UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
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: 0-22942
CONSO PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
South Carolina 57-0986680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
513 North Duncan Bypass, P.O. Box 326, Union, South Carolina 29379
------------------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
864/427-9004
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of May 10, 1996:
Common Stock, no par value.......4,987,793 shares.
Page 1 of 17 Pages
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 30, 1996, and July 1, 1995 3
Consolidated Statements of Operations for the three months and nine months 5
ended March 30, 1996, and April 1, 1995
Consolidated Statements of Shareholders' Equity for the three 6
months and nine months ended March 30, 1996
Consolidated Statements of Cash Flows for the nine months ended 7
March 30, 1996, and April 1, 1995
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, 1996 July 1, 1995
--------------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 174,154 $ 142,555
Accounts receivable, net of allowances for bad debts and
customer deductions of $928,808 and $767,642 on
March 30, 1996 and July 1, 1995, respectively 11,467,974 9,805,603
Inventories (Notes 3 and 4) 20,637,245 19, 931,881
Prepaid expenses and other 531,240 842,840
--------------------- --------------------
Total current assets 32,810,613 30,722,879
--------------------- --------------------
CASH SURRENDER VALUE OF OFFICER'S LIFE
INSURANCE - 39,270
--------------------- --------------------
PROPERTY AND EQUIPMENT (Note 4):
Land and improvements 1,079,145 1,089,499
Buildings and improvements 6,607,994 5,655,790
Machinery and equipment 11,490,979 10,496,453
--------------------- --------------------
Total 19,178,118 17,241,742
Accumulated depreciation (6,990,264) (5,798,641)
--------------------- --------------------
Total property and equipment, net 12,187,854 11,443,101
--------------------- --------------------
DEFERRED INCOME TAXES (Note 5) 2,122,928 1,255,366
DEFERRED COSTS 258,438 238,195
--------------------- --------------------
TOTAL ASSETS $47,379,833 $43,698,811
--------------------- --------------------
</TABLE>
See notes to unaudited consolidated financial statements
3
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CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, 1996 July 1, 1995
--------------------- ---------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings (Note 9) $ 7,089,663 $ 9,073,531
Current maturities of long-term debt 508,303 571,044
Trade accounts payable 3,966,530 3,749,179
Accrued liabilities 3,108,430 2,309,342
Income taxes payable 1,061,610 550,125
--------------------- ---------------------
Total current liabilities 15,734,536 16,253,221
--------------------- ---------------------
NONCURRENT LIABILITIES:
Long-term debt 2,254,519 2,598,315
Deferred income taxes 587,334 723,544
--------------------- ---------------------
Total noncurrent liabilities 2,841,853 3,321,859
--------------------- ---------------------
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock (no par, 10,000,000 shares authorized,
no shares issued) - -
Common stock (no par, 50,000,000 shares authorized,
4,987,793 shares issued) 16,896,346 16,571,214
Retained earnings 11,829,557 7,258,119
Cumulative translation gain 77,541 294,398
--------------------- ---------------------
Total shareholders' equity 28,803,444 24,123,731
--------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$47,379,833 $43,698,811
--------------------- ---------------------
</TABLE>
See notes to unaudited consolidated financial statements
4
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- -- -------------------------------------
March 30, 1996 April 1, 1995 March 30, 1996 April 1, 1995
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
NET SALES $18,135,661 $15,900,338 $52,521,185 $44,130,359
COST OF GOODS SOLD 11,540,111 10,243,895 33,651,178 28,978,695
------------------ ------------------ ------------------ -----------------
GROSS MARGIN 6,595,550 5,656,443 18,870,007 15,151,664
------------------ ------------------ ------------------ -----------------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES
Distribution expense 772,289 630,676 2,213,563 1,728,793
Selling expense 2,326,492 1,881,269 6,069,066 5,021,816
General and administrative
expense 1,049,274 992,035 3,489,427 2,808,201
Foreign currency translation
losses (gains) (4,542) (90,097) 13,333 (148,851)
------------------ ------------------ ------------------ -----------------
Total 4,143,513 3,413,883 11,785,389 9,409,959
------------------ ------------------ ------------------ -----------------
INCOME FROM
OPERATIONS 2,452,037 2,242,560 7,084,618 5,741,705
INTEREST EXPENSE, NET 154,140 242,280 620,518 621,799
------------------ ------------------ ------------------ -----------------
INCOME BEFORE INCOME TAXES 2,297,897 2,000,280 6,464,100 5,119,906
------------------ ------------------ ------------------ -----------------
INCOME TAXES (Note 5)
Current income tax
provision before one-time
credits 666,085 632,298 1,892,662 1,703,170
Net one-time job tax
credits - (913,000) - (913,000)
------------------ ------------------ ------------------ -----------------
Total income tax
provision 666,085 (280,702) 1,892,662 790,170
------------------ ------------------ ------------------ -----------------
NET INCOME $ 1,631,812 $ 2,280,982 $ 4,571,438 $ 4,329,736
------------------ ------------------ ------------------ -----------------
Net income per share $ 0.33 $ 0.46 $ 0.92 $ 0.87
------------------ ------------------ ------------------ -----------------
Weighted average number of
shares outstanding
(Notes 6 and 7) 4,986,419 4,950,293 4,965,403 4,950,293
------------------ ------------------ ------------------ -----------------
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE>
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 30, 1996
<TABLE>
<CAPTION>
Common Stock Cumulative
---------------------------
Shares Retained Translation
Issued Amount Earnings Adjustments Total
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 30, 1995 4,975,293 $16,786,354 $10,197,745 $155,771 $27,139,870
Stock options exercised 12,500 109,992 109,992
Net income 1,631,812 1,631,812
Translation loss (78,230) (78,230)
------------- ------------- ------------- -------------- -------------
March 30, 1996 4,987,793 $16,896,346 $11,829,557 $ 77,541 $28,803,444
------------- ------------- ------------- -------------- -------------
</TABLE>
See notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED MARCH 30, 1996
<TABLE>
<CAPTION>
Common Stock Cumulative
----------------------------
Shares Retained Translation
Issued Amount Earnings Adjustments Total
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 4,950,293 $16,571,214 $7,258,119 $294,398 $24,123,731
Stock options exercised 37,500 325,132 325,132
Net income 4,571,438 4,571,438
Translation loss (216,857) (216,857)
------------- ------------- ------------- -------------- -------------
March 30, 1996 4,987,793 $16,896,346 $11,829,557 $ 77,541 $28,803,444
------------- ------------- ------------- -------------- -------------
</TABLE>
See notes to unaudited consolidated financial statements
6
<PAGE>
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------
March 30, 1996 April 1, 1995
-------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers $ 52,233,110 $ 44,431,915
Cash paid to suppliers and employees (45,294,694) (42,801,353)
Interest paid ( 785,041) ( 531,062)
Interest received 106,757 77,856
Income taxes paid ( 2,114,645) ( 1,501,602)
-------------------- ---------------------
Net cash provided by (used in) operating activities 4,145,487 ( 324,246)
-------------------- ---------------------
INVESTING ACTIVITIES:
Sale (purchase) of officer's life insurance 39,270 ( 6,612)
Purchase of London production facility ( 796,110) -
Purchase of equipment and property ( 1,339,652) ( 2,083,784)
Payments of capitalized acquisition costs ( 76,561) -
Payments for acquisition ( 93,582) -
-------------------- ---------------------
Net cash used in investing activities ( 2,266,635) ( 2,090,396)
-------------------- ---------------------
FINANCING ACTIVITIES:
Net borrowings under line of credit arrangements ( 1,800,900) 2,685,165
Principal payments on long-term debt ( 260,264) ( 243,128)
Principal payments under capital lease obligations ( 111,221) ( 147,808)
Shareholder's distribution paid - ( 35,619)
Proceeds from issuance of common stock, net of expenses 325,132 -
-------------------- ---------------------
Net cash provided by (used in) financing activities ( 1,847,253) 2,258,610
-------------------- ---------------------
INCREASE (DECREASE) IN CASH 31,599 ( 156,032)
CASH AT:
BEGINNING OF PERIOD 142,555 302,010
-------------------- ---------------------
END OF PERIOD $ 174,154 $ 145,978
-------------------- ---------------------
</TABLE>
See notes to unaudited consolidated financial statements
7
<PAGE>
CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------
March 30, 1996 April 1, 1995
--------------------- --------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 4,571,438 $ 4,329,736
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,238,516 1,115,453
Amortization of deferred expenses 72,050 35,039
Provision for deferred taxes ( 861,293) (1,178,157)
Foreign currency translation losses (gains) 52,906 ( 174,820)
Payment of capitalized loan origination costs ( 1,111) ( 36,694)
Change in assets and liabilities:
Accounts receivable (1,729,898) (1,316,421)
Inventory ( 858,973) (3,658,538)
Prepaid expenses and other 47,822 227,852
Trade accounts payable 122,133 ( 828,427)
Accrued liabilities 441,328 472,865
Income taxes payable 1,050,569 687,866
--------------------- --------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $4,145,487 $( 324,246)
--------------------- --------------------
</TABLE>
See notes to unaudited consolidated financial statements
8
<PAGE>
CONSO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 30, 1996
1. CONSOLIDATION
The financial statements are unaudited and include the accounts of the Company,
its subsidiary, British Trimmings Limited and its subsidiaries (all operating
within the United Kingdom), and Conso's subsidiary, Val-Mex, S.A. de C.V., which
operates Conso's Juarez, Mexico assembly plant (collectively the "Company").
