<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 1997
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[ ]
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-22942
CONSO PRODUCTS COMPANY
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(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0986680
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
513 NORTH DUNCAN BYPASS, P.O. BOX 326, UNION, SC 29379
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864) 427-9004
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
NO PAR VALUE COMMON STOCK
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(Title of class)
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 shares of the Registrant's no par value Common
Stock, its only outstanding class of voting stock, held by non-affiliates of the
Registrant as of August 22, 1997, was $47,980,530
The number of shares outstanding of the Registrant's no par value Common Stock,
its only outstanding class of common equity, as of August 22, 1997, was
7,492,365.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Incorporated Document Parts into which Incorporated
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<S> <C>
1997 Annual Report to Shareholders for the fiscal year ended June 28, 1997 Part II
Proxy Statement for Annual Meeting of Shareholders to be held October 14, 1997 Part III
</TABLE>
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Conso Products Company (together with its subsidiaries, the "Company")
is the world's largest manufacturer of decorative trimmings for the home
furnishings industry. The Company produces and sells a full range of knitted and
woven fringes, decorative cords, tasseled accessories, jacquard and other woven
braids, and apparel trims, as well as workroom tapes and supplies. The Company
also distributes brassware and other home furnishings accessories. The Company
maintains a worldwide sales force and its products are marketed to
manufacturers, distributors and retailers. Its manufacturing facilities are
located in the United States, the United Kingdom, and Mexico.
The Company's US business, which can be traced back to 1867, was
acquired from Springs Industries, Inc. in 1986 when the company was organized by
a group of investors that included J. Cary Findlay, who became its Chief
Executive Officer and, subsequently, its sole shareholder. In December 1993, the
Company made its initial public offering of its Common Stock and, using a
portion of the proceeds of the offering, acquired British Trimmings (Holdings)
Limited, a privately held English company which is now known as "British
Trimmings Limited" and is one of the leading producers of decorative trimmings
in the United Kingdom. In connection with the offering, Conso Products Company
changed its jurisdiction of incorporation from Delaware to South Carolina.
Unless the context otherwise requires, all references in this report to "Conso"
or "Conso US" are to Conso Products Company, its Delaware predecessor, and its
majority-owned Mexican subsidiary, and all references to "British Trimmings" are
to British Trimmings Limited, its corporate predecessors and subsidiaries, and
all references to the "Company" include both Conso and British Trimmings.
The fiscal year ended June 28, 1997 (consisting of 52 weeks ) is
referred to herein as the "1997 fiscal year," or "fiscal 1997," the fiscal year
ended June 29, 1996 (consisting of 52 weeks) is referred to herein as the "1996
fiscal year" or "fiscal 1996," and the fiscal year ended July 1, 1995
(consisting of 52 weeks) is referred to herein as the "1995 fiscal year" or
"fiscal year 1995."
Since its initial public offering and the British Trimmings
acquisition, the Company has devoted substantial management time and attention
to the integration of the Conso US and British Trimmings operations. Particular
emphasis was placed on the transfer of Conso US's data processing technology, as
well as production, marketing and customer service systems, to British
Trimmings. A major goal in this process has been to increase the levels of stock
inventory and reduce backorders at British Trimmings so that most customer
orders for stock products can be shipped within three days.
The Company also has made several smaller acquisitions since acquiring
British Trimmings. In May 1994, it acquired the assets of Conso Graber Canada
Inc., a Canadian producer and distributor of decorative trimmings whose business
had once been under common ownership with Conso's. The assets were acquired at a
total cost of approximately $300,000 and consisted primarily of additional
equipment which is being used at the Company's existing locations. In June 1994,
the Company acquired Wendy A. Cushing Limited and Wendy Cushing Trimmings
Limited, both English companies, for approximately $112,000. Wendy A. Cushing, a
leading designer of old world decorative trimmings, serves Conso US's and
British Trimmings' upper-end customers internationally. These companies maintain
a design studio in London and a showroom in Chelsea Harbour. In March 1996,
Conso acquired all of the assets of The Claesson Company in consideration of the
assumption of approximately $310,000 in liabilities. In connection with the
acquisition, Margareta Claesson joined Conso as Manager of the Decorative
Accessories Products Division. In September 1997, Conso acquired HFDC, Inc.
which designs and sells decorative home window fashion products, primarily under
the "DUITALL" name brand. Stuart R. Fraker, HFDC's President, will join Conso as
Manager of this new division of home fashion products.
The Company's global growth strategy for the future includes:
- Additional business acquisitions as attractive opportunities are
identified;
<PAGE> 3
- Continual introduction of new decorative trimmings products and the
cross-merchandising of existing products between Conso US and British
Trimmings;
- Continued expansion of the Company's customer base, including increased
sales to furniture manufacturers, mass merchandisers and high-end
designers;
- Expansion into new decorative accessory products; and
- Expanded international production and distribution operations, as well
as increased export sales.
INDUSTRY
The decorative trimmings industry constitutes a small portion of the
home furnishings industry. The Company's management is not aware of any
definitive published data on the size of the decorative trimmings industry. Both
Conso US and British Trimmings have many competitors for various parts of their
businesses; however, many of these competitors are small and most do not offer
the same breadth or depth of collections or ranges.
Demand for Conso US's and British Trimmings' products varies as fashion
trends in home furnishings and the relative cost of various products changes.
Total demand also is affected by population growth and demographics, consumer
spending and confidence in the economy, levels of disposable income, geographic
mobility of consumers, housing starts and residential housing sales. The Company
believes that it has been able to increase the demand for decorative trimmings,
and therefore expand the market, through aggressive merchandising support of
resellers and education of end-users as to applications for its products.
PRODUCTS
The decorative trimmings produced and sold by both Conso US and British
Trimmings include various fringes, cords and tasseled accessories that are used
on the edges of chairs, sofas, decorative pillows, draperies and other home
furnishings. Fringes may include a brush fringe or ruche around the edge of a
pillow or a heavy bullion fringe around the base of a sofa. Tassel fringe is
often used to edge draperies and decorative pillows. Knitted and woven braids
produced by both companies are used to border or frame pillows, curtains and
upholstered pieces. Cord without a lip or flange may be used to border a mirror
or a room and can be used to hang pictures and mirrors.
British Trimmings also sells apparel trimmings and distributes apparel
trimmings and accessories to the retail trade. Through subsidiaries, British
Trimmings also conducts a mail order catalog and retail haberdashery. Apparel
fashions produced and distributed by British Trimmings include sequin and
glitter trimmings, gimp trims and froggings. Some of the braids and other stock
products that are produced by both Conso US and British Trimmings are also used
in apparels. Conso US also produces and sells workroom tapes and cords, and
distributes other sewing and workroom supplies purchased from others. Conso US
and British Trimmings import and distribute brass accessories for window
furnishings and other decorative accessories for the home.
<PAGE> 4
The following table sets forth for the periods indicated certain
information relating to sales of the Company's product lines:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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JUNE 28, 1997 JUNE 29, 1996* JULY 1, 1995*
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(DOLLARS IN THOUSANDS)
Catalog Trims:
<S> <C> <C> <C> <C> <C> <C>
Conso US $32,988 44.9% $32,096 45.4% $25,713 43.1%
British Trimmings 10,548 14.4 9,541 13.50 8,804 14.8
Wendy Cushing Trimmings 912 1.2 685 1.0 474 0.8
Manufacturers' Specials:
Conso US 12,572 17.1 12,397 17.5 8,298 13.9
British Trimmings 5,804 7.9 6,056 8.6 5,223 8.8
Wendy Cushing Trimmings 677 0.9 616 0.9 556 0.9
Decorative Accessories 1,376 1.9 865 1.2 512 0.9
Workroom supplies 4,557 6.2 4,593 6.5 4,673 7.8
Apparel Fashions 2,062 2.8 2,368 3.3 2,870 4.8
Other miscellaneous products 1,951 2.7 1,497 2.1 2,498 4.2
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Total $73,447 100.0% $70,714 100.0% $59,621 100.0%
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</TABLE>
*Certain fiscal year 1996 and 1995 amounts have been reclassified to conform to
the current year classifications and as a result of improved management
information.
PRODUCT DESIGN AND DEVELOPMENT
Because the demand for decorative trimmings is based upon their fashion
appeal to home furnishings manufacturers, interior designers and ultimately
consumers, the success of the Company's business is dependent upon its ability
to design and develop a broad range of attractive products in a wide array of
colors and color combinations (known as "colorways"). Conso US's current stock
product lines of decorative trimmings include numerous items in various yarns,
stylings and colorways comprising over 19,000 stock keeping units ("SKUs"), and
British Trimmings currently stocks products comprising over 3,100 SKUs. Both
Conso US and British Trimmings develop and market lines of complementary
products in various stylings and colorways as "collections" or "ranges." Both
businesses also manufacture custom trimmings as specified by their customers.
Since 1987, Conso's management has developed products in response to
national market research and customer demand. The first line was the "Empress
Collection," introduced in 1987 for the medium price range market. Wesley
Mancini, a prominent designer of home furnishings fabrics, was engaged to color
the first 13 colorways in the line and develop additional lines. Conso US has
also introduced 15 additional collections of decorative trimmings in different
yarns and colorways for various markets and price points, including the
"Imperial Collection" designed by Mr. Mancini and introduced in 1989 for the
higher price range market. The "Princess Collection", developed in 1989, and the
"Louis XVII Collection", introduced in 1993 and designed by Louis Nichole,
another well-known home furnishings designer, are marketed in the lower to
medium price range for major retailers.
British Trimmings has offered its "Tudor Range" since 1990 and
introduced its "Elizabethan Range" in 1993, both of which are aimed at the
medium price range market. The Tudor Range was expanded with additional
colorways in 1992 and 1994. The Elizabethan Range, based on historical trimmings
as would be found in a 15th century English mansion, emphasizes Britain's
heritage in marketing British trimmings in home furnishings worldwide. In 1996,
British Trimmings introduced its "Bloomsbury Range", aimed at the upper end
market. In 1997, British Trimmings introduced "Cambridge" and "Oxford" ranges to
aggressively pursue the upholstery market.
<PAGE> 5
MARKETING AND SALES
Conso US's marketing program is directed by its four-person marketing
department, assisted by its three-person graphic design team and an eight-person
sample department. The marketing department is responsible for trade shows,
advertising, sample binders and cards, displays, videos, catalogs, brochures and
other selling aids as well as the development of new stock products.
To market its collections of decorative trimmings, Conso US has created
special sample binders for most collections. The binders allow the easy removal
and use of sample cards, as well as the insertion of cards for new colorways and
stylings added to the collections in later years. Conso US also distributes a
color wholesale catalog produced annually by its graphic design team, as well as
other brochures, sample cards and selling aids, and advertises its products in
major trade publications.
Since the acquisition of British Trimmings, the Company has established
a two-person marketing department at British Trimmings. British Trimmings also
uses sample books and cards as its primary selling aids, as well as brochures
and other materials produced by its in-house printing operation at its Leek,
England facility. British Trimmings' first wholesale color catalog was
introduced in January 1995 and is being produced annually.
Conso US displays its products at showrooms located at its New York
sales office and at the Furniture Mart in Hickory, North Carolina and its Miami
international sales office. British Trimmings maintains showrooms at its three
manufacturing facilities and Wendy Cushing Trimmings has a showroom at Chelsea
Harbour in London. In 1997, the Company has displayed (or is scheduled to
display) the products of both Conso US and British Trimmings at a total of five
trade shows in the United States, four in Europe, one in Hong Kong, and one
in Dubai.
Conso US's products are marketed and sold through a sales force of 19
persons located in various major cities in the United States and seven foreign
independent sales representatives: one in Canada, one in Puerto Rico, and five
in the Pacific Rim. British Trimmings has eight sales personnel operating mainly
out of its Stockport, England offices and 16 independent sales representatives,
of whom 10 are located in Europe, one in Canada, and five in the Pacific Rim.
Wendy Cushing Trimmings is serviced by a sales representative in the United
Kingdom and 24 designer (agent) showrooms in the United States and Canada. The
Company is consolidating its sales efforts outside the United States and
England. As a result, international sales offices were established in September
1994 in Miami, Florida, for Latin America and the Caribbean and in Stockport for
Continental Europe, the Pacific Rim and the Middle East. Three international
sales managers are now directing these offices with primary responsibility for
implementing the sales and marketing programs for these geographic areas.
ORDER PROCESSING AND CUSTOMER SERVICE
Most of Conso US's orders are received directly from customers by Conso
US's customer service representatives in its offices in Union, South Carolina.
More than half of the customer orders are received by facsimile transmission and
the balance by telephone. The customer service operation includes eight
representatives for domestic stock orders, two representatives who process all
international orders, one representative who handles custom orders, and four
representatives who handle manufacturing specials orders.
Because most of Conso US's customer orders are for stock items and
because prompt response to customer orders is critical to customer satisfaction,
Conso US emphasizes customer service and prompt fulfillment of orders. To that
end, Conso US maintains a large inventory of stock items in a wide range of
colors and color combinations, and has implemented computerized order entry,
production, inventory management and shipping systems, including a computerized
factory order materials requisition program with pre-established minimum and
maximum formulas for levels of inventories based on sales history and forecasts
for each SKU. These systems have enabled Conso US to better anticipate future
demand by customers for each of its SKUs and to minimize backorders.
<PAGE> 6
Most of British Trimmings' customer orders are processed at its
Stockport offices. Approximately 63% are orders of stock items and the remainder
are custom orders. During fiscal 1995, the Company implemented Conso US 's
inventory management systems at British Trimmings and expanded British
Trimmings' inventory of stock items. These measures were taken to improve
British Trimmings' customer service and responsiveness to customer orders.
CUSTOMERS
The Company's products are marketed worldwide to manufacturers,
distributors and retailers, including manufacturers of upholstered furniture,
draperies, bedding, decorative pillows and other home furnishings; trim, fabric
and workroom supply distributors; and major retailers, retail fabric store
chains and interior designers. The following table sets forth for the periods
indicated certain information relating to sales of products to the Company's
three major categories of customers.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Manufacturers $31,108 42.3% $30,476 43.1% $25,351 42.5%
Distributors 30,013 40.9 28,199 39.9 24,630 41.3
Retailers 12,326 16.8 12,039 17.0 9,640 16.2
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Total $73,447 100.0% $70,714 100.0% $59,621 100.0%
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</TABLE>
Approximately 92% of Conso US's sales for fiscal 1997 were to US
customers; the remainder were export sales, primarily to customers in Canada and
Central and South America. Approximately 81% of British Trimmings' sales for
fiscal 1997 were to customers in the United Kingdom, with the remainder being
export sales primarily to customers in other European countries.
The following table set forth for the periods indicated the Company's
sales outside the United States and the United Kingdom and as a percentage of
total Company sales, by geographic region:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Canada and Latin America $3,985 5.4% $3,020 4.3% $2,251 3.8%
Continental Europe and Middle East 2,683 3.7 2,324 3.3 1,816 3.0
Pacific Rim 1,787 2.4 1,250 1.8 1,176 2.0
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Total $8,455 11.5% $6,594 9.4% $5,243 8.8%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
At June 28, 1997, the Company had approximately 4500 customer accounts
with open balances. In fiscal 1997, the Company's largest customer accounted for
less than 6% of total sales, and no other single customer accounted for more
than 3% of total sales. Open customer orders believed to be firm of the
Company's products at June 28, 1997 were $3.7 million as compared to $3.2
million at June 29, 1996. The Company expects that substantially all of the open
orders at June 28, 1997 will be recognized as revenue within the first quarter.
