SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (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, 2006 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: 0-28493 O'Sullivan Industries Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware 43-1659062 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 10 Mansell Court East, Roswell, Georgia 30076 (Address of principal executive offices) (ZIP Code) (678) 939-0800 (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 [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): [ ] Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [X] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of distribution of securities under a plan confirmed by a court. Yes [X] No [ ] As of August 1, 2006, 10,000,000 shares of common stock of O'Sullivan Industries Holdings, Inc. were outstanding. - ------------------------------------------------------------------------------------------------------------------------ -1- PART I Item 1. Financial Statements. O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) March 31, June 30, Assets 2006 2005 ---------------- -------------- Current assets: Cash and cash equivalents $ 737 $ 1,213 Trade receivables, net of allowance for doubtful accounts of $2,921 and $2,455, respectively 25,114 19,838 Inventories, net 44,758 43,608 Prepaid expenses and other current assets 4,927 2,184 ------------- -------------- Total current assets 75,536 66,843 Property, plant and equipment, net 36,465 43,155 Other assets 231 6,600 Goodwill 38,088 38,088 ------------- -------------- Total assets $ 150,320 $ 154,686 ============= ============ -2- Trade receivables, net of allowance for doubtful accounts ============= ============ March 31, June 30, Liabilities and Stockholders' Deficit 2006 2005 --------------- ------------ Current liabilities, not subject to compromise: Accounts payable $ 8,033 $ 10,319 Accrued advertising 7,408 9,939 Accrued liabilities 4,568 15,756 Short-term debt 28,533 225,046 ------------- ------------ Total current liabilities not subject to compromise 48,542 261,060 Non-current liabilities not subject to compromise: Mandatorily redeemable senior preferred stock – 31,437 Other liabilities 3,152 10,839 Payable to RadioShack – 70,067 ------------- ------------ Total non-current liabilities not subject to compromise 3,152 112,343 Liabilities subject to compromise 350,122 – ------------- ------------ Total liabilities 401,816 373,403 Commitments and contingent liabilities (Notes 2, 10, 12 and 13) Stockholders' 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 issue price including accumulated dividends; 997,503.81 shares authorized, 933,033.13 shares issued at March 31, 2006 and June 30, 2005 122,949 116,550 Junior preferred stock, Series C, $0.01 par value, 50,000 shares authorized, 50,000 shares issued at March 31, 2006 and June 30, 2005 1 1 Class A common stock, $0.01 par value; 2,000,000 shares authorized; 1,368,000 issued; and 1,356,788 outstanding at March 31, 2006 and June 30, 2005 14 14 Class B common stock, $0.01 par value, 1,000,000 shares authorized, 701,422 shares issued at March 31, 2006 and June 30, 2005 7 7 Additional paid-in capital 13,057 13,057 Retained deficit (389,643) (351,150) Treasury stock, 11,208.75 shares of Class A common stock at March 31, 2006 and June 30, 2005, at cost – – Accumulated other comprehensive income 2,119 2,804 ------------- ------------ Total stockholders' deficit (251,496) (218,717) ------------- ------------ Total liabilities and stockholders' deficit $ 150,320 $ 154,686 ============= ============ The accompanying notes are an integral part of these consolidated financial statements. ============= ============ -3- O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) Three months ended Nine months ended March 31, March 31, -------------------------- -------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net sales $ 52,503 $ 68,543 $ 156,659 $ 197,409 Cost of sales 42,413 60,939 130,831 169,299 ------------ ------------ ------------ ------------ Gross profit 10,090 7,604 25,828 28,110 Operating expenses: Selling, marketing and administrative 10,223 11,409 32,974 34,834 Restructuring costs 260 357 452 357 ------------ ------------ ------------ ------------ Operating loss (393) (4,162) (7,598) (7,081) Other income (expense): Interest expense (Contractual interest was $9,757 and $28,503 for the three and nine months ended March 31, 2006.) (571) (9,060) (11,554) (26,805) Interest income 4 2 17 17 ------------ ------------ ------------ ------------ Loss before reorganization items and income tax provision (960) (13,220) (19,135) (33,869) Reorganization items: Professional fees 3,946 – 11,368 – Financing costs 898 – 1,591 – ------------ ------------ ------------ ------------ 4,844 – 12,959 – ------------ ------------ ------------ ------------ Loss before income tax provision (5,804) (13,220) (32,094) (33,869) Income tax provision – – – – ------------ ------------ ------------ ------------ Net loss (5,804) (13,220) (32,094) (33,869) Dividends on Series B junior preferred stock – (3,762) (6,399) (13,040) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $ (5,804)$ (16,982) $ (38,493)$ (46,909) ============ ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -4- O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine months ended March 31, ------------------------- 2006 2005 ----------- ---------- Cash flow used by operating activities: Net loss $ (32,094) $ (33,869) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 7,218 8,931 Amortization of debt issuance cost 489 1,273 Amortization of debt discount and accrued interest on O'Sullivan Holdings note 1,485 3,568 Interest and accretion on mandatorily redeemable senior preferred stock 1,557 3,826 Settlement of notes receivable from employees – 283 Bad debt recoveries, net (275) (265) Gain (loss) on disposal of assets (11) 16 Accrual of special payment on options to purchase Series A junior preferred stock 483 1,210 Changes in assets and liabilities: Trade receivables (5,001) (6,223) Inventories (1,150) 15,178 Other assets (1,828) 774 Accounts payable and accrued liabilities 8,942 5,217 Changes in assets and liabilities related to reorganization: Other assets (915) – Accounts payable and accrued liabilities 3,454 – ----------- ---------- Net cash used by operating activities (17,646) (81) ----------- ---------- Cash flow used for investing activities: Capital expenditures (464) (631) ----------- ---------- Cash flow provided by financing activities: Proceeds from borrowings 178,371 5,700 Extinguishment of borrowings (149,839) (5,700) Repayment of industrial revenue bonds (10,000) – Proceeds from repayment of employee note – 30 Proceeds from issuance of common and preferred securities – 16 Payments for reorganization costs related to credit facility (post-petition) (898) – ----------- ---------- Net cash flow provided by financing activities 17,634 46 Net decrease in cash and cash equivalents (476) (666) Cash and cash equivalents, beginning of period 1,213 5,250 ----------- ---------- Cash and cash equivalents, end of period $ 737 $ 4,584 =========== ========== -5- Net loss $ (32,094) $ (33,869) =========== ========== Supplemental cash flow information: Nine months ended March 31, ------------------------- 2006 2005 ----------- ---------- Payments for reorganization items Professional fees $ (9,536) – Financing costs (1,591) – ----------- ---------- Total $ (11,127) – =========== ========== Interest paid $ (11,365) $ (17,724) Income taxes paid (8) (3) Non-cash investing and financing activities: Capital expenditures included in accounts payable $ – $ 72 Dividends accrued but not paid 6,399 13,040 The accompanying notes are an integral part of these consolidated financial statements. -6- O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT For the nine months ended March 31, 2006 (in thousands) dditional Series B junior Series C junior Class A Class B common paid-in preferred stock preferred stock common stock stock A capital ------------------ ---------------- ----------------- ------------------------------- Shares Dollars Shares Dollars Shares Dollars Shares Dollars ------- --------- ------ ------- ------- -------- -------- -------- ----------- Balance, June 30, 2005 933$ 116,550 50 $ 1 1,357$ 14 701 7 13,057 Net loss Cumulative translation adjustments Dividends on Series B junior preferred stock 6,399 ------- --------- ------ ------- ------- -------- -------- -------- ----------- Balance, March 31, 2006 933$ 122,949 $50 $ 1 1,357$ 14 701 7 13,057 ======= ========= ====== ======= ======= ======== -------- ----------- ========= ======= ======= ======== -------- Accumulated otal stock- Compre other holders' hensive Retained Treasury shares Class A comprehensive deficit income deficit common stock income T (loss) ----------- ------------------------- ----------------- ------------ ----------- -------------------------------------- ----------- Shares Dollars ----------- ----------- ----------- ----------------- ------------ ----------- Balance, June 30, 2005 $ (351,150) 11 $ –$ 2,804 $ (218,717) Net loss (32,094) (32,094$ (32,094) Cumulative translation adjustments (685) (685) (685) Dividends on Series B junior preferred stock (6,399) ----------- ----------- ----------- ----------------- ------------ ----------- Balance, March 31, 2006 $ (389,643) 11 $ –$ 2,119 $ (251,496$ (32,779) =========== =========== =========== ================= ============ =========== =========== =========== =========== ================= ============ =========== The accompanying notes are an integral part of these consolidated financial statements. =========== =========== =========== ================= ============ =========== -7- O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2006 Note 1—Basis of Presentation The unaudited consolidated financial statements of O'Sullivan Industries Holdings, Inc. and subsidiaries (collectively, "O'Sullivan"; references to "O’Sullivan" refer to O’Sullivan Industries Holdings, Inc. alone) 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 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 Holdings' Annual Report on Form 10-K for the fiscal year ended June 30, 2005 filed on April 10, 2006. The interim results are not necessarily indicative of the results that may be expected for a full year. O’Sullivan Holdings owns all of the stock of O'Sullivan Industries, Inc. ("O'Sullivan Industries"). O'Sullivan Industries is the sole owner of O'Sullivan Industries - Virginia, Inc. ("O'Sullivan Virginia") and O'Sullivan Furniture Factory Outlet, Inc. The accompanying financial statements have been prepared under the assumption that O'Sullivan will continue to operate on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if O'Sullivan is unable to continue as a going concern. However, on October 14, 2005, O'Sullivan Holdings, O'Sullivan Industries, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc. filed their petitions in the U.S. Bankruptcy Court for the Northern District of Georgia in Atlanta. From October 15, 2005 to April 12, 2006, O'Sullivan operated its business as a debtor-in-possession. O'Sullivan's Modified Second Amended Plan of Reorganization was confirmed by the U.S. Bankruptcy Court on March 16, 2006. O'Sullivan emerged from bankruptcy protection on April 12, 2006. See Note 2. In accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, on October 14, 2005, O'Sullivan reclassified certain liabilities on its balance sheet to "Liabilities subject to compromise," and certain interest expense and dividend accruals were discontinued. See Note 3. Under Chapter 11 proceedings, actions by creditors to collect claims in existence on the filing date are stayed, absent specific authorization by the bankruptcy court to pay such claims, while the company continues to manage the business as a debtor-in-possession. O'Sullivan received approval from the U.S. Bankruptcy Court to pay certain of its pre-petition claims including employee wages and certain employee benefits. Note 2—Bankruptcy Filing and Subsequent Events Bankruptcy Filing O'Sullivan's declining sales and increasing losses resulted in lower (and at times, negative) cash flows from operations in recent years. As a result, O'Sullivan filed for protection from its creditors and other claimants under Chapter 11 of the United States Bankruptcy Code on October 14, 2005 in the United States Bankruptcy Court for the Northern District of Georgia. The cases for O'Sullivan Holdings and its domestic subsidiaries were jointly administered under case no. 05-83049. After the filing, O'Sullivan managed its business as debtor-in-possession. O'Sullivan emerged from bankruptcy on April 12, 2006 with the effectiveness of its modified second amended plan of reorganization. O'Sullivan Industries did not pay the $5.3 million interest payment due on July 15, 2005 with respect to its $100 million 10.63% senior secured notes. In July 2005, O'Sullivan initiated discussions with representatives of its major stakeholders regarding O'Sullivan's strategic alternatives, including potentially a consensual restructuring of its -8- capital structure. O'Sullivan retained Lazard Frères & Co. LLC to serve as its financial advisor and Dechert LLP as legal advisor to assist with its evaluation of strategic alternatives and restructuring efforts. In August 2005, O'Sullivan entered into a forbearance agreement with controlling holders of its senior secured notes. Pursuant to the forbearance agreement, the noteholders agreed not to exercise any enforcement rights or remedies available to them under the senior secured notes indenture as a result of the non-payment of interest on the senior secured notes prior to the end of the applicable 30-day grace period provided for in the indenture. The term of the forbearance agreement, as extended, expired with its filing for protection under Chapter 11 of the Bankruptcy Code. In August, O'Sullivan also retained FTI Consulting to provide restructuring advice with respect to its reorganization efforts. In August 2005, O'Sullivan also executed an amendment and consent with the lender under its credit agreement. Pursuant to the amendment, the lender agreed to continue to make available funding within terms of the credit agreement and not to enforce any event of default in connection with its failure to pay interest on its senior secured notes within the applicable 30-day grace period. The amendment also prohibited O'Sullivan from using loans under the credit agreement to pay interest on the senior secured notes and senior subordinated notes. The highest outstanding balance under the credit agreement during fiscal 2006 was $6.6 million. As a result of the bankruptcy filing, O'Sullivan did not pay $6.4 million of interest on O'Sullivan Industries senior subordinated notes on October 15, 2005. After filing for bankruptcy, O'Sullivan operated its business as debtor-in-possession under court protection from creditors and claimants. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date, or pre- petition claims, are stayed, and such claims are not permitted to be paid absent specific authorization from the bankruptcy court and all transactions not in the ordinary course of business require prior approval of the bankruptcy court. Since the Chapter 11 filing, the bankruptcy court entered several orders to enable O'Sullivan to conduct normal business operations, including orders authorizing it to pay wages, to honor customer programs and warranty claims, to use cash collateral prior to approval of O'Sullivan's debtor-in-possession credit agreement and other matters. Debtor-in-Possession Credit Agreement. On October 21, 2005, the U.S. Bankruptcy Court granted interim authorization for O'Sullivan to draw on a $35 million debtor-in-possession credit agreement with certain lenders. O'Sullivan used the new DIP credit agreement to pay off the outstanding $6.6 million balance under its credit agreement and to support ongoing operations. The U.S. Bankruptcy Court issued a final order approving the DIP credit agreement on November 9, 2005. The DIP credit agreement provided for borrowings of up to $35 million, including a revolving facility of up to $30 million with availability based a borrowing base including its accounts receivable and inventory, and a term facility of up to $5 million. The revolving facility had a sublimit of $20.0 million for letters of credit, of which we were using $2.8 million as of March 31, 2006. The largest letter of credit was drawn on March 1, 2006 to repurchase and redeem $10 million of industrial revenue bonds that were an obligation of O'Sullivan Virginia; the amount drawn increased the outstanding balance under the revolving facility. The interest rate on loans under the DIP credit agreement was, at O'Sullivan's option, a LIBOR rate plus 4.00% or an index rate plus 2.00%. After March 31, 2006, the margin fluctuated based on its average borrowing availability under the DIP credit agreement. The DIP credit agreement contained minimum EBITDA and gross sales covenants, as well as limits on capital expenditures. The fee for letters of credit was the LIBOR margin less 25 basis points. A fee of 0.5% was paid on the unused commitment under the DIP credit agreement. The term facility under the DIP credit agreement was based on an agreement between the DIP lender and the holder of a majority of O’Sullivan Industries’ senior secured notes. As of March 31, 2006, O'Sullivan had borrowed $2.0 million under the term facility. The interest rate on the term loan was LIBOR plus 8.5%, and was 13.2% as of March 31, 2006. -9- Under the DIP credit agreement and the order of the bankruptcy court authorizing O’Sullivan to borrow thereunder, the lenders under the DIP credit agreement were secured by "superpriority" liens and security interests in substantially all of O'Sullivan's property (with certain limitations). In connection with the execution and delivery of the DIP credit agreement, O'Sullivan entered into lockbox agreements with the agent and certain banks. Under the terms of the lockbox agreements, the agent had control over the bank accounts and the cash deposited therein. On April 11, 2006, the DIP credit agreement, including both the revolving facility and the term facility thereunder, was repaid with funds provided under our loan agreement discussed under "Exit Capital Structure" below. Plan of Reorganization. On October 14, 2005, O'Sullivan filed a plan of reorganization with the U.S. Bankruptcy Court. It filed first and second amended plans on January 3, 2006 and February 10, 2006. O'Sullivan filed a modified second amended plan on March 16, 2006. The official committee of unsecured creditors and certain holders of O’Sullivan’s senior secured notes supported confirmation of the modified second amended plan of reorganization. The U.S. Bankruptcy Court approved the amended disclosure statement on February 10, 2006. O'Sullivan mailed the amended disclosure statement, the amended plan of reorganization, ballots and voting instructions to all parties entitled to vote on the plan on February 17, 2006. Following a hearing on March 16, 2006, the U.S. Bankruptcy Court confirmed the modified second amended plan of reorganization. The modified second amended plan of reorganization became effective on April 12, 2006 with the completion of the conditions precedent to the effectiveness of the plan. The conditions included the closing and funding of O’Sullivan’s loan agreement discussed below under "Exit Capital Structure". Under the modified second amended plan of reorganization, various classes of O'Sullivan's debt and equity received differing treatment in full satisfaction and discharge of their claims and interests, according to their respective priorities. • Obligations under O'Sullivan's DIP credit agreement were paid in full and letters of credit outstanding under the DIP credit agreement were secured or replaced. O'Sullivan Virginia's obligations under a series of industrial revenue bonds due 2008 (and secured by a letter of credit issued pursuant to the DIP credit agreement) were repurchased and redeemed in full on March 1, 2006. The bonds were paid by a draw on the letter of credit, which increased the amount drawn under the DIP credit agreement. O'Sullivan repaid these obligations with borrowings under its loan agreement on April 11, 2006. • Obligations under the $100 million principal amount of 10.63% senior secured notes due 2008 of O'Sullivan Industries received an aggregate of $10 million of new secured notes (subordinate to the loan agreement) and ten million shares of new common stock of reorganized O'Sullivan Holdings, representing 100% of the outstanding equity of the reorganized O'Sullivan Holdings, subject to dilution upon the issuance of shares of restricted stock and the exercise of certain warrants and options. • General unsecured claims against O'Sullivan Industries, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc., other than the obligations under the $96 million principal amount 13.375% senior subordinated notes due 2009 of O'Sullivan Industries, received a cash distribution of 9% of their allowed claims. Certain vendor and utility creditors also had the right to elect to participate in a settlement under which O'Sullivan paid an additional 2% to 8% of their allowed claim in cash, based on the size of their allowed claim. • Holders of O'Sullivan Industries' $96 million principal amount of 13.375% senior subordinated notes received • Series A warrants to purchase an aggregate of 526,316 shares of reorganized O'Sullivan Holdings common stock at a price of $7.06, which warrants will expire on April 12, 2010; and -10- • Series B warrants to purchase an aggregate of 554,017 shares of reorganized O'Sullivan Holdings common stock at a price of $9.81, which warrants will expire on April 12, 2011. • Holders of O'Sullivan Holdings equity, indebtedness and other obligations, including the holder of the obligations under the O'Sullivan Holdings 12% note due 2009 with a principal amount of $29.8 million (as of October 15, 2005), the tax sharing agreement with RadioShack and options and warrants to purchase O'Sullivan Holdings Class A common stock, Series A junior preferred stock or Series B junior preferred stock, were cancelled and received no distribution under the plan of reorganization. The disclosure statement describes the plan of reorganization in greater detail. Costs of Bankruptcy. In connection with its reorganization, O'Sullivan engaged Dechert LLP as its bankruptcy counsel, Lazard Frères & Co. LLC as its financial adviser, FTI Consulting as its restructuring advisers and The Garden City Group, Inc. to handle communications with stakeholders and to tally votes. O'Sullivan is responsible for paying the fees and expenses of each of these service providers. Pursuant to the forbearance agreement executed with certain holders of the O'Sullivan Industries senior secured notes and an adequate protection order entered by the U.S. Bankruptcy Court in connection with its approval of the DIP credit agreement, O'Sullivan agreed to pay the fees and expense of the legal and financial advisers to the group of senior secured noteholders. In connection therewith, O'Sullivan entered into an agreement with Rothschild and the senior secured noteholders group, pursuant to which Rothschild is acting as financial adviser for the group of senior secured noteholders, and O'Sullivan is paying Rothschild's fees and expenses. Pursuant to the plan of reorganization, O'Sullivan assumed the obligations under this agreement. O'Sullivan is also paying the fees and expenses of the noteholders' counsel. Pursuant to bankruptcy law, O'Sullivan is also responsible for paying the fees and expenses of other parties to the reorganization process, including the fees and expenses of counsel and financial advisers to the unsecured creditors committee. The agreements with Lazard and Rothschild provided for additional fees if O'Sullivan was successful in its reorganization efforts. O'Sullivan has paid, or will pay, Lazard a $1.8 million transaction fee and a $375,000 financing fee. The transaction fee for Rothschild is $750,000. The transaction fee for the financial adviser to the unsecured creditors committee is $450,000. These fees are in addition to regular fees O'Sullivan has been accruing with respect to these advisers. These additional fees were earned upon O’Sullivan’s successful exit from bankruptcy on April 12, 2006. Accordingly, the additional fees were recorded in the fourth quarter of fiscal 2006. O'Sullivan's current estimate is that it will pay a total of approximately $16 million of fees and expenses to third parties in connection with its efforts to reorganize. Exit Capital Structure. O'Sullivan emerged from bankruptcy with $10 million of secured notes and an asset backed loan agreement for up to $50 million of secured revolving loans. The loan agreement provides for a revolving line of credit of up to $50 million, subject to the borrowing base as defined, with a $15 million sublimit for letters of credit. Indebtedness under the loan agreement is secured with first liens on substantially all of O'Sullivan's assets. Under the loan agreement, borrowings bear interest, at O'Sullivan's option, at either a Eurodollar rate plus a margin or the prime rate plus a margin. The initial margins are 2.00% per annum for Eurodollar loans and 0.50% per annum for prime rate based loans. The applicable margin will vary each calendar quarter starting with the quarter beginning October 1, 2006. The amount of the margin will vary based on the unused availability under the loan agreement. O'Sullivan borrowed approximately $27.5 million under the exit loan agreement on April 11, 2006. In addition, $2.7 million of letters of credit were outstanding under the loan agreement on that date and remain outstanding as of the date this report is filed. O'Sullivan reserved at closing an additional $6.7 million after the effectiveness of the plan of reorganization to fund additional fees and expenses associated with the plan of reorganization. After these initial borrowings, O'Sullivan is able to use borrowings under the loan agreement for -11- general operating, working capital and other proper corporate purposes. Availability under the loan agreement, after the additional $6.7 million of reserves, was approximately $4.5 million. O'Sullivan continues to serve its customers and to pay its employees and post-petition vendors in the ordinary course. O'Sullivan's facilities continue to operate and to fill customer orders. Note 3—Accounting Principles Applicable to O'Sullivan as Debtor-in-Possession Since O'Sullivan was operating its business as debtor-in-possession at March 31, 2006, it has classified certain pre-petition liabilities as Liabilities subject to compromise in the accompanying consolidated balance sheet as required by SOP 90-7. These liabilities were impaired as a result of O'Sullivan's bankruptcy filing. The components of the impaired liabilities, net of capitalized loan fees, are as follows: March 31, 2006 --------------- (in thousands) Accounts payable $ 13,018 Accrued compensation 305 Accrued interest 14,298 Other accrued liabilities 502 Other non-current liabilities 9,157 Long-term debt, net of loan fees 209,781 Payable to RadioShack 70,067 Mandatorily redeemable senior preferred stock 32,994 --------------- $ 350,122 =============== The treatment of these liabilities under our modified second amended plan of reorganization is discussed in Note 2 above. In addition, as a result of the bankruptcy filing, O'Sullivan ceased