OSULLIVAN INDUSTRIES INC - 10-Q Quarterly Report

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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 September 30, 2002

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: 333-31282

O'SULLIVAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Delaware 43-0923022
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

1900 Gulf Street, Lamar, Missouri 64759-1899
(Address of principal executive offices) (ZIP Code)

(417) 682-3322
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

As of November 10, 2002, 100 shares of common stock of O'Sullivan
Industries, Inc., par value $1.00 per share, were outstanding.

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The Index to Exhibits is on page 28.

Page 1 of 30

PART I

ITEM 1. FINANCIAL STATEMENTS.

O'SULLIVAN INDUSTRIES, INC. AND SUBSIDIARIES
(A wholly owned subsidiary of O'Sullivan Industries Holdings, Inc.)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)

The accompanying notes are an integral part of these
consolidated financial statements.

2

O'SULLIVAN INDUSTRIES, INC. AND SUBSIDIARIES
(A wholly owned subsidiary of O'Sullivan Industries Holdings, Inc.)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

The accompanying notes are an integral part of these
consolidated financial statements.

3

O'SULLIVAN INDUSTRIES, INC. AND SUBSIDIARIES
(A wholly owned subsidiary of O'Sullivan Industries Holdings, Inc.)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

The accompanying notes are an integral part of these
consolidated financial statements.

4

O'SULLIVAN INDUSTRIES, INC. AND SUBSIDIARIES
(A wholly owned subsidiary of O'Sullivan Industries Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
For the three months ended September 30, 2002
(in thousands)

The accompanying notes are an integral part of these
consolidated financial statements.

5

O'SULLIVAN INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF O'SULLIVAN INDUSTRIES HOLDINGS, INC.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002

NOTE 1 -- BASIS OF PRESENTATION

The unaudited consolidated financial statements of O'Sullivan
Industries, Inc. and subsidiaries ("O'Sullivan"), a wholly owned subsidiary of
O'Sullivan Industries Holdings, Inc. ("O'Sullivan Holdings"), included herein
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and Article
10 of Regulation S-X. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in O'Sullivan's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002. The interim results
are not necessarily indicative of the results that may be expected for a full
year.

NOTE 2 -- DERIVATIVE FINANCIAL INSTRUMENTS

As required under O'Sullivan's senior credit facility, O'Sullivan hedged
one-half of its term loans with an initial notional amount of $67.5 million with
a three-year, costless interest rate collar. The collar, which expires in March
2003, is based on three-month LIBOR and has a floor of 6.43% and a ceiling of
8.75%. O'Sullivan recorded additional (reduced) interest expense of $(584,000)
and $1.2 million for the quarters ended September 30, 2002 and September 30,
2001, respectively. These amounts represent the changes in fair value of the
interest rate collar. To terminate this contract at September 30, 2002 and June
30, 2002, O'Sullivan would have been required to pay the counter-party
approximately $1.5 million and $2.1 million, respectively. The fair value of the
interest rate collar is included in accrued liabilities in the accompanying
consolidated balance sheets.

NOTE 3 -- NEW ACCOUNTING STANDARDS

In April 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF No. 00-25, Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products. This issue addresses
the income statement classification of slotting fees, cooperative advertising
arrangements and buydowns. The consensus requires that certain customer
promotional payments that O'Sullivan previously classified as selling expenses
be classified as a reduction of revenue. O'Sullivan adopted EITF 00-25 effective
January 1, 2002 and reclassified certain selling, marketing and administrative
expenses as a reduction of net sales. Its adoption by O'Sullivan had no impact
on operating income or net loss. As a result of the adoption of EITF 00-25, for
the three months ended September 30, 2001, $4.1 million was reclassified as a
reduction in revenue rather than as selling, marketing and administrative
expense.

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 143, Accounting for Asset
Retirement Obligations. This pronouncement, which is effective for fiscal years
beginning after June 15, 2002, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. O'Sullivan adopted this pronouncement
effective July 1, 2002. The adoption of SFAS 143 did not have an impact on
O'Sullivan's financial results.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This pronouncement, which is effective for
fiscal years beginning after December 15, 2001, addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. O'Sullivan adopted this pronouncement effective July 1, 2002.
The adoption of SFAS 144 had no effect on O'Sullivan's results of operations but
did impact its balance sheet presentation as described below.

6

In January 2001, O'Sullivan closed its Cedar City, Utah production
facility. O'Sullivan is actively attempting to sell the Utah land, building and
excess equipment as soon as practicable. Certain equipment has been relocated to
the Missouri and Virginia plants. Fixed assets with a net book value of $20.3
million were valued at the lower of their carrying amount or fair value less
cost to sell, resulting in an impairment charge of approximately $8.7 million in
the second quarter of fiscal 2001. The costs of the long-lived assets held for
sale and the associated accumulated depreciation have been reclassified from
property, plant and equipment to other assets on the accompanying consolidated
balance sheets. There are no other significant assets or liabilities relating to
the discontinued Utah operation. The fair value less cost to sell is an estimate
and the impairment may be adjusted in the future.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
This pronouncement updates, clarifies and simplifies existing accounting
pronouncements. The pronouncement, in part, addresses the accounting for gains
and losses from the extinguishment of debt. O'Sullivan adopted SFAS 145
effective July 1, 2002. There was no impact on O'Sullivan's financial position
or results of operations.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. This pronouncement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred
rather than the date of an entity's commitment to an exit plan and establishes
that fair value is the objective for initial measurement of the liability. The
provisions of this pronouncement are effective for exit or disposal activities
that are initiated after December 31, 2002. O'Sullivan does not believe SFAS 146
will have a material impact on its financial position or results of operations.

