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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number: 0-22942
CONSO PRODUCTS COMPANY
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(Exact name of registrant as specified in its charter)
South Carolina 57-0986680
- -------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
513 North Duncan Bypass, P.O. Box 326, Union, South Carolina 29379
- ------------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
864/427-9004
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(Registrant's telephone number, including area code)
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 Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 10, 1997:
Common Stock, no par value.......7,494,188 shares.
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TABLE OF CONTENTS
Part I. Financial Information Page No.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 27, 1997
and June 28, 1997 3
Consolidated Statements of Operations for the three
months ended September 27, 1997 and
September 28, 1996 5
Consolidated Statement of Shareholders' Equity for the
three months ended September 27, 1997 6
Consolidated Statements of Cash Flows for the three
months ended September 27, 1997 and
September 28, 1996 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 27, 1997 June 28, 1997
------------------ -------------
ASSETS
CURRENT ASSETS:
Cash $ 239,521 $ 489,580
Accounts receivable, net of allowances for bad debts
and customer deductions of $323,090 and
$310,876 on September 27, 1997 and June 28,
1997, respectively.
11,036,832 11,747,482
Inventories (Notes 3 and 4) 25,639,405 25,339,936
Deferred income taxes - current portion 610,969 625,873
Prepaid expenses and other 637,289 426,508
----------- -----------
Total current assets 38,164,016 38,629,379
----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements 1,222,857 1,177,248
Buildings and improvements 11,198,435 9,655,017
Machinery and equipment 14,436,957 14,216,300
----------- -----------
Total 26,858,249 25,048,565
Accumulated depreciation (8,853,723) (8,485,714)
----------- -----------
Total property and equipment, net 18,004,526 16,562,851
----------- -----------
DEFERRED INCOME TAXES (Note 5) 1,248,906 1,120,694
DEFERRED COSTS 634,295 246,477
----------- -----------
TOTAL ASSETS $58,051,743 $56,559,401
=========== ===========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
September 27, 1997 June 28, 1997
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short- Term Borrowings $10,757,153 $10,405,973
Current maturities of long-term debt 201,000 208,063
Trade accounts payable 3,920,281 4,162,339
Accrued liabilities 3,483,188 2,879,703
----------- -----------
Total current liabilities 18,361,622 17,656,078
NONCURRENT LIABILITIES: ----------- -----------
Long-term debt
Deferred income taxes 512,400 535,184
----------- -----------
Total noncurrent liabilities 512,400 535,184
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SHAREHOLDERS' EQUITY (Notes 6, 7 and 8):
Preferred stock (no par, 10,000,000 shares
authorized, no shares issued)
Common stock (no par, 50,000,000 shares
authorized, 7,493,363 shares issued) 16,986,140 16,970,175
Retained earnings 21,759,416 20,728,449
Cumulative translations gain 432,165 669,515
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Total shareholders' equity 39,177,721 38,368,139
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $58,051,743 $56,559,401
=========== ===========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
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September 27, 1997 September 28, 1996
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NET SALES $16,734,699 $17,012,314
COST OF GOODS SOLD 10,612,393 10,239,426
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GROSS MARGIN 6,122,306 6,772,888
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SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Distribution expense 773,069 713,260
Selling expense 2,117,490 2,035,402
General and administrative expense 1,412,903 1,154,027
Currency exchange gain (544) (22,431)
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Total 4,302,918 3,880,258
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INCOME FROM OPERATIONS 1,819,388 2,892,630
INTEREST EXPENSE, NET 154,959 131,196
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INCOME BEFORE INCOME TAXES 1,664,429 2,761,434
INCOME TAX PROVISION (Note 5) 633,462 1,027,699
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NET INCOME $ 1,030,967 $ 1,733,735
=========== ===========
Net income per share $0.14 $0.23
=========== ===========
Weighted average number of shares
outstanding (Note 6) 7,492,236 7,481,977
=========== ===========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 27, 1997
Common Stock Cumulative
-------------------------- Retained Translation
