Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 30, 1998
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: 1-12754
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1659062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Gulf Street, Lamar, Missouri 64759-1899
(Address of principal executive offices) (ZIP Code)
(417) 682-3322
(Registrant's telephone number, including area code)
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 [ ]
As of November 5, 1998, 15,891,532 shares of Common Stock of
O'Sullivan Industries Holdings, Inc., par value $1.00 per share,
and associated preferred stock purchase rights were outstanding.
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except for share data)
September 30, June 30,
Assets: 1998 1998
------ ------------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,722 $ 1,810
Trade receivables, net of allowance
for doubtful accounts of $2,522
and $2,289, respectively 66,499 61,548
Inventories:
Finished merchandise 30,310 26,892
Work in process 6,217 6,835
Raw materials 12,286 13,000
------- -------
48,813 46,727
Prepaid expenses and other current assets 3,621 3,762
------- -------
Total current assets 123,655 113,847
------- -------
Property, plant and equipment, at cost 155,077 145,666
Less accumulated depreciation and
amortization (54,989) (52,288)
------- -------
100,088 93,378
Goodwill, net of accumulated amortization 42,672 43,089
------- -------
$266,415 $250,314
======= =======
Liabilities and Stockholders' Equity:
------------------------------------
Current liabilities:
Accounts payable $ 17,378 $ 14,031
Current portion long-term debt 4,000 4,000
Accrued liabilities 25,289 22,613
Income taxes payable 2,404 310
------- -------
Total current liabilities 49,071 40,954
------- -------
Long-term debt, less current maturities 35,000 30,000
Deferred income taxes 15,690 15,690
Stockholders' equity:
Preferred stock; $1.00 par value,
20,000,000 shares authorized, none issued - -
Common stock; $1.00 par value,
100,000,000 shares authorized,
16,819,950 issued 16,820 16,820
Additional paid-in capital 87,532 87,809
Foreign currency translation (62) (36)
Retained earnings 72,032 68,317
------- -------
176,322 172,910
Less common stock in treasury at cost,
848,853 and 798,231 shares, respectively 9,668 9,240
------- -------
Total stockholders' equity 166,654 163,670
------- -------
Commitments and contingencies ------- -------
$266,415 $250,314
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended September 30, 1998 and 1997
(in thousands, except for per share data)
Three months ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $87,673 $77,141
Costs and expenses:
Cost of sales 62,780 54,403
Selling, marketing and administrative 18,373 16,541
Interest, net 715 473
------ ------
81,868 71,417
------ ------
Income before income tax provision 5,805 5,724
Income tax provision 2,090 2,121
------ ------
Net Income $ 3,715 $ 3,603
====== ======
Earnings per common share
Basic $ 0.23 $ 0.22
Diluted $ 0.23 $ 0.21
Weighted average common shares outstanding
Basic 15,966 16,653
Diluted 16,275 17,061
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended September 30, 1998 and 1997
(in thousands)
Three months ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from (used by) operating activities:
Net income $ 3,715 $ 3,603
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,160 2,525
Bad debt expense 200 396
Loss on disposal of assets 31 -
Employee option amortization 187 187
Changes in current assets and liabilities:
Trade receivables (5,151) (4,260)
Inventories (2,086) (1,581)
Other assets 115 202
Accounts payable, accrued liabilities
and income taxes payable 7,930 3,844
------ ------
Net cash provided by operating activities 8,101 4,916
------ ------
Cash flows used for investing activities:
Capital expenditures (9,484) (9,770)
Cash flows from (used by) financing activities:
Addition to long-term debt 5,000 2,500
Purchase of common stock for treasury (1,618) (3,703)
Exercise of stock options 136 96
Sale of common stock to employee
benefit plans 777 1,063
------ ------
Net cash flows provided (used)
by financing activities (4,295) (44)
------ ------
Net increase (decrease) in cash and
cash equivalents 2,912 (4,898)
Cash and cash equivalents, beginning of period 1,810 6,975
------ ------
Cash and cash equivalents, end of period $ 4,722 $ 2,077
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended September 30, 1998
(in thousands)
Preferred stock Common stock Additional
--------------- -------------- paid-in
Shares Dollars Shares Dollars capital
------ ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 - $ - 16,820 $16,820 $87,809
Net income
Foreign currency translation
Purchase of common stock
Exercise of stock options,
net of tax benefit (20)
Sale of common stock (257)
----- ----- ------ ------- -------
Balance, September 30, 1998 - $ - 16,820 $16,820 $87,532
===== ==== ====== ====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Foreign Treasury stock
currency Retained ---------------
translation earnings Shares Dollars
----------- -------- ------ -------
<S> <C> <C> <C> <C>
Balance, June 30, 1998 $ (36) $68,317 (798) $(9,240)
Net income 3,715
Foreign currency translation (26)
Purchase of common stock (132) (1,618)
Exercise of stock options,
net of tax benefit 10 156
Sale of common stock 71 1,034
------- ------ ---- ------
Balance, September 30, 1998 $ (62) $72,032 (849) $(9,668)
======= ====== ==== ======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Total
stockholders'
equity
------------
<S> <C>
Balance, June 30, 1998 $163,670
Net income 3,715
Foreign currency translation (26)
Purchase of common stock (1,618)
Exercise of stock options,
net of tax benefit 136
Sale of common stock 777
-------
Balance, September 30, 1998 $166,654
=======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
5
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
Note 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements included
herein have been prepared by O'Sullivan Industries Holdings, Inc.
and subsidiaries (the "Company") in accordance with generally
accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation
S-X. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The financial
statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1998. The interim results are not necessarily indicative of the
results which may be expected for a full year.
