ITEM 1. BUSINESS
O'Sullivan Corporation began business in 1896 as O'Sullivan Rubber Company in Lowell, Massachusetts as a manufacturer of rubber heels for the shoe industry. In 1932 the business was moved to Winchester, Virginia. In September, 1945 a corporation named O'Sullivan Rubber Corporation was formed to acquire O'Sullivan Rubber Company, Inc. In 1970, the Corporation changed its name to O'Sullivan Corporation to reflect the increasing importance of plastics in the business mix.
During the 1970's and 1980's the Corporation added significant capacity in the plastic calendering part of its business operations by the addition of a calender in Lebanon, Pennsylvania and by the creation of two subsidiary corporations (Regalite Plastics Corporation located in Newton Upper Falls, Massachusetts and O'Sullivan Plastics Corporation located in Yerington, Nevada) to acquire calendering facilities at those locations. During 1988 the Corporation began construction of an additional calendering facility in Winchester, Virginia. The facility began operation during 1991. Due to several market related factors, this facility operated at production levels significantly below its projected capacity during 1992. In 1993 and 1994 the facility operated at profitable levels due to improved market conditions and overall improvements in manufacturing processes and capacity utilization. Other calendering facilities of the Corporation have continued to operate at profitable levels. Management is confident that this portion of the Corporation's operations will continue to operate at profitable levels based on available capacity and business.
In 1986, in response to foreign competitive pressures and decisions to concentrate on other areas of the business, the Corporation sold its rubber manufacturing operations to the Vulcan Corporation and exited the rubber heel and sole business.
In 1989 the Corporation purchased seventy acres of land in Huron, Ohio and subsequently constructed a 175,000 square foot facility to house an injection-molding operation to complement those then in operation in Virginia. The facility began operations during the third quarter of 1990. Due primarily to customer driven program delays this facility operated well below optimum capacity levels during 1991 and 1992. In 1993 the Huron facility continued to perform far below management expectations and predetermined production standards. This plant was the most complex of all O'Sullivan Corporation injection molding operations because of "In Line Vehicle Sequencing", a highly advanced stage of the "Just In Time" concept of delivering parts to the customer. The impact of this system created unexpected inefficiencies due to volatile swings in scheduling driven by significant changes in customer demand. Coupled with sales volumes significantly lower than expected, the inefficiencies resulted in markedly higher production costs. To address these problems, the Corporation added additional machinery and warehouse space to enhance efficiency by operating equipment for longer production runs at more efficient rates and aggressively pursued incremental business for the Huron operation.
- 2 - ITEM 1. BUSINESS (Continued)
In 1992 the Corporation made a significant departure from its traditional line of business activity by entering into a consumer products oriented business through the acquisition of substantially all the assets of Melnor Industries, Inc., including its wholly-owned Canadian subsidiary, Melnor Manufacturing, Ltd. The resulting corporation, known as Melnor Inc., includes the Canadian subsidiary, and operates as a wholly-owned subsidiary of O'Sullivan Corporation. With the formation of Melnor Inc., the Corporation acquired a well known brand name in water sprinkler systems and other lawn and garden products. This business acquisition will not only provide for diversification of the Corporation's business, but will also provide a means to develop, manufacture and market non-automotive related products through an established distribution system. During 1992, Melnor Inc. did not materially impact total operating results since it was in operation for only a short part of the year having been formed on November 24, 1992. During 1993 profit objectives were not achieved, although management believes significant improvements were made in materials management and in controlling other operating costs. Sales for 1993 were negatively impacted by extremely unfavorable weather conditions in the Eastern and Mid-West United States. Sales and earnings for 1994 showed significant improvement compared to 1993. Currently, the outlook for the consumer products business segment is promising for 1995 and management expects increased sales volumes and profits to continue.
On April 1, 1993, the Corporation acquired Capitol Plastics of Ohio, Inc. The acquired entity is a custom injection molding manufacturing operation with one plant located in Bowling Green, Ohio. Capitol Plastics operated as a wholly-owned subsidiary of the Corporation and became part of the Plastics Products business segment. During 1993, Capitol Plastics experienced depressed sales and earnings due to lower than expected sales of 1993 model year vehicles and difficulties with the launch of new programs with its major customer, Honda. Results for 1994 were greatly improved due to improved sales volumes and the resolution of costs involved with the launch of new programs.
In December, 1994 the Corporation sold its injection molding operations (the Gulfstream Division including Capitol Plastics of Ohio, Inc.) to Automotive Industries Holdings, Inc. The sale involved primarily the property, plant and equipment and inventories associated with the injection molding operations located in Winchester and Luray, Virginia and Huron, Ohio as well as the capital stock of Capitol Plastics of Ohio, Inc., also an injection molding facility. Supplier pressures and the prohibitive costs involved with achieving the size necessary to become a major supplier in the injection molding trim business led management to believe it would be in the long-term interest of the Corporation to divest itself of its involvement in the injection molding business and concentrate its resources on calendering operations and the growing opportunities in the consumer products business. The divestiture of the injection molding operations involved the sale of assets with a book value of approximately $50 million net of certain liabilities assumed by the purchaser.
- 3 - ITEM 1. BUSINESS (Continued)
The Corporation's operations are classified principally in two business segments: Calendered Plastics Products ("Plastics Products") and Lawn and Garden Consumer Products ("Consumer Products"). The Plastics Products segment is involved primarily with the manufacture of calendered plastics products for the automotive and specialty plastics manufacturing industries. The Consumer Products segment primarily involves the manufacture and distribution of a wide range of lawn and garden products. Operating profits for each segment represent net sales for the segment less operating expenses specific to each segment and exclude general corporate expenses and non- operating income and expenses. Identifiable assets for each segment represent those assets used in the segment's operations and exclude general corporate assets. General corporate assets are identified as cash and cash equivalents, investments and other non-operating assets.
Net sales for the Plastics Products segment (from continuing operations) to the divisions and subsidiaries of Ford Motor Company amounted to $24,385,299 (12.5% of net sales) in 1994, $13,374,601 (7.7% of net sales) in 1993 and $9,123,228 (7.3% of net sales) in 1992.
Business Segment Information
Net Sales By Class of 1994 1993 1992 Similar Products ------------ ------------ ------------ Plastics Products $149,438,108 $132,832,228 $123,374,078 Consumer Products 45,536,156 40,513,273 2,402,836 (a) ------------ ------------ ------------ $194,974,264 $173,345,501 $125,776,914 ============ ============ ============
Operating Profit (Loss) Plastics Products $ 21,630,468 $ 23,085,147 $ 17,630,963 Consumer Products 4,282,552 2,057,052 (279,775)(a) ------------ ------------ ------------ Total Operating Profit $ 25,913,020 $ 25,142,199 $ 17,351,188 General Corporate Expenses 7,289,802 7,184,538 4,173,799 Non-operating Revenue(Expense) (512,739) (628,511) 533,988 ------------ ------------ ------------ Income From Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Changes $ 18,110,479 $ 17,329,150 $ 13,711,377 ============ ============ ============
Identifiable Assets Plastics Products $ 92,203,867 $ 99,706,260 $ 81,522,707 Consumer Products 27,318,222 25,394,702 23,560,028 ------------ ------------ ------------ Total Identifiable Assets $119,522,089 $125,100,962 $105,082,735 General Corporate Assets 25,006,799 19,264,457 16,913,921 ------------ ------------ ------------ Total Assets-Continuing Operations $144,528,888 $144,365,419 $121,996,656 ============ ============ ============
- 4 - ITEM 1. BUSINESS (Continued)
1994 1993 1992 Capital Expenditures(b) ------------ ------------ ------------ Plastics Products $ 7,477,833 $ 15,193,167 $ 6,384,938 Consumer Products 1,205,377 1,351,516 32,502 (a) General Corporate 67,986 86,531 299,654 ------------ ------------ ------------ Total Capital Expenditures $ 8,751,196 $ 16,631,214 $ 6,717,094 ============ ============ ============
Depreciation and Amortization (b) Plastics Products $ 8,644,205 $ 9,651,506 $ 9,164,057 Consumer Products 1,719,307 1,402,596 104,520 (a) General Corporate 503,763 384,268 354,635 ------------ ------------ ------------ Total Depreciation and Amortization $ 10,867,275 $ 11,438,370 $ 9,623,212 ============ ============ ============
(a) Includes activity only from acquisition of business at November 24, 1992 through December 31, 1992.
(b) Includes activity from discontinued operations.
The Corporation's Plastics Products segment manufactures calendered plastics products for the automotive and specialty plastics manufacturing industries. Distribution is by direct sales to manufacturers and distributors. Calendered plastic products manufactured include vinyl sheeting for vehicular dashboard pads, swimming pool liners and covers, notebook binders, luggage, upholstered furniture, golf bags, floor tile, pond liners, protective clothing, mine curtains, boat and automobile windows and medical grade materials.
All essential raw materials are readily available to the Plastics Products segment of the Corporation. For the most critical raw materials, the Corporation has secondary sources of supply if required. Major suppliers of raw materials to this segment include the following: Geon Company, Occidental Chemical, Aristech Chemicals, Witco Corporation, Goodyear Tire & Rubber Company, Penn Colors, Toray and Emery Group.
The Plastics Products segment of the Corporation possesses significant technology in the compounding, formulation and manufacture of its products.
The business of the Plastics Products segment of the Corporation is not seasonal.
A significant customer of the Plastics Products segment accounting for ten percent or more of the segment's 1994 sales was Ford Motor Company.
- 5 - ITEM 1. BUSINESS (Continued)
The normal production backlog of the Plastics Products segment is approximately thirty to forty five days. The Corporation has long- term contracts totaling several million dollars for this segment, but orders are not considered firm until specific production releases are received from customers.
The Plastics Products segment products are sold in markets in which there is competition from many plastic manufacturers, both domestic and foreign. While no single competitor offers all of the products produced by this segment, there are many competitors for any single product. Some of the segment's major competitors are Canadian General Tower, Gencorp Inc., Achilles USA Inc., Nanya Plastics Corporation, Intex Plastics Corporation, Borden, Inc. and HPG International, Inc.
