SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-4438
O'SULLIVAN CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0463029
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1944 Valley Avenue
PO Box 3510
Winchester, Virginia 22601
-------------------- -----
(Address of principal (Zip code)
executive offices)
540-667-6666
------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
As of July 31, 1998 there were 15,595,352 shares of Common Stock, Par
Value $1, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited)
ASSETS ------------- -------------
Current Assets
Cash and cash equivalents $ 35,852,940 $ 35,444,138
Receivables 27,984,898 25,658,216
Inventories 20,650,303 20,674,689
Deferred income tax assets 1,026,566 1,041,564
Other current assets 1,533,546 3,234,108
------------- -------------
Total current assets $ 87,048,253 $ 86,052,715
------------- -------------
Property, Plant and Equipment $ 42,772,829 $ 40,316,399
------------- -------------
Other Assets $ 11,482,688 $ 11,662,582
------------- -------------
Total assets $ 141,303,770 $ 138,031,696
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,516,428 $ 9,988,826
Accrued expenses 6,104,874 5,968,248
------------- -------------
Total current liabilities $ 17,621,302 $ 15,957,074
------------- -------------
Other Long-Term Liabilities $ 8,144,848 $ 8,404,635
------------- -------------
Deferred Income Tax Liabilities $ 375,564 $ 954,921
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 15,595,447 $ 15,743,062
Additional paid-in capital 1,414,166 2,717,863
Retained earnings 98,152,443 94,254,141
------------- -------------
Total stockholders' equity $ 115,162,056 $ 112,715,066
------------- -------------
Total liabilities and
stockholders' equity $ 141,303,770 $ 138,031,696
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Three Months
Ended June 30,
-----------------------------
1998 1997
------------- -------------
Net sales $ 42,142,539 $ 44,706,832
Cost of products sold 34,339,421 37,017,828
------------- -------------
Gross profit $ 7,803,118 $ 7,689,004
------------- -------------
Operating expenses
Selling and warehousing $ 1,496,314 $ 1,327,032
General and administrative 1,672,586 1,406,197
------------- -------------
$ 3,168,900 $ 2,733,229
------------- -------------
Income from operations $ 4,634,218 $ 4,955,775
------------- -------------
Other income
Interest income $ 528,778 $ 738,624
Other, net 239,323 (57,624)
------------- -------------
$ 768,101 $ 681,000
------------- -------------
Income from continuing operations
before income taxes $ 5,402,319 $ 5,636,775
Income taxes 1,949,584 2,219,454
------------- -------------
Income from continuing operations $ 3,452,735 $ 3,417,321
Loss from discontinued operations,
net of taxes -- -- (166,801)
------------- -------------
Net income $ 3,452,735 $ 3,250,520
============= =============
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
For The Three Months
Ended June 30,
-----------------------------
1998 1997
------------- -------------
Net income (loss) per common share,
basic and diluted:
Net income per common share from
continuing operations $ .22 $ .22
Net loss per common share from
discontinued operations -- -- (.01)
------------- -------------
Net income per common share $ .22 $ .21
============= =============
Dividends per common share $ .08 $ .08
============= =============
Average shares outstanding 15,718,170 15,743,272
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Six Months
Ended June 30,
-----------------------------
1998 1997
------------- -------------
Net sales $ 84,088,823 $ 85,170,637
Cost of products sold 69,421,260 71,389,048
------------- -------------
Gross profit $ 14,667,563 $ 13,781,589
------------- -------------
Operating expenses
Selling and warehousing $ 2,923,976 $ 2,578,278
General and administrative 3,205,761 2,936,621
------------- -------------
$ 6,129,737 $ 5,514,899
------------- -------------
Income from operations $ 8,537,826 $ 8,266,690
------------- -------------
Other income
Interest income $ 1,037,313 $ 1,404,919
Other, net 518,810 21,494
------------- -------------
$ 1,556,123 $ 1,426,413
------------- -------------
Income from continuing operations
before income taxes $ 10,093,949 $ 9,693,103
Income taxes 3,676,853 3,777,775
------------- -------------
Income from continuing operations $ 6,417,096 $ 5,915,328
Loss from discontinued operations,
net of taxes -- -- (440,831)
------------- -------------
Net income $ 6,417,096 $ 5,474,497