Note 2 - EARNINGS PER SHARE
Effective for the quarter ended December 31, 1997, the
Company adopted Statement of Financial Accounting Standards
No. 128, Earnings per Share ("FAS 128"). FAS 128 replaces prior
earnings per share ("EPS") reporting requirements and requires
the dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income by the
weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock. The dilutive effect of
outstanding options issued by the Company are reflected in
diluted EPS using the treasury stock method. Under the treasury
stock method, options will only have a dilutive effect when the
average market price for common stock during the period exceeds
the exercise price of the options. In accordance with FAS 128,
the basic and diluted average weighted shares outstanding have
been restated for all periods presented.
The following is a reconciliation of the numerator and
denominator used in the basic and diluted EPS calculation:
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Income available to common stockholders
(numerator) $ 3,715 $ 3,603
====== ======
Weighted average shares outstanding
(basic EPS denominator) 15,966 16,653
Effect of dilutive securities--options 309 407
------ ------
Weighted average shares, plus assumed conversions
(diluted EPS denominator) 16,275 17,061
====== ======
</TABLE>
Options to purchase 503,477 additional shares of common stock at
prices ranging from $11.40 to $16.09 per share were outstanding
but were not included in the computation of diluted EPS for the
three months ended September 30, 1998, because the options'
exercise prices were greater than the average market price of the
common shares, and thus the effect would have been antidilutive.
6
<PAGE>
Note 3 - DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company
to reduce interest rate risk. The Company does not hold or issue
derivative financial instruments for trading purposes. During
fiscal 1997, the Company entered into a forward starting interest
rate swap agreement with a notional principal amount of
$10.0 million. The effective date of the swap is October 1, 1998
and the termination date is October 1, 2008. The Company has
contracted to pay a fixed rate of 7.13% and receive a floating
interest rate during the duration of the swap agreement. The
Company called its existing $10.0 million of 8.25% industrial
development revenue bonds on October 1, 1998 at a redemption
price of 103%. The $0.3 million premium on the early retirement
of the bonds will be recognized as a loss in the Company's second
quarter of fiscal 1999. The Company refinanced these bonds with
new, ten-year industrial revenue bonds with a tax-exempt variable
interest rate which is reset weekly. Interest on the bonds is
paid monthly. The bonds mature on October 1, 2008. Accordingly,
the swap will have the effect of hedging the Company against an
increase in interest rates. Management has also designated this
swap as a hedge against future interest rate exposure.
Amounts to be paid or received under the swap agreement will
be accrued as interest rates change and will be recognized over
the life of the swap agreement as adjustments to interest
expense. Gains or losses on terminated swaps will be recognized
over the remaining life of the underlying obligation as an
adjustment to interest expense. Due to the decrease in interest
rates since the swap was consummated, the fair value of the
forward starting swap agreement approximated $1,570,000 at
September 30, 1998. This amount represents the amount the
Company would have to pay to terminate the swap and approximates
the present value of the reduced variable rate interest the
Company expects to pay over the life of the bonds. This amount
has not been recognized in the Consolidated Financial Statements,
since it is accounted for as a hedge and the Company has no
present intention of terminating the swap prior to the maturity
date of the bonds.
Note 4 - NEW ACCOUNTING STANDARDS
COMPREHENSIVE INCOME. Effective July 1, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("FAS 130"). Comprehensive income
is defined as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by
owners and distributions to owners. Comprehensive income for the
three months ended September 30, 1998 and 1997 were $3,698,000
and $3,600,000, respectively.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS. Effective July 1,
1999, the Company will adopt Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities ("FAS 133"). This new accounting standard
will require that derivative instruments be measured at fair
value and recognized in the balance sheet as either assets or
liabilities, as the case may be. The treatment of changes in the
fair value of a derivative (i.e., gains and losses) will depend
on its use and designation. Gains and losses on derivatives
designated as hedges against the cash flow effect of a forecasted
transaction will initially be reported as a component of
comprehensive income and, subsequently, reclassified into
earnings when the forecasted transaction affects earnings. Gains
and losses on all other forms of derivatives will be recognized
in the period of change. If FAS 133 had been adopted on July 1,
1998, the net change in the interest rate swap would have been a
reduction in comprehensive income of $1,005,000 (a current period
reduction of $402,000 and a cumulative effect type of adjustment
of $603,000). This amount represents the amount the Company
would have to pay to terminate the swap and approximates the
present value of the reduced variable rate interest the Company
expects to pay over the life of the bonds. The Company has no
present intention of terminating the swap prior to the maturity
date of the bonds.
Note 5 - SUBSEQUENT EVENT
RETIREMENT AGREEMENT. During the quarter, the Company
announced that Daniel F. O'Sullivan, Chairman and Chief Executive
Officer, had decided to retire effective upon the completion of
the Board's search for a replacement. In October 1998,
Mr. O'Sullivan and the Board of Directors completed negotiations
on Mr. O'Sullivan's retirement package which will be effective
when his successor joins the Company.
7
<PAGE>
The retirement agreement reached with Mr. O'Sullivan
provides for certain benefits payable over a period of time.
These benefits will be recorded as a one-time, charge during the
second quarter of fiscal 1999. The pre-tax charge is estimated
to be $2.1 million with an after-tax effect of $1.3 million, or
approximately $0.08 diluted earnings per share.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1998 increased
13.7% to $87.7 million from $77.1 million for the quarter ended
September 30, 1997. Sales increased in the discount mass
merchant, specialty retailer and office superstore channels.
Sales increased principally due to higher unit volume with no
material increase in the average unit selling price. Sales
increases were driven primarily by strong market growth, fueled
in part by the sub-$1,000 computer market and the expansion of
our market share in the consumer electronics channel.
In July 1997, a large customer of the Company, Montgomery
Ward & Co., filed for bankruptcy protection under Chapter 11.
