Monday, May 16, 2005

The news was not good in O'Sullivan Industries' quarterly report, which was filed today with the Securities and Exchange Commission.
"O'Sullivan has a stockholders' deficit of approximately $197.5 million as of March 31, 2005, incurred a net loss of $33.9 million for the nine months ended March 31, 2005 and expects to incur additional losses during the remainder of the fiscal year ending June 30, 2005 and during fiscal 2006.," the report said.
The news doesn't stop there. "O'Sullivan's net sales have declined each of the past four years. O'Sullivan's sales and operating results during fiscal 2004 and the first three quarters of fiscal 2005 were impacted by increased competition from foreign and domestic competitors, a product mix reflecting more promotional merchandise, unfavorable manufacturing overhead variances incurred from lower operating levels due to lower sales and execution of its inventory reduction plan and higher raw material costs, principally particleboard and fiberboard. The third quarter of fiscal 2005 and fiscal 2005 year to date results of operations have also been adversely affected by an increase in O'Sullivan's reserves for raw materials and work-in-process inventories of $3.6 million and by charges and expenses aggregating $1.5 million in connection with the closing of its Australian operations."
As usual, the report cites good news. "O'Sullivan has recently added several new key members to its executive management team. The new executive management team has evaluated O'Sullivan's strategies and core competencies to determine the most effective way to improve sales, reduce costs and increase operating income." That refers, of course, to the ever increasing horde of former associates of million-dollar CEO Bob Parker from his Newell Rubbermaid days.
The company will be able to meet its debts, thanks to the five year, $40 million refinancing, which occurred on Sept. 29, 2003, the report said. The company expects to be able to borrow $8.5 to $10 million through the end of this fiscal year.
Just in case revenues are below their forecasted levels, the report said, "O'Sullivan believes it has the ability to reduce or delay discretionary expenditures and further reduce operating costs and expenses so that it will have sufficient cash resources through the next twelve months. However, there can be no assurance that O'Sullivan will be able to adjust its costs insufficient time to respond to revenue shortfalls, should that occur."
The report indicates that the company has complete faith in the changes made by its Newell Rubbermaid transplants. "We are implementing these initiatives and are beginning to see some results," the report said. "For example, we have:
"-completed the move of our corporate headquarters to the Atlanta, Georgia area;
"-filled most of the vacant positions in our marketing organization;
"-expanded our in-house sales organization to focus on building detailed growth plans and programs with our larger customers and to provide increased attention to smaller customers;
"-worked with our suppliers to encourage partnering and improved product features while maintaining competitive pricing;
"-reduced our net inventory by $15.2 million since June 30, 2004."
The report said, "We have begun to see the results of our strategic initiatives; however, it will take time for the full impact of these efforts to become evident in our financial results. We continue to believe these initiatives will help O'Sullivan achieve improved long-term results."

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