============= =============
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
For The Six Months
Ended June 30,
-----------------------------
1998 1997
------------- -------------
Net income (loss) per common share,
basic and diluted:
Net income per common share from
continuing operations $ .41 $ .38
Net loss per common share from
discontinued operations -- -- (.03)
------------- -------------
Net income per common share $ .41 $ .35
============= =============
Dividends per common share $ .16 $ .16
============= =============
Average shares outstanding 15,730,572 15,743,247
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Six Months
Ended June 30,
---------------------------
1998 1997
------------ ------------
Cash Flows from Operating Activities
Net income from continuing operations $ 6,417,096 $ 5,915,328
Adjustments to reconcile net income
from continuing operations to net
cash provided by operating activities
of continuing operations:
Depreciation 3,077,400 2,713,800
Provision for doubtful accounts 61,250 -- --
Deferred income taxes (564,359) 9,902
Postemployment benefits and
deferred compensation (254,344) (94,300)
Other noncurrent operating assets
and liabilities (5,443) (58,051)
(Gain) on disposal of assets (114,680) (9,906)
Unremitted (income) from joint venture (430,487) (462)
Changes in assets and liabilities:
Receivables (2,387,932) (4,669,212)
Inventories 24,386 3,550,455
Other current assets 1,400,617 2,140,383
Accounts payable 1,527,602 (276,043)
Accrued expenses 136,629 (125,246)
------------ ------------
Net cash provided by operating activities $ 8,887,735 $ 9,096,648
------------ ------------
Cash Flows from Investing Activities
Additions to property, plant and equipment $ (5,358,834) $ (2,557,595)
Proceeds from disposal of assets 725,837 14,287
Payments received from non-operating
notes receivable 250,542 112,154
Change in other assets (126,371) 570,972
Funds advanced to discontinued operations -- -- (1,244,197)
------------ ------------
Net cash (used in) investing activities $ (4,508,826) $ (3,104,379)
------------ ------------
Cash Flows from Financing Activities
Purchase of common stock $ (1,451,312) $ (994,366)
Cash dividends paid (2,518,795) (2,521,576)
------------ ------------
Net cash (used in) financing activities $ (3,970,107) $ (3,515,942)
------------ ------------
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For The Six Months
Ended June 30,
---------------------------
1998 1997
------------ ------------
Increase in cash and cash equivalents $ 408,802 $ 2,476,327
Cash and cash equivalents at beginning
of period 35,444,138 6,192,431
------------ ------------
Cash and cash equivalents at end
of period $ 35,852,940 $ 8,668,758
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the
accounts of O'Sullivan Corporation and its wholly owned Subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have not been included in these statements. These
unaudited statements should be read in conjunction with the financial statement
notes and other disclosures thereto included in the Corporation's 1997
Annual Report to Stockholders and Form 10-K.
Investments in affiliates in which the Corporation has a 20% to 50% interest
are carried at cost adjusted for the Corporation's proportionate share of
the affiliate's undistributed earnings or loss.
In the opinion of management of the Corporation, the unaudited consolidated
financial statements contain all material adjustments, consisting only of
normal recurring accruals and adjustments, necessary to fairly present the
Corporation's financial position as of June 30, 1998 and December 31, 1997,
the results of its operations for the three and six months ended June 30,
1998 and 1997 and the results of its cash flows for the six months ended
June 30, 1998 and 1997. The results of operations for the three and six months
ended June 30, 1998 are not necessarily indicative of the operating results
for the full year.
Certain amounts for 1997 have been reclassified to reflect comparability
with account classifications for 1998.
Note B. Supplementary Balance Sheet Detail
June 30, December 31,
1998 1997
------------ ------------
Receivables
Trade receivables $ 28,435,898 $ 26,228,366
Less allowance for doubtful accounts 451,000 570,150
------------- ------------
$ 27,984,898 $ 25,658,216
============ ============
Net receivables balances for automotive related business were $13,731,177 at
June 30, 1998 and $14,711,831 at December 31, 1997.