Montgomery Ward expects that it will be able to reorganize its
operations under Chapter 11 protection and has continued to
purchase products from the Company; however, the level of
purchases declined in fiscal 1998 and in the first quarter of
fiscal 1999 and could decline further as a result of the
reorganization or otherwise.
If Montgomery Ward or another major customer ceases or
substantially reduces its purchases of products from the Company,
there can be no certainty that the Company will be able to
replace these sales.
Gross profit increased slightly to $24.9 million, or 28.4%
of sales, for the three month period ended September 30, 1998,
from $22.7 million, or 29.5% of sales, for the comparable prior
year quarter. The Company's lower gross margin during the
quarter was due, in part, to a shift in product mix to the
discount mass merchants as well as higher labor and overhead
costs associated with the implementation of new manufacturing
equipment and the related adaptation of manufacturing processes.
The Company believes that these additions and improvements will
better enable the Company to meet demand, enhance efficiency and
support long-term growth of the Company. The equipment
installation is substantially complete; the Company anticipates
increased production from the new equipment as our employees
become more proficient operators.
Selling, marketing and administrative expenses increased to
$18.4 million, or 21.0% of sales, for the three month period
ended September 30, 1998, from $16.5 million, or 21.4% of sales,
for the three months ended September 30, 1997. The increase in
selling, marketing and administrative expenses for the quarter is
due primarily to increased advertising and promotional costs.
Selling, marketing and administrative costs are expected to be
slightly higher as a percentage of sales in the current fiscal
year when compared with the prior year due to increased
advertising programs.
Interest expense increased 51% during the quarter as
borrowings increased in comparison to the prior year. The
Company utilized cash on hand and increased borrowings primarily
for equipment purchases and share repurchases during the past
year. Interest expense is expected to be higher during the
remainder of the fiscal year when compared to the prior year
periods primarily due to less interest income and increased
borrowings expected during the second quarter of fiscal 1999,
offset to some extent by lower interest rates due to the
refinancing of outstanding industrial revenue bonds. Reduced net
working capital needs in the third and fourth quarters should
result in lower borrowings and interest expense in the last half
of the fiscal year as compared to the first half of the fiscal
year.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash
equivalents of $4.7 million and net working capital of
$74.6 million compared to cash and cash equivalents of
$1.8 million and net working capital of $88.7 million at
September 30, 1997.
Cash provided by operating activities during the quarter
ended September 30, 1998, amounted to $8.1 million compared to
$4.9 million in the comparable prior year period. The increase
in cash flows resulted from higher income, smaller increases in
receivables and inventories and increased payables for the
current year quarter over the prior year quarter. Cash used in
financing activities for this quarter included approximately
$9.5 million for capital expenditures, primarily for equipment in
our Virginia facility, compared to $9.7 million for the prior
year quarter. Cash provided by financing activities for the
quarter was $4.3 million compared to cash used for financing
activities of $44,000 in the prior year quarter. The
$4.3 million for this year's quarter was primarily due to the
purchase of treasury stock (net of contributions to employee
benefit plans) offset by additions to long-term debt.
At September 30, 1998, the Company had long-term debt
outstanding of $35.0 million. In 1995, the Company issued
$20.0 million in private placement notes to certain insurance
companies. The notes are payable in $4.0 million increments
from fiscal 1999 to fiscal 2003; accordingly, $16.0 million of
debt is classified as long term and $4.0 million is classified as
current portion of long-term debt. A subsidiary of the Company
was the obligor on $10.0 million of 8.25% industrial revenue
bonds ("IRB's") that would have matured on October 1, 2008. On
October 1, 1998, the Company refinanced these bonds with new,
ten-year IRB's with the interest having a variable rate. The
$0.3 million premium on the early retirement of the bonds will be
recognized as a loss in the Company's second quarter of fiscal
1999. The remainder of the Company's long-term debt is
$9.0 million borrowed under the Company's revolving Credit
Agreement.
The Company has an unsecured $25.0 million revolving Credit
Agreement with a bank that expires on February 28, 2000. With
the refinancing of the IRB's, the $10.8 million standby letter of
credit established in favor of Tandy Corporation expired on
October 1, 1998. The Credit Agreement has several financial
ratio covenants including the maintenance of a minimum working
capital ratio and a minimum net worth. In addition, the Credit
Agreement has provisions specifying certain limitations on
dividends, investments and future indebtedness. The Company is
currently in compliance with all of its debt agreements.
On May 6, 1997, the Company announced that its Board of
Directors had authorized the purchase of up to five percent of
the outstanding shares of its common stock. For the quarter
ended September 30, 1998, the Company purchased 99,000 shares of
its stock for approximately $1.2 million. In October 1998, the
Company completed its purchases under the stock repurchase
program. Funding for the purchases came from available working
capital and existing borrowing facilities.
The Company also purchases Company common stock to fund its
employee benefit programs. For the quarter, the Company
purchased approximately $0.4 million in stock and transferred
$1.0 million, at cost, to its employee benefit plans.
Derivative financial instruments are utilized by the Company
to reduce interest rate risk. The Company does not hold or issue
derivative financial instruments for trading purposes. During
fiscal 1997, the Company entered into a forward starting interest
rate swap agreement with a notional principal amount of
$10.0 million. The effective date of the swap is October 1, 1998
and the termination date is October 1, 2008. The Company has
contracted to pay a fixed rate of 7.13% and receive a floating
interest rate during the duration of the swap agreement. The
swap will have the effect of hedging the Company's exposure to an
increase in interest rates under its refinanced IRB's discussed
above. Management has also designated this swap as a hedge
against future interest rate exposure.
