<PAGE> 1
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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 March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-28493
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 Identification No.)
incorporation or organization)
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 May 10, 2000, 1,368,000 shares of Common Stock of O'Sullivan
Industries Holdings, Inc, par value $0.01 per share were outstanding.
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The Index to Exhibits begins on page 20.
Page 1 of 22
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PART I
Item 1. FINANCIAL STATEMENTS.
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
March 31, June 30,
Assets: 2000 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,756 $ 3,740
Trade receivables, net of allowance for doubtful accounts
of $2,969 and $2,416, respectively 73,824 63,268
Inventories, net 55,530 56,134
Prepaid expenses and other current assets 5,678 3,810
--------- ---------
Total current assets 149,788 126,952
Property, plant and equipment, net 94,242 96,684
Other assets 14,800 1,909
Goodwill, net of accumulated amortization 40,172 41,422
--------- ---------
Total assets $ 299,002 $ 266,967
========= =========
Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Accounts payable $ 20,210 $ 11,416
Current portion of long-term debt 3,000 4,000
Accrued liabilities 27,737 24,695
Income taxes payable 1,726 1,579
--------- ---------
Total current liabilities 52,673 41,690
Long-term debt, less current portion 248,190 22,000
Other non-current liabilities 2,793 1,909
Deferred income taxes 17,257 16,232
--------- ---------
Total liabilities 320,913 81,831
Commitments and contingencies (Note 11)
Mandatorily redeemable senior preferred stock; $0.01 par value, $25,640
liquidation value including accumulated dividends, 17,000,000 shares
authorized, 16,431,050 issued 12,230 -
Stockholders' equity (deficit):
Junior preferred stock, Series A; $0.01 par value,
100,000 shares authorized, none issued - -
Junior preferred stock, Series B; $0.01 par value, at liquidation value including
accumulated dividends; 1,000,000 shares authorized, 515,681.33 issued 53,996 -
Common stock; $0.01 par value, 2,000,000 shares authorized, 1,368,000 issued 14 -
Common stock; $1.00 par value, 100,000,000 shares authorized, 16,819,950 issued - 16,820
Additional paid-in capital 14,385 87,549
Retained earnings (deficit) (102,197) 89,470
Accumulated other comprehensive gain (loss) (54) (43)
Notes receivable from officers (285) -
Less common stock in treasury at cost, 0 and 770,962 shares respectively - (8,660)
--------- ---------
Total stockholders' equity (deficit) (34,141) 185,136
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 299,002 $ 266,967
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 116,686 $ 108,529 $ 329,701 $ 293,988
Costs and expenses:
Cost of sales 82,732 75,720 232,180 208,187
Selling, marketing and administrative 21,412 20,159 64,568 58,240
Merger related expenses - - 7,792 -
Transaction fee to related party - - 3,062 -
Compensation expense associated with stock options - - 10,627 -
Loss on settlement of interest rate swap - - 408 -
------------ ----------- ----------- -----------
Total costs and expenses 104,144 95,879 318,637 266,427
------------ ----------- ----------- -----------
Operating income 12,542 12,650 11,064 27,561
Other income (expense)
Interest expense (7,902) (627) (11,399) (2,485)
Interest income 207 54 447 201
------------ ----------- ----------- -----------
Income before income tax provision
and extraordinary item 4,847 12,077 112 25,277
Income tax provision 1,912 4,345 3,747 9,098
------------ ----------- ----------- -----------
Income (loss) before extraordinary item 2,935 7,732 (3,635) 16,179
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $171 - - (305) -
------------ ----------- ----------- -----------
Net income (loss) 2,935 7,732 (3,940) 16,179
Dividends and accretion on preferred stock (2,376) - (3,158) -
------------ ----------- ----------- -----------
Net income (loss) attributable to common
stockholders $ 559 $ 7,732 $ (7,098) $ 16,179
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,940) $ 16,179
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 11,340 10,367
Amortization of debt issuance cost 694 -
Bad debt expense 856 737
Loss on disposal of assets 125 142
Deferred income taxes 1,025 -
Employee option amortization - 561
Special accrual on Series A junior preferred stock options 284 -
Compensation expense associated with stock options 10,627 -
Changes in assets and liabilities:
Trade receivables (11,412) (17,909)
Inventories 604 (2,153)
Other assets (2,339) 429
Accounts payable, accrued liabilities and income taxes payable 14,938 6,251
----------- -----------
Net cash provided by operating activities 22,802 14,604
----------- -----------
Cash flows used for investing activities:
Capital expenditures (7,719) (13,294)
----------- -----------
Cash flows provided (used) by financing activities:
Issuance of stock, net of expenses 45,884 -
Redemption and cancellation of stock (269,044) -
Employee loans (285) -
Proceeds from borrowings, including issuance of warrants 252,018 37,000
Repayment of borrowings (20,000) (38,000)
Debt issuance costs (13,035) -
Purchase of common stock - (2,811)
Exercise of stock options 395 52
Sale of common stock to employee benefit plans - 2,508
----------- -----------
Net cash flows used by financing activities (4,067) (1,251)
----------- -----------
Net increase in cash and cash equivalents 11,016 59
Cash and cash equivalents, beginning of period 3,740 1,810
----------- -----------
Cash and cash equivalents, end of period $ 14,756 $ 1,869
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the nine months ended March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock
---------------------------------
Senior Junior, Series B Common Stock Additional Retained
----------------- --------------- ----------------- paid-in earnings
Shares Dollars Shares Dollars Shares Dollars capital (deficit)
-------- ------- ------- ------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 - $ - - $ - 16,820 $ 16,820 $ 87,549 $ 89,470
Net loss (3,940)
Other comprehensive loss
Exercise of stock options,
net of tax benefit (138)
Compensation expense
associated with stock options 12,982
Redemption and cancellation
of common stock (16,820) (16,820) (93,008) (184,569)
Issuance of warrants 7,000
Loans to employees
Issuance of preferred stock 16,431 11,500 516 51,568
Issuance of common stock 1,368 14
Dividends and accretion on
preferred stock 730 2,428 (3,158)
-------- ------- ------- ------ ------- -------- --------- ---------
Balance, March 31, 2000 16,431 $ 12,230 516 $53,996 1,368 $ 14 $ 14,385 $(102,197)
======== ======= ======= ====== ======= ======== ========= =========
<CAPTION>
Notes Accumulated Total
receivable Treasury Stock other stockholders'
from --------------------- comprehensive equity Comprehensive
officers Shares Dollars income (loss) (deficit) loss
---------------------- -------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $ (771) $ (8,660) $ (43) $ 185,136 $
Net loss (3,940) (3,940)
Other comprehensive loss (11) (11) (11)
Exercise of stock options,
net of tax benefit 43 533 395
Compensation expense
associated with stock options 12,982
Redemption and cancellation
of common stock 728 8,127 (286,270)
Issuance of warrants 7,000
Loans to employees (285) (285)
Issuance of preferred stock 63,068
Issuance of common stock 14
Dividends and accretion on
preferred stock -
--------- ----------- -------- --------------- ------------- ----------------
Balance, March 31, 2000 $ (285) - $ - $ (54) $ (21,911) $ (3,951)
========= =========== ======== =============== ============= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 6
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 1--BASIS OF PRESENTATION
The unaudited consolidated financial statements of O'Sullivan
Industries Holdings, Inc. and subsidiaries ("O'Sullivan") included herein have
been prepared 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. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in O'Sullivan's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999. The interim results
are not necessarily indicative of the results that may be expected for a full
year.