Inventories
Finished goods $ 5,342,179 $ 4,505,483
Work in process 3,749,024 3,385,687
Raw materials 7,925,897 9,380,683
Supplies 3,633,203 3,402,836
------------ ------------
$ 20,650,303 $ 20,674,689
============ ============
Property, Plant and Equipment
Land $ 1,516,583 $ 1,414,776
Buildings 28,300,431 27,762,932
Machinery and equipment 63,248,341 58,458,348
Transportation equipment 4,070,761 3,981,665
------------ ------------
$ 97,136,116 $ 91,617,721
Less accumulated depreciation 54,363,287 51,301,322
------------ ------------
$ 42,772,829 $ 40,316,399
============ ============
Accrued Expenses
Accrued compensation $ 2,623,766 $ 2,540,290
Employee benefits 1,114,460 886,467
Dividends payable 1,251,550 1,257,623
Other accrued expenses 1,115,098 1,283,868
------------ ------------
$ 6,104,874 $ 5,968,248
============ ============
Other Long-Term Liabilities
Deferred compensation $ 3,809,419 $ 3,978,100
Employee benefits 840,023 845,466
Postemployment benefits 995,406 1,081,069
Contingency reserve for discontinued
operations 2,500,000 2,500,000
------------ ------------
$ 8,144,848 $ 8,404,635
============ ============
The contingency reserve for discontinued operations is an allowance for
potential adjustments relating to the sale of the Corporation's former
consumer products subsidiary.
Note C. Investment in Unconsolidated Joint Venture
The Corporation has a 49% equity interest in Kiefel Technologies, Inc.
Kiefel designs, manufactures and distributes thermoforming and radio
frequency welding machines and related machinery and tools. Summary income
statement information for Kiefel is as follows:
For The Three Months
Ended June 30,
---------------------------
1998 1997
------------ ------------
Net sales $ 4,174,542 $ 1,268,603
Gross profit $ 667,938 $ 287,770
Net income (loss) $ 373,398 $ (111,104)
Registrant's share of net income (loss) $ 182,965 $ (54,441)
For The Six Months
Ended June 30,
---------------------------
1998 1997
------------ ------------
Net sales $ 8,354,640 $ 3,021,986
Gross profit $ 1,530,203 $ 610,734
Net income $ 878,545 $ 942
Registrant's share of net income $ 430,487 $ 462
Note D. Earnings Per Share
The following sets forth the computation of basic and diluted earnings per
share:
For the Three Months Ended
June 30, June 30,
1998 1997
---------- ----------
Weighted average number of common shares
used for basic earnings per common share 15,718,170 15,743,272
Effect of dilutive securities:
Stock options 8,095 1,068
---------- ----------
Weighted average number of common shares
used for earnings per common share-
assuming dilution 15,726,265 15,744,340
========== ==========
For the Six Months Ended
June 30, June 30,
1998 1997
---------- ----------
Weighted average number of common shares
used for basic earnings per common share 15,730,572 15,743,247
Effect of dilutive securities:
Stock options 7,745 2,516
---------- ----------
Weighted average number of common shares
used for earnings per common share-
assuming dilution 15,738,317 15,745,763
========== ==========
Options on approximately 224,500 and 249,750 shares were not included in
computing earnings per common share-assuming dilution for the three and six
months ended June 30, 1998 and 1997, respectively, because their effects
were antidilutive.
Note E. Segment Information
The Corporation operates in one business segment, the manufacture and
distribution of calendered plastics products for the automotive and
specialty plastics manufacturing industries. All operating revenues of the
Corporation are derived from this business activity. Substantially all
Corporate assets are utilized in the manufacturing and distribution
activities of the calendering operations.
Note F. Discontinued Operations
Operating results of the consumer products segment for the three and six
months ended June 30, 1997 have been segregated in the accompanying income
statements. Income tax benefits for the three and six months ended June 30,
1997 were $(84,881)and $(236,416), respectively.
Reference should be made to the Corporation's 1997 Annual Report to
Stockholders and Form 10-K for additional information concerning the
disposal of Melnor Inc.
Note G. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For The Six Months
Ended June 30,
-------------------------
1998 1997
----------- -----------
Cash payments for interest $ -- -- $ 7,108
=========== ===========
Cash payments for income taxes $ 3,469,088 $ 2,670,407
=========== ===========
Note H.
Subsequent Event
On July 24, 1998, the Corporation received formal notification that one of its
customers had filed for bankruptcy protection under Chapter 11. The accounts
receivable balances for this customer were $680,022 at June 30, 1998 and
$932,355 at December 31, 1997. Net sales were $738,436 for the six months
ended June 30, 1998 and $3,494,470 for the year ended December 31, 1997.
Management is currently in the process of evaluating the possible amount that
may not be collected. At this time, an amount cannot be reasonably determined;
however, management believes that a potential loss will not have a material
adverse effect on the Corporation's financial statements.
Note I.
New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about
Pensions and Other Post Retirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. This
Statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. Restatement of disclosures for earlier periods is required.