MANUFACTURING AND RAW MATERIALS
Conso US and British Trimmings purchase undyed yarns, some dyed yarns
and other supplies, and manufacture their trimmings products through various
processes. Because of the variety of products they manufacture, Conso US and
British Trimmings employ a wide range of machinery and equipment in their
operations. Each business uses the generally available techniques for weaving,
knitting and braiding yarns, as well as processes for making tassel fringe, ball
and knotted fringes, laminated trims, cords and stud tapes. Much of the
machinery is developed and often constructed in their own engineering
departments. Conso US and British Trimmings have developed their own adaptations
of machinery for specific products or types of products to provide greater
speed, flexibility or novelty in production. Both Conso US and British
<PAGE> 7
Trimmings employ their own staffs to continually evaluate alternative raw
materials and processes, the use of new textile technology and in-house
machinery improvement.
Both Conso US and British Trimmings have their own dyehouse facilities,
with space available to add additional dyeing equipment as necessary. This
enables both businesses to dye their own yarns quickly and assure better
consistency of color. In addition, commission dyehouses are available to both
businesses when demand exceeds in-house capacity. Conso US is currently fully
utilizing its dyehouse facility and contracting with independent dyers.
In the US, Conso is in the construction phase of a new 17,000 square
foot dyehouse facility with an estimated cost of $2.3 million and has
substantially completed a new 86,000 square foot distribution center with an
estimated cost of $3.3 million. Both of these facilities are located adjacent to
the existing main plant in Union, SC. The dyehouse construction is scheduled to
be completed by the end of calendar year 1997.
Certain of the Company's products require handwork assembly. Most of
the handwork is done at Conso US's facility in Juarez, Mexico, and on a piece
work basis by home workers directed from the Stockport and London facilities of
British Trimmings. In July 1997, the Company leased facilities in Coimbatore,
India which will house handwork operations primarily for the UK market. It is
anticipated that operations at this facility will begin by the end of 1997 and
will allow the Company to be more competitive with certain low priced products.
The various departments in each of Conso US and British Trimmings'
manufacturing plants operate one to three shifts per day, five or six days per
week, depending upon market conditions and customer orders.
The raw materials used by Conso US in its manufacturing operations
include spun rayon, spun and filament polyester, cotton and acetate yarns. The
primary yarns used by British Trimmings are spun rayon and filament viscose
rayon. These yarns are commodities generally available as needed from various
suppliers located throughout the world. The Company expects that yarn supplies
will continue to be available as needed for the Company's operations. Changes in
the price of cotton, wood pulp and petrochemicals, the base materials for most
of the Company's yarns, however, could cause significant changes in the
Company's raw material costs, and there can be no assurance that there will not
be any changes in the availability, price or quality of any raw materials.
COMPETITION
While the business of manufacturing decorative trimmings for the home
furnishings industry is competitive, and includes many relatively small
producers with limited product lines or products designed for the lower end of
the market, there are a few US domestic or foreign manufacturers of substantial
size. The Company is the largest manufacturer of decorative trimmings for the
home furnishings industry in the world and is aware of no more than four other
major producers with which it competes for customers worldwide. There are,
however, a number of large manufacturers of textiles, home furnishings and other
products with resources substantially greater than those of the Company who have
the ability to enter the decorative trimmings business by either establishing
their own operations or acquiring and combining other existing operations.
Management is aware of no current plans by any such manufacturer to enter the
decorative trimmings business.
Smaller producers have often focused on longer production run business
with manufacturers at lower prices, frequently using lower quality product. The
Company believes that the slow-down in the rate of growth of sales to
manufacturers this past fiscal year may be partially attributable to
competition from these smaller producers. From time to time, the Company
develops new products to provide alternatives to products manufactured by these
smaller producers and may use its operations in Mexico and India to manufacture
goods to compete with these producers.
The Company competes on the basis of styling, color, delivery, price
and customer service. The Company believes that its ability to promptly fill
customer orders, due to its large inventory, its production and inventory
management systems, its customer service and sales staff and its control over
availability of yarn colors, gives it a competitive advantage and is valued by
its customers.
Although the Company's current operations are not substantially
affected by competition from foreign manufacturers, during the current fiscal
year, the Company experienced increased competition on sales of hand assembled
products, to an extent, by low price goods being imported from the Far East.
Consequently, in August 1997, the Company announced the formation of India
Trimmings (Private) Limited to produce hand assembled products in India. The
Mexico plant will continue to produce most of the hand assembled products sold
in the US. The North American Free Trade Agreement ("NAFTA") and the General
Agreement on Trade and Tariffs ("GATT") could increase US competition for sales
of Conso US's products as well. While the Company believes that the elimination
of international trade barriers under both GATT and NAFTA will be beneficial to
it as it implements its strategy
<PAGE> 8
of expanding its worldwide operations, there can be no assurance that increased
US competition from foreign manufacturers as a result of NAFTA or GATT or any
other trade related agreements would not have a material adverse effect on its
business.
EMPLOYEES
As of June 28, 1997, Conso US had 748 full-time employees, of whom 619
are hourly employees and 129 are salaried employees. In addition, 306 contract
workers at Conso US's assembly plant in Juarez, Mexico work under the
supervision of a Conso US manager in a "Maquiladora" operation, which provides
for contract labor in accordance with certain Mexican regulations. None of Conso
US employees are represented by a union. Conso US management considers its
relationship with its personnel to be good. While Conso US has historically had
a high turnover rate among its hourly employees during the first three months of
employment, Conso US has been able to attract and retain qualified personnel.
As of June 28, 1997, British Trimmings had 515 full-time employees, of
whom 379 are hourly employees and 136 are salaried employees. Approximately 30%
of the employees of British Trimmings are represented by the Union of Textile
Workers (the "Union"). British Trimmings and the Union agreed in 1996 to the
annual renewal of their contract for the year ending December 31, 1997, with an
increase of 3.5% in the basic wage rate. Although any strike or other disruption
of operations by members of the Union could have a material adverse effect on
the Company, the Union has represented the production workers of British
Trimmings for at least 28 years, during which time there has never been a strike
or work stoppage.
GOVERNMENTAL REGULATION
The business and operations of the Company are subject to governmental
regulation, including employee health and safety laws and regulations; laws and
regulations governing employment practices, wages and hours, and employee
benefits; and environmental laws and regulations. The Company believes that it
is in compliance in all material respects with applicable laws and regulations
(including those regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment), and that such
compliance has not materially affected its business or required major capital
expenditures. Future changes in laws and regulations, or any determination that
the company is not in compliance with applicable laws and regulations, could
have a material adverse effect on the Company.
<PAGE> 9
TRADEMARKS
Conso has registered the trademark CONSO(R) for its products, and
British Trimmings has registered the trademarks SPECTRUM(R) for lace, braids and
woven labels and POLYUROCOL(R) for certain yarns and threads in the United
Kingdom. In September 1997, the Company acquired substantially all of the assets
of HFDC, Inc, including its registered trademarks DUITALL FABRIC MASTER(R) and
CLEARWARE DECORATING SYSTEMS(R).
<PAGE> 10
ITEM 2. PROPERTIES
The following table sets forth the location, utilization and
approximate size in square feet of floor space of the principal facilities of
Conso and British Trimmings, and whether they are owned or leased by the
respective companies.
<TABLE>
<CAPTION>
OWNED OR SQUARE
LOCATION UTILIZATION LEASED FEET
- -------- ----------- -------- -------
<S> <C> <C> <C>
CONSO:
Union, SC Offices, production, distribution and dyehouse facility Owned 340,000
(Main Plant)
Union, SC Warehousing and yarn processing Owned 101,000
(Annex Plant)
Union, SC Sample card assembly Leased(1) 4,000
New York, NY Showroom and sales office Leased(2) 2,780
Hickory, NC Showroom and sales office Leased(3) 514
Miami, FL Showroom and sales office Leased(4) 980
Juarez, Mexico Assembly plant Leased(5) 41,680
BRITISH TRIMMINGS:
Stockport Offices and production facilities (six buildings at one location) Owned 185,000
Leek, England Warehousing, dyehouse and production facility Owned 43,000
Leek, England Printing operation Leased(6) 2,000
London, England Assembly operation Owned 20,000
London, England Chelsea Harbour showroom Leased(7) 384
London, England Chelsea Harbour showroom Leased(8) 835
Coimbatore, India Assembly plant Leased(9) 14,762
</TABLE>
(1) This facility is leased on a month-to-month basis.
(2) This facility is leased for a term expiring April 30, 1999.
(3) This facility is leased on a month-to-month basis.
(4) This facility is leased for a term expiring August 31, 2000.
(5) This facility is leased for a term expiring December 31, 1999.
(6) This facility's lease expired June 18, 1997, but is currently being
renewed.
(7) This facility is leased for a term expiring November 16, 1997.
(8) This facility is leased for a term expiring December 24, 2001.
(9) This facility is leased for a term expiring July 1, 2000.
The Company's manufacturing facilities in Stockport are subject to
liens securing its bank indebtedness. The principal manufacturing facilities of
both Conso US and British Trimmings are of brick construction, are sprinklered
and are generally in satisfactory operating condition and repair. Conso US's
main plant and annex plant in Union were constructed at various times from 1959
to 1967, from 1964 to 1983, and from 1996 to present, respectively; British
Trimmings' Stockport facilities were constructed at various times between the
1920's and 1979, its Leek dyehouse and production facilities were constructed in
the 1920's and 1970's, respectively, and its new London facility was constructed
in 1980. The Company believes that the facilities of both companies are suitable
for their present use. In the US, Conso substantially completed construction of
a new 86,000 square foot distribution center in May 1997, with a total estimated
cost of $3.3 million, and has started construction of a new 17,000 square foot
dyehouse facility with an estimated cost of $2.3 million. Both of these
facilities are located adjacent to the existing main plant in Union, SC and are
scheduled to be completed during the calendar year 1997. These expansions will
free up approximately 65,000 square feet for much needed additional production
and office space. The Company will consider additional capital expenditures for
building expansions or business acquisitions as opportunities arise.
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information appearing (a) under the caption "Stock Price &
Shareholder Information" and (b) in Note 8 under the caption "Capital Stock
Transactions" in the Notes to Consolidated Financial Statements in the Company's
1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing (a) under the caption "Selected Financial
Data" and (b) in Note 8 under the caption "Capital Stock Transactions" in the
Notes to Consolidated Financial Statements in the Company's 1997 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information appearing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information appearing under the caption "Consolidated Balance
Sheets," "Consolidated Statements of Operations," "Consolidated Statements of
Shareholders' Equity," Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements" and "Independent Auditors' Report in the
Company's 1997 Annual Report to Shareholders is incorporated herein by
reference. See also the report of Grant Thornton dated September 5, 1996
relating to (a) the consolidated balance sheets of British Trimmings ("BT") at
June 28, 1997 and June 29, 1996 and (b) the related consolidated statements of
income and cash flow of BT for the years ended June 28, 1997, June 29, 1996,
and July 1, 1995 included herewith.
<PAGE> 13
[Grant Thornton Letterhead]
INDEPENDENT AUDITORS' REPORT
REGARDING BRITISH TRIMMINGS LIMITED
TO THE DIRECTORS OF CONSO PRODUCTS COMPANY
We have audited the consolidation packages consisting of the consolidated
balance sheet at 28 June 1997 and also at 29 June 1996 and the related
consolidated statements of income and cashflow of British Trimmings Limited for
the years ended 28 June 1997, 29 June 1996 and 1 July 1995 expressed in pounds
sterling. All information included in the consolidation packages is the
responsibility of the company's management. Our responsibility is to express an
opinion on the consolidation packages based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards of the United States of America. 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
audit provides a reasonable basis for our opinion.
The consolidation packages have been prepared on the basis of accounting
principles generally accepted in the United States of America for the purpose
of inclusion in the consolidated financial statements of Conso Products Company
for the year ended 28 June 1997 and are intended solely for that purpose.
In our opinion, the consolidation packages referred to above, expressed in
pounds sterling, are suitable for inclusion in the consolidated financial
statements of Conso Products Company for the year ended 28 June 1997 and
present fairly, in all material respects, the information shown therein.
/s/ Grant Thornton
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
MANCHESTER
UNITED KINGDOM
5 September 1997
<PAGE> 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE> 15
PART III
ITEMS 10-13
Items 10 through 13 are incorporated herein by reference to the
sections captioned "Principal Shareholders," "Election of Directors," "Executive
Officers," "Compensation Committee Interlocks and Insider Participation,"
"Executive Compensation," "Director Compensation," "Employment Agreements," and
"Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2 - 11 of the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held October 14, 1997, which was filed with the Commission on September 18,
1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
List the following documents filed as a part of this report:
1. Financial Statements.
The following consolidated financial statements of the Company
are included as part of Exhibit 13 thereof:
Report of Deloitte & Touche LLP
Consolidated Balance Sheets as of June 28, 1997, and June 29,
1996
Consolidated Statements of Operations for fiscal years ended
June 28, 1997, June 29, 1996 and July 1, 1995
Consolidated Statements of Shareholders' Equity for the fiscal
years ended June 28, 1997, June 29, 1996, and July 1, 1995
Consolidated Statements of Cash Flows for the fiscal years
ended June 28, 1997, June 29, 1996 and July 1, 1995
Notes to Consolidated Financial Statements
The report of Grant Thorton is included in response to Item 8
hereof.
2. Financial Statement Schedules.
Financial statement schedules are omitted because the
information is either not required or is otherwise included in
the Company's Consolidated Financial Statements or the Notes
thereto.
