1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-22942
CONSO PRODUCTS COMPANY
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(Exact name of registrant as specified in its charter)
South Carolina 57-0986680
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
513 North Duncan Bypass, P.O. Box 326, Union, South Carolina 29379
- ------------------------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
864/427-9004
-------------------------
(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of February 10, 1997:
Common Stock, no par value.......7,486,447 shares.
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TABLE OF CONTENTS
Part I. Financial Information Page No.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of December 28,
1996 and June 29, 1996 3
Consolidated Statements of Operations (unaudited) for the three
months and six months ended December 28, 1996 and
December 30, 1995 5
Consolidated Statement of Shareholders' Equity (unaudited) for
the three months and six months ended December 28,
1996 6
Consolidated Statements of Cash Flows (unaudited) for the six
months ended December 28, 1996, and December 30,
1995 7
Notes to Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 28, 1996 June 29, 1996
----------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 1,297,643 $ 189,845
Accounts receivable, net of allowances for bad debts
and customer deductions of $263,294 and $327,770
on December 28, 1996 and June 29, 1996, respectively 11,360,687 11,522,528
Inventories 22,311,331 20,064,822
Prepaid expenses and other 566,300 941,702
Deferred income taxes - current portion 443,004 602,936
------------ ------------
Total current assets 35,978,965 33,321,833
------------ ------------
PROPERTY AND EQUIPMENT
Land 1,195,509 1,082,911
Buildings and improvements 7,721,654 6,779,693
Machinery and equipment 12,980,377 11,104,034
------------ ------------
Total 21,897,540 18,966,638
Accumulated depreciation (7,641,634) (6,592,375)
------------ ------------
Total property and equipment, net 14,255,906 12,374,263
------------ ------------
DEFERRED INCOME TAXES (Note 5) 1,269,017 1,282,531
------------ ------------
DEFERRED COSTS (principally loan costs) 251,330 298,885
------------ ------------
TOTAL ASSETS $ 51,755,218 $ 47,277,512
============ ============
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET - CONTINUED
(UNAUDITED)
December 28, 1996 June 29, 1996
----------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 8,104,382 $ 6,990,509
Current maturities of long-term debt and capital leases 254,316 477,933
Trade accounts payable 3,897,304 3,415,876
Accrued liabilities 3,538,703 2,976,595
------------ ------------
Total current liabilities 15,794,705 13,860,913
------------ ------------
NONCURRENT LIABILITIES
Long-term debt 105,906 2,107,910
Deferred income taxes 592,565 530,356
------------ ------------
Total noncurrent liabilities 698,471 2,638,266
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SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock (no par, 10,000,000 shares authorized;
no shares issued) -- --
Common stock (no par, 50,000,000 shares authorized;
7,485,247 shares issued) 16,920,182 16,896,346
Retained earnings 17,499,250 13,701,279
Cumulative translations gain 842,610 180,708
------------ ------------
Total shareholders' equity 35,262,042 30,778,333
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$ 51,755,218 $ 47,277,512
============ ============
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
NET SALES $ 18,534,296 $ 17,318,913 $ 35,546,610 $ 34,386,020
COST OF GOODS SOLD 11,197,122 10,968,311 21,436,548 22,111,563
------------ ------------ ------------ ------------
GROSS MARGIN 7,337,174 6,350,602 14,110,062 12,274,457
------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Distribution expense 776,869 730,362 1,490,129 1,441,274
Selling expense 2,059,205 1,880,167 4,094,607 3,742,573
General and administrative expense 1,190,060 1,204,242 2,344,087 2,440,155
Currency exchange (gain) loss (96,273) (15,381) (118,704) 17,875
------------ ------------ ------------ ------------
Total 3,929,861 3,799,390 7,810,119 7,641,877
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 3,407,313 2,551,212 6,299,943 4,632,580
INTEREST EXPENSE, NET 113,182 211,138 244,378 466,378
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3,294,131 2,340,074 6,055,565 4,166,202
INCOME TAX PROVISION (Note 5) 1,229,895 757,623 2,257,594 1,226,576
------------ ------------ ------------ ------------
