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, 1998
[ ] 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 (IRS 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 8, 1999 (based on the last sale price on the American
Stock Exchange as of such date) was $130,607,723.
The number of shares of the registrant's Common Stock, Par Value $ 1,
outstanding as of March 8, 1999 was 15,594,952.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Meeting of
Stockholders on April 28, 1999 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.
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. In July, 1997, the Corporation sold
this business. The sale involved substantially all assets of the business,
including the stock of Melnor Inc.'s Canadian subsidiary. The sale was for
approximately $22.0 million which included $2.5 million designated for an
escrow account. All of this escrow was returned to the purchaser
of the business because the business operations did not meet certain
thresholds. The disposal of this business in 1997 was treated as a
discontinued operation in the accompanying financial statements.
The Corporation's activities are now conducted in a single business segment:
calendered plastics products which manufactures calendered plastics products
for the automotive and specialty plastics manufacturing industries.
PLASTICS PRODUCTS BUSINESS
The Corporation's Plastics Products business 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 business 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; Canadian General Tower, Delphi Automotive Systems,
Ellay Corp., Haartz Corp., Intex Plastics Inc., Nanya Plastics Corporation,
Sandusky Vinyl Products and Vernon Plastics Inc.
2
Distribution of the segment's products is by direct sales to other
manufacturers.
The normal production backlog of the Plastic Products business 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 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
business. 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 Plastics,
Aristech Chemicals, Witco Corporation, Voltek Incorporated and Toray Plastics.
The Corporation possesses significant technology in the compounding,
formulation and manufacture of its products.
A significant customer of the Corporation accounting for ten percent or more
of the 1998 sales of the business was Ford Motor Company.
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
ensure continuing compliance with environmental regulations.
The Corporation and its Subsidiaries currently have approximately 900
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 643,000 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; and 85,000 square feet of manufacturing and
warehouse space on approximately thirty-eight acres in Yerington, Nevada.
The Corporation leases 29,250 square feet of warehouse space in St. Louis,
Missouri and 10,000 square feet of warehouse space in Yerington, Nevada. The
Corporation also leases space for sales offices located in Chicago, Illinois
and Bloomfield Hills, Michigan.
3
Management of the Corporation believes that unused capacity existed in the
Corporation's operations during 1998. 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of 1998.
4
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 1998 and 1997 are included as part of Note 18 of "Notes to
Consolidated Financial Statements" included elsewhere in this Form 10-K.
At December 31, 1998 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)
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
Net sales $163,178,700 $163,599,400 $171,218,487 $169,455,886 $149,438,108
Net income 11,589,461 8,813,858 14,113,747 15,496,033 10,460,397
Net income
per common
share .74 .56 .87 .94 .64
Total
assets 142,899,002 138,031,696 140,822,440 149,996,525 144,528,888
Cash dividends
per common
share .32 .32 .32 .31 .28
Return on
equity 10.3% 7.7% 12.2% 14.5% 9.6%
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1998 VERSUS 1997
Net sales in 1998 were $163.2 million compared to $163.6 million in 1997.
Net income from continuing operations was $11.6 million, $.74 per share, in
1998, compared to $8.8 million, $.56 per share, in 1997.
Sales of automotive-related products improved for 1998 compared to 1997, but
the increase was offset by a slightly greater decline in net sales for
industrial products. The results for the fourth quarter were even more
pronounced for the increase and decrease in sales of the two product types.
Gross profit increased $3.1 million in 1998. As a percent of sales, gross
profit was 17.6% in 1998 and 15.7% in 1997. The net improvement in 1998
resulted from decreased material costs, achieved through a combination of
lower raw material prices, improved formulations and manufacturing
efficiencies offset to some degree by higher labor and benefit costs.
Selling expenses, exclusive of the allowance for doubtful accounts, were
$5.6 million in 1998, 3.5% of net sales, and $5.1 million in 1997, 3.1% of
net sales. The increased costs resulted from marginal increases in
compensation and benefit charges and consulting charges. General and
administrative expenses were $6.1 million in 1998, 3.7% of net sales, and
$5.7 million in 1997, 3.5% of net sales. Increased costs were primarily
related to increased professional fees.
In 1997, postemployment benefits and deferred compensation expenses in the
amount of $3.5 million were charged to operations in connection with staff
reductions and the early retirement of certain executive officers. This
expense had an effect of $.14 per share in 1997.
Operating income increased by $2.2 million in 1998 exclusive of the 1998
charge of $1.1 million for an additional allowance for doubtful accounts and
the 1997 charge of $3.5 million for postemployment benefits and deferred
compensation expenses. The change was due entirely to the improvement in
the gross margin for 1998.
Net other income was $3.0 million in 1998 and $2.9 million in 1997. There
was a decline in interest income of approximately $.5 million in 1998, but
this decline was offset by the gains from sales of various non-operating
assets.
Income tax expense was $6.9 million in 1998 and $4.9 million in 1997. The
effective tax rate was 37.3% in 1998 and 35.8% in 1997. The increased
effective tax rate resulted primarily from higher state tax expense and
increased federal taxable income.
6
RESULTS OF OPERATIONS 1997 VERSUS 1996
Net sales in 1997 were $163.6 million compared to $171.2 million in 1996, a
decline of $7.6 million or 4.4%. Net income from continuing operations was
$8.8 million, $.56 per share in 1997, compared to $14.1 million, $.87 per
share, in 1996.
The sales decline in 1997 was due to lowered demand for products of the
industrial portion of the Corporation's business. The decline occurred
through the first nine months of 1997. In the fourth quarter, sales of the
industrial group returned to levels comparable to the final quarter of 1996.
Intense price competition continued to impact sales for this area of the
business. The automotive portion of the business had sales volumes similar
to 1996.
Gross profit decreased $5.4 million in 1997. As a percent of sales, gross
profit was 15.7% in 1997 and 18.1% in 1996. The decline in 1997 resulted
from a combination of increased material costs and higher unit costs for
certain labor and fixed manufacturing charges. The increased material costs
were caused by increased unit costs for raw materials along with a
significant expense associated with material consumed through sampling and
start-up of a new product line. The increased unit costs for certain labor
and fixed manufacturing charges were a direct result of the sales declines
experienced for 1997.
Selling expenses were $5.1 million in 1997, 3.1% of net sales, and $5.0
million in 1996, 2.9% of net sales. The increased costs resulted from
marginal increases in compensation and benefit charges. General and
administrative expenses were $5.7 million in both 1997 and 1996. As a
percent of net sales, the expenses were 3.5% in 1997 and 3.3% in 1996.
In 1997, postemployment benefits and deferred compensation expenses in the
amount of $3.5 million were charged to operations in connection with staff
reductions and the early retirement of certain executive officers. This
expense had an effect of $.14 per share in 1997.