the accrual of interest on the impaired liabilities and dividends on its preferred stock as of October 14, 2005. For the three months and nine months ended March 31, 2006, the total contractual amount of interest expense (including dividends on O’Sullivan Holdings’ senior preferred stock) that O'Sullivan was obligated pay, including amounts it did not due to the bankruptcy filing, was $9.8 million and $28.5 million, respectively. O'Sullivan also ceased amortization of debt discounts and capitalized loan expenses as of October 14, 2005. The amount of capitalized loan costs has been reclassified into Liabilities subject to compromise on the accompanying consolidated balance sheet. Had O'Sullivan recorded the interest expense and dividends and continued its amortization of debt discounts and loan fees, it would have reported a greater net loss and net loss attributable to common stockholders for the three months and nine months ended March 31, 2006. — In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 ("FIN 48"), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that O’Sullivan recognize, in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 will be effective as of the beginning of O’Sullivan’s 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. O’Sullivan is currently evaluating the impact of adopting FIN 48 on the Consolidated Financial Statements. -12- Note 5—Stock Based Compensation Effective on July 1, 2005, O'Sullivan began accounting for stock based compensation for employees under SFAS 123(R), Share Based Payments, using the modified prospective application method as permitted by the Statement. This Statement requires O'Sullivan to recognize expense for share based compensation related to equity awards to its employees. Compensation costs are generally recognized based on the fair value of the award amortized over the vesting period of the award. Under the modified prospective application method, O'Sullivan will continue to calculate expense related to its equity awards issued prior to the effective date, using the same methodology that was used in prior years under FAS 123 for the disclosure only presentation. During July 2005, O'Sullivan Holdings granted options to purchase 15,500 shares of Class A common stock with an exercise price of $0.01. The exercise price was not greater than the estimated fair market value of the underlying stock on the date of grant. The options would have vested in five annual installments beginning July 28, 2006 and would have expired on July 28, 2016. Using the Black-Scholes model, O'Sullivan estimates that the fair value of the options was zero as of July 28, 2005. The significant assumptions used for these grants are volatility of 40%, risk free interest rate of 3.636%, expected life of 5 years, dividend yield of 0%, and an estimated stock price of $0.01. O'Sullivan estimated the stock price to be $0.01 based on the fact that its common stock options were not traded and it had total stockholders’ deficit as of June 30, 2005 of $218.7 million. In fact, under O'Sullivan's modified second amended plan of reorganization, all of the options and other equity was cancelled and received no distribution. O'Sullivan recognized compensation expense of $2,000 and $6,000 during the three and nine month periods ended March 31, 2006. Prior to July 1, 2005, O'Sullivan applied APB 25, Accounting for Stock Issued to Employees, and elected to report the disclosure-only alternative under FAS 123 and 148. The FAS 123 disclosures are as follows: Three months Nine months ended ended March 31, March 31, 2005 2005 ------------- ------------- Net loss, as reported $ (13,220) $ (33,869) Less: total stock-based compensation expense determined under fair value method for all stock options, net of related income tax – (3) ----------- ----------- Pro forma net loss $ (13,220) $ (33,872) =========== =========== For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. Effective November 18, 2004, the Board of Directors of O'Sullivan Holdings approved a new 2004 Class A Common Stock Option Plan providing for the issuance of options to purchase up to 93,182 shares of Class A common stock, par value $0.01 per share, subject to adjustment. All of O'Sullivan's stock option plans and outstanding options were cancelled upon the effectiveness of its modified second amended plan of reorganization, and no distribution was or will be made with respect to any option plan or outstanding option. Note 6—Shipping and Handling Costs O'Sullivan reports amounts billed to customers as revenue, the cost for warehousing operations in cost of sales and freight out costs as part of selling, marketing and administrative expenses. Freight out costs included in selling, marketing and administrative expenses in the third quarters of fiscal 2006 and fiscal 2005 were -13- approximately $2.5 million and $2.1 million, respectively. Freight out costs in the nine months ended March 31, 2006 and 2005 were $6.7 million and $6.1 million, respectively. Note 7—Inventory Inventory, net, consists of the following: March 31, June 30, 2006 2005 --------------- ----------- (in thousands) Finished goods $ 23,971 $ 25,708 Work in process 4,970 4,011 Raw materials 11,648 9,622 Maintenance and Supplies 4,169 4,267 ------------- --------- $ 44,758 $ 43,608 ============= ========= Inventory reserves at March 31, 2006 and June 30, 2005 were $5.9 million and $7.0 million, respectively. Note 8—Accrued Liabilities Accrued liabilities consist of the following: March 31, June 30, 2006 2005 --------------- ------------ (in thousands) Accrued interest $ 224 $ 7,677 Accrued compensation 2,820 5,256 Other 1,524 2,823 ------------- --------- $ 4,568 $ 15,756 ============= ========= Note 9—Condensed Consolidating Financial Information In September 2003 O'Sullivan Industries issued $100.0 million of 10.63% senior secured notes due 2008. These notes were secured by substantially all the assets of O'Sullivan Industries and its guarantor subsidiaries O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc. The senior secured notes were also guaranteed by O’Sullivan Holdings. The guarantees re full and unconditional. Security for the senior secured notes included first priority liens and security interests in the stock of O'Sullivan Industries. In the third quarter of fiscal 2004, O'Sullivan Industries exchanged the senior secured notes issued in September 2003 for notes with substantially identical terms and associated guarantees. The exchange notes were registered under the Securities Act of 1933, as amended. Under O’Sullivan’s modified second amended plan of reorganization, holders of the senior secured notes received an aggregate of $10 million of new secured notes (subordinate to the loan agreement) and ten million shares of new common stock of reorganized O'Sullivan Holdings, representing 100% of the outstanding equity of the reorganized O'Sullivan Holdings, subject to dilution upon the issuance of shares of restricted stock and the exercise of certain warrants and options. The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC rules and regulations. -14- Condensed Consolidating Statements of Operations Three months ended March 31, 2006 (in thousands) ----------------------------------------------------------------------- O'Sullivan O'Sullivan Guarantor Consolidating Holdings Industries Subsidiaries Adjustments Consolidated ----------- ----------- ------------ -------------- -------------- Net sales $ – $ 34,792$ 17,711$ –$ 52,503 Cost of sales – 28,710 13,703 – 42,413 ----------- ----------- ------------ -------------- -------------- Gross profit – 6,082 4,008 – 10,090 Operating expenses: Selling, marketing and administrative 54 8,693 1,476 – 10,223 Restructuring costs – 213 47 – 260 ----------- ----------- ------------ -------------- -------------- Operating income (loss) (54) (2,824) 2,485 – (393) Other income (expense): Interest expense 6 (466) (111) – (571) Interest income – 4 – – 4 Equity in gain (loss) of subsidiary (5,756) 2,374 – 3,382 – ----------- ----------- ------------ -------------- -------------- Income (loss) before reorganization items and income tax provision (5,804) (912) 2,374 3,382 (960) Reorganization items – 4,844 – – 4,844 ----------- ----------- ------------ -------------- -------------- Income (loss) before income tax provision (5,804) (5,756) 2,374 3,382 (5,804) Income tax provision – – – – – ----------- ----------- ------------ -------------- -------------- Net income (loss) (5,804) (5,756) 2,374 3,382 (5,804) Dividends on Series B junior preferred stock – – – – – ----------- ----------- ------------ -------------- -------------- Net income (loss) attributable to $ (5,804)$ (5,756$ 2,374$ 3,382$ (5,804) common stockholders =========== =========== ============ ============== ============== -15- Three months ended March 31, 2005 (in thousands) ----------------------------------------------------------------------- 'Sullivan O'Sullivan Guarantor onsolidating OHoldings Industries Subsidiaries CAdjustments Consolidated ----------- ----------- ------------ -------------- -------------- Net sales $ – $ 48,213$ 20,330$ –$ 68,543 Cost of sales – 43,116 17,823 – 60,939 ----------- ----------- ------------ -------------- -------------- Gross profit – 5,097 2,507 – 7,604 Operating expenses: Selling, marketing and administrative 74 9,145 2,190 – 11,409 Restructuring charge – 357 – – 357 ----------- ----------- ------------ -------------- -------------- Operating income (loss) (74) (4,405) 317 – (4,162) Other income (expense): Interest expense (2,242) (6,667) (151) – (9,060) Interest income – 2 – – 2 Equity in gain (loss) of subsidiaries (10,904) 166 – 10,738 – ----------- ----------- ------------ -------------- -------------- Income (loss) before income tax provision (13,220) (10,904) 166 10,738 (13,220) Income tax provision – – – – – ----------- ----------- ------------ -------------- -------------- Net income (loss) (13,220) (10,904) 166 10,738 (13,220) Dividends on Series B junior preferred stock (3,762) – – – (3,762) ----------- ----------- ------------ -------------- -------------- Net income (loss) attributable to common $ (16,982)$ (10,904$ 166$ 10,738$ (16,982) stockholders =========== =========== ============ ============== ============== -16- Nine months ended March 31, 2006 (in thousands) ------------------------------------------------------------------------- O'Sullivan O'Sullivan Guarantor Consolidating Holdings Industries Subsidiaries Adjustments Consolidated ------------ ----------- ------------ --------------- -------------- Net sales $ –$ 107,036 $ 49,623$ –$ 156,659 Cost of sales – 89,937 40,894 – 130,831 ------------ ----------- ------------ --------------- -------------- Gross profit – 17,099 8,729 – 25,828 Operating expenses: Selling, marketing and administrative 181 27,881 4,912 – 32,974 Restructuring costs – 382 70 – 452 ------------ ----------- ------------ --------------- -------------- Op Operating income (loss) (181) (11,164) 3,747 – (7,598) Other income (expense): Interest expense (2,635) (8,496) (423) – (11,554) Interest income – 17 – – 17 Equity in earnings (loss) of subsidiary (29,278) 3,324 – 25,954 – ------------ ----------- ------------ --------------- -------------- Income (loss) before reorganization items and income tax provision (32,094) (16,319) 3,324 25,954 (19,135) Reorganization items – 12,959 – – 12,959 ------------ ----------- ------------ --------------- -------------- Income (loss) before income tax provision (32,094) (29,278) 3,324 25,954 (32,094) Income tax provision – – – – – ------------ ----------- ------------ --------------- -------------- Net income (loss) (32,094) (29,278) 3,324 25,954 (32,094) Dividends on Series B junior preferred stock (6,399) – – – (6,399) ------------ ----------- ------------ --------------- -------------- Net income (loss) attributable to $ (38,493$ (29,278)$ 3,324$ 25,954$ (38,493) common stockholders ============ =========== ============ =============== ============== -17- Nine months ended March 31, 2005 (in thousands) ------------------------------------------------------------------------- O'Sullivan O'Sullivan Guarantor Consolidating Holdings Industries Subsidiaries Adjustments Consolidated ------------ ----------- ------------ --------------- -------------- Net sales $ –$ 146,803 $ 50,606$ –$ 197,409 Cost of sales – 124,761 44,538 – 169,299 ------------ ----------- ------------ --------------- -------------- Gross profit – 22,042 6,068 – 28,110 Operating expenses: Selling, marketing and administrative 122 29,478 5,234 – 34,834 Restructuring charge – 357 – – 357 ------------ ----------- ------------ --------------- -------------- Op Operating income (loss) (122) (7,793) 834 – (7,081) Other income (expense): Interest expense (6,421) (19,981) (403) – (26,805) Interest income 11 6 – – 17 Equity in earnings (loss) of subsidiaries (27,337) 431 – 26,906 – ------------ ----------- ------------ --------------- -------------- Income (loss) before income tax provision (33,869) (27,337) 431 26,906 (33,869) Income tax provision – – – – – ------------ ----------- ------------ --------------- -------------- Net income (loss) (33,869) (27,337) 431 26,906 (33,869) Dividends on Series B junior preferred stock (13,040) – – – (13,040) ------------ ----------- ------------ --------------- -------------- Net income (loss) attributable to $ (46,909$ (27,337)$ 431$ 26,906$ (46,909) common stockholders ============ =========== ============ =============== ============== -18- Condensed Consolidating Balance Sheets March 31, 2006 (in thousands) ----------------------------------------------------------------------- 'Sullivan O'Sullivan Guarantor onsolidating OHoldings Industries Subsidiaries CAdjustments Consolidated ----------- ----------- ------------ -------------- -------------- ASSETS: Current assets $ – $ 63,526$ 12,010$ –$ 75,536 Property, plant and equipment, net – 23,675 12,790 – 36,465 Other assets – 231 – – 231 Investment in subsidiaries (188,070) 44,370 – 143,700 – Goodwill – 38,088 – – 38,088 Receivable from affiliates 74,738 – 25,478 (100,216) – ----------- ----------- ------------ -------------- -------------- Total assets $ (113,332)$ 169,890$ 50,278$ 43,484$ 150,320 =========== =========== ============ ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities, not subject to compromise $ 10 $ 45,140$ 3,392$ –$ 48,542 Payable to affiliates – 100,216 – (100,216) – Other liabilities 365 2,787 – – 3,152 Liabilities subject to compromise 137,789 209,817 2,516 – 350,122 Stockholders' equity (deficit) (251,496) (188,070) 44,370 143,700 (251,496) ----------- ----------- ------------ -------------- -------------- Total liabilities and $ (113,332)$ 169,890$ 50,278$ 43,484$ 150,320 stockholders' equity (deficit) =========== =========== ============ ============== ============== -19- June 30, 2005 (in thousands) ----------------------------------------------------------------------- 'Sullivan O'Sullivan Guarantor onsolidating OHoldings Industries Subsidiaries CAdjustments Consolidated ----------- ----------- ------------ -------------- -------------- ASSETS: Current assets $ – $ 56,050$ 10,793$ –$ 66,843 Property, plant and equipment, net – 27,854 15,301 – 43,155 Other assets 168 6,390 42 – 6,600 Investment in subsidiaries (157,720) 41,047 – 116,673 – Goodwill – 38,088 – – 38,088 Receivable from subsidiary - tax sharing agreement 70,067 – – (70,067) – Receivable from affiliates 3,981 – 44,623 (48,604) – ----------- ----------- ------------ -------------- -------------- Total assets $ (83,504)$ 169,429$ 70,759$ (1,998$ 154,686 =========== =========== ============ ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities $ 25,879 $ 222,774$ 12,407$ –$ 261,060 Mandatorily redeemable senior preferred stock 31,437 – – – 31,437 Payable to affiliates – 48,604 – (48,604) – Other liabilities 7,830 3,009 – – 10,839 Payable to RadioShack 70,067 – – – 70,067 Payable to parent - tax sharing agreement – 52,762 17,305 (70,067) – Stockholders' equity (deficit) (218,717) (157,720) 41,047 116,673 (218,717) ----------- ----------- ------------ -------------- -------------- Total liabilities and $ (83,504)$ 169,429$ 70,759$ (1,998$ 154,686 stockholders' equity (deficit) =========== =========== ============ ============== ============== -20- Condensed Consolidating Statements of Cash Flows Nine months ended March 31, 2006 (in thousands) ----------------------------------------------------------------------- 'Sullivan O'Sullivan Guarantor onsolidating OHoldings Industries Subsidiaries CAdjustments Consolidated ----------- ----------- ------------ -------------- -------------- Net cash flows provided (used) by: Operating activities: $ 303 $ (25,951$ 8,002$ –$ (17,646) ----------- ----------- ------------ -------------- -------------- Investing activities: Capital expenditures – (458) (6) – (464) Repayment of loans to affiliates (303) – – 303 – ----------- ----------- ------------ -------------- -------------- Net (303) (458) (6) 303 (464) ----------- ----------- ------------ -------------- -------------- Op Financing activities: Advances (repayment) of loans from affiliates – (1,539) 1,842 (303) – Proceeds from borrowings – 178,371 – – 178,371 Repayment of borrowings – (149,839) – – (149,839) Repayment of industrial revenue bonds – – (10,000) – (10,000) Payments for reorganization costs related to credit facility (post- petition) – (898) – – (898) ----------- ----------- ------------ -------------- -------------- Net – 26,095 (8,158) (303) 17,634 ----------- ----------- ------------ -------------- -------------- Cash and cash equivalents: Net decrease in cash and cash equivalents – (314) (162) – (476) Cash and cash equivalents, beginning of period – 1,045 168 – 1,213 ----------- ----------- ------------ -------------- -------------- Cash and cash equivalents, end of $ – $ 731$ 6$ –$ 737 period =========== =========== ============ ============== ============== -21- Nine months ended March 31, 2005 (in thousands) ----------------------------------------------------------------------- 'Sullivan O'Sullivan Guarantor onsolidating OHoldings Industries Subsidiaries CAdjustments Consolidated ----------- ----------- ------------ -------------- -------------- Net cash flows provided (used) by: Operating activities: $ 1,334 $ (6,145$ 4,730$ –$ (81) ----------- ----------- ------------ -------------- -------------- Investing activities: Capital expenditures – (463) (168) – (631) Repayment of loans to affiliates (1,380) 4,638 – (3,258) – ----------- ----------- ------------ -------------- -------------- Net (1,380) 4,175 (168) (3,258) (631) ----------- ----------- ------------ -------------- -------------- Op Financing activities: Advances (repayment) of loans from affiliates – 6,081 (4,638) (1,443) – Proceeds from revolving credit debt – 5,700 – – 5,700 Repayment of revolving credit debt – (5,700) – – (5,700) Repayment of employee notes 30 – – – 30 Proceeds from issuance of common and preferred securities 16 – – – 16 ----------- ----------- ------------ -------------- -------------- Net 46 6,081 (4,638) (1,443) 46 ----------- ----------- ------------ -------------- -------------- Cash and cash equivalents: Net increase (decrease) in cash and cash equivalents – 4,111 (76) (4,701) (666) Cash and cash equivalents, beginning of period – 5,023 227 – 5,250 ----------- ----------- ------------ -------------- -------------- Cash and cash equivalents, end of $ – $ 9,134$ 151$ $ 4,584 period (4,701) =========== =========== ============ ============== ============== Note 10—Income Taxes O'Sullivan Holdings entered into a significant tax sharing and tax benefit reimbursement agreement with RadioShack Corporation (O'Sullivan's former parent) in 1994. Pursuant to O'Sullivan's modified second amended plan of reorganization, the tax sharing agreement was cancelled upon the effectiveness of the plan and RadioShack received no distribution with respect thereto. Because of the current tax benefits associated with the Section 338 election and the valuation allowance recorded in the fiscal year ended June 30, 2002, O'Sullivan recorded no tax expense for the three and nine months ended March 31, 2006 and 2005. As a result of our reorganization under Chapter 11 of the Bankruptcy Code, O’Sullivan expects that its tax loss carryforwards will be substantially reduced. Additionally, O’Sullivan’s ability to use pre-petition net operating losses and any remaining step up in its tax basis may be limited. Note 11—Preferred Stock O'Sullivan Holdings discontinued accruing dividends on its senior preferred stock, Series C junior preferred stock and Series B junior preferred stock upon filing for bankruptcy protection on October 14, 2005. It also discontinued accruing the special payment on options to purchase Series A junior preferred stock on that date. Pursuant to O’Sullivan’s modified second amended plan of reorganization, all of its common and preferred stock was cancelled and discharged on the effective date of the plan; and no distribution was, or will be, made with respect thereto. Trading in the senior preferred stock in the over the counter markets has ceased. All options and warrants to purchase common or preferred stock were similarly cancelled and discharged pursuant to the plan. -22- Note 12—Related Party Transactions BRS. O'Sullivan Industries entered into a management services agreement with Bruckmann, Rosser Sherrill & Co., LLC for strategic and financial advisory services on November 30, 1999. The fee for these services is the greater of (a) 1% of O'Sullivan Industries' consolidated cash flow (as defined in the indenture related to the O'Sullivan Industries senior subordinated notes) or (b) $300,000 per year. Under the management services agreement, BRS, LLC could also receive reimbursement for expenses. The credit agreement, the indenture for the senior secured notes and the management services agreement all 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 (as defined in the indenture for the senior subordinated notes) for O'Sullivan Industries' most recently ended four full fiscal quarters would have been greater than 2.0 to 1.0. Similarly, the indenture for the senior secured notes provides that payments under the management services agreement are conditional and contingent upon the fixed charge coverage ratio (as defined in the indenture for the senior secured notes) for the four most recently ended full fiscal quarters immediately preceding any payment date being at least 2.0 to 1. The credit agreement prevented O'Sullivan Industries from paying fees and expenses under the management services agreement if a default or event of default existed or if one would occur as a result of the payment. All fees and expenses under the management services agreement are subordinated to the senior subordinated notes. The management fee and other reimbursable costs of $86,000 and $150,000 recognized during the first nine months of fiscal years 2006 and 2005, respectively, are included in selling, marketing and administrative expense in the consolidated statement of operations. The amounts due BRS at March 31, 2006 and June 30, 2005 were $539,000 and $453,000, respectively, and are included in Liabilities subject to compromise on the accompanying consolidated balance sheet at March 31, 2006 and in Accrued liabilities on the accompanying consolidated balance sheet at June 30, 2005. O'Sullivan filed a motion with the bankruptcy court to reject the management services agreement, and the court issued an order on November 7, 2005 authorizing such rejection. Employee Loans. At December 31, 2004, O'Sullivan held a note receivable with a balance of approximately $342,000 from an officer of O'Sullivan. O'Sullivan loaned the officer money to purchase common stock and Series B junior preferred stock of O'Sullivan in the 1999 recapitalization and merger. The note bore interest at the rate of 9% per annum and matured on November 30, 2009, or earlier if there is a change of control, and were with full recourse to the employees. The receivables were recorded on the O'Sullivan balance sheet as a reduction in stockholders' equity. In March 2005, O'Sullivan entered into a severance agreement with the officer. Under the agreement, O'Sullivan released the officer from his obligations under the note. In exchange, the officer transferred to O'Sullivan all of the shares of Class A common stock and Series B junior preferred stock in O'Sullivan held by him. In addition, his Series A junior preferred stock option agreement was cancelled, including the special payment accrued under the agreement of approximately $49,000; and he released O'Sullivan from any obligations it had to him under O'Sullivan's Deferred Compensation Plan. The net expense to earnings was approximately $283,000. Executive Stock Agreements. In the first quarter of fiscal 2005, we issued stock to three O’Sullivan executives pursuant to Executive Stock Agreements between O'Sullivan and each executive. The stock was issued at fair value. O'Sullivan issued an aggregate of 701,422 shares of its Class B common stock, 384,085 shares of its Series B junior preferred stock and 50,000 shares of its Series C junior preferred stock. The sales prices for the shares was $0.01 per share for the Class B common stock and the Series B junior preferred stock and $0.10 per share for the Series C junior preferred stock. -23- Note 13—Commitments and Contingencies Tax Sharing Agreement with RadioShack. Future tax sharing agreement payments were contingent on taxable income. The maximum payments were fiscal 2006 — $31.5 million; fiscal 2007 — $12.3 million; fiscal 2008 — $14.5 million; fiscal 2009 — $11.8 million. O'Sullivan will not pay RadioShack any amounts during fiscal 2006; accordingly, no amount has been recorded in current liabilities. See Note 4 to the consolidated financial statements included in O'Sullivan's Annual Report on Form 10-K for the year ended June 30, 2005. The payable to RadioShack is included in Liabilities subject to compromise on the March 31, 2006 balance sheet. See Note 3. Under O'Sullivan's plan of reorganization, the tax sharing agreement was discharged and cancelled and no distribution was, or will be, made to RadioShack with respect thereto. Litigation. There were no changes in pending litigation involving O'Sullivan after June 30, 2005 except as described in the next two paragraphs. On October 14, 2005, O'Sullivan Holdings, O'Sullivan Industries, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc. filed for protection under Chapter 11 of the U. S. Bankruptcy Code. On March 16, 2006, the U.S. Bankruptcy Court for the Northern District of Georgia approved our modified second amended plan of reorganization. The plan became effective on April 12, 2006. See Note 2 for additional information regarding the bankruptcy. In August 2002, Ames decided to close all of its stores and liquidate. Actual net sales to Ames in fiscal 2005 were minimal. In August 2003, Ames Department Stores, Inc. filed suit against O'Sullivan Industries in the U.S. Bankruptcy Court, Southern District of New York alleging that payments made by Ames within 90 days prior to its bankruptcy constituted preferential transfers under the Bankruptcy Code that should be recovered from O'Sullivan Industries by Ames, together with interest. The alleged payments aggregate $2.1 million. O'Sullivan received the summons in this action on September 22, 2003. It responded to the suit denying it received any preferential payments. In May 2006, O'Sullivan settled Ames' preference claim and O'Sullivan's administrative claim against Ames, with Ames agreeing to pay