NOTE 2--MERGER
On March 24, 1999, O'Sullivan announced that members of its senior
management team, in conjunction with a financial buyer, had made a proposal to
O'Sullivan's Board of Directors to acquire O'Sullivan, subject to requisite
financing. On May 18, 1999, O'Sullivan announced that it had entered into a
definitive merger agreement with OSI Acquisition, Inc. Investors in OSI
Acquisition, Inc. included members of O'Sullivan's senior management and
Bruckmann, Rosser, Sherrill & Co. II, L.P. ("BRS"). The merger agreement was
amended and restated on October 18, 1999.
On November 30, 1999, OSI Acquisition, Inc. was merged into O'Sullivan
in a recapitalization transaction approved by O'Sullivan's stockholders on
November 22, 1999. As a result of the merger, all of O'Sullivan's outstanding
common stock is held by members of O'Sullivan's senior management and BRS and
its affiliates. The management participants in the buyout own a total of 27.1%
of the outstanding common stock of O'Sullivan. BRS and its affiliates own the
balance.
Each share of common stock of O'Sullivan outstanding before the merger
was exchanged for $16.75 in cash and one share of senior preferred stock with an
initial liquidation value of $1.50 per share. Unpaid dividends accrue at the
rate of 12.0% per annum and, if not paid, will be accumulated and compounded at
the same rate during the period that the senior preferred stock is outstanding.
The senior preferred stock was recorded at fair value of $0.70 per share and is
being accreted to its full liquidation value. The senior preferred stock is
mandatorily redeemable on November 30, 2011 or, if sooner, upon a change in
control of O'Sullivan Industries Holdings, Inc. Some of the shares of O'Sullivan
common stock and options held by the management participants in the buyout were
exchanged for common stock, junior preferred stock and options to acquire junior
preferred stock of O'Sullivan.
O'Sullivan's Series B junior preferred stock was issued to BRS, its
affiliates and the management participants in the buyout in exchange for cash or
shares of O'Sullivan common stock. The liquidation value of the Series B junior
preferred stock is $100.00 per share. Dividends accrue at the rate of 14.0% per
annum and, if not paid, will be accumulated and compounded at the same rate
during the period the Series B junior preferred stock is outstanding.
In the merger, O'Sullivan issued options to purchase its Series A
junior preferred stock in exchange for certain options held by management
participants in the buyout. The agreements for the options to purchase
O'Sullivan's Series A junior preferred stock provide for a special accrual at
the rate of 14% per annum on the difference between the liquidation value of the
stock ($150.00) and the exercise price of the option ($50.00). The special
accrual accrues at the same time and in the same manner as would issued and
outstanding Series A junior preferred stock. No amount is payable until the
exercise of the option, and payment is further subject to the terms of any debt
agreement of O'Sullivan. When made, payment of the special accrual may be made
in cash or by a
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<PAGE> 7
reduction in the exercise price of the option, at O'Sullivan's discretion. The
special accruals are reflected as compensation expense in the accompanying
consolidated statement of operations.
O'Sullivan required approximately $357.0 million to complete the merger
and pay related fees and expenses of which approximately $264.0 million was
funded via debt proceeds.
NOTE 3--DERIVATIVE FINANCIAL INSTRUMENTS
Effective October 1, 1998, O'Sullivan had a forward starting interest
rate swap agreement with a notional principal amount of $10.0 million, which was
to terminate on October 1, 2008. Pursuant to the agreement, O'Sullivan paid a
fixed rate of 7.13% and received a floating interest rate during the duration of
the swap agreement. On November 30, 1999, O'Sullivan terminated the swap as
required by the counter-party due to the merger and recapitalization, incurring
a loss of $408,000.
O'Sullivan called its existing $10.0 million of 8.25% industrial
development revenue bonds on October 1, 1998 at a redemption price of 103%. The
$300,000 premium on the early retirement of the bonds was recognized as a loss
in O'Sullivan's second quarter of fiscal 1999 and was included in interest
expense. O'Sullivan 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.
As required under the new senior credit facilities, O'Sullivan hedged
one-half of its term loans with an initial notational amount of $67.5 million
with a costless interest rate collar. The collar is based on three month LIBOR
and has a floor of 6.43% and a ceiling of 8.75%.
NOTE 4--NEW ACCOUNTING STANDARDS
In June 1999, the FASB issued SFAS No. 138, which delayed the effective
date of SFAS No. 133, Accounting For Derivative Instruments And Hedging
Activities. Accordingly, O'Sullivan will adopt SFAS No 133 effective July 1,
2000. 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.
O'Sullivan will initially report gains and losses on derivatives designated as
hedges against the cash flow effect of a forecasted transaction as a component
of other comprehensive income and, subsequently, reclassify the gains and losses
into earnings when the forecasted transaction affects earnings. If SFAS 133 had
been adopted on July 1, 1999 the net change in the interest swap would reduce
other accumulated comprehensive income by $261,000 (a current period increase to
comprehensive income of $75,000 offset by an accumulated loss at the beginning
of the period of $336,000).
NOTE 5--MERGER RELATED EXPENSES
O'Sullivan expensed certain merger related costs as incurred in
connection with the recently completed merger. For the nine months ended March
31, 2000, O'Sullivan recognized certain merger related expenses of approximately
$10.9 million incurred for investment banking, legal, accounting, printing and
other services. Included in these costs was a payment to BRS of $3.1 million.
The merger related expenses and the fee paid BRS have been included as separate
line items in the accompanying consolidated statement of operations.
