O'Sullivan Industries Holdings, Inc., a leading manufacturer and distributor of RTA furniture for the home and office, today reported net sales of $68.5 million for its third quarter ended March 31, 2005. Third quarter sales decreased 6.4% over prior year sales of $73.2 million. Net sales grew sequentially 3.6% over second quarter and represented the third consecutive quarter of increasing sales.
"These results are in line with our expectations as we continue to reorganize O'Sullivan and solidify our infrastructure," commented Bob Parker, President and CEO. "While we would like to see increased sales and profits earlier, we are on track with our plan to turn O'Sullivan around and begin to deliver increases in fiscal 2006."
Cash flow for the third quarter was a negative $4.0 million as compared to the positive $6.3 million reported in the prior year period. Cash flow for the nine months ended March 31, 2005 was $1.8 million compared to $9.6 million in the prior period. Ending cash balance as of March 31, 2005 was $7.1 million and there was no outstanding balance on the revolving line of credit. These results reflect management's detailed focus on controlling working capital and cash management while executing their strategic business plan.
Net loss for the third quarter of fiscal 2005 was $13.2 million compared to a net loss of $5.3 million for the prior year period. Net loss for the nine months ended March 31, 2005 was $33.9 million vs. prior year's $18.0 million net loss. Year-to-date net sales totaled $197.4 million in fiscal 2005 vs. $209.9 million in fiscal 2004, a decrease of 6.0%.
Rick Walters, Executive Vice President and CFO, summarized O'Sullivan's financial philosophy, "We will continue to keep a very close watch over working capital items with special attention being given to maintaining efficient inventory levels at all three stages of production (raw materials, work-in-process, and finished goods.) In the last nine months inventory has been reduced by over $14.8 million while maintaining outstanding customer service levels. Included in this reduction is about $4.8 million of charges booked to increase inventory reserves as we have focused on cleaning up our obsolete and excess inventory. Strong relationships with vendors and customers have our accounts payable and accounts receivable days also moving in positive directions. Year-to-date SG&A expenses have increased only 1.8% when compared to the same period last year in spite of substantial costs to execute our corporate relocation and staff restructuring, which will not repeat in fiscal 2006."
The third quarter results included two significant items:
-A non-cash charge of approximately $3.6 million to write-down raw material and work-in-process inventory balances to their net realizable value; and
-Exit and disposal charges of $1.5 million for the previously announced closing of O'Sullivan's Australian operations. Of this amount, $357,000 represents cash charges related to the severance, lease terminations, other agreements and costs to administer the winding down of the Australian operations. The remaining $1.2 million is a non-cash inventory write-down reflected in cost of sales. We expect the total costs associated with the closure to be within the $1.5 to $2.2 million range given in the original announcement.
Mr. Walters concluded, "During the first half of fiscal 2005 O'Sullivan took great strides in reducing the amount of finished goods inventory required to run our business. During the third quarter we increased our visibility to better control and value our raw material and work-in-process inventory. These actions, along with closing down our Australian operations, are further steps in executing the strategic plan that is focused on generating profitable growth in the years ahead."
Conclusion and Outlook: "Bringing together a proven dynamic professional sales and marketing organization with a focused strategic plan is continuing to show positive market results," concluded Bob Parker. "Our recent successful showing at the International Furniture Market at High Point along with the celebration of our 50th Anniversary is providing sustainable momentum for the future. However, financial performance for the fourth quarter of fiscal 2005 will continue to be a challenge compared to prior year results. Continuing to execute our plan should result in increases in sales and earnings in fiscal 2006."
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