NET INCOME $ 2,064,236 $ 1,582,451 $ 3,797,971 $ 2,939,626
============ ============ ============ ============
Net income per share $ 0.28 $ 0.21 $ 0.51 $ 0.40
============ ============ ============ ============
Weighted average number of shares
outstanding 7,484,983 7,432,445 7,483,480 7,432,445
============ ============ ============ ============
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 28, 1996
Common Stock
--------------------------
Cumulative
Retained Translation
Shares Issued Amount Earnings Adjustments Total
------------- ----------- ----------- ------------ -----------
Balance, September 28, 1996 7,484,447 $16,914,846 $15,435,014 $ 244,651 $32,594,511
Stock options exercised 800 5,336 5,336
Net income 2,064,236 2,064,236
Translation gain 597,959 597,959
--------- ----------- ----------- ----------- -----------
Balance, December 28, 1996 7,485,247 $16,920,182 $17,499,250 $ 842,610 $35,262,042
========= =========== =========== =========== ===========
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 28, 1996
Common Stock
------------------------
Cumulative
Retained Translation
Shares Issued Amount Earnings Adjustments Total
--------- ----------- ----------- ----------- -----------
Balance, June 29, 1996 4,987,793 $16,896,346 $13,701,279 $ 180,708 $30,778,333
3-for-2 stock split 2,493,879
Stock options exercised 3,575 23,836 23,836
Net income 3,797,971 3,797,971
Translation gain 661,902 661,902
--------- ----------- ----------- ----------- -----------
Balance, December 28, 1996 7,485,247 $16,920,182 $17,499,250 $ 842,610 $35,262,042
========= =========== =========== =========== ===========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
------------------------------------
December 28, 1996 December 30, 1995
------------------------------------
OPERATING ACTIVITIES:
Cash received from customers $ 37,285,470 $ 34,755,943
Cash paid to suppliers and employees (30,459,202) (29,695,530)
Interest paid (419,327) (470,743)
Interest received 115,758 54,120
Income taxes paid (1,677,232) (886,518)
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Net cash provided by operating activities 4,845,467 3,757,272
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INVESTING ACTIVITIES:
Purchase of officer's life insurance -- (14,667)
Purchase of property and equipment (1,058,989) (632,025)
Purchase of London production facility -- (796,110)
Construction and equipment costs for new
dyehouse and warehouse (918,312) --
-------------- ------------
Net cash used in investing activities (1,977,301) (1,442,802)
-------------- ------------
FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit arrangement 478,189 (1,976,970)
Principal payments on long-term debt (2,233,320) (206,099)
Principal payments under capital lease obligations (29,073) (77,675)
Exercise of stock options 23,836 215,140
-------------- ------------
Net cash used in financing activities (1,760,368) (2,045,604)
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INCREASE IN CASH 1,107,798 268,866
CASH AT:
BEGINNING OF PERIOD 189,845 142,555
-------------- ------------
END OF PERIOD $ 1,297,643 $ 411,421
============== ============
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------------------------
December 28, 1996 December 30,1995
----------------- ----------------
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 3,797,971 $ 2,939,626
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 861,179 804,689
Amortization of deferred expenses 54,086 59,380
Provision for deferred taxes 117,085 (788,234)
Currency translation (gain) loss (118,704) 17,875
Payment of capitalized loan origination costs -- (1,111)
Change in assets and liabilities:
Accounts receivable 461,424 (544,123)
Inventory (1,596,689) 52,056
Prepaid expenses and other 203,263 271,970
Income Taxes Receivable 206,374 --
Trade accounts payable 332,335 (295,383)
Accrued liabilities 270,240 495,580
Income taxes payable 256,903 744,947
--------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,845,467 $ 3,757,272
=============== ============
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 28, 1996
1. CONSOLIDATION
The financial statements are unaudited and include the accounts of the
Company, its subsidiary, British Trimmings Limited, and its subsidiaries (all
operating within the United Kingdom) (collectively, "British Trimmings"), and
Conso's subsidiary, Val-Mex, S.A. de C.V., which operates Conso's Juarez,
Mexico assembly plant (collectively the "Company").