NOTE 6--COMPENSATION EXPENSE ASSOCIATED WITH OPTIONS
O'Sullivan incurred approximately $10.6 million in compensation expense
associated with stock options as part of the merger. Of this amount, $6.0
million was exchanged for options to purchase 60,319 shares of Series A junior
preferred stock, $5.9 million in cash was paid and $1.1 million in liquidation
value of senior preferred stock was distributed to the option holders. Prior to
the merger, O'Sullivan had incurred approximately $2.4 million in compensation
expense associated with employee stock options issued in fiscal 1997.
Accordingly, only that portion of the options payment not expensed prior to the
merger is recognized as compensation expense
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associated with stock options. The compensation expense on the options has been
included as a separate line item in the accompanying consolidated statement of
operations.
NOTE 7--EXTRAORDINARY ITEM
O'Sullivan repaid private placement notes held with a principal amount
of $16.0 million for $16.5 million on November 30, 1999. The $476,000 prepayment
fee has been recognized as a $305,000 extraordinary loss, net of related tax
benefit.
NOTE 8--INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- --------
(in thousands)
<S> <C> <C>
Finished goods $35,283 $39,623
Work in process 6,220 6,263
Raw materials 14,027 10,248
------- -------
$55,530 $56,134
======= =======
</TABLE>
NOTE 9--LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt consisted of the following at March 31, 2000 and June 30, 1999:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Senior term notes, tranche A $ 35,000 $ -
Senior term notes, tranche B 100,000 -
Senior notes - 16,000
Revolving credit agreement - -
Industrial revenue bonds 10,000 10,000
Senior subordinated notes--face value of $100.0 million
discounted at 98.06% and net of $3.5 million original issue discount
arising from issuance of warrants to buy common and
Series B junior preferred stock 94,638 -
Senior note--face value of $15.0 million, net
of $3.5 million original issue discount arising from issuance of warrants to
buy common and Series B junior preferred stock 11,552 -
--------- ---------
Total debt 251,190 26,000
Less current maturities (3,000) (4,000)
--------- ---------
$ 248,190 $ 22,000
========= =========
</TABLE>
SENIOR SECURED CRIDIT FACILITY. O'Sullivan Industries, Inc.,
O'Sullivan's operating subsidiary, is the obligor under a senior secured credit
facility totaling $175.0 million and $100.0 million of senior subordinated
notes. O'Sullivan Industries - Virginia, Inc., a subsidiary of O'Sullivan
Industries, Inc., is the obligor for $10.0 million of variable rate industrial
revenue bonds. O'Sullivan Industries Holdings, Inc. is the obligor for the $15.0
million senior note.
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The senior secured credit facility is comprised of the following:
- a $35.0 million term loan facility payable in 23
quarterly installments beginning March 31, 2000. The
first four installments will total $500,000 per
quarter followed by eight quarterly installments of
$750,000. The final 11 payments will range from
$1,250,000 to $4,000,000.
- a $100.0 million term loan facility repayable in 26
quarterly installments beginning March 31, 2001. The
first 20 installment payments will total $250,000 per
quarter, followed by four quarterly payments of $8.75
million per quarter and two final payments of $30.0
million per quarter.
- a $40.0 million revolving credit facility due
November 30, 2005, which includes a $15.0 million
letter of credit subfacility and a $5.0 million swing
line subfacility. At March 31, 2000 the Company had
no borrowings outstanding on the credit facility and
approximately $12.8 million of letters of credit
outstanding.
O'Sullivan's obligations under the senior secured facility are secured
by first priority liens and security interest in the stock of O'Sullivan
Industries, Inc. and O'Sullivan Industries - Virginia, Inc. and substantially
all of the assets of O'Sullivan Industries, Inc. and O'Sullivan Industries -
Virginia, Inc.
At O'Sullivan's option, borrowings under the senior secured credit
facility accrue interest at varying rates based on (a) a Eurodollar rate plus an
applicable margin or (b) an applicable margin plus the highest of a bank's prime
rate, the federal funds effective rate plus 0.5% or three-month certificates of
deposit secondary market rates as adjusted for statutory reserves plus 1.0%.
Until June 30, 2000, the applicable margins for the $35.0 million term loan and
the revolving credit facility are fixed at 3.25% for Eurodollar loans and 2.25%
for base rate loans. After June 30, 2000, the applicable margins vary based upon
O'Sullivan Industries, Inc.'s leverage ratio. The applicable margins for the
$100.0 million term loan are 3.75% for Eurodollar loans and 2.75% for base rate
loans for the life of the loan. O'Sullivan also pays a quarterly fee equal to
0.5% per annum of the unused commitment under the senior secured credit
facility. The weighted average interest rate at March 31, 2000 was approximately
11.8%.
O'Sullivan is subject to various covenants associated with the $175.0
million senior secured credit facility such as leverage and coverage ratios and
other customary covenants. These covenants limited our additional borrowing
capacity at March 31, 2000 to $27.2 million under the senior credit facilities
of which $2.2 million can be used for letters of credit. In addition, O'Sullivan
has certain restrictions on its ability to incur additional debt, make capital
expenditures, pay dividends, sell its assets, issue securities, engage in
acquisitions, and other restrictions. At March 31, 2000, O'Sullivan was in
compliance with all debt covenants.
SENIOR SUBORDINATED NOTES. The senior subordinated notes totaling
$100.0 million bear interest at the rate of 13.375% per annum and are due in
2009. Interest is payable semiannually on April 15 and October 15. The senior
subordinated notes contain various covenants including restrictions on
additional indebtedness based upon EBITDA coverage. In connection with these
notes, O'Sullivan issued warrants to purchase 93,273 shares of O'Sullivan common
stock at an exercise price of $0.01 per shares and 39,273 shares of O'Sullivan's
Series B junior preferred stock at an exercise price of $0.01 per share. The
warrants were recorded at their fair value of $3.5 million.
SENIOR NOTE. The $15.0 million senior note bears interest at the rate
of 12.0% per annum and is due in 2009. In connection with this note, O'Sullivan
issued warrants to purchase 93,273 shares of O'Sullivan's common stock at an
exercise price of $0.01 per share and 39,273 shares of O'Sullivan's Series B
junior preferred stock at an exercise price of $0.01 per share. O'Sullivan
assigned a value of $3.5 million to the warrants.
The original issue discount and the warrants are amortized over the
life of the notes using the effective interest rate method. Expenses related to
the issuance of the debt financing were approximately $13.0 million and have
been capitalized as other assets. Of this amount, $1.0 million was paid to BRS.