O'Sullivan a de minimis amount. Note 14—Other Comprehensive Income O'Sullivan's comprehensive income is comprised of net income (loss) and foreign currency translation adjustments. The components of comprehensive income for the three and nine month periods ended March 31, 2006 are: Three months ended Nine months ended March 31, March 31, --------------------------- --------------------------- (in thousands) 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net loss $ (5,804) $ (13,220) $ (32,094) $ (33,869) Cumulative translation adjustments 17 (63) (685) 577 ----------- ----------- ----------- ----------- Comprehensive loss $ (5,787) $ (13,283) $ (32,779) $ (33,292) =========== =========== =========== =========== Note 15—Subsequent Events Closure of Virginia Facility. On June 30, 2006, O’Sullivan announced that O’Sullivan Virginia’s manufacturing and distribution facility in South Boston, Virginia would be closing by the end of calendar 2006. The closure is a result of the continued execution of O’Sullivan’s strategy focused on improving utilization of production capacity and productivity. -24- In connection with the closure of the facility, O’Sullivan expects to incur expenses of approximately $6.2 million, of which approximately $1.5 million will be cash costs. The remainder will be an impairment charge against O’Sullivan Virginia’s machinery and equipment as discussed below. The majority of the cash costs will be expensed as incurred. The components of the charge are expected to be: • impairment charge against machinery and equipment $ 4,700,000 • severance and personnel 480,000 • relocation, recruitment and training 685,000 • facility preparation and shutdown 220,000 • other 90,000 The South Boston facility employs approximately 200 people. O’Sullivan plan to add up to 150 jobs to its Lamar, Missouri facility over the next twelve months as a result of the consolidation. Transfer of United Kingdom Sales Office. Effective June 30, 2006, we conveyed substantially all of the assets of our United Kingdom sales and distribution office to a company formed by the former manager of the office. The company assumed certain of the liabilities of the UK sales and distribution office as consideration. The purchasing company also entered into a distributorship agreement with us to provide for continued sales and service in the United Kingdom, the remainder of Europe, the Middle East and Africa. In connection with the sale of the UK operations, we expect to record a non-cash charge of approximately $2.0 million. The major components of the charge are expected to be: • accounts receivable $ 1,505,000 • inventory 993,000 • prepaid assets 666,000 • other 158,000 • liabilities assumed (1,310,000) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Bankruptcy Filing Our declining sales and increasing losses resulted in lower (and at times, negative) cash flows from operations in recent years. As a result, we filed for protection from our creditors and other claimants under Chapter 11 of the United States Bankruptcy Code on October 14, 2005 in the United States Bankruptcy Court for the Northern District of Georgia. The cases for O'Sullivan Holdings and its domestic subsidiaries were jointly administered under case no. 05-83049. After the filing, we managed our business as debtor-in-possession. The modified second amended plan of reorganization became effective on April 12, 2006 with the completion of the conditions precedent to the effectiveness of the plan. The conditions included the closing and funding of O’Sullivan’s loan agreement discussed below under "Exit Capital Structure". O'Sullivan Industries did not pay the $5.3 million interest payment due on July 15, 2005 with respect to its $100 million 10.63% senior secured notes. In July 2005, we initiated discussions with representatives of our major stakeholders regarding our strategic alternatives, including potentially a consensual restructuring of our capital structure. We retained Lazard Frères & Co. LLC to serve as our financial advisor and Dechert LLP as legal advisor -25- to assist with our evaluation of strategic alternatives and restructuring efforts. In August 2005, we entered into a forbearance agreement with controlling holders of our senior secured notes. Pursuant to the forbearance agreement, the noteholders agreed not to exercise any enforcement rights or remedies available to them under the senior secured notes indenture as a result of the non-payment of interest on the senior secured notes prior to the end of the applicable 30-day grace period provided for in the indenture. The term of the forbearance agreement, as extended, expired with our filing for protection under Chapter 11 of the Bankruptcy Code. In August, we also retained FTI Consulting to provide restructuring advice with respect to our reorganization efforts. In August 2005, we also executed an amendment and consent with the lender under our credit agreement. Pursuant to the amendment, the lender agreed to continue to make available funding within terms of the credit agreement and not to enforce any event of default in connection with our failure to pay interest on our senior secured notes within the applicable 30-day grace period. The amendment also prohibited us from using loans under the credit agreement to pay interest on the senior secured notes and senior subordinated notes. The highest outstanding balance under the credit agreement during the first half of fiscal 2006 was $6.6 million. As a result of the bankruptcy filing, we did not pay $6.4 million of interest on the O'Sullivan Industries senior subordinated notes on October 15, 2005. After filing for bankruptcy, we operated its business as debtor-in- possession under court protection from creditors and claimants. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date, or pre- petition claims, are stayed, and such claims are not permitted to be paid absent specific authorization from the bankruptcy court and all transactions not in the ordinary course of business require prior approval of the bankruptcy court. After the Chapter 11 filing, the bankruptcy court entered several orders to enable us to conduct normal business operations, including orders authorizing us to pay wages, to honor customer programs and warranty claims, to use cash collateral prior to approval of our debtor-in-possession credit agreement and other matters. Debtor-in-Possession Credit Agreement. On October 21, 2005, the U.S. Bankruptcy Court granted interim authorization for us to draw on a $35 million debtor-in-possession credit agreement with certain lenders. We used the new DIP credit agreement to pay off the outstanding $6.6 million balance under our credit agreement and to support ongoing operations. The U.S. Bankruptcy Court issued a final order approving the DIP credit agreement on November 9, 2005. The DIP credit agreement provided for borrowings of up to $35 million, including a revolving facility of up to $30 million with availability based a borrowing base including our accounts receivable and inventory, and a term facility of up to $5 million. The revolving facility had a sublimit of $20.0 million for letters of credit, of which we were using $2.7 million as of April 10, 2006. The largest letter of credit was drawn on March 1, 2006 to repurchase and redeem $10 million of industrial revenue bonds that were an obligation of O'Sullivan Virginia; the amount drawn increased the outstanding balance under the revolving facility. The interest rate on loans under the DIP credit agreement was, at our option, a LIBOR rate plus 4.00% or an index rate plus 2.00%. After March 31, 2006, the margin fluctuated based on our average borrowing availability under the DIP credit agreement. The DIP credit agreement contained minimum EBITDA and gross sales covenants, as well as limits on capital expenditures. The fee for letters of credit was the LIBOR margin less 25 basis points. A fee of 0.5% was paid on the unused commitment under the DIP credit agreement. The term facility under the DIP credit agreement was based on an agreement between the DIP lender and the holder of a majority of our senior secured notes. As of April 10, 2006, we had borrowed $2.0 million under the term facility. The interest rate on the term loan was LIBOR plus 8.5%, and was 13.2% as of March 31, 2006. Under the DIP credit agreement and the order of the bankruptcy court authorizing us to borrow thereunder, the lenders under the DIP credit agreement were secured by "superpriority" liens and security interests in substantially all of our property (with certain limitations). -26- In connection with the execution and delivery of the DIP credit agreement, we entered into lockbox agreements with the agent and certain banks. Under the terms of the lockbox agreements, the agent had control over the bank accounts and the cash deposited therein. Plan of Reorganization. On October 14, 2005, we filed a plan of reorganization with the U.S. Bankruptcy Court. We filed first and second amended plans on January 3, 2006 and February 10, 2006. We filed a modified second amended plan on March 16, 2006. The official committee of unsecured creditors and certain holders of our senior secured notes supported confirmation of the modified second amended plan of reorganization. The U.S. Bankruptcy Court approved the amended disclosure statement on February 10, 2006. We mailed the amended disclosure statement, the amended plan of reorganization, ballots and voting instructions to all parties entitled to vote on the plan on February 17, 2006. Following a hearing on March 16, 2006, the U.S. Bankruptcy Court confirmed the modified second amended plan of reorganization. . The modified second amended plan of reorganization became effective on April 12, 2006 with the completion of the conditions precedent to the effectiveness of the plan. The conditions included the closing and funding of our loan agreement discussed below under "Exit Capital Structure". Under the modified second amended plan of reorganization, various classes of our debt and equity received differing treatment in full satisfaction and discharge of their claims and interests, according to their respective priorities. • Obligations under our DIP credit agreement were paid in full and letters of credit outstanding under the DIP credit agreement were secured or replaced. O'Sullivan Virginia's obligations under a series of industrial revenue bonds due 2008 (and secured by a letter of credit issued pursuant to the DIP credit agreement) were repurchased and redeemed in full on March 1, 2006. The bonds were paid by a draw on the letter of credit and increased the amount drawn under the DIP credit agreement. We repaid obligations under the DIP credit agreement with borrowings under our loan agreement on April 11, 2006. • Obligations under the $100 million principal amount of 10.63% senior secured notes due 2008 of O'Sullivan Industries received an aggregate of $10 million of new secured notes (subordinate to the loan agreement) and ten million shares of new common stock of reorganized O'Sullivan Holdings, representing 100% of the outstanding equity of the reorganized O'Sullivan Holdings, subject to dilution upon the issuance of shares of restricted stock and the exercise of certain warrants and options. • General unsecured claims against O'Sullivan Industries, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc., other than the $96 million principal amount 13.375% senior subordinated notes due 2009 of O'Sullivan Industries, received a cash distribution of 9% of their allowed claims. Certain vendor and utility creditors also had the right to elect to participate in a settlement under which we paid an additional 2% to 8% of their allowed claim in cash, based on the size of their allowed claim. • Holders of O'Sullivan Industries' $96 million principal amount of 13.375% senior subordinated notes received • Series A warrants to purchase an aggregate of 526,316 shares of reorganized O'Sullivan Holdings common stock at a price of $7.06, which warrants will expire on April 12, 2010; and • Series B warrants to purchase an aggregate of 554,017 shares of reorganized O'Sullivan Holdings common stock at a price of $9.81, which warrants will expire on April 12, 2011. • Holders of O'Sullivan Holdings equity, indebtedness and other obligations, including the O'Sullivan Holdings 12% note due 2009 with principal plus accrued interest of $29.7 million (as of October 14, 2005), the tax sharing agreement with RadioShack and options and warrants to purchase O'Sullivan Holdings Class A common stock, Series A junior preferred stock or Series B junior preferred stock, were discharged and cancelled and received no distribution under the plan of reorganization. -27- The disclosure statement describes the plan of reorganization in greater detail. Costs of Bankruptcy. In connection with our reorganization, we engaged Dechert LLP as our bankruptcy counsel, Lazard Frères & Co. LLC as our financial adviser, FTI Consulting as our restructuring advisers and The Garden City Group, Inc. to handle communications with stakeholders and to tally votes. We are responsible for paying the fees and expenses of each of these service providers. Pursuant to the forbearance agreement executed with certain holders of the O'Sullivan Industries senior secured notes and an adequate protection order entered by the U.S. Bankruptcy Court in connection with its approval of the DIP credit agreement, we agreed to pay the fees and expense of the legal and financial advisers to the group of senior secured noteholders. In connection therewith, we entered into an agreement with Rothschild and the senior secured noteholders group, pursuant to which Rothschild is acting as financial adviser for the group of senior secured noteholders, and we are paying