Amounts to be paid or received under the swap agreement will
be accrued as interest rates change and will be recognized over
the life of the swap agreement as adjustments to interest
expense. Gains or losses on terminated swaps will be recognized
over the remaining life of the underlying obligation as an
adjustment to interest expense. Due to the decrease in interest
rates since the swap was consummated, the fair value of the
forward starting swap agreement approximated $1,570,000 at
September 30, 1998. This
9
<PAGE>
amount represents the amount the Company would have to pay to
terminate the swap and approximates present value of the reduced
variable rate interest the Company expects to pay over the life
of the bonds. This amount has not been recognized in the
Consolidated Financial Statements, since it is accounted for as a
hedge and the Company has no present intention of terminating the
swap prior to the maturity date of the bonds.
The Company believes that cash flow from operations, along
with current unused balances under existing credit agreements,
will be sufficient to fund the Company's operations in fiscal
1999, including capital expenditures, which are currently
estimated in the range of $20.0 million for increased production
capacity, improved productivity, enhanced new product development
and for replacement equipment.
YEAR 2000 COMPLIANCE
Almost all companies must address whether their computer
systems and applications will recognize and process dates after
December 31, 1999. In prior years, many computer programs were
written using two digits rather than four to define the
applicable year. These programs were written without considering
the impact of the upcoming change of the century and may
experience problems handling dates beyond the year 1999. This
could cause computer applications to fail or to create erroneous
results unless corrective measures are taken.
In fiscal 1998, the Company completed final rollout of an
enterprise software package to support the Company's expanded
sales and multiple plant and warehouse locations. With the
exception of two ancillary modules, the vendor of the software
package states the package is year 2000 compliant. We expect to
install and test upgrades to the two non-compliant modules by
April 30, 1999. The Company has identified one other software
program that is not year 2000 compliant and has installed and is
testing an upgrade to the program.
The Company is in the process of testing its computer
systems to verify that software and hardware can process dates
after December 31, 1999. This testing will continue. The
Company has begun testing its electronic communications with
certain of its customers to ensure that order, shipping and
invoicing data for dates after December 31, 1999 can be
processed. This testing and verification is expected to continue
through January 31, 1999.
The Company's ability to produce its products is dependent
upon timely receipt of raw materials. Accordingly, the Company
has requested its suppliers to provide information regarding
their efforts to address year 2000 compliance issues. Every
major supplier responded that it has evaluated and addressed its
year 2000 compliance issues or is in the process of doing so. If
a major supplier does not resolve its year 2000 compliance issues
and is unable to provide the Company with timely deliveries of
quality materials after December 31, 1999, the Company expects to
locate and use alternative suppliers, although it is possible
that it may be unable to do so, or may be able to do so only at
increased expense.
In addition, the Company has reviewed remaining critical
business systems and is in the process of reviewing its
computerized machinery and equipment for year 2000 compliance
issues. As deficiencies are discovered, a plan to remedy the
deficiency is crafted and implemented. The review of machinery
and equipment is expected to be complete by January 31, 1999.
Based upon current information, the Company estimates that
aggregate amounts expended to resolve year 2000 issues should not
exceed $500,000.
The Company expects to complete implementation of computer
systems that are year 2000 compliant in fiscal 1999. However,
this expectation is subject to uncertainties. For example, if
the Company does not identify or fix all year 2000 problems in
critical operations, the Company's results of operations or
financial condition could be materially impacted. The Company's
results could also be hurt if a major supplier or customer is
unable to supply raw materials or receive the Company's product.
10
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company's market risk is impacted by changes in interest
rates, foreign currency exchange rates and certain commodity
prices. Pursuant to the Company's policies, natural hedging
techniques and derivative financial instruments may be utilized
to reduce the impact of adverse changes in market prices. The
Company does not hold or issue derivative instruments for trading
purposes, and has no material sensitivity to changes in market
rates and prices on its derivative financial instrument
positions.
The Company has market risk in interest rate exposure,
primarily in the United States. The Company manages interest
rate exposure through its conservative debt ratio target and its
mix of fixed and floating rate debt. Interest rate swaps may be
used to adjust interest rate exposures when appropriate based on
market conditions, and, for qualifying hedges, the interest
differential of swaps is included in interest expense. The
Company believes that its foreign exchange risk is not material.
Due to the nature of its product lines, the Company has
material sensitivity to certain commodities. The Company manages
commodity price exposures primarily through the duration and
terms of its vendor contracts. A one percent change in these
commodity prices, assuming none of the increase could be passed
on to customers, would affect the after-tax earnings of the
Company by approximately $0.6 million annually.
PART II -- OTHER INFORMATION
Item 5. OTHER INFORMATION.
FORWARD LOOKING STATEMENTS
Certain portions of this Report, and particularly the Notes
to the Consolidated Financial Statements and the Management's
Discussion and Analysis of Financial Condition and Results of
Operation in Part I of this report, contain forward-looking
statements. These statements can be identified by the use of
future tense or dates or terms such as "believe," "expect,"
"anticipate" or "plan." Important factors could cause results to
differ materially from those anticipated by some of the
statements made in this report. Some of the factors include,
among other things:
* changes from anticipated levels of sales of the Company's
products, whether due to future national or regional
economic and competitive conditions, customer acceptance
of existing and new products, or otherwise;
* pricing pressures due to excess capacity in the
ready-to-assemble furniture industry, as occurred in
1995, or customer demand in excess of the Company's
ability to supply product;
* raw material cost increases, particularly in particle
board and fiberboard, such as the increases that reduced
the Company's earnings in fiscal 1994 and 1995;
* transportation cost increases due to a shortage of supply
of trucks or railcars;
* the bankruptcy of a major customer, such as Best Products
Co., Inc. in 1996 and Montgomery Ward & Co. in 1997;
* loss of significant customers in connection with a merger
or acquisition or bankruptcy;
* actions of current or new competitors, such as reduction
of prices on competitive products or introduction of new
products competitive with the Company's products;
* the consolidation of manufacturers in the
ready-to-assemble furniture industry;
* increased advertising costs associated with promotional
efforts;
* failure by the Company or a major supplier or vendor to
identify and remedy all critical year 2000 compliance
issues or the discovery of additional year 2000
compliance issues requiring significant expenditures to
remedy;
* pending or new litigation or governmental regulations;
and other uncertainties, all of which are difficult to predict
and many of which are beyond the control of the Company.