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<PAGE> 10
NOTE 10 - RELATED PARTY TRANSACTIONS
BRS provided various advisory services to O'Sullivan related to the
merger. These services included arranging and negotiating the financing of the
merger, arranging and structuring the transaction, planning O'Sullivan's capital
structure and related services. BRS received a transaction fee of $4.0 million
and expenses of $62,000 for these services. Of the $4.0 million transaction fee,
$3.0 million was recognized as a merger related expense and $1.0 million was
capitalized into loan fees.
BRS also provided $15.0 million in financing pursuant to a securities
purchase agreement with O'Sullivan. BRS received a transaction fee of $300,000
in connection with this financing. BRS later sold this note and the related
warrants to an unrelated third party.
O'Sullivan entered into a management services agreement with BRS for
strategic and financial advisory services on November 30, 1999. The annual fee
for these services is the greater of (a) 1% of O'Sullivan's consolidated
earnings before interest, taxes, depreciation, and amortization or (b) $300,000.
Under the management services agreement, BRS can also receive reimbursement for
expenses which are limited to $50,000 a year under the senior credit facility
agreement. The accrued management fee on March 31, 2000 was $220,000. The
liability is included in accounts payable in the accompanying consolidated
balance sheet with the expense included in selling, marketing and administrative
expense in the accompanying consolidated statement of operations.
The senior credit facilities and the management services agreement both
contain certain restrictions on the payment of the management fee. The
management services agreement provides that no cash payment for the management
fee can be made unless the fixed charge coverage ratio for our most recently
ended four full fiscal quarters would have been at least 2.0 to 1.0. All fees
and expenses under the management services agreement are subordinated to the
senior subordinated notes.
At March 31, 2000, O'Sullivan held notes receivable with a balance of
approximately $285,000 from employees of O'Sullivan. O'Sullivan loaned the
employees money to purchase common stock and series B junior preferred stock of
O'Sullivan in the merger. The notes bear interest at the rate of 9.0% per annum
and mature on November 30, 2009, or earlier if there is a change of control.
The receivable is recorded on the balance sheet as a reduction to stockholders'
equity.
NOTE 11--COMMITMENTS AND CONTINGENCIES
TANDY LITIGATION
On June 29, 1999, Tandy Corporation filed a complaint against
O'Sullivan in the District Court of Texas in Tarrant County. The complaint
relates to a potential reduction in O'Sullivan's tax benefit payments to Tandy
that would result from increased interest expense after the completion of the
merger and certain expenses incurred to consummate the merger. Tandy claims
that this reduction would violate the tax sharing and tax reimbursement
agreement. The complaint sought a court order compelling O'Sullivan to submit
to a dispute resolution process. Alternatively, the complaint sought a
declaratory judgment that after the merger O'Sullivan must continue to make
tax-sharing payments to Tandy as if the merger had not occurred.
On September 9, 1999, Tandy filed a motion for summary judgment in its
lawsuit against O'Sullivan. The motion argued that Tandy was entitled to a court
order requiring O'Sullivan to commence dispute resolution procedures under the
tax sharing agreement. Because O'Sullivan had made all payments required under
the tax sharing agreement and because no merger had occurred, O'Sullivan
believed that Tandy's lawsuit was premature since there could not be a dispute
under the tax sharing agreement with respect to the increased interest resulting
from the merger before the merger was completed. Alternatively, Tandy argued
that it was entitled to a court order preventing O'Sullivan from deducting the
interest expense related to the merger from O'Sullivan's tax-sharing payments
to Tandy.
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<PAGE> 11
On October 8, 1999, the District Court ruled on Tandy's motion for
summary judgment. It found that the dispute resolution provision of the tax
sharing agreement was triggered, and ordered that O'Sullivan begin the dispute
resolution process according to the terms of the tax sharing agreement. The
District Court denied all other relief sought by Tandy. Pursuant to the dispute
resolution provisions, Tandy and O'Sullivan representatives have discussed the
issues in the dispute but did not reach a resolution. Arbitrators have been
selected to resolve the dispute, and the parties have submitted initial position
statements to the arbitrators.
For the nine months ended March 31, 2000, O'Sullivan paid Tandy $2.5
million under the agreement. If the arbitration ruling is in Tandy's favor,
O'Sullivan's payments would be substantially higher; the amount would depend on
O'Sullivan's taxable income. Based on current estimates, O'Sullivan's payments
to Tandy would be approximately $5.5 million greater than it currently
anticipates for fiscal years 2000 and 2001 combined if the arbitration ruling
were in Tandy's favor. O'Sullivan believes that Tandy's position is without
merit and intends to defend itself vigorously.
LITIGATION CHALLENGING THE MERGER
On May 18, 1999, five lawsuits were filed as class actions by
stockholders in the Delaware Court of Chancery seeking to enjoin the merger or,
in the alternative, to rescind the merger and recover monetary damages. The
complaints name as defendants O'Sullivan, all of its directors and, in some
cases, BRS. The complaints allege that O'Sullivan's directors breached their
fiduciary duties by approving the merger. The complaints also allege that the
price terms of the merger were inadequate and unfair to O'Sullivan
stockholders. In addition, the complaints allege that the management
participants in the buyout have conflicts of interest that have prevented them
from acting in the best interests of O'Sullivan stockholders and that make it
inherently unfair for BRS and the management participants in the buyout to
acquire 100% of the O'Sullivan stock. In the cases naming BRS as a defendant,
BRS is alleged to have aided and abetted the alleged breaches of fiduciary
duties. The defendants do not have to respond to the lawsuits until after the
plaintiffs have combined their complaints into one complaint. A consolidation
order was signed on July 22, 1999 by the court. This order requires the
plaintiffs to combine their complaints into one complaint. However, no date has
been set by which the defendants must move or answer in response to the
combined complaint. O'Sullivan believes that the claims are without merit and
intends to defend the lawsuits vigorously.
NOTE 12 -- COMPREHENSIVE INCOME
Comprehensive income for the nine months ended March 31, 1999 was
$16.1 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
We are a leading designer, manufacturer and distributor of
ready-to-assemble furniture products, with over 45 years of experience. We sell
primarily to the rapidly growing home office and home entertainment markets. We
manufacture approximately 450 stock keeping units of ready-to-assemble furniture
at retail price points from $20 to $999. Our product offerings include
ready-to-assemble desks, computer workcenters, home entertainment centers, audio
equipment racks, pantries and microwave oven carts. We also manufacture a
variety of other ready-to-assemble furniture for home office, home entertainment
and other home uses. We design our products to provide high quality, value and
ease of assembly by the consumer using straightforward, diagrammed instructions.