Operating income decreased by $9.1 million in 1997. The decline was a
combination of decreased gross margins as a result of decreased sales and
increased material costs coupled with the $3.5 million charged for
postemployment benefits and deferred compensation.
Net other income, primarily interest income, was $2.9 million in 1997 and
$3.0 million in 1996.
Income tax expense was $4.9 million in 1997 and $8.8 million in 1996. The
effective tax rate was 35.8% in 1997 and 38.4% in 1996. The reduction in
income tax expense was due to the reduced level of income in 1997 and
adjustments made to estimated effective federal and state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $15.0 million in 1998,
compared to $20.2 in 1997 and $17.0 million in 1996. Cash and cash
equivalents were substantially the same at both December 31, 1998 and 1997.
Capital expenditures for property, plant and equipment for 1998 were $10.5
million compared to $4.9 million in 1997 and $5.9 million in 1996. The
7
increase was due to funds expended on an additional coating facility. 1999
capital expenditures are expected to be substantially similar to 1998 due
to the construction of an additional laminating facility, which is expected
to require an outlay of approximately $4.0 million. Other capital
expenditures, in amounts comparable to 1998, are planned by the Corporation to
provide additional capacity or modernize equipment to meet customer demands for
new or improved products or production processes.
The Corporation had no outstanding debt at December 31, 1998. There is in
place a $50 million line of credit, which expires in June 2000. At December
31, 1998, the line of credit was uncommitted.
The Corporation's Board of Directors has previously authorized the
repurchase of shares of the Corporation's common stock as market conditions
permit. Of the total authorization of 1.8 million shares, approximately
886,000 remain.
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 1999.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
equipment, software and other devices with embedded technology that are
date-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to manufacture products, acquire or ship inventory, process
transactions, send invoices or engage in other normal business activities.
Due to the significance of computer processing in the conduct of the
Corporation's business activities, failure of these systems could have a
materially adverse effect on the Corporation. In addition, the failure of
vendor computer systems could cause interruption of deliveries of key
supplies or utilities, which might result in similar material adverse
effects. Because of the complexity of the issues and the number of parties
involved, O'Sullivan cannot reasonably predict with certainty the nature or
likelihood of such impacts.
However, in 1997, the Corporation began an assessment of its potential
exposure to business interruption due to Year 2000 computer hardware and
software failures. The Corporation's MIS department has made substantial
progress in identifying areas of concern. Throughout 1998, the department
identified, tested and began modifying those systems determined to be
susceptible to Year 2000 operating failures. They have made significant
progress and expect to have all systems tested and modified well before the end
of 1999. 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 operating systems. This plan has caused the
systems to be continually reviewed and modified as business conditions
warrant. Incremental costs incurred to resolve Year 2000 issues were less
than $500,000. Any additional costs to be incurred are expected to be
immaterial.
8
In addition, the Corporation has initiated communications with suppliers and
major customers to determine, to the extent possible, if any problems exist in
connection with electronic interfaces. Since there are no guarantees that
O'Sullivan will be able to rely on others to have their systems converted in a
timely manner, the Corporation has been developing a strategy to continue
business transactions with customers and suppliers in the event of interface
disruptions.
To prepare for the reasonably likely worst-case scenario, O'Sullivan has
developed a contingency plan to mitigate the effects on its operations in case
certain of its systems or suppliers fail to perform as planned. The
contingency plan consists of providing all required resources to repair
internal systems should they fail at critical times, as well as establishing
additional inventories and back-up procedures in the event suppliers are
unable to deliver raw materials and services in a timely manner.
The costs of the project and the date on which the Corporation plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third-party modification
plans and other factors. However, there can be no guarantees that these
estimates will be achieved and actual results could differ from those plans
currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the availability of personnel
trained in Year 2000 issues, the ability of third-party vendors to correct
their hardware and software, the ability of significant customers to remedy
their Year 2000 issues and similar circumstances.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation currently does not have market risk sensitive instruments.
9
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This page left blank intentionally. See following pages for financial
statements.
10
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 35,361,408 $ 35,444,138
Receivables 26,285,798 25,658,216
Inventories 23,411,945 20,674,689
Deferred income tax assets 1,307,151 1,041,564
Other current assets 2,379,394 3,234,108
------------- -------------
Total current assets $ 88,745,696 $ 86,052,715
------------- -------------
Property, Plant and Equipment $ 45,039,233 $ 40,316,399
------------- -------------
Other Assets $ 9,114,073 $ 11,662,582
------------- -------------
Total assets $ 142,899,002 $ 138,031,696
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,187,082 $ 9,988,826
Accrued expenses 6,435,752 5,968,248
------------- -------------
Total current liabilities $ 17,622,834 $ 15,957,074
------------- -------------
Other Long-Term Liabilities $ 6,254,471 $ 8,404,635
------------- -------------
Deferred Income Tax Liabilities $ 1,429,370 $ 954,921
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 15,594,982 $ 15,743,062
Additional paid-in capital 1,410,372 2,717,863
Retained earnings 100,829,647 94,254,141
Accumulated other comprehensive income (242,674) -- --
------------- -------------
Total stockholders' equity $ 117,592,327 $ 112,715,066
------------- -------------
Total liabilities and
stockholders' equity $ 142,899,002 $ 138,031,696
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
11
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Year Ended December 31,
1998 1997 1996
------------ ------------ ------------
Net sales $163,178,700 $163,599,400 $171,218,487
Cost of products sold 134,444,519 137,976,808 140,180,005
------------ ------------ ------------
Gross profit $ 28,734,181 $ 25,622,592 $ 31,038,482
------------ ------------ ------------
Operating expenses
Selling and warehousing $ 5,629,965 $ 5,067,830 $ 4,923,111
Allowance for doubtful accounts 1,106,250 -- -- 77,000
General and administrative 6,087,002 5,701,472 5,650,032
Postemployment benefits and
deferred compensation 457,994 4,033,375 493,773
------------ ------------ ------------
$ 13,281,211 $ 14,802,677 $ 11,143,916
------------ ------------ ------------
Income from operations $ 15,452,970 $ 10,819,915 $ 19,894,566
------------ ------------ ------------
Other income
Interest income $ 2,012,626 $ 2,551,492 $ 2,590,080
Other, net 1,006,445 360,388 422,008
------------ ------------ ------------
$ 3,019,071 $ 2,911,880 $ 3,012,088
------------ ------------ ------------
Income from continuing opera-
tions before income taxes $ 18,472,041 $ 13,731,795 $ 22,906,654
Income taxes 6,882,580 4,917,937 8,792,907
------------ ------------ ------------