NOTE 4 -- 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 first quarters of fiscal
2003 and fiscal 2002 were approximately $2.1 million and $2.4 million,
respectively.

NOTE 5 -- INVENTORY

Inventory, net, consists of the following:

NOTE 6 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In November 1999, O'Sullivan issued $100 million of 13.375% Senior
Subordinated Notes due 2009. These notes were unsecured obligations of
O'Sullivan; however, they were guaranteed on an unsecured basis by its
subsidiaries O'Sullivan Industries - Virginia, Inc. ("O'Sullivan Industries -
Virginia") and O'Sullivan Furniture Factory Outlet, Inc. In fiscal 2000,
O'Sullivan exchanged the notes issued in November 1999 for notes with
substantially identical terms and associated guarantees. The exchange notes
have been registered under the Securities Act of 1933, as amended.

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O'Sullivan also is the obligor under a senior secured credit facility
totaling $175 million. This facility is secured by substantially all the assets
of O'Sullivan and its guarantor subsidiaries O'Sullivan Industries - Virginia
and O'Sullivan Furniture Factory Outlet, Inc. The credit facility is also
guaranteed by O'Sullivan Holdings, O'Sullivan's parent. Security for the credit
facility includes first priority liens and security interests in the stock of
O'Sullivan, O'Sullivan Industries - Virginia and O'Sullivan Furniture Factory
Outlet, Inc.

The accompanying condensed consolidating financial information has been
prepared and presented pursuant to SEC rules and regulations. This information
is not intended to present the financial position, results of operations and
cash flows of the individual companies in accordance with generally accepted
accounting principles.

The financial information for O'Sullivan Furniture Factory Outlet, Inc.
is included in the consolidated results of O'Sullivan Industries. O'Sullivan
Furniture Factory Outlet, Inc. commenced operations in April 2002. Net sales and
net income for the three months ended September 30, 2002 were $203,000 and
$13,000, respectively. At September 30, 2002 and June 30, 2002, total assets
were $226,000 and $191,000, respectively. Total liabilities, excluding payables
to affiliates, at September 30, 2002 and June 30, 2002 were $8,000 and $20,000,
respectively.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATING BALANCE SHEETS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

NOTE 7 -- INCOME TAXES

O'Sullivan is included in the consolidated federal income tax return
filed by O'Sullivan Holdings. In accordance with the intercompany tax allocation
policy between O'Sullivan and O'Sullivan Holdings, O'Sullivan remits to
O'Sullivan Holdings an amount equal to its current tax liability calculated as
if O'Sullivan filed a separate tax return.

O'Sullivan recorded tax expense of $3.1 million for the three months
ended September 30, 2002 that included a valuation allowance of $2.6 million.

Prior to O'Sullivan Holdings' initial public offering in 1994, it was
owned by RadioShack Corporation (then named Tandy Corporation). In connection
with the 1994 initial public offering of O'Sullivan Holdings' common stock,
RadioShack Corporation, its subsidiary TE Electronics Inc. and O'Sullivan
Holdings entered into a Tax Sharing and Tax Benefit Reimbursement Agreement.
Pursuant to the tax sharing agreement, RadioShack is primarily responsible for
all U.S. federal income taxes, state income taxes and foreign income taxes with
respect to O'Sullivan for all periods ending on or prior to the date of
consummation of the offering and for audit adjustments to such federal income
and foreign income taxes. O'Sullivan Holdings is responsible for all other taxes
owing with respect to O'Sullivan, including audit adjustments to state and local
income and for franchise taxes.

RadioShack and O'Sullivan made an election under Sections 338(g) and
338(h)(10) of the Internal Revenue Code with the effect that the tax basis of
O'Sullivan's assets was increased to the deemed purchase price of the assets. An
amount equal to such increase was included in income in the consolidated federal
income tax return filed by RadioShack. This additional tax basis results in
increased income tax deductions and, accordingly, reduced income taxes payable
by O'Sullivan. Pursuant to the tax sharing agreement, O'Sullivan Holdings pays
RadioShack nearly all of the federal tax benefit expected to be realized with
respect to such additional basis. Since O'Sullivan Holdings' initial public
offering by RadioShack in 1994, the benefits of the tax deductions under the tax
sharing agreement have been accounted for as income taxes. Amounts payable to
RadioShack pursuant to the tax sharing agreement are recorded as current federal
income tax expense in O'Sullivan's consolidated statements of operations. As
those benefits reduced O'Sullivan's federal income tax obligations, payments
were made to RadioShack as opposed to the IRS.

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O'Sullivan is incurring significantly higher interest expense
associated with its higher debt levels in connection with the financing of the
November 1999 recapitalization and merger. O'Sullivan Holdings believed that
this increased interest expense, and certain expenses incurred to consummate the
recapitalization and merger, should be taken into account in determining the
payments O'Sullivan Holdings is required to make to RadioShack under the tax
sharing agreement. RadioShack claimed O'Sullivan Holdings could not deduct the
additional interest and expenses in determining the tax sharing payments.

On June 29, 1999, RadioShack filed a complaint against O'Sullivan
Holdings in the District Court of Texas in Tarrant County. RadioShack's
complaint sought a court order compelling O'Sullivan Holdings to submit to a
dispute resolution process. O'Sullivan Holdings argued that no dispute existed
because at that time the recapitalization and merger had not closed. On October
8, 1999, the court ordered O'Sullivan Holdings to commence dispute resolution
procedures before an arbitrator, according to the terms of the tax sharing
agreement. Mediation efforts failed to resolve the issue. Arbitrators were
selected to hear the dispute, the arbitration was heard in October 2001 and
briefing of the issue followed.

