<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________to____________________
Commission file number 1-8884
------------------------------
BUSH INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-0837346
- ------------------------------------- ---------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Mason Drive, Jamestown, New York 14702
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (716) 665-2000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Class A Common Stock New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 27, 1996, 9,425,756 Shares of Class A Common Stock were
outstanding and the aggregate market value (based on the closing price on the
New York Stock Exchange on December 27, 1996 which was $19.875 per share) of the
Class A Common Stock held by non-affiliates was approximately $147,365,000. As
of December 27, 1996, 3,855,365 Shares of Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on May 1, 1997 are incorporated by
reference into Part III hereof. Certain exhibits listed in Part IV of this
Annual Report on Form 10-K are incorporated by reference from prior filings made
by the Registrant under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934.
2
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PART I
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ITEM 1. BUSINESS
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(a) GENERAL DEVELOPMENT OF BUSINESS
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Bush Industries, Inc. and its subsidiaries (the "Company" or the
"Registrant") is primarily engaged in the design, manufacture and sale of ready-
to-assemble ("RTA") furniture products for business and consumer use. The
Company was incorporated under the laws of the State of Delaware on February 5,
1985. The Company was a successor to a corporation of the same name
incorporated under the laws of the State of New York in 1959. The Company's
principal place of business is located at One Mason Drive, Jamestown, New York
14702 (716-665-2000).
In January 1994, the Company expanded its operations with the acquisition
of approximately 450,000 square feet of manufacturing and warehouse space in
Jamestown, New York. In 1995, the Company began the first phase of a two phase
expansion program which ultimately added a new approximately one million square-
foot manufacturing and distribution facility in Erie County, Pennsylvania, which
is about 50 miles west of the Company's main manufacturing complex in
Jamestown, New York. The first phase of this expansion, approximately 500,000
square feet, replaced the Company's leased distribution and warehouse facility
in Saybrook, Ohio in April 1996. Construction of the second phase of the
expansion program, for an additional approximately 500,000 square feet,
commenced in the second quarter of 1996 and was substantially completed in the
fourth quarter of 1996. Manufacturing capacity, incorporating newly developed
advanced technology, will be added incrementally to this facility as demand
requires, with the first equipment installation currently underway.
In 1996, the Company acquired 100% ownership of The ColorWorks, Inc., a
North Carolina corporation ("ColorWorks"). ColorWorks, a North Carolina based
finishing and decorating firm, holds the master license to the "HydroGraFix"
film processing technology in North and South America, portions of Central
Europe and South Africa. For the Company's fiscal year ended December 28, 1996,
the total net sales and the total assets of ColorWorks were approximately 3% and
6% of the Company's consolidated total net sales and total assets, respectively.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
For financial information reporting purposes, the Company may be deemed to
engage in one industry segment, the design, manufacture and sale of ready-to-
assemble furniture products.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
The Company is engaged primarily in the design, manufacture and sale of
ready-to assemble ("RTA") furniture products in various price ranges for both
business and consumer use. The Company's furniture product line includes
audio/video home entertainment centers, home theater furniture systems, audio
cabinets, television/VCR carts, room dividers, wall units, bookcases, bedroom
and kitchen/utility furniture, microwave carts, computer desks and workstations,
hutches, printer stands, double pedestal executive desks, credenzas, storage
armoires and file cabinets.
The Company's varied RTA furniture product line is designed for ease of
assembly, to ensure that such products can be readily assembled by following
simple, easy to read diagramed instructions, contained with each RTA product
sold. To enhance customer service, the Company maintains a toll free number to
assist consumers with any questions with respect to the assembly of any product.
In addition, the Company, through its wholly-owned subsidiary, ColorWorks,
is engaged in the finishing and decoration of various substrate materials. The
ColorWorks holds the master license to the "HydroGraFix" film processing
technology in North and South America, portions of Central Europe, and South
Africa. This process permits the decoration of a variety of geometric shapes,
including complex three-dimensional parts.
Marketing and Distribution
The Company's furniture products are marketed to a variety of retailers for
sale to both business and consumer end-users. The Company's customers include
national chains, electronic and computer superstores, catalog showrooms,
discount mass merchants, warehouse clubs, office supply superstores, office
furniture retailers, home furnishings retailers, department stores, home
improvement centers and independent wholesale distributors. The Company's
furniture products are sold both through independent manufacturers'
representatives and directly by the Company's sales personnel. The Company's
furniture products are currently sold to approximately 800 customers, and the
Company estimates that its products are currently carried in approximately
15,000 retail outlets.
ColorWorks offers finishing and decorating processing services to
manufacturers and end-users of various products. ColorWorks either provides
such services directly or sublicenses the "HydroGraFix" film processing
technology to third parties in varying fields of application and/or geographic
areas.
Sources and Availability of Raw Materials
The Company purchases the raw materials used in the manufacture of its
furniture product lines from various sources located throughout the United
States and abroad. The Company believes that none of the materials required for
its furniture manufacturing operations are proprietary in nature and that an
adequate supply of raw materials is available from multiple sources.
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Trademarks and Design Patents
The Company either owns or has applied for various trade names and
trademarks in the United States and abroad, for use with its furniture product
lines. The Company believes that its trade names and trademarks are well
recognized within the furniture industry. The Company also believes that the
loss of any trade name and/or trademark would not have a material adverse effect
on its business operations.
In addition, the Company owns a variety of patents with respect to the
design and manufacture of certain furniture products. The Company believes that
the loss of any of its patents would not have a material adverse effect on its
business. The Company also relies on trade secrets and confidentiality to
protect the proprietary nature of its technology.
Seasonality
The nature of the business in which the Company is engaged is not seasonal.
Working Capital Practices
The Company engages in no unusual practices regarding inventories,
receivables or other items of working capital.
Customers
For the fiscal year ended December 28, 1996, the Company had one customer
which accounted for approximately 15% of the Company's total gross sales and
another customer which accounted for approximately 12% of the Company's total
gross sales. No other single customer accounted for more than 10% of the
Company's total gross sales. While the loss of any substantial customer could
have a material short-term impact on the Company's business, the Company
believes that its diverse furniture distribution channels would minimize the
long-term impact of any such loss.
Backlog
The Company believes that order backlog at any particular point in time is
not predictive of future sales performance since, as is standard in the
furniture industry, a customer may cancel a product order prior to shipment
without penalty. The Company has historically filled orders within
approximately one to three weeks of the receipt of a purchase order.
Government Contracts
No material portion of the Company's business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
Government.
Competition
The Company believes that, based on information reported in furniture trade
publications, it is the third largest United States-based manufacturer of RTA
furniture products. The RTA furniture product market is highly competitive, and
includes numerous entities, some of which may have substantially greater
financial and marketing resources than the Company. The Company believes that
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the principal competitive factors in the RTA furniture industry marketplace are
price, quality, function, innovative product design, style, prompt delivery, and
the ability to offer customers a full product line. The Company's varied
product line is designed based on the foregoing factors to achieve customer
satisfaction and, accordingly, the Company believes that its products
effectively compete in such marketplace.
Environmental Compliance
Environmental aspects of the Company's business are regulated primarily by
federal and state laws and by the ordinances of the localities where the
Company's facilities are located. See Item 3, "Legal Proceedings", for
additional information regarding environmental compliance.
Employees
As of December 28, 1996, the Company employed a total of approximately
2,070 employees. There are no collective bargaining agreements covering any of
the Company's employees. The Company believes it has good employee relations.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
----------------------------------------------------------------
EXPORT SALES
------------
For the 1996 fiscal year ended December 28, 1996, the Company generated
domestic sales of approximately $245,158,000 (or approximately 95.6% of total
sales) and foreign sales of approximately $11,174,000 (or approximately 4.4% of
total sales). For the 1995 fiscal year ended December 30, 1995 and the 1994
fiscal year ended December 31, 1994, the Company generated domestic sales of
approximately $209,274,000 and $203,280,000, respectively (or approximately
95.1% of total sales for the 1995 fiscal year and approximately 95.3% of total
sales for the 1994 fiscal year). Foreign sales for the fiscal years ended
December 30, 1995 and December 31, 1994, respectively, were approximately
$10,740,000 and $9,936,000 (or approximately 4.9% of total sales for the 1995
fiscal year and approximately 4.7% of total sales for the 1994 fiscal year.)
6
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ITEM 2. PROPERTIES
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The following table summarizes the Company's existing facilities as of
March 1, 1997:
<TABLE>
<CAPTION>
Approximate
Principal Character Square Owned/Leased
and Use of Property Location Footage (Lease Expiration Date)
------------------- -------- ----------- -----------------------
<S> <C> <C> <C>
Manufacturing, warehouse
and corporate office Mason Drive
facilities Jamestown, NY 440,000 Owned (1)
Manufacturing and Tiffany Street
warehouse facility Jamestown, NY 145,000 Owned (1)
Manufacturing and Allen Street
warehouse facility Jamestown, NY 450,000 Owned
Manufacturing facility Little Valley, NY 78,000 Owned
Manufacturing and
warehouse facility Erie, PA 1,035,000 Owned (2)
Manufacturing facility Greensboro, NC 67,000 Owned
Manufacturing facility Rutherfordton, NC 26,000 Owned
Regional service center Erie, PA 8,000 Leased (June 2001)
Regional service center Oxnard, CA 8,000 Leased (July 2001)
Regional service center Fort Pierce, FL 6,000 Leased (August 2001)
Sub-leased (3) Rancho Cucamonga, CA 50,000 Leased (June 1997) (3)
Manufacturing facility Tijuana, Mexico 88,000 Leased (December 1998)
Manufacturing facility Greensboro, NC 152,000 Leased (December 1997)
Office facility Marietta, GA 1,000 Leased (November 1997)
Sales office and
design studio Ft. Myers, FL 4,000 Leased (February 2002)
Showroom High Point, NC 13,000 Leased (April 2002)
- ---------------------------------
</TABLE>
(1) Legal title to the facility is in the County of Chautauqua Industrial
Development Agency in accordance with the terms of financing for the
facility.
(2) Legal title to the facility is in EIDCO, Inc. in accordance with the terms
of low interest financing being provided by the Commonwealth of
Pennsylvania.
(3) This facility is no longer utilized by the Company and has been sub-leased
to a third party through the end of the lease term.
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ITEM 3. LEGAL PROCEEDINGS
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In November 1995, the Company was notified by the New York State Department
of Environmental Conservation ("DEC") of an alleged violation of a certain
environmental regulation concerning the presence of contaminates in the
groundwater, including trichloroethene ("TCE"), beneath the Company's plant
located in Little Valley, New York. Based on available data, the Company
believes that there is no conclusive evidence that its plant is the source of
such contamination, nor has the Company ever used TCE in its manufacturing
operations. The Company has proposed to the DEC in a "Statement of Work",
certain monitoring and testing procedures to be undertaken by the Company to
obtain more reliable data as to the source of the TCE contamination. Such
Statement of Work, if acceptable to the DEC, may form the basis of an Order On
Consent with the DEC with respect to those measures to be undertaken by the
Company. As of the date hereof, the DEC is still reviewing the Company's
proposed "Statement of Work." On June 17, 1996, an approximate five-mile long
area in Little Valley, New York was added to the federal Superfund national
priorities list, and with respect thereto, no potentially responsible parties
have been identified as of the date hereof. In December 1996 the Company
responded to a request for information from the United States Environmental
Protection Agency (the "EPA"), relating to the Company's Little Valley, New York
property. No assurance can be given that the Company's response will be
sufficient for the EPA, or that the EPA will not pursue further inquiries.
