SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 1998 there were 15,742,722 shares of Common Stock, Par
Value $1, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
(Unaudited)
ASSETS ------------- -------------
Current Assets
Cash and cash equivalents $ 35,589,638 $ 35,444,138
Receivables 29,001,758 25,658,216
Inventories 21,213,778 20,674,689
Deferred income tax assets 1,057,481 1,041,564
Other current assets 1,625,084 3,234,108
------------- -------------
Total current assets $ 88,487,739 $ 86,052,715
------------- -------------
Property, Plant and Equipment $ 40,726,870 $ 40,316,399
------------- -------------
Other Assets $ 11,410,487 $ 11,662,582
------------- -------------
Total assets $ 140,625,096 $ 138,031,696
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 10,427,861 $ 9,988,826
Accrued expenses 6,919,420 5,968,248
------------- -------------
Total current liabilities $ 17,347,281 $ 15,957,074
------------- -------------
Other Long-Term Liabilities $ 8,265,971 $ 8,404,635
------------- -------------
Deferred Income Tax Liabilities $ 593,697 $ 954,921
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 15,742,862 $ 15,743,062
Additional paid-in capital 2,716,191 2,717,863
Retained earnings 95,959,094 94,254,141
------------- -------------
Total stockholders' equity $ 114,418,147 $ 112,715,066
------------- -------------
Total liabilities and
stockholders' equity $ 140,625,096 $ 138,031,696
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLDATED STATEMENTS OF INCOME
(Unaudited)
For The Three Months
Ended March 31,
-----------------------------
1998 1997
------------- -------------
Net sales $ 41,946,284 $ 40,463,805
Cost of products sold 35,081,839 34,371,220
------------- -------------
Gross profit $ 6,864,445 $ 6,092,585
------------- -------------
Operating expenses
Selling and warehousing $ 1,427,662 $ 1,251,246
General and administrative 1,533,175 1,530,424
------------- -------------
$ 2,960,837 $ 2,781,670
------------- -------------
Income from operations $ 3,903,608 $ 3,310,915
------------- -------------
Other income
Interest income $ 508,535 $ 666,295
Other, net 279,487 79,118
------------- -------------
$ 788,022 $ 745,413
------------- -------------
Income from continuing operations
before income taxes $ 4,691,630 $ 4,056,328
Income taxes 1,727,269 1,558,321
------------- -------------
Income from continuing operations $ 2,964,361 $ 2,498,007
Loss from discontinued operations,
net of taxes -- -- (274,030)
------------- -------------
Net income $ 2,964,361 $ 2,223,977
============= =============
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
For The Three Months
Ended March 31,
-----------------------------
1998 1997
------------- -------------
Net income (loss) per common share,
basic and diluted:
Net income per common share from
continuing operations $ .19 $ .16
Net loss per common share from
discontinued operations -- -- (.02)
------------- -------------
Net income per common share $ .19 $ .14
============= =============
Dividends per common share $ .08 $ .08
============= =============
Average shares outstanding 15,742,975 15,803,222
============= =============
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 Three Months
Ended March 31,
---------------------------
1998 1997
------------ ------------
Cash Flows from Operating Activities
Net income from continuing operations $ 2,964,361 $ 2,498,007
Adjustments to reconcile net income
from continuing operations to net
cash provided by operating activities
of continuing operations:
Depreciation 1,538,700 1,356,900
Provision for doubtful accounts 20,000 -- --
Deferred income taxes (377,141) (14,403)
(Gain) on disposal of assets (45,298) (9,906)
Unremitted (income) from joint venture (247,522) (54,903)
Changes in assets and liabilities:
Receivables (3,363,542) (1,636,770)
Inventories (539,089) 269,362
Other current assets 1,487,506 1,782,676
Accounts payable 439,035 (704,864)
Accrued expenses 957,014 743,704
Postemployment benefits and
deferred compensation (141,365) (44,150)
Other noncurrent operating assets
and liabilities 5,851 53,978
------------ ------------
Net cash provided by operating activities $ 2,698,510 $ 4,239,631
------------ ------------
Cash Flows from Investing Activities
Additions to property, plant and equipment $ (1,987,736) $ (1,381,051)
Proceeds from disposal of assets 553,168 14,287
Payments received from non-operating
notes receivable 52,924 41,807
Change in other assets 60,340 (306,548)
Funds advanced to discontinued operations -- -- (1,933,474)
Other, net 29,575 (362,987)
------------ ------------
Net cash (used in) investing activities $ (1,291,729) $ (3,927,966)
------------ ------------
Cash Flows from Financing Activities
Purchase of common stock $ (1,873) $ (993,803)
Cash dividends paid (1,259,408) (1,262,144)
------------ ------------
Net cash (used in) financing activities $ (1,261,281) $ (2,255,947)
------------ ------------
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For The Three Months
Ended March 31,
---------------------------
1998 1997
------------ ------------
Increase (decrease) in cash and
cash equivalents $ 145,500 $ (1,944,282)
Cash and cash equivalents at beginning
of period 35,444,138 6,192,431
------------ ------------
Cash and cash equivalents at end
of period $ 35,589,638 $ 4,248,149
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the
accounts of O'Sullivan Corporation and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have not been included in these statements. These
statements should be read in conjunction with the financial statements notes
and other disclosures thereto included in the Corporation's 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 March 31, 1998 and December 31, 1997
and the results of its operations and cash flows for the three months ended
March 31, 1998 and 1997. The results of operations for the three months
ended March 31, 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
Receivables
Trade receivables $ 29,571,814 $ 26,228,366
Less allowance for doubtful accounts 570,056 570,150
------------- ------------
$ 29,001,758 $ 25,658,216
============ ============
Net receivables balances for automotive related business were $15,613,955 at
March 31, 1998 and $14,711,831 at December 31, 1997.