The British Trimmings Limited balances included in the consolidation are
prepared using United States generally accepted accounting principles and are
translated into U.S. dollars based on exchange rates as published in the WALL
STREET JOURNAL. Assets and liabilities are translated based on the rates in
effect on the balance sheet date. Income statement amounts are translated using
the average of the month-end exchange rates in effect during the period. The
Val-Mex subsidiary's operations are not significant in relation to the Company's
operations. All significant intercompany accounts and transactions, and profit
and loss on intercompany transactions are eliminated in consolidation.
2. INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the three months and nine
months ended March 30, 1996, and April 1, 1995, reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal
recurring nature, except as discussed in the notes below. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for such interim periods are not necessarily
indicative of results to be expected for the year ending June 29, 1996.
Certain previously reported amounts have been reclassified to conform with
the current year presentation.
The Company prepares annual financial statements on the basis of a 52 or 53
week fiscal year ending on the Saturday nearest June 30th; interim reporting
periods are based on 13 week quarters. The three month and nine month periods
ended March 30, 1996, and April 1, 1995, each included 13 weeks and 39 weeks,
respectively.
3. INVENTORIES
The composition of inventories at March 30, 1996, and July 1, 1995, was as
follows:
March 30, 1996 July 1, 1995
Raw Materials $ 6,771,653 $ 7,150,304
Work-In-Process 3,110,206 2,849,966
Finished Goods 10,755,386 9,931,611
-------------------- ----------------------
Totals $ 20,637,245 $ 19,931,881
-------------------- ----------------------
9
<PAGE>
4. PROPERTY AND EQUIPMENT
In September 1995, the Company made a special provision of $250,000 to absorb
charges relating to the disposal of equipment and inventory of its embroidery
operations, which it has discontinued. The Company intends to dispose of these
assets during 1996.
In December 1995, the Company completed the purchase of a 20,000 square foot
production facility in London at a cost of $796,000. The present 9,500 square
foot facility is being offered for sale.
5. INCOME TAXES
The Company's effective tax rate for the current quarter continued to be
favorably impacted by anticipated South Carolina Jobs Tax Credits relating to
job increases at the Union, SC plants. In March 1995, Conso received a ruling
from the South Carolina Tax Commission whereby certain jobs tax credits (in the
amount of $1,383,000) earned by the corporation are available to be carried
forward to be applied against C corporation South Carolina income taxes incurred
after December 18, 1993. The prior year's quarter includes this one-time jobs
tax credits, net of federal tax effect of $913,000.
6. STOCK SPLIT
On September 7, 1995, the Company announced a 3-for-2 split of its common
stock, issued on October 6, 1995, to shareholders of record at the close of
business on September 18, 1995. All per share data presented in the accompanying
financial statements has been restated to reflect the 3-for-2 stock split.
7. STOCK OPTIONS
On September 7, 1995, the Company granted options to certain key employees to
purchase an aggregate of 62,400 shares of the Company's common stock under its
1993 Stock Option Plan. The options were granted at $10 per share and are
exercisable with respect to one-third of the total shares after one year, an
additional one-third of the shares after two years, and the final one-third of
the shares after three years. The options expire after five years and are
subject to continued employment of the employee.
Options to purchase an additional 37,500 shares had been previously awarded to
a key employee of which options to purchase 25,000 shares were exercised on
November 28, 1995, and the remaining options for 12,500 shares were exercised on
January 10, 1996.
8. DEFINED CONTRIBUTION PLAN
On January 1, 1996, the Company offered a 401(k) Retirement Plan to all U.S.
personnel and a similar type plan to all employees of British Trimmings. The
Company will match employee contributions up to 3% of base pay.
9. DEBT AGREEMENT
The Company's $10,000,000 revolving line of credit was amended on March 1, 1996
to extend the expiration date until December 1, 1997, decrease the interest rate
on borrowings made in U.S. dollars to the 90-day certificate of deposit rate
plus 2.75%, decrease the interest rate on borrowings made in the U.K. pounds
sterling to the adjusted London Interbank offered rate plus 1.25% and amend
certain of the financial covenants.
10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
Annual Report on Form 10-KSB for the fiscal year ended July 1, 1995, including
the financial information and management's discussion contained or incorporated
by reference therein.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 30, 1996, COMPARED TO QUARTER ENDED APRIL 1, 1995
Net sales for the quarter ended March 30, 1996, of $18.1 million were $2.2
million or 14.1% higher than for the comparable prior year quarter. Conso US's
sales increased to $13.2 million, a 24.9% improvement over the comparable prior
year quarter. British Trimmings' sales were below the prior year's quarter,
reflecting the slow housing industry and weak consumer spending in the United
Kingdom. However, the Company is encouraged by the fact that British Trimmings'
revenues were not only up over the second quarter of the current year, but also
the amount of incoming orders for the first few weeks of the fourth quarter are
ahead of orders for the same period of the prior year.
Sales by customer type increased as follows:
Manufacturers $ 7,513,000 up 28.0%
Distributors 7,323,000 up 7.0%
Retailers 3,300,000 up 3.7%
- ------------------------------------------------------------
Total $18,136,000 up 14.1%
- ------------------------------------------------------------
Sales outside the U.S. and U.K. (the Company's major sales regions) increased
to $1.6 million, a 20.3% increase over the comparable prior year quarter. Sales
outside the U.S. and U.K. by geographic region were as follows:
Canada, Latin America $ 669,000 up 40.7%
Continental Europe, Middle East 569,000 up 5.0%
Pacific Rim 368,000 up 16.1%
- -------------------------------------------------------------
Total $ 1,606,000 up 20.3%
- -------------------------------------------------------------
The gross margin for the quarter edged up to $6.6 million or 36.4% of net
sales, ahead of the prior year's third quarter of $5.7 million or 35.6% of net
sales. The improvement in gross margin was primarily attributable to Conso US
and resulted from price increases, process improvements and greater economies of
scale.