Shares Issued Amount Earnings Adjustments Total
------------- ----------- ----------- ----------- -----------
Balance, June 28, 1997 7,491,540 $16,970,175 $20,728,449 $669,515 $38,368,139
Stock Options Exercised 825 5,500 5,500
Shares Issued for Director
Fees 998 10,465 10,465
Net income 1,030,967 1,030,967
Translation loss (237,350) (237,350)
--------- ----------- ----------- -------- -----------
September 27, 1997 7,493,363 $16,986,140 $21,759,416 $432,165 $39,177,721
========= =========== =========== ======== ===========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-----------------------------------------
September 27, 1997 September 28, 1996
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OPERATING ACTIVITIES:
Cash received from customers $17,897,746 $17,986,814
Cash paid to suppliers and employees (16,122,975) (14,512,369)
Interest paid (223,436) (220,330)
Interest received 31,908 55,603
Income taxes paid 17,596 (158,227)
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Net cash provided by operating activities 1,600,839 3,151,491
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INVESTING ACTIVITIES:
Purchase of property and equipment (849,352) (682,125)
Proceeds from sale of property and equipment 4,000 -
Construction of and equipment purchase for new
dyehouse and warehouse (1,338,148) (194,406)
Payments for investment in India Trimmings (Private)
Limited (211,035) -
Payments for acquisition of assets of HFDC (186,718) -
----------- -----------
Net cash used in investing activities (2,581,253) (876,531)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit
arrangements 714,390 (338,785)
Payments on long-term debt - (54,165)
Principal payments under capital lease obligations - (16,592)
Proceeds from issuance of common stock 15,965 18,500
----------- -----------
Net cash provided by (used in) financing activities 730,355 (391,042)
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(DECREASE)INCREASE IN CASH (250,059) 1,883,918
CASH AT:
BEGINNING OF PERIOD 489,580 189,846
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END OF PERIOD $ 239,521 $2,073,764
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See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(UNAUDITED)
Three Months Ended
--------------------------------------------
September 27, 1997 September 28, 1996
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RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $1,030,967 $1,733,735
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 478,149 430,691
Amortization of deferred expenses 14,600 18,419
Provision for deferred taxes (105,301) 57,130
Currency translation gain (544) (22,431)
Change in assets and liabilities:
Accounts receivable 595,153 407,700
Inventory (635,643) (328,656)
Prepaid expenses and other (221,391) 229,811
Trade accounts payable (182,297) 218,366
Accrued liabilities 627,146 406,726
---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $1,600,839 $3,151,491
========== ==========
See notes to unaudited consolidated financial statements
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CONSO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 27, 1997
1. CONSOLIDATION
The financial statements are unaudited and include the accounts of
the Company, its wholly-owned subsidiary, British Trimmings Limited and its
subsidiaries (all operating within the United Kingdom), and Conso's
majority-owned subsidiary, Val-Mex, S.A. de C.V., which operates Conso's
Juarez, Mexico assembly plant.
The British Trimmings Limited 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 published in the Wall
Street Journal. Assets and liabilities are translated based on the rates in
effect on the balance sheet date. Income statement amounts are translated using
the average of the month-end exchange rates in effect during the period. The
resulting currency translation adjustments are accumulated and reported as a
separate component of shareholders' equity. From time to time the US parent
company loans or is loaned amounts from its foreign subsidiaries. It is the
Company's policy that such amounts are repayable or receivable in the foreign
currency of the subsidiary. Translation gains and losses on such amounts due to
or from foreign subsidiaries and all exchange gains and losses on realized
foreign currency transactions are included in the consolidated results of
operations. The 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.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, which will be effective for
the Company for the fiscal year ending July 3, 1999. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The Company
has not yet completed its analysis of which additional operating segments, if
any, it will report on separately, or increases in disclosures, if any, will be
required beyond that already reported in its financial statements.
2. INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the three months
ended September 27, 1997 and September 28, 1996 reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented, in all material respects. All such
adjustments are of a normal recurring nature, except when disclosed otherwise
in the notes below. These financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Operating results for such
interim periods are not necessarily indicative of results to be expected for
the year ending June 27, 1998.
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 periods ended
September 27, 1997 and September 28, 1996 each include 13 weeks.
3. INVENTORIES
The composition of inventories at September 27, 1997 and June 28,
1997 was as follows:
September 27, 1997 June 28, 1997
------------------ -------------
Raw Materials $ 7,696,482 $ 7,933,716
Work-In-Process 5,010,087 4,232,699
Finished Goods 12,932,836 13,173,521
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Totals $25,639,405 $25,339,936
=========== ===========
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4. INCOME TAXES
The Company did not record any additional Jobs Tax Credits since there
were no increases in employment in South Carolina in the current year's first
quarter.
5. 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.
Share and per share amounts have been adjusted for the 3-for-2 stock
splits.
6. STOCK OPTIONS
On September 5, 1997, the Company granted additional options to
certain key employees to purchase an aggregate of 21,000 shares of the
Company's common stock under its 1993 Stock Option Plan.
The options were granted at $10.30 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.
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, 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.)
In fiscal year 1997, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-Based Compensation". Accordingly, the Company applies
APB Opinion 25 and related interpretations for its stock option plans, and does
not recognize compensation cost for the incentive stock options referred to
above. If the Company had elected to recognize compensation cost based on fair
value of the options granted at the grant date as prescribed by SFAS No. 123,
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table below:
September 27, 1997 September 28, 1996
------------------ ------------------
Net income - as reported $1,030,967 $1,733,735
Net income - pro forma $1,007,168 $1,711,718
Net income per share - as reported $ .14 $ .23
Net income per share - pro forma $ .13 $ .23
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The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions (for options issued in years):
FY 1998 FY 1997 FY 1996
--------- --------- ---------
Expected dividend yield None None None
Expected stock price volatility 37.59% 33.92% 25.51%
Risk-free interest rate 5.81% 6.72% 6.04%
Expected life of options 3.2 years 3.2 years 3.2 years
The weighted average fair values of options granted during fiscal
1998, fiscal 1997 and fiscal 1996 are $4.36, $4.56 and $2.32 per share,
respectively. (All amounts above have been adjusted to reflect the 3-for-2
stock splits issued on October 4, 1996 and October 6, 1995.)
7. DIRECTORS STOCK ELECTION PLAN
In January 1997, the Company established a Stock Election Plan for
Non-Employee Directors whereby non-employee directors may elect to receive
their director compensation in common stock in lieu of cash payments. The plan
permits the award of up to 25,000 shares of the Company's stock in lieu of
director compensation. During the quarter ended September 27, 1997, 998 shares
were issued in accordance with directors' elections. The compensation under
this plan is not material.
8. STOCK REPURCHASE
On November 10, 1997, the Company announced that its Board of
Directors had authorized the repurchase of up to 500,000 shares of its
outstanding common stock, or about 6.7% of the outstanding shares.
Repurchases may be made from time to time depending upon market
conditions. The Company's Executive Committee will direct the specific
repurchases and approve prices and other terms. The Company expects to fund
repurchases either through internally generated funds or existing credit lines,
but may consider additional credit facilities depending upon the timing and
amount of repurchases.
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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 consolidated financial statements and notes thereto, and with the
Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997
including the financial information and management's discussion contained or
incorporated by reference therein.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 27, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 28, 1996
Net sales for the quarter ended September 27, 1997, were $16.7
million, down from the prior year's first quarter. Conso US was down $139,000
or 1.1% from the comparable prior year quarter, while British Trimmings
declined $138,000 or 2.9%.