Although no assurance can be given, the Company believes that its financial
statements will not be materially adversely affected by the foregoing.
The Company has also become aware of the possible presence of certain
levels of contaminates on the Greensboro, North Carolina property owned by
ColorWorks, of which the Company became the sole stockholder in September 1996.
The Company has been indemnified to a certain extent by the former shareholders
of ColorWorks, and has procured a $20,000,000 environmental insurance policy
relating thereto. In the unlikely event any such environmental costs are not
covered by such indemnification or insurance, the Company may be responsible for
certain costs. However, based on an initial assessment of the situation, the
Company believes, although no assurance can be given, that the Company's
financial statements will not be materially adversely affected by the foregoing.
As of December 28, 1996, the Company is a party to various other legal
proceedings arising in the ordinary course of business. The Company believes
that these pending actions would not materially adversely affect the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 28, 1996.
8
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -----------------------------------------------------
STOCKHOLDER MATTERS
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(a) Market Information. The Company's Class A Common Stock is traded on
------------------
the New York Stock Exchange. The Company's Class B Common Stock is not publicly
traded.
The following table sets forth the high and low sales prices of the
Company's Class A Common Stock, as reported on the New York Stock Exchange for
the periods indicated, and as adjusted to reflect the June 28, 1996 stock split
effectuated in the form of a fifty percent dividend and the January 20, 1995
stock split effectuated in the form of a twenty-five percent dividend:
<TABLE>
<CAPTION>
Quarter High Low
- ----------------------------------- ------ ------
<S> <C> <C>
January 1, 1995 - March 31, 1995 $11.13 $ 6.75
April 1, 1995 - June 30, 1995 $ 8.50 $ 7.08
July 1, 1995 - September 30, 1995 $ 9.75 $ 7.33
October 1, 1995 - December 31, 1995 $13.25 $ 9.50
January 1, 1996 - March 31, 1996 $17.00 $12.17
April 1, 1996 - June 30, 1996 $24.25 $16.00
July 1, 1996 - September 30, 1996 $24.38 $15.75
October 1, 1996 - December 31, 1996 $20.25 $15.88
</TABLE>
(b) Holders. As of March 1, 1997, the number of holders of record of the
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Company's Class A Common Stock was approximately 430. The Company believes that
there are approximately an additional 2,700 holders who own shares of the
Company's Class A Common Stock in street name. As of the same date, there were
approximately 12 holders of record of the Company's Class B Common Stock.
(c) Dividends. The Company instituted a quarterly cash dividend for
---------
holders of Class A and Class B Common Stock during the fourth quarter of 1992.
Dividends have been declared and paid for each succeeding quarter. The Company
declared cash dividends of $0.017 per share, after taking into account the June
28, 1996 stock split effectuated in the form of a fifty percent dividend, for
each of the first two quarters of 1996 and a dividend of $0.035 per share for
each of the last two quarters of 1996.
Although the Company intends to declare cash dividends on a quarterly
basis in the future, the determination as to the payment and the amount of cash
dividends will depend upon the Company's then current financial condition,
capital requirements, results of operations and other factors deemed relevant by
the Company's Board of Directors. In addition, a certain loan agreement to
which the Company is a party limits the amount of cash dividends that the
Company can declare, and also imposes certain conditions with respect thereto.
The Company's Certificate of
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Incorporation, as amended, also provides that any dividends paid on Class A
Common Stock must be at least equal to the dividends paid on the Company's Class
B Common Stock on a per share basis. Moreover, no dividend may be paid to Class
B stockholders without first being paid to Class A stockholders.
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ITEM 6. SELECTED FINANCIAL DATA
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The following selected financial data of the Company for the 1992 through
1996 fiscal years has been derived from the Consolidated Financial Statements of
the Company. This selected financial data should be read in conjunction with
the Consolidated Financial Statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
(In Thousands, except share and per share data)
---------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings Data (1)
- ----------------------
Net Sales............. $ 256,332 $ 220,014 $ 213,216 $ 170,285 $ 127,990
Earnings Before
Income Taxes.......... $ 29,344 $ 20,744 $ 19,842 $ 11,908 $ 4,569
Net Earnings.......... $ 18,487 $ 12,550 $ 12,004 $ 7,145 $ 2,771
Earnings Per Share
Primary.......... $ 1.31 $ 0.95 $ 0.86 $ 0.55 $ 0.21
Fully Diluted.... $ 1.30 $ 0.91 $ 0.86 $ 0.55 $ 0.21
Number of Weighted
Average Class A and
Class B Shares
Outstanding
Primary.......... 14,073,381 13,270,543 14,012,071 13,021,512 13,041,012
Fully Diluted.... 14,168,691 13,841,191 14,012,071 13,045,116 13,042,845
Balance Sheet Data
- ----------------------
Working Capital....... $ 28,213 $ 24,018 $ 34,421 $ 26,903 $ 23,634
Total Assets.......... $ 152,464 $ 102,606 $ 100,958 $ 83,522 $ 72,161
Long-term Debt........ $ 36,339 $ 15,031 $ 16,774 $ 16,108 $ 18,809
Stockholders' Equity.. $ 84,317 $ 59,113 $ 52,265 $ 39,938 $ 31,852
</TABLE>
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(1) Earnings per share and the number of weighted average Class A and Class B
Shares of Common Stock outstanding have been adjusted to reflect the 3-for-
2 stock split effectuated in the form of a fifty percent dividend paid on
June 28, 1996 to stockholders of record as of June 14, 1996, the 5-for-4
stock split effectuated in the form of a twenty-five percent dividend paid
on January 20, 1995 to stockholders of record as of January 6, 1995, and
the 3-for-2 stock split effectuated in the form of a fifty percent dividend
paid on January 7, 1994 to stockholders of record as of December 20, 1993.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
General
The ready-to-assemble (RTA) furniture market has experienced significant
growth over the past several years and has emerged as a key component of the
overall U.S. home furnishings industry. The growing popularity and acceptance of
RTA furniture products at both the retail and consumer levels are the result, in
the opinion of the Company, of basic structural changes in the retail channels
of distribution and increased demand engendered by fundamental demographic
trends.
In recent years, the Company has committed substantial resources to the
development and implementation of a diversified sales, marketing, and product
strategy in order to capitalize on growth opportunities presented by emerging
retail channels of distribution and changes in consumer demographics and
preferences. Accordingly, the Company has structured its business to offer a
wide variety of RTA furniture products through increasingly popular retail
distribution channels, including electronics superstores, office superstores,
discount mass merchants, home improvement centers, home furnishings retailers,
and export sales. The Company continues to strive towards building long-term
relationships with quality retailers in existing and emerging high-growth
distribution channels to develop and sustain its future growth.
In 1996, the Company acquired all of the outstanding capital stock of The
ColorWorks, Inc. ("ColorWorks"), a North Carolina based finishing and decorating
firm. ColorWorks holds the master license to the "HydroGraFix" film processing
technology in North and South America, portions of Central Europe and South
Africa. For the Company's fiscal year ended December 28, 1996, the total net
sales and the total assets of ColorWorks were approximately 3% and 6% of the
Company's consolidated total net sales and total assets, respectively.
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements
which involve risks and uncertainties, including, but not limited to, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
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Results of Operations
The following table shows the percentage of certain items included in the
Consolidated Statements of Earnings relative to net sales for the fiscal years
indicated:
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 68.8% 70.1% 70.5%
---- ---- ----
Gross Profit 31.2% 29.9% 29.5%
Selling, General and Administrative Expenses 18.9% 19.6% 19.3%
---- ---- ----
Operating Income 12.3% 10.3% 10.2%
Interest Expense 0.8% 0.9% 0.9%
---- --- ---
Earnings Before Income Taxes 11.5% 9.4% 9.3%
Income Taxes 4.3% 3.7% 3.7%
--- --- ---
Net Earnings 7.2% 5.7% 5.6%
=== === ===
</TABLE>
The following paragraphs provide an analysis of the changes in net sales,
selected cost and expense items, and earnings for fiscal years 1994 through
1996. All earnings per share data have been retroactively adjusted to reflect
the 3-for-2 stock split effectuated in the form of a fifty percent dividend paid
on June 28, 1996 to stockholders of record as of June 14, 1996, the 5-for-4
stock split effectuated in the form of a twenty-five percent dividend paid on
January 20, 1995 to stockholders of record as of January 6, 1995 and the 3-for-2
stock split effectuated in the form of a fifty percent dividend paid on January
7, 1994 to stockholders of record as of December 20, 1993.
Results of Operations: Fiscal 1996 Compared to Fiscal 1995
The Company's net sales for the 1996 fiscal year compared to the 1995
fiscal year increased $36,318,000, or approximately 16.5%, to a record
$256,332,000. The increase in net sales was attributable to a number of
factors, including the growing market acceptance for ready-to-assemble furniture
products at both the retail and consumer levels, strong sales in the office
superstores and consumer electronics distribution channels, strong new product
acceptance by many retailers, an improvement in the overall retail climate, as
compared to the first half of the 1995 fiscal year, and a better balanced
inventory position at several key accounts as compared to the first half of the
1995 fiscal year.
The cost of sales increased by $22,084,000 in 1996 primarily as a result of
higher sales volumes. The cost of sales as an approximate percentage of net
sales decreased by 1.3% from 70.1% in 1995 to 68.8% in 1996. Lower raw material
costs and increased production volume (which results in better absorption of
manufacturing overhead) resulted in lower cost of sales as a percentage of net
sales.
For 1996, selling, general and administrative expenses increased by
$5,425,000 compared to 1995. The increase in selling, general and administrative
expenses was primarily a result of
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increased variable selling expenses (such as commissions, marketing and
promotional incentives) and other administrative costs associated with the
Company's higher sales volumes. Selling, general and administrative expenses
decreased as an approximate percentage of net sales from 19.6% in 1995 to 18.9%
in 1996.
Interest expense increased to $2,131,000 (or approximately 0.8% of net
sales) from $1,922,000 (or approximately 0.9% of net sales). The increase in
interest resulted from an increase in average long-term debt which was partially
offset by a refinancing of the Company's debt on July 26, 1995, and low interest
financing (3.0%) from the Commonwealth of Pennsylvania, as described below. As
a result of the refinancing, the applicable margin on LIBOR based borrowings was
lowered and, with the exception of the Industrial Development Revenue Bonds,
substantially all other then existing long-term debt (with generally higher
interest rates), was refinanced in 1995. The Company's overall effective
federal, state and local tax rate decreased from 39.5% to 37.0%. The exercise
of stock options during 1996 resulted in a tax benefit amounting to $772,000,
which has been credited directly to paid-in capital and is not reflected in
1996's provision for taxes. The Company has no material post-retirement or
post-employment benefits as defined in SFAS No. 106, "Employers' Accounting for
Postretirement Other than Pensions", and SFAS No. 112, "Employers' Accounting
for Postemployment Benefits".
For 1996, the Company generated net earnings after taxes of $18,487,000 (or
$1.31 primary earnings per share, $1.30 fully diluted earnings per share), as
compared to $12,550,000 (or $0.95 primary earnings per share and $0.91 fully
diluted earnings per share) for 1995. This was an approximate 47.3% increase
in net earnings. The increase in net earnings is primarily due to increased
sales.