This Statement is effective for the Corporation's financial statements for
the year ended December 31, 1998. This Statement is not expected to have a
material impact on the Corporation's financial statements.
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
O'Sullivan Corporation
Winchester, Virginia
We have reviewed the accompanying consolidated balance sheet of O'Sullivan
Corporation and Subsidiaries as of June 30, 1998, and the related
consolidated statements of income for the three and six month periods
ended June 30, 1998 and 1997 and the related consolidated statements of cash
flows for the six month periods ended June 30, 1998 and 1997. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of O'Sullivan Corporation and Subsidiaries as of
December 31, 1997, and the related statements of income and cash flows for
the year then ended (not presented herein); and in our report dated January
26, 1998, we expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1997 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
July 23, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Second Quarter, 1998 versus Second Quarter, 1997)
- ------------------------------------------------------------------------
Continuing Operations (Plastics Products Segment) Operating Results
O'Sullivan Corporation consolidated net sales for the three months ended
June 30, 1998 were $42.1 million, a decrease of $2.6 million or 5.7%,
compared to net sales of $44.7 million for the three months ended June 30,
1997. The sales decrease for the period was primarily a result of reduced
sales of automotive-related products. Approximately 30% of the reduction
resulted from a stoppage in shipments to tier-one suppliers of General Motors
caused by the strike against General Motors by the United Auto Workers union.
The balance of the decline in automotive-related sales was caused by product
mix changes. Sales of industrial products increased moderately for the
three months ended June 30, 1998 when compared to the same period for 1997.
The gross margin was 18.5% for the three months ended June 30, 1998 and 17.2%
for the three months ended June 30, 1997. The improvement in the gross
margin was due to stable raw material prices and manufacturing efficiencies
attained in the 1998 period. The improvement in manufacturing efficiences
offset higher labor and benefit costs incurred as a result of product mix
changes during the period.
Selling and warehousing expenses increased by $169 thousand for the second
quarter, year to year. Sales consulting costs and increased direct employee
selling expenses were primary factors in the increased expense. The selling
and warehousing expenses were 3.6% of sales for 1998 and 3.0% for 1997.
General and administrative expenses increased by $266 thousand for the second
quarter of 1998 compared to 1997. The increase in professional fees was the
major change in general and administrative costs for the period, year to year.
These expenses were 4.0% of net sales for the second quarter of 1998 and
3.2% for the second quarter of 1997.
The operating margins for the quarter ended June 30, 1998 and 1997 were
substantially the same, 11.0% versus 11.1%. Gross margin improvements for
1998 were offset by the increases in selling and warehousing and general and
administrative expenses.
Other income increased by approximately $87 thousand for the quarter ended
June 30, 1998 when compared to 1997. A decline in interest income was offset
by increased income from a non-consolidated affiliate and from the sale of
assets.
Income tax expense was $1.9 million for the second quarter of 1998 and $2.2
million for the second quarter of 1997. The decrease in the provision for
income taxes resulted primarily from a reduced charge for state income tax
expense. The Corporation's effective tax rate for the second quarter of 1998
was 36.1% compared to 39.4% for the second quarter of 1997. The reduction in
the effective rate was due to the reduced charge for state income taxes and
improved earnings of the non-consolidated affiliate.
Results of Operations (Six Months Ended June 30, 1998 versus
Six Months Ended June 30, 1997)
- ------------------------------------------------------------
Continuing Operations (Plastics Products Segment) Operating Results
Consolidated net sales were $84.1 million for the six months ended June 30,
1998, a decrease of 1.3% from 1997 sales through June 30, 1997 of $85.2
million. The sales decline for the 1998 period is related to the decline in
sales of automotive-related products. The sales loss resulting from the
United Auto Workers strike was responsible for a significant portion of the
decline in 1998 sales through June 30. Product mix changes in sales to the
automotive markets also contributed to the decline. Sales of industrial
products experienced a minor increase over 1997.
The gross margin was 17.4% through June 30, 1998 compared to 16.2% for the
six months ended June 30, 1997. As described in the second quarter analysis,
stable raw material prices and improved manufacturing efficiencies caused an
improvement in the gross margin, offsetting higher labor and benefit costs
during the 1998 period.
Selling and warehousing expenses were 3.5% and 3.0% of sales for the six
months ended June 30, 1998 and 1997, respectively. The increase of $346
thousand was a result of higher marketing-related costs for advertising and
sales consultants. General and administrative expenses increased by $269
thousand from 1997 to 1998. The primary increase was for professional fees.