Rothschild's fees and expenses. Pursuant to the plan of reorganization, we assumed the obligations under this agreement. We are also paying the fees and expenses of the senior secured noteholders' counsel. Pursuant to bankruptcy law, we are also responsible for paying the fees and expenses of other parties to the reorganization process, including the fees and expenses of counsel and financial advisers to the unsecured creditors committee. The agreements with Lazard and Rothschild provided for additional fees if we were successful in our reorganization efforts. We have paid, or will pay, Lazard a $1.8 million transaction fee and a $375,000 financing fee. The transaction fee for Rothschild is $750,000. The transaction fee for the financial adviser to the unsecured creditors committee is $450,000. These fees are in addition to regular fees we have been accruing with respect to these advisers. These additional fees were earned upon our successful exit from bankruptcy on April 12, 2006. Accordingly, we recorded the additional fees in the fourth quarter of fiscal 2006. Our current estimate is that we will pay a total of approximately $16 million of fees and expenses to third parties in connection with our efforts to reorganize. Exit Capital Structure. We emerged from bankruptcy on April 12, 2006 with $10 million of secured notes and an asset backed loan agreement for up to $50 million of secured revolving loans. The loan agreement provides for a revolving line of credit of up to $50 million, subject to our borrowing base, with a $15 million sublimit for letters of credit. Indebtedness under the loan agreement is secured with first liens on substantially all of our assets. Under the loan agreement, borrowings bear interest, at O'Sullivan's option, at either a Eurodollar rate plus a margin or the prime rate plus a margin. The initial margins are 2.00% per annum for Eurodollar loans and 0.50% per annum for prime rate based loans. The applicable margins will vary each calendar quarter starting with the quarter beginning October 1, 2006. The amount of the margins will vary based on the unused availability under the loan agreement. We borrowed approximately $27.5 million under the exit loan agreement on April 11, 2006. In addition, $2.7 million of letters of credit were outstanding under the loan agreement on that date and remain outstanding as of the date this report is filed. We reserved at closing an additional $6.7 million to fund additional fees and expenses associated with the plan of reorganization. We are able to use borrowings under the loan agreement for general operating, working capital and other proper corporate purposes. Availability under the loan agreement, after the $6.7 million of reserves, was approximately $4.5 million. We continue to serve our customers and to pay our employees and post-petition vendors in the ordinary course. Our facilities continue to operate and to fill customer orders. Recent Trends. Our net sales declined 20.6% in the first nine months of fiscal 2006 from $197.4 million to $156.7 million. This decline continued the decreases in net sales from prior year quarters experienced by us in recent years. Our net sales declined for several reasons: • increasing competition from imported furniture, particularly from China; -28- • increased competition from domestic competitors due to excess capacity in the RTA furniture industry and increasing concentration of retail stores; • market share losses at an office superstore and a large mass merchant. Operating loss increased to $7.6 million in the first nine months of fiscal 2006 from $7.1 million in fiscal 2005. The increase was due to: • lower sales levels; • unfavorable overhead absorption due to lower production levels due to lower sales; and • continued high prices of raw materials, particularly particleboard, and increased prices for freight, cartoning and certain other raw materials. In response to our sales trends, we have taken steps to reduce costs, increase selling prices, lower our inventories and mitigate the impact of the current market challenges and our bankruptcy proceedings. We may take similar actions in the future, which may result in asset write-downs or impairment or other charges. Closure of Virginia Facility. On June 30, 2006, we announced that our South Boston, Virginia manufacturing and distribution facility would be closing by the end of calendar 2006. The closure is a result of the continued execution of our strategy focused on improving utilization of production capacity and productivity. This decision stems from an analysis of our activities as a whole and the implementation of measures aimed primarily at continuing to improve our operational efficiency. The closure is a result of industry wide excess capacity and is not a reflection on the workforce or management team in our South Boston facility. We need to improve our capacity utilization and optimize overall company performance. In connection with the closure of the facility, we expect to expense approximately $6.2 million, of which approximately $1.5 million will be cash costs. The remainder will be an impairment charge against our Virginia machinery and equipment as discussed below. The majority of the cash costs will be expensed as incurred. The components of the charge are expected to be: • impairment charge against machinery and equipment $ 4,700,000 • severance and personnel 480,000 • relocation, recruitment and training 685,000 • facility preparation and shutdown 220,000 • other 90,000 The South Boston facility employs approximately 200 people. We plan to add up to 150 jobs to our Lamar, Missouri facility over the next twelve months as a result of the consolidation. Transfer of United Kingdom Sales Office. Effective June 30, 2006, we conveyed substantially all of the assets of our United Kingdom sales and distribution office to a company formed by the former manager of the office. The company assumed certain of the liabilities of the UK sales and distribution office as consideration. The purchasing company also entered into a distributorship agreement with us to provide for continued sales and service in the United Kingdom, the remainder of Europe, the Middle East and Africa. -29- In connection with the sale of the UK operations, we expect to record a non-cash charge of approximately $2.0 million. The major components of the charge are expected to be: • accounts receivable $ 1,505,000 • inventory 993,000 • prepaid assets 666,000 • other 158,000 • liabilities assumed (1,310,000) We expect that the UK transaction will have an positive effect on our earnings commencing with the first quarter of fiscal 2007. See "Market Risk and Inflation" for more information regarding our raw material price increases. Fiscal 2006 Outlook. Our net sales for fiscal 2006 were approximately 21% lower than our sales in fiscal 2005, due to a number of factors. Among these factors are increased competition from domestic and international competitors and losses in product placement at a large discount mass merchant and at an office superstore. As a result of our lower sales levels, our fiscal 2006 factory utilization rate was about 55%, lower than our fiscal 2005 factory utilization rate of around 62%. Our lower utilization rate reduced our gross margin and gross margin percentage because our fixed overhead costs were applied against our lower production levels, increasing the cost per unit. Customer Bankruptcy In August 2002, Ames Department Stores, Inc. decided to close all of its stores and liquidate. In August 2003, Ames filed suit against O'Sullivan Industries in the U.S. Bankruptcy Court, Southern District of New York alleging that payments made by Ames within 90 days prior to its bankruptcy constituted preferential transfers under the Bankruptcy Code that should be recovered from O'Sullivan Industries by Ames, together with interest. The alleged payments aggregate $2.1 million. We have responded to the suit denying we received any preferential payments. In May 2006, we settled Ames' preference claim and our administrative claim against Ames, with Ames agreeing to pay us a de minimis amount. Tax Sharing Agreement with RadioShack In 1994, RadioShack, then Tandy Corporation, completed an initial public offering of O'Sullivan Holdings. In connection with the offering, O’Sullivan Holdings entered into a tax sharing and tax benefit reimbursement agreement with RadioShack. RadioShack and O'Sullivan made elections under Sections 338(g) and 338(h)(10) of the Internal Revenue Code with the effect that the tax basis of our assets was increased to the deemed purchase price of the assets, and an equal amount of such increase was included as taxable income in the consolidated federal tax return of RadioShack. The result was that the tax basis of our assets exceeded the historical book basis we used for financial reporting purposes. The increased tax basis of our assets results in increased tax deductions and, accordingly, reduced our taxable income or increased our net operating loss. Under the tax sharing agreement, we are contractually obligated to pay RadioShack nearly all of the federal tax benefit expected to be realized with respect to such additional basis. The payments under the agreement represent additional consideration for the stock of O'Sullivan Industries and further increase the tax basis of our assets from the 1994 initial public offering when payments are made to RadioShack. Accordingly, we recorded the deferred tax asset created by the step-up in tax basis and the additional tax basis from the probable future payments to RadioShack. -30- Additionally, we recorded the remaining maximum obligation to RadioShack pursuant to the tax sharing agreement. The remaining maximum obligation to RadioShack was $70.1 million at March 31, 2006 and June 30, 2005. Future payments to RadioShack were contingent upon achieving consolidated taxable income calculated on the basis of the tax sharing agreement. In our plan of reorganization, the tax sharing agreement was discharged and cancelled, with no distribution to RadioShack. During the year ended June 30, 2002, we recorded a full valuation allowance against our net deferred tax assets because we were unable to determine, based on objective evidence, that it was more likely than not that we would be able to utilize our net operating losses prior to their expiration. If at a future date we determine that some or all of the deferred tax asset will more likely than not be realized, we will reverse the appropriate portion of the valuation allowance and credit income tax. Under our modified second amended plan of reorganization confirmed by the U.S. Bankruptcy Court, no distribution will be made with respect to the tax sharing agreement and our obligations under the agreement have been extinguished. As a result of our reorganization under Chapter 11 of the Bankruptcy Code, our tax loss carryforwards will be substantially reduced. Additionally, our ability to use pre-petition net operating losses and any remaining step up in our tax basis may be limited. See "Cautionary Statement Regarding Forward Looking Information." Results of Operations Net Sales. Net sales for the quarter ended March 31, 2006 decreased by $16.0 million, or 23.4%, to $52.5 million from $68.5 million for the quarter ended March 31, 2005. Net sales for the nine months ended March 31, 2006 decreased by $40.8 million, or 20.6%, to $156.7 million from $197.4 million for the nine months ended March 31, 2005. Our year to date sales declined in the office superstore, discount mass merchant and electronic superstore channels due to extremely competitive conditions, economic uncertainties and loss of market share noted above. Sales in the home improvement channel were approximately flat during the first nine months of the fiscal year. International sales were up essentially flat for the year to date as compared to the same period in fiscal 2005 due to stronger sales in Canada and Mexico, offset by stronger sales to Australia in fiscal 2005 as a result of our closing of the Australian sales office in the last quarter of fiscal 2005. Gross Profit. Gross profit increased to $10.1 million, or 19.2% of sales, for the three month period ended March 31, 2006, from $7.6 million, or 11.1% of sales, for the comparable prior year quarter. The gross margin percentage for the third quarter of fiscal 2006 improved primarily because of improved pricing and the rationaliza tion of low-margin sales and lower depreciation expense, partially offset by lower production levels and higher raw material and freight costs. For the nine months ended March 31, 2006, gross profit declined to $25.8 million, or 16.5% of sales, from $28.1 million, or 14.2% of sales. Gross profit declined for the first nine months of fiscal 2006 because of lower production levels impacting overhead absorption, high raw material and freight costs and lower sales, partially offset by higher product prices, the rationalization of low-margin sales and lower depreciation expense. Selling, Marketing and Administrative Expenses. Selling, marketing and administrative expenses declined to $10.2 million, or 19.5% of net sales, for the three month period ended March 31, 2006, compared to $11.4 million, or 16.6% of net sales, for the quarter ended March 31, 2005. Selling, marketing and administrative costs declined due to decreases in the matching contribution rate to our Savings and Profit Sharing Plan in February 2006, reduced recruiting and relocation activity and the receipt of stock from a customer arising out of its plan of reorganization. For the nine months ended March 31, 2006, selling, marketing and administrative expenses fell $1.9 million from $34.8 million in fiscal 2005 to $33.0 million in fiscal 2006. Expenses declined for the same reasons