Income from continuing
operations $ 11,589,461 $ 8,813,858 $ 14,113,747
------------ ------------ ------------
Discontinued operations:
Loss from discontinued
operations, net of taxes $ -- -- $ ( 593,593) $ (3,384,254)
Loss on disposal of
discontinued operations,
net of taxes -- -- (3,674,046) -- --
------------ ------------ ------------
$ -- -- $ (4,267,639) $ (3,384,254)
------------ ------------ ------------
Net income $ 11,589,461 $ 4,546,219 $ 10,729,493
============ ============ ============
Net income (loss) per common share, basic and diluted:
Net income per common share from
continuing operations $ .74 $ .56 $ .87
Net loss per common share from
discontinued operations -- -- (.04) (.21)
Net loss per common share from disposal
of discontinued operations -- -- (.23) -- --
------------ ------------ ------------
Net income per common share $ .74 $ .29 $ .66
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements. 12
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended December 31,
1998 1997 1996
------------ ------------ ------------
Cash Flows from Operating Activities
Net income from continuing operations $ 11,589,461 $ 8,813,858 $ 14,113,747
Adjustments to reconcile net income
from continuing operations to net
cash provided by operating activities
of continuing operations:
Depreciation 5,713,650 5,464,100 5,177,727
Provision for doubtful accounts 1,106,250 -- -- 77,000
Deferred income taxes 339,532 (1,259,559) 975,985
Postemployment benefits and
deferred compensation (138,411) 3,373,377 301,173
Other operating assets and
long-term liabilities, net (184,157) (1,023,289) 132,420
(Gain)loss from disposal
of assets (682,041) 345,533 (552,461)
Unremitted (income) from
joint venture (327,864) (186,989) (19,071)
Interest accrual on zero coupon
notes receivable -- -- -- -- (4,538)
Changes in assets and liabilities:
Receivables (1,733,832) (1,870,188) (505,769)
Inventories (2,737,256) 5,732,595 1,332,390
Other current assets 347,825 757,469 (206,833)
Accounts payable 1,198,256 (280,859) (2,141,185)
Accrued expenses 467,508 351,640 (1,688,406)
------------ ------------ ------------
Net cash provided by operating
activities $ 14,958,921 $ 20,217,688 $ 16,992,179
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property, plant and
equipment $(10,453,849)$ (4,885,185) $ (5,888,238)
Proceeds from disposal of assets 1,863,658 205,037 1,306,488
Proceeds from disposal of subsidiary -- -- 21,958,209 -- --
Payments received from non-
operating notes receivable 1,371,000 207,289 2,417,883
Funds (advanced to) repayment from
discontinued operations -- -- 1,088,618 (5,628,416)
Investment in and loan to joint venture -- -- -- -- (441,000)
Change in other assets (1,352,934) (3,503,485) (626,447)
------------ ------------ ------------
Net cash provided by (used in)
investing activities $ (8,572,125)$ 15,070,483 $ (8,859,730)
------------ ------------ ------------
13
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended December 31,
1998 1997 1996
------------ ------------ ------------
Cash Flows from Financing Activities
Cash dividends $ (5,013,955)$ (5,040,428) $ (5,160,413)
Purchase of common stock (1,455,571) (996,036) (7,235,736)
------------ ------------ ------------
Net cash (used in)
financing activities $ (6,469,526)$ (6,036,464) $(12,396,149)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents $ (82,730)$ 29,251,707 $ (4,263,700)
Cash and cash equivalents at
beginning of period 35,444,138 6,192,431 10,456,131
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 35,361,408 $ 35,444,138 $ 6,192,431
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
14
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1997 and 1996
Additional
Common Paid-in Retained
Stock Capital Earnings
------------ ------------ ------------
Balance at January 1, 1996 $ 16,510,402 $ 10,182,295 $ 89,453,514
Comprehensive income
Net income -- -- -- -- 10,729,493
Other comprehensive income, net of tax
Foreign currency translation adjustment,
net of tax -- -- -- -- -- --
Minimum pension liability adjustment,
net of tax -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Purchase of common stock (659,840) (6,575,896) -- --
Dividends declared, $.32 per share -- -- -- -- (5,160,413)
------------ ------------ ------------
Balance at December 31, 1996 $ 15,850,562 $ 3,606,399 $ 95,022,594
Comprehensive income
Net income -- -- -- -- 4,546,219
Other comprehensive income, net of tax
Foreign currency translation adjustment,
net of reclassification adjustment resulting
from sale of foreign entity, net of tax -- -- -- -- (274,244)
Minimum pension liability adjustment,
net of tax -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Purchase of common stock (107,500) (888,536) -- --
Dividends declared, $.32 per share -- -- -- -- (5,040,428)
------------ ------------ ------------
Balance at December 31, 1997 $ 15,743,062 $ 2,717,863 $ 94,254,141
Comprehensive income
Net income -- -- -- -- 11,589,461
Other comprehensive income, net of tax
Minimum pension liability adjustment,
net of tax -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Purchase of common stock (148,080) (1,307,491) -- --
Dividends declared, $.32 per share -- -- -- -- (5,013,955)
------------ ------------ ------------
Balance at December 31, 1998 $ 15,594,982 $ 1,410,372 $100,829,647
============ ============ ============
15
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1997 and 1996
Accumulated
Other Compre- Comprehensive Stockholders'
hensive Income Income Equity
------------ ------------ ------------
Balance at January 1, 1996 $ (383,246) $115,762,965
Comprehensive income
Net income -- -- $ 10,729,493 10,729,493
------------
Other comprehensive income, net of tax
Foreign currency translation adjustment,
net of tax $ (23,225) (23,225)
Minimum pension liability adjustment,
net of tax (74,762) (74,762)
------------
Other comprehensive income (97,987) $ (97,987)
------------
Comprehensive income $ 10,631,506
============
Purchase of common stock -- -- (7,235,736)
Dividends declared, $.32 per share -- -- (5,160,413)
------------ ------------ ------------
Balance at December 31, 1996 $ (481,233) $113,998,322
Comprehensive income
Net income -- -- $ 4,546,219 4,546,219
------------
Other comprehensive income, net of tax
Foreign currency translation adjustment,
net of reclassification adjustment resulting
from sale of foreign entity, net of tax $ 243,791 (30,453)
Minimum pension liability adjustment,
net of tax 237,442 237,442
------------
Other comprehensive income 481,233 $ 481,233
------------
Comprehensive income $ 5,027,452
============
Purchase of common stock -- -- (996,036)
Dividends declared, $.32 per share -- -- (5,040,428)
------------ ------------ ------------
Balance at December 31, 1997 $ -- -- $112,715,066
Comprehensive income
Net income -- -- $ 11,589,461 11,589,461
------------
Other comprehensive income, net of tax
Minimum pension liability adjustment,
net of tax (242,674) $ (242,674) (242,674)
------------
Comprehensive income $ 11,346,787
============
Purchase of common stock -- -- (1,455,571)
Dividends declared, $.32 per share -- -- (5,013,955)
------------ ------------ ------------
Balance at December 31, 1998 $ (242,674) $117,592,327
============ ============
The accompanying notes are an integral part of the consolidated financial
statements. 16
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
O'Sullivan Corporation ("O'Sullivan" or "the Corporation") manufactures
calendered plastics products for the automotive and specialty manufacturing
industries. The most substantial portion of the Corporation's business is
conducted in North American markets.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of all
Subsidiaries. Significant intercompany accounts and transactions have been
eliminated. 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 preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management 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
Cash and cash equivalents include cash and highly liquid investments with an
original maturity of three months or less.