Results of Operations: Fiscal 1995 Compared to Fiscal 1994
The Company's net sales for the 1995 fiscal year compared to the 1994
fiscal year increased $6,798,000, or approximately 3.2%, to $220,014,000. Sales
in the first half of 1995 were lower than sales in the first half of 1994 and
reflected the widely reported general softness at the retail level and a
temporary over-inventory position at several key accounts. Sales in the second
half of 1995 were higher than the second half of 1994 and the first half of
1995, and resulted from strong new product acceptance by many customers, an
improvement in the overall retail climate as compared to the first half of the
1995 fiscal year and a better balanced inventory position at the same several
key accounts. The strength of the second half sales in 1995 more than offset the
slower first half sales for 1995.
The cost of sales increased $3,960,000 in 1995 primarily as a result of
higher sales volumes. The cost of sales as an approximate percentage of net
sales decreased by 0.4% from 70.5% in 1994 to 70.1% in 1995 and correspondingly,
gross profit as an approximate percentage of net sales increased by 0.4% to
29.9% in 1995 from 29.5% in 1994. In 1995, improved manufacturing performance
and increased production volume (which results in better absorption of
manufacturing overhead) were instrumental in lowering cost of sales as a
percentage of net sales.
For 1995, selling, general and administrative expenses increased by
$1,919,000 compared to
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1994. Selling, general and administrative expenses increased as an approximate
percentage of net sales, from 19.3% in 1994 to 19.6% in 1995. The increase in
selling, general and administrative expenses was primarily a result of increases
in distribution costs and other operating expenses.
Interest expense of $1,922,000 in 1995 (or approximately 0.9% of net sales)
was almost unchanged from $1,905,000 (or approximately 0.9% of net sales) in
1994. The Company's overall effective federal, state and local tax rate
remained constant at 39.5%. The exercise of stock options during 1995 resulted
in a tax benefit amounting to $53,000, which has been credited directly to paid-
in capital and is not reflected in 1995's provision for taxes. The Company has
no material post-retirement or post-employment benefits as defined in SFAS No.
106, "Employers' Accounting for Postretirement Other than Pensions", and SFAS
No. 112, "Employers' Accounting for Postemployment Benefits".
For 1995, the Company generated net earnings after taxes of $12,550,000 (or
$.95 primary earnings per share, $.91 fully diluted earnings per share), as
compared to $12,004,000 (or $.86 both primary and fully diluted earnings per
share) for 1994. This was an approximate 4.5% increase in net earnings. The
increase in net earnings is primarily due to increased sales.
Liquidity and Capital Resources
On May 30, 1996, the Company acquired a majority equity interest in
ColorWorks for approximately $5.4 million, paid principally in Bush Industries,
Inc.'s Class A Common Stock. On September 25, 1996, the Company acquired the
remaining equity interest in ColorWorks (resulting in ColorWorks becoming a
wholly-owned subsidiary of the Company), for approximately $2.7 million, paid
principally in Bush Industries, Inc.'s Class A Common Stock. The acquisition
of ColorWorks has been accounted for using the purchase method of accounting and
accordingly, the financial statements of ColorWorks have been included in the
condensed consolidated financial statements of the Company since the May 30,
1996 acquisition.
Increased sales volume in 1996 and the consolidation of ColorWorks into the
financial statements of the Company resulted in working capital at year-end 1996
increasing by $4,195,000, as compared to working capital at year-end 1995. Such
increased working capital was due, in part, to an increase in inventories and
accounts receivable, and a decrease in income taxes payable. Partially
offsetting these factors was an increase in other accrued liabilities and
accounts payable. Total assets at year-end 1996 increased $49,858,000 over year-
end 1995, primarily as a result of an increase in net property, plant and
equipment (primarily due to the Company's investment in the Company's Erie, PA
facility and equipment), current assets, including inventory and accounts
receivable (as described above), and other assets (due to the intangible assets
recorded as the result of the ColorWorks acquisition). In addition, total
liabilities increased $24,654,000 at year-end 1996, due mostly to an increase in
long-term debt, other accrued liabilities and accounts payable, partially offset
by a decrease in income taxes payable.
The Company spent $35,640,000 on capital expenditures during 1996 which was
financed
15
<PAGE>
primarily with increased long-term debt and net cash flow from operating
activities. Capital expenditures for the 1996 fiscal year included the cost of
substantially completing the construction of the new manufacturing and
distribution facility located in Erie, Pennsylvania. The first phase of this
expansion, approximately 500,000 square feet, replaced the Company's leased
distribution and warehouse facility in Saybrook, Ohio in April 1996.
Construction of the second phase of the expansion program, for an additional
approximately 500,000 square feet, commenced in the second quarter of 1996 and
was substantially completed in the fourth quarter of 1996. Manufacturing
capacity, incorporating newly developed advanced technology, will be added
incrementally to this facility as demand requires, with the first equipment
installation currently underway. Capital expenditures in 1997 with respect to
the Company's existing facilities are currently forecasted to be approximately
$25 million. The Company believes that current unused balances available under
the existing credit agreements, along with net cash flow generated from
operating activities, will be adequate to fund these capital expenditures in
1997.
In 1996, the Company repurchased $1,488,000 of the Company's Class A Common
Stock, received $1,783,000 from the exercise of stock options by employees and
paid four quarterly dividends totaling $1,352,000 to its stockholders. The cash
dividends for each of the first two quarters of 1996 were $0.017 per share,
after taking into account the June 28, 1996 stock split effectuated in the form
of a fifty percent dividend, and $0.035 per share for each of the last two
quarters of 1996.
In 1996, the Company obtained low interest rate financing from the
Commonwealth of Pennsylvania in the aggregate principal amount of $4,500,000.
Such loan bears interest at the annual rate of 3%, and was used to partially
finance the first phase of the new Erie facility and to partially finance the
purchase of equipment. In addition, during the first quarter of 1997, the
Company secured low interest rate financing from the Commonwealth of
Pennsylvania in the aggregate principal amount of $2,000,000, which loan bears
interest at the annual rate of 3.75%, and which loan was used to partially
finance the second phase of the new Erie facility.
The Company has an unsecured $85,000,000 revolving credit facility, as
amended, with Mellon Bank, N.A. and other lending institutions. The loan is due
July 31, 2000 with a balloon payment of the then remaining principal and accrued
interest. The Company has classified all of this line of credit as long-term
debt, as there are no required principal payments due within the next 12 months.
At the Company's option, borrowings may be effectuated, subject to certain
conditions, on a base rate or Euro-Rate option. Base rate loans bear interest
at the prime rate as announced by Mellon Bank, N.A. from time to time, and Euro-
Rate loans bear interest at the then current LIBOR rate, plus an applicable
margin. The applicable margin, which pertains only to LIBOR rate loans, varies
from .50% to .95%, depending upon the Company's ability to satisfy certain
quarterly financial tests. In addition, the credit agreement permits the
Company to request the issuance of up to a maximum of $15,000,000 in letters of
credit, which issuance will be deemed part of the $85,000,000 maximum amount of
borrowing permitted under the unsecured credit facility.
The revolving credit facility agreement provides for achieving certain
ratios, including total
16
<PAGE>
funded debt (net of cash) to capital and total funded debt (net of cash) to
earnings before interest and tax ratios, prescribes minimum tangible net worth
requirements, limits capital expenditures and new leases and provides for
certain other affirmative and restrictive covenants. The Company is in
compliance with all of these requirements. The Company believes that current
unused balances available under the existing credit agreements, along with net
cash flow generated from operating activities, will be adequate to fund the
Company's current operations and capital expenditures with respect to its
existing facilities in 1997.
Inflation affects the Company's business principally in the form of cost
increases from materials and wages. Historically, the Company has generally
been able to offset these cost increases by improved productivity, cost and
waste reduction, more effective purchasing practices, and to a lesser extent,
price increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
17
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held on May 1, 1997, under the caption, "Election of Directors",
to be filed by the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by Item 11 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held on May 1, 1997, under the caption, "Executive
Compensation", to be filed by the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by Item 12 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held on May 1, 1997, under the caption, "Security Ownership of
Management and Principal Stockholders", to be filed by the Registrant.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
- -------- ---------------------------------------------
The information required by Item 13 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held on May 1, 1997, under the caption "Certain Transactions",
to be filed by the Registrant.
18
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- -------- --------------------------------------------
REPORTS ON FORM 8-K
-------------------
(A) The consolidated balance sheets as of December 28, 1996 and December 30,
1995 and the related consolidated statements of earnings, stockholders'
equity, cash flows and financial statement schedule for each of the three
years in the period ended December 28, 1996 are filed as part of this
report:
<TABLE>
<CAPTION>
(1) Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report...................... F-1
Consolidated Balance Sheets....................... F-2
Consolidated Statements of Earnings............... F-3
Consolidated Statements of Stockholders' Equity... F-4
Consolidated Statements of Cash Flows............. F-5
Notes to Consolidated Financial Statements........ F-6
<CAPTION>
(2) Consolidated Financial Statement Schedules
------------------------------------------
<S>............................................... <C>
Schedule II - Valuation and Qualifying Accounts... S-1
</TABLE>
All other schedules are omitted because they are not applicable, or not
required because the required information is included in the Consolidated
Financial Statements or notes thereto.
(3) Exhibits
--------
3.1 Certificate of Incorporation. (2)
3.2 Amendment to Certificate of Incorporation, dated June 30, 1994. (8)
3.3 Amendment to Certificate of Incorporation, dated July 9, 1993. (6)
3.4 By-Laws. (1)
10.1 The Registrant's 1985 Stock Plan, as amended. (6)
10.2 The Registrant's 1985 Incentive Stock Option Plan, as amended. (6)
10.3 Lease Agreement between County of Chautauqua Industrial Development Agency
and the Registrant dated January 1, 1990. (3)
19
<PAGE>
10.4 Lease Agreement between Rafael Carrillo-Barron and Bush Industries
de Mexico, S.A., DEC.V. and the Registrant dated May 20, 1991. (4)
10.5 Lease Agreement between 24 Mission Vista Partnership L.P. and the
Registrant dated October 1, 1991. (4)
10.6 Employment Agreement between the Registrant and Paul S. Bush dated July
29, 1992, as amended. (5)
10.7 Employment Agreement between the Registrant and Robert L. Ayres
dated July 29, 1992, as amended. (5)
10.8 Employment Agreement between the Registrant and Lewis H. Aronson
dated July 29, 1992, as amended. (5)
10.9 Employment Agreement between the Registrant and David G. Messinger dated
July 29, 1992, as amended. (5)
10.10 Employment Agreement between the Registrant and Donald F. Hauck dated
February 8, 1993. (5)
10.11 Second Supplemental Indenture of Trust between the County of Chautauqua
Industrial Development Agency and the Trustee, with the consent of Marine
Midland Bank, N.A., Mellon Bank, N.A. and the Registrant dated June 23,
1992. (5)
10.12 Split Dollar Insurance Agreements between the Registrant and Paul Bush
dated November 1, 1990 and March 15, 1991 and related Collateral
Assignment Agreements of same dates. (5)
10.13 Split Dollar Insurance Agreement between the Registrant and Robert L.
Ayres dated December 19, 1991 and related Collateral Assignment Agreement.