The British Trimmings balances included in the consolidation are
prepared using United States generally accepted accounting principles and are
translated into US dollars based on exchange rates as reported in the Wall
Street Journal. Assets and liabilities are translated based on the exchange
rates in effect on the balance sheet date. Income statement amounts are
translated using the average of the month-end exchange rates in effect during
the period. The Val-Mex subsidiary's operations are not significant in relation
to the Company's operations. All significant intercompany accounts and
transactions, and profit and loss on intercompany transactions are eliminated in
consolidation.
2. INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the three months
and six months ended December 28, 1996 and December 30, 1995, reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature, except as discussed in the notes below. These
financial statements have been prepared in accordance with the generally
accepted accounting principles for the interim financial information and the
instruction of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Operating results for such interim periods
are not necessarily indicative of results to be expected for the year ending
June 29, 1996.
Certain previously reported amounts have been reclassified to conform
with the current year presentation.
The Company prepares annual financial statements on the basis of a 52
or 53 week fiscal year ending on the Saturday nearest June 30th; interim
reporting periods are based on 13 week quarters. The three month and six month
periods ended December 28, 1996 and December 30, 1995, each included 13 weeks
and 26 weeks, respectively.
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3. INVENTORIES
The composition of inventories at December 28, 1996, and June 29, 1996,
was as follows:
December 28, 1996 June 29, 1996
----------------- -------------
Raw Materials $ 6,686,241 $ 6,357,327
Work-In-Process 4,335,662 3,325,497
Finished Goods 11,289,428 10,381,998
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Totals $ 22,311,331 $ 20,064,822
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4. PROPERTY AND EQUIPMENT
In September 1995, the Company made a special provision of $250,000 to
absorb charges relating to the disposal of equipment and inventory of its
embroidery operations, which it had completed substantial disposition by
September 1996, using the full provision.
In December 1995, the Company completed the purchase of a 20,000 square
foot production facility in London at a cost of $796,000. The 9,500 square foot
facility previously used by the Company was sold on January 29, 1997 for
$393,000, resulting in a gain of $75,000.
5. INCOME TAXES
The Company's effective tax rate increased in the current quarter
compared to the prior year's quarter as the Company did not record any
additional Jobs Tax Credits since there were minor increases in employment in
South Carolina in the current year's second quarter.
6. STOCK SPLIT
On September 5, 1996, the Company announced a 3-for-2 split of its
common stock, issued on October 4, 1996 to shareholders of record at the close
of business on September 16, 1996.
On September 7, 1995, the Company announced a 3-for-2 split of its
common stock, issued on October 6, 1995 to shareholders of record at the close
of business on September 18, 1995.
Share and per share amounts have been adjusted for both 3-for-2 stock
splits.
7. STOCK OPTIONS
On September 7, 1995, the Company granted options to certain key
employees to purchase an aggregate of 93,600 shares of the Company's common
stock under its 1993 Stock Option Plan of which 2,775 options were exercised on
September 18, 1996 and an additional 800 options were exercised on October 28,
1996. The options were granted at $6.67 per share and are exercisable with
respect to one-third of the total shares after one year, an additional one-third
of the shares after two years, and the final one-third of the shares after three
years. The options expire after five years and are subject to continued
employment by the employee. (All amounts have been adjusted for the 3-for-2
stock splits.)
On September 5, 1996, the Company granted additional options to certain
key employees to purchase an aggregate of 79,500 shares of the Company's common
stock under its 1993 Stock Option Plan. The options were granted at $11.00 per
share and are exercisable with respect to one-third of the total shares after
one year, an additional one-third of the shares after two years,
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and the final one-third of the shares after three years. The options expire
after five years and are subject to continued employment by the employee. (All
amounts have been adjusted for the 3-for-2 stock split.)
8. DEBT AGREEMENT
The Company renegotiated with its US bank the terms of its revolving
loan agreement. The new agreement provides for an increase in the total
borrowings from $10 million to $15 million. Advances bear interest at a per
annum interest rate equal to the one-month, US LIBOR rate plus 1% per annum.