Distribution expenses increased $142,000 or 22.5% from 4.0% to 4.3% of net
sales over the prior year's quarter primarily as the result of the overall
increase in shipments and continued focus on exports. Conso US contributed
$125,000 of the increase while British Trimmings' distribution expenses
contributed the remaining $17,000 of the increase.
11
<PAGE>
Selling expenses increased $445,000 or 23.7% from 11.8% to 12.8% of net sales.
As in prior quarters the increase was effected by additional sales personnel
costs, marketing costs, and the additional costs of the international sales
offices. Approximately $180,000 was spent to launch the new lines designed and
introduced by Wendy Cushing. The introduction of the Wendy Cushing collections
included the equipping of 21 designer showrooms, catalog mailouts, advertising,
trade shows, and related expenses. Conso US's selling expenses increased
$342,000 while remaining relatively flat at 12.8% of its net sales. British
Trimmings' selling expenses, representing 12.9% of its net sales, increased
$103,000 from the prior year's third quarter primarily from the addition of
marketing and sales personnel and additional promotion costs.
General and administrative expenses (excluding foreign currency translation
gains) increased $57,000 or 5.8% but declined as a percentage of net sales
from 6.2% to 5.8%. Of the increase, Conso US contributed $107,000, but its
general and administrative expense decreased as a percent of sales from 5.3%
to 5.1%. The dollar increase was primarily due to the separation of the
offices of Chairman and President, increased shareholder communications,
travel and other expenses related to domestic and international
expansion, and with some increases in supply costs (primarily paper).
British Trimmings' administrative costs, which represented 7.8% of its net
sales for the third quarter of the current year, declined $50,000 due to higher
initial data processing expenditures in the prior year and following the
introduction of Conso systems .
Operating income for the current three month period increased from $2.3 million
to $2.5 million but declined as a percentage of net sales from 14.1% to 13.5%
due to the increased distribution, selling, and general and administrative
costs.
Average interest bearing indebtedness was lower in the third quarter of the
current year than in the third quarter of the prior year. The average balance
was sufficently lower to decrease net interest costs by $88,000 over the prior
year's quarter, despite a higher average interest rate.
In March 1995, Conso received a private letter ruling from the South Carolina
Tax Commission allowing certain jobs tax credits to be carried forward and
applied against future income taxes payable to the State of South Carolina. The
net effect of these state tax credits of $913,000 was applied against the prior
year's quarter tax provision in accordance with Statement of Financial
Accounting Standards 109.
The Company's quarterly tax provision and, consequently, net income continued
to be favorably impacted ($116,000) by anticipated South Carolina Jobs Tax
Credits relating to job increases at the Union, SC plants.
Net income for the quarter was $1.6 million, a decline of $649,000 or 39.8%
from the prior year's net income of $2.2 million due to the one-time net jobs
tax credits of $913,000 that was recorded in the prior year's quarter.
Excluding the prior year's one-time net jobs tax credits net income for the
quarter was up $264,000 from $1.4 million in the prior year's quarter to $1.6
million a 19.3% increase, bringing earnings per share to 33 cents from the prior
year's 28 cents from regular operations. These earnings per share amounts
reflect the 3-for-2 stock split effected in the form of a 50% share dividend
paid on October 6, 1995.
12
<PAGE>
Conso US's net income increased $417,000 (excluding the one-time net jobs tax
credits), while British Trimming's net income decreased $153,000 over the prior
year's quarter (after adjustments for intercompany transactions, foreign
currency translation and purchase accounting).
NINE MONTHS ENDED MARCH 30, 1996, COMPARED TO NINE MONTHS ENDED APRIL 1, 1995
Net sales for the nine month period ended March 30, 1996, grew to $52.5
million, a $8.4 million or 19% increase over the prior year's period. Sales by
Conso US were up 29.7% to $37.6 million reflecting the strong U.S. economy and
the results of prior marketing and merchandising efforts. Sales by British
Trimmings continued to be relatively flat reflecting the slow housing industry
and weak consumer spending in the United Kingdom.
Sales by customer type increased as follows:
Manufacturers $22,911,000 up 31.6%
Distributors 20,642,000 up 11.5%
Retailers 8,968,000 up 9.3%
- -------------------------------------------------------------
Total $52,521,000 up 19.0%
- -------------------------------------------------------------
Sales outside the U.S. and U.K. (the Company's major sales regions) increased
to $4.8 million, a 25.8% increase over the comparable prior year period. Sales
outside the U.S. and U.K. by geographic region were as follows:
Canada, Latin America $ 2,124,000 up 31.9%
Continental Europe, Middle East 1,759,000 up 30.5%
Pacific Rim 923,000 up 7.0%
- --------------------------------------------------------------
Total $ 4,806,000 up 25.8%
- --------------------------------------------------------------
The gross margin improved from $15.2 million or 34.3% of net sales to $18.9
million or 35.9% of net sales with margins at Conso US (after intercompany
eliminations and purchase price adjustments) improving from 35.6% to 38.2% and
decreasing from 31.8% to 30.1% at British Trimmings. At Conso US, the
improvements in gross margin were due in part to price increases, process
improvements and greater economies of scale due to increased production relating
to increased sales. At British Trimmings, improvements in gross margin,
primarily from price increases and product mix, were offset by reductions in
production volume due to flat customer orders and completion of the build
up of stock inventory earlier in the 1995 calendar year.
Distribution expenses increased $485,000 or 28% from 3.9% to 4.2% of net sales
primarily as the result of the overall increase in shipments and the continuing
focus on export sales. Conso US contributed $351,000 of the increase while
British Trimmings contributed the remaining $134,000.
Selling expenses increased $1,047,000 or 20.9% from 11.4% to 11.6% of net
sales. The increase resulted from additional sales personnel costs, marketing
costs and the additional costs of the
13
<PAGE>
international sales offices and costs related to the introduction of the new
Wendy Cushing Trimmings' lines.
General and administrative expenses (excluding foreign currency translation
gains and losses) increased $681,000 or 24.3% from 6.4% to 6.6% of net sales.
Of the increase, Conso US contributed $657,000 through increases in its general
and administrative expenses from 5.7% to 6.1% of its net sales. As in prior
quarters, the increase was due to the separation of the offices of Chairman and
President, increased shareholder communications, travel and other expenses
related to domestic and international expansion, and some increase in supply
costs (especially paper). British Trimmings contributed the remaining $24,000
of the increase in general and administrative expenses which represented 8% of
its net sales for the nine months of the current year.
Operating income for the current nine month period increased 23.4% from $5.7
million to $7.1 million or 13.5% of net sales, even though distribution,
selling, and general and administrative costs increased.
Interest expense of $620,000 was relatively flat for the nine month period
compared to the same period of the prior year and declined as a percent of sales
from 1.4% to 1.2%.
In March 1995, Conso received a private letter ruling from the South Carolina
Tax Commission allowing certain jobs tax credits to be carried forward and
applied against future income taxes payable to the State of South Carolina. The
net effect of these state tax credits of $913,000 was applied against the prior
year's nine month period tax provision in accordance with Statement of Financial
Accounting Standards 109.
The Company's tax provision for the nine month period continued to be favorably
impacted ($283,000) by anticipated South Carolina Jobs Tax Credits relating to
job increases at the Union, S.C. plants.
Net income for the nine month period was $4.6 million, an increase of $241,000
or 5.6% over the net income of the prior year's nine month period of $4.3
million which included the one-time net jobs tax credits bringing earnings per
share to 92 cents from the prior year's 87 cents per share. These earnings per
share amounts reflect the 3-for-2 stock split effected in the form of a 50%
share dividend paid on October 6, 1995. The Company achieved the small increase
in net income in spite of the one-time net jobs tax credit of $913,000 that
was granted in the prior year's period.
