O’Sullivan Industries Holdings, Inc.

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O’Sullivan Industries Holdings, Inc.

1900 Gulf Street
Lamar, Missouri 64759-1899
U.S.A.
Telephone: (417) 682-3322
Fax: (417) 682-8104
Web site: http://www.osullivan.com

Public Company
Incorporated: 1954
Employees: 2,350
Sales: $379.6 million (1999)
Stock Exchanges: New York
Ticker Symbol: OSU
NAIC: 337211 Wood Office Furniture Manufacturing;
33712 Household and Institutional Furniture Manufacturing

O’Sullivan Industries Holdings, Inc. is the third largest maker of ready-to-assemble furniture in the United States. O’Sullivan is the tenth largest manufacturer of furniture overall and is publicly traded. The company manufactures desks, credenzas, computer workcenters, entertainment centers, kitchen accessories, and other products for homes and offices. The products are sold through department stores, office superstores, and home centers in North America and the United Kingdom. O’Sullivan Industries operates manufacturing facilities in South Boston, Virginia; Cedar City, Utah; and Lamar, Missouri, where the company is headquartered. In 1999 O’Sullivan reported $379.6 million in sales and employed 2,350 people.

1954 and the Early Years: Television Original Inspiration

At a July 4th picnic, Thomas O’Sullivan listened to his host’s complaints about the new television he had purchased. The television was supposed to be portable, but the owner found it to be extremely difficult to move. That small problem was all the inspiration that Thomas O’Sullivan needed. He returned home to his machine shop and created a solution—a cart designed to move a television easily. The design, perhaps the very first TV cart, was the original product of Sullivan Industries. Television manufacturers, including RCA and General Electric, were among the first customers.

Founded as Sullivan Industries, the company changed its name to O’Sullivan Industries in 1957. Also in 1957, the growth of the business dictated that a new facility was needed, and the company moved from its founding location in Japan, Missouri, to Owensville, Missouri. Just seven years later, in 1964, the company moved once again, this time to the site of its newest plant in Lamar, Missouri.

Merger and Expansion: 1960s-80s

In 1969, five years after O’Sullivan Industries moved to Lamar, Thomas O’Sullivan decided to merge the company with fellow furniture manufacturer Conroy. The merger allowed for greater competitiveness in the marketplace, but the O’Sullivan family no longer had a controlling interest in the company with their name.

In 1979, the business was growing at such a rate that O’Sullivan Industries decided to expand the facilities in Lamar, Missouri. The location continued to serve as the corporate headquarters, but boasted an increased capacity in the manufacturing facility.

In 1983, Conroy sold O’Sullivan Industries to Tandy Corporation, an electronics retailer. Though O’Sullivan Industries was mostly profitable at the time, Tandy Corporation faced many challenges, especially with its flagship company, Radio Shack. Tandy experienced poor stock performance because of its lack of profitability.

When founder Thomas O’Sullivan retired in 1986, his son Daniel was named CEO and president of O’Sullivan, which remained a subsidiary of Tandy Corporation. In 1988, O’ Sullivan was still growing and an additional plant was built in South Boston, Virginia.

Going Public: 1990s

In 1994, Tandy Corporation offered O’Sullivan as a public company. The sale, though prompted by Tandy’s ailing profitability, was itself a success for the parent company. The public offering brought in $350 million, four times Tandy’s original investment.

O’Sullivan family members and management bought shares but were short of obtaining a controlling interest. However, the O’Sullivan family continued in the company’s leadership. Also in 1994, the company forged a licensing agreement with Fisher-Price to make a line of infant and juvenile furniture. The furniture line helped to meet the need for affordable and attractive children’s furniture.

In 1995, an additional distribution center and manufacturing facility in Cedar City, Utah was built. In 1996 O’Sullivan’s top five customers accounted for 51 percent of sales. The office superstore Office Depot was responsible for 16 percent of sales while Office Max accounted for 13 percent of sales. Despite the stability represented by these major customers, O’Sullivan faced challenges as a niche furniture manufacturer in the coming years.

In the mid- to late 1990s, prices for wood products such as particleboard and packing materials were on the rise, and this situation caused profits for the company to decline. The volatile retail industry also had an effect as bankruptcies and mergers in that area caused a decline in O’Sullivan’s customer base. In 1996, Best Products filed for bankruptcy, and in 1997 another major customer, Montgomery Ward, filed for Chapter 11 reorganization.

In response to declining profits, O’Sullivan restructured its business by cutting jobs and streamlining its product line. In 1996, for the first time in the company’s history, the president of the firm did not carry the O’Sullivan name. While Daniel O’Sullivan remained chairman and CEO, Richard D. Davidson, a former Sunbeam executive, was named president of the company.

In 1998 O’Sullivan’s sales grew by only 5.6 percent and net income was down 9.1 percent. Many one-time factors contributed to the decrease, according to the company, including the installation of a new, fully integrated software package designed to tie together all levels of activities at the company’s three manufacturing facilities. Capital improvements were a factor as well, as the facility in South Boston, Virginia, was upgraded to meet the standards of the rest of the company.