On November 25, 1996, the Company paid off its $2.1 million term loan
secured by real estate (without a prepayment penalty) as a result of the new
agreement mentioned above.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached unaudited consolidated financial statements and notes thereto, and
with the Company's Annual Report on Form 10-K for the fiscal year ended June
29, 1996, including the financial information and management's discussion
contained or incorporated by reference therein.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 28, 1996 COMPARED TO QUARTER ENDED DECEMBER 30, 1995
Net sales for the quarter ended December 28, 1996, of $18.5 million
were $1.2 million or 7.0% higher than for the comparable prior year quarter.
Conso US increased 6.0%, a significant improvement over the first quarter of
fiscal 1997, which reflected an increase of 2.6% over the first quarter of the
prior year, while British Trimmings sales increased 9.6%, an even more
noticeable improvement considering the 7.1% decline in the first quarter of
fiscal 1997 compared to the first quarter of the prior year. Incoming orders
for the first several weeks of the third quarter compared to the same period of
the prior year are coming in at higher rates than sales have increased thus far
in the current year, as well.
Sales by customer type were as follows:
Distributors $ 7,850,000 up 16.1%
Manufacturers 7,504,000 down 0.8%
Retailers 3,180,000 up 6.2%
- --------------------------------------------------------------------------------
Totals $18,534,000 up 7.0%
================================================================================
Sales to manufacturers were up at Conso US, but relatively flat overall
as some orders by British Trimmings customers appear to have been delayed into
the third quarter, while sales to distributors and retailers continued to show
nice improvements.
Sales outside the US and UK (the Company's major sales regions)
increased to $2.2 million, a 31.5% increase over the comparable prior year
quarter. Sales outside the US and UK by geographic region were as follows:
Western Hemisphere $ 1,002,000 up 24.1%
Continental Europe, Middle East 771,000 up 26.4%
Pacific Rim 412,000 up 68.8%
- --------------------------------------------------------------------------------
Totals $ 2,185,000 up 31.5%
================================================================================
The gross margin for the quarter remained strong at $7.3 million or
39.6% of net sales, ahead of the prior year's second quarter of $6.4 million or
36.7% of net sales. The increase coming from both Conso US (from 39.5% to 42.2%)
and British Trimmings (from 29.4% to 33.0%) was primarily due to price
increases, process improvements and greater economies of scale. A portion of the
increase at British Trimmings (1.5% of sales) is due to the reclassification of
certain sampling and other marketing related costs to marketing to conform with
the Conso US presentation.
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Distribution expenses remained relatively flat at 4.2% of net sales.
Selling expenses increased $179,000, edging up from 10.9% to 11.1% of
net sales. Conso US selling expenses increased $49,000, but declined as a
percent of net sales from 10.5% in the prior year to 10.3% in the current year.
British Trimmings' selling expenses increased $130,000 from the prior year's
second quarter from 11.8% to 13.2% of its net sales. The increases at Conso US
are due primarily to the addition of a new product manager and marketing
program for decorative accessories as a result of the acquisition of the
Claesson Company, (in March 1996), a new product manager for the workroom
supplies product lines, and other increased sales and marketing activities
related to these areas. The increases at British Trimmings are due to increased
sampling, and other marketing efforts, advertising, an extra exhibition in the
Middle East this year, and the support of the Pacific Rim from Stockport
instead of from the US operations. In addition, approximately half of the
dollar increase at British Trimmings is due to the reclassification of certain
marketing related costs to selling expense to conform to the Conso US format.
General and administrative expenses were approximately the same as the
prior year both at Conso US and British Trimmings, but declined as a percent of
net sales from 7.0% in the second quarter of the prior year to 6.4% in the
current quarter. A currency translation gain further reduced total selling,
general and administrative costs by $81,000 over the prior year's second
quarter.
Average outstanding debt (with interest) was lower and overnight
deposits higher in the second quarter of the current year than in the second
quarter of the prior year. Accordingly net interest costs decreased $98,000 in
the current quarter compared to the prior year's quarter.