British Trimmings sales would have increased and brought revenues
overall to a roughly flat position against the prior year's figures were it not
for the sale of MacCulloch & Wallis (London) Ltd ("MacCulloch & Wallis"), a
retail operation in London servicing primarily the apparel industry with
haberdashery items. The majority of items sold by this operation were goods
purchased for resale rather than manufactured by the Company and tailored to a
highly competitive, lower margin industry. Operations from this London based
group had been barely breaking even for the last several years and were facing
potential losses due to increasing rent and other overhead costs. Accordingly,
the Company sold the business to another related business. British Trimmings
continues to supply certain manufactured items to its new owner. The business
operated through July of this year (until the business was sold) with sales
after consolidating adjustments of approximately $100,000 compared to the prior
year's sales of $350,000. Sales were further affected by the factors noted
below.
Sales by customer type were as follows:
Distributors $ 7,398,000 up 9.1%
Manufacturers 6,590,000 down 12.4%
Retailers 2,747,000 up 1.4%
- --------------------------------------------------------------------------
Total $16,735,000 down 1.6%
==========================================================================
Sales to manufacturers, the Company's largest growth area in prior
years, continued to be down 12.4% overall, 12.2% at Conso US and 13.5% at
British Trimmings.
The manufacturing business in the US has been effected both by
increased domestic competition and low-cost imports of certain items. The
Company is scheduled to begin production in India in January 1998 to compete
with the lower cost imports and has established a manufacturing specials
support team including the Company's top manufacturing sales person to work on
developing the expertise and success of all the Company's sales personnel in
dealing with manufacturing businesses and to enhance the quality of service to
this group.
In the UK, manufacturing business appears to have been affected, not
so much by competition but, by production and delivery problems earlier in the
prior year. A special team has been established at British Trimmings, as well,
to improve service to this group and to recover business from customers who went
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to the competition. In some instances this opportunity will arise slowly as the
Company proves its service has been restored to previous levels; levels
typically better than the competition.
The distributor business continues to set record levels with sales to
distributors increasing by 9.1% overall, 6.0% in the US and 15.0% in the
UK.
On the retail side, a much smaller market in the UK than in US,
British Trimmings sales were down 30.8%. However, were it not for the sale of
the MacCulloch and Wallis business, this area would have been up approximately
3.0%. In the US sales to retailers were up 11.6% and against the decline in the
UK as a result of the MacCulloch and Wallis sale, this brought the retail
group to a 1.4% increase overall.
Sales outside the US and UK (the Company's major sales regions)
increased to $2.0 million, a 9.0% increase over the comparable prior year
quarter. Sales outside the US and UK by geographic region were as follows:
Western Hemisphere $ 908,000 up 4.6%
Continental Europe, Middle East 583,000 up 8.3%
Pacific Rim 498,000 up 18.8%
- --------------------------------------------------------------------
Total $1,989,000 up 9.0%
====================================================================
The gross margin for the quarter declined to 36.6% from the prior year
quarter's 39.8%. Gross margin declined due to five factors; the sales of
MacCulloch & Wallis, and the results of the year-end physical inventory count,
both of which affected the comparability to the prior year's quarter figures,
excess personnel costs, the UPS strike and changes in the sales mix, pricing,
and reformulation of product to meet competitive offerings.
In the US, the gross margin declined by $282,000, from 41.4% of sales
in the prior year to 39.6% of sales in the current year. Approximately $100,000
of the reduction is attributable to prior increases in personnel primarily in
the production support departments in anticipation of greater sales growth. The
Company has taken action to reduce personnel in these areas considering the
current sales climate. The remainder of the reduction in the US is attributed
to increased competitive pressures, changes in sales mix, pricing and the
reformulation of product to meet competitive offerings, including low-priced
imports and most likely, to some degree, the UPS strike.