as those described above for the third quarter of fiscal 2006. -31- Restructuring Costs. The restructuring costs of $260,000 and $452,000 incurred in the three months and nine months ended March 31, 2006, respectively. relate to the closing of our Australian operations and personnel changes in our South Boston, Virginia operations. We announced that the Australia operations were closing in February 2005, and most of the expenses related to the closing of these operations were incurred in the last half of fiscal 2005. Depreciation and Amortization. Depreciation and amortization expenses of $7.2 million for the first nine months of fiscal 2006 were lower than the $8.9 million of depreciation and amortization expenses for the comparable period of fiscal 2005. The continuing decline is due to our lower capital expenditures in recent years and the effect of the $8.0 million charge taken to reduce the value of our O'Sullivan Virginia fixed assets at the end of fiscal 2005. Operating Loss. Operating loss was $393,000 in the third quarter of fiscal 2006, a decrease of $3.8 million from the $4.2 million operating loss incurred in the third quarter of fiscal 2005. Our operating loss for the first nine months of fiscal 2006 was $7.6 million, up $517,000 from the $7.1 million operating loss incurred in the first nine months of fiscal 2005. Our operating loss decreased for the third quarter as a result of improvements to product and customer mix and reduced recruiting and relocation activity compared to 2005. During the third quarter of 2005 we also recorded $3.6 million of additional raw material inventory reserve expense. All of this was offset somewhat by lower sales, lower production levels, and increasing raw material and freight costs. Our operating loss increased for the nine month period because of our lower sales levels, lower production levels which adversely affected our fixed cost absorption and increasing raw material and freight costs, partially offset by improved product and customer mix and lower recruiting and relocation activity. Net Interest Expense. Net interest expense declined from $9.1 million in the third quarter of fiscal 2005 to $567,000 in the third quarter of fiscal 2006 because we ceased accruing interest and amortizing loan fees and discounts on indebtedness included in Liabilities subject to compromise concurrently with our bankruptcy filing, partially offset by increased interest expense on the borrowings under our DIP credit agreement. Both the interest rates and the amounts borrowed under our DIP credit agreement were higher than the interest rates and amounts borrowed under our borrowings under our credit agreement in fiscal 2005. Net interest expense decreased $15.3 million from $26.8 million for the first nine months of fiscal 2005 to $11.5 million for the first nine months of fiscal 2006 for the same reasons. The following table summarizes our net interest expense: Three months ended Nine months ended March 31, March 31, ----------------------------- ------------------------------ (in thousands) (in thousands) 2006 2005 2006 2005 ----------- ----------- ----------- ------------ Interest expense on senior secured notes, credit agreement, senior credit facility, industri revenue bonds, DIP credit agreement and senior $ subordinated notes al 577 $ 6,052 $ 8,023 $ 18,138 Interest income (4) (2) (17) (17) Non-cash items: Interest expense on O'Sullivan Holdings note – 795 969 2,331 Interest expense on mandatorily redeemable senior preferred stock – 1,353 1,557 3,826 Amortization of debt discount – 435 516 1,237 Amortization of loan fees (6) 425 489 1,273 ----------- ----------- ----------- ------------ Net interest expense $ 567 $ 9,058 $ 11,537 $ 26,788 =========== =========== =========== ============ If we had not ceased accruing interest expense, then interest expense would have been $9.8 million and $28.5 million for the three and nine months ended March 31, 2006, respectively. Reorganization Items. We incurred $4.8 million in the third quarter related to reorganization costs. The year-to-date total is $13.0 million. The costs include amounts accrued or paid to our legal, financial and -32- restructuring advisers and to the advisers of our unsecured creditors committee and our senior secured note holder group. It also includes the costs incurred in connection with our DIP credit agreement. Income Tax Provision. We recorded no tax expense in the three and nine month periods ended March 31, 2006 and 2005 because of the current tax benefits associated with the Section 338 election (See "Tax Sharing Agreement with RadioShack") and because of the valuation allowance against our net deferred tax assets. Net Loss. We incurred a net loss of $5.8 million in the third quarter of fiscal 2006 compared to a net loss of $13.2 million in fiscal 2005. Net loss decreased $1.8 million from a net loss of $33.9 million in the first nine months of fiscal 2005 to a net loss of $32.1 million in the first nine months of fiscal 2006. The decrease in the loss for both periods was due to a reduction in interest expense due to our bankruptcy filing, partially offset by reorganization costs in fiscal 2006 and lower sales, lower operating levels and higher raw material and freight costs. Liquidity and Capital Resources Bankruptcy Filing. On October 14, 2005, we filed for protection under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Northern District of Georgia. We filed for bankruptcy protection in October 2005 primarily because our sales had declined every year since fiscal 2000, resulting in declining operating income and operating losses. Therefore, we did not have the liquidity to pay the interest on our indebtedness, including interest expense under our credit agreement and notes. The filing constituted an event of default under all of the agreements relating to our indebtedness. We were highly leveraged and had a stockholders' deficit of approximately $251.5 million at March 31, 2006. Our primary sources of liquidity are cash flows from operating activities and borrowings under our loan agreement, which is discussed below. Decreased demand for our products could further decrease our cash flows from operating activities and the availability of borrowings under our loan agreement. Cash and Cash Equivalents. As of March 31, 2006, cash and cash equivalents totaled $737,000, down from $1.2 million at June 30, 2005. Operating Activities. Net cash used by operating activities for the nine months ended March 31, 2006 was $17.6 million compared to net cash used of $81,000 for the nine months ended March 31, 2005. Cash flow from operations decreased for the following reasons. • Inventories increased $1.2 million in the first three quarters of fiscal 2006 compared to a decrease of $15.2 million in the first three quarters of fiscal 2005 • Accounts payable and accrued liabilities increased $8.9 million in the nine months ended March 31, 2006 compared to an increase of $5.2 million in the nine months ended March 31, 2005. In addition, we had $3.5 million of accounts payable and accrued liabilities relating to our restructuring efforts at March 31, 2006. • Amortization of debt discount and accrued interest on the O’Sullivan Holdings note and interest and accretion on our senior preferred stock declined from $7.4 million in the first nine months of fiscal 2005 to $3.0 million in the first nine months of fiscal 2006 as we discontinued accruing interest, amortizing debt discount and accretions effective with our October 14, 2005 bankruptcy filing. • Depreciation and amortization expense was $7.2 million in the first three quarters of fiscal 2006 compared to $8.9 million in the same period of fiscal 2005. • Net loss in the first nine months of fiscal 2006 was $1.8 million lower than in the first nine months of fiscal 2005. -33- • Trade receivables increased $5.0 million in the first three quarters of fiscal 2006, compared to an increase of $6.2 million in the first three quarters of fiscal 2005. Investing Activities. We invested $464,000 for capital expenditures for the nine months ended March 31, 2006 compared to $631,000 for the prior year nine month period. Total capital expenditure requirements for fiscal 2006 were approximately $510,000, which were funded from cash flow from operations, cash on hand or borrowings under our exit loan agreement. Financing Activities. Our net cash provided by financing activities was $46,000 in the first nine months of fiscal 2005 from the issuance of stock and the repayment of a loan to an employee. At March 31, 2006, we had net borrowings of $27.5 million under our DIP credit agreement. Our consolidated principal amount of indebtedness, excluding Liabilities subject to compromise, at March 31, 2006 was $28.5 million, consisted primarily of a DIP credit agreement providing for asset-based revolving credit of up to $35.0 million. At March 31, 2005, $28.5 million of borrowings were outstanding under the DIP credit agreement, and letters of credit aggregating approximately $2.7 million were outstanding. The DIP credit agreement provided for a revolving facility of up to $30 million with availability determined from a borrowing base including our accounts receivable and inventory, and a term facility of up to $5 million. The interest rate on loans under the DIP credit agreement was, at our option, a LIBOR rate plus 4.00% or an index rate plus 2.00%. After March 31, 2006, the margin fluctuated based on our average borrowing availability under the DIP credit agreement. The DIP credit agreement contained minimum EBITDA and gross sales covenants, as well as limits on capital expenditures. The fee for letters of credit was the LIBOR margin less 25 basis points. A fee of 0.5% was paid on the unused commitment under the DIP credit agreement. During the quarter ended March 31, 2006, we borrowed $2.0 million under the term loan at a LIBOR rate plus 8.5%, or 13.2% at March 31, 2006. Other indebtedness that was reclassified to Liabilities subject to compromise following our bankruptcy filing included: • $100.0 million in 10.63% senior secured notes due 2008. We sold the notes in September 2003 at 95% of their par value, yielding $95.0 million in proceeds before issuance expenses of approximately $3.8 million. We used proceeds of the senior secured notes to repay the $88.7 million outstanding under our old senior credit facility and to pay issuance expenses. The notes are secured by a first-priority security interest in and lien on substantially all of our assets (and on O'Sullivan Industries' capital stock) other than accounts receivable, inventory, capital stock of O'Sullivan Industries' subsidiaries, deposit accounts, certain books and records and certain licenses, and by a second-priority security interest in and lien on substantially all of our accounts receivable, inventory, deposit accounts, certain books and records and certain licenses. The notes are guaranteed by O'Sullivan Holdings, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc. The senior secured notes are included in Liabilities subject to compromise on our balance sheet at March 31, 2006. • $96.0 million in 13-3/8% senior subordinated notes due 2009 issued with warrants to purchase 93,273 shares of our Class A common stock and 39,273 shares of our Series B junior preferred stock on a fully diluted basis. These warrants were assigned a value of $3.5 million. We issued $100.0 million of these notes in 1999 at a price of 98.046%, providing $98.0 million in cash proceeds before expenses related to the issuance. We repurchased $4.0 million of the notes during fiscal 2004. The senior subordinated notes are included in Liabilities subject to compromise on our balance sheet at March 31, 2006. • $29.8 million, including $14.8 million of contractual interest added to the principal of the note, in a note issued by O'Sullivan Holdings with warrants to purchase 93,273 shares of our Class A common stock and 39,273 shares of our Series B junior preferred stock on a fully diluted basis. These warrants were assigned a value of $3.5 million. The Holdings note is included in Liabilities subject to compromise on our balance sheet at March 31, 2006. -34- Liquidity We had a stockholders' deficit of $251.5 million as of March 31, 2006, incurred a net loss of $32.1 million for the nine months ended March 31, 2006 and expect to incur additional losses during the remainder of the fiscal year ending June 30, 2006. Our net sales have declined each of the past five years and will decline again in fiscal 2006. Our sales and operating results during fiscal 2005 and the first three quarters of fiscal 2006 were impacted by a decline in the RTA furniture market, increased competition from foreign and domestic competitors, a product mix reflecting more promotional merchandise, and higher raw material costs, principally particleboard and fiberboard and higher freight costs. Our independent registered public accounting firm issued a "going concern" qualification to their report for the year ended June 30, 2005 regarding our financial condition, expressing their concern that we may not be able to continue to operate as a going concern. As a result, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code on October 14, 2005. By filing for protection under the United States Bankruptcy Code, we defaulted under the indenture for our senior secured notes, the indenture for our senior subordinated notes and the agreement governing the O'Sullivan Holdings note. Under our modified second amended plan of reorganization, which was confirmed by the U.S. Bankruptcy Court on March 16, 2006 and became effective on April 12, 2006, our debt has been substantially reduced. See "Plan of Reorganization" above. Exit Loan Agreement. We emerged from bankruptcy on April 12, 2006 with $10 million of secured