In March 2002, the arbitration panel ruled in favor of RadioShack on
this issue, concluding that the interest expense arising from the
recapitalization and merger is not deductible in calculating the payments due
from O'Sullivan Holdings to RadioShack under the tax sharing agreement.

Following the issuance of the opinion, O'Sullivan Holdings reached a
settlement of the dispute with RadioShack. Under the settlement, O'Sullivan
Holdings paid RadioShack $21.5 million in May 2002 to cover all amounts due
through December 31, 2001; RadioShack waived interest on the payments and its
attorneys' fees. O'Sullivan Holdings agreed to make future payments under the
tax sharing agreement without deducting interest on indebtedness incurred in the
recapitalization and merger. For the six months ended June 30, 2002, O'Sullivan
Holdings paid RadioShack $6.2 million. For the three months ended September 30,
2002, O'Sullivan Holdings paid RadioShack $3.1 million.

O'Sullivan funded the back payment and subsequent payments from cash on
hand. O'Sullivan expects to fund future payments from cash on hand or borrowings
under its senior credit facility.

O'Sullivan amended its senior credit facility as a result of the
arbitration settlement. The amendment excludes from the definition of
consolidated fixed charges $27.0 million of the total paid by O'Sullivan
pursuant to the tax sharing agreement through the period ended June 30, 2002.

O'Sullivan has recorded the $30.8 million in payments pursuant to the
settlement agreement as a deferred tax asset. O'Sullivan has a net deferred tax
asset of approximately $15.6 million at September 30, 2002. Under SFAS 109,
Accounting for Income Taxes, O'Sullivan must determine if it is more likely than
not that the net deferred tax assets will be realized as reductions in tax
liabilities in the future. At December 31, 2001 (O'Sullivan files federal income
tax returns on a calendar year basis), O'Sullivan had a net operating loss
carryforward for federal income tax purposes of approximately $54.3 million. In
2009, when substantially all of the tax deductions are expected to have been
taken, O'Sullivan Holdings and RadioShack are to negotiate a settlement of the
then present value of the realizable tax benefits O'Sullivan has yet to deduct.

Pursuant to SFAS 109, management projected its expected future taxable
income utilizing operating performance O'Sullivan achieved in fiscal 2002
assuming O'Sullivan's performance would be no better or worse over an extended
period of time. Such projections indicate that O'Sullivan will not have taxable
income until 2009 when substantially all the tax benefit deductions have been
taken. At that point, the projections indicate that the net operating losses
existing at that time would be utilized before they expire. However, O'Sullivan
currently has and is expected to have taxable losses for a number of years in
the future and SFAS 109 requires objective evidence to support the more likely
than not conclusion. Projections over a long time frame are inherently
uncertain, and O'Sullivan cannot provide objective evidence that its operations
in 2009 and beyond will produce sufficient taxable income. As a result,
O'Sullivan has provided a valuation allowance on its net deferred tax assets of
$15.6 million at September 30, 2002 and will continue to provide an allowance as
those net deferred tax

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assets grow into the future until sufficient objective evidence exists about
future results of operations which supports the reversal of all or part of the
valuation allowance.

NOTE 8 -- RELATED PARTY TRANSACTIONS

O'Sullivan entered into a management services agreement with Bruckmann,
Rosser, Sherrill & Co., Inc. ("BRS") for strategic and financial advisory
services on November 30, 1999. The fee for these services is the greater of (a)
1% of O'Sullivan's consolidated cash flow (as defined in the indenture related
to the O'Sullivan senior subordinated notes) or (b) $300,000 per year. Under the
management services agreement, BRS can also receive reimbursement for expenses
which are limited to $50,000 a year by the senior credit facility.

The senior credit facility and the management services agreement both
contain certain restrictions on the payment of the management fee. The
management services agreement provides that no cash payment for the management
fee can be made unless the fixed charge coverage ratio (as defined in the
indenture relating to the O'Sullivan senior subordinated notes) for O'Sullivan's
most recently ended four full fiscal quarters would have been at least 2.0 to
1.0. All fees and expenses under the management services agreement are
subordinated to the senior subordinated notes.

The management fees and reimbursable expenses of $110,000 and $97,000
recognized in the first quarter of fiscal years 2003 and 2002, respectively, are
included in selling, marketing and administrative expense in the accompanying
consolidated statements of operations. O'Sullivan paid BRS $713,000 in the first
quarter of fiscal 2003 for the balance owed through June 30, 2002 and $305,000
as a prepayment of the fiscal 2003 management fee. The prepaid balance at
September 30, 2002 was $195,000 and is included in prepaid expenses and other
current assets on the consolidated balance sheet. The amount due BRS at June 30,
2002 approximated $719,000 and is included in accrued liabilities on the
consolidated balance sheet.

NOTE 9 -- COMMITMENTS AND CONTINGENCIES

Tax Sharing Agreement with RadioShack. Future tax sharing agreement
payments are contingent on taxable income. (See Note 7.) The maximum payments
are fiscal 2003 -- $11.0 million; fiscal 2004 -- $9.9 million; fiscal 2005 --
$10.5 million; fiscal 2006 -- $11.3 million; and thereafter -- $41.4 million.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

We are a leading ready-to-assemble furniture manufacturer in North
America with over 45 years of experience. We design, manufacture and distribute
a broad range of RTA furniture products--computer workcenters, desks,
entertainment centers, audio stands, bookcases and cabinets--with retail prices
ranging from $20 to $999. We have committed substantial resources to the
development and implementation of a diversified sales, marketing and product
strategy in order to capitalize on opportunities presented by large retail
channels of distribution and changes in consumer demographics and preferences.
We have structured our business to offer a wide variety of RTA furniture
products through popular retail distribution channels, including office
superstores, discount mass merchants, electronic superstores, home improvement
centers and home furnishings retailers. We continue to strive towards building
long-term relationships with quality retailers in existing and emerging high
growth distribution channels to develop and sustain our future growth.