(5)
10.14 Split Dollar Insurance Agreement between the Registrant and Donald F.
Hauck dated June 29, 1992 and related Collateral Assignment Agreement. (5)
10.15 Performance Bonus Plan. (7)
10.16 Credit Agreement, dated as of July 26, 1995, by and among the Registrant,
as Borrower, the Lenders party thereto from time to time, the Issuing Bank
referred to therein, and Mellon Bank, N.A., as agent. (9)
20
<PAGE>
10.17 First Amendment to Credit Agreement dated September 1, 1995 by and among
the Registrant, as Borrower, the Lenders party thereto from time to time,
the Issuing Bank referred to therein, and Mellon Bank, N.A., as agent.
(10)
10.18 Second Amendment to Credit Agreement dated January 1, 1996 by and among
the Registrant, as Borrower, the Lenders party thereto from time to time,
the Issuing Bank referred to therein, and Mellon Bank, N.A., as agent.
(10)
10.19 Third Amendment to Credit Agreement dated September 27, 1996 by and among
the Registrant, as Borrower, the Lenders party thereto from time to time,
the Issuing Bank referred to therein, and Mellon Bank, N.A., as agent.
10.20 Fourth Amendment to Credit Agreement dated January 3, 1997 by and among
the Registrant, as Borrower, the Lenders party thereto from time to time,
the Issuing Bank referred to therein, and Mellon Bank, N.A., as agent.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, independent public auditors.
- ----------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 dated March 14, 1985 (File No. 2-96428).
(2) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 26, 1987.
(3) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1989.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993.
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994.
(7) Incorporated by reference to the Registrant's definitive Proxy Statement,
dated May 16, 1994.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(9) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed August 4, 1995.
(10) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995.
(B) Reports on Form 8-K. No Reports on Form 8-K were filed by the Registrant
-------------------
during the fourth quarter of the Registrant's fiscal year ended December
28, 1996.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bush Industries, Inc.
We have audited the accompanying consolidated balance sheets of Bush Industries,
Inc. and subsidiaries as of December 28, 1996 and December 30, 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 28, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14 (A)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries as of
December 28, 1996 and December 30, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 28,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
February 7, 1997
Buffalo, New York
F-1
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 28, 1996 AND DECEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,810 $ 2,929
Accounts receivable (less allowance for doubtful accounts of $2,036,000
on December 28, 1996 and $1,011,000 on December 30, 1995) 24,863 22,321
Inventories (Note 2) 26,300 21,582
Prepaid expenses and other current assets (Note 6) 4,141 3,697
--------- ---------
Total current assets 58,114 50,529
--------- ---------
PROPERTY, PLANT AND EQUIPMENT (Note 4):
Land 2,607 2,379
Building and improvements 48,711 29,228
Machinery and equipment 66,403 46,394
Transportation equipment 431 394
Office equipment 6,999 6,184
Leasehold improvements 1,104 1,216
--------- ---------
126,255 85,795
Accumulated depreciation 41,900 36,179
--------- ---------
84,355 49,616
--------- ---------
OTHER ASSETS 9,995 2,461
--------- ---------
TOTAL ASSETS $ 152,464 $ 102,606
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,377 $ 7,567
Income Taxes (Note 6) 1,017 2,124
Other accrued liabilities (Note 3) 18,844 16,419
Current portion of long-term debt (Note 4) 663 401
--------- ---------
Total current liabilities 29,901 26,511
DEFERRED INCOME TAXES (Note 6) 1,907 1,951
LONG-TERM DEBT (Note 4) 36,339 15,031
--------- ---------
Total liabilities 68,147 43,493
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (Notes 7 and 8):
Common Stock - Class A 965 629
Common Stock - Class B 386 257
Paid-in capital 12,311 7,146
Retained earnings 73,476 56,341
--------- ---------
87,138 64,373
Less: treasury stock 2,821 5,260
--------- ---------
Total stockholders' equity 84,317 59,113
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 152,464 $ 102,606
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, except share and per share data)
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 256,332 $ 220,014 $ 213,216
COSTS AND EXPENSES
Cost of sales 176,378 154,294 150,334
Selling, general and administrative 48,479 43,054 41,135
Interest expense 2,131 1,922 1,905
--------- ---------- ----------
226,988 199,270 193,374
EARNINGS BEFORE INCOME TAXES 29,344 20,744 19,842
INCOME TAXES (Note 6) 10,857 8,194 7,838
--------- ---------- ----------
NET INCOME $ 18,487 $ 12,550 $ 12,004
========= ========== ==========
EARNINGS PER SHARE (Note 7):
Primary $ 1.31 $ 0.95 $ 0.86
Fully diluted $ 1.30 $ 0.91 $ 0.86
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 7):
Primary 14,073,381 13,270,543 14,012,071
Fully diluted 14,168,691 13,841,191 14,012,071
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock - Par Value $.10
---------------------------------------
Class A Class B
--------------------------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 4,859,594 $ 486 2,176,203 $ 218 $6,269 $33,229
Conversion of Class B stock to Class A 120,000 12 (120,000) (12) - -
Exercise of stock options by employees 32,290 3 - - 179 -
Amortization of deferred compensation - - - - - -
Received from employees - - - - - -
Tax benefit from exercise of stock options
and vesting of restricted stock - - - - 443 -
Dividends declared - - - - - (565)
Net earnings - - - - - 12,004
Five-for-four stock split 1,252,826 125 514,044 51 (177) -
---------- ------ --------- ------ ------- -------
BALANCE, DECEMBER 31, 1994 6,264,710 626 2,570,247 257 6,714 44,668
Purchase of treasury stock - - - - - -
Exercise of stock options by employees 29,458 3 - - 379 -
Tax benefit from exercise of stock options - - - - 53 -
Dividends declared - - - - - (877)
Net earnings - - - - - 12,550
---------- ------ --------- ------ ------- -------
BALANCE, DECEMBER 30, 1995 6,294,168 629 2,570,247 257 7,146 56,341
Purchase of treasury stock - - - - - -
Issuance of shares for acquisitions - - - - 3,075 -
Three-for-two stock split 3,146,952 315 1,285,118 129 (444) -
Exercise of stock options by employees 209,601 21 - - 1,762 -
Tax benefit from exercise of stock options - - - - 772 -
Dividends declared - - - - - (1,352)
Net earnings - - - - - 18,487
---------- ------ --------- ------ ------- -------
BALANCE, DECEMBER 28, 1996 9,650,721 $ 965 3,855,365 $ 386 $12,311 $73,476
========== ====== ========= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Notes Receivable
and Deferred
Treasury stock Compensation
-------------------- related to
Shares Amount Common Stock
-------- -------- ----------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1994 - $ - $ 264
Conversion of Class B stock to Class A - - -
Exercise of stock options by employees - - -
Amortization of deferred compensation - - (120)
Received from employees - - (144)
Tax benefit from exercise of stock options
and vesting of restricted stock - - -
Dividends declared - - -
Net earnings - - -
Five-for-four stock split - - -
-------- -------- --------
BALANCE, DECEMBER 31, 1994 - - -
Purchase of treasury stock 320,000 5,260 -
Exercise of stock options by employees - - -
Tax benefit from exercise of stock options - - -
Dividends declared - - -
Net earnings - - -
-------- -------- --------
BALANCE, DECEMBER 30, 1995 320,000 5,260 -
Purchase of treasury stock 83,032 1,488 -
Issuance of shares for acquisitions (338,067) (3,927) -
Three-for-two stock split 160,000 - -
Exercise of stock options by employees - - -
Tax benefit from exercise of stock options - - -
Dividends declared - - -
Net earnings - - -
-------- -------- --------
BALANCE, DECEMBER 28, 1996 224,965 $ 2,821 $ -
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $18,487 $12,550 $12,004
Adjustment to reconcile:
Depreciation and amortization 6,040 6,010 5,807
Deferred income taxes (195) (422) 549
Changes in assets and liabilities affecting cash flows:
Accounts receivable (720) 5,646 (9,203)
Inventories (3,695) 7,283 (8,595)
Prepaid expenses and other current assets (595) 403 (123)
Accounts payable (103) (1,864) 2,333
Income taxes 182 2,365 (547)
Other accrued liabilities 1,454 1,983 375
------- ------- -------
Net cash provided by operating activities 20,855 33,954 2,600
------- ------- -------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (35,640) (20,989) (10,851)
Investment in subsidiaries (827) 0 0
Increase in other assets (860) (852) (181)
------- ------- -------
Net cash used in investing activities (37,327) (21,841) (11,032)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (paydown) on line of credit 0 (2,595) 2,595
Repayments of long-term debt (3,379) (12,050) (3,886)
Proceeds from long-term debt 20,789 7,065 4,732
Purchase of Class A Stock for treasury (1,488) (5,260) 0
Exercise of stock options by employees 1,783 382 182
Dividends paid (per share - $.103 - 1996; $.067 - 1995;
.043 - 1994) (1,352) (877) (565)
Decrease in notes receivable 0 0 144
------- ------- -------
Net cash provided by (used in) financing activities 16,353 (13,335) 3,202
------- ------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (119) (1,222) (5,230)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,929 4,151 9,381
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR 2,810 2,929 4,151
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31 ,1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - The consolidated financial statements consist of Bush
Industries, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Business Segment - The Company's operations are conducted primarily in
one business segment - the design, manufacture and sale of RTA
(ready-to-assemble) furniture for the home and office. Revenues are
recognized when products are shipped. There are no material foreign
operations or export sales. Electronic and office product superstores
and mass merchandisers, throughout the United States, comprise a
significant portion of the Company's customer base. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Although the
Company's exposure to credit risk associated with nonpayment by mass
merchandisers is affected by conditions or occurrences within the retail
industry, the majority of trade receivables from mass merchandisers
were current at December 28, 1996. The Company has one customer that
accounted for total gross sales of approximately 15% in 1996, 14% in
1995 and 13% in 1994, and approximately 18% and 11% of accounts
receivable at December 28, 1996 and December 30, 1995, respectively. The
Company has a second customer that accounted for total gross sales of
approximately 12% in 1996, 9% in 1995 and 6% in 1994, and approximately
12% and 13% of accounts receivable at December 28, 1996 and December 30,
1995, respectively. The majority of the Company's sales and the related
accounts receivable for all years presented are to mass merchandisers
and discount retailers.
Inventories - Inventories, consisting of raw materials, work-in-progress
and finished goods, have been stated at the lower of cost or market as
determined by the first-in, first-out method.
Property, Plant and Equipment - Property, plant and equipment is carried
at cost. Depreciation is computed by the straight-line method over the
estimated useful lives of the assets, which are as follows: buildings
and improvements 10-50 years; machinery and equipment 3-15 years;
transportation equipment 3-7 years; office equipment 3-10 years; and
leasehold improvements 3-10 years. Construction of building and
equipment in progress is recorded in property, plant and equipment and
amounted to $23,121,000 and $14,226,000 at December 28, 1996 and
December 30, 1995, respectively. Interest associated with construction
indebtedness is capitalized. Interest amounting to approximately
$252,000 and $150,000 associated with construction in process was
capitalized for 1996 and 1995, respectively.
The cost of repairs and maintenance is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or sale of an
asset, its cost and related accumulated depreciation or amortization are
removed from the accounts and any gain or loss is recorded in income or
expense.
The Company continually reviews plant and equipment to determine that
the carrying values have not been impaired.