The Company's effective tax rate increased in the current quarter
compared to the prior year's quarter as the Company did not record any
additional Jobs Tax Credits since there were minor increases in employment in
South Carolina in the current year's second quarter. $167,000 of Jobs Tax
Credits were recorded in the prior year's quarter.
Net income for the quarter ended December 28, 1996 was $2,064,000, an
increase of $482,000 or 30.4% over the net income of the second quarter of the
prior year of $1,582,000, bringing earnings per share to 28 cents from the prior
year's 21 cents. These earnings per share amounts reflect the 3-for-2 stock
splits given in the form of a 50% share dividend paid on October 4, 1996 and
October 6, 1995. Conso US' net income increased $464,000 over the prior year
quarter's net income, and British Trimmings' net income was up by $17,000
after adjustments for intercompany transactions, foreign exchange translation
and purchase accounting adjustments.
SIX MONTHS ENDED DECEMBER 28, 1996
COMPARED TO SIX MONTHS ENDED DECEMBER 30, 1995
Net sales for the six months ended December 28, 1996 grew to $35.5
million, a $1.2 million or 3.4% increase over the prior year's period. Sales by
Conso US were up 4.3% to $25.5 million. Sales by British Trimmings picked up
nicely in the second quarter (9.6%) but ended up with a slight increase (1.0%)
for the six months as a result of the weak first quarter. The Company is
encouraged as incoming orders for the first several weeks of the third quarter
have come in at higher rates over the prior year than in the sales increases
reported thus far for fiscal 1997.
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Sales by customer type were as follows:
Distributors $14,628,000 up 8.3%
Manufacturers 15,029,000 flat 0.0%
Retailers 5,889,000 up 0.9%
- --------------------------------------------------------------------------------
Totals $35,546,000 up 3.4%
================================================================================
Sales to manufacturers continued to be disappointing at the British
Trimmings operation. Among other things, the Company intends to more
aggressively pursue the manufacturing business. Otherwise, distributor and
retailer sales continued to increase.
Sales outside the US and UK (the Company's major sales regions)
increased to $4.0 million, a 25.3% increase over the comparable prior year
period. Sales outside the US and UK by geographic region were as follows:
Western Hemisphere $ 1,870,000 up 28.6%
Continental Europe, Middle East 1,309,000 up 10.1%
Pacific Rim 831,000 up 49.8%
- --------------------------------------------------------------------------------
Totals $ 4,010,000 up 25.3%
================================================================================
The gross margin improved from $12.3 million or 36.4% of net sales to
$14.1 million or 39.7% of net sales with margins at Conso US (after intercompany
eliminations and purchase price adjustments and before the prior year's $250,000
reserve described below) improving from 40.0% to 41.9% and increasing from 30.2%
to 34.2% at British Trimmings. At Conso US, the improvements in gross margin
were due in part to price increases, process improvements and greater economies
of scale due to increased production relating to increased sales. At Conso US, a
special provision of $250,000 (less than 1% of net sales) was made in the prior
year to absorb charges relating to the disposal of its embroidery operations,
the disposition of which was substantially complete by the end of the first
quarter. The provision reduced the prior year's consolidated gross margin to
35.7% from 36.4% and the Conso US gross margin to 38.0% from 40.0%. At British
Trimmings, improvements in gross margin were primarily from price increases and
product mix. A portion of the improvement at British Trimmings (1% of net sales)
was due to the reclassification of certain marketing related costs to selling
expense to conform to the Conso US presentation.
Distribution expenses remained relatively flat at 4.2% of net sales.
Selling expenses increased $352,000 or 9.4% and increased as a
percentage of net sales from 10.9% to 11.5%. The increase resulted from
additional sales personnel costs, marketing costs, the additional costs of the
international sales offices, and the reclassification of certain items to
selling expense, as previously discussed.
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General and administrative expenses decreased $96,000 or 3.9% from 7.1%
to 6.6% of net sales. The decreases were a result of reductions in costs in
many areas including paper supplies, telecommunications, corporate travel, and
others. Of the decrease, Conso US contributed $72,000, through decreases in
its general and administrative expenses to 6.1% of its net sales. British
Trimmings contributed the remaining $24,000 of the decrease to 7.7% of its net
sales.