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After several years of robust growth, the North American RTA furniture
industry stalled in 2001. Our sales declined 11.5% in fiscal 2001 and 2.7% in
fiscal 2002. This decline continued in the first quarter of fiscal 2003, when
our sales declined 12.9%. Our sales declined for several reasons:

o the lack of growth in sales of personal computers, which
reduced the need for computer desks and workcenters;

o the slowdown of economic growth and consumer spending in the
United States, particularly in the office superstore channel;

o liquidations and bankruptcies by a number of customers,
including Montgomery Ward, Ames and Kmart;

o inventory reductions by our customers;

o the decline in price of the average unit sold, reflecting a
trend toward more promotional merchandise and increased
competition;

o increasing competition from imported furniture, particularly
from China; and

o the retrenchment in business capital outlays, which reduced
purchases of office furniture.

These factors will continue to affect our business throughout the remainder of
fiscal 2003.

As a result of the lower sales levels, coupled with the outcome of the
arbitration proceedings with RadioShack in fiscal 2002, we incurred a net loss
of $845,000 and $1.0 million for the first quarters of fiscal 2003 and fiscal
2002, respectively. However, even with the lower sales level, we were able to
increase our operating income to $8.0 million in the first quarter of fiscal
2003 from $6.4 million in the first quarter of fiscal 2002. Our earnings before
interest, taxes, depreciation and amortization also increased to $11.2 million
in fiscal 2003 from $9.8 million in the same period of fiscal 2002 due
principally to lower raw material prices and reduced selling and administrative
expenses.

We purchase large quantities of raw materials, including particleboard
and fiberboard. We are dependent on our outside suppliers for all of our raw
materials. Therefore, we are subject to changes in the prices charged by our
suppliers. In fiscal 2000, our operating income was reduced by price increases
for these commodities. In fiscal 2001, particleboard and fiberboard prices
declined, increasing our operating income in the latter portion of the year.
Industry pricing for particleboard was flat to slightly lower in fiscal 2002,
and prices declined slightly in the first quarter of fiscal 2003 from the fourth
quarter of fiscal 2002. Prices for fiberboard increased in the fourth quarter of
fiscal 2002, but remained flat for the first quarter of fiscal 2003. We did,
however, experience a price increase from several suppliers of another commodity
in the second quarter of fiscal 2003. We cannot assure you that raw material
prices will not increase in the future. If the demand for particleboard
increases, prices may rise in 2003.

Several manufacturers, including O'Sullivan, have excess manufacturing
capacity due to the current decline in sales in the RTA furniture segment and
increasing imports. This excess capacity is causing increased competition that
is expected to continue, and perhaps to intensify, through the remainder of
fiscal 2003. This adversely affected our margins and results of operations in
fiscal 2002, and is continuing to affect sales, margins and results of
operations in fiscal 2003.

While we have confidence in the long-term future of the RTA furniture
industry, sales in the second quarter of fiscal 2003 are anticipated to be the
same as or slightly lower than sales in the second quarter of fiscal 2002. We
anticipate our operating earnings and EBITDA will be slightly higher than those
reported for the second quarter of fiscal 2002. We cannot yet predict when our
sales will return to a pattern of sales growth.

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RadioShack Arbitration

Prior to O'Sullivan Holdings' initial public offering in 1994, we were
owned by RadioShack Corporation (then named Tandy Corporation). In connection
with the 1994 initial public offering of O'Sullivan Holdings' common stock,
RadioShack Corporation, TE Electronics Inc. and O'Sullivan Holdings entered into
a Tax Sharing and Tax Benefit Reimbursement Agreement.

Pursuant to the tax sharing agreement, RadioShack and O'Sullivan
Holdings made an election 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. This additional tax basis results in
increased income tax deductions and, accordingly, reduced income taxes payable
by us. Pursuant to the tax sharing agreement, O'Sullivan Holdings pays
RadioShack nearly all of the federal tax benefit expected to be realized with
respect to such additional basis. Since 1994, amounts payable to RadioShack
pursuant to the tax sharing agreement are recorded as current federal income tax
expense in our consolidated statements of operations. As those benefits reduced
our federal income tax obligations, payments were made to RadioShack as opposed
to the IRS.

We are incurring significantly higher interest expense associated with
our higher debt levels in connection with the financing of our November 1999
recapitalization and merger. O'Sullivan Holdings believed that this increased
interest expense, and certain expenses incurred to consummate the
recapitalization and merger, should be taken into account in determining the
payments O'Sullivan Holdings is required to make to RadioShack under the tax
sharing agreement. RadioShack claimed O'Sullivan Holdings could not deduct the
additional interest and expenses in determining the tax sharing payments.

This disagreement was the subject of an arbitration hearing. In March
2002, the arbitration panel ruled in favor of RadioShack on this issue,
concluding that the interest expense arising from the recapitalization and
merger is not deductible in calculating the payments due from O'Sullivan
Holdings to RadioShack under the tax sharing agreement.