The Corporation's Consumer Products segment began with the formation of Melnor Inc. in November, 1992. The primary activity of the segment is the manufacture, assembly, sale and distribution of home lawn and garden products. The products produced and sold by the segment include: Oscillating, rotary and traveling sprinklers, hose storage units, watering timers, aqua guns and air spray tanks and snow shovels. Secondary product lines representing less than ten percent of sales volumes include humidification systems and buy-sell distribution of ceiling fans and thermostats. Distribution of the segment's products is by direct sale to distributors and direct retail outlets.
All essential raw materials are readily available to this segment. Some raw materials are supplied by foreign sources, but they are not of significant volume and can be obtained from alternative sources if necessary. Purchased components are generally designs that are readily available from several markets. Major suppliers to this segment include: Diehl PTE, Stax Ltd., Landen Enterprises, Armada Tool Works, CPC of Vermont, Himont Canada and Alvera Manufacturing.
The Consumer Products segment of the Corporation holds many patents and trademarks for products produced and sold by the segment. Due to the nature of the segment's business activity, the Corporation does not believe that the nature of these patents and trademarks is significant to the long-term success of the segment's operations.
The business of the Consumer Products segment is seasonal in nature. Lawn and garden products are traditionally shipped to distribution and retail outlets commencing in late December and early January through the following May.
Home Depot, Inc. was the only customer of this segment accounting for ten percent or more of the segment's sales for 1994.
The products of this segment are sold in markets in which there is competition from many lawn and garden products suppliers. While no one competitor offers the product lines offered by this segment, there are a significant number of competitors for specific products. Major competitors include: Rain Bird Corporation, Suncast Company, Gilmour Corporation and Nelson Company.
- 6 - ITEM 1. BUSINESS (Continued)
No material effects upon the capital expenditures, earnings and competitive position of the Corporation are anticipated to result from the enactment or adoption of federal, state or local environmental regulations. During 1994 the Corporation completed the construction of a regenerative thermal oxidizer at its Winchester, Virginia location, at a cost of approximately $3.5 million. The equipment is designed to control certain emissions in compliance with various regulations. No major capital expenditures for environmental control facilities are anticipated for the immediate future.
The Corporation currently employs approximately 1,100 full-time employees.
The Corporation is not engaged in any material transactions with customers or suppliers located in foreign countries.
ITEM 2.
ITEM 2. PROPERTIES
O'Sullivan Corporation owns approximately 663,000 square feet of manufacturing, warehouse and office space on approximately 123 acres in Winchester, Virginia; 76,000 square feet of manufacturing, warehouse and office space on six acres in Lebanon, Pennsylvania; 110,000 square feet of manufacturing and warehouse space on approximately five acres in Newton Upper Falls, Massachusetts; 85,000 square feet of manufacturing and warehouse space on thirteen acres in Yerington, Nevada; 82,000 square feet of manufacturing, warehouse and office space on approximately seven acres in Brantford, Ontario, Canada.
The Corporation currently leases 29,250 square feet of warehouse space in St Louis, Missouri; 15,600 of warehouse space in Bell (Los Angeles), California; 10,000 square feet of warehouse space in Yerington, Nevada and 347,000 square feet of manufacturing, warehouse and office space in Moonachie, New Jersey. The Corporation also has a sales office located in Chicago, Illinois.
The percentage utilization of the Corporation's manufacturing facilities is difficult to measure due primarily to the Corporation's system of adding property, plant and equipment as required by business conditions. Management believes that unused capacity existed in both segments of the Corporation's operations during 1994.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1994, O'Sullivan Corporation and its Subsidiaries had no material proceedings pending to which the Corporations were a party or of which any of their property was the subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
See information provided under Part III, Item 10, included in this Form 10-K.
- 7 - PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The principal market on which the Corporation's common stock is traded is the American Stock Exchange.
The table below presents the high and low market prices and dividend information for the Corporation's common shares for 1994 and 1993.
Price Range Cash High Low Dividend
1994 First Quarter 10 5/8 8 7/8 .07 Second Quarter 10 5/8 8 7/8 .07 Third Quarter 10 5/8 8 7/8 .07 Fourth Quarter 10 3/8 8 7/8 .07
1993 First Quarter 11 7/8 9 1/4 .07 Second Quarter 12 5/8 9 5/8 .07 Third Quarter 12 10 .07 Fourth Quarter 11 3/8 8 1/2 .07
The approximate number of shareholders as of December 31, 1994 was 3,000.
No change is anticipated regarding the Corporation's dividend policy.
There are no restrictions on the payment of dividends at the current time.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA (FROM CONTINUING OPERATIONS)
1994 1993 1992 1991 1990 ------------ ------------ ------------ ------------ ------------ Net sales $194,974,264 $173,345,501 $125,776,914 $114,368,326 $104,590,821
Net income 10,974,970 10,382,400 8,407,638 8,498,059 7,465,850
Net income per common share 0.67 0.63 0.51 0.52 0.45
Total assets 144,528,888 144,365,419 121,996,656 101,144,600 104,596,655
Long-term debt 1,652,995 1,501,834 4,871,664 19,719 214,100
Total debt 1,705,069 13,518,543 12,132,365 248,197 462,297
Cash dividends per common share 0.28 0.28 0.28 0.28 0.28
Return on Equity 10.1% 10.0% 8.6% 8.5% 8.3%
- 8 - ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
O'Sullivan Corporation's consolidated financial statements represent the combination of two principal manufacturing business segments. The primary segment of the Company is the plastics products business segment. This segment manufactures calendered and molded plastics products for the automotive and specialty plastics manufacturing industries. On November 24, 1992 O'Sullivan Corporation acquired substantially all of the assets of Melnor Industries, Inc. and its wholly-owned subsidiary Melnor Manufacturing, LTD. With this acquisition, O'Sullivan Corporation entered the consumer products manufacturing, marketing and distribution business which represents its second business segment. The new Company, which is a wholly-owned subsidiary of O'Sullivan Corporation, is now called Melnor Inc. and has as its wholly-owned subsidiary Melnor Canada, LTD. The principal source of income for the Company is from sales of those products produced by each business segment to manufacturers, distributors and retail outlets.
On October 3, 1994 the Company announced that it had signed a letter of intent with Automotive Industries, Inc. concerning the sale of the Company's Gulfstream Division. On December 2, 1994 the Company closed the transaction and as a result of this activity exited the injection molding business. The assets sold as a result of this transaction consisted primarily of property, plant and equipment, inventories and the capital stock of Capitol Plastics of Ohio, Inc. The accompanying consolidated financial statements have been adjusted and comparable periods restated to reflect the sale of the Gulfstream Division's assets. Additional information on discontinued operations is disclosed in footnote 16. The discussion that follows focuses on continuing operations.
Consolidated net sales on continuing operations for the year ended December 31, 1994 were $195.0 million, compared to $173.3 million in 1993, up 12.5%. Sales increases were primarily volume related. Although non automotive price increases were implemented, continued downward pricing pressure was prevalent throughout the industries supplied by the Company's operating business segments. This was particularly true in the plastics products business segment which supplies products for the domestic automobile industry. Overall sales growth on continuing operations was evenly distributed between business operating segments.
Consolidated net income from continuing operations for the year ended December 31, 1994 increased 5.7% from $10.4 million in 1993 to $11.0 million in 1994. Although the Company experienced modest earnings increases on continuing operations for the year ended December 31, 1994, earnings expectations for the year were not realized. The primary negative effect on earnings was the Company's inability to pass increased raw material costs through to its customer base in a timely manner. In some instances this was the result of competitive pressures. However, contractual restrictions also prohibited the Company from matching necessary price increases with the associated cost increases. These restrictions permit price changes reflecting raw material market conditions once per year on January 1st. Under certain circumstances where unusually severe fluctuations in raw
- 9 - material costs cause economic hardship, prices may be adjusted more frequently. As a result of these issues operating profits were negatively affected during the third and fourth quarters of 1994. The Company has subsequently implemented price increases to its customer base in the month of January, 1995 and expects earnings to improve as a result.
O'Sullivan Corporation's plastic products business segment accounted for 76.6% of the consolidated net sales from continuing operations for the year ended December 31, 1994. Sales increased 12.5% on continuing operations from $132.8 million in 1993 to $149.4 million in 1994. Sales increases experienced by the plastics products business segment were primarily volume related as competitive and contractual restrictions prohibited significant price increases during 1994. For the year ended December 31, 1994, the plastics product business segment contributed $17.2 million in pre-tax net income on continuing operations compared to $18.8 million for the same period last year, down 8.7% . The primary reason for the decline in pre-tax net income for the plastics products business segment was the decline in gross profits experienced during the third and fourth quarters of 1994. Gross profits for the year ended December 31, 1994 on continuing operations were $27.8 million, compared to $28.2 million in 1993. The plastics products business segment's cost of goods sold increased 16.1% on sales increases of 12.5% which resulted in reduced gross profit of $3.7 million when compared to last year. Costs of goods sold for the plastics products segment represented 81.4% of each sales dollar for the year ended December 31, 1994 compared to 78.8% for the same period last year. The increase in costs of goods sold was negatively influenced by raw material costs and mixed compound costs increasing substantially faster than the Company's ability to pass price increases through to its customer base and the start up costs associated with new and improved flexible vinyl sheeting compounds necessary to launch new programs in 1995. The Company has introduced price increases to its customer base during the month of January, 1995 and is confident that the start up problems which negatively affected profits have been addressed. Selling and warehousing expenses associated with the plastics products business segment increased 23.3% during 1994 when compared to the same period last year. During 1994, selling and warehousing expenses represented 4.2% of each sales dollar compared to 3.8% during 1993. The primary reason for the increase was the result of increased bad debt expense associated with the financial failure of two long standing bookbinding customers during the last half of 1994. Currently the Company expects 1995 sales revenue in the plastics products business segment to exceed the rate of growth recorded during 1994. The greatest potential for increased sales volume will come from those products produced by the Company for the domestic automobile industry, with modest growth in other product lines within this business segment.