11
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- --------- ---------------------------------------------------------- ----
<S> <C> <C>
3.1 & 4.1 Certificate of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 to
Registration Statement on Form S-1 (File No. 33-72120))
3.2 & 4.2 Bylaws of the Company (incorporated by reference
from Exhibit 3.2 to Registration Statement on
Form S-1(File No. 33-72120))
4.3 Specimen Stock Certificate of the Company
(incorporated by reference from Exhibit 4.1 to
Amendment No. 3 to Registration Statement on
Form S-1 (File No. 33-72120))
4.4 Rights Agreement dated as of February 1, 1994
between the Company and the First National Bank
of Boston, as Rights Agent (incorporated by
reference from Exhibit 4.4 to Quarterly Report
on Form 10-Q for the quarter ended March 31,
1994 (File No. 1-12754))
10 Retirement and Consulting Agreement, Release
and Waiver of Claims between the Company and
Daniel F. O'Sullivan dated October 16, 1998. . . . . . . . . . 14
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . 24
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
Company has not filed agreements relating to certain
long-term debt of the Company aggregating $10 million.
The Company agrees to furnish the Securities and
Exchange Commission a copy of such agreements upon
request.
</TABLE>
(b) REPORTS ON FORM 8-K:
None
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Date: November 9, 1998 By: /s/ Richard D. Davidson
President and
Chief Operating Officer
Date: November 9, 1998 /s/ Terry L. Crump
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE> 13
RETIREMENT AND CONSULTING AGREEMENT
RELEASE AND WAIVER OF CLAIMS
THIS AGREEMENT is made and entered into on October 16, 1998,
by and between DANIEL F. O'SULLIVAN (who shall be referred to
herein as either "Retiree" or "Consultant") and O'SULLIVAN
INDUSTRIES HOLDINGS, INC. and its subsidiaries (collectively
"Company").
WHEREAS, Retiree is currently Chief Executive Officer and
Chairman of the Board of Directors of the Company and has
informed the Company that he intends to immediately resign as
Chief Executive Officer of Company but remain an employee until
his successor is appointed and intends to retire from the board
and resign as Chairman immediately upon the appointment of his
successor; and
WHEREAS, Company desires to accept Retiree's resignation;
and
WHEREAS, Company desires to retain Retiree following his
retirement to provide consulting services to Company in the
capacity of an independent contractor as described herein and
Retiree as Consultant desires to provide consulting services to
Company in such capacity; and
WHEREAS, Company and Retiree desire to set forth the terms
and conditions of their agreement.
NOW, THEREFORE, in consideration of the foregoing recitals
and mutual promises set forth below, Company and Retiree agree as
follows:
RETIREMENT AND TERMINATION OF EMPLOYMENT
1. RETIREMENT. Retiree hereby resigns as Chief Executive
Officer of Company, effective immediately. Retiree further
resigns as Chairman of the Board and a director of Company and
his employment as an employee of Company effective as of the date
of the appointment of his successor as Chief Executive Officer of
Company by the Special Selection Committee of the Board of
Directors (the "Retirement Date").
2. COMPENSATION. Prior to the Retirement Date, Retiree shall
continue as an employee of Company and shall receive his salary
and other benefits in effect at the date of his resignation as
Chief Executive Officer of Company. Except for base salary
earned but unpaid at the Retirement Date, Retiree shall not be
eligible to receive any base salary, any bonus or other incentive
compensation or any payment in lieu of fringe benefits,
including, but not limited to, vacation benefits, after the
Retirement Date. Retiree shall as of the Retirement Date be
given title to the Company automobile currently used by him, free
of all encumbrances, but shall receive no further reimbursement
for expenses incurred relating to such automobile following the
Retirement Date. Company shall also as of the Retirement Date
pay for the transfer of stock in the country club currently used
by Retiree to Retiree's name, but country club dues and expenses
incurred following the Retirement Date shall be the
responsibility of Retiree. Retiree may also retain his
cellphone, but all expenses relating thereto incurred following
the Retirement date shall be that of Retiree.
3. OPTIONS. Pursuant to action taken by the Compensation
Committee of the Board of Directors of the Company, Retiree has
been granted stock options to purchase shares of Common Stock of
the Company. The Company hereby agrees that, notwithstanding any
provision in the Company's option plan or other agreement to the
contrary: (i) such options shall be fully vested as of the
Retirement Date and (ii) amends each option agreement to provide
that Retiree shall have a period of the earlier of (x) five (5)
years following the Retirement Date or (y) one (1) year following
Retiree's death to exercise such options (it being acknowledged
that in the event of Retiree's death, Retiree's estate or other
beneficiary shall have the right to exercise such options within
such one (1) year period, as determined under the applicable
plan). It is acknowledged that, pursuant to the Company's
restricted stock plan, all restrictions on outstanding restricted
stock awards in favor of Retiree shall lapse upon execution of
this Agreement.
4. BENEFIT PLANS. Retiree's participation in all benefit plans
maintained by the Company shall terminate at the Retirement Date
or otherwise in accordance with each plan's terms.
