O'Sullivan Industries Announces Fiscal Year 2004 Fourth Quarter and Year End Results

Furniture World Magazine

O'Sullivan Industries Holdings, Inc., a leading manufacturer and distributor of office, household and home organization RTA furniture, announced its fiscal 2004 fourth quarter and year end operating results for the period ended June 30, 2004. Fourth Quarter and Year-End Results: Net sales for the fourth quarter of fiscal 2004 were $58.9 million, an increase of 14.1% from the unusually low sales level of $51.6 million reported in fiscal 2003's fourth quarter. Fiscal 2004 sales were $268.8 million, a decrease of 7.0% from sales of $289.2 million in fiscal 2003. Fiscal year 2004's sales decline was generally due to previously reported market share setbacks that were not fully offset by our new product initiatives. Operating loss for the fourth quarter of fiscal 2004 was $681,000, down from operating income of $1.6 million, or 3.1% of net sales, reported in fiscal 2003's fourth quarter. Fiscal 2004 operating income was $9.2 million, or 3.4% of net sales, down from operating income of $26.3 million, or 9.1% of net sales, reported in fiscal 2003. The decrease in operating income was generally caused by the lower sales levels noted above, a decrease in gross margin due to changes in customer and product mix and increasing prices for raw materials, including particleboard. In addition, during fiscal 2004's fourth quarter we increased our inventory reserve by approximately $1 million. This adjustment brought our recorded inventory balance into a more acceptable range when compared to current market conditions. For the fourth quarter of fiscal 2004, we recorded a $9.4 million net loss compared to a net loss of $4.6 million reported in fiscal 2003's fourth quarter. The fiscal 2004 net loss was $27.4 million, compared to net income of $1.6 million in fiscal 2003. The fiscal 2004 net loss reflects the: -- Reduction in operating income noted above as well as higher interest expense related to our September 2003 debt refinancing; -- $3.3 million non-cash write-off of debt issuance costs related to the refinancing of our previous senior credit facility in September 2003, partially offset by a gain of $616,000 on the repurchase of $4.0 million of our senior subordinated notes in October 2003; and -- July 1, 2003 adoption of an accounting pronouncement, Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity that requires dividends accrued on our mandatorily redeemable senior preferred stock to be recorded as interest expense. The financial impact of adopting SFAS 150 was $1.1 million and $4.3 million for the quarter and fiscal year ended June 30, 2004, respectively. EBITDA for the fourth quarter of fiscal 2004 was $2.4 million, or 4.1% of net sales, compared to EBITDA of $4.5 million, or 8.7% of net sales in the fourth quarter of fiscal 2003. Fiscal 2004 EBITDA was $19.3 million, or 7.2% of net sales, compared to EBITDA of $39.5 million, or 13.6% of net sales, in fiscal 2003. The current year EBITDA balance reflects the sales shortfall and the related decrease in gross margin dollars. The attached table reconciles net income (loss) to EBITDA. 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 our 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. Working Capital: Cash on hand at June 30, 2004 was $5.2 million compared to $8.0 million at June 30, 2003. Inventory at June 30, 2004 rose to $55.1 million from $52.4 million at June 30, 2003. Accounts receivable at June 30, 2004 decreased to $22.6 million from $25.0 million at June 30, 2003. Net cash provided by operating activities for the twelve months ended June 30, 2004 was $1.0 million, compared to net cash provided by operating activities of $14.7 million for the twelve months ended June 30, 2003. Capital expenditures during fiscal 2004 were $2.6 million, down from the $5.1 million spent in fiscal 2003. Total balance sheet debt at June 30, 2004 was $220.3 million compared to $213.4 million at June 30, 2003. At June 30, 2004 the borrowing base on our revolver was approximately $26.9 million. There was no outstanding balance on the revolver at June 30, 2004. However, we did have approximately $14.0 million in outstanding letters of credit at June 30, 2004 that reduced the amount available under the revolver. Management Comments and Outlook: "While our top line has shown a little improvement, the bottom line results of O'Sullivan Industries continue to be a challenge," stated Bob Parker, president and chief executive officer of O'Sullivan Industries. "In an effort to alter the long-term direction of the company, the board of directors of O'Sullivan Industries has added several new key members to the company's executive team. The O'Sullivan Industries executive team is now in the process of strategically realigning the company and focusing the entire organization on the vital tasks of creating new top line growth and improving profitability. The following highlight some of the strategic initiatives that are currently underway at O'Sullivan Industries: -- Creation of a new Sales and Marketing Organization that will focus on targeted market segments and the key customers in those segments; -- Expansion of new product initiatives that already include successful launches of our Coleman(R) garage and business storage assortment and Intelligent Designs(R) commercial office furniture; -- Building a more capable and far reaching sourcing organization; -- Focusing our factories on improving productivity and controlling costs; -- Improving working capital management and cash flow through better planning, reduction in required inventory levels, improving vendor and customer terms, etc.; and -- Moving O'Sullivan Industries' corporate headquarters from Lamar, MO to the Atlanta, GA area which will make the company more accessible to our valued customers as well as expanding our management recruiting opportunities. "With these and other strategic initiatives in process, O'Sullivan Industries' executive team is strategically building a new foundation at the company that we think will provide improved and sustainable long term results," concluded Mr. Parker. "Through our new strategic planning process, we have identified numerous areas requiring improvement at O'Sullivan Industries. We are now in the process of implementing these strategic initiatives that are beginning to transform O'Sullivan Industries into a stronger company for the future." Additional information about the company, such as news releases, SEC filings, latest analyst and investor FAQ, etc., is available on the company's website at http://www.osullivan.com/ . For further information and questions, e-mail your requests to investor.relations@osullivan.com , or call the company's Investor Relations Department at (417) 682-8370.