On March 24, 1999, O'Sullivan announced that members of its senior
management team, in conjunction with a financial buyer, had made a proposal to
O'Sullivan's Board of Directors to acquire O'Sullivan, subject to requisite
financing. On May 18, 1999, O'Sullivan announced that it had entered into a
definitive merger agreement with OSI Acquisition, Inc. Investors in OSI
Acquisition, Inc. included members of O'Sullivan's senior management and
Bruckmann, Rosser, Sherrill & Co., II, L.P. ("BRS"). The merger agreement was
amended and restated on October 18, 1999.
On November 30, 1999, OSI Acquisition, Inc. was merged into O'Sullivan
in a recapitalization transaction approved by O'Sullivan's stockholders on
November 22, 1999. As a result of the merger, all of O'Sullivan's outstanding
common stock is held by members of O'Sullivan's senior management and BRS and
its
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<PAGE> 12
affiliates. The management participants in the buyout own a total of 27.1% of
the outstanding common stock of O'Sullivan. BRS and its affiliates own the
balance.
Each share of our outstanding common stock was exchanged for $16.75 in
cash and one share of our senior preferred stock with an initial liquidation
value of $1.50 per share. Unpaid dividends accrue at the stated rate of 12.0%
per annum and will be accumulated and compounded at the same rate during the
period that the senior preferred stock is outstanding. Some of the shares of our
common stock and options held by the management participants in the buyout were
exchanged for common stock, junior preferred stock and options to acquire junior
preferred stock of O'Sullivan.
We required approximately $357.0 million to complete the merger and pay
related fees and expenses of which approximately $264.0 million was funded via
debt proceeds.
RESULTS OF OPERATIONS
Net Sales. Net sales for the quarter ended March 31, 2000 increased by
$8.2 million, or 7.6%, to $116.7 million, up from $108.5 million for the quarter
ended March 31, 1999. For the nine-month period ended March 31, 2000, sales
increased $35.7 million, or 12.1%, to $329.7 million from $294.0 million. During
the quarter, sales decreases in the discount mass merchant channel were offset
by strong increases in the office superstore, home improvement and specialty
retailer channels. For the nine-month period, sales increases in the office
superstore, home-improvement and speciality retailer channels more than offset
sales decreases in the catalog showroom channel. For both the quarter and the
nine-month period ended March 31, 2000, sales increased principally due to
higher unit volume and slightly higher average sales prices.
In March 1999, Service Merchandise Co., one of our largest customers,
filed for bankruptcy protection under Chapter 11. We are currently shipping to
Service Merchandise while it operates under Chapter 11 bankruptcy protection,
which gives certain priority claims to vendors in the event of liquidation. On
February 22, 2000, Service Merchandise announced that as a part of its
bankruptcy reorganization plan, it would no longer sell a number of product
lines, including indoor furniture. Service Merchandise, however has informed us
that it plans to continue to sell kitchen furniture. We expect this decision
will substantially reduce or eliminate our sales to Service Merchandise in
fiscal 2001 and thereafter. In fiscal year 1999, our sales to Service
Merchandise were about 7% of our gross annual sales. For the first three
quarters of fiscal 2000, sales to Service Merchandise were about 5% of our gross
sales.
Gross Profit. Gross profit increased to $34.0 million, or 29.1% of
sales, for the three month period ended March 31, 2000, from $32.8 million, or
30.2% of sales, for the comparable prior year quarter. For the nine months ended
March 31, 2000, gross profit increased to $97.5 million, or 29.6% of sales, from
$85.8 million, or 29.2% of sales. The increase in gross profit dollars was
primarily from increased sales volume and greater overhead absorption offset by
higher material costs, due primarily for particleboard prices, during the
quarter. For the nine-month period ended March 31, 2000, higher sales volume,
greater overhead absorption and increased productivity offset increased material
costs. During the prior year, we incurred higher labor and overhead costs
associated with the implementation of new manufacturing equipment and related
adaption of manufacturing processes.
In the fourth quarter of fiscal 1999, certain key commodity suppliers
announced price increases. We were able to minimize the effect of initial
increases during the first quarter of fiscal 2000 through our value analysis
program and productivity gains in manufacturing. Additional price increases
became effective during the second quarter and third quarter of fiscal 2000 and
others will become effective during the fourth quarter. We were able to
partially offset the effect of these price increases through the programs
mentioned above combined with increased operating leverage from higher sales
levels. We currently estimate these increases will reduce our budgeted gross
margin by approximately $1.0 million during the last three months of fiscal
2000. We believe that we can continue to partially offset the effect of such
increases through the programs mentioned above and through the eventual
inclusion of the higher costs in the selling price of our products. However,
there can be no assurance that we will be successful in offsetting these or
future potential price increases.
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Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses increased to $21.4 million or 18.4% of sales, for the
three month period ended March 31, 2000, from $20.2 million, or 18.6% of sales,
for the quarter ended March 31, 1999. For the nine-month period ended March 31,
2000, selling, marketing and administrative expenses increased $6.3 million, to
$64.6 million from $58.2 million in fiscal 1999. The majority of the dollar
increase in selling, marketing and administrative expenses for both the quarter
and the nine-month period was due to higher promotional costs and increased
sales levels. Bad debt expense was lower this quarter because of the expense
associated with the Chapter 11 bankruptcy filing of Service Merchandise during
the March 31, 1999 quarter.
Merger Related and Other Special Charges. O'Sullivan expensed merger
related costs as incurred in connection with the recently completed merger.
Merger related costs, consisting of investment banking, legal, accounting,
printing and other services, totaled $10.9 million for the nine-month period
ended March 31, 2000. Included in these costs was a payment to BRS of $3.1
million. The merger related expenses and the fee paid BRS have been included as
separate line items in the accompanying consolidated statement of operations.
For the nine months ended March 31, 2000, O'Sullivan incurred compensation
expense in connection with stock options related to the merger of $10.6 million.
Additionally, for the nine month period, we incurred a charge of $408,000 for
the settlement of an interest rate swap agreement entered into in fiscal 1997.
Both the compensation expense from stock options and the loss on the settlement
of the interest rate swap have been included as separate line items in the
accompanying consolidated statement of operations. In total, the merger related
and other special charges were $21.9 million for the nine months ended March 31,
2000.