In the UK, the gross margin declined from 35.6% of sales in the prior
year to 28.6% in the current year, for a decrease of $368,000. It is estimated
that approximately $150,000 of the prior year's physical inventory adjustment
recorded at the end of the prior fiscal year was related to and would have
reduced the prior year's margin in this quarter. In addition, the sale of the
MacCulloch & Wallis division resulted in a reduction of approximately $100,000
of gross margin on sales in that group for this year compared to the prior
year. In addition, the increase in personnel at British Trimmings necessary to
restore inventory levels and deliveries after the deterioration in the first
half of fiscal 1997 cost the Company approximately an additional $100,000. The
remainder of the reduction is attributed to changes in product mix and pricing
and the affect of changes in the exchange rate on the consolidation.
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Distribution expenses increased $60,000 from 4.2% to 4.6% of sales.
In the UK distribution costs increased $39,000. Approximately $22,000 of the
increase was due to the effect of changes in the exchange rate on
consolidation, and the remainder due to increases in personnel and a fuel tax
surcharge levied by the freight carrier. In the US, the $21,000 increase was
primarily due to increases in personnel and additional carriage costs of the
UPS strike during the quarter. Steps have been taken to reduce personnel and
British Trimmings is considering a change in freight carriers as an additional
cost saving measure.
Selling expenses increased $82,000 from 12.0% to 12.7% of net sales.
British Trimmings' selling expenses increased $83,000 with Conso US' selling
expenses remaining virtually flat. Of the $83,000 increase at British
Trimmings, approximately $54,000 was due to the affect of the exchange rate
changes with the remaining increase related primarily to redundancy or
severance costs arising in connection with the disposal of MacCulloch & Wallis.
Steps have been taken to reduce additional personnel and other areas are being
looked at for possible cost reductions in light of the current conditions.
General and administrative expenses increased $259,000 from 6.8% to
8.4% of net sales. In the US, which increased $167,000, the primary
contributing items were the reclassification of our Vice President of
Production, in connection with his appointment to Co-Managing Director of
British Trimmings, and certain other personnel out of manufacturing and into
administrative costs, and the expensing of $80,000 of incentive compensation
related to a change in the formula for calculating bonus provisions to tie-in
more closely with the company's performance against prior year and budget
figures. In the UK, which increased $92,000, a slight improvement in general
and administrative costs was offset by an increase as a result of exchange rate
changes of $54,000 and a $47,000 charge for legal fees due to the disposal of
the MacCulloch & Wallis operations.
As a result of the decline in margin and increases in selling, general
and administrative costs, operating income decreased approximately $1.1 million
or 37.1% from 17.0% to 10.9% of net sales.
Interest expense increased slightly while taxes were down
significantly as a result of the reduction in operating income and therefore
pre-tax income. The Company reported an effective tax rate for the quarter of
38.0% compared to the prior year's same quarter of 37.2%. The increase in the
rate is due to the fact that the normal US effective rate (or without any Jobs
Tax Credits) is approximately 37.5% and British Trimmings reported a loss for
the quarter for which the tax reduction was only effective at a lower rate of
34.0%.
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Net income for the quarter ended September 27, 1997 was $1,031,000, a
decrease of $703,000 or 40.5% from the net income of the first quarter of the
prior year of $1,734,000, bringing earnings per share to 14 cents down from the
prior year's 23 cents. These earnings per share amounts reflect the 3-for-2
stock split given in the form of a 50% share dividend paid on October 4, 1996.
Conso US net income decreased $310,000 to $1.3 million from the prior year
quarter's net income of $1.6 million; down from 21 cents per share to 17 cents
per share, while British Trimmings net income decreased $393,000 (after
adjustments for intercompany transactions, foreign exchange translation and
purchase accounting), declining from net income of $168,000, or 2 cents per
share, to a net loss of $226,000, or 3 cents per share.