Notwithstanding the foregoing, Company shall pay COBRA premiums
for Retiree and his spouse for eighteen (18) months in accordance
with the options elected by Retiree under the health plan from
time to time made available by the Company, and thereafter use
its reasonable best efforts to obtain and pay for a fully insured
policy of health insurance for Retiree and his spouse having
benefits that are reasonably comparable to the benefits provided
by Company's health plan, within the constraints of policies
offered to residents of the state in which Retiree resides, until
Retiree is eligible for Medicare. In the event of Retiree's
death, Company will pay premiums to maintain such health
insurance for Retiree's spouse until she becomes eligible for
Medicare; provided, however, that Company shall not be required
to provide health insurance following the date Retiree is first
entitled to obtain medical insurance provided by a successor
employer. During the Consulting Term, as hereinafter defined,
Company will pay premiums to continue life insurance benefits for
Retiree which are reasonably comparable to life insurance
benefits currently provided to Retiree under the Company's life
insurance program at the Retirement Date.
CONSULTING AGREEMENT
5. TERM. The term of this Consulting Agreement shall begin on
the Retirement Date, and shall terminate on the date Consultant
reaches age sixty-five (65) ("Consulting Term"), unless earlier
terminated hereunder.
6. DUTIES. During the Consulting Term Consultant will provide
consulting, marketing and promotion services with respect to the
Company's manufacturing activities and relations with major
customers (all of which shall be "consulting services") as an
independent contractor to Company as reasonably requested by
persons designated by Company from time to time. Consultant
shall pay his own expenses of providing services hereunder,
including office space, secretarial services, travel,
entertainment and providing his own business cards; provided,
however, that Company will reimburse Consultant for any travel or
entertainment expense in connection with consulting services that
Consultant agrees in his discretion to incur at the specific
request of Company.
7. COMPENSATION. Consultant will receive a fee for consulting
services at the rate of $42,160 per month for a period of
thirty-six (36) consecutive months and thereafter at the rate of
$11,458.33 per month until the end of the Consulting Term. The
fee shall be payable in monthly installments, regardless of the
amount of services actually performed, on the last business day
of each month commencing in the month that the Retirement Date
occurs. The final payment for the last month of the Consulting
Term shall be pro rated and paid on the last day of the
Consulting Term. If Consultant dies prior to reaching the end of
the Consulting Term, payments shall continue as scheduled to
Consultant's estate until the Consulting Term would have expired
but for Consultant's death.
8. TERMINATION.
Company may terminate this Consulting Agreement, and any
payments due hereunder shall cease, at any time in the following
situations:
(a) If Consultant shall engage in misconduct that is so
materially detrimental to the reputation and standing of Company
that Company cannot reasonably continue Consultant's consulting
services;
(b) If Consultant has breached any of the covenants
contained in this Agreement and such breach has not been cured to
the reasonable satisfaction of Company;
(c) Any termination of this Agreement by Company under
paragraph 8(a) or (b) above shall be evidenced by written
notification from Company to Consultant of Company's intent to
terminate such Agreement, and Consultant shall cease providing
services to or on behalf of Company as directed by Company upon
receipt of such notification.
The termination of this Consulting Agreement shall not,
however, affect the rights of Retiree under any stock options
referred to in Section 3 above.
9. SURVIVAL. The obligations contained in Sections 11, 12, 13,
14, 15, 23 and 24 shall survive the termination or expiration of
this Agreement for any reason.
10. ACKNOWLEDGEMENT OF NON-EMPLOYEE STATUS. Consultant
acknowledges that he shall not be an employee of Company
following the Retirement Date, shall thereafter be ineligible for
the following incurred subsequent to such date, except to the
extent otherwise provided herein and to the extent he has
continuation rights or conversion privileges due to his status as
a former employee: group medical and dental expense coverage;
life insurance; accidental death and disability insurance;
workers' compensation coverage; contributions or benefits under
the stock purchase program, savings and profit sharing plan and
deferred compensation plan; automobile allowances (including
mileage reimbursement); entertainment expense reimbursement; meal
expense reimbursement; business gift reimbursement; and all other
employee benefits. Additionally, Consultant acknowledges that
Company will not withhold social security taxes ("FICA"), federal
income taxes, or state and local taxes of any kind from any fee
paid Consultant under this Agreement.
GENERAL PROVISIONS
11. RELEASE OF CLAIMS. Retiree's retirement is voluntary and
has not been required by Company. Effective at the Retirement
Date, in consideration of this Agreement and additional benefits
not required by policies and practices of Company, Retiree, on
behalf of Retiree, Retiree's heirs, executors, successors and
assigns, releases Company, and its then current and former
officers, directors, shareholders, managers, employees,
representatives, related entities, successors and assigns of and
from any and all claims, demands, and causes of action of any
kind or nature, whether known or unknown, suspected or
unsuspected to Retiree, which Retiree then holds or owns or has
at any time before the Retirement Date owned or held against any
of the released persons or entities including, but not limited
to, claims or causes of action for alleged breach of any
contractual obligation, claims of race, sex, age, or disability
discrimination, including discrimination under the Age
Discrimination in Employment Act, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Employee
Retirement Income Security Act, the Americans With Disabilities
Act, the Family and Medical Leave Act, or any other federal,
state or local laws, to the maximum extent allowable by law.
This release shall not include any claims for salary, vacation
pay and fringe benefits that arise from the normal course of
Retiree's employment and that become due and payable prior to the
Retirement Date, and shall also not include any benefits due to
Retiree pursuant to the Company's stock purchase program, savings
and profit sharing plan and deferred compensation plan.