Net income for the nine months increased $1.2 million over the prior year's
nine month period (before the one-time net jobs tax credits) to $4.6 million a
33.8% increase bringing earnings per share to 92 cents from the prior year's 69
cents per share.
Conso US's net income increased $1.4 million over the prior year's nine month
period net income (excluding the one-time net jobs tax credits) while British
Trimming's net income decreased by $215,000 from the prior year's nine month
period (after adjustments for intercompany transactions, foreign currency
translation and purchase accounting).
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital requirements
through both internally generated funds and bank borrowings. Other than the
acquisition of British Trimmings, capital requirements in recent years have
arisen principally from the expansion of product lines and production capacity
and increased working capital needs to support higher sales volume. Working
14
<PAGE>
capital increased to $17.1 million at March 30, 1996, from $14.5 million at July
1, 1995, and from $11.9 million at July 2, 1994. Since the acquisition of
British Trimmings, the Company has significantly increased inventories at
British Trimmings to reduce backorders and improve deliveries, and at both
British Trimmings and Conso US to support the cross-merchandising of their
products and the introduction of new product lines. Most of such increases
occurred in fiscal 1995, and the Company expects the rate of growth in
inventories relative to sales growth to decline in fiscal 1996.
Capital expenditures for fiscal 1995, were approximately $2.7 million,
primarily for manufacturing equipment at both Conso US and British Trimmings and
data processing improvements at British Trimmings. The Company has budgeted
approximately $1.6 million for capital expenditures for fiscal 1996, (other than
capital expenditures for building expansions or possible acquisitions of other
businesses), of which approximately $1.3 million had been spent through the
third quarter of fiscal 1996. In December 1995, the Company also spent
approximately $796,000 to acquire a 20,000 square foot facility for its London
showroom and wholesale operations, and is offering for sale the 9,500 square
foot London facility previously used for that purpose. The Company is presently
considering the feasibility of expanding its dyehouse and distribution
facilities at its main plant in Union, South Carolina. The Company will consider
additional capital expenditures for building expansions or business acquisitions
as opportunities arise.
At March 30, 1996, the Company had outstanding long-term indebtedness,
consisting of term loans and capital lease obligations, of approximately $2.8
million including the current portion of long-term debt of approximately
$500,000. The Company also has a $10 million revolving line of credit with a
bank, of which approximately $5.9 million was outstanding at March 30, 1996, and
under which $4.1 million was available for additional borrowings, subject to
continued compliance with borrowing base requirements. Such revolving line of
credit permits advances under the line in British pounds sterling of up to
(pound)5,000,000 providing some protection against currency fluctuations.
British Trimmings also has an overdraft borrowing facility with its bank
(similar to a revolving line of credit) for up to (pound)500,000 ($764,000 based
upon the exchange rate at March 30, 1996), of which approximately (pound)130,000
($199,000) was outstanding at March 30, 1996, and approximately (pound)370,000
($565,000) was available for additional borrowings, subject to continued
compliance with borrowing base requirements.
The Company's borrowings are secured by Conso US's real property, inventory and
accounts receivable and certain of British Trimmings' properties. Since the
Company retired a $1.6 million equipment loan in 1994, Conso US's equipment, in
addition to certain of British Trimmings' assets, are available as collateral
for additional borrowings.
The Company believes that cash generated by operations and available borrowings
under lines of credit will be adequate to fund its working capital and capital
expenditure requirements for the foreseeable future, but excluding possible
building expansions and acquisitions of other businesses. Based on the Company's
financial position, the Company believes that it will be able to obtain any
additional financing necessary to fund its planned long-term growth and
expansion. Such additional financing may include long-term debt or equity;
however, the Company has not yet obtained any such additional financing.
15
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Description
10.45 Sixth Amendment dated as of March 1, 1996 to the Loan Agreement
dated as of May 6, 1994, by and between the Company and
NationsBank, N.A., a national banking association
("NationsBank") formerly known as "NationsBank of North
Carolina, N.A."
10.46 Fifth Amendment dated as of March 1, 1996 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank.
10.47 Third Amendment dated as of March 1, 1996 to the Guaranty
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank.
10.48 Promissory Note dated as of March 1, 1996 issued by the Company
in favor of NationsBank in the original principal amount of up
to $10,000,000.
10.49 Promissory Note dated as of February 29, 1996 issued by British
Trimmings Limited in favor of NationsBank in the original
principal amount of up to (pound)5,000,000.
27.1 Financial Data Schedule for the quarter ended March 30, 1996
(filed in electronic format only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 30, 1996.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CONSO PRODUCTS COMPANY
Dated: May 10, 1996 By:
Name: David B. Dechant
Title: Chief Accounting Officer
Dated: May 10, 1996 By:
Name: Gilbert G. Bartell
Title: Chief Financial Officer and
Vice President of Finance/Treasurer
17
<PAGE>
INDEX TO EXHIBITS
Exhibit Description Page No.
10.45 Sixth Amendment dated as of March 1, 1996 to the Loan 19
Agreement dated as of May 6, 1994, by and between the
Company and NationsBank, N.A., a national banking
association ("NationsBank") formerly known as "NationsBank
of North Carolina, N.A."
10.46 Fifth Amendment dated as of March 1, 1996 to the Security 22
Agreement dated as of May 6, 1994 by and between the
Company and NationsBank.
10.47 Third Amendment dated as of March 1, 1996 to the Guaranty 25
Agreement dated as of May 6, 1994 by and between the
Company and NationsBank.
10.48 Promissory Note dated as of March 1, 1996 issued by the 28
Company in favor of NationsBank in the original principal
amount of up to $10,000,000.
10.49 Promissory Note dated as of February 29, 1996 issued by 35
British Trimmings Limited in favor of NationsBank in the
original principal amount of up to (pound)5,000,000.
18
SIXTH AMENDMENT TO LOAN AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AGREEMENT (the "Sixth Amendment"), dated
as of March 1, 1996, is made by and between
CONSO PRODUCTS COMPANY, a corporation organized and existing under the
laws of the State of South Carolina (the "Borrower"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States (the "Bank").
RECITALS:
A. The Borrower and the Bank entered into that certain Loan
Agreement, dated May 6, 1994, as amended December 1, 1994, February 10, 1995,
June 13, 1995, November 1, 1995 and December 1, 1995 (the "Loan Agreement").
B. The Borrower and the Bank have agreed to modify and
amend the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The definition of "Termination Date" in Section 1.01 of the
Loan Agreement is amended by replacing the reference to "March 1, 1996"
contained therein and by replacing it with a reference to "December 1, 1997".
2. Section 2.02 is amended in its entirety so the such
Section now reads as follows:
2.02 The Sterling Advances shall be made, shall be repaid and
shall bear interest in accordance with the terms of that certain
Promissory Note, dated February 29, 1996, executed by Trimmings in
favor of the Bank in the original principal amount of up to
(pound)5,000,000 (the "Sterling Note"), the terms of which are
incorporated herein by reference.
3. Section 2.03 is amended in its entirety so that such
Section now reads as follows:
2.03 The Dollar Advances shall be made, shall be repaid and
shall bear interest in accordance with the terms of that certain
Promissory Note, dated March 1, 1996, executed by Conso in favor of the
Bank in the original principal amount of up to $10,000,000 (the "Dollar
Note"), the terms of which are incorporated herein by reference.