Operating income for the current six month period increased 36.0% from
$4.6 million or 13.5% of net sales to $6.3 million or 17.7% of net sales, even
though selling, general and administrative costs increased overall.
The Company's tax provision for the six month period was not favorably
affected by South Carolina Jobs Tax Credits since there were minimal job
increases at the Union, S.C. plants.
Net income for the six month period ended December 28, 1996 was
$3,798,000, an increase of $858,000, or 29.2%, over the net income of the prior
year's six month period of $2,940,000 bringing earnings per share to 51 cents
from the prior year's 40 cents per share. These earnings per share amounts
reflect the 3-for-2 stock splits effected in the form of 50% share dividends
paid on October 4, 1996 and October 6, 1995. Conso US' net income increased
$843,000 over the prior year's six month period, while British Trimmings' net
income increased $15,000 from the prior year's six month period (after
adjustments for intercompany transactions, foreign exchange translations and
purchase accounting).
LIQUIDITY AND CAPITAL RESOURCES
The Company recently completed a renegotiation of its NationsBank, N.A.
revolving loan facility to facilitate the construction of the new dyehouse and
warehouse facilities and allow for potential future expansions or the
acquisitions of other businesses. Effective November 25, 1996, the new facility
provided for an increase in the total borrowings from $10 million to $15
million and a reduction in interest rates on borrowings in British pounds
sterling from UK LIBOR plus 125 basis points to UK LIBOR plus 100 basis points
(a 25 basis points reduction) and a change in the US borrowing rate from the 90
day CD rate plus 275 basis points to the 30 day US LIBOR rate plus 100 basis
points (a reduction of 102 basis points as of December 28, 1996). In addition,
the Company used available cash of $2 million to repay the Company's term loan
secured by US real estate which bore interest at a fixed interest rate of 9%.
The outstanding aggregate balances of both the Company's and British
Trimmings' lines of credit and the British Trimmings' (line of credit type)
overdraft facility were $8.1 million at December 28, 1996, with approximately
$7.7 million available for future borrowings subject to satisfaction of certain
borrowing base requirements. Working capital declined from $20.7 million at
September 28, 1996, but remained strong at $20.2 million, above the $19.5
million at June 29, 1996, despite increased capital expenditures, particularly
for the building expansions and equipment.
The Company had originally budgeted approximately $1.3 million for
capital expenditures during the 1997 fiscal year (excluding building expansions
or possible acquisitions of other businesses). In the US, Conso had budgeted
$2.3 million for the construction of a new dyehouse facility and related
equipment and $3.7 million for a new warehouse facility and some new equipment.
These expansions will free up much needed additional production and some office
space. At December 28, 1996, approximately $918,000 had been spent on these
projects with the majority of this amount going toward the purchase of dyehouse
equipment. Excluding the dyehouse and warehouse projects, capital expenditures
for the first half of the year were approximately $1,059,000. This amount,
which was greater than originally anticipated for the first six months, was due
to the acceleration of expenditures at British Trimmings to further streamline
their production processes and better facilitate the Conso US inventory
control systems. The Company has increased it budget for 1997 capital
expenditures to $1,750,000.
