Completion of the Employment Period. If the Executive continues
in the employment of the Company from the Effective Date to the last day of
the Employment Period, the Company shall pay to the Executive a lump sum cash
payment equal to the largest Annual Base Salary paid or payable to the
Executive during the Employment Period (and annualized for any fiscal year
consisting of less than twelve full months or for which the Executive has been
employed for less than twelve full months) within 30 days after the last day
of the Employment Period.
8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
53
benefit, bonus, incentive or other plans, programs, policies or practices,
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies (such as the Executive's Salary
Continuation Agreement with the Company, if any). Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as explicitly
modified by this Agreement.
9. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement. The
Company agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Company, the
Executive (unless a court of competent jurisdiction determines that the
Executive acted in bad faith in initiating the contest), or others concerning
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions
of this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by
the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and
be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
54
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the
Company and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia,
without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
or to such other address as either party shall have furnished to
the other in writing in accordance with the provisions of this
Section 12(b). Notice and communications shall be effective when
actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict compliance with
any provision hereof or the failure to assert any right the
Executive may have hereunder, including, without limitation,
the right to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v), shall not be deemed to be a waiver of such
provision or right or any other provision or right thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter
55
hereof. Until the Effective Date, and subject to the terms of
any other employment agreement between the Executive and the
Company, the Executive shall continue to be an "employee at
will".
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date indicated above.
O'SULLIVAN CORPORATION
By:___________________________
EXECUTIVE
By:____________________________
56
SUBSIDIARIES OF THE REGISTRANT
STATE OR
JURISDICTION NAME UNDER WHICH
NAME OF INCORPORATION SUBSIDIARY DOES BUSINESS
- ------------------------------ ---------------- -------------------------------
Regalite Plastics Corporation Massachusetts Regalite Plastics Corporation
O'Sullivan Plastics Corporation Nevada O'Sullivan Plastics Corporation
O'Sullivan Engineering, Inc. Michigan O'Sullivan Engineering, Inc.
Melnor Inc. Virginia Melnor Inc.
57
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of Registration Statement on Form S-8 filed
December 29, 1987 of O'Sullivan Corporation of our report dated
January 24, 1997 appearing on page 34 of this Annual Report on Form 10-K.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
March 27, 1997
58
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/28/97 /s/ Arthur H. Bryant, II
- ------- ------------------------------
DIRECTOR
59
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/20/97 /s/ John J. Armstrong
- ------- ------------------------------
DIRECTOR
60
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/23/97 /s/ C. Hugh Bloom
- ------- ------------------------------
DIRECTOR
61
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/27/97 /s/ Magalen O. Bryant
- ------- ------------------------------
DIRECTOR
62
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/24/97 /s/ Robert L. Burrus, Jr.
- ------- ------------------------------
DIRECTOR
63
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/28/97 /s/ Max C. Chapman, Jr.
- ------- ------------------------------
DIRECTOR
64
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/27/97 /s/ R. Michael McCullough
- ------- ------------------------------
DIRECTOR
65
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-fact to
sign on my behalf, as an individual and in the capacity stated below,
the Annual Report on Form 10-K of O'Sullivan Corporation for its fiscal
year ended December 31, 1996 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/20/97 /s/ Stephen P. Munn
- ------- ------------------------------
DIRECTOR
66
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