Following the issuance of the opinion, O'Sullivan Holdings reached a
settlement of the dispute with RadioShack. Under the settlement, O'Sullivan
Holdings paid RadioShack $21.5 million in May 2002 to cover all amounts due
through December 31, 2001; RadioShack waived interest on the payments and its
attorneys' fees. O'Sullivan Holdings agreed to make future payments under the
tax sharing agreement without deducting interest on indebtedness incurred in the
recapitalization and merger. For the six months ended June 30, 2002, O'Sullivan
Holdings paid RadioShack $6.2 million. For the three months ended September 30,
2002, O'Sullivan Holdings paid RadioShack $3.1 million. The funds for those
payments have come, and funds for future payments to RadioShack will continue to
come, from us.

We funded the back payment and subsequent payments from cash on hand.
We expect to fund future payments from cash on hand or borrowings under our
senior credit facility. Payments under the tax sharing agreement for fiscal 2003
are expected to be about $11.0 million.

We amended our senior credit facility as a result of the arbitration
settlement. The amendment excludes from the definition of consolidated fixed
charges $27.0 million of the total paid by us pursuant to the tax sharing
agreement through the period ended June 30, 2002.

See "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION."

RESULTS OF OPERATIONS

Net Sales. Net sales for the quarter ended September 30, 2002 decreased
by $10.6 million, or 12.9%, to $71.6 million from $82.2 million for the quarter
ended September 30, 2001. During the quarter, sales declined in every major
sales channel as the economic weakness in the United States continued.

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In January 2002, Kmart Corporation, which accounted for around 9% of
our gross sales in fiscal 2002, filed for Chapter 11 bankruptcy court
protection. As part of its reorganization, Kmart has closed 283 stores and has
secured financing of $2 billion to help the company's cash flow while it
restructures. Kmart hopes to emerge from Chapter 11 in 2003. We resumed
shipments to Kmart on a post-petition basis after the filing and anticipate
significant sales to Kmart in the future. However, there can be no assurance
that we will ship as much to Kmart as we did in prior periods or that Kmart will
be successful in its restructuring efforts.

In August 2002, Ames Department Stores, Inc. decided to close all of
its stores and liquidate. We had anticipated sales to Ames would be less than 2%
of our gross sales in fiscal 2003.

Gross Profit. Gross profit decreased to $20.0 million, or 27.9% of
sales, for the three month period ended September 30, 2002, from $20.5 million,
or 24.9% of sales, for the comparable prior year quarter. Fiscal 2003 first
quarter gross profit dollars declined because of lower sales. The gross margin
percentage increased primarily because of lower material costs, particularly for
particleboard, as compared to prices in the same period in fiscal 2002.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses decreased to $12.0 million, or 16.8% of sales, for the
three month period ended September 30, 2002, from $14.1 million, or 17.2% of
sales, for the quarter ended September 30, 2001. In fiscal 2003, incentive
compensation and profit sharing expenses decreased because of our lower sales
and financial performance. Legal fees increased costs in fiscal 2002 due to the
RadioShack arbitration. Freight out, commissions and store display expense were
also lower in fiscal 2003 compared to the prior year.

Depreciation and Amortization. Depreciation and amortization expenses
decreased to $3.3 million for the first quarter of fiscal 2003 compared to $3.4
million for the first quarter of fiscal 2002.

Operating Income. Operating income increased $1.6 million to $8.0
million for the quarter ended September 30, 2002 from $6.4 million in the
quarter ended September 30, 2001. Lower material prices were partially offset by
lower sales in the three months ended September 30, 2002. Reduced incentive
compensation and profit sharing expense as well as lower freight out expense,
commission costs and store display expense contributed to the increased
operating income during the quarter.

Net Interest Expense. Net interest expense decreased from $7.9 million
in the first quarter of fiscal 2002 to $5.7 million in the first quarter of
fiscal 2003. Interest expense decreased due to the change in fair value of our
interest rate collar as well as our repayment of debt and lower variable
interest rates on a portion of our debt. The following table describes the
components of net interest expense.

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Income Tax Provision (Benefit). We recorded tax expense of $3.1 million
for the first quarter of fiscal 2003 that included an increase in the valuation
allowance of $2.6 million. Since our initial public offering by RadioShack in
1994, the benefits of the tax deductions under the tax sharing agreement have
been accounted for as income taxes. As those benefits reduced our federal income
tax obligations, payments were made to RadioShack as opposed to the IRS. Since
the recapitalization in 1999 and prior to the settlement of the arbitration
proceedings with RadioShack, O'Sullivan Holdings made an $800,000 payment to
RadioShack as we had little taxable income to utilize the tax deductions. These
deductions resulted in net operating losses for federal tax purposes for which
we recorded no deferred tax assets as such deductions were assets of RadioShack
under the tax sharing agreement.

As more fully described above, O'Sullivan Holdings can no longer
consider the increased interest costs in calculating the amounts due to
RadioShack. Therefore, O'Sullivan Holdings will have to make payments to
RadioShack before all of our deductions on our federal income tax return reduce
federal taxes. In effect, as a result of the arbitration decision and
settlement, O'Sullivan Holdings will contractually prepay tax benefits to
RadioShack that may be recovered from reduced federal income tax liabilities in
the future.