In order to restore profitability to previous levels and in light of
current sales conditions, the Company has substantially reduced its personnel
compliment. Personnel since June 1997 has declined 58 people or 28% in the US,
90 people or 17.3% in the UK and 43 people or 14.1% in Mexico taking its
employment at its current production regions from 1574 to 1383. The benefits
from these and other cost reductions will not be fully realized until later
this fiscal year and will result in some redundancy or severance costs which
will impact the second quarter.
LIQUIDITY AND CAPITAL RESOURCES
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 $6.8 million at September 27, 1997, with approximately
$4 million available for future borrowings subject to satisfaction of certain
borrowing base requirements. Working capital declined by $1.2 million to $19.8
million at September 27, 1997, from $21 million at June 28, 1997, primarily
from a partial funding of the long-term capital projects through the revolver
loan.
Since the Company, in 1994, retired its $1.6 million dollar equipment
loan that carried an annual interest rate of 11.85%, the Company's equipment
and certain British Trimmings' assets are available as collateral for
additional borrowings.
The Company anticipates that its total capital expenditures during the
1997 fiscal year, excluding major building expansions, will be approximately
$1,050,000, of which approximately $385,000 has been spent through September
27, 1997. 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. In addition, the Company has
budgeted $1 million for the re-equipping of the space left unutilized by
the move of the warehouse and dyehouse facilities for more efficient production
work flow and some additional office space. As of September 27, 1997,
approximately $5.5 million had been spent on these projects with the majority
of the amount going toward the building of the new warehouse and dyehouse.
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
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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, the Company has not yet made
arrangements for any such additional financing.
On November 10, 1997, the Company announced that its Board of
Directors had authorized the repurchase of up to 500,000 shares of its
outstanding common stock, or about 6.7% of the outstanding shares.
Repurchases may be made from time to time depending upon market
conditions. The Company's Executive Committee will direct the specific
repurchases and approve prices and other terms. The Company expects to fund
repurchases either through internally generated funds or existing credit lines,
but may consider additional credit facilities depending upon the timing and
amount of repurchases.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, which will be effective for
the Company for the fiscal year ending July 3, 1999. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The Company
has not yet completed its analysis of which additional operating segments, if
any, it will report on separately, or increases in disclosures, if any, will be
required beyond that already reported in its financial statements.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained in this report as to the Company's outlook for
sales, operations, capital expenditures and other amounts, budgeted amounts and
other projections of future financial or economic performance of the Company,
and statements of the Company's plans and objectives for the future operations
are "forward looking" statements, and are being provided in reliance upon the
"safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Important factors that could cause actual results or events to differ
materially from those projected, estimated, assumed or anticipated in any such
forward looking statements include, without limitation: general economic
conditions in the Company's markets, including inflation, recession, interest
rates and other economic factors, especially in the United States and the United
Kingdom but also including other areas of the world where the Company markets
its products; changes in consumer fashion preferences for finished products in
the home furnishings market, which may affect the demand for the Company's
products; any loss of the services of the Company's key management personnel;
increased competition in the United States and abroad, both from existing
competitors and from any new entrants in the decorative trimmings business; the
Company's ability to successfully continue its international expansion and to
successfully and profitably integrate into its operations any existing
businesses it may acquire; changes in the cost and availability of raw
materials; changes in governmental regulations applicable to the Company's
business; fluctuations in exchange rates relative to the US dollar for
currencies of the United Kingdom and other nations where the Company does
business; casualty to or disruption of the Company's production facilities and
equipment; delays and disruptions in the shipment of the Company's products and
raw materials; disruption of operations due to strikes or other labor unrest;
and other factors that generally affect the business of manufacturing companies
with international operations.
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PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CONSO PRODUCTS COMPANY
Dated: November 10, 1997 By: /s/ David B. Dechant
------------------------
Name: David B. Dechant
Title: Chief Accounting Officer
Dated: November 10, 1997 By: /s/ Gilbert G. Bartell
------------------------
Name: Gilbert G. Bartell
Title: Chief Financial Officer
and Vice President of
Finance/Treasurer
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