3. Exhibits.
<PAGE> 16
Exhibit
Number Exhibit Description
3.4 Articles of Incorporation of the Company (1)
3.5 Bylaws of the Company (1)
10.2 Employment Agreement dated December 22, 1993 by and between
British Trimmings and A.W. Laughton (5)
10.3 Employment Agreement dated December 22, 1993 by and between
British Trimmings and C.V. Balakrishnan (5)
10.8 Security Agreement dated as of May 6, 1994 by and between the
Company and NationsBank (2)
10.9 Guaranty Agreement dated as of May 6, 1994 given by the
Company in favor of NationsBank (2)
10.14 Letter Agreement dated August 20, 1992 by and between the
Company and Louis Nichole, Inc. (1)
10.16 Marketing Agreement dated November 3, 1988 by and between the
Company and F. Schumacher & Co. (1)
10.17 1993 Stock Option Plan (1)
10.18 Loan Facility Agreement dated 22 June 1990 between British
Trimmings and National Westminster Bank PLC (1)
10.19 Advice of Borrowing Terms dated 10 June 1993 from National
Westminster Bank PLC to British Trimmings (1)
10.20 Agreement dated 10 September 1993 between Calver Properties
Limited and British Trimmings (Leek) Limited (1)
10.26 First Amendment dated as of December 1, 1994 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (3)
10.27 First Amendment dated as of December 1, 1994 to the Guaranty
Agreement dated as of May 6, 1994 given by the Company in
favor of NationsBank (3)
10.30 Second Amendment dated as of February 10, 1995 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (4)
10.31 Advice of Borrowing Terms of March 31, 1995 (Revision)
regarding National Westminster Bank facility letter of June
22, 1990 (4)
10.34 Third Amendment dated as of June 13, 1995 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (5)
10.36 1994 Employee Stock Purchase Plan (6)
10.37 Letter Agreement dated May 12, 1995 by and between the Company
and S. Duane Southerland, Jr. (5)
10.40 Fourth Amendment dated as of November 1, 1995, to the Security
Agreement dated as of May 6, 1994, by and between the Company
and NationsBank (7)
10.41 Second Amendment dated as of November 1, 1995, to the Guaranty
Agreement dated as of May 6, 1994, by and between the Company
and NationsBank (7)
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 (8)
<PAGE> 17
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 (8)
10.51 Loan Agreement dated as of November 25, 1996 by and between
the Company and NationsBank (9)
10.52 Promissory Note dated November 25, 1996 in the original
principal amount of up to $15,000,000 issued by the Company in
favor of NationsBank (9)
10.54 Sixth Amendment to Security Agreement dated as of November 25,
1996 by and between the Company and NationsBank (9)
10.55 Fourth Amendment to Guaranty Agreement dated as of November
25, 1996 by and between the Company and NationsBank (9)
10.56 First Amendment dated as of June 5, 1997 to the Loan Agreement
dated as of November 25, 1996 by and between the Company and
NationsBank (filed herewith)
10.57 Promissory Note dated as of June 5, 1997 issued by British
Trimmings in favor of NationsBank in the original principal
amount of up to (pound)6,000,000 (filed herewith)
10.58 Fifth Amendment dated as of June 5, 1997 to the Guaranty
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (filed herewith)
10.59 Letter dated January 7, 1997 from the Union of Textile Workers
to British Trimmings (filed herewith)
10.60 Letter dated March 25, 1997 by and between the Company and
Wesley Mancini Ltd. (filed herewith)
10.61 Stock Election Plan for Non-Employee Directors (10)
13 Portions of the Company's 1997 Annual Report to Shareholders
that are incorporated herein by reference (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23.1 Consent of Deloitte & Touche LLP (filed herewith)
23.2 Consent of Grant Thornton (filed herewith)
27 Financial Data Schedule (filed in electronic format only)
MANAGEMENT CONTRACTS AND COMPENSATORY
PLANS AND ARRANGEMENTS
The foregoing exhibits include the following management contracts and
compensatory plans and arrangements:
10.2 Employment Agreement dated December 22, 1993 by and between
British Trimmings and A.W. Laughton (5)
10.3 Employment Agreement dated December 22, 1993 by and between
British Trimmings and C.V. Balakrishnan(5)
10.17 1993 Stock Option Plan (1)
10.36 1994 Employee Stock Purchase Plan (6)
10.37 Letter Agreement dated May 12, 1995 by and between the Company
and S. Duane Southerland, Jr. (5)
10.61 Stock Election Plan for Non-Employee Directors (10)
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Registration Statement on Form SB-2
(Registration No. 33-71296)
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Annual Report on Form 10-KSB for the fiscal
year ended July 2, 1994
(3) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 1994
<PAGE> 18
(4) Incorporated herein by reference to the exhibit designated by
the same number in the Company's Quarterly Report on Form
10-QSB for the quarterly period ended April 1, 1995
(5) Incorporated herein by reference to the exhibit designated by
the same number in the Company's Annual Report on Form 10-KSB
for the fiscal year ended July 1, 1995
(6) Incorporated herein by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 (Registration No. 33-85518)
(7) Incorporated herein by reference to the exhibit designated by
the same number in the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 30, 1995
(8) Incorporated herein by reference to the exhibit designated by
the same number in the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 30, 1996
(9) Incorporated herein by reference to the exhibit designated by
the same number in the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 28, 1996
(10) Incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration
No.: 333-20671)
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See response to Item 14(a)(3).
(d) Financial Statement Schedules.
See response to Item 14(a)(2).
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSO PRODUCTS COMPANY
By: /s/ S. Duane Southerland, Jr.
--------------------------------------
S. Duane Southerland, Jr.
President & Chief Executive Officer
Dated: September 16, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ S. Duane Southerland, Jr Director, President and Chief Executive September 16, 1997
- ---------------------------------- Officer (Principal Executive Officer)
S. Duane Southerland, Jr
/s/ Gilbert G. Bartell Chief Financial Officer and Treasurer September 16, 1997
- ---------------------------------- (Principal Financial Officer)
Gilbert G. Bartell
/s/ David B. Dechant Chief Accounting Officer and Controller September 16, 1997
- ---------------------------------- (Principal Accounting Officer)
David B. Dechant
/s/ J. Cary Findlay Director and Chairman of the Board September 16, 1997
- ----------------------------------
J. Cary Findlay
/s/ Konstance J.K. Findlay Director September 16, 1997
- ----------------------------------
Konstance J.K. Findlay
</TABLE>
<PAGE> 20
<TABLE>
<S> <C> <C>
/s/ Marcus T. Hickman Director September 16, 1997
- ----------------------------------
Marcus T. Hickman
/s/ Antony W. Laughton Director September 16, 1997
- ----------------------------------
Antony W. Laughton
/s/John H. Maxheim Director September 16, 1997
- ----------------------------------
John H. Maxheim
/s/ James H. Shaw Director September 16, 1997
- ----------------------------------
James H. Shaw
</TABLE>
<PAGE> 21
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
ITEM 14(a)(3)
FORM 10-K
ANNUAL REPORT
For the Fiscal Year Ended June 28, 1997 Commission File Number 0-22942
CONSO PRODUCTS COMPANY
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -------------------
<S> <C>
3.4 Articles of Incorporation of the Company (1)
3.5 Bylaws of the Company (1)
10.2 Employment Agreement dated December 22, 1993 by and between
British Trimmings and A.W. Laughton (5)
10.3 Employment Agreement dated December 22, 1993 by and between
British Trimmings and C.V. Balakrishnan (5)
10.8 Security Agreement dated as of May 6, 1994 by and between the
Company and NationsBank (2)
10.9 Guaranty Agreement dated as of May 6, 1994 given by the
Company in favor of NationsBank (2)
10.14 Letter Agreement dated August 20, 1992 by and between the
Company and Louis Nichole, Inc. (1)
10.16 Marketing Agreement dated November 3, 1988 by and between the
Company and F. Schumacher & Co. (1)
10.17 1993 Stock Option Plan (1)
10.18 Loan Facility Agreement dated 22 June 1990 between British
Trimmings and National Westminster Bank PLC (1)
10.19 Advice of Borrowing Terms dated 10 June 1993 from National
Westminster Bank PLC to British Trimmings (1)
10.20 Agreement dated 10 September 1993 between Calver Properties
Limited and British Trimmings (Leek) Limited (1)
10.26 First Amendment dated as of December 1, 1994 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (3)
10.27 First Amendment dated as of December 1, 1994 to the Guaranty
Agreement dated as of May 6, 1994 given by the Company in
favor of NationsBank (3)
10.30 Second Amendment dated as of February 10, 1995 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (4)
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
10.31 Advice of Borrowing Terms of March 31, 1995 (Revision)
regarding National Westminster Bank facility letter of June
22, 1990 (4)
10.34 Third Amendment dated as of June 13, 1995 to the Security
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (5)
10.36 1994 Employee Stock Purchase Plan (6)
10.37 Letter Agreement dated May 12, 1995 by and between the Company
and S. Duane Southerland, Jr. (5)
10.40 Fourth Amendment dated as of November 1, 1995, to the Security
Agreement dated as of May 6, 1994, by and between the Company
and NationsBank (7)
10.41 Second Amendment dated as of November 1, 1995, to the Guaranty
Agreement dated as of May 6, 1994, by and between the Company
and NationsBank (7)
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(8)
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 (8)
10.51 Loan Agreement dated as of November 25, 1996 by and between
the Company and NationsBank (9)
10.52 Promissory Note dated November 25, 1996 in the original
principal amount of up to $15,000,000 issued by the Company in
favor of NationsBank (9)
10.54 Sixth Amendment to Security Agreement dated as of November 25,
1996 by and between the Company and NationsBank (9)
10.55 Fourth Amendment to Guaranty Agreement dated as of November
25, 1996 by and between the Company and NationsBank (9)
10.56 First Amendment dated as of June 5, 1997 to the Loan Agreement
dated as of November 25, 1996 by and between the Company and
NationsBank (filed herewith)
10.57 Promissory Note dated as of June 5, 1997 issued by British
Trimmings in favor of NationsBank in the original principal
amount of up to (pound)6,000,000 (filed herewith)
10.58 Fifth Amendment dated as of June 5, 1997 to the Guaranty
Agreement dated as of May 6, 1994 by and between the Company
and NationsBank (filed herewith)
10.59 Letter dated January 7, 1997 from the Union of Textile Workers
to British Trimmings (filed herewith)
10.60 Letter dated March 25, 1997 by and between the Company and
Wesley Mancini Ltd. (filed herewith)
10.61 Stock Election Plan for Non-Employee Directors (10)
13 Portions of the Company's 1997 Annual Report to Shareholders
that are incorporated herein by reference (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23.1 Consent of Deloitte & Touche LLP (filed herewith)
23.2 Consent of Grant Thornton (filed herewith)
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
<PAGE> 23
MANAGEMENT CONTRACTS AND COMPENSATORY
PLANS AND ARRANGEMENTS
The foregoing exhibits include the following
management contracts and compensatory plans and arrangements:
<TABLE>
<S> <C>
10.2 Employment Agreement dated December 22, 1993 by and between
British Trimmings and A.W. Laughton (5)
10.3 Employment Agreement dated December 22, 1993 by and between
British Trimmings and C.V. Balakrishnan (5)
10.17 1993 Stock Option Plan (1)
10.36 1994 Employee Stock Purchase Plan (6)
10.37 Letter Agreement dated May 12, 1995 by and between the Company
and S. Duane Southerland, Jr. (5)
10.61 Stock Election Plan for Non-Employee Directors (10)
</TABLE>
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Registration Statement on Form SB-2
(Registration No. 33-71296)
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Annual Report on Form 10-KSB for the fiscal
year ended July 2, 1994
(3) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 1994
(4) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended April 1, 1995
(5) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Annual Report on Form 10-KSB for the fiscal
year ended July 1, 1995
(6) Incorporated herein by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 (Registration No. 33-85518)
(7) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 30, 1995
(8) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 1996
(9) Incorporated herein by reference to the exhibit designated by the same
number in the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 28, 1996
(10) Incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Registration No.: 333-20671)
<PAGE> 1
EXHIBIT 10.56
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment"), dated
as of June 5, 1997, 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 November 25, 1996 (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 Loan Agreement is hereby amended as follows:
(a) Recital A is amended by replacing the reference to
"(pound)5,000,000" with a reference to "(pound)6,000,000".
(b) Section 2.01 is amended by replacing the reference to
"(pound)5,000,000" with a reference to "(pound)6,000,000".
(c) 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 June 5, 1997, executed by
Trimmings in favor of the Bank in the original principal
amount of up to (pound)6,000,000 (the "Sterling Note"), the
terms of which are incorporated herein by reference.
2. Except as hereby modified, all the terms and provisions of the Loan
Agreement remain in full force and effect.
3. 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.
<PAGE> 2
4. The Borrower will execute such additional documents as are
reasonably requested by the Bank to reflect the terms and conditions of this
First Amendment and will cause to be delivered such certificates, legal opinions
and other documents as are reasonably required by the Bank.
5. This First 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 First Amendment to produce or
account for more than one counterpart.
6. This First 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.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
CONSO PRODUCTS COMPANY
ATTEST:
By: /s/ Konstance J. K. Findlay By: /s/ J. Cary Findlay
----------------------------- --------------------------
Title: Secretary Title: Chairman
----------------------------- --------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ William A. Serenius
--------------------------
William A. Serenius,
Senior Vice President
<PAGE> 1
EXHIBIT 10.57
PROMISSORY NOTE
U.K. (pound)6,000,000 June 5, 1997
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
SIX MILLION POUNDS STERLING (U.K. (pound)6,000,000), 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 November 25, 1996, as amended (if 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, 1998 (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)6,000,000 at any time outstanding
based on an interest rate equal to the Adjusted LIBOR Rate plus 1.00% per annum;
provided, however, no more than five 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 2.05 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 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
<PAGE> 2
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 1.00% per annum. Unless otherwise agreed, accrued interest with
respect to each Sterling Advance shall be payable in arrears on the last day of
an Interest Period for such Sterling Advance. 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 25, 1996 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.
2
<PAGE> 3
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 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. Upon determining in good faith that any
additional amounts will be payable pursuant to this subsection, 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.
(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
3
<PAGE> 4
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 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. Upon determining in good faith that any additional amounts will be
payable pursuant to this paragraph, 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. 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
4
<PAGE> 5
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
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
5
<PAGE> 6
shall be deemed given when delivered or when mailed by registered or certified
mail, postage prepaid, addressed as follows:
(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: Sean M. Jones
Telephone: (704) 331-7400
Telecopy: (704) 331-7598
(b) If to the Bank:
NationsBank, N.A.
London Branch
New Broad Street House
35 New Broad Street
London
EC2M 1NH, England
Telephone: 171-282-6831
6
<PAGE> 7
Telecopy: 171-282-6836
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
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.
7
<PAGE> 8
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: /s/ Antony W. Laughton By: /s/ C. Kirrane
----------------------------- --------------------------
Title: Managing Director Title: Group Financial Controller
----------------------------- --------------------------
(Corporate Seal)
8
<PAGE> 9
SCHEDULE A TO THE
(pound)6,000,000 PROMISSORY NOTE
DATED JUNE 5, 1997
Name of
Principal Person
Amount of Applicable Payment Making
Date Advance Interest Rate Principal Interest Notation
---- ------- ------------- --------- -------- --------
9
<PAGE> 1
EXHIBIT 10.58
FIFTH AMENDMENT TO GUARANTY AGREEMENT
THIS FIFTH AMENDMENT TO GUARANTY AGREEMENT (the "Fifth Amendment"),
dated as of June 5, 1997, 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, as amended (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) 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 June 5, 1997, executed by the
Borrower in favor of the Bank in the original principal amount
of up to (pound)6,000,000 (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
Fifth Amendment and will cause to be delivered 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.
<PAGE> 2
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.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
CONSO PRODUCTS COMPANY
ATTEST:
By: /s/ Konstance J. K. Findlay By: /s/ J. Cary Findlay
----------------------------- --------------------------
Title: Secretary Title: Chairman
----------------------------- --------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ William A. Serenius
--------------------------
William A. Serenius,
Senior Vice President
3
<PAGE> 1
EXHIBIT 10.59
7th January, 1997.
Mr. C. Balakrishnan,
British Trimmings Ltd.
P.O. Box 46,
Coronation Street,
STOCKPORT,
Chesire, SK5 7PJ
Dear Mr. Balakrishnan,
1997 WAGES & CONDITIONS
Following the ballot of members, I now confirm acceptance of the offer
made by the company, which is:
1. AN INCREASE OF 3.5% ON THE BASIC RATE AND ALL ON EARNINGS
INCLUDING BONUSES.