As a result of the arbitration decision and settlement, O'Sullivan
Holdings paid $21.5 million to RadioShack in May 2002 relating to periods
through December 31, 2001. O'Sullivan Holdings also paid RadioShack an
additional $6.2 million for the six months ended June 30, 2002 and $3.1 million
for the quarter ended September 30, 2002. We provided O'Sullivan Holdings the
funds to make those payments. We recorded these payments as a deferred tax
asset. We have a net deferred tax asset of approximately $15.6 million at
September 30, 2002. At December 31, 2001 (we file federal income tax returns on
a calendar year basis), we had a net operating loss carryforward for federal
income tax purposes of approximately $54.3 million. In 2009, when substantially
all of the tax deductions are expected to have been taken, O'Sullivan Holdings
and RadioShack are to negotiate a settlement of the then present value of the
realizable tax benefits we have yet to deduct.

Pursuant to SFAS 109, we have provided a valuation allowance on our net
deferred tax assets of $15.6 million at September 30, 2002 and will continue to
provide an allowance as those net deferred tax assets grow into the future until
sufficient objective evidence exists about future results of operations which
supports the reversal of all or part of the valuation allowance. See Note 7 to
the accompanying consolidated financial statements.

Net Loss. Net loss decreased $176,000 from a loss of $1.0 million in
the first quarter of fiscal 2002 to a loss of $845,000 in the first quarter of
fiscal 2003 due to increased tax expense, partially offset by lower raw material
costs, decreased selling and administrative expenses and lower interest expense.

EBITDA. EBITDA, which we define as earnings before interest income and
interest expense, income taxes, depreciation and amortization, increased by $1.4
million to $11.2 million for the quarter ended September 30, 2002 from $9.8
million for the prior year quarter. EBITDA for the fiscal 2003 first quarter
increased primarily due to lower material costs and lower selling and
administrative expenses, partially offset by lower sales.

EBITDA is presented to provide additional information about our
operations. This item should be considered in addition to, but not as a
substitute for or superior to, operating income, net income, operating cash flow
and other measures of financial performance prepared in accordance with
generally accepted accounting principles. EBITDA may differ in the method of
calculation from similarly titled measures used by other companies.

17

The following table reconciles net loss to EBITDA for the first
quarters of fiscal 2003 and 2002.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flows from operations and
borrowings under our senior secured credit facility, which is discussed below.
Our liquidity requirements will be to pay our debt, including interest expense
under the senior credit facility and notes, to pay RadioShack amounts due under
the tax sharing agreement and to provide for working capital and capital
expenditures. Decreased demand for our products could decrease our cash flow
from operations and the availability of borrowings under our credit facility.

Working Capital. As of September 30, 2002, cash and cash equivalents
totaled $13.3 million. Net working capital was $59.6 million at September 30,
2002 compared to $62.6 million at June 30, 2002.

Operating Activities. Net cash used by operating activities for the
three months ended September 30, 2002 was $289,000 compared to net cash provided
of $16.1 million for the three months ended September 30, 2001. Cash flow from
operations decreased year-over-year for the following reasons.

o During the first quarter of fiscal 2002, accounts payable increased
$5.9 million from unusually low levels on June 30, 2001 when
production was shut down for two weeks. Accounts payable increased
$1.0 million during the first quarter of fiscal 2003 due to a shutdown
of only one week. Accounts payable balances at September 30, 2002 are
lower than the balances at September 30, 2001 because of lower
production levels this year and the timing of a large purchase last
year.

o Profit sharing and incentive compensation payments during the first
quarter of fiscal 2003 were approximately $3.0 million higher than in
the first quarter of fiscal 2002 because of the respective prior year
financial results. Changes in the accrued balances for profit sharing
and incentive compensation decreased the cash provided by operations
an additional $1.1 million.

o Increases in accrued advertising provided net cash of $1.2 million in
fiscal 2003 compared to $3.9 million during the first quarter of
fiscal 2002. The decrease this year was due to lower sales and
associated decreases in vendor incentive programs. Cash payments were
also accelerated for a particular customer that changed its pattern of
claiming certain incentives.

o In fiscal 2003, increases in inventories absorbed $4.6 million of
cash, compared with only $653,000 in fiscal 2002.

o During the September 2002 quarter, we paid RadioShack $3.1 million
under the tax sharing agreement.

o In fiscal 2003, the liability associated with the interest rate collar
declined by $584,000 as opposed to a $1.2 million increase in fiscal
2002.

o Trade receivables declined $2.8 million in fiscal 2003 as opposed to a
$169,000 increase in fiscal 2002. The decline was due to lower sales
in fiscal 2003 and shorter terms.

18

Investing Activities. We invested $1.6 million for capital expenditures
for the three months ended September 30, 2002 compared to $4.1 million for the
prior year three month period. We currently estimate that the total capital
expenditure requirements for the remainder of the fiscal year will be
approximately $5.0 to $8.0 million, which we expect to fund from cash flow from
operations or cash on hand. Our ability to make future capital expenditures is
subject to certain restrictions under our senior credit facility.

Financing Activities. On November 30, 1999 we completed our merger and
recapitalization. Our consolidated indebtedness at September 30, 2002 was $221.6
million consisting of:

o $111.6 million in a senior secured credit facility consisting of a
five year $24.6 million term loan A, a seven and one-half year $87.0
million term loan B and a $40.0 million revolving line of credit, with
no borrowings at September 30, 2002. The current portion of these term
loans was approximately $8.5 million at September 30, 2002. The
revolving line of credit has a $15.0 million sub-limit for letters of
credit, of which we are currently utilizing approximately $13.9
million.

o $100.0 million in 13-3/8% senior subordinated notes due 2009 issued
with warrants to purchase 6.0% of our common and Series B junior
preferred stock on a fully diluted basis. These warrants were assigned
a value of $3.5 million. These notes were issued at a price of 98.046%
providing $98.0 million in cash proceeds before expenses related to
the issuance.

o $10.0 million in variable rate industrial revenue bonds.