F-6
<PAGE>
Other Assets - Other assets consist primarily of goodwill, the cash
value of officer's life insurance policies and unamortized finance
costs. The Company continually reviews these assets to determine that
the carrying value has not been impaired.
Postretirement and Postemployment Benefits - The Company has no material
postretirement or postemployment benefits as defined in Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting
for Postretirement Other Than Pensions", or SFAS No. 112, "Employers'
Accounting for Postemployment Benefits".
Fair Value of Financial Instruments - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the
fair value of short-term instruments approximates their recorded values
due to the nature of the instruments. The fair value of long-term debt
instruments approximates their recorded values due primarily to their
recent issuance.
Stock-Based Compensation - The Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," effective December 31, 1995. As permitted
in that standard, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for employee
stock-based compensation. No employee stock-based compensation expense
was recorded for the years ended December 28, 1996, December 30, 1995
and December 31, 1994.
Income Taxes - Deferred taxes are recorded for temporary differences
between the financial statement and tax basis of assets and liabilities
using the anticipated tax rate when taxes are expected to be paid or
recovered.
Environmental Compliance - Environmental compliance expenditures that
relate to current operations are expensed or capitalized, as
appropriate. Expenditures that relate to an existing condition caused by
past operations and that do not contribute to current or future revenue
generations are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and costs can be
reasonably estimated.
Earnings Per Share - Earnings per share are based on the weighted
average number of shares of capital stock outstanding during the
respective years. Outstanding stock options have been considered in the
earnings per share calculation when their effect is dilutive.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of
revenues and expenses during the reported period and the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results
could differ from those estimates.
Financial Statement Year End - The Company's year end is the closest
Saturday to December 31.
F-7
<PAGE>
2. INVENTORIES
Inventories consist of the following
(in thousands):
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
<S> <C> <C>
Raw materials $ 6,313 $ 4,459
Work-in-progress 2,745 2,324
Finished goods 17,242 14,799
--------- ---------
Total $26,300 $21,582
========= =========
3. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of
(in thousands):
<CAPTION>
December 28, December 30,
1996 1995
<S> <C> <C>
Payroll, profit sharing $ 6,160 $ 5,538
and related liabilities
Commissions and sales 11,312 9,829
related expenses
Other 1,372 1,052
--------- ---------
Total $18,844 $16,419
========= =========
4. LONG-TERM DEBT
Long-term debt consists of (in
thousands):
December 28, December 30,
1996 1995
<S> <C> <C>
Revolving credit facility with first
contractual principal payment due
July 31, 2000 $31,243 $14,056
Industrial Development Revenue Bonds,
issued December 27, 1984, interest at
rate of short-term, tax exempt
obligations (TENR rate) plus 1/2% to
2%, depending on market. Future
principal payments due in quarterly
installments of $75,000 through
January 1, 2000. 975 1,275
Pennsylvania Industrial Development
Authority loan, issued October 3, 1996,
interest at a rate of 3%. Monthly
principal and interest payments of
$13,812 are due through 2011. 1,982 0
Pennsylvania Sunny Day Loan Fund loan,
issued June 27, 1996, interest at a rate
of 3%. Monthly principal and interest
payments of $13,812 are due through 2011. 1,956 0
Pennsylvania Machinery & Equipment Loan
Fund loan, issued November 6, 1996,
interest at a rate of 3%. Monthly
principal and interest payments of $6,707
are due through 2003. 500 0
Other 346 101
--------- ---------
Total debt 37,002 15,432
Less current portion 663 401
--------- ---------
Total long-term debt $36,339 $15,031
========= =========
</TABLE>
F-8
<PAGE>
The Company finances operations through a revolving credit facility with a
consortium of banks which is available through July 31, 2000. The maximum
loan available under this facility is $85,000,000, on an unsecured basis.
Interest is payable on the average daily balance of loans outstanding on a
base rate (8.25% at December 28, 1996) or euro rate (6.75% at December 28,
1996) option. As part of this revolving line, the Company may also issue
letters of credit, not to exceed $15,000,000, which issuance will be deemed
part of the $85,000,000 maximum amount of borrowing permitted. As of
December 28, 1996, letters of credit amounting to $5,334,000 were
outstanding.
The revolving credit facility provides for achieving total funded debt (net
of cash) to capital and total funded debt (net of cash) to earnings before
interest and tax ratios, prescribes minimum tangible net worth
requirements, limits capital expenditures and new leases and provides for
certain other affirmative and restrictive covenants. The Company is in
compliance with all these covenants as of December 28, 1996. The Company
classifies this facility as long-term because there are no contractual
requirements for repayment of principal until the year 2000.
The Industrial Development Revenue Bonds are supported by a $1,310,000
letter of credit (which is included in the total letters of credit
outstanding of $5,334,000 as discussed above) expiring June 1997. The bonds
are further collateralized by land, building and certain equipment acquired
with the proceeds.
A five-year summary of aggregate principal payments on outstanding long-
term debt is (in thousands):
<TABLE>
<S> <C>
1997 $ 663
1998 688
1999 694
2000 31,687
2001 317
Thereafter 2,953
--------
$ 37,002
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company has incurred rental expense for manufacturing and warehouse
space and transportation and other equipment. Certain real property leases
have renewal and purchase options. A summary of rent expense follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Real estate $ 1,374 $ 1,855 $ 1,737
Equipment 1,277 1,236 1,171
</TABLE>
Minimum future obligations over the next five years under all operating
leases are summarized as follows (in thousands):
<TABLE>
<S> <C>
1997 $3,005
1998 1,527
1999 765
2000 396
2001 82
</TABLE>
The Company is a party to various legal actions arising in the normal
course of business. The Company does not believe that any such pending
activities should have a material adverse effect on its financial
statements.
F-9
<PAGE>
6. INCOME TAXES
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 10,240 $ 7,698 $ 6,310
State 812 918 979
Deferred (195) (422) 549
--------- -------- --------
Total $10,857 $8,194 $7,838
========= ======== ========
The tax effects of the principal temporary differences resulting in
deferred taxes are as follows (in thousands):
1996 1995 1994
<S> <C> <C> <C>
Depreciation $ 410 $ 84 $ (179)
Accrued expenses (197) (369) 493
Accounts receivable and inventories (408) (137) 235
--------- -------- --------
Total $ (195) $ (422) $ 549
========= ======== ========
</TABLE>
The types and tax effects of temporary differences that cause
significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable $ 748 $ 373
Accrued expenses 1,807 1,596
Inventories 532 533
State investment tax credit
carryforward 3,428 2,242
Subsidiary net operating loss
carryforward 1,184 0
-------- --------
7,699 4,744
Deferred Tax Liabilities:
Property, plant and equipment (2,734) (2,044)
-------- --------
Subtotal 4,965 2,700
Total valuation allowance (4,638) (2,242)
-------- --------
Net deferred tax asset $ 327 $ 458
======== ========
1996 1995
Reported as:
Current asset (included in prepaid
expenses and other current assets) $ 2,234 $ 2,409
Long-term liability (1,907) (1,951)
-------- --------
Total net $ 327 $ 458
======== ========
</TABLE>
The Company has recorded a valuation allowance primarily in anticipation
that New York State investment tax credits and subsidiary net operating loss
carryforward will expire prior to their usage.
F-10
<PAGE>
The provision for income taxes differs in each of the years from the
federal statutory rate due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 35.0 % 35.0 % 35.0 %
State taxes 1.8 2.8 3.6
Effect of non-deductible costs 0.4 0.6 0.7
Other, net (0.2) 1.1 0.2
-------- ------- -------
Effective tax rate 37.0 % 39.5 % 39.5 %
======== ======= =======
</TABLE>
The Company realized tax benefits amounting to $772,000, $53,000 and
$443,000 as the result of restricted stock and stock option transactions
during 1996, 1995, and 1994, respectively. The benefit has been credited
to paid-in capital and is not reflected in the current year provision
for taxes.
7. CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000
shares of Class A Common Stock, $.10 par value, and 6,000,000 shares of
Class B Common Stock, $.10 par value. Dividends may be declared and paid
on Class A Common Stock without being paid on Class B Common Stock. No
dividend may be paid on Class B Common Stock without equal amounts paid
concurrently on Class A Common Stock. Holders of Class A Common Stock
have one-tenth vote per share and are entitled to elect at least 25% of
the Board of Directors as long as the number of outstanding shares of
Class A Common Stock is at least 10% of the total of all Common Stock
outstanding. Holders of Class B Common Stock have one vote per share.
On May 21, 1996, the Board of Directors declared a 3-for-2 stock split
payable in the form of a dividend to all holders of Class A and Class B
Common Stock of record on June 14, 1996, paid on June 28, 1996. All
earnings per share calculations and weighted average shares outstanding
have been retroactively restated to reflect the stock split.
On November 29, 1994, the Board of Directors declared a 5-for-4 stock
split payable in the form of a dividend to all holders of Class A and
Class B Common Stock of record on January 6, 1995, paid on January 20,
1995.
8. STOCK OPTION PLANS
The Company currently has one open stock option plan with 375,000 shares
of Class A Common Stock authorized for issuance subsequent to the 3-for-
2 stock split effective June 28, 1996. As of December 28, 1996, there
were 365,500 shares available for issuance under the plan. Incentive
Stock Options granted under the plan must have an option price of at
least 100% (110% for stockholders with more than 10% of the total
combined voting power) of the fair market value of the Class A Common
Stock on the date of the grant. The option price of the Non-Qualified
Stock Options granted pursuant to the plan shall be determined by the
Compensation Committee of the Board of Directors, in its sole
discretion. No option can be exercised within one year after the date of
grant.
As of December 28, 1996, there were options to purchase 880,215 shares
of Class A Common Stock under the current and prior plans at prices
ranging from $1.69 to $14.53 that could be exercised, as adjusted for
stock splits effectuated in the form of stock dividends.
F-11
<PAGE>
The following is a summary of option transactions:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Options outstanding, beginning
of year 1,363,248 1,463,019 52,571
Options granted 13,720 0 1,170,000
Options forfeited 0 (70,313) (19,872)
Options exercised (201,101) (29,458) (32,290)
Effect of stock splits (Note 7) 681,639 0 292,610
----------- ----------- -----------
Options outstanding, end of year 1,857,506 1,363,248 1,463,019
=========== =========== ===========
</TABLE>
All of the options outstanding expire at various dates from 1997 through
2006. The option price of the shares subject to options exercised in
1996 ranged from $1.51 to $8.91.
In addition to the options granted under the aforementioned plans, the
Company has outstanding 75,876 shares subject to non-qualifying options
granted to certain key individuals which can be exercised through 2003
at an exercise price of $8.91, as adjusted for stock splits effectuated
in the form of stock dividends.
Pro forma information regarding net income and earnings per common share
is required by SFAS No. 123 and has been determined as if the Company
had accounted for its employee stock options and awards under the fair
value method of that standard. The fair value of those options were
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for the year ended
December 28, 1996: a risk free interest rate of 6.3%; dividend yield of
.75%; volatility factors of the expected market price of the Company's
common stock of 43%; and a weighted-average expected life of 7 years.
There were no options granted in 1995.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings and primary earnings per common share
for the year ended December 28, 1996 were $18,482 and $1.30.
9. SAVINGS AND RETIREMENT PLAN
The Company has a profit sharing plan with both direct employer
contributions and a salary reduction feature under Section 40l(K).