2. COMPANY SICK PAY TO AMENDED AS FOLLOWS:-
<TABLE>
<CAPTION>
LENGTH OF SERVICE MAXIMUM PAYMENT IN EACH 12 MONTH PERIOD
----------------- ---------------------------------------
<S> <C>
2 - 5 YEARS (POUND STERLING)36.00 FOR 4 WEEKS
5 - 10 YEARS (POUND STERLING)36.00 FOR 6 WEEKS
10 - 15 YEARS (POUND STERLING)38.00 FOR 8 WEEKS
IN EXCESS OF 15 YEARS (POUND STERLING)38.00 FOR 13 WEEKS
PLUS (POUND STERLING)19.00 FOR A
FURTHER 13 WEEKS
</TABLE>
Many thanks for your cooperation and assistance.
Yours sincerely,
/s/ Peter Meharg
P.N. Meharg
p.p. Alf Hitchmough
<PAGE> 1
EXHIBIT 10.60
March 25, 1997
Mr. Wesley Mancini
Wesley Mancini Ltd.
1208 The Plaza
P.O. Box 9545
Charlotte, NC 28205
Dear Wesley:
This letter is to serve as the agreement under which Wesley Mancini Ltd.
("Mancini") renders services as an independent consultant to Conso Products
Company ("CONSO"). The term of this agreement under the following terms and
conditions shall be from January 1, 1997, through December 31, 1998.
1. Mancini's duties under this agreement are to provide design and design
support services for future products of CONSO as requested by CONSO,
including the design styling of trimmings to be sold either as stock
products under CONSO's Imperial name or as "private label" collections
under the name of another company.
2. CONSO shall have full right, title, and interest in and to all designs
produced by Mancini hereunder. During the term of this agreement,
Mancini shall render design and design support services related to
trimmings and narrow width fabrics only for Conso and no other
decorative trimmings manufacturer. CONSO may use the services of other
independent designers only after first contacting Mancini and Mancini
prefers not to develop the styles requested by Conso. CONSO shall have
the right to apply for and to secure, in the name of Conso Products
Company, copyrights on all designs produced by Mancini hereunder and
Mancini will cooperate with CONSO to the extent required in obtaining
such copyrights. Conso acknowledges that the name "Wesley Mancini" and
variations thereof are registered trademarks and that any symbol or
logo incorporating the trademarked names constitute Mancini's
trademarks. Conso is granted a license to use the names in connection
with its decorative trimmings and narrow width fabrics contingent on
control and approval of the nature and quality of the products by
Mancini. The license to use the names extends only for the term of
Conso's authority to manufacture and sell products under this Agreement
and applies only to products designed by Mancini to which its name is
identified. Conso acknowledges and agrees that any use of the
trademarked names inures to the benefit of Mancini.
<PAGE> 2
3. Mancini's work, under this agreement, shall be performed at the
location of its choosing. Mancini agrees to spend all the time
necessary at CONSO's production site, attend all necessary management,
marketing and design meetings, and market, in which event CONSO shall
reimburse Mancini for reasonable travel, lodging, and subsistence
expenses upon presentation of itemized statements for such expenses,
together with vouchers and receipts therefore. CONSO's travel policies
include $ .26 per mile for auto travel from Charlotte, N.C., and coach
air travel. Mancini shall also be reimbursed for all telephone toll
charges incurred in rendering services under this agreement.
4. CONSO shall pay to Mancini royalty fees based on the following services
by Mancini:
- A 5% fee shall be paid on the net sales of all trimmings
designed for and included in "private label" collections
produced for other companies (such as Kravet) for as long as
these stylings are sold by CONSO.
- A 3% fee shall be paid on the net sales of all trimmings
designed for and included in the Imperial Collection of
Decorative Trimmings, and any other stylings of trimmings
designed by Mancini and sold under the CONSO label, for as
long as these stylings are sold by CONSO.
5. Mancini shall have design and content input on sample books, cards,
boxes or other sales presentation materials which include the use of
his name. CONSO shall have the ultimate right to decide which
trimmings, lines, styles, colors and sample presentations shall be used
for sales. CONSO also has the right to establish all sales prices for
all products designed or colored by Mancini.
6. CONSO shall have the right to produce all trimmings and use any colors
presented by Mancini for CONSO as long as CONSO compensates Mancini in
accordance with this agreement.
7. The term of this agreement shall be for two (2) years from January 1,
1997 through December 31, 1998. In the event that, during such term,
Wesley Mancini should become incapacitated to render services required
hereunder or the agreement is not renewed on January 1, 1999, CONSO
shall continue to pay royalties to Mancini, as specified in Section 4.
8. Neither Mancini nor any employee of Mancini shall act as an agent of
CONSO, nor be deemed to be an employee of CONSO for the purpose of any
employee benefit program or otherwise, and Mancini shall be deemed to
be an independent contractor to CONSO. Further, CONSO shall have no
obligation to withhold any taxes, social security, or other sums from
any payments due to Mancini hereunder. In addition, Mancini shall not
enter into any agreement or incur any obligation on behalf of CONSO, or
commit CONSO in any manner.
<PAGE> 3
9. The term "Designs" shall mean all styles of trimmings or colors
designed by Mancini and the production of such designs shall be
credited to Mancini for royalty purposes.
10. The design of any line of trimmings sold under the CONSO label (such as
the Imperial Collection) will be attributed to Mancini by either
mention on the label or placard associated with the display of any such
design if requested by Mancini. Any such label or placard will be
designed by Mancini or at his direction and shall be placed upon all
samples of trimmings or placards displaying such trimmings at CONSO's
expense. CONSO shall have final approval as to the type, size, and cost
of reproduction of any such label or placard. In the case of designs
for "private label" companies, the designation of Mancini as the
designer shall be mutually agreed upon by Mancini and the "private
label" company on a case by case basis. Mancini shall have the option
of designing stylings for a "private label"company if they do not come
to an agreement as to credit for Mancini.
11. Any proposals for advertisements displaying the line of trimmings
designed by Mancini and sold under the CONSO label shall be submitted
to Mancini for approval, which will not be unreasonably withheld.
Should Mancini fail to notify Conso Products Company or its marketing
agency that said proposals are unsatisfactory, within twenty (20) days
of receipt by Mancini, Mancini will be deemed to have consented to said
proposal.
12. This agreement shall be governed and construed in accordance with the
laws of the State of North Carolina.
This the 25th day of March, 1997.
CONSO PRODUCTS COMPANY
By: /s/ Duane Southerland, Jr.
--------------------------------------------------------
President
WESLEY MANCINI LTD.
By: /s/ Wesley Mancini
--------------------------------------------------------
President
<PAGE> 1
EXHIBIT 13
PORTIONS OF CONSO PRODUCTS COMPANY'S 1997 ANNUAL REPORT
TO SHAREHOLDERS THAT ARE INCORPORATED BY REFERENCE
INTO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 28, 1997
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest June 30; interim reporting periods are based on 13 week quarters. The
fiscal years ended June 28, 1997, June 29, 1996, and July 1, 1995 each include
52 weeks.
1997 Compared with 1996
Net sales for the year ended June 28, 1997 grew to $73.4 million; up
3.9% from the prior year's $70.7 million. Sales by Conso US were up 3.8% to
$53.1 million net of intercompany transactions, a relatively modest increase
coming off significant sales increases of 28.1% in fiscal 1996 and 24.5% in
fiscal 1995. Sales to manufacturers, the most improved group in the prior two
fiscal years, continued to show the best percentage improvement, but this
category's growth rate was affected to an extent by competition. British
Trimmings' sales increased 4.1% as a result of improvements in export sales and
favorable changes in the exchange rates. Sales outside the US and UK (the
Company's major sales regions) increased to $8.5 million, or by 28.2%. Such
sales constituted 11.5% of total sales for fiscal 1997 compared to the prior
year's 9.3%.
The gross margin improved from $25.4 million or 36% of net sales to
$27.8 million or 37.9% of net sales with margins (after intercompany
eliminations and purchase price adjustments) improving from 38.4% to 40.8% at
Conso US and slightly from 29.6% to 30.3% at British Trimmings. At Conso US
price increases and process improvements continued to favorably impact the gross
margin. Staff changes, a systems implementation delay and production
difficulties arising in part from the reorganization of product offerings in the
1997 catalog hampered improvement efforts at British Trimmings.
Distribution, selling and general and administrative expenses increased
$874,000 in the current fiscal year with the majority of the increases coming
from British Trimmings, the dollars being somewhat inflated by changes in the
exchange rates.
Distribution expenses increased $193,000. Conso US contributed $24,000
of the increase. The remainder of the increase was a result of increased
warehousing and freight costs at British Trimmings aggrevated by a deterioration
in carriage services that ultimately led to a change in the primary freight
carrier. Distribution expenses, as a percentage of net sales, increased only
slightly from 4.2% to 4.3% of net sales in fiscal 1997.
Selling expenses increased $545,000 and edged up as a percentage of net
sales from 11.6% to 11.8% of net sales. Conso US contributed $91,000 of the
increase, but as a percent of net sales, Conso US' selling expenses declined.
The remainder of the dollar increase was contributed by British Trimmings,
primarily as a result of increased payroll, premises, advertising costs and the
reclass of marketing material costs. Certain costs relating to marketing
materials at British Trimmings were recorded in cost of sales in the prior year
but are now recorded (in the current year) in selling expense. The effect on the
prior year's margin would be to increase the margin at British Trimmings to
30.2%, all but eliminating the improvement. The effect on the prior year's
consolidated margin is only one-tenth of one percent and clearly insignificant.
General and administrative expenses increased $136,000, but remained
flat as a percentage of net sales at 6.2%. Conso US and British Trimmings each
contributed approximately half of the increase (with British Trimmings actually
contributing less than Conso US were it not for the change in the exchange
rate).
The Company experienced gains as a result of changes in the currency
exchange rates on the intercompany account balance in British pounds sterling
and on money transfers and payments in foreign currency of $63,000. In addition
the Company sold its (previously replaced) London facility during the current
fiscal year for a gain of $86,000.
Net interest costs decreased $255,000 due to decreased borrowings as a
result of improving cash flow at Conso US and the capitalization of interest of
$97,000, primarily in connection with the warehouse and dyehouse expansions in
the US.
Net income for the fiscal year ended June 28, 1997 was $7 million, an
increase of $584,000 or 9.1% over the prior year's $6.4 million. Conso US
contributed the entire increase with $7.1 million in net income offsetting the
disappointing $80,000 net loss at British Trimmings as a result of hampered
sales and margin improvements and increased distribution, selling and general
and administrative costs.
1996 Compared with 1995
Net sales for the year ended June 29, 1996, grew to $70.7 million, an
$11.1 million or 18.6% increase over fiscal 1995. Sales by Conso US were up 28%
to $51.1 million reflecting the strong US economy and the results of prior
marketing and merchandising efforts. Sales to manufacturers continued to show
the best percentage improvement primarily due to the strong US economy and
Conso's ability to serve large production demands on a reliable and timely
delivery basis. Sales by British Trimmings continued to be relatively flat,
reflecting the slow housing industry and weak consumer spending in the United
Kingdom. Sales outside the US and UK (the Company's major sales regions)
increased to $6.6 million, a 25.9% increase over the prior year.
The gross margin improved from $20.7 million or 34.8% of net sales to
$25.4 million or 36% of net sales with margins (after intercompany eliminations
and purchase price adjustments) improving from 36% to 38.4% at Conso US and
decreasing from 32.1% to
18
<PAGE> 2
29.6% 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, price increases and improvements in product mix were more than
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 $526,000. Of the increase, Conso US
contributed $427,000 while British Trimmings contributed the remaining $99,000.
Distribution expenses, as a percentage of net sales, increased slightly from
4.1% to 4.2% in fiscal 1996.
Selling expenses increased $1.4 million and edged up as a percentage of
net sales from 11.4% to 11.6%. The increase is due to the additional sales
personnel and marketing costs, the international sales offices, and costs
related to the introduction of the new Wendy Cushing Trimmings lines.
General and administrative expenses increased $554,000 but declined
from 6.4% to 6.2% as a percentage of net sales. Of the increase, Conso US
contributed $606,000, remaining at 5.6% of net sales. 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 administrative costs which represented 7.8% of its net sales for
fiscal 1996 declined $52,000 due to higher initial data processing expenditures
in the prior year following the introduction of Conso's data processing systems.
Net interest costs decreased $117,000 due to decreased borrowings in
part as a result of regularly scheduled principal payments and a significant
increase in operating cash flow with decreased cash requirements for inventory
since the Company completed the majority of its build-up of inventory to support
the cross-merchandising efforts between Conso US and British Trimmings in the
prior year.
Net income for the fiscal year ended June 29, 1996, was $6.4 million,
an increase of $904,000, or 16.3% over the prior year's $5.5 million. Excluding
the one-time net tax credits carryforward of $913,000, received in March 1995,
earnings increased 39%. Of the $1.8 million increase in net income (excluding
the one-time net tax credits), the increase in Conso US's net income over the
prior year contributed $2 million, while British Trimmings net income declined
$200,000 (after consolidating adjustments).
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 expansion of product lines and production capacity
and increased working capital needs to support higher sales volume. Working
capital increased to $21.0 million at June 28, 1997, from $19.5 million at June
29, 1996, and from $14.8 million at July 1, 1995. 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. The rate of growth in
inventories relative to sales growth declined in fiscal 1996, but increased
again in fiscal 1997 due to increases in yarn and other safety stocks and with
the addition of new products, both at Conso US and BT.
Capital expenditures for fiscal 1997 (excluding major facilities
expansions at Conso US) were approximately $2.0 million, primarily for
manufacturing equipment at both Conso US and British Trimmings and some data
processing and facilities improvements at British Trimmings. In December 1995,
the Company spent approximately $791,000 to acquire a 20,000 square foot
facility for its London showroom and wholesale operations. The 9,500 square
foot London facility previously used for that purpose was sold in January 1997
for $330,000 and a gain of $86,000. The Company has budgeted approximately $1.1
million for capital expenditures for fiscal 1998 (other than capital
expenditures for building expansions of $3.2 million or possible acquisitions
of other businesses). During fiscal 1997, the new 86,000 square foot
distribution center was constructed adjacent to the main plant in Union, South
Carolina. The center was occupied during the July 4th shutdown week and
commenced operations on July 7, 1997. Approximately $2.8 million was spent
during fiscal 1997 on the distribution center. Although the center is now in
operation, it is estimated that an additional $500,000 will be spent during
fiscal 1998 to acquire and install remaining facilities and distribution
equipment items to close out the project. Also during fiscal 1997, construction
began on the 17,000 square foot dyehouse facility, to be located adjacent to
the main plant in Union, South Carolina as well. Approximately $611,000 was
spent on the new dyehouse project including related equipment, and it is
estimated that an additional $1.7 million will be spent during fiscal 1998. The
construction of the dyehouse is scheduled for completion by the end of calendar
year 1997. These expansions will free up approximately 60,000 square feet for
much needed additional office and production space. The Company will consider
additional capital expenditures for building expansions or business
acquisitions as opportunities arise.