Inventories
Finished goods $ 5,163,776 $ 4,505,483
Work in process 4,094,941 3,385,687
Raw materials 8,365,786 9,380,683
Supplies 3,589,275 3,402,836
------------ ------------
$ 21,213,778 $ 20,674,689
============ ============
Property, Plant and Equipment
Land $ 1,454,935 $ 1,414,776
Buildings 27,942,736 27,762,932
Machinery and equipment 60,155,330 58,458,348
Transportation equipment 4,013,891 3,981,665
------------ ------------
$ 93,566,892 $ 91,617,721
Less accumulated depreciation 52,840,022 51,301,322
------------ ------------
$ 40,726,870 $ 40,316,399
============ ============
Accrued Expenses
Accrued compensation $ 2,578,604 $ 2,540,290
Employee benefits 1,087,926 886,467
Dividends payable 1,251,789 1,257,623
Income taxes payable 972,649 -- --
Other accrued expenses 1,028,452 1,283,868
------------ ------------
$ 6,919,420 $ 5,968,248
============ ============
Other Long-Term Liabilities
Deferred compensation $ 3,871,444 $ 3,978,100
Employee benefits 848,167 845,466
Postemployment benefits 1,046,360 1,081,069
Contingency reserve for discontinued
operations 2,500,000 2,500,000
------------ ------------
$ 8,265,971 $ 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 March 31,
---------------------------
1998 1997
------------ ------------
Net sales $ 4,180,098 $ 1,753,383
Gross profit $ 862,265 $ 322,964
Net income $ 505,147 $ 112,046
Registrant's share of net income $ 247,522 $ 54,903
Note D. Earnings Per Share
The following shows the weighted average number of shares used in computing
earnings per share and the effect on weighted average number of shares of
diluted potential common stock.
March 31, March 31,
1998 1997
---------- ----------
Weighted average number of common shares
used in earnings per common share 15,742,975 15,803,222
Effect of dilutive securities:
Stock options 7,393 3,964
---------- ----------
Weighted average number of common shares
used in earnings per common share-
assuming dilution 15,750,368 15,807,186
========== ==========
Options on approximately 222,750 and 271,345 were not included in computing
earnings per common share-assuming dilution for the three months ended March
31, 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 months ended
March 31, 1997 have been segregated in the accompanying income statements.
Income tax benefits for the three months ended March 31, 1997 were $(151,535).
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 Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
Cash payments for interest $ -- -- $ 7,108
========== ==========
Cash payments for income taxes $ 194,645 $ 192,726
========== ==========
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
O'Sullivan Corporation
Winchester, Virginia
We have reviewed the accompanying condensed consolidated balance sheet of
O'Sullivan Corporation and Subsidiaries as of March 31, 1998, and the
related condensed consolidated statements of income and cash flows for the
three month periods ended March 31, 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
condensed 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
April 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (First Quarter, 1998 versus First Quarter, 1997)
- ----------------------------------------------------------------------
Continuing Operations (Plastics Products Segment) Operating Results
O'Sullivan Corporation's consolidated net sales were $41.9 million for the
first quarter of 1998 and $40.5 million for the first quarter of 1997. The
sales increase over the first quarter of 1997 was $1.5 million or 3.7%. Both
the automotive and industrial components of the business experienced sales
increases over the first quarter of 1997. The increase in automotive sales
was slightly greater than the increase in industrial sales.