Employer contributions can be paid in cash or in shares of Class A
Common Stock at the discretion of the Board of Directors. Total expense
related to the plan was $877,000, $722,000 and $688,000 for the years
ended December 28, 1996, December 30, 1995 and December 31, 1994,
respectively.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash paid during the years for:
Interest $ 2,579 $2,069 $1,827
Income taxes 10,389 6,251 7,835
</TABLE>
Summary of non-cash investing and financing activities:
In 1996, the Company acquired 100% of the stock of The ColorWorks, Inc.
(see Note 12) for 338,067 shares of treasury stock valued at
approximately $7,002,000 and equipment and other assets valued at
approximately $231,000.
F-12
<PAGE>
<TABLE>
<CAPTION>
11. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
(In Thousands, except per share data)
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C>
1996
Net sales $ 72,462 $ 63,638 $ 55,199 $ 65,033
Gross profit 22,163 19,205 18,278 20,308
Income taxes 2,944 2,338 2,570 3,005
Net earnings 5,431 3,979 4,276 4,801
Earnings per share - $ 0.38 $ 0.28 $ 0.30 $ 0.35
primary*
1995
Net sales $ 65,312 $ 59,521 $ 45,008 $ 50,173
Gross profit 19,928 17,487 13,415 14,890
Income taxes 3,209 2,056 1,208 1,721
Net earnings 4,913 3,156 1,848 2,633
Earnings per share - $ 0.36 $ 0.24 $ 0.14 $ 0.20
primary*
1994
Net sales $ 55,478 $ 55,273 $ 51,451 $ 51,014
Gross profit 16,046 16,251 15,187 15,398
Income taxes 2,118 2,031 1,858 1,831
Net earnings 3,258 3,133 2,868 2,745
Earnings per share - $ 0.23 $ 0.22 $ 0.20 $ 0.20
primary*
</TABLE>
* Restated for the 3-for-2 stock split declared May 21, 1996 and the 5-
for-4 stock split declared November 29, 1994.
12. ACQUISITION
During 1996, the Company acquired all of the outstanding stock of The
ColorWorks, Inc. (ColorWorks) for 338,067 shares of the Company's Class
A Common Stock, approximately $231,000 in equipment and other assets and
approximately $827,000 in cash. The acquisition was recorded under the
purchase method of accounting and accordingly, ColorWorks financial
statements are included in the accompanying consolidated financial
statements. The majority of the purchase price has been assigned to
goodwill which is being amortized over 15 years (see Note 1).
* * * * * *
F-13
<PAGE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Col. B
Balance at Col. D Col. E
Col. A Beginning Col. C Deductions - Balance at
Description of Period Additions Describe (1) End of Period
------------------------------------------
Charged to
Charged to Other Accounts -
Costs & Expenses Describe
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Fiscal 1996 $1,011 $1,022 $0 ($3) $2,036
Fiscal 1995 635 713 0 337 1,011
Fiscal 1994 732 (50) 0 47 635
</TABLE>
(1) Accounts written off, net of collections on accounts receivable previously
written off
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
BUSH INDUSTRIES, INC.
March 21, 1997 By /s/Paul S. Bush
--------------------
Paul S. Bush, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Paul S. Bush
- ------------------------
Paul S. Bush President, Chief
Executive Officer, and
Chairman of the Board
of Directors March 21, 1997
/s/Robert L. Ayres
- ------------------------
Robert L. Ayres Executive Vice President,
Chief Operating Officer,
Chief Financial Officer,
and Director March 21, 1997
/s/Lewis H. Aronson
- ------------------------
Lewis H. Aronson Senior Vice President of
International Business and
Corporate Development
and Director March 21, 1997
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Douglas S. Bush
- ------------------------
Douglas S. Bush Vice President of
Merchandising and
Director March 21, 1997
/s/Gregory P. Bush
- ------------------------
Gregory P. Bush Vice President of
Administration and
New Business Development
and Director March 21, 1997
/s/Donald F. Hauck
- ------------------------
Donald F. Hauck Senior Vice President
and Director March 21, 1997
/s/David G. Messinger
- ------------------------
David G. Messinger Senior Vice President of
Sales and Marketing and
Director March 21, 1997
/s/Paul A. Benke
- ------------------------
Paul A. Benke Director March 21, 1997
/s/Jerald D. Bidlack
- ------------------------
Jerald D. Bidlack Director March 21, 1997
/s/Robert E. Hallagan
- ------------------------
Robert E. Hallagan Director March 21, 1997
</TABLE>
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of September 27, 1996, by and among BUSH INDUSTRIES, INC., a Delaware
corporation (the "Borrower"), the Lenders party to the Credit Agreement
described below, the Issuing Bank referred to in the Credit Agreement described
below and MELLON BANK, N.A., a national banking association, as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Agent").
RECITALS:
A. The Borrower, the Lenders, the Issuing Bank and the Agent are
parties to that certain Credit Agreement dated as of July 26, 1995 (as amended
pursuant to that certain First Amendment to Credit Agreement dated as of
September 1, 1996 and that certain Second Amendment to Credit Agreement dated as
of January 1, 1996, the "Credit Agreement").
B. The Chase Manhattan Bank, a Lender under the Credit Agreement, and
Chemical Bank, a Lender under the Credit Agreement, have completed a merger
transaction. The surviving entity, The Chase Manhattan Bank, has ratified and
affirmed its obligations under, and remains a party to, the Credit Agreement,
both individually, and as successor to Chemical Bank and The Chase Manhattan
Bank, N.A.
C. The parties desire to make certain further amendments to the
Credit Agreement.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
Section 1. Certain Definitions. In addition to words and terms
--------- -------------------
defined elsewhere in this Amendment, capitalized terms used in this Amendment
and not otherwise defined herein have the meaning set forth in the Credit
Agreement.
Section 2. Amendments to Credit Agreement. The Credit Agreement is
--------- ------------------------------
hereby amended in the following respects:
(a) Section 1.01 Definitions. Section 1.01 of the Credit Agreement
------------------------
is hereby amended by adding the following definitions in the appropriate
alphabetical order:
"Bush PA Loans" shall have the meaning set forth in Section
7.05(i) hereof.
"Bush PA Note" shall have the meaning set forth in Section
7.05(i) hereof.
"DOC" shall mean the Department of Commerce of the Commonwealth
of Pennsylvania.
<PAGE>
"DOCED" shall mean the Department of Community and Economic
Development of the Commonwealth of Pennsylvania.
"EIDCO" shall mean EIDCO, Inc., a Pennsylvania corporation.
"Erie Project" shall mean the approximately 1 million square foot
facility being constructed by Bush PA and located at 2455 Robison Road, Erie,
Pennsylvania.
"Erie Project Financing" shall mean the up to $12,000,000 in
loans obtained, directly or indirectly, by Bush PA from PIDA, DOC, DOCED, and/or
MELF, including without limitation certain Sunny Day Loans, and used in
connection with the construction of, and/or purchase of equipment for, the Erie
Project.
"MELF" shall mean Machinery and Equipment Loan Fund.
"PIDA" shall mean the Pennsylvania Industrial Development
Authority.
"Significant Assets" shall mean all accounts receivable,
inventory, plant, property and equipment of Bush PA.
"Sunny Day Loan" shall mean any loan or other extension of credit
the proceeds of which are derived from a loan fund established by the
Commonwealth of Pennsylvania and administered by the DOCED or such other agency
or instrumentality of the Commonwealth of Pennsylvania.
"Trade-Related Accounts Payables" shall mean all Indebtedness of
Bush PA incurred by Bush PA in conducting its business, and owing to a third-
party trade creditor, in the ordinary course.
(b) Section 2.01(a). Section 2.01(a) is hereby amended by deleting
---------------
"$75,000,000" in the last sentence and inserting "$85,000,000" in its place,
such that the last sentence of Section 2.01(a) reads in its entirety as follows:
"The sum of the Revolving Credit Committed Amounts of the Lenders
shall not exceed $85,000,000 at any time."
(c) Section 2.02. Section 2.02 is hereby amended by deleting
------------
"0.8333333333333" in the first sentence and inserting "0.8529411764706" in its
place, such that the first sentence of Section 2.02 reads in its entirety as
follows:
"The Borrower shall pay to the Agent for the account of each
Lender a commitment fee (the "Revolving Credit Commitment Fee")
equal to 0.125% per annum (based on a year of 360 days and actual
days elapsed), for each day from and including the date hereof to
but not including the Revolving Credit Maturity Date, on the
amount (not less than zero) equal to (a) 0.8529411764706 times
-----
such Lender's Revolving Credit Committed Amount on each
2
<PAGE>
such day minus (b) the sum of (i) the aggregate principal amount
-----
of such Lender's Revolving Credit Loans outstanding on each such
day plus (ii) such Lender's Pro Rata share of the aggregate Letter
----
of Credit Exposure on each such day."
(d) New Section 7.01(d). Section 7.01 is hereby amended by adding a
-------------------
new subsection (d) after Section 7.01(c), which Section 7.01(d) reads in its
entirety as follows:
"(d) Percentage of Trade-Related Account Payables. The aggregate
--------------------------------------------
Trade-Related Account Payables of Bush PA at any time outstanding
shall not exceed at any time fifteen percent (15%) of the
aggregate value of the Significant Assets of Bush PA."
(e) Section 7.02(e). Section 7.02(e) is hereby amended to read in its
---------------
entirety as follows:
"(e) Liens on property of the Borrower or Bush PA to secure
Indebtedness of the Borrower or Bush PA permitted by Section
7.03(g) or Section 7.03(l) hereof; provided, that such liens are
--------
confined solely to the property purchased or financed by such
Indebtedness, improvements thereto and proceeds thereof."
(f) Section 7.03(g). Section 7.03(g) is hereby amended to read in its
---------------
entirety as follows:
"(g) Indebtedness for borrowed money incurred by the Borrower or
Bush PA from time to time and payable to a Governmental Authority
(other than the Erie Project Financing); provided, (i) that such
--------
Indebtedness enables the Borrower or Bush PA to obtain or utilize
favorable tax treatment or bears interest at a rate that is less
than interest rates generally available at such time in the
commercial market for comparable Indebtedness, and (ii) such
Indebtedness is on terms and conditions (other than applicable
interest rates) no more favorable to the holders thereof than are
applicable to the Lenders with respect to Indebtedness hereunder."
(g) Section 7.03(j). Section 7.03(j) is hereby amended by deleting
---------------
the word "and" after the semi-colon at the end of Section 7.03(j).
(h) Section 7.03(k). Section 7.03(k) is hereby amended by deleting
---------------
the period at the end of Section 7.03(k) and adding a semi-colon followed by the
word "and" in its place at the end of Section 7.03(k).
(i) New Section 7.03(l). Section 7.03 is hereby
-------------------
3
<PAGE>
amended by adding a new subsection (l) after Section 7.03(k), which Section
7.03(l) reads in its entirety as follows:
"(l) Indebtedness for borrowed money incurred, directly or
indirectly, by the Borrower or Bush PA constituting the Erie
Project Financing; provided, that the total amount of such
--------
Indebtedness shall not at any time exceed $12,000,000."
(j) Section 7.04(f). Section 7.04(f) is hereby amended by deleting
---------------
the period at the end of Section 7.04(f) and adding a semi-colon in its place at
the end of Section 7.04(f).