At June 29, 1996, the Company had outstanding long-term indebtedness,
consisting of term loans and capital lease obligations, of approximately $2.6
million, including the current portion of long-term debt of approximately
$500,000. During 1997, the Company renegotiated with its US bank the terms of
its then outstanding revolving loan agreement. In connection with the
renegotiations, the Company was able to payoff its then outstanding long-term
indebtedness with the bank, without penalty, and thereby reduce its interest
expense. In addition, as the Company's cash flow continued to improve in the US
and as the Company did not wish to payoff the British pounds sterling borrowings
by British Trimmings, since these borrowings provide some protection from
currency fluctuations, the Company was able to fund its expansion plans through
cash flow available in the US. Accordingly, the Company has not funded the
19
<PAGE> 3
warehouse and dyehouse projects through long-term debt as originally intended.
The amended revolving loan agreement provides for advances of
$15,000,000 (previously $10,000,000) including advances of up to pounds sterling
6,000,000 (in British "pounds sterling") (previously pounds sterling
5,000,000). Approximately $9.6 million was outstanding under the revolving loan
agreement at June 28, 1997, under which $5.4 million was available for
additional borrowings, subject to continued compliance with borrowing base
requirements and loan covenants. The availability in British pounds sterling was
pounds sterling 250,000 ($416,125 based on the exchange rate at June 28, 1997).
British Trimmings separate overdraft type borrowing facility with its UK bank
provides an additional pounds sterling 500,000 ($832,250 based on the exchange
rate at June 28, 1997), of which approximately pounds sterling 518,435
($862,935) was outstanding at June 28, 1997, of which no additional amount was
then available for additional borrowings.
In connection with the financing arrangement, the Company's borrowing's
are secured by a security interest in Conso US' accounts receivable and
inventory. In addition, the British Trimmings' Stockport real estate is
specifically collateralized under British Trimmings' ECSC loan, the Company's
only remaining long-term debt, which is due and will be paid off in fiscal 1998.
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.
LONG-LIVED ASSETS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions
of the Statement, which was implemented by the Company for the fiscal year
beginning June 30, 1996, require the recognition of a loss in the income
statement and related disclosures whenever events or circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. The adoption
of the provisions of the Statement did not have a material impact on its results
of operations or financial position.
EMPLOYEE BENEFITS
In December 1993, the Company established a stock option plan, which
became effective upon the completion of its initial public offering of common
stock. The plan permits the award of options to buy up to 607,500 shares of the
Company's common stock to certain managers and other key employees. On May 15,
1995, a key employee was granted options under the plan to purchase up to 56,250
shares of the Company's common stock. The options were exercised at $5.78 per
share, of which options for 37,500 shares were exercised on November 28, 1995,
and the remaining options for 18,750 shares were exercised on January 10, 1996.
On September 9, 1996 and September 7, 1995, the company granted additional
options to certain key employees to purchase an aggregate of 79,500 and 93,600
shares, respectively, of the Company's common stock. The options were granted at
$11.00 and $6.67 per share, respectively, 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, are incentive stock options, and are
subject to continued employment of the employee. (All amounts have been adjusted
to reflect the 3-for-2 stock splits issued on October 4, 1996 and October 6,
1995).
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS)No. 123, "Accounting for
Stock-Based Compensation," which was effective for the Company beginning June
30, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company has elected to continue applying APB Opinion No.
25 to its stock-based compensation awards to employees. The required pro forma
effect on net income and earnings per share is disclosed in the Company's Notes
to Consolidated Financial Statements.
EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS 128
supercedes APB Opinion 15, effective for annual and interim periods ending after
December 15, 1997. Earlier adoption is not permitted. The provisions of the
statement, which will be implemented by the Company during the fiscal year
beginning June 29, 1997, simplify the computations and conform the determination
and presentation of EPS data with the standards of many other countries and with
international accounting standards. Under the new rules, two EPS amounts are
required: (1) basic EPS; and (2) diluted EPS. The Company's earnings per share
for the fiscal years ended June 28, 1997, June 29, 1996 and July 1, 1995 have
been calculated in accordance with Accounting Principles Board (APB) Opinion
15. The dilution as a result of the exercise of outstanding options at each of
the three fiscal year ends presented, calculated in accordance with APB Opinion
15, is not material; accordingly, no fully
20
<PAGE> 4
diluted earnings per share amount is disclosed. If earnings per share for all
periods presented had been calculated using the new requirements (of SFAS No.
128), the earnings per share amount would still not have been materially
different from the earnings per share presented.
JOBS TAX CREDITS CARRYFORWARD
In March 1995, the Company received a private letter ruling from the
South Carolina Tax Commission allowing the Company to carryforward certain Jobs
Tax Credits ("one-time credits") totalling $1,383,000, resulting in a one-time
net tax benefit (net of applicable federal income tax effect) of $913,000. The
recording of these credits in the third quarter of fiscal 1995 resulted in the
creation of a deferred tax asset for the future utilization of the credits. This
one-time net tax credit of $913,000, representing $.13 per share for the year,
has been recorded as a reduction in tax expense and recorded as a deferred tax
asset in accordance with SFAS No. 109, as discussed below.
In addition to the one-time credit for prior years, the Company
recorded Jobs Tax Credits earned in fiscal years 1997, 1996 and 1995 of
$225,000, $630,808 and $448,000, resulting in net tax benefits (net of
applicable federal income tax effect) of $148,500, $416,333 and $295,680,
respectively.
According to Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS No. 109"), such tax credits are to be
recorded as assets and reductions of tax expense to the extent it is more
likely than not that the taxable income in future periods will be sufficient to
utilize the credits and employment levels will not decrease, causing a loss of
credits recorded in prior years. SFAS No. 109 also requires that, on an ongoing
basis, management assess any changes in conditions which may affect the
likelihood of realizing these tax credits and that a valuation allowance be
established should a degree of uncertainty about the likelihood of realizing
these credits become apparent. A valuation allowance would be established with
a charge against income. Based on management's review of the Company's
historical and current performance and its plans for future growth including
acquisitions, the introduction of new products, the expansion of existing
products and expansion into international markets, management believes it is
more likely than not that the Company will be able to fully utilize these tax
credits and no valuation allowance is considered necessary at this time.
The Company is uncertain as to the amount and net income effect of
credits, if any, which may be earned in future years, because future credits are
contingent upon regionally specific increases in employment, and the net income
effect is contingent upon additional future South Carolina taxable income
sufficient to fully utilize such credits as may become available in the future.
EFFECTS OF INFLATION
Inflation during the three years ended June 28, 1997, has had little
effect on the Company's capital costs and results of operations.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained in this report as to the Company's outlook for
sales, operations, capital expenditures and other amounts, budgeted amounts and
other projections of future financial or economic performance of the Company,
and statements of the Company's plans and objectives for the future operations
are "forward looking" statements, and are being provided in reliance upon the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Important factors that could cause actual results or events to differ
materially from those projected, estimated, assumed or anticipated in any such
forward looking statements include, without limitation: general economic
conditions in the Company's markets, including inflation, recession, interest
rates and other economic factors, especially in the United States and the United
Kingdom but also including other areas of the world where the Company markets
its products; changes in consumer fashion preferences for finished products in
the home furnishings market, which may affect the demand for the Company's
products; any loss of the services of the Company's key management personnel;
increased competition in the United States and abroad, both from existing
competitors and from any new entrants in the decorative trimmings business; the
Company's ability to successfully continue its international expansion and to
successfully and profitably integrate into its operations any existing
businesses it may acquire; changes in the cost and availability of raw
materials; changes in governmental regulations applicable to the Company's
business; fluctuations in exchange rates relative to the US dollar for
currencies of the United Kingdom and other nations where the Company does
business; casualty to or disruption of the Company's production facilities and
equipment; delays and disruptions in the shipment of the Company's products and
raw materials; disruption of operations due to strikes or other labor unrest;
and other factors that generally affect the business of manufacturing companies
with international operations.
21
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
June 28, 1997 and June 29, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
-----------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 489,580 $ 189,845
Accounts receivable, net of allowances for bad debts
and customer deductions of $310,876 and $327,770
in 1997 and 1996, respectively (Notes 1 and 3) 11,747,482 11,522,528
Inventories (Notes 1, 2 and 3) 25,339,936 20,064,822
Deferred income taxes-current portion 625,873 602,936
Prepaid expenses and other 426,508 941,702
----------------------------
Total current assets 38,629,379 33,321,833
----------------------------
PROPERTY AND EQUIPMENT (Notes 1 and 3):
Land and improvements 1,177,248 1,082,911
Buildings and improvements 9,655,017 6,779,693
Machinery and equipment 14,216,300 11,104,034
----------------------------
Total 25,048,565 18,966,638
Accumulated depreciation (8,485,714) (6,592,375)
----------------------------
Total property and equipment, net 16,562,851 12,374,263
----------------------------
DEFERRED INCOME TAXES (Note 5) 1,120,694 1,282,531
----------------------------
DEFERRED COSTS (Note 1) 246,477 298,885
----------------------------
Total $ 56,559,401 $ 47,277,512
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 3) $ 10,405,973 $ 6,990,509
Current maturities of long-term debt (Note 3) 208,063 477,933
Trade accounts payable 4,162,339 3,415,876
Accrued liabilities 2,879,703 2,976,595
----------------------------
Total current liabilities 17,656,078 13,860,913
----------------------------
NONCURRENT LIABILITIES:
Long-term debt (Note 3) -- 2,107,910
Deferred income taxes (Note 5) 535,184 530,356
----------------------------
Total noncurrent liabilities 535,184 2,638,266
----------------------------
COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 7 and 8) -- --
----------------------------
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock (no par, 10,000,000 shares authorized,
no shares issued) -- --
Common stock (no par, 50,000,000 shares authorized,
7,491,540, and 7,481,672 shares issued in 1997 and 1996,
respectively) 16,970,175 16,896,346
Retained earnings 20,728,449 13,701,279
Cumulative translations gain 669,515 180,708
----------------------------
Total shareholders' equity 38,368,139 30,778,333
----------------------------
Total $ 56,559,401 $ 47,277,512
============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended June 28, 1997, June 29, 1996, and July 1, 1995.
<TABLE>
<CAPTION>
OPERATIONS 1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Net sales $ 73,447,466 $ 70,713,651 $ 59,621,181
Cost of goods sold 45,624,125 45,281,292 38,885,055
---------------------------------------------
Gross margin 27,823,341 25,432,359 20,736,126
Selling, general and
administrative expenses:
Distribution expense 3,159,035 2,965,645 2,439,239
Selling expense 8,759,920 8,215,116 6,775,448
General and administrative expense 4,535,488 4,399,610 3,849,455
Currency exchange gain (63,097) (20,114) (23,717)
Gain on disposal of manufacturing
facility (85,954)
---------------------------------------------
Total 16,305,392 15,560,257 13,040,425
---------------------------------------------
Income from operations 11,517,949 9,872,102 7,695,701
---------------------------------------------
Interest expense (income):
Interest expense (Note 3) 654,603 917,349 981,078
Interest income (157,057) (164,352) (111,253)
---------------------------------------------
Total 497,546 752,997 869,825
---------------------------------------------
Income before income taxes 11,020,403 9,119,105 6,825,876
---------------------------------------------
Income taxes (Note 5):
Income tax provision
before credits 4,141,733 3,092,278 2,495,707
Net Jobs Tax Credits - current (148,500) (416,333) (295,680)
Net one-time Jobs Tax Credits -- -- (913,000)
---------------------------------------------
Total income tax provision 3,993,233 2,675,945 1,287,027
---------------------------------------------
Net income $ 7,027,170 $ 6,443,160 $ 5,538,849
=============================================
Net income per share $ .94 $ .86 $ .75
=============================================
Weighted average number of
shares outstanding (Note 8) 7,485,807 7,456,552 7,425,423
=============================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Fiscal Years Ended June 28, 1997, June 29, 1996, and July 1, 1995
<TABLE>
<CAPTION>
Common Stock Cumulative
Shares Retained Translation
Issued Amount Earnings Adjustments Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance July 2, 1994 7,425,422 $16,571,214 $ 1,719,270 $ 111,950 $18,402,434
Net income 5,538,849 5,538,849
Translation gain 182,448 182,448
- -------------------------------------------------------------------------------------------------------------------------------
Balance July 1, 1995 7,425,422 16,571,214 7,258,119 294,398 24,123,731
Stock options exercised 56,250 325,132 325,132
Net income 6,443,160 6,443,160
Translation loss (113,690) (113,690)
- -------------------------------------------------------------------------------------------------------------------------------
Balance June 29, 1996 7,481,672 16,896,346 13,701,279 180,708 30,778,333
Stock options exercised 8,600 57,349 57,349
Shares issued for directors fees 1,268 16,480 16,480
Net income 7,027,170 7,027,170
Translation gain 488,807 488,807
- -------------------------------------------------------------------------------------------------------------------------------
Balance June 28, 1997 7,491,540 $16,970,175 $20,728,449 $ 669,515 $38,368,139
===============================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended June 28, 1997, June 29, 1996, and July 1, 1995
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996 July 1, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,027,170 $ 6,443,160 $ 5,538,849
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 1,759,853 1,662,823 1,469,748
Amortization of deferred expenses 83,359 87,810 49,519
Deferred tax (benefit) expense 131,916 (757,716) (1,314,403)
Currency transaction gain (63,097) (20,112) (23,717)
Gain on sale of plant and equipment -- (124,719) --
Gain on disposal of manufacturing facility (85,954) -- --
Change in assets and liabilities excluding
effects of businesses acquired:
Accounts receivable 8,514 (1,732,181) (842,874)
Inventories (4,701,300) (171,124) (4,461,111)
Prepaid expenses and other 543,121 (107,168) (18,356)
Trade accounts payable 635,559 (285,363) (784,698)
Accrued liabilities (210,953) 106,109 245,443
------------------------------------------
Net cash provided by (used in) operating activities 5,128,188 5,101,519 (141,600)
------------------------------------------
INVESTING ACTIVITIES
Sale (purchase) of officer's life insurance -- 39,271 (6,611)
Construction of new warehouse and dyehouse (3,741,161) -- --
Purchase of London and Leek facilities -- (790,919) --
Purchases of other property and improvements (399,614) (264,156) (323,401)
Purchases of equipment (1,565,504) (1,546,916) (2,354,484)
Payments for other businesses acquired (85,472) (385,962) --
Sale of London facility 329,936 -- --
Sale of other plant and equipment 79,156 138,088 --
------------------------------------------
Net cash used in investing activities (5,382,659) (2,810,594) (2,684,496)
------------------------------------------
FINANCING ACTIVITIES
Net borrowings (repayments) under line of
credit arrangements 2,886,360 (2,006,120) 3,293,552
Principal payments on long-term debt (2,335,789) (410,317) (397,343)
Payments of capitalized loan origination costs -- (1,111) (36,694)
Principal payments under capital
lease obligations (70,193) (151,219) (192,874)
Proceeds from issuance of common stock,
net of expenses 73,828 325,132 --
------------------------------------------
Net cash provided by (used in) financing activities 554,206 (2,243,635) 2,666,641
------------------------------------------
Increase (decrease) in cash 299,735 47,290 (159,455)
Cash at beginning of year 189,845 142,555 302,010
------------------------------------------
Cash at end of year $ 489,580 $ 189,845 $ 142,555
==========================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended June 28, 1997, June 29, 1996, and July 1, 1995
1. Organization and Summary of Significant Accounting Policies
Organization and Operations - The Company's (Conso and all of its
subsidiaries) corporate headquarters are located at Conso's main plant in Union,
South Carolina. The Company has an additional plant in Union. The Company also
has an assembly operation in Juarez, Mexico, showrooms in New York City and
Hickory, North Carolina, and sales representatives located in certain major
cities in the United States. In December 1993, the Company acquired British
Trimmings (Holdings) Limited, an English company based in Stockport, England. In
addition to Stockport, British Trimmings has a production, warehousing and
dyehouse facility and a separate printing operation in Leek, an assembly
operation and a showroom and wholesale operation in London, and sales
representatives located in certain major cities in the United Kingdom. The
Company also employs an international sales force and has sales representatives
located throughout the world. Some products are sold by independent sales
agents.