The Company's consumer products segment was established with the acquisition of Melnor Inc., in November 1992. The primary activity of the consumer products segment is the manufacture, sale and distribution of home lawn and garden watering products to distributors and retail outlets. Net sales for the consumer products segment accounted for 23.4% of consolidated net sales from continuing operations for the year ended December 31, 1994. Net sales increased 12.4% from $40.5 million in 1993 to $45.5 million in 1994. The
- 10 - increase in net sales revenue was due primarily to volume related market penetration rather than to increased sales prices. For the year ended December 31, 1994, the consumer products segment contributed $916 thousand in pre-tax profits, compared to a pre-tax loss of $1.5 million for the same period last year, up 161%. The major contributing factor to this increase was the overall reduction of overhead expenses, primarily salaries and benefits and the more efficient utilization of the resources available to the Company. Selling and warehousing expenses inclusive of bad debt expense represented 12.9% and 14.1% of each sales dollar for the years ended December 31,1994 and 1993 respectively. Currently, the outlook for the consumer products business segment is promising for the fiscal year 1995, and management expects increased sales volumes and profits to continue.
Consolidated corporate administration expenses from continuing operations increased 1.5% for the period ended December 31, 1994 compared to the same period last year. As a percent of net sales, general corporate administrative expenses represented 3.7% of each sales dollar in 1994 compared to 4.1% for the same period last year. Due to the sale of the Company's Gulfstream injection molding business in December,1994 the Company has and is currently evaluating the structure of the Company's administrative functions in order to maximize utilization of its resources.
Consolidated non-operating net expense on continuing operations decreased 18.4% during the year ended December 31, 1994 when compared to the same period last year, primarily due to lower amounts of external debt necessary to finance the companies associated with the consumer products business segment.
Consolidated capital spending decreased 47.3% during 1994. For the year ended December 31, 1994 the Company invested $8.8 million in new property, plant and equipment compared to $16.6 million during 1993. Planned capital expenditures for 1995 in both the plastics products business segment and the consumer products business segment are expected to be equal to or slightly greater than the amounts spent during 1994. Currently the Company has additional capacity in both the plastics products and consumer products business segment operations. As has been the Company's practice, additions to property, plant and equipment are implemented when additional business cannot be absorbed into existing facilities or product specifications require new and improved technology.
Total consolidated debt for the Company decreased $49.8 million for the period ended December 31, 1994, when compared to the same period last year. With the proceeds from the sale of the Gulfstream Division the Company was able to retire all of its short and long-term debt obligations for O'Sullivan Corporation and its wholly owned subsidiary Melnor Inc., with the exception of two zero-coupon notes and capital lease obligations of Melnor Inc., totaling $1.7 million, which by definition will not be paid until their respective due dates. During the month of June 1994 the Company renegotiated its $25.0 million unsecured line of credit with its principal bank, First Union National Bank of Virginia. The new unsecured line of credit is now $35.0 million and has a maturity date of June 30, 1997. The purpose of increasing this line of credit was to insure adequate capital for
- 11 - corporate liquidity, finance growth of trading assets, and to finance capital expenditures and acquisitions. With the current cash investments and lines of credit that are available, the Company believes that working capital requirements for the short and long-term are currently adequately provided for.
At the close of 1994, even with the loss recorded on the sale from discontinued operations, the Company's financial condition and liquidity remained strong, with shareholder's equity at 73.8% of total assets. Current assets compared to current liabilities were 2.9 to 1. Total debt to equity of the Company was 1.6%. Equity, although down $2.1 million from December 31, 1993, due to the loss recorded on the sale from discontinued operations, was still at $106.6 million.
- 12 - ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This page left blank intentionally. See following pages for financial statements.
- 13 -
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of O'Sullivan Corporation
We have audited the accompanying consolidated balance sheets of O'Sullivan Corporation and Subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1994, 1993 and 1992. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of O'Sullivan Corporation and Subsidiaries as of December 31, 1994 and 1993 and the results of their operations and their cash flows for the years ended December 31, 1994, 1993 and 1992.
/s/ YOUNT, HYDE & BARBOUR, P. C.
Winchester, Virginia February 3, 1995
- 14 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993
ASSETS 1994 1993 Current Assets ------------ ------------ Cash and cash equivalents $ 9,701,801 $ 2,830,015 Receivables 40,367,968 50,178,989 Inventories 32,475,205 29,931,709 Deferred income tax assets 2,642,523 1,492,746 Other current assets 3,485,292 2,562,069 ------------ ------------ Total current assets $ 88,672,789 $ 86,995,528 ------------ ------------ Property, Plant and Equipment $ 44,605,639 $ 44,627,362 ------------ ------------ Intangibles $ 751,609 $ 1,017,266 ------------ ------------ Other assets Net assets of discontinued operations $ -- -- $ 52,994,219 Other 10,498,851 11,725,263 ------------ ------------ Total other assets $ 10,498,851 $ 64,719,482 ------------ ------------ Total assets $144,528,888 $197,359,638 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ -- -- $ 8,483,977 Current portion of long-term debt 52,073 3,532,732 Accounts payable 16,729,891 21,547,304 Accrued expenses 13,941,121 10,452,305 ------------ ------------ Total current liabilities $ 30,723,085 $ 44,016,318 ------------ ------------ Long-Term Debt $ 1,652,996 $ 39,501,834 ------------ ------------ Other Long-Term Liabilities $ 2,006,974 $ 1,691,753 ------------ ------------ Deferred Income Tax Liabilities $ 3,503,530 $ 3,396,370 ------------ ------------ Commitments and Contingencies $ -- -- $ -- -- ------------ ------------ Shareholders' Equity Common stock, par value $1.00 per share; authorized 30,000,000 shares $ 16,484,831 $ 16,484,948 Additional paid-in capital 9,963,516 9,964,574 Retained earnings 80,539,058 82,524,869 Cumulative translation adjustments (345,102) (101,732) Unrecognized pension costs, net of deferred tax effect -- -- (119,296) ------------ ------------ Total shareholders' equity $106,642,303 $108,753,363 ------------ ------------ Total liabilities and shareholders' equity $144,528,888 $197,359,638 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. - 15 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992 ------------ ------------ ------------ Net sales $194,974,264 $173,345,501 $125,776,914 Cost of products sold 156,984,225 137,453,119 102,918,575 ------------ ------------ ------------ Gross profit $ 37,990,039 $ 35,892,382 $ 22,858,339 ------------ ------------ ------------ Operating expenses Selling and warehousing $ 12,077,019 $ 10,750,183 $ 5,507,151 General and administrative 7,289,802 7,184,538 4,173,799 ------------ ------------ ------------ $ 19,366,821 $ 17,934,721 $ 9,680,950 ------------ ------------ ------------ Income from operations $ 18,623,218 $ 17,957,661 $ 13,177,389 ------------ ------------ ------------ Other income (expense) Interest expense $ (811,676) $ (877,834) $ (75,555) Other, net 298,937 249,323 609,543 ------------ ------------ ------------ $ (512,739) $ (628,511) $ 533,988 ------------ ------------ ------------ Income from continuing operations before income taxes and cumulative effect of accounting changes $ 18,110,479 $ 17,329,150 $ 13,711,377
Income taxes 7,135,509 6,946,750 5,303,739 ------------ ------------ ------------ Income from continuing operations before cumulative effect of accounting changes $ 10,974,970 $ 10,382,400 $ 8,407,638 ------------ ------------ ------------ Discontinued operations: Income (loss) from discontinued operations, net of taxes $ (125,126) $ (673,282) $ 2,394,774 Loss on disposal of discontinued operations, net of taxes (8,220,000) -- -- -- -- ------------ ------------ ------------ $ (8,345,126) $ (673,282) $ 2,394,774 ------------ ------------ ------------ Income before cumulative effect of accounting changes $ 2,629,844 $ 9,709,118 $ 10,802,412
Cumulative effect of accounting changes -- -- 305,338 -- -- ------------ ------------ ------------ Net income $ 2,629,844 $ 10,014,456 $ 10,802,412 ============ ============ ============
- 16 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1994, 1993 and 1992 (Continued)
1994 1993 1992 Net income per common share: ------------ ------------ ------------ Income from continuing operations $ 0.67 $ 0.63 $ 0.51 Income (loss) from discontinued operations (0.01) (0.04) 0.15 (Loss) on disposal of discontinued operations (0.50) -- -- -- -- Cumulative effect of accounting changes -- -- 0.02 -- -- ------------ ------------ ------------ Net income per common share $ 0.16 $ 0.61 $ 0.66 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
- 17 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992 ------------ ------------ ------------ Cash Flows from Operating Activities Net income $ 2,629,844 $ 10,014,456 $ 10,802,412 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,867,275 11,438,370 9,623,212 Provision for doubtful accounts 1,138,617 209,719 710,443 Deferred income taxes (6,064,033) 938,091 410,313 Loss on disposal of assets 10,964,763 210,128 72,906 Interest accrual on zero coupon notes 138,864 116,657 6,121 Cumulative effect of accounting changes -- -- (305,338) -- -- Provision for restructuring and withdrawal of non-productive assets -- -- (969,251) -- -- Changes in operating assets and liabilities net of effect of acquisition of business: Receivables 8,340,071 (14,970,510) 1,638,544 Inventories (2,702,071) (4,192,871) (5,139,325) Other current assets (1,169,491) (967,404) 419,735 Accounts payable (4,791,149) 3,601,697 (2,080,612) Accrued expenses 4,023,149 (545,949) 1,159,646 ------------ ------------ ------------ Net cash provided by operating activities $ 23,375,839 $ 4,577,795 $ 17,623,395 ------------ ------------ ------------ Cash Flows from Investing Activities Purchase of property, plant and equipment $ (8,751,196) $(16,631,214) $ (6,717,094) Purchase of intangible assets (211,275) (249,723) -- -- Acquisition of business, less cash acquired -- -- (1,153,643) (5,708,695) Disbursements on non-operating notes receivable (150,000) -- -- -- -- Payments received from non- operating notes receivable 250,894 729,176 624,119 Proceeds from disposal of assets 46,655,229 127,917 354,123 Other, net 425,293 (244,613) (374,377) ------------ ------------ ------------ Net cash provided by (used in) investing activities $ 38,218,945 $(17,422,100) $(11,821,924) ------------ ------------ ------------