notes and an asset backed loan agreement for up to $50 million of secured revolving loans. The loan agreement provides for a revolving line of credit of up to $50 million, subject to a borrowing base, with a $15 million sublimit for letters of credit. Indebtedness under the loan agreement is secured with first liens on substantially all of our assets. Under the loan agreement, borrowings bear interest, at our option, at either a Eurodollar rate plus a margin or the prime rate plus a margin. The initial margins are 2.00% per annum for Eurodollar loans and 0.50% per annum for prime rate based loans. The applicable margins will vary each calendar quarter starting with the quarter beginning October 1, 2006. The amount of the margins will vary based on the unused availability under the loan agreement. We borrowed approximately $27.5 million under the exit loan agreement on April 11, 2006. In addition, $2.7 million of letters of credit were outstanding under the loan agreement on that date and remain outstanding as of the date this report is filed. We expect to borrow an additional $6.7 million to fund additional fees and expenses associated with the plan of reorganization. After these initial borrowings, we will be able to use borrowings under the loan agreement for general operating, working capital and other proper corporate purposes. Upon our exit from bankruptcy, availability under the loan agreement, after the additional anticipated $6.7 million of borrowings, was approximately $4.5 million. Off-balance Sheet Arrangements. At March 31, 2006, we had no off-balance sheet arrangements that have or are likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. -35- As of March 31, 2006, our contractual obligations due in the future mature as follows: Obligations Due by Period --------------------------------------------------------------- (in thousands) Less than 12 12-36 36-60 After Contractual Obligations Total months months months 60 months - ------------------------------------- ----------- ------------ ------------ ----------- ------------ Liabilities subject to compromise1 $ 350,122 $ 350,122 $ – $ – $ – Short-term indebtedness 28,533 28,533 – – – Cash interest on indebtedness2 164 164 – – – Operating leases—unconditional 6,961 1,631 1,966 1,765 1,599 Other obligations3 4,254 4,254 – – – ----------- ------------ ------------ ----------- ------------ Total contractual cash obligations $ 390,034 $ 384,704 $ 1,966 $ 1,765 $ 1,599 =========== ============ ============ =========== ============ ------------------------------------ 1See "Overview—Bankruptcy" for a discussion of how our liabilities subject to compromise were treated under our modified second amended plan of reorganization. =========== ============ ============ =========== ============ 2Includes interest expense under our DIP credit agreement. The DIP credit agreement was paid with proceeds of our loan agreement on April 11, 2006. We have not included interest on our obligations after we emerged from bankruptcy. =========== ============ ============ =========== ============ 3Represents (a) transaction fees in connection with our bankruptcy and (b) payments due under our Key Employee Retention Plan. =========== ============ ============ =========== ============ Critical Accounting Policies and Estimates Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 filed with the Securities and Exchange Commission on April 10, 2005, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management's estimates. There have been no significant changes in our accounting policies and estimates during the first nine months of fiscal 2006. Legal Proceedings In August 2002, Ames decided to close all of its stores and liquidate. Actual net sales to Ames in fiscal 2005 were minimal. In August 2003, Ames Department Stores, Inc. filed suit against O'Sullivan Industries in the U.S. Bankruptcy Court, Southern District of New York alleging that payments made by Ames within 90 days prior to its bankruptcy constituted preferential transfers under the Bankruptcy Code that should be recovered from O'Sullivan Industries by Ames, together with interest. The alleged payments aggregate $2.1 million. We received the summons in this action on September 22, 2003. We responded to the suit denying we received any preferential payments. In May 2006, we settled Ames' preference claim and our administrative claim against Ames, with Ames agreeing to pay us a de minimis amount. Cautionary Statement Regarding Forward Looking Information -36- 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 Operations, 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: • our bankruptcy filing on October 14, 2005, which continues to affect us in terms of vendor pricing and terms from vendors and the remaining cash payments to our advisors or required by our modified second amended plan of reorganization; • changes from anticipated levels of sales, whether due to • future national or regional economic and competitive conditions, as we have seen in recent years with slower economic conditions and declines in the sales of personal computers; • new domestic or foreign entrants into the industry, as with competitors and retailers sourcing products competitive with ours from overseas in recent years; • customer acceptance of existing and new products, as we have experienced in recent years; • lower borrowing availability under our loan agreement due to efforts to reduce our inventory levels; • indebtedness that may limit our financial and operational flexibility; • raw material cost increases, particularly in particleboard and fiberboard, as is occurring now; • pricing pressures due to excess capacity in the ready-to-assemble furniture industry, as is occurring now, or customer demand in excess of our ability to supply product; • transportation cost increases, due to higher fuel costs or otherwise; • loss of or reduced sales to significant customers as a result of bankruptcy, liquidation, merger, acquisition or any other reason, as occurred with the liquidation of Ames in fiscal 2003 and with the reorganization of Kmart beginning in fiscal 2002 and with the loss of significant business at an office superstore and at a mass merchant in fiscal 2006; • actions of current or new competitors, foreign or domestic, that increase competition with our products or prices, as has been occurring with imported products from China and other countries in recent years; • 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 arbitration involving RadioShack; • 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. See also the Risk Factors section in our annual report on Form 10-K for the year ended June 30, 2005. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our market risk is affected by changes in interest rates, foreign currency exchange rates and certain commodity costs. Under our policies, we may use natural hedging techniques and derivative financial instruments to reduce the impact of adverse changes in market costs. We do not hold or issue derivative instruments for trading purposes. We believe that our foreign exchange risk is not material. -37- 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 instruments may be used to adjust interest rate exposures when appropriate based on market conditions. At July 1, 2006, all of our debt was subject to variable interest rates. As of July 1, 2006, a change in interest rates of one percentage point would change our interest expense by approximately $437,000 annually. Due to the nature of our product lines, we have material sensitivity to some commodities, including particleboard, fiberboard, corrugated cardboard and hardware. We manage commodity cost exposures primarily through the duration and terms of our vendor agreements. A 1.0% change in our raw material costs would affect our cost of sales by approximately $1.1 million annually. In fiscal 2005, market costs for particleboard, our largest-cost raw material, increased about 40% to 50%, depending on type, thickness and origin. Market costs for fiberboard increased about 30%. Costs increased as demand for particleboard and fiberboard increased and because producers reduced their manufacturing capacity. Market costs for particleboard declined slightly in the first half of fiscal 2006. In the last half of fiscal 2006, we have seen cost increases in particleboard, with the market cost approximately 25% higher than at December 31, 2005. Current market conditions suggest these costs may increase further. The high costs for particleboard and fiberboard reduced our operating margins and operating income in fiscal 2005 and 2006 and continue to affect us in fiscal 2007. We are endeavoring to reduce the impact of the cost increases through our productivity programs, by cost increases and by the eventual inclusion of the higher costs in the pricing of our products. On July 1, 2006, we announced a price increase effective August 1, 2006. In our productivity programs, we endeavor to remove costs from the production of a product without sacrificing utility or quality of the product. We cannot assure you that we will be successful in offsetting these or future potential raw material cost increases. In the short term, we expect that raw materials costs will continue to increase. ITEM 4. CONTROLS AND PROCEDURES. O'Sullivan maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in O'Sullivan's Exchange Act reports is recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to O'Sullivan's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Nevertheless, the controls and procedures did not allow O'Sullivan to file its annual report on Form 10-K for the fiscal year ended June 30, 2005 or its quarterly reports for the quarters ended September 30, 2005, December 31, 2005 and March 31, 2006 within the time periods specified by the SEC's rules and form because of O'Sullivan's efforts to reorganize under the protection of Chapter 11 of the U.S. Bankruptcy Code. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report, O'Sullivan carried out an evaluation, under the supervision and with the participation of O'Sullivan's management, including O'Sullivan's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of O'Sullivan's disclosure controls and procedures. Based on the foregoing, O'Sullivan's Chief Executive Officer and Chief Financial Officer concluded that O'Sullivan's disclosure controls and procedures were effective. During our most recent quarter, there have been no changes in O'Sullivan's internal controls over financial reporting identified in the evaluation described above that has materially affected or is reasonably likely to materially affect, O'Sullivan's internal control over financial reporting. -38- PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Bankruptcy Proceedings. On March 16, 2006, the U.S. Bankruptcy Court for the Northern District of Georgia approved our modified second amended plan of reorganization. The plan became effective on April 12, 2006. For additional information regarding our bankruptcy proceedings, see Note 2 to the unaudited consolidated financial statements included in Part I of this report, which note is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Pursuant to an order of the U.S. Bankruptcy Court, holders of O'Sullivan Industries' senior notes, senior subordinated notes and general unsecured creditors of O'Sullivan Industries, O'Sullivan Virginia and O'Sullivan Furniture Factory Outlet, Inc. voted on O'Sullivan's second amended plan of reorganization during our third fiscal quarter. No other class of creditors or security holders was entitled to vote on our second amended plan of reorganization. Pursuant to our second amended plan of reorganization, ballots were distributed to security holders by mail along with a copy of our second amended disclosure statement, with completed ballots to be returned by mail. All three classes of creditors voted in favor of the plan; as provided in the following table: Class Votes in Favor of Plan Votes against Plan Dollar Amount Number of Votes Dollar Amount Number of Votes and Percentage and Percentage and Percentage and Percentage Senior secured notes $101,766,000 14 $ – – 100% 100% 0% 0% Senior subordinated notes $20,727,000 31 $2,775,000 11 88.20% 73.81% 11.80% 26.19% General unsecured creditors $5,919,715.42 99 $43,766.26 8 99.26% 92.52% 0.74% 7.48% The voting deadline for the plan was March 10, 2006. The U.S. Bankruptcy Court approved our modified second amended plan of reorganization on March 16, 2006. ITEM 6. 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. -39- 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: August 2, 2006 By: /s/ Rick A. Walters -------------------------------------------------- Rick A. Walters President and Chief Executive Officer Date: August 2, 2006 By: /s/ Russell L. Steinhorst ------------------------------------------------------------------------------------------------------------------- Russell L. Steinhorst Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -40-INDEX TO EXHIBITS Exhibit No. Description 2.1 Modified Second Amended Joint Plan of Reorganization (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K dated March 22, 2006 (File No. 0-28493)) 3.1 & 4.1 Third Amended and Restated Certificate of Incorporation of O'Sullivan Holdings (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K dated April 17, 2006 (File No. 0-28493)) 3.2 & 4.2 Amended and Restated Bylaws of O'Sullivan Holdings (incorporated by reference from Exhibit 3.2 to Current Report on Form 8-K dated April 17, 2006 (File No. 0-28493)) 31.1 Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -41-
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10-Q Filing
Osullivan Industries (OSULP) Inactive 10-Q2006 Q3 Quarterly report
Filed: 2 Aug 06, 12:00am