Receivables and Concentration of Credit Risk
Receivables from trade customers are generally due within thirty to ninety
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.
Investment Securities
Investment securities held principally for the purpose of selling them in
the near term are classified as trading securities. Trading securities are
17
recorded in other current assets at fair value with the change in fair value
during the period included in earnings. At December 31, 1997, other current
assets included securities with a fair value of $507,870. These securities
were sold during 1998. At December 31, 1998 and 1997, O'Sullivan had no
investments in derivative financial instruments.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at historical cost. 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 ten 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 disposition of assets, the cost
and related accumulated depreciation is removed from the accounts, and the
resulting gain or loss is reflected in operations.
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. Advertising costs were $182,423 for 1998, $89,090 for 1997, and
$76,122 for 1996.
Research and Development
O'Sullivan conducts a broad range of research and development activities.
These activities are aimed at improving existing products and manufacturing
processes and developing new products and processes.
Product and process research and development activities are charged to
expense as incurred. The amounts incurred in 1998, 1997 and 1996 were
$3,264,955, $2,739,388 and $2,554,826, respectively.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Statement No.
128 replaced the calculation of primary and diluted earnings per share with
18
basic and diluted earnings per share. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities and is
calculated by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the year. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share as it reflects the potential dilution that could occur if
dilutive securities and other contracts to issue common stock were exercised
or converted into common stock. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to
the Statement No. 128 requirements.
Pension Plans
The Corporation and its Subsidiaries have retirement plans that cover
substantially all employees who meet certain eligibility requirements. The
Retirement Savings Plan ("Plan") is a 401(K) plan under which the majority
of the Corporation's employees are covered. The plan permits eligible
employees to contribute up to ten percent of before-tax compensation and up
to five percent of after-tax compensation subject to certain Internal
Revenue Service restrictions. The Corporation may, in its discretion, make
an Employer Basic Contribution of up to three percent of each participant's
compensation each year. The Corporation may also, in its discretion, make
an Employer Matching Contribution of up to two percent for participants who
have elected to make before-tax contributions to the plan. After three
years of service, participants become 100% vested in the employer
contributions for each participant.
Current and former employees not covered under the Retirement Savings Plan
are participants in either multiemployer plans sponsored by other entities
or non-contributory defined benefit plans. The plans provide 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.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits". This Statement revises
employers disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The
Statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligation and fair value of plan assets
that will facilitate financial analysis and eliminates certain disclosures.
The Statement is effective for the Corporation's financial statements for
the year ended December 31, 1998. Information for prior years has been
restated to conform to the Standard.
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 of Financial Accounting Standards No. 106, "Employers
19
Accounting for Postretirement Benefits other than Pensions" 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.
Postemployment Benefits
The liability and expense for postemployment benefits are accrued when the
obligations vest and can be reasonably estimated. Obligations that do not
vest are recorded when payment of the benefits is probable and can be
reasonably estimated.
Reclassification of Amounts
Certain amounts for 1997 and 1996 have been reclassified to conform to the
1998 presentation.
2. Supplementary Balance Sheet Detail
Balances at December 31, 1998 1997
------------ ------------
Receivables
Accounts receivable $ 27,008,437 $ 26,228,366
Less allowance for doubtful accounts 722,639 570,150
------------ ------------
$ 26,285,798 $ 25,658,216
============ ============
Receivable balances for automotive-related business were $17,375,273
at December 31, 1998, and $14,711,831 at December 31, 1997.
Inventories
Finished goods $ 4,971,465 $ 4,505,483
Work in process 5,708,598 3,385,687
Raw materials 9,110,258 9,380,683
Supplies 3,621,624 3,402,836
------------ ------------
$ 23,411,945 $ 20,674,689
============ ============
Property, Plant and Equipment
Land $ 1,558,382 $ 1,414,776
Buildings 32,049,426 27,762,932
Machinery and equipment 64,357,301 58,458,348
Transportation equipment 4,070,761 3,981,665
------------ ------------
$102,035,870 $ 91,617,721
Less accumulated depreciation 56,996,637 51,301,322
------------ ------------
$ 45,039,233 $ 40,316,399
============ ============
Depreciation expense totaled $5,713,650, $5,464,100 and $5,177,727 in
1998, 1997 and 1996, respectively.
20
Accrued Expenses
Accrued compensation $ 2,590,716 $ 2,527,053
Employee benefits 1,090,660 886,467
Dividends payable 1,245,769 1,257,623
Other accrued expenses 1,508,607 1,297,105
------------ ------------
$ 6,435,752 $ 5,968,248
============ ============
Other Long-Term Liabilities
Deferred compensation $ 4,005,363 $ 3,978,100
Employee benefits 1,333,713 845,466
Postemployment benefits 915,395 1,081,069
Contingency reserve for
discontinued operations -- -- 2,500,000
------------ ------------
$ 6,254,471 $ 8,404,635
============ ============
The contingency reserve for discontinued operations was an allowance for
potential adjustments relating to the sale of the Corporation's former
consumer products subsidiary (See note 14).
3. Debt
The Corporation has a $50,000,000 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, 2000.
There was no outstanding balance at December 31, 1998.
4. Income Tax Matters
Income from continuing operations before income taxes was taxed
entirely by domestic jurisdictions.
