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Furniture Maker O'Sullivan Industries Holdings, Inc. Reports Increase in Net Sales, Operating Loss

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O'Sullivan Industries Holdings, Inc., a leading manufacturer and distributor of office, household and home organization RTA furniture, reported net sales of $66.2 million for its second fiscal quarter ended December 31, 2004. Second quarter sales increased 1.5% over prior year. Net sales grew sequentially 5.6% over first quarter and represented the second consecutive quarter of increasing sales. "Organizational changes and a focused strategic plan are beginning to manifest themselves in the marketplace," stated Bob Parker, President and CEO. "Bringing together a proven, professional senior management team has provided O'Sullivan with the opportunity for a more detailed focus on our key account sales and marketing strategies," Parker concluded. Cash flow for the second quarter was $6.9 million as compared to a negative $1.2 million reported in the first quarter. Six months cash flow results were a positive $5.8 million. There was no outstanding balance on the revolving line of credit at the close of the second quarter. These results are due to the intense focus on cash management throughout the business. Rick Walters, Executive Vice President and CFO, summarized, "By focusing on working capital improvements, especially on inventory efficiency and production control, we were able to generate a quarterly positive cash flow of $6.9 million while meeting all our current interest obligations. Continuing to emphasize balance sheet improvements and a company-wide focus on cash management should provide adequate funds to meet continuing cash needs and give us the financial stability for future growth." As expected, the focused execution on reducing working capital, especially inventory levels, resulted in an operating loss of $3.2 million for fiscal 2005's second quarter. This compares to an operating profit of $2.7 million in the fiscal 2004 second quarter. The main causes of the year-over-year reduction were the gross profit impact of unabsorbed manufacturing overhead due to lower factory production levels and continued high raw material costs. This gross profit impact was in-line with Company plans and reflects the successful execution of an inventory reduction of almost $10 million in the quarter. Net loss for the second quarter of fiscal 2005 was $12.1 million, compared to a net loss of $5.4 million for the same quarter of fiscal 2004. Net loss for the first half of fiscal 2005 was $20.6 million, compared to a loss of $12.7 million for the first half of fiscal 2004. The decline was due primarily to our lower operating income. EBITDA for fiscal 2005's second quarter was $0.04 million, or 0.1% of net sales, compared to EBITDA of $6.6 million, or 10.2% of net sales reported in the fiscal 2004 second quarter. This EBITDA decline is consistent with the operating income change noted above and reflects the impact of the inventory reduction focus. EBITDA should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow and other measures of financial performance prepared in accordance with generally accepted accounting principles. EBITDA may differ in the method of calculation from similarly titled measures used by other companies. EBITDA provides another measure of the operations of the business and liquidity prior to the impact of interest, taxes and depreciation. Further, EBITDA is a common method of valuing companies such as O'Sullivan. Conclusion and Outlook "The continued focus on the execution of our plan has resulted in a much needed reduction of working capital and a positive impact on cash," concluded Bob Parker. "We are committed to this cash management focus and believe our efforts to build a consumer-focused, marketing driven company will begin to show more favorable results by the end of fiscal '05 and into fiscal '06. However, financial performance for the balance of fiscal '05 will continue to be a challenge compared to the prior year results. We anticipate a reduction of net sales in the mid-single digit range and lower earnings due to the impact of high material costs, unfavorable manufacturing absorption as we reduce inventory, and a higher mix of promotionally priced products."