19
<PAGE>
4. Sections 7.01(h) through (k) are amended in their
entirety so that such Sections now read as follows:
(h) maintain for Conso and its Subsidiaries on a
consolidated basis Consolidated Tangible Net Worth of at
least $25,000,000.00 at all times;
(i) maintain for Conso and its Subsidiaries on a
consolidated basis a ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth at all times of no greater than 1.0
to 1.0;
(j) maintain for Conso and its Subsidiaries on a
consolidated basis at the end of each fiscal year a Consolidated
Coverage Ratio of at least 1.2 to 1.0 (computed for the fiscal year
then ending);
(k) maintain for Conso and its Subsidiaries on a
consolidated basis a ratio of Consolidated Current Assets to
Consolidated Current Liabilities at all times of at least
1.7 to 1.0;
5. Except as hereby modified, all the terms and provisions
of the Loan Agreement remain in full force and effect.
6. Each reference to the "Loan Agreement" in each of the
Loan Documents (as defined in the Loan Agreement) shall refer to
the Loan Agreement as amended hereby.
7. The Borrower will execute such additional documents as are
reasonably requested by the Bank to reflect the terms and conditions of this
Sixth Amendment and will cause to be delivered such certificates, legal opinions
and other documents as are reasonably required by the Bank.
8. This Sixth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Sixth Amendment
to produce or account for more than one counterpart.
9. This Sixth Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of North Carolina.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
CONSO PRODUCTS COMPANY
ATTEST:
<TABLE>
<CAPTION>
<S> <C>
By (Signature of Konstance J.K. Findlay appears here) By (Signature of J. Cary Findlay appears here)
Title Konstance J.K. Findlay Title Chairman
(Corporate Seal)
</TABLE>
NATIONSBANK, N.A.
By (Signature of William A. Serenius
appears here)
William A. Serenius,
Senior Vice President
21
<PAGE>
FIFTH AMENDMENT TO SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO SECURITY AGREEMENT (the "Fifth Amendment"),
dated as of March 1, 1996, is made by and between
CONSO PRODUCTS COMPANY, a corporation organized and existing under the
laws of the State of South Carolina (the "Borrower"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States (the "Bank").
RECITALS:
A. The Borrower and the Bank entered into that certain Security
Agreement, dated May 6, 1994, as amended December 1, 1994, February 10, 1995,
June 13, 1995 and November 1, 1995 (the "Security Agreement").
B. The Borrower and the Bank have agreed to modify and
amend the Security Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. Recital A of the Security Agreement is hereby amended
in its entirety so that such Recital now reads as follows:
A. The Bank has agreed to extend a revolving credit
and term facility to the Borrower and British Trimmings
Limited pursuant to the terms and conditions of a Loan
Agreement, dated May 6, 1994, as amended December 1, 1994,
February 10, 1995, June 13, 1995, November 1, 1995, December
1, 1995 and March 1, 1996, by and between the Borrower and the
Bank (the "Loan Agreement") and other documents executed now
or hereafter in connection therewith including, without
limitation, promissory notes, guaranty agreements and letter
of credit applications (hereinafter the Loan Agreement and all
other documents executed now or hereafter in connection
therewith shall be collectively referred to as the "Loan
Documents").
2. Except as hereby modified, all the terms and provisions
of the Security Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as
are reasonably requested by the Bank to reflect the terms and
conditions of this Fifth Amendment and will cause to be delivered
22
<PAGE>
such certificates, legal opinions and other documents as are
reasonably required by the Bank.
4. This Fifth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Fifth Amendment
to produce or account for more than one counterpart.
5. This Fifth Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of North Carolina.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
CONSO PRODUCTS COMPANY
ATTEST:
<TABLE>
<CAPTION>
<S> <C>
By (Signature of Konstance J.K. Findlay appears here) By (Signature of J. Cary Findlay appears here)
Title VP Business/Dev. Title Chairman
</TABLE>
(Corporate Seal)
NATIONSBANK, N.A.
By (Signature of William A. Serenius appears here)
William A. Serenius,
Senior Vice President
24
<PAGE>
THIRD AMENDMENT TO GUARANTY AGREEMENT
THIS THIRD AMENDMENT TO GUARANTY AGREEMENT (the "Third Amendment"),
dated as of March 1, 1996, is made by and between
CONSO PRODUCTS COMPANY, a corporation organized and existing under the
laws of the State of South Carolina (the "Guarantor"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States (the "Bank").
RECITALS:
A. The Guarantor entered into that certain Guaranty
Agreement, dated May 6, 1994 (the "Guaranty Agreement").
B. The Guarantor and the Bank have agreed to modify and
amend the Guaranty Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Guaranty Agreement is hereby amended as follows:
(a) The introductory paragraph of the Guaranty Agreement is
amended in its entirety so that such paragraph now reads as follows:
THIS GUARANTY AGREEMENT, dated as of May 6, 1994,
as amended (the "Guaranty"), is given by
CONSO PRODUCTS COMPANY, a South Carolina
corporation (the "Guarantor"); and extended to
NATIONSBANK, N.A., a national banking association
with its principal offices located in Charlotte, North
Carolina (the "Bank") for the benefit of
BRITISH TRIMMINGS LIMITED, an English company (the
"Borrower").
(b) Recital 1 is amended in its entirety so that such
Recital now reads as follows:
1. The Bank has agreed to make loans (the
"Loans") to the Borrower pursuant to the terms and
conditions of that certain Promissory Note, dated
February 29, 1996, executed by the Borrower in favor of
25
<PAGE>
the Bank in the original principal amount of up to
(pound)5,000,000 (the "Note").
2. Except as hereby modified, all the terms and provisions
of the Guaranty Agreement remain in full force and effect.
3. The Guarantor will execute such additional documents as are
reasonably requested by the Bank to reflect the terms and conditions of this
Third Amendment and will cause to be delivered such certificates, legal opinions
and other documents as are reasonably required by the Bank.
4. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Third Amendment
to produce or account for more than one counterpart.
5. This Third Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of North Carolina.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
CONSO PRODUCTS COMPANY
ATTEST:
<TABLE>
<CAPTION>
<S> <C>
By (Signature of Konstance J.K. Findlay appears here) By (Signature of J. Cary Findlay appears here)
Title VP Business Dev. Title Chairman
</TABLE>
(Corporate Seal)
NATIONSBANK, N.A.
By (Signature of William A. Serenius appears here)
William A. Serenius,
Senior Vice President
27
<PAGE>
PROMISSORY NOTE
U.S. $10,000,000 March 1, 1996
FOR VALUE RECEIVED, the undersigned, CONSO PRODUCTS COMPANY, a South
Carolina corporation (the "Borrower"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association (the "Bank") at its
office in Charlotte, North Carolina (or at such other place or places as the
Bank may designate) the principal sum of up to
TEN MILLION DOLLARS (U.S. $10,000,000), or such lesser amount as may
constitute the unpaid principal amount of the Dollar Advances (as hereinafter
defined), pursuant to the terms and conditions hereinafter set forth and the
terms and conditions set forth in that certain Loan Agreement, dated May 6,
1994, as amended December 1, 1994, February 10, 1995, June 13, 1995, November 1,
1995, December 1, 1995 and March 1, 1996, executed by and between the Borrower
and the Bank (the "Loan Agreement").
Advances. The Borrower, in accordance with the terms hereof, may from
time to time until December 1, 1997 (the "Termination Date") request advances
from the Bank in U.S. dollars (hereinafter the "Dollar Advances") in an
aggregate amount up to $10,000,000 less the outstanding principal amount of all
loans made pursuant to that certain Promissory Note dated March 1, 1996 executed
by British Trimmings Limited ("Trimmings") in favor of the Bank in the original
face amount of (pound)5,000,000 (the "Sterling Note"). Upon receipt of such a
request for a Dollar Advance hereunder, the Bank shall make any such Dollar
Advance hereunder available to the Borrower on the date requested for such
Advance on the terms and conditions set forth herein and in the Loan Agreement;
provided, however, the Bank shall not be obligated to make such advance unless
the Borrower has satisfied the conditions set forth in Section 2.06 of the Loan
Agreement.