The provision for income taxes charged to continuing operations consists
of the following:
1998 1997 1996
------------ ------------ ------------
Current
Federal $ 5,019,226 $ 5,119,111 $ 6,681,713
State 1,523,822 1,058,385 1,021,619
------------ ------------ ------------
$ 6,543,048 $ 6,177,496 $ 7,703,332
------------ ------------ ------------
Deferred
Federal $ 517,327 $ (1,037,444) $ 951,017
State (177,795) (222,115) 138,558
------------ ------------ ------------
$ 339,532 $ (1,259,559) $ 1,089,575
------------ ------------ ------------
$ 6,882,580 $ 4,917,937 $ 8,792,907
============ ============ ============
21
The following is a reconciliation of the statutory Federal income tax rates
to the Corporation's effective tax rate:
1998 1997 1996
-------- -------- --------
Statutory federal tax rate 35.0% 35.0% 35.0%
Income taxed at lower federal tax rate -- -- (.7) -- --
State taxes, net of federal benefit 4.7 4.0 3.3
Business credits (.8) (.6) (.4)
Other (1.6) (1.9) .5
-------- -------- --------
37.3% 35.8% 38.4%
======== ======== ========
Net deferred tax assets (liabilities) at December 31, 1998 and 1997,
consisted of the following components:
1998 1997
------------ ------------
Deferred tax assets
Provision for doubtful accounts $ 279,907 $ 224,709
Employee benefits 3,060,966 2,970,247
Inventory basis differences 61,338 109,675
Contingency reserve for
discontinued operations 131,148 1,024,453
State operating loss carryforward 197,107 65,300
Other 20,000 -- --
------------ ------------
$ 3,750,466 $ 4,394,384
------------ ------------
Deferred tax liabilities
Property, plant and equipment $ 3,342,946 $ 3,608,737
Like-kind exchange 237,374 254,856
Employee benefits 292,365 241,000
Investment securities -- -- 203,148
------------ ------------
$ 3,872,685 $ 4,307,741
------------ ------------
Net deferred tax assets (liabilities) $ (122,219) $ 86,643
============ ============
The deferred tax amounts included above have been classified on the
Consolidated Balance Sheets for December 31, 1998 and 1997, as follows:
1998 1997
------------ ------------
Current assets $ 1,307,151 $ 1,041,564
Noncurrent liabilities (1,429,370) (954,921)
------------ ------------
Net deferred tax assets (liabilities) $ (122,219) $ 86,643
============ ============
22
5. Benefit Plans
Defined Benefit and Postretirement Benefit Plans
The following tables provide a reconciliation of the changes in the benefit
obligations and fair value of assets for the years ended December 31, 1998
and 1997, and a statement of the funded status as of December 31, 1998 and
1997, for the pension plans and postretirement benefit plan of the
Corporation and its Subsidiaries:
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Reconciliation of Benefit Obligation
Obligation at January 1 $ 8,739,489 $ 8,505,089 $ 348,000 $ 408,000
Service cost 70,319 77,867 -- -- -- --
Interest cost 601,189 579,703 18,300 26,000
Participant contributions -- -- -- -- 4,000 5,600
Actuarial (gain) loss 637,660 12,208 (51,000) -- --
Benefit payments (484,564) (435,378) (65,300) (91,600)
----------- ----------- --------- ---------
Obligation at December 31 $ 9,564,093 $ 8,739,489 $ 254,000 $ 348,000
=========== =========== ========= =========
Reconciliation of Fair Value
Of Plan Assets
Fair value of plan assets
at January 1 $ 9,219,999 $ 7,991,911 $ -- -- $ -- --
Actual return on plan assets 188,101 1,538,466 -- -- -- --
Employer contributions 127,753 125,000 61,300 86,000
Participant contributions -- -- -- -- 4,000 5,600
Benefit payments (484,564) (435,378) (65,300) (91,600)
----------- ----------- --------- ---------
Fair value of plan assets
at December 31 $ 9,051,289 $ 9,219,999 $ -- -- $ -- --
=========== =========== ========= =========
Funded Status
Funded status at December 31 $ (512,804) $ 480,510 $(254,000) $(348,000)
Unrecognized transition (asset) (170,598) (190,240) -- -- -- --
Unrecognized prior-service cost 386,821 456,155 -- -- -- --
Unrecognized (gain) loss 614,506 (569,651) 20,000 71,000
----------- ----------- --------- ---------
Net amount recognized $ 317,925 $ 176,774 $(234,000) $(277,000)
=========== =========== ========= =========
The following table provides the amounts recognized in the statement of
financial position as of December 31, 1998 and 1997:
Prepaid benefit cost $ 730,913 $ 602,499 $ -- -- $ -- --
Accrued benefit liability (1,099,713) (568,466) (234,000) (277,000)
Intangible asset 313,381 53,190 -- -- -- --
Accumulated other comprehensive
income 373,344 89,551 -- -- -- --
----------- ----------- --------- ---------
Net amount recognized $ 317,925 $ 176,774 $(234,000) $(277,000)
=========== =========== ========= =========
23
Two pension plans of subsidiary corporations had accumulated benefit
obligations in excess of plan assets. The accumulated benefit obligations
were $6,838,444 at December 31, 1998, and $6,252,860 at December 31, 1997.
The fair value of plan assets for these plans were $5,738,731 at December
31, 1998, and $5,684,394 at December 31, 1997.
The following table provides the components of net periodic benefit cost
(income) for the years ended December 31, 1998, 1997 and 1996:
Pension Benefits
----------------
1998 1997 1996
---- ---- ----
Service cost $ 70,319 $ 77,867 $ 70,097
Interest cost 601,189 579,703 569,327
Expected return on plan assets (724,321) (631,335) (594,802)
Amortization of transition (asset) (19,642) (19,642) (19,642)
Amortization of prior-service cost 69,334 69,334 69,334
Amortization of net (gain) (10,277) -- -- -- --
----------- --------- ----------
Net periodic benefit cost (income) $ (13,398) $ 75,927 $ 94,314
=========== ========= ==========
Postretirement Benefits
-----------------------
1998 1997 1996
---- ---- ----
Interest cost $ 18,300 $ 26,000 $ 28,000
Amortization of net loss -- -- 5,000 2,000
----------- --------- ----------
Net periodic benefit cost $ 18,300 $ 31,000 $ 30,000
=========== ========= ==========
The amount included within other comprehensive income arising from a change
in the minimum pension liability, net of deferred income tax expense, was
$242,674, $(237,442) and $74,762 for the years ended December 31, 1998, 1997
and 1996, respectively.
The weighted-average discount rates for all plans were 6.5% for 1998 and 7.0%
for 1997 and 1996. The expected return on plan assets was 8.0% for all periods.
The transition asset, prior-service costs and net gains and losses are being
amortized on a straight-line basis over the average remaining service period
of active participants.
For measurement purposes for the postretirement benefit plan, a 12.0% annual
rate of increase in the per capita cost of covered health care benefits was
assumed for 1999. The rate was assumed to decrease by 1.0% per year to a
rate of 6.0% for 2005 and later periods.
A 1.0% increase in assumed health care cost trend rates would increase service
and interest costs by $1,000 and increase the accumulated postretirement
benefit obligation by $16,000. A 1.0% decrease in assumed health care cost
trend rates would decrease service and interest costs by $1,000 and decrease
the accumulated postretirement obligation by $14,000.
Retirement Savings Plan
The expense associated with the Retirement Savings Plan was $1,366,400 for
1998, $1,406,655 for 1997 and $1,360,993 for 1996.
24
Deferred Compensation Plan
The Corporation has a deferred compensation plan for key employees of the
Corporation. Under this plan, the Corporation agrees 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 employees terminate employment (other than by their 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. Full benefits are paid only if the employee completes 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 $457,994 for 1998,
$2,503,375 for 1997 and $493,773 for 1996. The expense for 1997 included an
additional charge of $1,975,747 resulting from a change in the estimated
costs for deferred compensation payable to several employees who prematurely
separated from service with the Corporation.