(k) New Sections 7.04(g), (h) and (i). Section 7.04 is hereby amended
---------------------------------
by adding new subsections (g) and (h) and redesignating prior subsection (g) as
new subsection (i), such that new subsections (g), (h) and (i) read in their
entirety as follows:
"(g) Guaranty Equivalents from time to time entered into by the
Borrower, provided that (i) in each case the Deemed Obligor is
Bush PA, (ii) in each case the Guaranty Equivalents are executed
in favor of the Commonwealth of Pennsylvania, or any duly
authorized political subdivision, agency, authority, bureau,
commission, department, or other instrumentality of the State of
Pennsylvania, and (iii) in each case the Assured Obligations of
Bush PA constitute liabilities for worker's compensation claims;
(h) Guaranty Equivalents from time to time entered into by
Borrower guaranteeing the obligations of Bush PA under the Erie
Project Financing; and
(i) Other Guaranty Equivalents from time to time entered into by
the Borrower, provided that the maximum aggregate potential
obligation of Borrower under Guaranty Equivalents described in
this Section 7.04(i) shall not at any time exceed $2,000,000."
(l) Section 7.05(h). Section 7.05(h) is hereby amended by deleting
---------------
the period at the end of Section 7.05(h) and replacing it with a semi-colon."
(m) Section 7.05(i). Section 7.05(i) is hereby amended to read in its
---------------
entirety as follows:
"(i) Loans from the Borrower to Bush PA ("Bush PA Loans"),
provided that (i) the Bush PA Loans shall be evidenced by a single
demand note (the "Bush PA Note"), and (ii) the Bush PA Note shall
be assigned by the Borrower to the Agent for the benefit of the
Lenders; and"
(n) New Section 7.05(j). Section 7.05 is hereby amended by adding new
-------------------
subsection (j) after Section 7.05(i), which Section 7.05(j) reads in its
entirety as follows:
4
<PAGE>
"(j) Loans from the Borrower to its Subsidiaries set forth in
Schedule 7.05(j) attached hereto and made a part hereof, such
Subsidiaries being Subsidiaries of Borrower that are not
Significant Subsidiaries of Borrower as of August 24, 1996,
provided that the aggregate amount of all such Loans at any time
outstanding shall not exceed $15,000,000, and provided further
that no such Loans shall be permitted to be made to any such
Subsidiary under this Section 7.05(j) after such Subsidiary
becomes a Significant Subsidiary of Borrower."
(o) Section 7.07. Section 7.07 is hereby amended by adding the
------------
following at the end of Section 7.07:
"Notwithstanding the foregoing, Bush PA shall be permitted to
enter into a sale-leaseback transaction in which it may deed the
Erie Project to EIDCO and enter into a lease-purchase or similar
agreement with EIDCO to lease back such property; provided, that
--------
(i) Bush PA's rent obligations to EIDCO are fair and reasonable;
and (ii) the rent payments are remitted by Bush PA (or Borrower)
or EIDCO to cover debt service on the Erie Project Financing."
(p) New Section 7.08(d). Section 7.08 is hereby amended by adding a
-------------------
new subsection (d) which reads in its entirety as follows:
"(d) Lease-purchase or similar agreements for the leasing of the
Erie Project by Bush PA in connection with the transactions
authorized in Section 7.07 hereof; provided, that (i) Bush PA is
--------
the lessee, (ii) EIDCO is the lessor, (iii) the leased property is
the Erie Project, (iv) Bush PA's rent obligations to EIDCO under
such lease or similar agreement are fair and reasonable, and (v)
such lease or similar agreement provides that EIDCO will deed all
of the property back to Bush PA upon the satisfaction of all
mortgages or other agreements securing the Erie Project
Financing."
(q) Section 7.09(b). Section 7.09(b) is hereby amended to read in its
---------------
entirety as follows:
"(b) The Borrower may (w) acquire all or substantially all of the
properties or assets of any going concern or going line of
business, (x) acquire all or substantially all of the properties
or assets of any other Person, (y) acquire all or substantially
all of the capital stock or other equity interests in or of any
other Person, and (z) agree, become or remain liable (contingently
or otherwise) to do any of the foregoing
5
<PAGE>
(collectively, "Acquisitions") provided that (i) no Event of
Default or Potential Default shall occur and be continuing or
shall exist at such time or after giving effect to such
transaction, (ii) the business or properties so acquired shall be
within the Borrower's line of business or a related line of
business or shall use production or manufacturing technology used
in the Borrower's line of business, and (iii) as of the end of
each Fiscal Year of the Borrower, the aggregate consideration
(determined in accordance with GAAP) paid by the Borrower in
connection with all Acquisitions shall not exceed: (A) during
Fiscal Year 1995 (inclusive of Acquisitions made in Fiscal Year
1995 prior to the date hereof), and amount equal to (1)
$27,500,000 minus (2) the aggregate amount of all Capital
-----
Expenditures made by the Borrower during such Fiscal Year to the
extent permitted by Section 7.13 hereof; (B) during Fiscal Year
1996, an amount equal to (1) $45,000,000 minus (2) the aggregate
-----
amount of all Capital Expenditures made by the Borrower during
such Fiscal Year to the extent permitted by Section 7.13 hereof;
and (C) for each Fiscal Year thereafter, an amount equal to (1)
$20,000,000 minus (2) the aggregate amount of all Capital
-----
Expenditures made by the Borrower during such Fiscal Year to the
extent permitted by Section 7.13 hereof; provided, that the amount
--------
set forth in clause (C) above shall be increased for Fiscal Year
1997 by the amount (not to exceed $20,000,000), if any, by which
the aggregate amount of (x) Capital Expenditures of the Borrower
and its consolidated Subsidiaries during Fiscal Year 1996 plus (y)
----
the aggregate amount of all consideration (determined in
accordance with GAAP) paid by the Borrower during Fiscal Year 1996
in connection with the Acquisitions is less than $45,000,000 (in
the case of Acquisitions made during Fiscal Year 1996); provided
--------
further, that the amount set forth in clause (C) above shall be
-------
increased for each Fiscal Year commencing with Fiscal Year 1998 by
the amount (not to exceed $15,000,000), if any, by which the
aggregate amount of (x) Capital Expenditures of the Borrower and
its consolidated Subsidiaries during the immediately proceeding
Fiscal Year plus (y) the aggregate amount of all consideration
----
(determined in accordance with GAAP) paid by the Borrower during
the immediately preceding Fiscal Year in connection with the
Acquisitions is less than $20,000,000."
(r) Section 7.09(e). Section 7.09(e) is hereby amended by deleting
---------------
"95%" in the first sentence and inserting "85%", such that the first sentence of
Section 7.09(e) reads in its entirety as follows:
"The Borrower may enter into a transaction to purchase 464,095
shares of ColorWorks stock (out
6
<PAGE>
of a total of 691,595 shares) for $11.6534 per share or
$5,408,295.00, with approximately 85% of the purchase price of
$5,408,295.00 to be paid with treasury shares of Borrower and the
remaining percentage of the purchase price to be paid in cash, on
substantially the other terms set forth in the letter of intent
dated November 30, 1995 among the Borrower and the persons named
therein, provided that no Event of Default or Potential Default
shall occur and be continuing or shall exist at such time or after
giving effect to such transaction. The transactions permitted by
this Section 7.09(e) shall not be deemed to be an Acquisition for
purposes of Sections 7.09(b) and 7.13 hereof. The Borrower may
enter into a transaction to purchase the remaining outstanding
shares of ColorWorks stock for a total purchase price (together
with the value of all other consideration given) not to exceed
$4,000,000; provided, that no Event of Default or Potential
--------
Default shall occur and be continuing or shall exist at such time
or after giving effect to such transaction."
(s) Section 7.13(a). Section 7.13(a) is hereby amended to read in its
---------------
entirety as follows:
"(a) The Borrower shall not, and shall not permit any Subsidiary
to, make any Capital Expenditures on or after the date hereof,
except for Capital Expenditures such that as of the end of each
Fiscal Year of the Borrower, Capitalized Expenditures of the
Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis, for such Fiscal Year, shall not exceed the
following amounts: (a) during Fiscal Year 1995 (inclusive of
Capital Expenditures made in Fiscal year 1995 prior to the date
hereof), an amount equal to (i) $27,500,000 minus (ii) the
-----
aggregate amount of all consideration (determined in accordance
with GAAP) paid by the Borrower during such Fiscal Year in
connection with Acquisitions permitted by Section 7.09(b) hereof;
(b) during Fiscal Year 1996, an amount equal to (i) $45,000,000
minus (ii) the aggregate amount of all consideration (determined
-----
in accordance with GAAP) paid by the Borrower during such Fiscal
Year in connection with Acquisitions permitted by Section 7.09(b)
hereof; and (c) for each Fiscal Year thereafter, an amount equal
to (i) $20,000,000 minus (ii) the aggregate amount of all
-----
consideration (determined in accordance with GAAP) paid by the
Borrower during such Fiscal Year in connection with Acquisitions
permitted by Section 7.09(b) hereof; provided, that the amount set
--------
forth in clause (c) above shall be increased for
7
<PAGE>
Fiscal Year 1997 by the amount (not to exceed $20,000,000), if
any, by which the aggregate amount of (x) Capital Expenditures of
the Borrower and its consolidated Subsidiaries during Fiscal Year
1996 plus (y) the aggregate amount of all consideration
----
(determined in accordance with GAAP) paid by the Borrower during
Fiscal Year 1996 in connection with the Acquisitions is less than
$45,000,000 (in the case of Acquisitions made during Fiscal Year
1996); provided further, that the amount set forth in clause (c)
----------------
above shall be increased for each Fiscal Year commencing with
Fiscal Year 1998 by the amount (not to exceed $15,000,000 in any
Fiscal Year), if any, by which the aggregate amount of (x) Capital
Expenditures of the Borrower and its consolidated Subsidiaries
during the immediately preceding Fiscal Year plus (y) the
----
aggregate amount of all consideration (determined in accordance
with GAAP) paid by the Borrower during the immediately preceding
Fiscal Year in connection with the Acquisitions is less than
$20,000,000."
(t) Section 7.13 (b). Section 7.13(b) is hereby amended to read in
----------------
its entirety as follows:
"(b) ColorWorks shall not make any Capital Expenditures, except
for Capital Expenditures such that as of the end of each Fiscal
Year of ColorWorks, Capital Expenditures of ColorWorks for such
Fiscal Year shall not exceed the following amounts: (i) during
Fiscal Year 1996, an amount equal to $3,000,000; (ii) for each
Fiscal Year thereafter, an amount equal to $2,000,000; provided,
--------
that the amount set forth in clause (ii) above shall be increased
for Fiscal Year 1997 by the amount, if any, by which the aggregate
amount of Capital Expenditures of ColorWorks for Fiscal Year 1996
is less than $3,000,000. Capital Expenditures of ColorWorks
permitted by this Section 7.13(b) shall not be included for
purposes of Section 7.13(a)."
(u) Signature Pages. The Signature Pages are hereby amended by
---------------
deleting the amounts and percentages designated for the Committed Amount and
Commitment Percentage, respectively, for each Lender and inserting the amounts
and percentages set forth in the following table as the Committed Amount and
Commitment Percentage, respectively, for each Lender:
<TABLE>
<CAPTION>
Lender Committed Amount Commitment Percentage
- ------ ---------------- ----------------------
<S> <C> <C>
MELLON BANK $40,000,000 47.05882352941%
N.A., as Agent
BRANCH BANKING $10,000,000 11.76470588235%
AND TRUST
COMPANY
THE CHASE $35,000,000 41.17647058824%
MANHATTAN
</TABLE>
8
<PAGE>
BANK
(individually,
and as
successor to
Chemical Bank and
The Chase Manhattan
Bank, N.A.)