Principal. The outstanding principal balance of the Dollar
Advances shall be due and payable on the Termination Date.
Interest. Dollar Advances hereunder shall bear interest on the
outstanding balance hereunder at a per annum interest rate equal to the CD Rate
plus 2.75% per annum. For purposes hereof, "CD Rate" means the floating 90-day
adjusted certificate of deposit rate of interest announced by the Bank in
Charlotte, North Carolina from time to time. Changes in the CD Rate shall be
effective for purposes of this Note on the dates of such
28
<PAGE>
changes. Unless otherwise agreed, accrued interest with respect to each Dollar
Advance shall be payable in arrears on the first day of each month. Whenever a
payment on this Note is stated to be due on a day which is not a business day,
such payment shall be made on the next succeeding business day with interest
accruing to the date of payment. Interest hereunder shall be computed on the
basis of actual number of days elapsed over a year of 360 days.
Supersession. It is understood and agreed by the Bank and the Borrower
that this Note amends, restates, supplements and supersedes in all respects the
promissory note dated June 13, 1995 in the original principal amount of up to
$10,000,000 heretofore issued by the Borrower to the Bank.
Payments. All payments made on this Note shall be in U.S.
dollars. Subject to the conditions set forth herein and in the
Loan Agreement, amounts repaid may be reborrowed.
Prepayments. The Borrower may repay this Note in whole or
in part at any time without any penalty whatsoever.
Capital Adequacy. If the Bank shall have determined that the adoption
or effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has the effect of materially reducing the
rate of return on the Bank's capital or assets as a consequence of its
commitments or obligations hereunder to a level below that which the Bank could
have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration the Bank's policies with respect to capital adequacy), then
from time to time, within 15 days after written demand by the Bank the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank for such reduction. Upon determining in good faith that any additional
amounts will be payable pursuant to this Section, the Bank will give prompt
written notice thereof to the Borrower, which notice shall set forth in
reasonable detail the basis of the calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this
paragraph. Determination by the Bank of amounts owing under this paragraph
shall, absent evidence of error, be binding on the parties hereto. Failure on
the part of the Bank to demand compensation for any period hereunder shall not
constitute a waiver of the Bank's rights to
29
<PAGE>
demand any such compensation in such period or in any other
period.
Taxes. All payments made by the Borrower hereunder will be made without
(but without waiving any rights with respect to) setoff or counterclaim.
Promptly upon notice from the Bank to the Borrower, the Borrower will pay, prior
to the date on which penalties attach thereto, but without duplication, all
present and future, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of advances
hereunder (all such taxes, levies, costs and charges being herein collectively
called "Taxes"), provided that Taxes shall not include taxes imposed on or
measured by the income of the Bank by the United States of America or any
political subdivision or taxing authority thereof or therein, or taxes on or
measured by the overall net income of any foreign office, branch or subsidiary
of the Bank by any foreign country of subdivision thereof in which that office,
branch or subsidiary is doing business. Promptly after the date on which payment
of any such Tax is due pursuant to applicable law, the Borrower will at the
request of the Bank, furnish to the Bank evidence, in form and substance
satisfactory to the Bank, that the Borrower has met its obligations under this
paragraph. The Borrower will indemnify the Bank against, and reimburse the Bank
on demand for, any Taxes, as determined by the Bank in its good faith
discretion. The Bank shall provide the Borrower with appropriate receipts for
any payments or reimbursements made by the Borrower pursuant to this Section.
Events of Default. Upon the occurrence of an Event of Default under the
Loan Agreement, (a) this Note and all other debts due the Bank by the Borrower
shall immediately become due and payable upon written notice to the Borrower
(except that in the case of any Event of Default relating to a bankruptcy
petition filed by the Borrower, this Note and all other debts due the Bank shall
become immediately due and payable without the necessity of demand or other
action by the Bank) without the necessity of any other demand, presentment,
protest or notice of any kind, all of which are hereby waived by the Borrower,
(b) the then remaining unpaid principal amount and accrued but unpaid interest
shall bear interest at a per annum rate equal to the Prime Rate plus two percent
(2%) until such principal and interest has been paid in full and (c) regardless
of the adequacy of the collateral, the Bank shall have the right, immediately
and without further action by it, to set-off against this Note all money owed by
the Bank in any capacity to the Borrower, whether or not due, and the Bank shall
be deemed to have exercised such right of set-off and to have made a charge
against any such money immediately upon the occurrence of such Event of Default
even though such charge is made or entered on the books of the Bank subsequent
thereto.
30
<PAGE>
No Waiver. No failure or delay on the part of the Bank in the exercise
of any right, power or privilege hereunder or under any other Loan Document
shall operate as a waiver of any such right, power or privilege nor shall it
preclude any other or further exercise thereof. The Borrower assents to any one
or more extensions or postponements of the time of payment or other indulgences,
to any substitutions, exchanges or releases of collateral if at any time there
is collateral available to the holder of this Note, and to the additions or
releases of any other parties or persons primarily or secondarily liable.
Late Charge. Should any payment due hereunder be in default for more
than fifteen (15) days, there may be imposed, to the extent permitted by law, a
delinquency charge not to exceed four percent (4%) of such payment in default.
In addition, at the option of the Bank, any accrued and unpaid interest, fees or
charges may, for purposes of computing accruing interest on a daily basis after
the due date for such interest fees or charges, be deemed to be a part of the
principal balance thereof, and interest shall accrue on a daily compounded basis
after such date at the rate provided for hereunder until the entire balance of
principal and interest is paid in full.
Notices. All notices and other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or when mailed by
registered or certified mail, postage prepaid, addressed as follows:
(a) If to the Borrower:
Conso Products Company
513 North Duncan Bypass
P.O. Box 326
Union, South Carolina 29379
Attn: Mr. S. Duane Southerland, Jr.
Telephone: 864-427-9004
Telecopy: 864-427-8820
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 N. Tryon Street
Charlotte, North Carolina 28202-4006
Attn: J. Norfleet Pruden, III
Telephone: (704) 331-7400
Telecopy: (704) 331-7598
31
<PAGE>
(b) If to the Bank:
NationsBank, N.A. (Carolinas)
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
Attention: William A. Serenius
Telephone: (704) 386-8577
Telecopy: (704) 386-1023
Attorneys' Fees. In the event this Note is not paid when due at any
stated or accelerated maturity, the Borrower will pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees.
Choice of Law. This Note shall be governed by and construed in
accordance with, the laws of the State of North Carolina. In addition, the
Borrower hereby consents and submits to the jurisdiction and venue of the
federal and state courts located in Mecklenburg County, North Carolina.
32
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized officers as of the day and year first above
written.
CONSO PRODUCTS COMPANY
ATTEST:
<TABLE>
<CAPTION>
<S> <C>
By (Signature of Konstance J.K. Findlay appears here) By (Signature of J. Cary Findlay appears here)
Title VP Business Dev. Title Chairman
</TABLE>
(Corporate Seal)
33
<PAGE>
SCHEDULE A TO THE
$10,000,000 PROMISSORY NOTE
DATED MARCH 1, 1996
Name of
Principal Person
Amount of Applicable Payment Making
Date Advance Interest Rate Principal Interest Notation
34
<PAGE>
PROMISSORY NOTE
U.K. (pound)5,000,000 February 29, 1996
FOR VALUE RECEIVED, the undersigned, BRITISH TRIMMINGS LIMITED, an
English company (the "Borrower"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association (the "Bank") at its
London Branch (or at such other place or places as the Bank may designate with
the Borrower's written consent, such consent not to be unreasonably withheld)
the principal sum of up to
FIVE MILLION POUNDS STERLING (U.K. (pound)5,000,000), or such lesser
amount as may constitute the unpaid principal amount of the Sterling Advances
(as hereinafter defined), pursuant to the terms and conditions hereinafter set
forth and the terms and conditions set forth in that certain Loan Agreement,
dated May 6, 1994, as amended, executed by and between Conso Products Company
("Conso") and the Bank (the "Loan Agreement").