Postemployment Benefits
The Corporation provides certain compensation benefits to former employees.
For 1997, a provision for costs in the amount of $1,530,000 was charged to
operations. No such charge was incurred in 1998 or 1996.
6. Stock Option Plans
1985 Stock Option Plan
The 1985 stock option plan expired 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
The Corporation has a 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
The Corporation has a stock option plan under which options for the purchase of
the Corporation's common stock may be granted to members of the Corporation's
Board of Directors. The effective date of the plan was April 25, 1995, with an
25
expiration date of April 24, 2005. The plan reserves for issuance, an
aggregate of 200,000 shares of the Corporation's common stock. Each eligible
director received an option for 10,000 shares of 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.
The Corporation uses the intrinsic value approach specified in Accounting
Principles Board Opinion No. 25 in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for 1998, 1997 or
1996. If the fair value method of accounting for stock options prescribed
by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," had been applied, there would have been no expense
relating to the stock options for 1997. The expense would have $60,045 in 1998
and $41,437 in 1996. Pro forma net income would have been $11,529,416 in
1998 and $10,688,056 in 1996. Pro forma earnings per share would have been
$.74 in 1998 and $.66 in 1996.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model. For 1998, weighted-average assumptions
were: Dividend rate of 2.9%, price volatility of 24.0%, a risk-free interest
rate of 4.8% and expected lives of 7.75 years. For 1997, no options were
granted requiring measurement under this model. For 1996, weighted-average
assumptions were: Dividend rate of 2.9%, price volatility of 25.0%, a
risk-free interest rate of 5.31% and expected lives of 7.75 years.
The status of the stock option plans during 1998 and 1997 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, 1998 67,870 $ 10.74 103,500 $ 10.48 104,000 $ 9.96
Granted during 1998 -- -- -- -- 51,782 7.94 19,000 9.22
Exercised during 1998 -- -- -- -- -- -- -- -- -- -- -- --
Forfeited during
1998 (20,660) 10.77 (20,000) 10.53 (13,000) 10.17
------- ------- -------
Outstanding at
December 31, 1998 47,210 10.72 135,282 9.50 110,000 8.98
======= ======= =======
All outstanding options were exercisable at December 31, 1998.
Weighted-average fair value of
options granted during 1998 N/A $ 7.94 $ 9.22
======== ======== ========
26
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, 1997 94,965 $ 11.01 125,000 $ 10.48 88,000 $ 10.39
Granted during 1997 -- -- -- -- -- -- -- -- 27,000 8.76
Exercised during 1997 -- -- -- -- -- -- -- -- -- -- -- --
Forfeited during
1997 (27,095) 11.67 (21,500) 10.48 (11,000) 10.39
------- ------- -------
Outstanding at
December 31, 1997 67,870 10.74 103,500 10.48 104,000 9.96
======= ======= =======
All outstanding options were exercisable at December 31, 1997.
Weighted-average fair value of
options granted during 1997 N/A N/A $ 8.76
======== ======== ========
The status of the options outstanding at December 31, 1998, is as follows:
Remaining
Exercise Contractual
Price Number Life
-------- -------- -----------
$ 15.90 11,250 .1 Years
10.88 11,000 1.1 Years
8.32 24,960 3.8 Years
10.31 128,500 6.3 Years
11.17 21,000 7.3 Years
9.81 1,782 8.1 Years
8.16 16,000 8.3 Years
9.78 10,000 8.6 Years
9.75 8,000 9.3 Years
8.74 10,000 9.7 Years
7.88 50,000 9.9 Years
7. Comprehensive Income
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. The statement is effective for fiscal years beginning after
December 15, 1997. Information for prior periods has been restated to
conform to the statement. The adoption of this statement had no impact on
the Corporation's financial position, consolidated results of operations or
cash flows.
27
Other comprehensive income is comprised of the following:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Year Ended December 31, 1996:
Foreign currency translation adjustment $ (35,731) $ 12,506 $ (23,225)
Minimum pension liability adjustment (115,018) 40,256 (74,762)
---------- ---------- ----------
$ (150,749) $ 52,762 $ (97,987)
========== ========== ==========
Year Ended December 31, 1997:
Foreign currency translation
Adjustment $ (46,851) $ 16,398 $ (30,453)
Reclassification adjustment resulting
from sale of foreign entity 421,914 (147,670) 274,244
Minimum pension liability adjustment 365,296 (127,854) 237,442
---------- ---------- ----------
$ 740,359 $ (259,126) $ 481,233
========== ========== ==========
Year Ended December 31, 1998:
Minimum pension liability adjustment $ (373,344) $ 130,670 $ (242,674)
========== ========== ==========
8. 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:
1998 1997 1996
------------ ------------ ------------
Weighted-average number of common
shares used in earnings per
common share 15,662,886 15,758,205 16,169,162
Effect of dilutive securities:
Stock options 7,134 8,863 19,598
------------ ------------ ------------
Weighted average-number of common
shares used in earnings per
common share - assuming dilution 15,670,020 15,767,068 16,188,760
============ ============ ============
Options on approximately 190,500 shares, 222,750 shares and 72,345 shares
were not included in computing earnings per common share - assuming dilution
for the years ended December 31, 1998, 1997 and 1996, respectively, because
their effects were antidilutive.
9. Investment in Unconsolidated Joint Venture
In 1995 the Corporation acquired a 49.0% equity interest in Kiefel
Technologies, Inc. ("Kiefel"). Kiefel designs, manufactures and distributes
thermoforming and radio frequency welding machines and related machinery and
tools. The Corporation's investment in Kiefel was sold during 1998. The
Corporation recognized, as its share of Kiefel's net income, $327,864 for
1998, $186,989 for 1997 and $19,071 for 1996.
28
10. Leases
The Corporation and its Subsidiaries lease various plant and warehouse
facilities along with various equipment. Leases for the plant and warehouse
facilities and leases for machinery and equipment generally require the
payment of appropriate taxes, insurance and maintenance costs. The leases
are cancelable within a limited period of time.
Rental expense was $466,826 for 1998, $508,890 for 1997 and $670,496 for 1996.
11. Significant Customer
Net sales to divisions and subsidiaries of Ford Motor Company amounted to
$45.9 million (28.2% of net sales) in 1998, $44.1 million (27.0% of net
sales) in 1997 and $44.2 million (25.8% of net sales) in 1996.
Receivables at December 31, 1998, 1997 and 1996, from Ford Motor Company
were $7.2 million, $6.3 million and $5.0 million, respectively.
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, 1998 and 1997.
13. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1998 1997 1996
------------ ------------ ------------
Cash payments for interest $ 642 $ 8,482 $ 2,976
============ ============ ============
Cash payments for income taxes $ 6,564,640 $ 4,758,603 $ 5,310,200
============ ============ ============
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. Divestiture and Discontinued Operations
On July 31, 1997, the Corporation sold substantially all of the former
consumer products business segment of the Corporation, identified as Melnor
Inc., including the stock of Melnor's wholly owned subsidiary, Melnor
Canada, Ltd., to GH Acquisition Corp. The Corporation received approximately
$22.0 million in cash for the sale. In 1998, $2.5 million of this amount
was returned to the purchaser since the business did not meet certain
operating result thresholds.
29
The loss on disposal of the segment of $3,674,046 (net of income tax benefit
of $1,825,954) represented the loss from the disposal of substantially all
assets of the business along with expenses associated with the disposal
activities, including severance costs, professional fees and potential
variances in projected operations of the business during future fiscal periods.
Losses from the discontinued operations of this business are shown separately
in the accompanying income statements. Income tax benefits applicable to
the years ended December 31, 1997 and 1996, were $428,489 and $1,907,254,
respectively.
Net sales for this business were $21,646,807 for the seven months ended July
31, 1997, and $40,145,222 for the year ended December 31, 1996. These
amounts are excluded from net sales reported in the accompanying income
statements.
15. Commitments and Contingencies
Legal Matters
The Corporation and its Subsidiaries are parties to various pending judicial
proceedings arising in the ordinary course of business, including a
proceeding involving the New Jersey facility formerly occupied by the
Corporation's discontinued consumer products subsidiary. Management and its
legal counsel have reviewed the possible outcome of pending proceedings and
have determined that any liabilities which may result from current
proceedings are not reasonably likely to have a material effect on the
Corporation's financial condition or results of operations.
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.
Facilities Addition
The Corporation has committed to the construction of an additional
laminating facility at its Winchester, Virginia, location. The total
outlay for the facility is expected to be approximately $4.0 million. The
facility is expected to be placed in service during the second quarter of
1999.
Year 2000 Readiness
The Corporation is heavily dependent on computer processing in the conduct
of its business activities. Failure of these systems could have a
significant impact on the Corporation's operations.
30
In 1997, the Corporation began an assessment of 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. Throughout 1998, the department identified,
tested and began modifying those systems determined to be susceptible to
Year 2000 operating failures. They have made significant progress and
expect to have all systems tested and modified well before 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 the 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 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 operating systems. This plan has caused the
systems to be continually reviewed and modified as business conditions
warrant. Incremental costs to resolve Year 2000 issues are expected to be
less than $500,000.
16. 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.
17. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This pronouncement established
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging
activities. The statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of this statement is not
expected to have a material impact on the Corporation's results of operations.
31
18. Supplemental Financial Data (Unaudited)
Quarter Ended
------------------------------------------------------ 1998
1998 March 31 June 30 September 30 December 31 Total
------------ ------------ ------------ ------------ ------------
Net sales $ 41,946,284 $ 42,142,539 $ 39,529,682 $ 39,560,195 $163,178,700
Gross profit $ 6,864,445 $ 7,803,118 $ 6,759,473 $ 7,307,145 $ 28,734,181
Net income from:
Continuing
operations $ 2,964,361 $ 3,452,735 $ 2,300,621 $ 2,871,744 $ 11,589,461
Discontinued
operations -- -- -- -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 2,964,361 $ 3,452,735 $ 2,300,621 $ 2,871,744 $ 11,589,461
------------ ------------ ------------ ------------ ------------
Earnings per share:
Continuing
operations $ .19 $ .22 $ .15 $ .18 $ .74
Discontinued
operations -- -- -- -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ .19 $ .22 $ .15 $ .18 $ .74
------------ ------------ ------------ ------------ ------------
Dividends
declared $ .08 $ .08 $ .08 $ .08 $ .32
Market price per share
High 11 1/4 12 3/4 12 1/8 11 3/4 12 3/4
Low 9 3/4 10 5/8 10 5/8 10 9 3/4
Quarter Ended
--------------------------------------------------- 1997
1997 March 31 June 30 September 30 December 31 Total
------------ ------------ ------------ ------------ ------------
Net sales $ 40,463,805 $ 44,706,832 $ 38,828,516 $ 39,600,247 $163,599,400
Gross profit $ 6,092,585 $ 7,689,004 $ 5,934,913 $ 5,906,090 $ 25,622,592
Net income (loss)from:
Continuing
operations $ 2,498,007 $ 3,417,321 $ 2,871,432 $ 27,098 $ 8,813,858
Discontinued
operations (274,030) (166,801) (3,467,762) (359,046) (4,267,639)
------------ ------------ ------------ ------------ ------------
Net income
(loss) $ 2,223,977 $ 3,250,520 $ (596,330)$ (331,948)$ 4,546,219
------------ ------------ ------------ ------------ ------------
Earnings (loss)
per share:
Continuing
operations $ .16 $ .22 $ .18 $ -- -- $ .56
Discontinued
operations (.02) (.01) (.22) (.02) (.27)
------------ ------------ ------------ ------------ ------------
$ .14 $ .21 $ (.04)$ (.02)$ .29
------------ ------------ ------------ ------------ ------------
32
Dividends
declared $ .08 $ .08 $ .08 $ .08 $ .32
Market price per share
High 10 3/4 9 11/16 11 11 11
Low 8 7 15/16 8 3/8 9 7/8 7 15/16
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for the years ended December 31, 1998, 1997 and 1996. These financial
statements are the responsibility of the Company'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 amounts and disclosures in the financial statements.
An audit also includes assessing 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, 1998 and 1997,
and the results of their operations and their cash flows for the years ended
December 31, 1998, 1997 and 1996, in conformity with generally accepted
accounting principles.
/s/ YOUNT, HYDE & BARBOUR, P. C.
Winchester, Virginia
January 22, 1999
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 4 through 7 of the Corporation's Definitive Proxy
Statement dated March 26, 1999 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 7 of the Corporation's Definitive Proxy Statement dated March 26,
1999, 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, 1998 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
- --------------------- ---- --------------------- -------------
John S. Campbell 48 President 1986
C. Bryant Nickerson 52 Secretary & Treasurer 1986
Mr. John S. Campbell was appointed as President and Chief Operating Officer
in August, 1998 succeeding James T. Holland. Mr. Campbell previously served
as a Vice President beginning in 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.
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.
Other Officers of the Registrant
Served As
Name Age Office Officer Since
- --------------------- ---- --------------------- -------------
William O. Bauserman 55 Vice President 1987
Ewen A. Campbell 51 Vice President 1993
John P. Crowther 48 Vice President 1998
James L. Tremoulis 45 Vice President 1986
Robert C. Westfall 56 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.
36
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.
Mr. Crowther has been employed by the Corporation since 1995 as a sales
representative to automotive-related customers of the Corporation. Prior to
that time he was employed by a business that served as a manufacturer's
representative to the automotive industry for the Corporation. He was
elected as a Vice President in January, 1998.