These expenses were 3.8% and 3.5% of sales for the six months ended June 30,
1998 and 1997.
The operating margin improved from 9.7% to 10.2% primarily due to the
improvement in gross margins for the period. The gross margin improvement
was substantially more than the increase in operating expenses over the
period.
Other income through June 30, 1998 increased by approximately $130 thousand
when compared to the similar period for 1997. Improved results of a
non-consolidated affiliate and gains from asset sales offset a decline in
interest income of $368 thousand for the period.
The effective tax rate declined from 39.0% for the six months ended June 30,
1997 to 36.4% for the similar period for 1998. As described in the second
quarter analysis, the decline can be attributed to a reduced charge for
state income taxes and improved results from the non-consolidated affiliate.
Income tax expense was $3.7 million and $3.8 million for the six months ended
June 30, 1998 and 1997, respectively.
Liquidity and Capital Resources
The Corporation's operating activities provided net cash of $8.9 million for
the first six months of 1998 compared to net cash provided by operating
activities of $9.1 million for the first six months of 1997. Both fiscal
periods experienced comparable levels of net income, depreciation and working
capital requirements.
Net cash used in investing activities increased by $1.4 million for 1998
compared to 1997. Capital outlay increased by $2.8 million over 1997. This
increase was partially offset by the absence of funding requirements for
discontinued operations experienced during the first six months of 1997. The
increase in capital expenditures was primarily due to outlays related to the
additional coating facility being constructed to accommodate existing and new
business. The Corporation anticipates that capital expenditures for the
remainder of 1998 will be substantially in excess of 1997 levels because of
funding required to complete the coating facility and continue installation
of additional laminating equipment. Total capital outlay for 1998 is expected
to be between $12 and $14 million.
Net cash used in financing activities increased by $450 thousand for 1998
compared to the similar period of 1997. The increase was due to increased
amounts of cash used to purchase the Corporation's common stock under the
Corporation's Stock Repurchase Plan.
The Corporation has in place a $50 million line of credit. At June 30, 1998
the line of credit was uncommitted.
Management believes that net cash flow from operating activities, available
financing capabilities and existing cash will be adequate to meet the
Corporation's funding requirements for working capital, capital expenditures
and acquisition activities for the remainder of 1998.
Year 2000
In 1997 the Corporation began an assessment as to its potential exposure to
business interruption due to Year 2000 computer software and hardware
failures. The Corporation's MIS department has made substantial progress in
identifying areas of concern. By June 30 1998, the department had begun
updating and testing identified problem areas. They expect to have all
systems tested and modified well in advance of the end of 1999. Other
personnel of the Corporation have been charged with the responsibility of
reviewing software and hardware utilized in the operation of the
Corporation's manufacturing equipment. Their review of this software and
hardware internally and with representatives of the creators of this software
and hardware have revealed no material deficiencies which could jeopardize
the operation of the Corporation's direct manufacturing equipment.
The Corporation has also initiated communications with suppliers and major
customers to determine if any problems exist in connection with electronic
interfaces. Since there are no guarantees that O'Sullivan Corporation will
be able to rely on others to have their systems converted in a timely manner
for Year 2000 compliance, the Corporation has been developing a strategy to
continue business transactions with customers and suppliers in the event of
interface disruptions.
The Corporation's cost of identifying and modifying programs is expected to
have an immaterial effect on future operating results since for several years
it has had a plan to regularly upgrade the software and hardware for the
Corporation's primary operations systems. This plan has caused the systems
to be continually reviewed and modified as business conditions warrant.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and its Subsidiaries are involved in legal proceedings
incidental to their normal business activities. While the outcome of these
proceedings cannot be completely predicted, the Corporation does not believe
the ultimate resolution of any existing matters will have a material adverse
effect on its financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The results of the vote for the 1998 annual shareholders meeting were
included under Item 4 of the Corporation's Form 10-Q for the quarter
ended March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Article 5 of Regulation S-X, Financial Data Schedule for
the second quarter, 1998 Form 10-Q.
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
O'SULLIVAN CORPORATION
/s/ John S. Campbell
-------------------------------------
John S. Campbell
President and Chief Executive Officer
/s/ C. Bryant Nickerson
-------------------------------------
C. Bryant Nickerson
Secretary, Treasurer
and Chief Financial Officer
August 13, 1998
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