Advances. The Borrower, in accordance with the terms hereof, may from
time to time until December 1, 1997 (the "Termination Date") request offers from
the Bank for advances in U.K. Pounds Sterling (hereinafter the "Sterling
Advances") in an aggregate amount up to (pound)5,000,000 at any time outstanding
based on an interest rate equal to the Adjusted LIBOR Rate plus 1.25% per annum;
provided, however, no more than three Sterling Advances may be outstanding at
any one time. Upon receipt of such a request for a Sterling Advance hereunder,
the Bank shall make any such Sterling Advance hereunder on the terms and
conditions set forth herein and in the Loan Agreement; provided, however, the
Bank shall not be obligated to make such advance unless Conso has satisfied the
conditions set forth in Section 2.06 of the Loan Agreement. To request an offer
for a Sterling Advance hereunder, the Borrower shall make a written request of
the Bank for an offer for a Sterling Advance under this Note (hereinafter, a
"Request for Sterling Advance") not later than 11:00 a.m. (London time) on the
business day of the proposed Sterling Advance which notice shall specify (i)
that the requested Sterling Advance would be made under this Note, (ii) the date
of the requested Sterling Advance (which shall be a business day), (iii) the
amount of the requested Sterling Advance which shall be in a minimum principal
amount of (pound)250,000 and integral multiples of (pound)250,000 in excess
thereof, and (iv) the
35
<PAGE>
requested Interest Period with respect thereto. In response to any such Request
for a Sterling Advance, the Bank shall respond to the Borrower by 11:30 a.m.
(London time) on the business day of the proposed Sterling Advance specifying
the applicable Adjusted LIBOR Rate for such Sterling Advance (the "Offer for
Sterling Advance"). The Borrower may then by telephone or telecopy (and if by
telephone, promptly confirmed by telecopy) by 11:30 a.m. (London time) on the
business day of the proposed Sterling Advance, in its sole discretion, accept or
reject the Offer for Sterling Advance. Failure by the Borrower to accept an
Offer for Sterling Advance by the appropriate time shall be deemed to be
rejection of such Offer for Sterling Advance. The terms of each Sterling Advance
shall be noted on the schedule attached hereto, the terms of which shall be
presumed correct absent evidence of error; provided, however that any failure to
make such notation (or any inaccuracy in such notation) shall not limit or
otherwise affect the obligations of the Borrower hereunder. As used herein,
"Interest Period" means a period of seven days, fourteen days, one month or
three months duration as may be selected by the Borrower; provided, however,
that (A) each Interest Period which would otherwise end on a day which is not a
business day shall end on the next succeeding business day unless such
succeeding business day falls in the next calendar month and then in such case
on the next preceding business day and (B) no Interest Period shall extend
beyond the Termination Date; "Adjusted LIBOR Rate" means for the respective
Interest Period, a per annum interest rate offered by the Bank to the Borrower
in accordance with the foregoing terms equal to the per annum rate obtained by
dividing (a) the rate of interest determined by the Bank to be the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the per annum rates at which deposits in U.K.
Pounds Sterling are offered to the Bank in the London interbank market at 11:30
a.m. (London time) (or as soon thereafter as is practicable), in each case on
the date of the Offer for Sterling Advance in an amount substantially equal to
the requested Sterling Advance and for a period equal to such Interest Period by
(b) a percentage (expressed as a decimal fraction) equal to 100% minus maximum
reserve requirements which may be applicable with respect to such Sterling
Advance.
Principal. The outstanding principal balance of the Sterling Advances
shall be due and payable on the earlier of the last day of its respective
Interest Period as noted on the schedule attached or the Termination Date.
Interest. Sterling Advances hereunder shall bear interest on the
outstanding balance hereunder at a per annum interest rate equal to the Adjusted
LIBOR Rate plus 1.25% per annum. Unless otherwise agreed, accrued interest with
respect to each Sterling Advance shall be payable in arrears on the last day of
an
36
<PAGE>
Interest Period for such Sterling Advance, but in any event not less frequently
than once every month on the first day of each month. Whenever a payment on this
Note is stated to be due on a day which is not a business day, such payment
shall be made on the next succeeding business day with interest accruing to the
date of payment. Interest hereunder shall be computed on the basis of actual
number of days elapsed over a year of 365 days.
Supersession. It is understood and agreed by the Bank and the Borrower
that this Note amends, restates, supplements and supersedes in all respects the
promissory note dated November 1, 1995 in the original principal amount of
(pound)5,000,000 heretofore issued by the Borrower to the Bank.
Payments. All payments made on this Note shall be in U.K.
Pounds Sterling. Subject to the conditions set forth herein and
in the Loan Agreement, amounts repaid may be reborrowed.
Prepayments. Prepayments are not permitted prior to
maturity of Interest Periods.
Indemnification. The Borrower agrees to indemnify the Bank against all
reasonable losses, expenses and liabilities sustained by the Bank on account of
the Borrower (i) failing to accept a Sterling Advance after notice to the Bank
of its acceptance of any such Sterling Advance and (ii) making a prepayment on a
Sterling Advance prior to the last day of an Interest period.
Yield Indemnification. In the event the Bank shall
determine (which determination shall be presumed correct absent
evidence of error) that:
(i) Unavailability. On any date for determining the
appropriate Adjusted LIBOR Rate for any Interest Period, that by reason
of any changes arising on or after the date of this Note affecting the
London interbank Pounds Sterling market, U.K. Pounds Sterling deposits
in the principal amount requested are not generally available in the
London interbank market or adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Adjusted LIBOR Rate then Sterling Advances hereunder
will not be available until such time as the Bank shall notify the
Borrower that the circumstances giving rise thereto no longer exist.
(ii) Increased Costs. At any time that the Bank shall incur
increased costs or reductions in the amounts received or receivable
hereunder with respect to any Sterling Advances because of any change
since the date of this Note in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or
37
<PAGE>
administration thereof and including the introduction of any new law or
governmental rule, regulation, guideline or order) including without
limitation the imposition, modification or deemed applicability of any
reserves, deposits or similar requirements as related to such Sterling
Advances (such as, for example, but not limited to, a change in
official reserve requirements, but, in all events, excluding reserves
to the extent included in the computation of the Adjusted LIBOR Rate),
then the Borrower shall pay to the Bank promptly upon written demand
therefor (which demand shall state the basis therefor), such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as the Bank may determine in its
reasonable discretion) as may be required to compensate the Bank for
such increased costs or reductions in amounts receivable hereunder
(written notice as to the additional amounts owed to the Bank, showing
the basis for calculation thereof, shall, absent evidence of error, be
binding on all parties hereto).
(iii) Illegality. At any time that the making or continuance
of any Sterling Advance has become unlawful by compliance by the Bank
in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation,
guideline or order not having the force of law even though the failure
to comply therewith would not be unlawful), or has become impractical
as a result of a contingency occurring after the date of this Note
which materially and adversely affects the London interbank Sterling
market, then Sterling Advances will no longer be available.