Effective at the Retirement Date, in consideration of this
Agreement, Company, on behalf of Company, its related entities,
and their successors and assigns, releases Retiree, Retiree's
heirs, executors, successors and assigns of and from any and all
claims, demands, and causes of action of any kind or nature,
whether known or unknown, suspected or unsuspected to Company,
which Company then holds or owns or has at any time before the
Retirement Date owned or held against any of the released
persons. This release shall not include any loans to the Retiree
or other amounts due and payable by Retiree, nor shall this
release include any of the Retiree's obligations or duties or the
Company's rights under this Agreement.
This Agreement does not constitute an admission of liability
on the part of Company or Retiree, any and all such liability
hereby being expressly denied, nor does the inclusion of a
release imply that Retiree has asserted any such claim against
Company arising out of his employment or otherwise, or that the
Company has asserted any such claim against Retiree arising out
of his employment or otherwise.
12. COVENANT NOT TO DISCLOSE.
(a) Consultant covenants and agrees that he will not,
during the period of his consultancy with Company or at any time
thereafter, directly or indirectly disclose, communicate or
divulge to any Person (as defined in Section 22 hereof), or use
for the benefit of any Person, any Proprietary Information (as
defined in Section 22 hereof). The restriction contained in the
preceding sentence shall not apply to any Proprietary Information
that (i) is a matter of public knowledge on the date of this
Agreement, (ii) becomes a matter generally known in Company's
industry after the date of this Agreement from another source
which is under no obligation of confidentiality to Company, or
(iii) is acquired from another source which is under no
obligation of confidentiality to Company.
(b) All data, designs, drawings, blueprints, tracings,
sketches, plans, layouts, specifications, models, programs,
cards, tapes, disks, printouts, writings, manuals, guides, notes
and any and all other memoranda, documents or property of the
Company in any form which may be or has been furnished to
Consultant during his employment with Company or his consultancy
hereunder or which was produced, prepared or designed by
Consultant in connection with his employment with Company or his
consultancy hereunder shall be, become and remain the exclusive
property of Company; provided that matters produced, prepared or
designed by Consultant during his consultancy hereunder shall be
covered by the foregoing provision only if such matters either
relate to the current business of the Company, relate to matters
on which Consultant has worked on behalf of the Company, or
utilize confidential or proprietary information of the Company.
Consultant acknowledges that all originals, copies and reprints
in Consultant's possession, custody or control have been
surrendered and/or delivered to Company as of the date he signs
this Agreement. Consultant further agrees that he will return
all originals, copies and reprints that come into Consultant's
possession during his consultancy (i) upon request by Company or
(ii) termination of the consultancy for any reason, whichever
occurs first. Consultant agrees that he shall thereafter make no
further use (except as contemplated hereby), either directly or
indirectly, of any such data, designs, drawings, blueprints,
tracings, sketches, plans, layouts, specifications, models,
programs, cards, tapes, disks, printouts, writings, manuals,
guides, notes or other memoranda or written information.
13. COVENANT NOT TO SOLICIT CUSTOMERS OR EMPLOYEES;
NONCOMPETITION COVENANT.
(a) Consultant covenants and agrees that he will not
directly or indirectly at any time during the period of his
consultancy with Company, whether as employee, owner, partner,
agent, director, officer, consultant or shareholder solicit,
divert or accept business competitive with Company's business as
of the date hereof from or otherwise take away or interfere with
any customer of Company.
(b) Consultant further covenants and agrees that he will
not directly or indirectly at any time during the period of his
consultancy with Company, whether as employee, owner, partner,
agent, director, officer, consultant or shareholder cause the
solicitation or inducement of any person employed by Company on
the date hereof to accept employment in any capacity with
Consultant or any firm, person or entity with whom Consultant is
employed or associated whether as employee, owner, partner,
agent, director, officer, consultant or shareholder.
(c) Consultant further covenants and agrees that he will
not, during the period of his consultancy with Company, directly
or indirectly, whether as employee, owner, partner, agent,
director, officer, consultant, shareholder or in any other
capacity, for his own account or for the benefit of any Person in
any business in competition with Company establish, engage in or
be connected with any Person which competes with Company or
proposes to compete with Company in any business in which Company
is engaged on the date hereof or any new line of business which
Consultant is involved in developing with the Company during the
consultancy. For purposes of this Agreement, "business" shall
mean the business engaged in by Company on the date hereof in the
manufacture and marketing of ready-to-assemble furniture, or any
such new line of business referred to above.
(d) If any provision of the covenants and agreements set
forth in Section 12 or 13 shall be held invalid or unenforceable
because of the scope of the territory or the actions thereby
restricted, or the period of time within which such covenant or
agreement is operative, or for any other reason, it is the intent
of the parties hereto that such provision shall be construed by
limiting and reducing it, or, if necessary, eliminating it so
that the provisions hereof be valid and enforceable to the extent
compatible with applicable law as determined by a court of
competent jurisdiction.
14. PROFESSIONAL AND ETHICAL CONDUCT REQUIRED. The Company
agrees not to make any statements or remarks disparaging the
conduct or character of the Consultant. The Consultant agrees
not to make any statements or remarks disparaging the conduct or
character of Company or its subsidiaries or their agents,
employees, officers, directors, successors or assigns.
Consultant further agrees to assure that all transactions are
handled with confidentiality and honesty. Consultant expressly
acknowledges that Consultant will obey all laws in conducting
consulting services and will be governed by the highest moral and
ethical standards, reflecting these values: integrity, honesty,
loyalty, trust, fairness, and responsibility. Consultant will
constantly analyze Consultant's duties in order to avoid any
action that could be interpreted as a conflict of interest.
Company has informed Consultant that it will suffer serious
damages in the event of violation of this paragraph.