- 18 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1994, 1993 and 1992 (Continued)
1994 1993 1992 ------------ ------------ ------------ Cash Flows from Financing Activities Changes in short-term debt $ (8,483,977) $ 1,734,995 $ 4,300,558 Cash overdraft reduction -- -- -- -- (413,615) Net change in line of credit borrowings (13,000,000) (7,500,000) 7,000,000 Proceeds from long-term debt -- -- 25,000,000 -- -- Repayment of long-term debt (28,546,368) (2,152,412) (500,000) Principal payments under capital lease obligations (75,939) (65,338) (270,256) Cash dividends paid (4,615,539) (4,615,743) (4,615,791) Purchase of common stock (1,175) (3,504) (550) Advance payments (repayments) from customers -- -- -- -- (9,729,529) ------------ ------------ ------------ Net cash provided by (used in) financing activities $(54,722,998) $ 12,397,998 $ (4,229,183) ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents $ 6,871,786 $ (446,307) $ 1,572,288 ------------ ------------ ------------ Cash and cash equivalents at beginning of year $ 2,830,015 $ 3,545,943 $ 1,973,655 Less cash and cash equivalents of discontinued operations -- -- (269,621) -- -- ------------ ------------ ------------ Cash and cash equivalents of continuing operations at beginning of year $ 2,830,015 $ 3,276,322 $ 1,973,655 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 9,701,801 $ 2,830,015 $ 3,545,943 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
- 19 - O'SULLIVAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1994, 1993 and 1992
Additional Common Paid-in Retained Stock Capital Earnings ------------ ------------ ------------ Balance at January 1, 1992 $ 16,485,328 $ 9,968,248 $ 70,939,503 Net income -- -- -- -- 10,802,412 Purchase of common stock (60) (490) -- -- Dividends declared, $.28 per share -- -- -- -- (4,615,784) Translation adjustments -- -- -- -- -- -- ------------ ------------ ------------ Balance at December 31, 1992 $ 16,485,268 $ 9,967,758 $ 77,126,131 Net income -- -- -- -- 10,014,456 Purchase of common stock (320) (3,184) -- -- Dividends declared, $.28 per share -- -- -- -- (4,615,718) Translation adjustments -- -- -- -- -- -- Unrecognized pension costs -- -- -- -- -- -- ------------ ------------ ------------ Balance at December 31, 1993 $ 16,484,948 $ 9,964,574 $ 82,524,869 Net income -- -- -- -- 2,629,844 Purchase of common stock (117) (1,058) -- -- Dividends declared, $.28 per share -- -- -- -- (4,615,655) Translation adjustments -- -- -- -- -- -- Unrecognized pension costs -- -- -- -- -- -- ------------ ------------ ------------ Balance at December 31, 1994 $ 16,484,831 $ 9,963,516 $ 80,539,058 ============ ============ ============
Cumulative Unrecognized Translation Pension Shareholders' Adjustments Costs Equity ------------ ------------ ------------ Balance at January 1, 1992 $ -- -- $ -- -- $ 97,393,079 Net income -- -- -- -- 10,802,412 Purchase of common stock -- -- -- -- (550) Dividends declared, $.28 per share -- -- -- -- (4,615,784) Translation adjustments 34,085 -- -- 34,085 ------------ ------------ ------------ Balance at December 31, 1992 $ 34,085 $ -- -- $103,613,242 Net income -- -- -- -- 10,014,456 Purchase of common stock -- -- -- -- (3,504) Dividends declared, $.28 per share -- -- -- -- (4,615,718) Translation adjustments (135,817) -- -- (135,817) Unrecognized pension costs -- -- (119,296) (119,296) ------------ ------------ ------------ Balance at December 31, 1993 $ (101,732) $ (119,296) $108,753,363 Net income -- -- -- -- 2,629,844 Purchase of common stock -- -- -- -- (1,175) Dividends declared, $.28 per share -- -- -- -- (4,615,655) Translation adjustments (243,370) -- -- (243,370) Unrecognized pension costs -- -- 119,296 119,296 ------------ ------------ ------------ Balance at December 31, 1994 $ (345,102) $ -- -- $106,642,303 ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements. - 20 - O'SULLIVAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
Principles of Consolidation-The consolidated financial statements include the accounts and transactions of the Corporation and all of its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents-The Corporation considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
Receivables and Concentration of Credit Risk-Receivables from trade customers are generally due within thirty to sixty days. The Corporation performs periodic reviews of its major customers' financial condition and grants trade credit based upon evaluations of the credit worthiness of each customer. Credit losses have been within the expectations of management. Receivables are presented net of an allowance for doubtful accounts of $884,467 at December 31, 1994 and $1,133,793 at December 31, 1993. Accounts receivable balances for automotive related business at December 31, 1994 and 1993 were $9,507,357 and $8,688,543, respectively.
Inventories-Inventories are valued at the lower of cost or market, with cost being determined substantially by the first-in, first-out or average cost method.
Property, Plant and Equipment and Depreciation-Property, plant and equipment are stated at historical cost, adjusted to current exchange rates where applicable. Depreciation is computed primarily by the straight-line method over the estimated useful lives of assets. The estimated useful lives are twenty to forty years for buildings and three to fourteen years for machinery and other equipment. Accelerated methods of depreciation are utilized for tax purposes. Expenditures for repairs and maintenance are charged to operations as incurred. Betterments and improvements that extend the useful life of an asset are capitalized. Upon sale and other dispositions of assets, the cost and related accumulated depreciation is removed from the accounts and the resulting gain or loss is reflected in operations.
Intangibles-Intangible assets are stated at cost less accumulated amortization. Amortization is determined on a straight-line basis over the estimated useful lives of the assets that have been determined to range from two to seven years. Amortization expense for 1994, 1993 and 1992 was $447,770, $197,224 and $13,047, respectively.
Income Taxes-Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax
- 21 - assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Reference should also be made to Note 7 regarding a change in the method in accounting for income taxes.
Research and Development-Product and process research and development are charged to expense as incurred.
Per Share Information-Net income and dividends per share were calculated on the weighted average common shares outstanding for 1994, 1993 and 1992 which were 16,484,879, 16,485,103 and 16,485,323, respectively. Stock options were not dilutive for 1994, 1993 or 1992.
Foreign Currency Translation-Financial statements for the Corporation's foreign subsidiary are translated into U.S. dollars at year-end exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded in shareholders' equity. Transaction gains and losses are reflected in net income.
Pension Plans-The Corporation and its subsidiaries have retirement plans that cover substantially all employees who meet certain eligibility requirements. Employees not covered under a retirement plan maintained by the Corporation and its subsidiaries are generally participants in multiemployer plans sponsored by other entities. The plans include non-contributory defined benefit plans providing benefits to certain salaried employees based on years of service and final years' average earnings and to certain hourly employees based on a dollar unit multiplied by years of eligible service. The Corporation's policy is to fund at least the minimum amounts required by the applicable governing bodies.
The Corporation also maintains a Retirement Savings Plan ("Plan") to provide retirement benefits to employees not covered by a defined benefit plan. The Plan provides that the Corporation will make a basic contribution of three percent of eligible compensation for participants. The Plan also provides that the Corporation will make an additional contribution of up to two percent of eligible compensation if the participant is making voluntary contributions to the Plan. Participants may generally contribute up to five percent of their eligible compensation. The Corporation is not required to make any contributions during a plan year if it elects to not do so.
Postretirement Benefits-The Corporation provided health care benefits to certain of its retired employees under a plan which was terminated January 1, 1993. Upon termination of the plan this group of retired employees was allowed to continue to be covered by the Corporation's group insurance plan. Effective January 1, 1993 the Corporation adopted Financial Accounting Standards Board Statement No. 106 to account for its share of the costs of benefits provided to this group. To effect adoption of Statement No. 106, the Corporation accrued as of January 1, 1993 its share of the estimated costs to insure this group of retirees. Prior to January 1, 1993, the Corporation expensed its share of these expenses as they were incurred.
Reclassification of Amounts-Certain amounts for 1993 and 1992 have been reclassified to reflect comparability with account classifications for 1994.
- 22 - Note 2. Inventories
Inventories at December 31 were composed of the following:
1994 1993 ------------ ------------ Finished goods $ 8,848,411 $ 9,453,982 Work in process 7,581,465 4,947,924 Raw materials 13,163,840 13,024,695 Supplies 2,881,489 2,505,108 ------------ ------------ $ 32,475,205 $ 29,931,709 ============ ============
Slow-moving inventories at December 31, 1994 amounted to $1,044,138 less a reserve of $329,906. At December 31, 1993 slow-moving inventories amounted to $640,539 less a reserve of $306,320. Slow- moving inventories is an estimate of inventory held in excess of one year's requirements, based on historical sales volumes.
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31 were composed of the following: 1994 1993 ------------ ------------ Land $ 1,243,761 $ 1,226,403 Buildings 23,980,895 23,279,956 Machinery and equipment 61,457,280 57,751,673 Transportation equipment 3,533,039 3,468,575 ------------ ------------ $ 90,214,975 $ 85,726,607 Less accumulated depreciation 45,609,336 41,099,245 ------------ ------------ $ 44,605,639 $ 44,627,362 ============ ============
Depreciation expense totaled $10,419,505, $11,241,146 and $9,610,165 in 1994, 1993 and 1992, respectively.