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 8 through 14 of the Corporation's Definitive Proxy Statement
dated March 26, 1999, which pages are incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Pages 3 through 7 of the Corporation's Definitive Proxy Statement
dated March 26, 1999, which pages are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1998 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(s)
Included in Part II, Item 8, of this report:
Report of Independent Auditors 34
Consolidated Balance Sheets at December 31, 1998
and 1997 11
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997 and 1996 12
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 13-14
Consolidated Statements of Stockholders'
Equity for the Years Ended
December 31, 1998, 1997 and 1996 15-16
Notes to Consolidated Financial Statements 17-33
(a). (2) Financial Statement Schedules
Included in Part IV of this report:
Report of Independent Auditors on Financial
Statement Schedule 41
Schedule II - Valuation and Qualifying Accounts
for the Years Ended December 31,
1998, 1997 and 1996 42
(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(s)
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.)
3.4 O'Sullivan Corporation Bylaws as amended to
January 26, 1998. (Incorporated by reference to the
Annual Report on Form 10-K for the Year Ended December
31, 1997.)
10.1 Compensatory arrangement with executive officers
of the registrant. See Pages 8 through 14 of
the Corporation's Definitive Proxy Statement dated
March 26, 1999 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, Robert C. Westfall and John P.
Crowther. (Incorporated by reference to the Annual
Report on Form 10-K for the Year Ended December 31,
1996.)
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.)
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.)
21. Subsidiaries of the Registrant - filed herewith
39
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Continued)
Page(s)
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, 1998.
(c). Index to Exhibits 45
40
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of O'Sullivan Corporation
The examination referred to in our opinion dated January 22, 1999 of the
consolidated financial statements as of December 31, 1998 and 1997 and for
the three years ended December 31, 1998, 1997 and 1996 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.
41
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
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 Recoveries End
Description of Year Expense Accounts (Deductions) of Year
- ---------- ---------- ---------- ---------- ----------- -----------
1998:
Allowance
for
Doubtful
Accounts $ 570,150 $1,106,250 $ -- -- $ (953,761)(A)$ 722,639
========== ========== ========== =========== ===========
1997:
Allowance
for
Doubtful
Accounts $ 573,769 $ -- -- $ -- -- $ (3,619)(A)$ 570,150
========== ========== ========== =========== ===========
1996:
Allowance
for
Doubtful
Accounts $ 470,684 $ 77,000 $ -- -- $ 26,085 (A)$ 573,769
========== ========== ========== =========== ===========
Note (A) - Write-offs of uncollectible accounts, net of recoveries.
42
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 26, 1999 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 26, 1999
- ------------------------ --------------
Arthur H. Bryant, II Chairman and Director Date
/s/ John S. Campbell March 26, 1999
- ------------------------ --------------
John S. Campbell President, Chief Executive Date
Officer and Director
/s/ C. Bryant Nickerson March 26, 1999
- ------------------------ --------------
C. Bryant Nickerson Secretary, Treasurer and Date
Chief Financial Officer
C. Hugh Bloom, Jr. * March 26, 1999
- ------------------------ --------------
C. Hugh Bloom, Jr. Director Date
John C. O. Bryant * March 26, 1999
- ------------------------ --------------
John C. O. Bryant Director Date
Robert L. Burrus, Jr. * March 26, 1999
- ------------------------ --------------
Robert L. Burrus, Jr. Director Date
Max C. Chapman, Jr. * March 26, 1999
- ------------------------ --------------
Max C. Chapman, Jr. Director Date
James T. Holland * March 26, 1999
- ------------------------ --------------
James T. Holland Director Date
R. Michael McCullough * March 26, 1999
- ------------------------ --------------
R. Michael McCullough Director Date
43
Stephen P. Munn * March 26, 1999
- ------------------------ --------------
Stephen P. Munn Director Date
Timothy J. Sandker * March 26, 1999
- ------------------------ --------------
Timothy J. Sandker Director Date
Leighton W. Smith, Jr. * March 26, 1999
- ------------------------ --------------
Leighton W. Smith, Jr. Director Date
* By: /s/ John S. Campbell
---------------------
John S. Campbell
Attorney-In-Fact
44
EXHIBIT INDEX
Page(s)
21. Subsidiaries of the Registrant 46
23. Consent of Experts 47
24. Powers of Attorney 48-57
27. Financial Data Schedule
45
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 Shawnee Holdings, Inc.
46
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 April 28,
1995 of O'Sullivan Corporation of our report dated January 22, 1999
appearing on page 34 of this Annual Report on Form 10-K.
/s/ Yount, Hyde & Barbour, P. C.
Winchester, Virginia
March 26, 1999
47
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 19, 1999 /s/ Arthur H. Bryant, II
- ---------------- ------------------------
Date Director
48
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 18, 1999 /s/ C. Hugh Bloom, Jr.
- ---------------- ----------------------
Date Director
49
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 25, 1999 /s/ John C. O. Bryant
- ---------------- ---------------------
Date Director
50
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 25, 1999 /s/ Robert L. Burrus, Jr.
- ---------------- -------------------------
Date Director
51
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
February 5, 1999 /s/ Max C. Chapman, Jr.
- ---------------- -----------------------
Date Director
52
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 25, 1999 /s/ James T. Holland
- ---------------- -----------------------
Date Director
53
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 25, 1999 /s/ R. Michael McCullough
- ---------------- -------------------------
Date Director
54
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 18, 1999 /s/ Stephen P. Munn
- ---------------- -------------------
Date Director
55
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 23, 1999 /s/ Timothy J. Sandker
- ---------------- ----------------------
Date Director
56
POWER OF ATTORNEY
I hereby appoint John S. Campbell 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, 1998 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
January 23, 1999 /s/ Leighton W. Smith, Jr.
- ---------------- --------------------------
Date Director
57
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 35,361,408
<SECURITIES> 0
<RECEIVABLES> 27,008,437
<ALLOWANCES> 722,639
<INVENTORY> 23,411,945
<CURRENT-ASSETS> 88,745,696
<PP&E> 102,035,870
<DEPRECIATION> 56,996,637
<TOTAL-ASSETS> 142,899,002
<CURRENT-LIABILITIES> 17,622,834
<BONDS> 0
0
0
<COMMON> 15,594,982
<OTHER-SE> 101,997,345
<TOTAL-LIABILITY-AND-EQUITY> 142,899,002
<SALES> 163,178,700
<TOTAL-REVENUES> 166,198,413
<CGS> 134,444,519
<TOTAL-COSTS> 134,444,519
<OTHER-EXPENSES> 12,174,961
<LOSS-PROVISION> 1,106,250
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> 18,472,041
<INCOME-TAX> 6,882,580
<INCOME-CONTINUING> 11,589,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,589,461
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