15. NO REPRESENTATIONS REGARDING TAXATION. Retiree
expressly acknowledges that no representations have been made to
him by Company or its legal counsel regarding the tax
implications of any payments made by Company under this
Agreement. Retiree expressly understands that any liability for
federal, state and local income and other withholding taxes
remains with him.
16. PERIOD OF REFLECTION. Retiree has been and is hereby
encouraged to reflect on his rights being released herein and to
consult with independent legal counsel before executing this
Agreement. Retiree has been given twenty-one (21) days from the
date of presentment of this Agreement for such purposes and to
decide whether to enter into this Agreement.
17. PERIOD OF REVOCATION. For a period of seven (7) days
following the execution of this Agreement by Retiree, Retiree may
revoke this Agreement. This Agreement will not become effective
or enforceable until the eighth (8th) day following its execution
by Retiree.
18. SEVERABILITY. The provisions of this Agreement are
severable. If any provision of this Agreement is determined by a
court of competent jurisdiction to be unenforceable, in whole or
in part, the remaining provisions will be enforceable to the
maximum extent permitted by law.
19. APPLICABLE LAW. This Agreement will be construed in
accordance with the laws of the State of Missouri.
20. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the matters
contemplated by this Agreement. Except as otherwise provided in
this Agreement, no change, modification or waiver of any
provision of this Agreement will be valid unless in writing and
signed by both Company and Retiree.
21. PAYMENT OF LEGAL FEES. Company will reimburse up to
$12,000 against legal fees and related expenses incurred by
Retiree in connection with the negotiation and execution of this
Agreement upon presentation of copies reflecting such fees and
expenses.
22. DEFINITIONS.
(a) "Person" means any individual, corporation, firm,
partnership or other business entity.
(b) "Proprietary Information" means all secret,
confidential or proprietary knowledge, information or data with
respect to the conduct or details of the business of Company
including, as applicable but without limitation, methods of
operation, customers and customer lists, products, products under
development as of the date of this Agreement or during the
consultancy, proposed, pending or completed acquisitions or any
company, division, product line or other business unit, prices,
fees, costs, plans, designs, technology, know-how, software,
marketing methods, policies, plans, personnel, suppliers,
competitors, markets or other specialized information or
proprietary matters of Company.
23. COOPERATION IN LITIGATION AND INVESTIGATIONS. Retiree
agrees to cooperate in any investigations conducted by Company
for which Company believes Retiree to be a holder of information
or to have knowledge of relevant facts. Retiree agrees to
participate in interviews and cooperate in Company's efforts to
gather information concerning any allegations of improper or
unlawful conduct or occurrences or other matters investigated by
Company. Retiree also agrees to cooperate with Company and its
counsel in any litigation or anticipated litigation involving
Company, by making himself available for interviews, fact
gathering, and questioning, and for appearing at depositions
and/or trial without the necessity of being served with a
subpoena. To the maximum extent permitted by applicable law,
Retiree shall not assist or facilitate in the prosecution of any
civil claims or litigation against Company, and if requested to
do so, shall promptly notify Company. This Agreement shall not
affect Company's obligations to indemnify current and former
officers and directors pursuant to Article VI of Company's
By-Laws.
24. SPECIFIC REMEDY. Retiree acknowledges and agrees that
if Retiree commits a breach of Sections 12, 13, 14, 15 or 24
Company shall have the right to have the obligations of Retiree
specifically enforced by any court having appropriate
jurisdiction on the grounds that money damages will not provide
an adequate remedy to Company in addition to all other remedies
available to Company. The prevailing party may also recover its
attorneys' fees and expenses in any such action.
25. ARBITRATION. The parties hereby agree that any dispute
arising under this Agreement or any claim for breach or violation
of any provision of this Agreement shall be submitted to
arbitration, pursuant to the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of
the parties or, if the parties do not mutually agree on the
arbitrator, in accordance with the rules of the AAA. The award
determination of the arbitrator shall be final and binding upon
the parties. Either party shall have the right to bring an
action in any court of competent jurisdiction to enforce this
Section and to enforce any arbitrator's award rendered pursuant
to this Section. The venue for all proceedings in arbitration
under this provision, and for any judicial proceedings related to
the arbitration, shall be in Kansas City, Missouri.
26. TERMINATION. Notwithstanding any other provision
hereof, unless Retiree's resignation as a director and Chairman
of the Board shall have become effective as of the date on which
his successor as Chief Executive Officer of the Company shall
have been appointed, and Retiree shall have reconfirmed in
writing the provisions of this Agreement, including those set
forth in Section 11, the benefits and compensation to which
Retiree is entitled under this Agreement from and after the
Retirement Date (including without limitation such benefits
identified in Sections 2, 3, 4, 7 and 11) shall be forfeited by
Retiree and Retiree shall have no other rights concerning the
termination of his employment.
/s/ Daniel F. O'Sullivan
Retiree/Consultant
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
By: /s/ Ronald G. Stegall, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'SULLIVAN INDUSTRIES HOLDINGS, INC. FOR THE PERIOD
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,722
<SECURITIES> 0
<RECEIVABLES> 69,021
<ALLOWANCES> 2,522
<INVENTORY> 48,813
<CURRENT-ASSETS> 123,655
<PP&E> 155,077
<DEPRECIATION> 54,989
<TOTAL-ASSETS> 266,415
<CURRENT-LIABILITIES> 49,071
<BONDS> 35,000
0
0
<COMMON> 16,820
<OTHER-SE> 149,834
<TOTAL-LIABILITY-AND-EQUITY> 266,415
<SALES> 87,673
<TOTAL-REVENUES> 87,673
<CGS> 62,780
<TOTAL-COSTS> 62,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 715
<INCOME-PRETAX> 5,805
<INCOME-TAX> 2,090
<INCOME-CONTINUING> 3,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,715
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