The reconciliation of consolidated indebtedness to recorded book value at
September 30, 2002 is as follows:

During the three months ended September 30, 2002, we made regularly
scheduled principal payments of $886,000 against the term loans included in our
senior secured credit facility. We expect to fund principal and interest
payments on our debt from cash flow from operations, cash on hand or borrowings
under our revolver. Our borrowing availability under our credit facility was
approximately $21.4 million at September 30, 2002. Decreased demand for our
products could decrease our cash flow from operations and the availability of
borrowings under our credit facility. In October 2002, we paid an additional
$4.1 million of principal on the amounts outstanding under the senior credit
facility and increased the revolving credit line borrowings by $4.1 million.

The credit facility and notes are subject to certain financial and
operational covenants and other restrictions, including among others,
requirements to maintain certain financial ratios and restrictions on our
ability to incur additional indebtedness. The financial covenants contained in
the credit facility, as amended, are as follows:

o Our consolidated leverage ratio must be less than 4.35. The ratio at
September 30, 2002 was 3.87. At June 30, 2003, our consolidated
leverage ratio must be less than 4.00.

19

o Our consolidated interest coverage ratio must be greater than 2.00.
The ratio at September 30, 2002 was 2.26. At June 30, 2003, our
consolidated interest coverage ratio must be greater than 2.00.

o Our consolidated fixed charge coverage ratio must be greater than
1.10. The ratio at September 30, 2002 was 1.57. At June 30, 2003, our
consolidated fixed charge coverage ratio must be greater than 1.10.

o Our senior debt coverage ratio must be less than 2.50. The ratio at
September 30, 2002 was 2.13. At June 30, 2003, our senior debt
coverage ratio must be less than 2.35.

o Our consolidated EBITDA must be at least $53 million for the fiscal
year ending June 30, 2003.

EBITDA and consolidated interest expense as defined in the credit facility for
the twelve months ended September 30, 2002 were $57.2 million and $25.3 million,
respectively. O'Sullivan Industries is the borrower under the credit facility,
so the covenants do not include the $19.8 million senior note of O'Sullivan
Holdings or interest on the note. Pursuant to an amendment to our senior credit
facility, $27.0 million of our payments to RadioShack under the tax sharing
agreement through the period ending June 30, 2002 are excluded from the
definition of consolidated fixed charges and thus from calculations of the
consolidated fixed charge coverage ratio.

In addition, the agreements effectively prohibit the payment of
dividends on our stock. At September 30, 2002, we were in compliance with all
applicable debt covenants.

As required under the senior credit facility, we hedged one-half of our
term loans with an initial notional amount of $67.5 million with a costless
interest rate collar. The collar is based on three-month LIBOR with a floor of
6.43% and a ceiling of 8.75%. To terminate this contract at September 30, 2002,
we would have been required to pay the counter-party approximately $1.5 million.
The counter-party to our interest rate collar provides us with the payment
amount that would be required to terminate the collar as of the end of each
quarter. We recorded the change in fair value of the collar as increased or
decreased interest expense in the consolidated statements of operations and
included the resulting liability in accrued liabilities on the consolidated
balance sheets.

See the overview section of this Management's Discussion and Analysis
of Financial Condition and Results of Operations for a discussion of the impact
of the Settlement Agreement with RadioShack on our liquidity and financial
condition.

The following table illustrates our contractual obligations due in the
future:

20

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities.

On an on-going basis, we evaluate our estimates, including those
related to customer programs and incentives, bad debts, inventories, intangible
assets, income taxes, restructuring, asset impairments, contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances. The results
of these estimates form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

o We derive our revenue from product sales. We recognize revenue from
the sale of products when persuasive evidence of an arrangement
exists, the product has been delivered, the price is fixed and
determinable and collection of the resulting receivable is reasonably
assured. For all sales, we use purchase orders from the customer,
whether oral, written or electronically transmitted, as evidence that
a sales arrangement exists. Generally, delivery occurs when product is
delivered to a common carrier or private carrier, with standard terms
being FOB shipping point. We assess whether the price is fixed and
determinable based upon the payment terms associated with the
transaction. We assess collection based on a number of factors,
including past transaction history with the customer and the
creditworthiness of the customer. Collateral is not requested from the
customers.

o We record estimated reductions to revenue for customer programs and
incentive offerings including special pricing agreements, price
protection, promotions and other volume-based incentives. Market
conditions could require us to take actions to increase customer
incentive offerings. These offerings could result in our estimates
being too small and reduce our revenues when the incentive is offered.

o We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

o We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and
its estimated market value based upon assumptions about future demand
and market conditions. If actual market conditions are less favorable
than those projected by us, additional inventory write-downs may be
required. Obsolete and slow-moving inventory reserves were
approximately $5.8 million and $4.9 million at September 30, 2002 and
2001, respectively.

o We record our deferred tax assets at the amount that the asset is more
likely than not to be realized. While we have considered future
taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance, our
determinations can change. If we objectively determine it was more
likely than not we would be able to realize our deferred tax assets in
the future in excess of our recorded amount, we would reduce our
valuation allowance, increasing income in the period such
determination was made. Likewise, should we determine that we would
not be able to realize all or part of our recorded gross deferred tax
assets in the future, we would increase our valuation allowance,
decreasing income in the period such determination was made.