Note 4. Accrued Expenses
Accrued expenses at December 31 were composed of the following:
1994 1993 ------------ ------------ Accrued compensation $ 2,184,055 $ 3,358,883 Dividends payable 1,153,614 1,153,497 Contingency reserve for discontinued operations 5,543,042 -- -- Employee benefits 1,989,047 2,827,832 Other accrued expenses 3,071,363 3,112,093 ------------ ------------ $ 13,941,121 $ 10,452,305 ============ ============
- 23 - The contingency reserve for discontinued operations is an allowance for potential adjustments relating to the ultimate outcome of the Corporation's sale of the Gulfstream Division.
Note 5. Debt
Short-Term Debt
Melnor Inc., a subsidiary of the Corporation, had short-term debt at December 31, 1994 consisting of a revolving credit facility ("revolving loan") with a financial institution in an aggregate amount not to exceed $15,000,000 that expires March 3, 1996, and shall be automatically renewed for one year periods thereafter, unless terminated by either party. Termination will occur (180) days after notification. The loan is collateralized by substantially all assets of Melnor Inc. and the maximum principal amount outstanding at any one time is based on a formula using the carrying values of eligible accounts receivable and inventory. Interest is payable monthly at a fluctuating rate equal to prime plus 1.25%, but at no time shall the rate be less than 6%. The rate at December 31, 1994 was 9.75%. The loan agreement also provides for certain financial covenants all of which have been waived by the lender. In December, 1994, the Corporation paid off the loan and gave notice of its intent to terminate the loan.
Short-term debt at December 31, 1993, consisted of a revolving credit facility ("revolving loan") with a finance company in an aggregate amount not to exceed $20,000,000 which expired November 24, 1994. The aggregate amount of the revolving loan cannot exceed the lesser of (i) the Current Asset Base minus the Letter of Credit Reserve and (ii) the Total Seasonal Revolving Loan Facility of $20,000,000 during the period of February 1 through July 31 of each year and the Total Permanent Revolving Loan Facility of $11,000,000 during the period of August 1 through January 31 of the succeeding calendar year. The Current Asset Base equals 85% of the face amount of eligible accounts receivable plus 55% of eligible inventory for Melnor Inc. and its subsidiary. Interest is payable monthly at a fluctuating rate equal to prime plus 1.5%. The rate at and December 31, 1993, was 7.5% In addition, underutilization and letter of credit fees are payable monthly. Total loan availability at December 31, 1993, amounted to $9,000,000. At December 31, 1993, $8,483,977 was borrowed. This revolving loan was refinanced with a financial institution in March of 1994.
The weighted average interest rate for short-term borrowings was 8.33% for 1994 and 7.50% for both 1993 and 1992.
- 24 - Long-Term Debt 1994 1993 ------------ ------------ 7.05% Senior Notes dated May 27, 1993, payable to various insurance companies. The notes bear an interest rate of 7.05% payable semiannually on the first day of May and November commencing November 1, 1993. Interest is due on any overdue principal, premium amount and interest installment at the rate of 8.05% per annum until paid. Principal payments of the lesser of (a) $5,000,000 or (b) the principal amounts of the notes then outstanding are due on May 1 of each year, commencing May 1, 1996 and ending May 1, 1999. The notes were paid in full in December, 1994. $ -- -- $ 25,000,000
Line of credit notes payable to First Union National Bank of Virginia. The Corporation has a $35,000,000 unsecured line of credit to support general corporate activities. Borrowings against the line of credit are at or below prevailing prime interest rates. Interest rates vary under this revolver based on the Corporation's choice of options provided to the Company by First Union National Bank of Virginia. (6.0% at December 31, 1993). The line of credit matures June 30, 1997. -- -- 13,000,000
Promissory note payable from Melnor Inc. to a finance company due in monthly payments of $41,000 plus interest at a fluctuating rate equal to 1.5% per annum in excess of the prime rate (7.5% at December 31, 1993) with the outstanding balance payable in full on November 24, 1994, collateralized by all assets of Melnor Inc. and its subsidiary. The loan is provided under the same security agreement as the revolving credit facility described in the Short-Term Debt section. The note was paid in full in March of 1994. -- -- 508,000
Senior subordinated note payable from Melnor Inc. to an insurance company due November 24, 1994 with interest payable at the prime rate plus 1.0% (7.0% at December 31, 1993) on November 24, 1993, May 24,
- 25 - 1994 1993 ------------ ------------ 1994 and November 24, 1994. Interest payments are guaranteed by O'Sullivan Corporation. The note was paid in full in March of 1994. -- -- 2,695,000
7.0% senior subordinated note payable from Melnor Inc. to an affiliate of Melnor Industries, Inc. due December 24, 1994 with interest payable at the prime rate plus 1.0% (7.0% at December 31, 1993) on December 24, 1993. Interest payments are guaranteed by O'Sullivan Corporation. The note was paid in full in March of 1994. -- -- 305,000
Unsecured non-interest bearing promissory note payable to Melnor Industries, Inc. discounted at 9.0% due on November 24, 1996. The principal amount of the note is $1,622,791. 1,360,945 1,243,747
Non-interest bearing obligation payable to Melnor Industries, Inc. discounted at 9.0%. Payment is contingent upon Melnor Industries, Inc. satisfying its obligation under the New Jersey Environmental Cleanup Responsibility Act and the release by the State of the escrow fund of $300,000 established to fund environmental cleanup activities. 252,632 230,966
Notes payable from Melnor Inc. to equipment finance companies due in monthly payments totaling $906 including interest at rates from 11.7% to 15.5%. The notes are secured by equipment with a book value of $13,441. 7,754 17,052
Capital lease obligations 83,738 34,801 ------------ ------------ $ 1,705,069 $ 43,034,566 Less current maturities 52,073 3,532,732 ------------ ------------ $ 1,652,996 $ 39,501,834 ============ ============ Long-term debt matures as follows: 1995 $ 52,073 1996 1,388,309 1997 12,055 1998 -- -- 1999 -- -- Later years 252,632 ------------ $ 1,705,069 ============ - 26 - Interest incurred and capitalized are as follows:
1994 1993 1992 ------------ ------------ ------------ Interest incurred $ 914,211 $ 959,226 $ 99,660 Less interest capitalized 102,535 81,392 24,105 ------------ ------------ ------------ $ 811,676 $ 877,834 $ 75,555 ============ ============ ============
Note 6. Business Combinations
On April 1, 1993 the Corporation acquired all of the outstanding stock of Capitol Plastics of Ohio, Inc., a company engaged in the business of custom injection molding, at an acquisition cost of $1,153,643. The acquisition was accounted for as a purchase and the accounts and transactions of the acquired business have been included in the consolidated financial statements from the date of acquisition. On December 2, 1994, Capitol Plastics of Ohio, Inc. was sold as part of the Gulfstream Division, see Note 16 for additional information.
On November 24, 1992 the Corporation acquired substantially all of the assets of Melnor Industries, Inc., including the outstanding stock of Melnor Manufacturing, Ltd., a Canadian corporation owned 100% by Melnor Industries, Inc. The businesses are engaged in the manufacture and distribution of lawn and garden consumer products. The total acquisition cost was $13,655,967 adjusted for the assumption of certain liabilities. The acquisition was accounted for as a purchase and the accounts and transactions of the acquired businesses have been included in the consolidated financial statements from the date of acquisition.
Unaudited pro forma consolidated net sales, net income and net income per common share, assuming the acquisition had occurred as of the beginning of 1992 would have been approximately as follows:
Pro forma net sales $ 167,200,000 Pro forma net income from continuing operations $ 7,400,000 Pro forma net income from continuing operations per common share $ 0.45
Note 7. Income Tax Matters
Pretax income from continuing operations for the years ended December 31, 1994, 1993 and 1992 was taxed by the following jurisdictions:
1994 1993 1992 ------------ ------------ ------------ Domestic $ 16,934,578 $ 15,741,703 $ 13,574,919 Foreign 1,175,901 1,587,447 136,458 ------------ ------------ ------------ $ 18,110,479 $ 17,329,150 $ 13,711,377 ============ ============ ============
- 27 - Effective January 1, 1993, the Corporation adopted Statement of Financial Standards No. 109, "Accounting for Income Taxes." The adoption of Statement No. 109 changes the Corporation's method of accounting for income taxes from the deferred method to a liability method. Under the deferred method the Corporation deferred the past tax effects of a timing difference between financial reporting and tax reporting. The liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases.