Depreciation and Amortization. Depreciation and amortization expenses
increased $1.1 million to $4.7 million in the quarter ended March 31, 2000, from
$3.6 million in the three months ended March 31, 1999. For the nine months ended
March 31, 2000, depreciation and amortization expenses increased $1.6 million or
15.6% to $12.0 million from $10.4 million. The increase in depreciation and
amortization expense was due primarily to amortization of prepaid loan fees
associated with the financing of the merger and capital expenditures of
approximately $10.2 million during the past 12 months. The expenditures were
made to replace and upgrade existing equipment and to increase manufacturing
capacity, primarily at the Cedar City and Lamar locations.
Operating Income. Operating income, including merger related and other
one-time charges, decreased $108,000 to $12.5 million in the quarter ended March
31, 2000, from $12.7 million in the three months ended March 31, 1999. Operating
income, including merger related and other special charges, decreased $16.5
million from $27.6 million in the first nine months of fiscal 1999 to $11.1
million during the nine-month period ended March 31, 2000.
During the quarter ended March 31, 2000, higher material and
promotional costs offset increased sales volume and greater overhead absorption.
The decrease during the nine-month period was due to the merger related and
other special charges, totaling $22.0 million, incurred during the period.
Excluding merger related and other one-time charges, operating income
was virtually unchanged at $12.5 million and $12.7 million for the third quarter
of fiscal 2000 and fiscal 1999, respectively. For the nine month period ended
March 31, 2000 operating income, excluding merger related and other special
charges, increased $5.4 million or 19.6% to $33.0 million from $27.6 million in
the comparable prior year period.
Net Interest Expense. Net interest expense increased significantly for
both the quarter and nine months ended March 31, 2000 when compared to the same
periods in the prior fiscal year. Net interest expense increased from $0.6
million to $7.7 million during the quarter and from $2.3 million to $11.0
million during the nine-month period. The interest expense increased due to the
higher level of borrowings associated with the financing of the merger. The
merger closed on November 30, 1999, so only four months of increased expense is
reflected in the year to date results.
Extraordinary Item. O'Sullivan repaid private placement notes held with
a principal amount of $16.0 million for $16.5 million on November 30, 1999. The
$476,000 prepayment fee has been recognized an extraordinary loss of $305,000,
net of the related tax benefit.
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EBITDA. EBITDA, which we define as earnings before interest income and
interest expense, income taxes, depreciation and amortization, increased by
$167,000 to $16.5 million for the quarter ended March 31, 2000 from $16.3
million for the prior year quarter. For the nine months ended March 31, 2000,
EBITDA decreased $15.6 million to $22.4 million from $37.9 million for the
comparable period a year ago. EBITDA decreased primarily due to the merger
related costs ($7.8 million pre-tax), transaction fees to related party ($3.1
million pre-tax) compensation expenses associated with stock options ($10.6
million pre-tax) and the loss on the termination of the interest rate swap ($0.4
million pre-tax) incurred due to the merger.
EBITDA is presented to provide additional information about our
operations. This item 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.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flows from operations and
borrowings under our senior secured credit facility, which is discussed below.
Our liquidity requirements will be to pay our debt, including interest expense
under the senior credit facilities and the notes, payments to Tandy and to
provide for working capital and capital expenditures.
Working Capital. As of March 31, 2000, we had cash and cash equivalents
of $14.8 million. Net working capital was $96.5 million at March 31, 2000
compared to $85.0 million at March 31, 1999. Working capital increased from last
year primarily because of the increased cash balance and higher inventory levels
decreased by lower trade receivables due to changes in payment terms with
certain customers.
Operating Activities. Net cash provided by operating activities for the
nine months ended March 31, 2000, was $22.8 million compared to $14.6 million
for the nine months ended March 31, 1999. The increase of $8.2 million in cash
flows from operations was due to less cash needed to finance receivables and
inventories plus more cash generated by increases in accounts payable, accrued
liabilities and income taxes payable, when compared to the prior year. Partially
offsetting these items was less cash generated by net income because of
merger-related expenses and the transaction fee to a related party.
Investing Activities. We invested $7.7 million for capital expenditures
for the nine months ended March 31, 2000 compared to $13.3 million for the prior
year nine-month period. We currently estimate that the total capital expenditure
requirements for the remainder of the fiscal year will be approximately $8.0
million, which we expect to fund from cash flow from operations or cash on hand.
Our ability to make future capital expenditures is subject to certain
restrictions under our senior credit facilities.
Financing Activities. On November 30, 1999 we completed our merger and
recapitalization. Our consolidated indebtedness at March 31, 2000 was $260.0
million, consisting of:
- $100.0 million in 13-3/8% senior subordinated notes due 2009
issued with warrants to purchase 6.0% of our common and Series
B junior preferred stock on a fully diluted basis. These
warrants were assigned a value of $3.5 million. These notes
were issued at a price of 98.06% providing $98.1 million in
cash proceeds before expenses related to the issuance.
- $135.0 million in senior secured credit facilities consisting
of a six year $35.0 million term loan, a seven and one-half
year $100.0 million term loan and a $40.0 million revolving
line of credit, currently with no borrowings. The revolving
line of credit has a $15.0 million sub-limit for letters of
credit, of which we are currently utilizing approximately
$12.8 million.
- $10.0 million in variable rate industrial revenue bonds, and
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<PAGE> 15
- $15.0 million in a senior note issued with warrants to
purchase 6.0% of our common and Series B junior preferred
stock on a fully diluted basis. These warrants were assigned a
value of $3.5 million.
Expenses related to the issuance of debt financing were approximately
$13.0 million. The credit facilities and notes are subject to certain financial
and operational covenants and other restrictions, including among others, a
requirement to maintain certain financial ratios and restrictions on our ability
to incur additional indebtedness. In addition, the agreements effectively
prohibit the payment of dividends on our stock.
From time to time we may use derivative financial instruments to reduce
interest rate risks. We do not hold or issue derivative financial instruments
for trading purposes. During fiscal 1997, we entered into a forward starting
interest rate swap agreement with a notional principal amount of $10.0 million.
The effective date of the agreement was October 1, 1998, and the termination
date was October 1, 2008. We contracted to pay a fixed rate of 7.13% and receive
a floating interest rate during the duration of the swap agreement. On November
30, 1999, we terminated this swap, incurring a loss of $408,000, as part of the
merger and recapitalization.
As required under the new senior credit facilities, we hedged one-half
of our term loans with an initial notational amount of $67.5 million with a
costless interest rate collar. The collar is based on 3 month LIBOR with a floor
of 6.43% and a ceiling of 8.75%.
We repaid our private placement notes with a principal amount of $16.0
million for $16.5 million on November 30, 1999. The $476,000 prepayment fee is
recorded as a $305,000 extraordinary item, net of taxes.