The gross margin was 16.4% for the first quarter of 1998 and 15.1% for the
first quarter of 1997. The improvement in the gross margin was due to the
increased sales volume, changes in product mix, manufacturing efficiency
improvements and marginally lower raw material costs.
Selling and warehousing expenses were 3.4% of net sales for the first quarter
of 1998 and 3.1% for the first quarter of 1997. The increased costs for 1998
resulted from increased compensation, advertising and sales consulting fees.
General and administrative expenses were 3.7% of net sales for the first
quarter of 1998 and 3.8% for the first quarter of 1997.
Income tax expense was $1.7 million for the first quarter of 1998 and $1.6
million for the first quarter of 1997. The increase in the provision for
income taxes resulted from the higher level of pre-tax income for the first
quarter of 1998, although the effective tax rate was lower for the first
quarter of 1998. The Corporation's effective tax rate for the first quarter
of 1998 was 36.8% compared to 38.4% for the first quarter of 1997. The
reduction in the effective rate was due to a reduced charge for state income
taxes and a reduction in the effective federal rate.
Net other income increased by approximately $43 thousand compared to the
first quarter of 1997. The net increase resulted from improved earnings of
a non-consolidated affiliate when compared to the first quarter of 1997,
which exceeded the decreased earnings from interest income for the quarter.
Liquidity and Capital Resources
Operating activities provided net cash of $2.7 million for the first quarter
of 1998 compared to net cash provided by operating activities of $4.2 million
for the first quarter of 1997. Cash provided by operating activities in the
first quarter of 1998 plus the proceeds provided from the sale of assets were
used to make property, plant and equipment purchases during the quarter and
to pay dividends. The improved net cash flow for the quarter when compared
to 1997 primarily resulted from reduced outlays for purchase of the
Corporation's stock and advances to fund discontinued operations.
Capital outlay was $2.0 million for the first quarter of 1998 and $1.4
million for the first quarter of 1997. Current capital expenditures are
primarily to provide additional capacity and modernize present equipment to
produce products for which orders currently exist. Total capital outlay for
1998 is expected to be between $12.5 and $14.5 million.
The Corporation has renewed through June 30, 2000, its line of credit with
First Union National Bank of Virginia to provide capital to finance capital
outlay and/or acquisitions. The amount of the line of credit has been
increased to $50,000,000.
Management believes that net cash flow from operating activities, along with
available financing capabilities will be adequate to meet the Corporation's
funding requirements for 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and its Subsidiaries are involved in legal proceedings
incidental to their normal business activities. While the outcome of these
proceedings cannot be completely predicted, the Corporation does not believe
the ultimate resolution of any existing matters will have a material adverse
effect on its financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of O'Sullivan Corporation was held on
April 29, 1998, for the purpose of electing a board of directors and
approving the appointment of independent auditors. Proxies for the meeting
were solicited pursuant to Section 14(a) of the Securities Exchange Act of
1934 and there was no solicitation in opposition to management's
solicitation. All of management's nominees for directors as listed in the
proxy statement were elected.
Proxy Vote Proxy Vote Proxy Vote
Name of Director For Against Abstain
- ----------------- ---------- ------- -------
C. Hugh Bloom, Jr. 12,904,169 281 127,752
Arthur H. Bryant, II 12,904,369 81 127,752
Magalen O. Bryant 12,205,966 698,284 127,952
Robert L. Burrus, Jr. 12,902,586 501 129,115
Max C. Chapman, Jr. 12,901,857 1,480 128,865
James T. Holland 12,898,965 2,441 130,796
R. Michael McCullough 12,903,849 601 127,752
Stephen P. Munn 12,902,786 301 129,115
Timothy J. Sandker 12,903,036 301 128,865
Leighton W. Smith, Jr. 12,963,137 301 68,764
The proposal for approving Yount, Hyde and Barbour, P.C. as independent
auditors for 1998 was approved by the following proxy vote:
For 12,952,871
Against 55,466
Abstain 23,865
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3 The O'Sullivan Corporation 1995 Stock Option Plan
filed as exhibit 99.1 to the Corporation's Form S-8
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, 1993.)
10.6 Severance Agreement between O'Sullivan Corporation and
James T. Holland, President and Chief Executive
Officer. (Incorporated by reference to the Annual
Report on Form 10-K for the Year Ended December
31, 1997.)
27 Article 5 of Regulation S-X, Financial Data Schedule
for the first quarter, 1998 Form 10-Q.
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 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/ James T. Holland
-------------------------------------
James T. Holland
President and Chief Executive Officer
/s/ C. Bryant Nickerson
-------------------------------------
C. Bryant Nickerson
Secretary, Treasurer
and Chief Financial Officer
May 12, 1998
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