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The Company believes that cash generated by operations and available
borrowings under lines of credit will be adequate to fund its working capital
and capital expenditure requirements for the foreseeable future, but excluding
possible additional acquisitions of other businesses. Based on the Company's
financial position, the Company believes that it will also be able to obtain any
additional financing necessary to fund its planned long-term growth and
expansion. Such additional financing may include long-term debt or equity;
however, (except to increase its availability under its line of credit for
near-term requirements, as previously discussed) the Company has not yet made
arrangements for any such additional financing.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained herein as to Company's outlook for sales,
operations, capital expenditures and other amounts, budgeted amounts and other
projections of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for the future operations are
"forward looking" statements, and are being provided in reliance upon the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Important factors that could cause actual results or events to differ materially
from those projected, estimated, assumed or anticipated in any such forward
looking statements include, without limitation: general economic conditions in
the Company's markets, including inflation, recession, interest rates and other
economic factors, especially in the United States and the United Kingdom but
also including other areas of the world where the Company markets its products;
changes in consumer fashion preferences for finished products in the home
furnishings market, which may affect the demand for the Company's products; any
loss of the services of the Company's key management personnel; increased
competition in the United States and abroad, both from existing competitors and
from any new entrants in the decorative trimmings business; the Company's
ability to successfully continue its international expansion and to successfully
and profitably integrate into its operations any existing businesses it may
acquire; changes in the cost and availability into its operations any existing
businesses it may acquire; changes in the cost and availability of raw
materials; changes in governmental regulations applicable to the Company's
business; fluctuations in exchange rates relative to the US dollar for
currencies of the United Kingdom and other nations where the Company does
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business; casualty to or disruption of the Company's products and raw materials;
disruption of operations in the shipment of the Company's products and raw
materials; disruption of operations due to strikes or other labor unrest; and
other factors that generally affect the business of manufacturing companies with
international operations.
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Part II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following tabulation sets forth the matters voted upon at the Annual
Meeting of Shareholders of the Registrant held October 15, 1996, and the votes
on each such matter:
Against/ Broker
For Withheld Abstain Nonvotes
--- -------- ------- --------
ELECTION OF DIRECTORS
J. Cary Findlay 6,640,684 0 82,012 N/A
Antony W. Laughton 6,640,684 0 82,012 N/A
John H. Maxheim 6,640,684 0 82,012 N/A
James H. Shaw 6,640,309 0 82,387 N/A
Konstance J.K. Findlay 6,640,309 0 82,387 N/A
Marcus T. Hickman 6,640,009 0 82,687 N/A
S. Duane Southerland 6,640,684 0 82,012 N/A
APPROVAL OF SELECTION OF
DELOITTE & TOUCHE LLP AS
INDEPENDENT PUBLIC
ACCOUNTANTS 6,718,563 1,650 2,483 N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description
-------- -----------
10.51 Loan Agreement dated as of November 25, 1996 by
and between the Company and NationsBank, N.A.
("NationsBank").
10.52 Promissory Note dated November 25, 1996 in the
original principal amount of up to $15,000,000
issued by the Company in favor of NationsBank.
10.53 Promissory Note dated November 25, 1996 in the
original principal amount of up to (L)5,000,000
issued by British Trimmings Limited in favor of
NationsBank.
10.54 Sixth Amendment to Security Agreement dated as of
November 25, 1996 by and between the Company and
NationsBank.
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10.55 Fourth Amendment to Guaranty Agreement dated as
of November 25, 1996 by and between the Company
and NationsBank.
27.1 Financial Data Schedule for the quarter ended
December 28, 1996 (filed in electronic format
only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 28, 1996.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSO PRODUCTS COMPANY
Dated: February 10, 1997 By: /s/ David B. Dechant
---------------------------
Name: David B. Dechant
Title: Chief Accounting Officer and Controller
Dated: February 10, 1997 By: /s/ Gilbert G. Bartell
---------------------
Name: Gilbert G. Bartell
Title: Chief Financial Officer and
Vice President Finance/Treasurer
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INDEX TO EXHIBITS
Exhibit Description
- -------- -----------
10.51 Loan Agreement dated as of November 25, 1996 by
and between the Company and NationsBank, N.A.
("NationsBank").
10.52 Promissory Note dated November 25, 1996 in the
original principal amount of up to $15,000,000
issued by the Company in favor of NationsBank.
10.53 Promissory Note dated November 25, 1996 in the
original principal amount of up to (L)5,000,000
issued by British Trimmings Limited in favor of
NationsBank.
10.54 Sixth Amendment to Security Agreement dated as of
November 25, 1996 by and between the Company and
NationsBank.
10.55 Fourth Amendment to Guaranty Agreement dated as
of November 25, 1996 by and between the Company and
NationsBank.
27.1 Financial Data Schedule for the quarter ended
December 28, 1996 (filed in electronic format only).