The Company manufactures and sells decorative narrow trimmings and
other items including:
Knitted and woven fringes
Decorative cords
Tasseled accessories
Jacquard and other woven braids
Workroom tapes and supplies
The Company also markets decorative window accouterments and other home
furnishing accessories.
Consolidation - The financial statements include the accounts of the
Company, its wholly-owned subsidiary British Trimmings and its subsidiaries (all
operating within the United Kingdom), and Conso's majority-owned subsidiary,
Val-Mex, S.A. de C.V., which operates Conso's Juarez, Mexico, assembly plant.
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.
Foreign Currency Translation - Assets and liabilities of foreign
subsidiaries are translated into US dollars at period-end exchange rates.
Income, expenses and cash flows are translated at weighted-average rates of
exchange for the period. The resulting currency translation adjustments are
accumulated and reported as a separate component of shareholders' equity. From
time to time, the US parent company loans or is loaned amounts from its foreign
subsidiaries. It is the Company's policy that such amounts are repayable or
receivable in the foreign currency of the subsidiary. Translation gains or
losses on such amounts due to or from foreign subsidiaries and all exchange
gains and losses on realized foreign currency transactions are included in the
consolidated results of operations. The Company has not entered into any
foreign exchange transactions or any other agreements to manage the risk of
foreign exchange rate fluctuations except to the extent it is able to borrow
funds in foreign currency, and the Company does not speculate in foreign
currencies.
Use of Estimates - The preparation of 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates include valuation allowances, if any, for items such as accounts
receivable, inventories and deferred tax assets (see Note 5).
Fair Value of Financial Instruments - The carrying amount of cash,
accounts receivable, current liabilities and notes payable approximates their
respective fair values.
Inventories - Inventories are stated at the lower of first-in,
first-out cost, or market. Cost includes materials, direct production labor and
production-related overhead costs.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation, and depreciation is provided on a straight-line basis
over the estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Buildings 25-40 years
Buildings improvements 10 years
Leasehold improvements 5 years
Machinery and equipment 7-10 years
Mobile and computer equipment 5 years
</TABLE>
26
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maintenance and repair costs are charged to expense as incurred; costs
of major additions and betterments are capitalized. When property and equipment
are sold or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
Loan Costs - The costs related to borrowings by the Company have been
deferred and are being amortized over the term of the loan on a straight-line
basis, which is not materially different from the interest method.
Long-Lived Assets - In fiscal 1997, the Company adopted, Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company determined that no impairment loss need be
recognized for applicable assets for fiscal 1997.
Advertising Costs - The Company's policy is to expense advertising
costs upon initial publication of advertisements. Advertising costs for the
fiscal years ended June 28, 1997, June 29, 1996 and July 1, 1995 were $362,567,
$340,175 and $257,610, respectively.
Income Taxes - The Company provides deferred income tax assets and
liabilities for the expected future tax consequences of temporary differences
in the financial reporting basis and income tax basis of all other assets and
liabilities.
Earnings Per Share - The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS 128 supercedes APB Opinion 15, effective for annual and interim
periods ending after December 15, 1997. Earlier adoption is not permitted. The
provisions of the statement, which will be implemented by the Company during
the fiscal year beginning June 29, 1997, simplify the computations and conform
the determination and presentation of EPS data with the standards of many other
countries and with accounting standards. Under the new rules, two EPS amounts
are required: (1) basic EPS; and (2) diluted EPS. The Company's earnings per
share for the fiscal years ended June 28, 1996 and July 1, 1995 have been
calculated in accordance with Accounting Principles Board (APB) Opinion 15. The
dilution as a result of the exercise of outstanding options at each of the
three fiscal year ends presented, calculated in accordance with APB Opinion 15,
is not material; accordingly, no fully diluted earnings per share amount is
disclosed. If earnings per share for all periods presented had been calculated
using the new requirements (of SFAS No. 128), the earnings per share amount
would still not have been materially different from the earnings per share
presented.
Reclassifications - Certain balances in prior years have been
reclassified to conform with the presentation adopted in the current fiscal
year.
<TABLE>
<CAPTION>
2. Inventories June 28, 1997 June 29, 1996
<S> <C> <C>
Raw materials $ 8,188,073 $ 6,357,327
Work-in-progress 3,634,638 3,325,497
Finished goods 13,517,226 10,381,998
- --------------------------------------------------------------------------------
Totals $25,339,936 $20,064,822
================================================================================
</TABLE>
3. Notes Payable and Long-Term Debt
During 1997, the Company renegotiated with its US bank the terms of its
revolving loan agreement. The amended agreement provides for advances on a
revolving line of $15,000,000 (previously $10,000,000) with advances (as in the
previous agreement) of up to pounds sterling 6,000,000 (in British "pounds
sterling") (previously pounds sterling 5,000,000) providing some protection
against currency fluctuations. Advances in US dollars bear interest at the
London Inter-bank Offered Rate ("LIBOR") one month rate as quoted in The Wall
Street Journal plus 1.00% per annum (6.72% at June 28, 1997). Previously,
interest was at a rate equal to the bank's 90 day CD rate plus 2.75%. Advances
in British pounds sterling are made under UK LIBOR related contracts. These
contracts bear interest based on the rates at which banks lend to each other for
specific periods of time (typically 1, 3, or 6 months) plus 1.0% (1.25%
previously)(6.56%, 6.88%, or 7.06%, respectively at June 28, 1997). At June 28,
1997, $5,429,125 was available for borrowing under the agreement. The average US
dollar borrowings outstanding under line of credit agreements for the fiscal
years ended June 28, 1997, June 29, 1996, and July 1, 1995, were $1,066,
$2,935,041 and $5,408,765 at weighted average interest rates of 8.22%, 8.84% and
9.15%, respectively. The maximum outstanding US dollar borrowings during these
periods were $194,000, $8,550,944 and $8,186,291, respectively.
27
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings in British pounds sterling by British Trimmings totaled
pounds sterling 5,750,000 (or $9,570,875 at the June 28, 1997 exchange rate),
under four LIBOR contracts in the amounts of pounds sterling 3,000,000
($4,993,500), pounds sterling 1,250,000 ($2,080,625), pounds sterling 750,000
($1,248,375) and pounds sterling 750,000 ($1,248,375) for 90,90,90 and 30 days
at interest rates of 7.5625%, 7.8750%, 7.5000% and 7.6250%, respectively. At
June 28, 1997, no amounts were outstanding in US dollars. Of the available
balance at June 28, 1997, pounds sterling 250,000 ($416,125) of the amount was
available for borrowing in British pounds sterling (or US dollars) with the
additional $5,013,000 available for borrowing in US dollars only. The average
borrowings outstanding in British pounds sterling under the line of credit
agreements for the fiscal years ended June 28, 1997, and June 29, 1996, were
pounds sterling 4,330,137 ($7,207,513) and pounds sterling 2,409,589
($3,744,501), at weighted average interest rates of 7.2924%, and 7.7995%. The
maximum outstanding borrowings during these periods were pounds sterling
5,750,000 ($9,570,875 at the June 28, 1997 exchange rate) and pounds sterling
4,000,000 ($6,208,000 at the June 29, 1996 exchange rate), respectively.
British Trimmings has overdraft borrowing facilities (similar to
revolving loan facilities used in the US) available in British pounds sterling
with its United Kingdom based bank for itself and certain of its subsidiaries
which provides overdraft facilities totaling pounds sterling 500,000 (or
$832,250 at the June 28, 1997 exchange rate). Overdrafts bear interest at the
bank's base rate plus 1.5% (subject to a minimum rate of 5.5%), which was 8.0%
at June 28, 1997.
The bank provides British Trimmings with other services including
letters of credit, and bank-guaranteed standby credit for value-added tax
payments of an additional pounds sterling 260,000 (or $432,770 at the June 28,
1997 exchange rate) bearing the same interest rates as in the overdraft
facility. At June 28, 1997, no amounts were available for borrowings under this
overdraft facility. The average overdraft outstanding under the overdraft
facility was pounds sterling 452,426 ($753,063), pounds sterling 180,091
($279,861) and pounds sterling 218,408 ($345,412)(at the average exchange rates
for the fiscal years ended June 28, 1997, June 29, 1996 and July 1, 1995, at
weighted average rates of 7.47%, 7.89% and 7.64%, respectively). The maximum
overdraft outstanding during the fiscal years ended June 28, 1997, June 29, 1996
and July 1, 1995, was pounds sterling 868,389 ($1,445,433), pounds sterling
707,410 ($1,097,900) and pounds sterling 415,452 ($657,037), respectively (at
the average exchange rates during the periods). There were no material other
services used or outstanding at June 28, 1997.
The balances owed under the long-term agreements are as follows:
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Term loan $ -- $2,130,570
European Coal & Steel Community
(ECSC) loan 208,063 388,000
Capital lease obligations -- 67,273
- --------------------------------------------------------------------------------
Total 208,063 2,585,843
Less current portion (208,063) (477,933)
- --------------------------------------------------------------------------------
Total long-term debt $ -- $2,107,910
================================================================================
</TABLE>
In 1994, the Company amended its existing term loan to fix the interest
rate at 9%. The amended loan was repayable in 83 monthly principal payments of
$18,055 with a final principal payment of $1,101,435 due on April 1, 2001.
During 1997, the company paid off the outstanding balance of the term loan in
connection with the renegotiation of its debt with its US bank.
The European Coal and Steel Community loan, entered into by British
Trimmings with an original loan amount of pounds sterling 500,000 or $832,250,
is repayable in semi-annual installments of pounds sterling 62,500 or $104,031
(at the June 28, 1997, exchange rate), beginning December 1994 with the final
payment due June 1998. The loan bears interest at the rate of 10% with
substantial penalty for prepayment.
Of the Company's assets, only Conso's accounts receivable and
inventory, and the British Trimmings' Stockport real estate are pledged as
collateral under the loan agreements, which contain various covenants
requiring, among other things, that the Company maintain certain minimum levels
of working capital, net worth (as defined), and other ratios. In the opinion of
management, the Company was in compliance with all such covenants at June 28,
1997.
Net interest paid during the fiscal years ended June 28, 1997,
June 29, 1996 and July 1, 1995 was $487,860, $700,746 and $819,143,
respectively. During the fiscal year ended June 28, 1997, $96,832 of interest
expense was capitalized primarily in connection with warehouse and dyehouse
expansions in the US.
The Company has not entered into any agreements to manage the risk of
foreign exchange rate fluctuations except to the extent it is able to borrow
funds in foreign currency as previously noted.
28
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Leases
The Company's operations utilize property, facilities, equipment, and
vehicles leased from others. Buildings and facilities leased from others
primarily are for sales offices, showrooms, and the Val-Mex manufacturing
operation. The lease arrangements generally provide for a fixed basic rent, and
in some instances adjustments for inflation. Initial terms of leases generally
are not more than six years exclusive of options to renew. Leases of other
equipment primarily consist of manufacturing and vehicles. Information regarding
the Company's leasing activities at June 28, 1997, is as follows:
<TABLE>
<CAPTION>
Operating Leases
Minimum
Year: Lease Payments
<S> <C>
1998 $482,962
1999 378,235
2000 123,327
2001 1,388
- -------------------------------------------------------------------------------
Total $985,909
- -------------------------------------------------------------------------------
</TABLE>
Rent expense under operating leases totalled $411,595, $425,602 and
$315,794 during the fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995, respectively.
5. Income Taxes
The US and foreign components of income before income taxes and the
provision for income taxes for the fiscal years ended June 28, 1997, June 29,
1996 and July 1, 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Effective Effective Effective
1997 Rate 1996 Rate 1995 Rate
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes:
Conso $ 11,117 $ 8,912 $ 5,854
- ---------------------------------------------------------------------------------------------------------------------------------
British Trimmings $ (97) $ 207 $ 972
- ---------------------------------------------------------------------------------------------------------------------------------
US federal corporation tax:
Current corporation tax $ 3,734 33.6% $ 3,261 36.6% $ 1,930 33.0%
Deferred corporation tax 89 .8 (194) (2.2) 91 1.5
Federal tax effect of
SC Jobs Tax Credits utilized (43) (.4) (37) (.4) (30) (.5)
Federal tax effect of
SC Jobs Tax Credits earned* 77 .7 215 2.4 622 10.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total 3,857 34.7 3,245 36.4 2,613 44.6
- ---------------------------------------------------------------------------------------------------------------------------------
US state and local corporation tax
Current corporation tax 326 2.9 295 3.3 206 3.5
Deferred corporation tax (74) (.6) (101) (1.1) (106) (1.8)
SC Jobs Tax Credits utilized 126 1.1 109 1.2 88 1.5
SC Jobs Tax Credits earned* (225) (2.0) (631) (7.1) (1,831) (31.3)
- ---------------------------------------------------------------------------------------------------------------------------------
Total 153 1.4 (328) (3.7) (1,643) (28.1)
- ---------------------------------------------------------------------------------------------------------------------------------
UK Corporation tax
Current corporation tax 65 67.0 (122) (58.9) 465 47.8
Deferred corporation tax (82) (84.5) (119) (57.5) (148) (15.2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total (17) (17.5) (241) (116.4) 317 32.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total Provision for income taxes $ 3,993 36.2% $ 2,676 29.3% $ 1,287 18.9%
===============================================================================================================================
Current Provision:
Federal $ 3,734 $ 3,261 $ 1,930
State 326 295 206
Foreign 65 (122) 465
- ---------------------------------------------------------------------------------------------------------------------------------
Total current provision 4,125 3,434 2,601
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Provision:
Federal 123 (16) 683
State (173) (623) (1,849)
Foreign (82) (119) (148)
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred provision (132) (758) (1,314)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Provision for income taxes $ 3,993 $ 2,676 $ 1,287
=================================================================================================================================
</TABLE>
29
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Undistributed earnings of British Trimmings aggregated $1,307,000 as
of June 28, 1997. Under existing laws, such earnings will not be subject to US
tax until distributed as dividends. Because, at this time, it is not expected
that the undistributed earnings of British Trimmings will be remitted to the
parent company, no provision has been made for US federal income taxes to be
paid on the undistributed earnings. If these amounts were not expected to be
reinvested, additional deferred tax of approximately $444,380 would have to be
provided.