The cumulative effect of the adoption of Statement No. 109 was to increase net income determined for 1993 by $680,488. Financial statements for prior years have not been restated. Net deferred tax liabilities at December 31, 1994 and 1993 consisted of the following components:
1994 1993 ------------ ------------ Deferred tax assets: Provision for doubtful accounts $ 277,708 $ 302,800 Employee benefits 1,394 150 1,272,080 Inventory basis differences 189,615 290,512 Contingency reserve for discontinued operations 1,330,621 -- -- Other 402,184 438,406 ------------ ------------ $ 3,594,278 $ 2,303,798 ------------ ------------ Deferred tax liabilities: Property, plant and equipment $ 4,093,935 $ 3,872,744 Like-kind exchange 254,856 254,856 Other 106,494 79,822 ------------ ------------ $ 4,455,285 $ 4,207,422 ------------ ------------ $ (861,007) $ (1,903,624) ============ ============
The deferred tax amounts mentioned above have been classified on the accompanying balance sheets as of December 31, 1994 and 1993 as follows:
Noncurrent (liabilities) $ (3,503,530) $ (3,396,370) Current assets 2,642,523 1,492,746 ------------ ------------ $ (861,007) $ (1,903,624) ============ ============
The provision for income taxes charged to continuing operations for the years ended December 31, 1994 and 1993 consists of the following:
Current: Federal $ 5,478,787 $ 4,807,962 Foreign 472,492 611,451 State 960,462 1,449,583 ------------ ------------ $ 6,911,741 $ 6,868,996 ------------ ------------ - 28 - 1994 1993 Deferred: ------------ ------------ Federal $ 190,369 $ 29,886 Foreign 21,387 -- -- State 12,012 47,868 ------------ ------------ $ 223,768 $ 77,754 ------------ ------------ $ 7,135,509 $ 6,946,750 ============ ============
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, 1994 and 1993 due to the following: 1994 1993 % Income % Income Before Before Taxes Taxes ------- ------- Computed "expected" tax expense 35.0% 35.0% Increases (reductions) in taxes resulting from: Income taxed at lower US federal rate (0.6%) (0.6%) State taxes, net of federal benefit 3.5% 5.6% Higher rate on earnings of foreign 0.5% 0.3% operations Federal tax credits (0.4%) (0.4%) Other 1.4% 0.2% ------ ------ 39.4% 40.1% ====== ======
As discussed above, the Corporation accounted for income taxes using the deferred method as prescribed by APB 11 for the year ended December 31, 1992. The provision for income taxes charged to continuing operations for the year ended December 31, 1992 consists of the following: ------------ Current: Federal $ 4,649,377 Foreign 58,014 State 826,048 ------------ $ 5,533,439 ------------ Deferred: Federal (benefit) $ (204,278) Foreign -- -- State (benefit) (25,422) ------------ $ (229,700) ------------ $ 5,303,739 ============
- 29 - The components of deferred income taxes (benefits) are as follows:
------------ Depreciation $ 237,596 Provision for doubtful accounts (114,439) Employee benefits (125,539) Inventory basis difference (121,116) Other (106,202) ------------ $ (229,700) ============
A comparison of the federal statutory tax rate for 1992 to the Corporation's effective tax rate is as follows:
----- US federal income tax rate 34.0% Increases (reductions) in taxes resulting from: State taxes, net of federal benefit 3.9% Federal tax credits (0.2%) Other 1.0% ----- Effective tax rate 38.7% =====
Note 8. Benefit Plans
Defined Benefit Plans
The net pension cost for defined benefit plans included the following components: 1994 1993 1992 ---------- ---------- ---------- Benefits earned during the year $ 228,417 $ 242,837 $ 332,385 Interest cost on projected benefit obligation 678,236 654,682 376,887 Actual (return) on assets (222,158) (592,401) (238,740) Net amortization and deferral (312,142) 94,403 (76,955) Curtailment (gain) (92,961) -- -- -- -- ---------- ---------- ---------- Net pension cost $ 279,392 $ 399,521 $ 393,577 ========== ========== ==========
- 30 - The funded status of the defined benefit pension plans as of December 31, 1994 was as follows:
Overfunded Underfunded Actuarial present value: ----------- ----------- Vested benefit obligation $ 2,792,538 $ 4,968,242 Nonvested benefit obligation -- -- 196,544 ----------- ----------- Accumulated benefit obligation $ 2,792,538 $ 5,164,786 Effect of projected compensation increases -- -- 312,964 ----------- ----------- Projected benefit obligation $ 2,792,538 $ 5,477,750 Fair value of plan assets 3,572,189 4,553,633 ----------- ----------- Plan assets in excess of (less than) projected benefit obligation $ 779,651 $ (924,117) Unrecognized net (gain) (141,839) (363,643) Unrecognized prior service costs -- -- 567,526 Unrecognized net (asset) obligation at initial adoption of FAS 87 (371,578) 26,921 Adjustment required to recognize minimum liability -- -- (142,333) ----------- ----------- Prepaid (accrued) pension cost $ 266,234 $ (835,646) =========== ===========
The funded status of the defined benefit pension plans as of December 31, 1993 was as follows: Overfunded Underfunded Actuarial present value: ----------- ----------- Vested benefit obligation $ 3,621,125 $ 4,872,868 Nonvested benefit obligation 33,993 135,445 ----------- ----------- Accumulated benefit obligation $ 3,655,118 $ 5,008,313 Effect of projected compensation increases 245,505 835,731 ----------- ----------- Projected benefit obligation $ 3,900,623 $ 5,844,044 Fair value of plan assets 4,515,461 3,559,672 ----------- ----------- Plan assets in excess of (less than) projected benefit obligation $ 614,838 $(2,284,372) Unrecognized net loss 26,088 681,322 Unrecognized prior service costs -- -- 629,931 Unrecognized net (asset) obligation at initial adoption of FAS 87 (436,385) 30,286 Adjustment required to recognize minimum liability -- -- (505,808) ----------- ----------- Prepaid (accrued) pension cost $ 204,541 $(1,448,641) =========== ===========
Discount rates for the plans ranged from 7% to 8%. The assumed long- term rates of return on plan assets were also 7% to 8%. The assumed rate of increase in future compensation levels ranged from 5% to 7%. The unrecognized asset (liability) at the initial adoption of FAS 87 is being amortized on a straight-line basis over the average remaining service period of plan participants. Plan assets consist of listed common stocks, corporate and government bonds and short-term investments. - 31 - Retirement Savings Plan
The expense associated with the Retirement Savings Plan was $1,268,087 for 1994, $1,152,278 for 1993 and $961,869 for 1992.
Deferred Compensation Plan
During 1985, the Corporation initiated a deferred compensation program for key employees of the Corporation. Under this program, the Corporation has agreed to pay each covered employee a certain sum annually for fifteen years upon their retirement or, in the event of their death, to their designated beneficiary. A benefit is also paid if the employee terminates employment (other than by his voluntary action or discharge for cause) before they attain age 65. In that event, the amount of the benefit depends on the employee's years of service with the Corporation (with full benefit paid only if the employee has completed 25 years of service). The Corporation has purchased individual life insurance contracts with respect to each employee covered by this program. The Corporation is the owner and beneficiary of the insurance contracts. The employees are general creditors of the Corporation with respect to these benefits. The expense associated with the Deferred Compensation plan was $295,299 for 1994, $196,064 for 1993 and $91,213 for 1992.
Postretirement Benefit Plan
At January 1, 1993 the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires the Corporation to recognize the estimated costs of providing certain postretirement benefits to former employees of the Corporation. The Corporation elected to recognize the transition obligation immediately as the effect of an accounting change. This change resulted in a one- time charge to income in 1993 of $375,150, net of deferred income taxes of $239,850.
Annual net postretirement benefit costs are determined on an actuarial basis. Net periodic postretirement benefit cost included the following components for the years ended December 31, 1994 and 1993:
1994 1993 Interest expense on accumulated ---------- ---------- postretirement benefit obligation $ 29,000 $ 40,000 Other amortization and deferrals (12,000) (95,000) ---------- ---------- $ 17,000 $ (55,000) ========== ==========
- 32 - Postretirement benefit obligations at December 31, 1994 and 1993, none of which are funded, are summarized as follows:
1994 1993 Accumulated postretirement benefit ---------- ---------- obligation, retirees $ 387,000 $ 460,000 Plan assets -- -- -- -- ---------- ---------- Accumulated postretirement benefit obligation in excess of plan assets $ 387,000 $ 460,000 Unrecognized transition obligation -- -- -- -- Unrecognized net experience losses (gains) -- -- -- -- ---------- ---------- Accrued postretirement benefit obligation $ 387,000 $ 460,000 ========== ==========
For measurement purposes, a 16% annual rate of increase in per capita health care costs of covered benefits was assumed for 1994, with such annual rate of increase gradually declining to 6% in 2003.
Note 9. Leases
The Corporation and its subsidiaries lease various plant and warehouse facilities along with various equipment. Leases for the plant and warehouse facilities and capitalized leases for machinery and equipment generally require the payment of appropriate taxes, insurance and maintenance costs. Most noncapitalized leases, except for the lease of facilities in New Jersey by a subsidiary, are cancelable within a limited period of time. The facility in New Jersey is leased under a noncancelable agreement that expires June 30, 1998. Minimum Rental Capitalized Commitments Leases ----------- ----------- 1995 $ 186,329 $ 50,938 1996 310,567 29,881 1997 435,672 12,356 1998 216,735 -- -- ----------- ----------- $ 1,149,303 $ 93,175 ===========
Less amount representing interest 9,437 ----------- Present value of net minimum lease payments $ 83,738 ===========
Net rental expense for all non-capitalized leases for the years ended 1994, 1993, and 1992 was $858,213, $849,963 and $315,931, respectively.
Note 10. Research and Development
Research and development costs charged to expense were $1,897,111 in 1994, $1,971,274 in 1993 and $1,440,716 in 1992.
- 33 - Note 11. Restructuring of Operations
In 1991, in response to economic pressures, the Corporation implemented a business strategy designed to improve operating efficiency. Activities associated with the restructuring included the abandonment and disposal of non-productive assets, consolidation of operations including rigging and relocation of molding machines and related support facilities and severance costs associated with terminated employees. During 1993, the Corporation reduced operating expenses $969,251 due to a change in accounting estimate for restructuring charges that the Corporation recorded against operations in 1991. The effect of the change in accounting estimate was to increase net income $591,243, net of related income tax effect of $378,008. Net income per common share increased by $0.04 due to the change.
Note 12. Commitments and Contingencies
Environmental Matters
The Corporation continues to modify, on an ongoing, regular basis, certain of its processes which may have an environmental impact. The Corporation's efforts in this regard include the removal of many of its underground storage tanks and the reduction or elimination of certain chemicals and wastes in its operations. Although it is very difficult to quantify the potential impact of compliance with environmental protection laws, the Corporation's financial statements reflect the cost of these ongoing modifications. Management believes that the continuing costs to the Corporation of environmental compliance will not result in a material adverse effect on its future financial condition or results of operations.
Note 13. Business Segment Information
The Corporation's operations are classified principally into two business segments; Calendered Plastics Products ("Plastics Products") and Lawn and Garden Consumer Products ("Consumer Products"). The Plastics Products segment primarily involves the manufacture of calendered plastics products for the automotive and specialty plastics manufacturing industries. The Consumer Products segment primarily involves the manufacture and distribution of a wide range of lawn and garden products. Operating profit represents net sales less operating expenses for each segment and excludes general corporate expenses and non-operating revenues and expenses. Identifiable assets for each segment represent those assets used in the Corporation's operations and exclude general corporate assets. General corporate assets include cash, investments and other non-operating assets.
Net sales for the Plastics Products segment to the divisions and subsidiaries of Ford Motor Company amounted to $24,385,299 (12.5% of net sales) in 1994, $13,374,601 (7.7% of net sales) in 1993 and $9,123,228 (7.3% of net sales) in 1992.