In 1999 O’Sullivan was purchased for about $350 million by investment group OSI Acquisition, an affiliate of Brockman, Rosser, Sherrill & Co., L.P. (BRS). BRS was a private investment firm located in New York. The group included O’Sullivan executives, but the company’s preferred shares were still publicly traded. After the announcement of the merger, a lawsuit was filed by O’Sullivan stockholders against O’Sullivan, the directors of O’Sullivan, and BRS. The class-action lawsuit alleged that the directors of O’Sullivan had breached their fiduciary duties in approving the transaction. Tandy Corporation and its subsidiary, TE ELECTRONICS INC, filed an unrelated lawsuit dealing with the initial public offering and the interpretation of an existing tax sharing agreement.

Despite the two lawsuits, the merger moved forward and was completed in November 1999. Of the two companies, O’Sullivan was the surviving corporation following the merger. After the merger, members of O’Sullivan’s management team owned almost 30 percent of the company while BRS owned the remainder of the stock.

Trending Towards Increased Growth: 2000s

O’Sullivan Industries enjoyed a growth period at the end of the 1990s. Sales grew 11.8 percent to $379.6 million in 1999. Along with fiscal growth, the company increased its employee base by 17.5 percent to 2,350 at the three facilities in Lamar, Missouri; South Boston, Virginia; and Cedar City, Utah.

Daniel O’Sullivan retired as CEO in 2000 though remained chairman, while Richard D. Davidson became both CEO and president of the company. The company began the year 2000 with other internal promotions as well. Thomas M. O’Sullivan, Jr., was named senior vice-president-sales, and Michael P. O’Sullivan was named senior vice-president-marketing. The founding O’Sullivan family remained well represented on the company’s roster.

In regard to his retirement, Daniel O’Sullivan said in the 1998 annual report, “A vital aspect of O’Sullivan’s growth has been the willingness to accept and even encourage change. During my tenure with the company, we have evolved from a maker of metal TV stands to simple wood furniture to a fully automated manufacturer of a line of highly diverse furniture products. Embracing this philosophy of change was a primary factor in my decision to retire as Chairman and Chief Executive Officer.”

The first quarter of fiscal 2000 showed continued growth for the company, with sales rising 16.3 percent to $102 million. “First quarter results reflected the positive effects of the significant capital investments we have been making for the past several years, as well as the increasing capabilities of our employees in all three plant locations,” said Richard D. Davidson in a corporate press release. “Profits were positively impacted on virtually every level over the first quarter of last year. …”

Company Perspectives:

O’Sullivan’s corporate mission has been to become the unquestioned leader in ready-to-assemble furniture. Our path to success has been to focus on having the most innovative product designs, being a low cost producer and empowering our employees to continually improve product quality and customer service. The dedication to this mission is shared by everyone at O’Sullivan.

In the second quarter, the upward trend continued with sales rising 13.5 percent. Growth in major customer channels led to the record sales numbers. “We expect continued growth for the rest of the fiscal year,” said Davidson. “It should be at a more moderate pace. We remain focused on providing superior customer service and product development in order to become the vendor of choice of the major RTA (ready-to-assemble) retailers.”

The continued growth in home offices remained a positive factor for O’Sullivan Industries. As the demand for home office furniture such as desks, computer workstations, and credenzas increased, O’Sullivan adapted its product offerings to meet its customer’s needs. The popularity of all ready-to-assemble furniture increased as well and was offered in a variety of superstore-type locations, including Wal-Mart, Home Depot, Office Depot, and Sears.

One of the ways that O’Sullivan met the growing demand for attractive, easy to assemble, and affordable furniture was by offering a wide selection of designs for consumers. One of its trademarked designs, Intelligent Designs, was created to give the consumer stylish furniture at an affordable price.

While many ready-to-assemble furniture designs featured sharp corners, the Intelligent Designs line was designed with rounded, profiled edges and with the goal of emulating handcrafted furniture. The designs were targeted for both homes and home offices.

As O’Sullivan prepared for the future, its three facilities represented two million square feet of manufacturing, distribution, and office capacity. Both sales and employee numbers were increasing, and changes in ownership and management augured well for the company.

Principal Competitors

Bassett Furniture Industries, Inc.; Bush Industries, Inc.; Furniture Brands International; HON Industries Inc.; IKEA International A/S; Knoll Group Inc.; LifeStyle Furnishings International; Sauder Woodworking; Steelcase; WinsLoew Furniture.

Key Dates:

1954:: Sullivan Industries is founded in Japan, Missouri.
1957:: Name changes to O’Sullivan Industries; company moves to Owensville, Missouri.
1964:: O’Sullivan Industries moves to Lamar, Missouri.
1969:: O’Sullivan Industries merges with Conroy.
1979:: Expansion begins on O’Sullivan’s Lamar facilities.
1983:: Conroy sells O’Sullivan Industries to Tandy Corp.
1986:: Tom O’Sullivan retires; Dan O’Sullivan is named CEO and president.
1988:: South Boston, Virginia plant is built.
1994:: Tandy orchestrates IPO of O’Sullivan Industries.
1995:: Cedar City, Utah plant is built.
1999:: O’Sullivan executives, as part of an investment group, purchase O’Sullivan Industries.
2000:: Dan O’Sullivan retires; Rick Davidson is named CEO and president.