A reconciliation of income tax at the statutory tax rate to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected provision at statutory US tax rate 34.0% 34.0% 34.0%
Difference between statutory US tax rate and UK tax .1 (3.4) (.6)
Effective US state tax rate 3.4 3.3 3.3
Adjustment for Jobs Tax Credits * (1.3) (4.6) (17.7)
Other adjustment -- -- (.1)
- -------------------------------------------------------------------------------------------------------
Total 36.2% 29.3% 18.9%
=======================================================================================================
</TABLE>
* In March 1995, the Company received a private letter ruling from the
South Carolina Tax Commission allowing the Company to carryforward certain Jobs
Tax Credits totaling $1,383,000 resulting in a one-time net tax benefit (net of
applicable federal income tax effect) of $913,000. In addition, the Company has
recorded Jobs Tax Credits totalling $225,000, $630,808 and $448,000, resulting
in a net tax benefit (net of applicable federal income tax effect) of $148,500,
$416,333 and $295,680 for credits earned in the current and prior fiscal years,
respectively. The recording of these credits resulted in the creation of a
deferred tax asset for the future utilization of the credits. According to
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS No. 109"), such tax credits are to be recorded as assets to the
extent it is more likely than not that the taxable income in future periods
will be sufficient to utilize the credit and employment levels will not
decrease, causing a loss of credits recorded in prior years. SFAS No. 109 also
requires that, on an ongoing basis, management assess any changes in conditions
which may affect the likelihood of realizing these tax credits and that a
valuation allowance be established should a degree of uncertainty about the
likelihood of realizing these credits become apparent. A valuation allowance
would be established with a charge against income. Based on management's
review of the Company's historical and current performance and its plans for
future growth including acquisitions, the introduction of new products, the
expansion of existing products and expansion into international markets,
management believes it is more likely than not that the Company will be able
to fully utilize these tax credits and no valuation allowance is considered
necessary at this time. The Company is uncertain as to the amount of
additional credits, if any, which may be earned in future years, because
future credits are contingent upon regionally specific increases in employment
and are contingent upon additional future taxable income sufficient to fully
utilize such credits as may become available in the future.
The net deferred tax asset and net deferred tax liability is attributable to the
following temporary differences:
<TABLE>
<CAPTION>
1997 1996
---- ----
Conso US British Trimmings Conso US British Trimmings
<S> <C> <C> <C> <C>
Purchase accounting $ - $ (179,083) $ - $ (231,139)
Intercompany inventory 30,134 100,668 56,505 123,818
Accounts receivable reserve 74,495 - 86,683 -
Inventory reserve 132,591 - 296,804 -
Prepaid expense (23,536) - (10,459) -
Accruals 378,966 - 280,968 -
Depreciation (507,508) (493,398) (340,121) (414,384)
Jobs tax credit 1,587,467 - 1,505,293 -
Other temporary differences 73,958 36,629 9,794 (8,651)
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 1,746,567 $ (535,184) $ 1,885,467 $ (530,356)
========================================================================================================================
</TABLE>
Income taxes paid by the Company during the fiscal years ended June
28, 1997, June 29, 1996, and July 1, 1995, were $3,966,011, $3,821,745 and
$2,755,028, respectively.
6. Retirement Benefits
In November 1994, the Company established a stock purchase plan
covering substantially all employees, whereby an employee may elect to purchase
shares of the Company's common stock on the open market through payroll
deduction.
30
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The employee may elect to have up to 10% of their salary withheld for the
purchase of Company stock. In accordance with the plan, the Company contributes
an additional 10% of the employee's amount withheld and pays transactions and
administrative fees for the plan. Company contributions are treated as
additional compensation to the plan participants. At fiscal year end June 28,
1997, there were approximately 21 active participants in the plan. Company
contribution and transaction and administrative fees for the fiscal years ended
June 28, 1997, June 29, 1996 and July 1, 1995 were $4,477, $3,862 and $2,455,
respectively.
Conso operates a non-qualified deferred compensation plan for certain
of its key officers and employees. The plan allows selected employees to defer
up to 25% of their compensation. Interest is paid on compensation deferred by
the employee at the month-end prime rate (8.5% at June 28, 1997) adjusted
monthly, with interest compounded quarterly. As of June 28, 1997, and June 29,
1996, the unfunded liabilities included in accrued liabilities and representing
the plan balance were $152,006 and $116,652, respectively.
The British Trimmings subsidiary operates a defined benefit plan for
the benefit of a certain executive. The plan requires the Company to contribute
funds to the executive's own private pension plan in order to provide benefits,
equal to two-thirds of his annual salary, at his retirement. Contributions are
calculated by independent advisors of the managing company for the executive's
private pension fund. The cost for the fiscal years ended June 28, 1997, June
29, 1996 and July 1, 1995, amounted to pounds sterling 44,062 ($71,420), pounds
sterling 44,915 ($69,807) and pounds sterling 39,998 ($63,257), respectively,
and these amounts have been included in the Company's expenses. Management of
the Company has determined that the obligation of remaining contributions to the
executive's private pension fund is not material to the Company's financial
statements due to the length of service and related contribution amounts
remaining under the agreement with the executive.
In January 1996, Conso established a defined contribution plan in the
US pursuant to Section 401(k) of the Internal Revenue Code which covers all
employees. The Company matches each employee's contribution up to a maximum of
3% of each employee's compensation. Aggregate Company contributions of $374,006
and $180,113 were made for the fiscal years ended June 28, 1997 and June 29,
1996 (since plan inception).
Prior to July 1995, British Trimmings maintained a defined benefit
plan. Plan assets consisted of units held in a specialist pension investment
company investing mainly in UK and overseas equities. Total net pension cost of
the defined benefit plan for employees for the fiscal year ended July 1, 1995,
amounted to pounds sterling 47,000 ($74,331).
The components of net pension cost of the British Trimmings defined
benefit plan for the fiscal year ended July 1, 1995 determined under SFAS 87
follow:
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996 July 1, 1995
------------- ------------- ------------
<S> <C> <C> <C>
Service cost-benefits earned during the year N/A- N/A- $ 82,238
Interest cost on projected benefit obligations PLAN PLAN 131,265
Actual return on plan assets TERMINATED TERMINATED (139,172)
- ---------------------------------------------------------------------------------------------------------------
Net pension cost $ 74,331
===============================================================================================================
</TABLE>
The following table sets forth the funded status of the plans and amounts
unrecognized in the Company's balance sheet for its defined benefit plans:
<TABLE>
<S> <C>
Plan assets at fair value $1,870,349
=============================================================================
Accumulated benefits obligations $1,358,514
Additional amount related to projected
compensation increases 210,474
- -----------------------------------------------------------------------------
Projected benefit obligation $1,568,988
=============================================================================
Unrecognized net asset $ 301,361
=============================================================================
</TABLE>
Significant assumptions used in determining net pension cost and funded
status information shown above are as follows:
<TABLE>
<S> <C>
Assumed discount rate 9%
Assumed rate of compensation increase 7%
Assumed long-term rate of return on plan assets 9%
</TABLE>
31
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 1995, British Trimmings discontinued its defined benefit plan
and replaced it with an alternative "defined contribution" type (group personal
pension) plan. Most of the unrecognized net asset ($301,361) at July 1, 1995 was
used for payments made in terminating the defined benefit plan. On this basis
the unrecognized net asset was not recorded as a prepaid pension cost in prior
years. The largest portion of plan obligations totaling pounds sterling
1,173,117 ($1,820,678), were discharged through the purchase of annuities in
July 1996. The remaining assets of the plan, pounds sterling 167,517 ($259,986),
were sufficient to discharge remaining plan obligations. In June 1997 the
Company recorded income of $64,836 for the remaining funds in the plan in excess
of the final plan liabilities which will be returned to the Company. Remaining
net assets (or liabilities) are immaterial. Due to the discontinuance of the
defined benefit plan in July 1995, the fiscal 1997 and fiscal 1996 pension
activity was not material to the Company's financial statements.
British Trimmings "defined contribution" type (group personal pension)
plan was established in July 1995, pursuant to the United Kingdom's Inland
Revenue codes and covers substantially all employees. British Trimmings matches
each employee's contribution up to a maximum of 3% of each employee's
compensation. Aggregate contributions by British Trimmings of pounds sterling
50,678 ($82,144) and pounds sterling 34,362 ($53,402) were made for the years
ended June 28, 1997 and June 29, 1996 (since plan inception).
7. Commitments and Contingencies
Royalties - The Company has entered into agreements with several
designers requiring royalty payments which are accrued and paid currently based
on sales of specific product styles. Royalty expenses were $187,052, $195,840
and $165,578, for fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995, respectively.
Litigation - The Company is routinely involved in various disputes and
legal actions related to its business operations. In the opinion of management,
based on the advice of the Company's legal counsel, the ultimate resolution of
these actions will not have a material effect on the Company's financial
position or future results of operations.
8. Capital Stock
Capital Stock Transactions - On September 5, 1996 and September 7,
1995, the Company announced 3-for-2 splits of its common stock, paid on October
4, 1996 and October 6, 1995, to shareholders of record at the close of business
on September 16, 1996 and September 18, 1995, respectively. All per share data
presented in the accompanying financial statements has been restated to reflect
the 3-for-2 stock splits. Since becoming a publicly traded company in December
1993, the Company has not paid a cash dividend. The directors periodically
review the advisability of paying a cash dividend.
Stock Option Plan - In December 1993, the Company established a stock
option plan which permits the award of options to buy up to 607,500 shares of
the Company's common stock to certain managers and other key employees.
On May 15, 1995, a key employee was granted options under the plan to
purchase 56,250 shares of the Company's common stock. The options were exercised
in November 1995 (37,500) and January 1996 (18,750) at $5.78 per share.
In addition the Company has granted incentive stock options to certain
key employees which are exercisable with respect to one-third of the total
options after one year, an additional one-third of the total options after two
years, and the final one-third of the options after three years. The options
expire after five years, and are subject to continued employment of the
employee. Incentive stock option transactions during the two years ended June
28, 1997 and June 29, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Options outstanding at beginning of the fiscal years 93,600 --
Options granted 79,500 93,600
Options exercised (8,600) --
--------------------------
Options outstanding at end of the fiscal years 164,500 93,600
==========================
Options available for grant 378,150 457,650
==========================
Option price ranges per share:
Granted $ 11.00 $ 6.67
Exercised $ 6.67 N/A
Outstanding $ 6.67-11.00 $ 6.67
Weighted average option prices per share:
Granted $ 11.00 $ 6.67
Exercised $ 6.67 N/A
Outstanding $ 8.76 $ 6.67
</TABLE>
32
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 28, 1997, the outstanding options had a weighted average
remaining contractual life of approximately 3.6 years and there were 22,600
options currently exercisable with option prices of $6.67.
In fiscal year 1997, the Company adopted the disclosure-only provisions
of Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation". Accordingly, the Corporation applies APB Opinion 25
and related interpretations for its stock option plans, and does not recognize
compensation cost for the incentive stock options referred to above. If the
Company had elected to recognize compensation cost based on fair value of the
options granted at the grant date as prescribed by SFAS No. 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated in
the table below (in thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income - as reported $ 7,027,170 $ 6,443,160
Net income - pro forma $ 6,939,102 $ 6,406,417
Net income per share - as reported $ .94 $ .86
Net income per share - pro forma $ .93 $ .86
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions (for options issued in years):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Expected dividend yield None None
Expected stock price volatility 33.92% 25.51%
Risk-free interest rate 6.72% 6.04%
Expected life of options 3.2 years 3.2 years
</TABLE>
The weighted average fair values of options granted during fiscal
1997 and 1996 are $4.56 and $2.32 per share, respectively. (All amounts above
have been adjusted to reflect the 3-for-2 stock splits issued on October 4, 1996
and October 6, 1995).
Directors Stock Election Plan - In January, 1997, the Company
established a Stock Election Plan for Non-Employee Directors whereby
non-employee directors may elect to receive their director compensation in
common stock in lieu of cash payments. The plan permits the award of up to
25,000 shares of the Company's stock in lieu of director compensation. During
the fiscal year ended June 28, 1997, 1,268 shares were issued in accordance with
directors' elections. The compensation under this plan is not material.
9. Business Combinations and Acquisitions
The Claesson Company - On March 4, 1996, the Company acquired the
assets of The Claesson Company. The purchase price and related acquisition costs
totaled $385,962. The acquisition was accounted for in accordance with the
purchase method of accounting.
In December 1996, the Company acquired narrow fabrics and trimmings
manufacturing division of a Swedish company. The purchase price was $85,422 and
the acquisition, essentially of manufacturing equipment, was accounted for in
accordance with the purchase method of accounting. The equipment has been
relocated from Sweden for use at the Company's already existing locations.
10. Foreign Operations
The financial information of the UK subsidiary contained in the
historical financial statements has been derived from the historical financial
statements stated in pounds sterling and prepared in accordance with generally
accepted accounting principles in the United States. The consolidated financial
statements have been translated into US dollars based on exchange rates as
published in the Wall Street Journal. The balance sheet has been translated
using the exchange rate in effect on June 28, 1997, ($1.6645 = pounds sterling
1.00), June 29, 1996, ($1.552 = pounds sterling 1.00), and July 1, 1995,
($1.5945 = pounds sterling 1.00), respectively. The statements of operations and
cash flows have been translated using the average of
33
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the month end average rates for each quarter weighted by the income activity in
pounds sterling for each quarter for the fiscal years ended June 28, 1997,
($1.6209 = pounds sterling 1.00), June 29, 1996, ($1.5542 = pounds sterling
1.00) and July 1, 1995, ($1.5815 = pounds sterling 1.00), respectively.
The following financial information presents the assets and liabilities
as of June 28, 1997 and June 29, 1996, and gains attributable to the Company's
investment in British Trimmings (including Wendy Cushing Trimmings) and
operations for the fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995:
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996
------------------------------ ------------------------------
Conso British Conso British
US Trimmings Total US Trimmings Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Individual Company Assets and Consolidating Adjustments:
Total Assets $43,931 $20,125 $36,234 $17,210
Elimination of intercompany receivable (3,391) -- (2,033) -
Intercompany inventory adjustment (88) (288) (159) (358)
Purchase accounting adjustments (4,857) 1,127 (4,855) 1,239
- --------------------------------------------------------------------------------------------------------------------------
Consolidated net assets $35,595 $20,964 $56,559 $29,187 $18,091 $47,278
==========================================================================================================================
Balance sheets (after consolidating adjustments):
Assets $35,595 $20,964 $56,559 $29,187 $18,091 $47,278
Liabilities 4,225 13,966 18,191 6,017 10,483 16,500
- --------------------------------------------------------------------------------------------------------------------------
Subtotal 31,370 6,998 38,368 23,170 7,608 30,778
Intercompany receivable (payable) 101 (101) -- 1,117 (1,117) --
Investment in British Trimmings 4,855 (4,855) -- 4,855 (4,855) --
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $36,326 $2,042 $38,368 $29,142 $1,636 $30,778
==========================================================================================================================
</TABLE>
34
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996 July 1, 1995
------------------------------------------------------------------------------
Conso British Conso British Conso British
US Trimmings Total US Trimmings Total US Trimmings Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Details of investment and equity in subsidiary:
Original investment at acquisition date $ 4,855 $ 4,855 $ 4,855
Retained earnings of subsidiary since
acquisition date 1,375 1,455 1,007
Cumulative translation gain 667 181 294
- --------------------------------------------------------------------------------------------------------------------------------
Total investment and equity in British Trimmings $ 6,897 $ 6,491 $ 6,156
================================================================================================================================
Selected Individual Company Operations and Consolidating Adjustments:
Total net sales $54,873 $20,978 $52,757 $20,047 $41,015 $21,088
Less adjustment for intercompany sales (1,813) (591) (1,632) (458) (1,101) (1,381)
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated net sales $53,060 $20,387 $73,447 $51,125 $19,589 $70,714 $39,914 $19,707 $59,621
================================================================================================================================
Operating income $10,782 $ 660 $ 9,047 $ 965 $ 6,193 $ 2,005
Elimination of intercompany transactions 71 70 (49) 17 (89) (313)
Purchase accounting adjustments (128) (128) -- (124)
Intercompany currency translation gain 63 -- 20 -- 24
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated operating income $10,916 $ 602 $11,518 $ 9,018 $ 854 $ 9,872 $ 6,128 $ 1,568 $ 7,696
================================================================================================================================
Operations (after consolidating adjustments):
Net sales $53,060 $20,387 $73,447 $51,125 $19,589 $70,714 $39,914 $19,707 $59,621
Cost of sales 31,414 14,210 45,624 31,501 13,781 45,282 25,512 13,373 38,885
- --------------------------------------------------------------------------------------------------------------------------------
Gross margin 21,646 6,177 27,823 19,624 5,808 25,432 14,402 6,334 20,736
Selling, general and administrative expenses 10,730 5,575 16,305 10,606 4,954 15,560 8,274 4,766 13,040
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 10,916 602 11,518 9,018 854 9,872 6,128 1,568 7,696
Interest expense, net (201) 699 498 106 647 753 274 596 870
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 11,117 (97) 11,020 8,912 207 9,119 5,854 972 6,826
Income taxes, net 4,010 (17) 3,993 2,917 (241) 2,676 970 317 1,287
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,107 $ (80) $ 7,027 $ 5,995 $ 448 $ 6,443 $ 4,884 $ 655 $ 5,539
================================================================================================================================
</TABLE>
In addition to the operations of British Trimmings, US exports (by Conso US)
constituted additional foreign sales of $4.5 million, $3.3 million and $2.7
million, for the fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995, respectively.