Receivables at December 31, 1994, 1993 and 1992 from Ford Motor Company were $3,396,054, $2,085,303 and $1,298,451, respectively.
- 34 - Business Segment Information
1994 1993 1992 Net Sales By Classes of ------------ ------------ ------------ Similar Products Plastics Products $149,438,108 $132,832,228 $123,374,078 Consumer Products 45,536,156 40,513,273 2,402,836 (a) ------------ ------------ ------------ Total Net Sales $194,974,264 $173,345,501 $125,776,914 ============ ============ ============ Operating Profit (Loss) Plastics Products $ 21,630,468 $ 23,085,147 $ 17,630,963 Consumer Products 4,282,552 2,057,052 (279,775)(a) ------------ ------------ ------------ Total Operating Profit $ 25,913,020 $ 25,142,199 $ 17,351,188 General Corporate Expenses 7,289,802 7,184,538 4,173,799 Non-Operating Revenue (Expense) (512,739) (628,511) 533,988 ------------ ------------ ------------ Income From Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Changes $ 18,110,479 $ 17,329,150 $ 13,711,377 ============ ============ ============ Identifiable Assets Plastics Products $ 92,203,867 $ 99,706,260 $ 81,522,707 Consumer Products 27,318,222 25,394,702 23,560,028 ------------ ------------ ------------ Total Identifiable Assets $119,522,089 $125,100,962 $105,082,735 General Corporate Assets 25,006,799 19,264,457 16,913,921 ------------ ------------ ------------ Total Assets- Continuing Operations $144,528,888 $144,365,419 $121,996,656 ============ ============ ============ Capital Expenditures (b) Plastics Products $ 7,477,833 $ 15,193,167 $ 6,384,938 Consumer Products 1,205,377 1,351,516 32,502 (a) General Corporate 67,986 86,531 299,654 ------------ ------------ ------------ Total Capital Expenditures $ 8,751,196 $ 16,631,214 $ 6,717,094 ============ ============ ============ Depreciation and Amortization (b) Plastics Products $ 8,644,205 $ 9,651,506 $ 9,164,057 Consumer Products 1,719,307 1,402,596 104,520 (a) General Corporate 503,763 384,268 354,635 ------------ ------------ ------------ Total Depreciation and Amortization $ 10,867,275 $ 11,438,370 $ 9,623,212 ============ ============ ============
(a) Includes activity only from acquisition of business at November 24, 1992 through December 31, 1992.
(b) Includes activity from discontinued operations.
- 35 - Note 14. Incentive Stock Option Plan
The Corporation has an incentive stock option plan under which options may be granted to certain key employees for the purchase of the Corporation's common stock. The effective date of the plan was January 29, 1985. The plan will expire on January 28, 1995. The original number of shares authorized under the plan totaled 50,000 shares. Antidilutive provisions in the plan required an increase in authorized shares to 165,886 shares for stock dividends and distributions that occurred during 1989, 1988, 1987, 1986 and 1985. The option price covered by an option cannot be less than 100% of fair market value of the common stock on the date of grant.
As of December 31, 1994, options for 153,062 shares remain unexercised and 12,824 shares are reserved for the grant of future options. No options were granted in 1994. Options for 1,000 shares at an exercise price of $10.50 per share were granted during 1993. Options for 55,820 shares at an exercise price of $8.42 per share were granted during 1992. Options for 7,956 shares during 1994, 2,000 shares during 1993 and 41,831 shares during 1992 were forfeited. No options were exercised during 1994, 1993, or 1992. Since the plan expired on January 28, 1995 all shares reserved for future option grants were canceled. Although the 1985 incentive stock option plan has expired, those options previously granted may be exercised by the individual recipients until the options expire, normally ten years after the date of the original grant.
Note 15. Fair Value of Financial Instruments
The Corporation estimates that each category of financial instruments; including cash, trade receivables and payables, investments and debt instruments, approximate current value at December 31, 1994 and 1993.
Note 16. Discontinued Operations
On December 2, 1994 the Corporation sold certain specified assets of the Corporation's Gulfstream Division, which was part of the Corporation's plastics products business segment, to Automotive Industries Holding, Inc. The assets sold consisted primarily of property, plant and equipment, inventories and the capital stock of Capitol Plastics of Ohio, Inc., a subsidiary of O'Sullivan Corporation. In addition, certain specified liabilities, consisting primarily of employee compensation payables were assumed by Automotive Industries Holding, Inc. The Corporation received $46,537,017 in cash and $4,000,000 in an unsecured promissory note.
The loss on disposal of the division of $8,220,000 (net of income tax benefit of $5,480,000) represents the loss on disposal of the assets of the division, along with expenses associated with disposal activities, including severance costs, environmental clean-up costs, professional fees and various other costs associated with the disposal, net of the operating income of $1,400,000, during the phase- out period.
- 36 - Income (loss) from the discontinued operations of the Gulfstream Division is shown separately in the accompanying income statements. Income statements for the years ended December 31, 1993 and 1992 have been restated to show the results of the Gulfstream Division separately from continuing operations. Income taxes (benefit) applicable to the years ended December 31, 1994, 1993 and 1992 were $(86,439), $141,614 and $1,438,817, respectively.
Net sales of the Gulfstream Division were $149,595,597, $118,910,213 and $92,681,331 for the years ended December 31, 1994, 1993 and 1992, respectively. These amounts are not included in net sales in the accompanying income statements.
Note 17. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1994 1993 1992 Cash payments for interest, ------------ ------------ ------------ net of interest capitalized $ 3,199,018 $ 2,028,606 $ 777,636 ============ ============ ============ Cash payments for income taxes $ 8,797,775 $ 7,964,853 $ 5,356,385 ============ ============ ============
Supplemental Schedule of Noncash Investment Activities
The Corporation's 1993 business acquisition involved the following:
Fair value of assets acquired, other than cash and cash equivalents $ 8,173,416 Liabilities assumed (7,019,773) ------------ Cash payments made $ 1,153,643 ============
The Corporation's 1992 business acquisition involved the following:
Fair value of assets acquired, other than cash and cash equivalents $ 20,803,464 Liabilities assumed (7,288,802) Notes issued to others (6,143,424) Notes issued to sellers (1,662,543) ------------ Cash payments made $ 5,708,695 ============
In 1994, the Corporation received a note receivable of $4,000,000 as part of the proceeds from the sale of assets of discontinued operations.
- 37 - Note 18. Supplemental Financial Data (Unaudited)
QUARTER ENDED -------------------------------------------------- 1994 March 31 June 30 September 30 December 31 ----------- ----------- ----------- ----------- Net sales $47,405,015 $57,027,493 $44,696,455 $45,845,301 Gross profit $ 9,664,206 $11,506,661 $ 8,552,102 $ 8,267,070 Income (loss) from: Continuing operations $ 2,837,888 $ 3,826,222 $ 2,408,003 $ 1,902,857 Discontinued operations (226,823) 1,072,996 (9,191,299) -- -- ----------- ----------- ----------- ----------- Net income $ 2,611,065 $ 4,899,218 $(6,783,296) $ 1,902,857 =========== =========== =========== =========== Earnings (loss) per share: Continuing operations $ .17 $ .23 $ .15 $ .12 Discontinued operations (.01) .07 (.57) -- -- ----------- ----------- ----------- ----------- Earnings (loss) per share $ .16 $ .30 $ (.42) $ .12 =========== =========== =========== =========== Dividends declared $ .07 $ .07 $ .07 $ .07 =========== =========== =========== =========== Market price per share: High 10 5/8 10 5/8 10 5/8 10 3/8 Low 8 7/8 8 7/8 8 7/8 8 7/8
QUARTER ENDED -------------------------------------------------- 1993 March 31 June 30 September 30 December 31 ----------- ----------- ----------- ----------- Net sales $45,600,934 $48,304,022 $39,173,305 $40,267,240 Gross profit $ 7,615,739 $10,716,467 $ 8,186,857 $ 9,373,319 Income (loss) from: Continuing operations $ 1,697,166 $ 3,478,446 $ 2,641,890 $ 2,564,898 Discontinued operations 593,120 803,585 (680,212) (1,389,775) Cumulative effect of accounting changes -- -- -- -- -- -- 305,338 ----------- ----------- ----------- ----------- Net income $ 2,290,286 $ 4,282,031 $ 1,961,678 $ 1,480,461 =========== =========== =========== =========== Earnings (loss) per share: Continuing operations $ .10 $ .22 $ .16 $ .15 Discontinued operations .04 .04 (.04) (.08) Cumulative effect of accounting changes -- -- -- -- -- -- .02 ----------- ----------- ----------- ----------- Earnings (loss) per share $ .14 $ .26 $ .12 $ .09 =========== =========== =========== =========== Dividends declared $ .07 $ .07 $ .07 $ .07 =========== =========== =========== =========== Market price per share: High 11 7/8 12 5/8 12 11 3/8 Low 9 1/4 9 5/8 10 8 1/2
- 38 - ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 39 - PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Corporation's Directors and Director nominees, see pages 3 through 6 of the Corporation's definitive Proxy Statement dated April 1, 1995 which pages are incorporated herein by reference.
Executive Officers of the Registrant
The names, ages and positions of the executive officers of O'Sullivan Corporation as of January 31, 1995 are listed below. All officers are elected by the board for a one year term. There are no family relation- ships among officers or any other arrangement or understanding between any officer and any other person pursuant to which the officer was elected. Served as Officer Name Age Office Since Arthur H. Bryant, II 52 Chairman of the Board 1975
James T. Holland 54 President 1976
C. Bryant Nickerson 48 Secretary & Treasurer 1986
Phillip S. Griffin 56 Vice President 1975
John S. Campbell 44 Vice President 1986
Mr. Bryant held the office of Executive Vice President from April, 1975 until his election as President in April, 1976. He was elected Chairman of the Board and Chief Executive Officer in April, 1984. Mr. Bryant will be retiring from his position as Chief Executive Officer on April 25, 1995. He will continue to serve as Chairman of the Board.