Tax Sharing Agreement. For the nine months ended March 31, 1999,
O'Sullivan paid Tandy Corporation $2.5 million pursuant to the Tax Sharing and
Tax Reimbursement Agreement between us. The effect of the merger upon our
payments to Tandy under this agreement is the subject of an arbitration
proceeding. See Note 11 to the financial statements included in this report. If
the ruling in the arbitration proceeding is in Tandy's favor, our payments under
the tax sharing agreement would be substantially higher; the amount would depend
on our taxable income. Based on current estimates, our payments to Tandy would
be approximately $5.5 million greater than we currently anticipate for fiscal
years 2000 and 2001 combined if the arbitration ruling were in Tandy's favor.
YEAR 2000 COMPLIANCE
O'Sullivan computers and computerized equipment experienced only two
minor problems at the start of calendar 2000. We discovered the problems testing
our systems on January 1, 2000. Both problems were fixed in less than one day
and caused no interruption of production, sales or shipments. Further, we know
of no supplier or customer whose ability to sell us raw materials or to purchase
finished goods has been materially affected by Year 2000 compliance problems.
We spent approximately $110,000 in connection with our Year 2000
program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our market risk is impacted by changes in interest rates, foreign
currency exchange rates and certain commodity prices. Pursuant to our policies,
we may use natural hedging techniques and derivative financial instruments to
reduce the impact of adverse changes in market prices. We do not hold or issue
derivative instruments for trading purposes, and we have no material sensitivity
to changes in prices on our derivative financial instrument positions.
We have market risk in interest rate exposure, primarily in the United
States. We manage interest rate exposure through our mix of fixed and floating
rate debt. Interest rate swaps or collars may be used to adjust interest rate
exposures when appropriate based on market conditions. For qualifying hedges,
the interest differential of swaps or collars is included in interest expense.
We believe that our foreign exchange risk is not material.
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<PAGE> 16
Due to the nature of our product lines, O'Sullivan has material
sensitivity to some commodities, including particleboard, fiberboard, corrugated
cardboard, glass and hardware. We manage commodity price exposures primarily
through the duration and terms of our 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 O'Sullivan by approximately
$700,000 annually.
As noted above, in fiscal 2000 we have encountered price increases in
certain commodities, which increases are expected to reduce our budgeted gross
margin by about $1.0 million during the last three months of fiscal 2000. We
cannot guarantee that there will not be further price increases in these or
other commodities.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 29, 1999, Tandy Corporation filed a complaint against us in the
District Court of Texas in Tarrant County. Tandy's complaint sought a court
order compelling us to submit to a dispute resolution process in connection with
the Tax Sharing and Tax Reimbursement Agreement between us. Alternatively, the
complaint sought a declaratory judgment that after the merger O'Sullivan must
continue to make its tax-sharing payments to Tandy as if the merger had not
occurred.
On October 8, 1999, the District Court ruled on Tandy's motion for
summary judgment. It found that the dispute resolution provision of the tax
sharing agreement was triggered, and ordered that we begin the dispute
resolution process according to the terms of the tax sharing agreement. The
District Court denied all other relief sought by Tandy. The arbitrators to hear
the dispute have been selected, and the initial position statements have been
filed with the arbitrators.
We believe that Tandy's position is without merit and intend to defend
ourselves vigorously. If Tandy were to prevail, our increased interest expense
following the merger and certain expenses incurred to consummate the merger
would not be taken into account in determining our annual payments to Tandy. For
example, based on current estimates, our payments to Tandy would be
approximately $5.5 million greater than we currently anticipate for fiscal years
2000 and 2001 combined. However, if our earnings are significantly less than
current estimates, then the difference between the amount we believe we would
owe to Tandy and the amount Tandy believes we would owe under the tax sharing
agreement would be significantly greater. If necessary, we would fund these
increased payment obligations from cash flow from operations, borrowing under
the revolving line of credit or other sources of capital, if available.
ITEM 5. OTHER INFORMATION.
FORWARD LOOKING STATEMENTS.
Cautionary Statement Regarding Forward Looking Information.
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 report, contain forward-looking
statements. These statements can be identified by the use of future tense or
dates or terms such as "believe,""would," "expect," "anticipate" or "plan."
These forward-looking statements involve risks and uncertainties. Actual results
may differ materially from those predicted by the forward-looking statements.
Factors and possible events which could cause results to differ include:
- significant indebtedness that may limit our financial and
operational flexibility;
- changes from anticipated levels of sales, 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 our ability to supply product;
- raw material cost increases, particularly in particleboard and
fiberboard, as occurred in 1994 and 1995 and has occurred to a
lesser extent this year;
- transportation cost increases;
- loss of or reduced sales to significant customers as a result of a
merger, acquisition, bankruptcy, liquidation or any other reason, as
occurred with the liquidation of Best Products in 1996 and is
expected to occur with the reorganization of Service Merchandise
Co., Inc.;
- actions of current or new competitors that increase competition with
our products or prices;
- the consolidation of manufacturers in the ready-to-assemble
furniture industry;
- increased advertising costs associated with promotional efforts;
- increased interest rates;
- pending or new litigation or governmental regulations such as the
pending litigation involving Tandy;
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<PAGE> 18
- other uncertainties which are difficult to predict or beyond our
control; and
- the risk that we incorrectly analyze these risks and forces, or
that the strategies we develop to address them could be
unsuccessful.
Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place a lot of weight on these
statements. These statements speak only as of the date of this document or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable
to O'Sullivan or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
A list of exhibits required to be filed as part of this Report is set
forth in the Index to Exhibits, which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K:
None
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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: May 11, 2000 By: /s/ Richard D. Davidson
--------------------------------------------
Richard D. Davidson
President and
Chief Executive Officer
Date: May 11, 2000 By: /s/ Phillip J. Pacey
--------------------------------------------
Phillip J. Pacey
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of October 18, 1999, between O'Sullivan Industries Holdings,
Inc. and OSI Acquisition, Inc. (incorporated by reference
from Appendix A to Proxy Statement/Prospectus included in
Amendment No. 5 to Registration Statement on Form S-4 (File
No. 333-81631))
3.1 & 4.1 Amended and Restated Certificate of Incorporation of
O'Sullivan (incorporated by reference from Exhibit 2.4(a) to
Registration Statement on Form S-4 (File No.
333-81631))
3.2 & 4.2 Bylaws of O'Sullivan (incorporated by reference from Exhibit
3.2 to Registration Statement on Form S-1 (File No.