21

o We periodically review our long-lived assets, including property and
equipment, for impairment and determine whether an event or change in
facts and circumstances indicates their carrying amount may not be
recoverable. We determine recoverability of the assets by comparing
the carrying amount of the assets to the net future undiscounted cash
flows expected to be generated by those assets. If the sum of the
undiscounted cash flows is less than the carrying value of the assets,
an impairment charge is recognized. Adverse economic conditions could
cause us to record impairment charges in the future.

o We assess goodwill regularly for impairment by applying a
fair-value-based test, using the enterprise as the reporting unit. If
the book value of the reporting unit is below the fair value of the
reporting unit there is no impairment loss. Adverse economic
conditions could cause us to record impairment charges in the future.

o In the second quarter of fiscal 2001, we recorded asset impairment
charges, employee termination benefits and other exit costs totaling
$10.5 million related to a business restructuring plan to reduce
production capacity and operating expenses. The restructuring plan
included closing our Cedar City, Utah facility and a reduction in our
staff at our Lamar, Missouri facility. The asset impairment charges
related to land, building and equipment located in Cedar City, Utah.
The land and building and a limited amount of equipment are still for
sale. If market conditions deteriorate further, additional write-downs
on the land, building and equipment may be necessary.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Certain portions of this Report, and particularly the Notes to the
Consolidated Financial Statements and the Management's Discussion and Analysis
of Financial Condition and Results of 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:

o loss of liquidity due to the arbitration panel's opinion in
RadioShack Corporation v. O'Sullivan Industries Holdings, Inc.;

o significant indebtedness that may limit our financial and
operational flexibility;

o changes from anticipated levels of sales, whether due to future
national or regional economic and competitive conditions,
including new domestic or foreign entrants into the industry,
customer acceptance of existing and new products, terrorist
attacks or otherwise, as we are experiencing now;

o pricing pressures due to excess capacity in the ready-to-assemble
furniture industry, as occurred in 1995 and is occurring again
now, or customer demand in excess of our ability to supply
product;

o raw material cost increases, particularly in particleboard and
fiberboard, as occurred in 1994 and 1995 and to a lesser extent
in fiscal 2000;

o transportation cost increases, due to higher fuel costs or
otherwise;

o 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 Montgomery Ward in fiscal
2001, the liquidation of Ames in 2002 and with the reorganization
of Service Merchandise Co., Inc. in 2000;

o actions of current or new competitors, foreign or domestic, that
increase competition with our products or prices;

o the consolidation of manufacturers in the ready-to-assemble
furniture industry;

o increased advertising costs associated with promotional efforts;

o increased interest rates;

o pending or new litigation or governmental regulations such as the
recently settled arbitration involving RadioShack;

o other uncertainties which are difficult to predict or beyond our
control; and

22

o 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, 2002.

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 impacted by changes in interest rates, foreign
currency exchange rates and certain commodity prices. Pursuant to our policies,
we may use natural hedging techniques and derivative financial instruments to
reduce the impact of adverse changes in market prices. We do not hold or issue
derivative instruments for trading purposes. A change in interest rates of one
percentage point would affect our cash interest expense by about $600,000 per
year.

We have market risk in interest rate exposure, primarily in the United
States. We manage interest rate exposure through our mix of fixed and floating
rate debt. Interest rate swaps or collars may be used to adjust interest rate
exposures when appropriate based on market conditions. For qualifying hedges,
the interest differential of swaps is included in interest expense. We believe
that our foreign exchange risk is not material.

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 price exposures primarily through the duration and
terms of our vendor contracts. A one percent change in our raw material prices
would affect our cost of sales by approximately $1.7 million annually.

As noted above, in fiscal 2000 we encountered price increases in
certain commodities, which reduced our gross margin. During fiscal 2001, prices
for these products declined, which helped gross margins. Prices for these and
other commodities will continue to fluctuate.

ITEM 4. CONTROLS AND PROCEDURES.

O'Sullivan maintains disclosure controls and procedures (as defined in
Rule 13a-14(c) 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. 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.

Within 90 days prior to the date of 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

23

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.

There have been no significant changes in O'Sullivan's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date O'Sullivan completed its evaluation. Therefore,
no corrective actions were taken.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On September 24, 2002, Montgomery Ward, LLC, et al., Debtor in
Possession, filed suit against O'Sullivan in the United States Bankruptcy Court,
District of Delaware, alleging that payments made by Montgomery Ward within 90
days prior to its bankruptcy constituted preferential transfers under the
Bankruptcy Code that should be recovered from O'Sullivan by Montgomery Ward,
together with interest. The alleged payments aggregate $3.7 million. We received
the summons in this action on October 29, 2002.

O'Sullivan plans to defend itself vigorously in this matter and is
carefully reviewing its defenses.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

A list of exhibits required to be filed as part of this Report is set
forth in the Index to Exhibits, which immediately precedes such exhibits, and is
incorporated herein by reference.

(b) Reports on Form 8-K:

none

24

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, INC.

Date: November 13, 2002 By: /s/ Richard D. Davidson
------------------------------------
Richard D. Davidson
President and
Chief Executive Officer

Date: November 13, 2002 By: /s/ Phillip J. Pacey
------------------------------------
Phillip J. Pacey
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)

25

CERTIFICATION

I, Richard D. Davidson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of O'Sullivan Industries,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ Richard D. Davidson
-------------------------------------
Richard D. Davidson
President and Chief Executive Officer

26

CERTIFICATION

I, Phillip J. Pacey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of O'Sullivan Industries,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ Phillip J. Pacey
-------------------------
Phillip J. Pacey
Senior Vice President and
Chief Financial Officer

27

INDEX TO EXHIBITS