Mr. Holland was elected Treasurer in July, 1976, Vice President and Treasurer in April, 1979, Executive Vice President and Chief Operating Officer in April, 1984 and President and Chief Operating Officer in April, 1986. He was also elected to the Board of Directors in October, 1984. Mr. Holland will assume the position of Chief Executive Officer on April 25, 1995.
Mr. Nickerson has been employed by the Corporation since 1973. He has held various responsibilities within the corporate financial area including general accountant, Controller and Treasurer and Chief Accounting Officer. He was elected as Secretary, Treasurer and Chief Financial Officer in January, 1995.
Mr. Griffin has been employed by the Corporation since 1968. He has served the Corporation in various capacities in sales, manufacturing and management related areas. Mr. Griffin has served as a Vice President of the Corporation since 1975 and also serves as President of Melnor Inc., a subsidiary of O'Sullivan Corporation.
Mr. John S. Campbell has been employed by the Corporation since 1973. He has served the Corporation both in the sales area and in the manage- ment of manufacturing operations for the calendered plastics products area of the Corporation. He has served as Vice President since 1986. - 40 - Other Officers of the Registrant
Served As Officer Name Age Office Since William O. Bauserman 51 Vice President 1987
Ewen A. Campbell 47 Vice President 1993
Dee S. Johnston 58 Vice President 1992
Michael J. Meissner 55 Vice President 1995
James L. Tremoulis 41 Vice President 1986
Robert C. Westfall 52 Vice President 1979
Mr. Bauserman has been employed by the Corporation since 1968. During his employment he has served in various capacities within the data processing and management information services department. He has served as Vice President of Management Information Services since April, 1987.
Mr. Ewen A. Campbell has been employed by the Corporation since 1991 as Director of Technical Services. Mr. Campbell received his BSC. degree in Chemistry and His PhD. degree in Organic Chemistry from the University of Edinburgh, Scotland. Prior to his employment with O'Sullivan Corporation he was employed by Duraplex Industries in Scotland and by Tenneco Chemicals and Haygro Sales, Inc. in the United States. Mr. Campbell's technical background in chemistry has allowed him to work in various areas of the Corporation's compounding and research and development activities. Mr. Campbell has served as Vice President since July, 1993.
Mrs. Johnston has been employed by the Corporation since 1976. Since that time she has served in various capacities within the corporate purchasing department, most recently as Director of Purchasing for the Corporation. Mrs. Johnston has served as Vice President since January, 1992.
Mr. Meissner was employed by the Corporation in January, 1995. Prior to his employment by the Corporation he was employed by and was a principal in businesses that served as a manufacturers' representative to the automotive industry for the Corporation.
Mr. Tremoulis has been employed by the Corporation since 1980. He has served the Corporation in various capacities in the sales area for the calendered plastics products area. He has served as Vice President since 1986.
Mr. Westfall has been employed by the Corporation since 1965. He has served the Corporation in various capacities including Chemist, Quality Control Manager and Plant Manager. He was elected as Vice President of Research and Development in April, 1979.
- 41 - ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
See Pages 7 through 12 of the Corporation's Proxy Statement dated April 1, 1995, which pages are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Pages 3 through 6 of the Corporation's Proxy Statement dated April 1, 1995, which pages are incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1994 that would be applicable for disclosure under this item.
- 42 - PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Page
Included in Part II, Item 8, of this report:
Report of Independent Auditors 14
Consolidated Balance Sheets at December 31, 1994 and 1993 15
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 16-17
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 18-19
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 20
Consolidated Notes to Financial Statements 21-38
(a) (2) Financial Statement Schedule
Included in Part IV of this report:
Report of Independent Auditors on Financial Statement Schedule 45
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1994, 1993 and 1992 46
(a) (3) Exhibits
2.1 Asset Purchase Agreement between O'Sullivan Corporation and Automotive Industries, Inc.- filed herewith.
2.2 Amendment to Asset Purchase Agreement between O'Sullivan Corporation and Automotive Industries, Inc. - filed herewith.
3.1 O'Sullivan Corporation Amended and Restated Articles of Incorporation, including the Articles of Amendment, dated April 30, 1985, filed with the State Corporation Commission of Virginia on May 6, 1985, adopted by shareholders of O'Sullivan Corporation at the annual meeting held April 30, 1985. (Incorporated by reference to the March 31, 1985, Quarterly Report on Form 10-Q of the Corporation.)
- 43 - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Continued)
3.2 O'Sullivan Corporation Bylaws as amended to Page January 29, 1985. (Incorporated by reference to the March 31, 1985, Quarterly Report on From 10-Q of the Corporation.)
3.3 O'Sullivan Corporation Amended and Restated Articles of Incorporation dated April 29, 1989, filed with the State Corporation Commission of Virginia on May 5, 1989, adopted by shareholders of O'Sullivan Corporation at the annual meeting held April 25, 1989. (Incorporated by reference to the March 31, 1989 Quarterly Report on Form 10-Q of the Corporation.)
10. Compensatory arrangement with executive officer of the registrant. See Page 8 of the Corporation's Proxy Statement dated April 1, 1995 which page is incorporated herein by reference.
21. Subsidiaries of the Registrant - filed herewith.
23. Consent of Independent Auditors - filed herewith.
24. Powers of Attorney - filed herewith.
27. Financial Data Schedule - filed herewith.
99.2 Form 11-K for 1985 Incentive Stock Option Plan - filed herewith.
99.3 1985 Incentive Stock Option Plan. Amended and Restated as of July 27, 1993 - filed herewith.
(b). Reports on Form 8-K and 8-K/A
Reports dated December 2, 1994 describing the sale of certain assets of the Corporation's Gulfstream Division to Automotive Industries, Inc. - filed herewith.
(c). Index to Exhibits 49
- 44 -
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of the O'Sullivan Corporation
The examination referred to in our opinion dated February 3, 1995 of the consolidated financial statements as of December 31, 1994 and 1993 and for the three years ended December 31, 1994, 1993 and 1992 included the related supplemental financial schedule as listed in Item 14(a)2, which, when considered in relation to the basic financial statements, present fairly in all material respects the information shown therein.
/s/ YOUNT, HYDE & BARBOUR, P.C.
- 45 - O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule II VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1994, 1993 and 1992
Column A Column B Column C Column D Column E ---------- ---------- ------------------------------ ----------- ---------- Additions ------------------------------ (1) (2) (3) Balance Charged Charged Additions Balance at to Costs to From at Beginning and Other Business End Description of Year Expense Accounts Acquisition Deductions of Year ---------- ---------- ---------- ------- ------- ----------- ---------- 1994: Allowance for Doubtful Accounts $1,133,793 $1,138,617 $ -- -- $ -- -- $1,387,943(B)$ 884,467 ========== ========== ======= ======== ========== ========== 1993: Allowance for Doubtful Accounts $1,804,676 $ 209,719 $ -- -- $ 27,013(A)$ 907,615(B)$1,133,793 ========== ========== ======= ======== ========== ========== 1992: Allowance for Doubtful Accounts $ 683,601 $ 710,443 $ -- -- $871,056(A)$ 460,424(B)$1,804,676 ========== ========== ======= ======== ========== ==========
Note (A) - Allowance for doubtful accounts established at acquisition date for businesses acquired in 1993 and 1992.
Note (B) - Write-offs of uncollectible accounts, net of recoveries. Column D for 1994 also includes a reduction of $27,013 for a bad debt allowance pertaining to a subsidiary disposed of during 1994.
- 46 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 29, 1995 O'SULLIVAN CORPORATION -------------- By: /s/ C. Bryant Nickerson Date --------------------------- C.Bryant Nickerson Secretary, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the dates given.
Arthur H. Bryant, II* March 29, 1995 --------------------- -------------- Arthur H. Bryant, II Chairman, Chief Executive Date Officer and Director
/s/ James T. Holland March 29, 1995 --------------------- -------------- James T. Holland President, Chief Operating Date Officer and Director
/s/ C. Bryant Nickerson March 29, 1995 ----------------------- -------------- C. Bryant Nickerson Secretary, Treasurer and Date Chief Financial Officer
John J. Armstrong* March 29, 1995 ------------------ -------------- John J. Armstrong Director Date
Harry F. Byrd, Jr.* March 29, 1995 ------------------- -------------- Harry F. Byrd, Jr. Director Date
Max C. Chapman, Jr.* March 29, 1995 -------------------- -------------- Max C. Chapman, Jr. Director Date
James P. Jamieson* March 29, 1995 ------------------ -------------- James P. Jamieson Director Date
Paul Terretta* March 29, 1995 -------------- -------------- Paul Terretta Director Date
Alexander W. Neal, Jr.* March 29, 1995 ----------------------- -------------- Alexander W. Neal, Jr. Director Date
- 47 - Magalen O. Bryant* March 29, 1995 ------------------ -------------- Magalen O. Bryant Director Date
C. Hugh Bloom, Jr.* March 29, 1995 ------------------- -------------- C. Hugh Bloom, Jr. Director Date
C. Ridgely White* March 29, 1995 ----------------- -------------- C. Ridgely White Director Date
* By: /s/ James T. Holland --------------------- James T. Holland Attorney-In-Fact
- 48 -
EXHIBIT INDEX
Page
2.1. Asset Purchase Agreement between O'Sullivan Corporation and Automotive Industries, Inc. 80-124
2.2. Amendment to Asset Purchase Agreement between O'Sullivan Corporation and Automotive Industries, Inc. 125-131
21. Subsidiaries of the Registrant 50
23. Consent of Experts 51
24. Powers of Attorney 52-62
27. Financial Data Schedule 137
99.2 Form 11-K for 1985 Incentive Stock Option Plan 63-65
99.3 1985 Incentive Stock Option Plan, Amended and Restated as of July 27, 1993 66-70
99.4 Form 8-K dated December 2, 1994 71-79
99.5 Form 8-K/A dated December 2, 1994 132-136
- 49 -