33-72120))
4.3 Specimen Senior Preferred Stock Certificate of O'Sullivan
(incorporated by reference from Exhibit 3 to Registration
Statement on Form 8-A (File No. 0-28493))
4.4 Indenture dated as of November 30, 1999, by O'Sullivan
Industries, Inc., as Issuer, O'Sullivan Industries -
Virginia, Inc., as Guarantor, and Norwest Bank Minnesota,
National Association, as Trustee, relating to O'Sullivan
Industries, Inc.'s $100,000,000 principal amount of 13.375%
senior subordinated notes (incorporated by reference to
Exhibit 4.4 to Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999 (File No. 0-28493))
4.5 Warrant Agreement dated as of November 30, 1999 between
O'Sullivan Industries Holdings, Inc. and Norwest Bank
Minnesota, National Association, as Warrant Agent, relating
to warrants to purchase 39,273 shares of O'Sullivan
Industries Holdings, Inc. series B junior preferred stock,
including form of warrant certificate (incorporated by
reference to Exhibit 4.5 to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999 (File No.
0-28493))
4.6 Warrant Agreement dated as of November 30, 1999 between
O'Sullivan Industries Holdings, Inc. and Norwest Bank
Minnesota, National Association, as Warrant Agent, relating
to warrants to purchase 93,273 shares of O'Sullivan
Industries Holdings, Inc. common stock, including form of
warrant certificate (incorporated by reference to Exhibit
4.6 to Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999 (File No. 0-28493))
4.7 Amended and Restated Warrant Agreement dated as of January
31, 2000 between O'Sullivan Industries Holdings, Inc. and
the holder thereof relating to warrants to purchase 39,273
shares of O'Sullivan Industries Holdings, Inc. series B
junior preferred stock, including form of warrant
certificate (incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended December
31, 1999 (File No. 0-28493))
4.8 Amended and Restated Warrant Agreement dated as of January
31, 2000 between O'Sullivan Industries Holdings, Inc. and
the holder thereof relating to warrants to purchase 93,273
shares of O'Sullivan Industries Holdings, Inc. common stock,
including form of warrant certificate (incorporated by
reference to Exhibit 4.8 to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999 (File No.
0-28493))
10.1 Debt Registration Rights Agreement dated as of November 30,
1999 by and among O'Sullivan Industries, Inc., Lehman
Brothers and O'Sullivan Industries - Virginia, Inc. as
guarantor (incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-4 (File No.
333-31282))
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C>
10.2 Stock Purchase Agreement dated as of November 30, 1999 by
and among Bruckmann, Rosser, Sherrill & Co. II, L.P. and the
individuals whose names appear on the signature pages
attached thereto (incorporated by reference to Exhibit 10.2
to Registration Statement on Form S-4 (No.
333-31282)
10.3 Unit Agreement dated as of November 30, 1999 by and among
O'Sullivan Industries, Inc., O'Sullivan Industries
Holdings, Inc., O'Sullivan Industries - Virginia Inc. and
Norwest Bank Minnesota, National Association (incorporated
by reference to Exhibit 10.3 to Registration Statement on
Form S-4 (File No. 333-31282))
10.4 Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated as of November 30, 1999
from O'Sullivan Industries Holdings, Inc. to the trustee
named therein for the benefit of Lehman Brothers, Lehman
Commercial Paper, Inc. and the several lenders and financial
institutions which become parties thereto from time to time
(incorporated by reference to Exhibit 10.5 to Registration
Statement on Form S-4 (File No. 333-31282))
10.5 Guarantee and Collateral Agreement dated as of November 30,
1999 by and among O'Sullivan Industries, Inc., O'Sullivan
Industries Holdings, Inc., O'Sullivan Industries - Virginia,
Inc. and Lehman Commercial Paper, Inc. (incorporated by
reference to Exhibit 10.6 to Registration Statement on Form
S-4 (File No. 333-31282))
10.6 Intellectual Property Security Agreement dated as of
November 30, 1999 by and among O'Sullivan Industries, Inc.
and Lehman Commercial Paper, Inc. (incorporated by reference
to Exhibit 10.7 to Registration Statement on Form S-4 (File
No. 333-31282))
10.7 Intercompany Subordinated Demand Promissory Note dated as of
November 30, 1999 by and among O'Sullivan Industries, Inc.
and O'Sullivan Industries - Virginia, Inc. (incorporated by
reference from Exhibit 10.8 to Registration Statement on
Form S-4 (File No. 333-31282))
10.8 Subscription Agreement dated November 30, 1999 by and among
OSI Acquisition, Inc., Bruckmann, Rosser, Sherrill & Co. II,
L.P. and the individuals whose signatures appear on the
signature pages thereto (incorporated by reference to
Exhibit 10.10 to Registration Statement on Form S-4 (File
No. 333-31282))
10.9 O'Sullivan Industries Holdings, Inc. Common Stock Option
Plan (incorporated by reference to Exhibit 10.11 to
Registration Statement on Form S-4 (File No. 333-31282))
10.10 Agreement and Acknowledgment of Optionee dated November 30,
1999 by and among O'Sullivan Industries Holdings, Inc. and
each of the individuals who executed an individual signature
page thereto (incorporated by reference to Exhibit 10.15 to
Registration Statement on Form S-4 (File No. 333-31282))
10.11 Second Amendment to the O'Sullivan Industries Holdings, Inc.
Deferred Compensation Plan (incorporated by reference to
Exhibit 10.20b to Registration Statement on Form S-4 (File
No. 333-31282))
27 Financial Data Schedule...................................22
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, O'Sullivan has not
filed agreements relating to certain long-term debt of O'Sullivan aggregating
$10 million. O'Sullivan agrees to furnish the Securities and Exchange Commission
a copy of such agreements upon request.
-21-
<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 MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 14,756
<SECURITIES> 0
<RECEIVABLES> 76,793
<ALLOWANCES> 2,969
<INVENTORY> 55,530
<CURRENT-ASSETS> 149,788
<PP&E> 163,633
<DEPRECIATION> 69,391
<TOTAL-ASSETS> 299,002
<CURRENT-LIABILITIES> 52,673
<BONDS> 248,190
12,230
53,996
<COMMON> 14
<OTHER-SE> (88,151)
<TOTAL-LIABILITY-AND-EQUITY> 299,002
<SALES> 329,701
<TOTAL-REVENUES> 329,701
<CGS> 232,180
<TOTAL-COSTS> 232,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,952
<INCOME-PRETAX> 112
<INCOME-TAX> 3,747
<INCOME-CONTINUING> (3,635)
<DISCONTINUED> 0
<EXTRAORDINARY> (305)
<CHANGES> 0
<NET-INCOME> (3,940)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