The following table sets forth consolidated sales by region:
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996 July 1, 1995
--------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
US $48,739 $48,006 $38,270
UK 16,253 16,113 16,108
Other countries 8,455 6,595 5,243
- ----------------------------------------------------------------------------------------------
Total $73,447 $70,714 $59,621
==============================================================================================
</TABLE>
35
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
--------------
To the Board of Directors and Shareholders of Conso Products Company
We have audited the accompanying consolidated balance sheets of Conso
Products Company and its subsidiaries ("the Company") as of June 28, 1997 and
June 29, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the fiscal years ended June 28, 1997,
June 29, 1996, and July 1, 1995. 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 did not audit the
financial statements of British Trimmings Limited, (a consolidated subsidiary),
which statements reflect total assets constituting 37% and 38%, respectively,
of consolidated total assets at June 28, 1997, and June 29, 1996, and total
revenues constituting 28%, 28% and 33%, respectively, of consolidated total
revenues for the fiscal years ended June 28, 1997, June 29, 1996, and July 1,
1995. Those statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for British Trimmings Limited, is based solely on the report of such other
auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, such consolidated financial statements present fairly, in all material
respects, the financial position of Conso Products Company and its subsidiaries
as of June 28, 1997 and June 29, 1996, and the results of their operations and
their cash flows for the fiscal years ended June 28, 1997, June 29, 1996, and
July 1, 1995, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
--------------------------
Deloitte & Touche LLP
Greenville, South Carolina
September 5, 1997
36
<PAGE> 20
SELECTED FINANCIAL DATA
----------------
<TABLE>
<CAPTION>
1997(a) 1996(a) 1995(a) 1994(a)
<S> <C> <C> <C> <C>
Summary of Operations (in thousands):
Net sales $ 73,447 $ 70,714 $ 59,621 $ 41,559
Gross margin 27,823 25,432 20,736 13,215
Operating income 11,518 9,872 7,696 5,102
Income before income taxes 11,020 9,119 6,826 4,414
Income taxes 3,993 2,676 1,287(d) 1,638
Net income 7,027 6,443 5,539(d) 2,776
- -----------------------------------------------------------------------------------------------------
Average Common Stock Outstanding
(In thousands)(m) 7,486 7,457 7,425 6,159
- -----------------------------------------------------------------------------------------------------
Per Share of Common Stock:(m)
Net income $ .94 $ .86 $ .75(d) $ .45
Shareholders' equity(f) 5.13 4.13 3.25 2.99
- -----------------------------------------------------------------------------------------------------
Common stock price range(g)(m):
High $ 16.25 $ 13.17 $ 7.00 $ 7.11
Low 10.17 5.78 5.22 5.00
Price at fiscal year end 13.70 10.83 6.22 6.11
- -----------------------------------------------------------------------------------------------------
Statistical Data:
Gross margin to net sales 37.9% 36.0% 34.8% 31.8%
Operating income to net sales 15.7% 14.0% 12.9% 12.3%
Net income to net sales 9.6% 9.1% 9.3%(d) 6.7%
Net income to average shareholders' equity 20.2% 23.6% 26.0%(d) 24.8%
Operating return on assets employed(h) 22.2% 21.6% 18.8% 17.6%
Inventory turnover(i) 2.0 2.3 2.2 2.5
Accounts receivable turnover(j) 6.3 6.5 6.3 6.0
Net sales divided by average assets 1.4 1.5 1.5 1.7
Current ratio 2.2 2.4 1.9 1.9
Long term debt to equity ratio -- .1 .1 .2
Total liabilities to equity ratio .5 .5 .8 .9
Capital expenditures (in thousands) $ 1,965(k) $ 1,811(k) $ 2,678 $ 1,891(k)
Depreciation and amortization (in thousands) $ 1,843 $ 1,751 $ 1,519 $ 1,010
EBITDA (in thousands)(l) $ 13,361 $ 11,623 $ 9,215 $ 6,111
Approximate number of shareholders 1,300 1,200 1,100 1,000
Number of employees and associates at year end 1,569 1,446 1,472 1,177
- -----------------------------------------------------------------------------------------------------
Selected Balance Sheet Data (in thousands):
Working capital $ 20,973 $ 19,461 $ 14,470 $ 11,944
Property:
Cost 25,049 18,966 17,242 14,637
Accumulated depreciation (8,486) (6,592) (5,799) (4,518)
Net 16,563 12,374 11,443 10,119
Total assets 56,559 47,278 43,699 35,326
Long-term debt 0 2,108 2,598 3,127
Total liabilities 18,191 16,499 19,575 16,924
Shareholders' equity(f) 38,368 30,778 24,124 18,402
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Fiscal years 1996, 1995, 1994 and year 1993 presented on a 52 or 53 week
basis with the closing on the Saturday nearest to June 30th, and include
British Trimmings since its acquisition in December 1993.
(b) 1992 and prior years are on a calendar year basis.
(c) Proforma US income taxes computed at a combined federal and state tax rate
of 37%. Prior to December 18, 1993, the Company was treated as an S
Corporation for income tax purposes.
(d) 1995 net income includes $913,000 or 13 cents per share for a one-time
carryforward of Jobs Tax Credits.
(e) Proforma average common stock outstanding for the years 1992 and prior have
been adjusted for the 38,568 to 1 stock split effected December 1993 and
for the number of shares which would have been necessary to distribute
accumulated retained earnings at an offering price of $5.00 less issuance
expenses.
(f) Shareholders' equity used in this calculation is historical. Net income used
is proforma using a C Corporation tax provision. The effect on shareholders'
equity is not material since, prior to December 1993, distributions were
made equivalent to the personal income taxes payable by the Company's
shareholders.
37
<PAGE> 21
SELECTED FINANCIAL DATA
---------------
<TABLE>
<CAPTION>
1993(a) 1992(b) 1991(b) 1990(b) 1989(b) 1988(b) 1987(b)
<S> <C> <C> <C> <C> <C> <C>
$ 26,045 $ 23,770 $ 20,972 $ 21,510 $ 21,982 $ 17,633 $ 15,023
8,246 7,580 6,690 6,849 6,607 5,035 4,283
2,805 2,550 2,130 2,418 1,949 1,432 1,034
1,926 1,675 1,141 1,285 792 554 512
713(c) 620(c) 422(c) 475(c) 293(c) 205(c) 189(c)
1,213 1,055 719 810 499 349 323
- --------------------------------------------------------------------------------------------------
4,787 4,787(e) 4,458(e) 4,332(e) 4,227(e) 4,170(e) 4,040(e)
- --------------------------------------------------------------------------------------------------
$ .25(c) $ .22(c) $ .16(c) $ .19(c) $ .12(c) $ .09(c) $ .08(c)
.84 .72 .62 .50 .40 .35 .21
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
31.7% 31.9% 31.9% 31.8% 30.1% 28.6% 28.5%
10.8% 10.7% 10.2% 11.2% 8.9% 8.1% 6.9%
4.7% 4.4% 3.4% 3.8% 2.3% 2.0% 2.2%
31.3% 34.1% 29.3% 41.8% 31.7% 30.2% 45.1%
18.8% 18.3% 16.3% 17.8% 15.1% 13.5% 13.5%
2.4 2.4 2.2 2.4 2.7 2.9 3.4
7.0 7.0 7.2 7.4 8.2 8.1 8.6
1.7 1.7 1.6 1.6 1.7 1.7 2.0
1.5 1.6 1.9 1.7 1.4 1.5 1.0
1.0 1.3 1.8 2.6 3.0 3.8 3.3
3.2 3.3 3.6 5.0 6.7 7.0 9.0
$ 1,408 $ 1,382 $ 278 $ 184 $ 582 $ 820 $ 435
$ 762 $ 730 $ 718 $ 762 $ 653 $ 496 $ 283
$ 3,567 $ 1,785 $ 1,443 $ 1,539 $ 1,152 $ 1,727 $ 1,098
1 1 1 2 2 4 4
654 654 500 535 650 450 375
- --------------------------------------------------------------------------------------------------
$ 4,099 $ 3,916 $ 4,336 $ 3,799 $ 2,198 $ 2,226 $ 74
7,309 7,075 5,675 5,397 5,213 4,555 3,360
(3,556) (3,189) (2,508) (1,877) (1,274) (715) (298)
3,753 3,868 3,167 3,520 3,939 3,840 3,062
16,778 14,972 12,532 13,133 13,025 11,534 8,627
3,930 4,388 4,983 5,578 5,090 5,489 2,470
12,777 11,518 9,800 10,959 11,325 10,089 7,762
4,001 3,454 2,732 2,174 1,700 1,445 865
- --------------------------------------------------------------------------------------------------
</TABLE>
(g) Common stock was not publicly traded prior to December 15, 1993.
(h) Pre-tax income before interest expense divided by average of month-end total
assets.
(i) Cost of goods sold divided by average of month-end total inventories.
(j) Net sales divided by average of month-end receivables.
(k) Excludes the purchase of British Trimmings' assets, the Leek, England
building, the Conso / Graber Canada assets, and Wendy Cushing Ltd. in 1994,
and the purchase of the London production facility and the Claesson assets
in 1996 and the new Conso US warehouse and dyehouse facilities begun in
1997.
(l) Represents earnings before deductions for interest, income taxes,
depreciation and amortization ("EBITDA"), a non-GAAP (generally accepted
accounting principles) measurement. EBITDA is not intended to represent cash
flow from operations as defined by GAAP, and should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows (determined in accordance with GAAP) as a measure of liquidity.
(m) Per share amounts and stock prices have been restated to reflect the 3-for-2
stock splits in October 1995 and 1996 effected in the form of 50% share
dividends.
38
<PAGE> 22
STOCK PRICE & SHAREHOLDER INFORMATION
The Company's common stock is traded on the Nasdaq National Market
under the symbol CNSO. The following table presents the high and the low sales
prices of the common stock reported on the NASDAQ National Market for each
quarter in the fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995 adjusted for the stock splits described in note (b) above. The price
earnings ratio (P/E) has been calculated on annualized earnings per share by
using trailing four quarters' earnings and average of the high and low stock
prices for the quarter.
<TABLE>
<CAPTION>
1997 1996 1995
HIGH LOW P/E HIGH LOW P/E HIGH LOW P/E
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $13.33 $10.00 12.77 $ 7.67 $ 5.78 8.24 $6.45 $5.45 12.05
Second Quarter 14.50 12.25 13.70 12.67 7.11 11.42 6.67 5.31 10.82
Third Quarter 15.50 12.25 13.56 13.17 9.92 14.86 6.78 5.22 8.07
Fourth Quarter 16.25 11.50 14.78 12.00 10.33 12.92 7.00 5.78 8.57
</TABLE>
Approximate number of shareholders of record on August 22, 1997: 141
39
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or other
Jurisdiction of
Incorporation
Name of Organization
- ---- ---------------
British Trimmings Limited (1) England
Itatrim Limited (2) England
MacCulloch & Wallis (London) Limited (2) England
Val-Mex, S.A. de C.V. Mexico
Each Subsidiary does business under its own name.
- ----------------------------------------------------------------------
(1) British Trimmings Limited was acquired by the Registrant on December 22,
1993.
(2) Subsidiary of British Trimmings Limited.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Conso Products Company
We hereby consent to the incorporation by reference into the Company's
Registration Statements on Form S-8 (Registration Nos. 333-20671, 33-97146 and
33-85518) of our report dated September 5, 1997 incorporated by reference in the
Annual Report on Form 10-K of Conso Products Company for the fiscal year ended
June 28, 1997.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Greenville, South Carolina
September 16, 1997
<PAGE> 1
EXHIBIT 23.2
[Grant Thornton Letterhead]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We have issued our report dated 5 September 1997, accompanying the
consolidation package expressed in pounds sterling consisting of the
consolidated balance sheet at 28 June 1997 and the related consolidated
statements of income and cashflow of British Trimmings Limited for the year
ended 28 June 1997 for the purpose of inclusion in the consolidated financial
statements of Conso Products Company for the fiscal year ended 28 June 1997. We
hereby consent to the incorporation by reference of said report on forms S-8
(file nos 333-20671, effective 29 January 1997, 33-97146, effective
20 September 1995 and 33-85518, effective 20 October 1994.
/s/ Grant Thornton
MANCHESTER
UNITED KINGDOM
17 September 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CONSO PRODUCTS COMPANY AND ITS
SUBSIDIARIES FOR THE YEAR ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 489,580
<SECURITIES> 0
<RECEIVABLES> 12,058,358
<ALLOWANCES> 310,876
<INVENTORY> 25,339,936
<CURRENT-ASSETS> 38,629,379
<PP&E> 25,048,565
<DEPRECIATION> (8,485,714)
<TOTAL-ASSETS> 56,559,401
<CURRENT-LIABILITIES> 17,656,078
<BONDS> 0
0
0
<COMMON> 16,970,175
<OTHER-SE> 21,397,964
<TOTAL-LIABILITY-AND-EQUITY> 56,559,401
<SALES> 73,447,466
<TOTAL-REVENUES> 73,447,466
<CGS> 45,624,125
<TOTAL-COSTS> 45,624,125
<OTHER-EXPENSES> 16,305,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 497,546
<INCOME-PRETAX> 11,020,403
<INCOME-TAX> 3,993,233
<INCOME-CONTINUING> 7,027,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,027,170
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
</TABLE>