Capital Adequacy. If the Bank shall have determined that the adoption
or effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has the effect of materially reducing the
rate of return on the Bank's capital or assets as a consequence of its
commitments or obligations hereunder to a level below that which the Bank could
have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration the Bank's policies with respect to capital adequacy), then
from time to time, within 15 days after written demand by the Bank the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank for such reduction. Upon determining in good faith that any additional
amounts will be payable
38
<PAGE>
pursuant to this Section, the Bank will give prompt written notice thereof to
the Borrower, which notice shall set forth in reasonable detail the basis of the
calculation of such additional amounts, although the failure to give any such
notice shall not release or diminish any of the Borrower's obligations to pay
additional amounts pursuant to this paragraph. Determination by the Bank of
amounts owing under this paragraph shall, absent evidence of error, be binding
on the parties hereto. Failure on the part of the Bank to demand compensation
for any period hereunder shall not constitute a waiver of the Bank's rights to
demand any such compensation in such period or in any other period.
Taxes. All payments made by the Borrower hereunder will be made without
(but without waiving any rights with respect to) setoff or counterclaim.
Promptly upon notice from the Bank to the Borrower, the Borrower will pay, prior
to the date on which penalties attach thereto, but without duplication, all
present and future, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of advances
hereunder solely as a result of the interest rate being determined by reference
to the Adjusted LIBOR Rate and/or the provisions of this Note relating to the
Adjusted LIBOR Rate and/or the recording, registration, notarization or other
formalization of any thereof and/or any payments of principal, interest or other
amounts made on or in respect of advances hereunder when the interest rate is
determined by reference to the Adjusted LIBOR Rate and any increases thereof
(all such taxes, levies, costs and charges being herein collectively called
"Taxes"), provided that Taxes shall not include taxes imposed on or measured by
the income of the Bank by the United States of America or any political
subdivision or taxing authority thereof or therein, or taxes on or measured by
the overall net income of any foreign office, branch or subsidiary of the Bank
by any foreign country of subdivision thereof in which that office, branch or
subsidiary is doing business. Promptly after the date on which payment of any
such Tax is due pursuant to applicable law, the Borrower will at the request of
the Bank, furnish to the Bank evidence, in form and substance satisfactory to
the Bank, that the Borrower has met its obligations under this paragraph. The
Borrower will indemnify the Bank against, and reimburse the Bank on demand for,
any Taxes, as determined by the Bank in its good faith discretion. The Bank
shall provide the Borrower with appropriate receipts for any payments or
reimbursements made by the Borrowers pursuant to this Section.
Events of Default. Upon the occurrence of an Event of Default under the
Loan Agreement, (a) this Note and all other debts due the Bank by the Borrower
shall immediately become due and payable upon written notice to the Borrower
(except that in the case of any Event of Default relating to a bankruptcy
39
<PAGE>
petition filed by the Borrower, this Note and all other debts due the Bank shall
become immediately due and payable without the necessity of demand or other
action by the Bank) without the necessity of any other demand, presentment,
protest or notice of any kind, all of which are hereby waived by the Borrower,
(b) the then remaining unpaid principal amount and accrued but unpaid interest
shall bear interest at a per annum rate equal to the Prime Rate plus two percent
(2%) until such principal and interest has been paid in full and (c) regardless
of the adequacy of the collateral, the Bank shall have the right, immediately
and without further action by it, to set-off against this Note all money owed by
the Bank in any capacity to the Borrower, whether or not due, and the Bank shall
be deemed to have exercised such right of set-off and to have made a charge
against any such money immediately upon the occurrence of such Event of Default
even though such charge is made or entered on the books of the Bank subsequent
thereto. For purposes hereof, the term "Prime Rate" means the floating rate of
interest publicly announced by the Bank in Charlotte, North Carolina from time
to time as its prime rate.
No Waiver. No failure or delay on the part of the Bank in the exercise
of any right, power or privilege hereunder or under any other Loan Document
shall operate as a waiver of any such right, power or privilege nor shall it
preclude any other or further exercise thereof. The Borrower assents to any one
or more extensions or postponements of the time of payment or other indulgences,
to any substitutions, exchanges or releases of collateral if at any time there
is collateral available to the holder of this Note, and to the additions or
releases of any other parties or persons primarily or secondarily liable.
Late Charge. Should any payment due hereunder be in default for more
than fifteen (15) days, there may be imposed, to the extent permitted by law, a
delinquency charge not to exceed four percent (4%) of such payment in default.
In addition, at the option of the Bank, any accrued and unpaid interest, fees or
charges may, for purposes of computing accruing interest on a daily basis after
the due date for such interest fees or charges, be deemed to be a part of the
principal balance thereof, and interest shall accrue on a daily compounded basis
after such date at the rate provided for hereunder until the entire balance of
principal and interest is paid in full.
Notices. All notices and other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or when mailed by
registered or certified mail, postage prepaid, addressed as follows:
40
<PAGE>
(a) If to the Borrower:
British Trimmings Limited
P.O. Box 46
Coronation Street
Stockport, Cheshire SK5 7TJ
England
Attn: Antony W. Laughton
Telephone: 44 161 480 6122
Telecopy: 44 161 487 3378
with a copy to:
Conso Products Company
513 North Duncan Bypass
P.O. Box 326
Union, South Carolina 29379
Attention: Mr. S. Duane Southerland, Jr.
Telephone: (864) 427-9004
Telecopy: (864) 427-8820
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 N. Tryon Street
Charlotte, North Carolina 28202-4006
Attention: J. Norfleet Pruden, III
Telephone: (704) 331-7400
Telecopy: (704) 331-7598
(b) If to the Bank:
NationsBank, N.A.
London Branch
26 Austin Friars
London
EC2N 2EH, England
Telephone: 071-860-3850
Telecopy: 071-588-9150
with a copy to:
NationsBank, N.A.
NationsBank Plaza, NC1-002-03-10
Charlotte, North Carolina 28255
Attention: William A. Serenius
Telephone: (704) 386-8577
Telecopy: (704) 386-1023
41
<PAGE>
Attorneys' Fees. In the event this Note is not paid when due at any
stated or accelerated maturity, the Borrower will pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees.
Choice of Law. This Note shall be governed by and construed
in accordance with, the laws of England.
42
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by their duly authorized officers as of the day and year first above
written.
BRITISH TRIMMINGS LIMITED
ATTEST:
By (Signature of C.V. Balakrishnan By (Signature of C. Kirrane appears here)
appears here)
Title Chief Operating Officer Title Financial Controller
(Corporate Seal)
43
<PAGE>
SCHEDULE A TO THE
(pound)5,000,000 PROMISSORY NOTE
DATED MARCH 1, 1996
Name of
Principal Person
Amount of Applicable Payment Making
Date Advance Interest Rate Principal Interest Notation
44
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
MARCH 30, 1996 FILED AS PART OF THE REGISTRANT FORM 10Q FOR THE QUARTER
ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10Q.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 174,154
<SECURITIES> 0
<RECEIVABLES> 11,467,974
<ALLOWANCES> 928,808
<INVENTORY> 20,637,245
<CURRENT-ASSETS> 32,810,613
<PP&E> 19,178,118
<DEPRECIATION> (6,990,264)
<TOTAL-ASSETS> 47,379,833
<CURRENT-LIABILITIES> 15,734,536
<BONDS> 0
0
0
<COMMON> 16,896,346
<OTHER-SE> 11,907,098
<TOTAL-LIABILITY-AND-EQUITY> 47,379,833
<SALES> 52,521,185
<TOTAL-REVENUES> 52,521,185
<CGS> 33,651,178
<TOTAL-COSTS> 33,651,178
<OTHER-EXPENSES> 11,785,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 620,518
<INCOME-PRETAX> 6,464,100
<INCOME-TAX> 1,892,662
<INCOME-CONTINUING> 4,571,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,571,438
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