Section 3. Representations and Warranties of the Borrower. The
--------- ----------------------------------------------
Borrower hereby represents and warrants to the Agent and each Lender as follows:
(a) Power and Authorization. The Borrower has
-----------------------
full power and authority to execute, deliver, and perform its
obligations under and take all actions contemplated to be performed by
it under, this Amendment and all such action has been duly and validly
authorized by all necessary corporate proceedings on its part.
(b) Execution and Binding Effect. This Amendment has been duly
----------------------------
and validly executed and delivered by the Borrower. This Amendment
constitutes the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, except
as the enforceability hereof may be limited by bankruptcy, insolvency
or other similar laws of general application affecting the enforcement
of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
(c) Absence of Events of Default. No event has occurred and is
----------------------------
continuing and no condition exists which constitutes an Event of
Default or Potential Default.
(d) Representations and Warranties Being True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article IV of the Credit
Agreement or in any other Loan Document are true and correct in all
material respects on and as of the date hereof with the same effect as
though such representations and warranties had been made on and as of
the date hereof, except to the extent that any such representation or
warranty (including any Schedule referred to therein) relates solely
and specifically to a prior date and except to the extent that any
such representation and warranty (including any Schedule referred to
therein) is not true and correct in any material respect solely and
specifically as a result of activities or actions expressly permitted
to be taken by the Borrower or any of its Subsidiaries pursuant to
Article VII of the Credit Agreement.
Section 4. Conditions to Effectiveness of Amendment. This Amendment,
--------- ----------------------------------------
and the rights and obligations created herein,
9
<PAGE>
are subject to the satisfaction, immediately prior to or concurrently with the
execution of this Amendment, of the following conditions precedent:
(a) Corporate Action. The Agent shall have received, with a
----------------
counterpart for each Lender, certificates by the Secretary or
Assistant Secretary of the Borrower dated as of the date of this
Amendment as to (i) true copies of all corporate action taken by the
Borrower relative to this Amendment and any other Loan Documents
executed in connection with this Amendment, and (ii) the incumbency
and signature of the officers of the Borrower executing this Amendment
and such other Loan Documents, together with satisfactory evidence of
the incumbency of such Secretary or Assistant Secretary.
(b) Officers' Certificates. The Agent shall have received, with a
----------------------
counterpart for each Lender, a certificate dated the date of this
Amendment and signed by a Responsible Officer of the Borrower,
certifying that the representations and warranties contained in this
Amendment are true and correct as of the date of execution and
delivery hereof.
(c) Amendment Fee; Legal Fees. The Borrower agrees to reimburse
-------------------------
the Agent for reasonable fees and expenses of its counsel, Reed Smith
Shaw & McClay, incurred in connection with this Amendment, and the
Agent shall have received from the Borrower reimbursement for all such
reasonable fees and expenses required to be paid.
(d) Exchange of Revolving Credit Note. Mellon shall have received
---------------------------------
a new Revolving Credit Note in the principal amount of $40,000,000
conforming to the requirements of the Credit Agreement, duly executed
by the Borrower. The Chase Manhattan Bank shall have received a new
Revolving Credit Note in the principal amount of $35,000,000
conforming to the requirements of the Credit Agreement, duly executed
by the Borrower. Upon receipt of such new Revolving Credit Notes by
Mellon and The Chase Manhattan Bank, Mellon and The Chase Manhattan
Bank shall mark the prior $30,000,000, $20,000,000 and $15,000,000
Revolving Credit Notes, respectively, previously executed by the
Borrower in connection with the execution of the Credit Agreement
"exchanged" and return such prior Revolving Credit Notes to the
Borrower.
(e) Assignment of ColorWorks Note. The Agent shall have received
-----------------------------
an assignment of the ColorWorks Note to the Agent for the benefit of
the Lenders, duly executed by the Borrower as required by Section
7.05(h) of the Credit Agreement. Such assignment shall be made
pursuant to a Pledge Agreement in form and substance reasonably
acceptable to the Agent and the Required Lenders.
(f) Assignment of Bush PA Note. The Agent shall
--------------------------
10
<PAGE>
have received an assignment of the Bush PA Note to the Agent for the
benefit of the Lenders, duly executed by the Borrower as required by
Section 7.05(i) of the Credit Agreement. Such assignment shall be made
pursuant to a Pledge Agreement in form and substance reasonably
acceptable to the Agent and the Required Lenders.
(g) Significant Subsidiary Guaranty. The Agent shall have received
-------------------------------
a Significant Subsidiary Guaranty conforming with the requirements of
the Credit Agreement, duly executed by Bush PA in favor of the Agent
for the benefit of the Lenders.
(h) Other Documents. The Agent shall have received, with copies
---------------
and executed counterparts for each Lender, executed copies of all such
security agreements, pledge agreements or other agreements as the
Agent or Lenders may reasonably deem necessary, all such agreements
being duly executed by the Borrower.
Section 5. Miscellaneous.
--------- -------------
(a) Except as amended hereby, the provisions of the Credit Agreement
are hereby ratified and confirmed in all respects by the parties hereto and
shall remain in full force and effect as between such parties.
(b) This Amendment shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be construed in
accordance with and governed by the laws of such Commonwealth, without regard to
conflicts of law principles.
(c) This Amendment may be executed in as many counterparts as may be
deemed necessary and convenient and by the separate parties hereto on separate
counterparts, each of which when so executed and delivered shall be deemed to
constitute an original, but all such separate counterparts shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto by their officers hereunto duly
authorized have executed this Amendment as of the date and year first written
above.
BUSH INDUSTRIES, INC.
By: /s/ Neil Frederick
-----------------------
Title: Treasurer
MELLON BANK, N.A.,
individually and as Agent
By: /s/ Mike Anselmo
-----------------------
Title: Vice President
11
<PAGE>
BRANCH BANKING AND TRUST
COMPANY
By: /s/ Hoyt Almond
------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK,
individually and as
successor
to Chemical Bank and The
Chase Manhattan Bank, N.A.
By: /s/ Robert McArdle
-------------------------
Title: Vice President
12
<PAGE>
SCHEDULE 7.05(j)
Non-Significant Subsidiaries of Borrower
----------------------------------------
The following is a list of Subsidiaries of Borrower that are not
Significant Subsidiaries of Borrower and the advances Borrower has made to such
Subsidiaries as of August 24, 1996 for purposes of Section 7.05(j) of the Credit
Agreement:
Non-Significant Subsidiary Amount of Advances
- -------------------------- ------------------
<TABLE>
<CAPTION>
<S> <C>
Bush Industries of Ohio, Inc. $0
Bush Management, Inc. $0
(Assume charges to Bush Industries,
Inc., from Bush Management, Inc.
equal advances from Bush Industries,
Inc. to Bush Management, Inc.)
Bush Service Group Inc. $1,503,799
ColorWorks, Inc. $5,616,508
Bush Technologies, Inc. $0
Bush Industries De Mexico, S.A. DE C.V. $ 345,592
Bush Commercial De Mexico, S.A. DE C.V. $0
----------
TOTAL $7,465,899
</TABLE>
13
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
January 3, 1997, by and among BUSH INDUSTRIES, INC., a Delaware corporation
(the "Borrower"), the Lenders party to the Credit Agreement described below, the
Issuing Bank referred to in the Credit Agreement described below and MELLON
BANK, N.A., a national banking association, as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS:
A. The Borrower, the Lenders, the Issuing Bank and the Agent are parties
to that certain Credit Agreement dated as of July 26, 1995 (as amended pursuant
to that certain First Amendment to Credit Agreement dated as of September 1,
1995, that certain Second Amendment to Credit Agreement dated as of January 1,
1996, and that certain Third Amendment to Credit Agreement dated as of September
27, 1996, the "Credit Agreement").
B. The Branch Banking and Trust Company, a Lender under the Credit
Agreement, has requested to be completely removed as a Lender under the Credit
Agreement.
C. Mellon, in its capacity as a Lender under the Credit Agreement, and The
Chase Manhattan Bank, a Lender under the Credit Agreement, while having no
obligation to assume Branch Banking and Trust Company's Committed Amount under
the Credit Agreement, desire to increase their respective Committed Amounts
under the Credit Agreement to cover Branch Banking and Trust Company's Committed
Amount.
D. The parties desire to make certain further amendments to the Credit
Agreement to that end.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
Section 1. Certain Definitions. In addition to words and terms defined
--------- -------------------
elsewhere in this Amendment, capitalized terms used in this Amendment and not
otherwise defined herein have the meaning set forth in the Credit Agreement.
Section 2. Amendments to Credit Agreement. The Credit Agreement is hereby
--------- ------------------------------
amended in the following respects:
<PAGE>
(a) Signature Pages. The Signature Pages are hereby amended by deleting
---------------
Branch Banking and Trust Company's name and signature line and the amounts and
percentages designated for its Committed Amount and Commitment Percentage,
respectively, deleting the amount and percentages designated for the Committed
Amount and Commitment Percentage, respectively, for each remaining Lender and
inserting the amounts and percentages set forth in the following table as the
Committed Amount and Commitment Percentage, respectively, for each such
remaining Lender:
<TABLE>
<CAPTION>
Lender Committed Amount Commitment Percentage
- ------ ---------------- ----------------------
<S> <C> <C>
MELLON BANK $46,750,000 55.00000000000%
N.A., as Agent
THE CHASE $38,250,000 45.00000000000%
MANHATTAN
BANK
(individually,
and as
successor to
Chemical Bank and
The Chase Manhattan
Bank, N.A.)
</TABLE>
Section 3. Representations and Warranties of the Borrower. The Borrower
--------- ----------------------------------------------
hereby represents and warrants to the Agent and each Lender as follows:
(a) Power and Authorization. The Borrower has full power and
-----------------------
authority to execute, deliver, and perform its obligations under and take
all actions contemplated to be performed by it under, this Amendment and
all such action has been duly and validly authorized by all necessary
corporate proceedings on its part.
(b) Execution and Binding Effect. This Amendment has been duly and
----------------------------
validly executed and delivered by the Borrower. This Amendment constitutes
the legal, valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as the enforceability
hereof may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by
general principles of equity limiting the availability of equitable
remedies.
-2-
<PAGE>
(c) Absence of Events of Default. No event has occurred and is
----------------------------
continuing and no condition exists which constitutes an Event of Default or
Potential Default.
(d) Representations and Warranties Being True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article IV of the Credit
Agreement or in any other Loan Document are true and correct in all
material respects on and as of the date hereof with the same effect as
though such representations and warranties had been made on and as of the
date hereof, except to the extent that any such representation or warranty
(including any Schedule referred to therein) relates solely and
specifically to a prior date and except to the extent that any such
representation and warranty (including any Schedule referred to therein) is
not true and correct in any material respect solely and specifically as a
result of activities or actions expressly permitted to be taken by the
Borrower or any of its Subsidiaries pursuant to Article VII of the Credit
Agreement.
Section 4. Conditions to Effectiveness of Amendment. This Amendment, and
--------- ----------------------------------------
the rights and obligations created herein, are subject to the satisfaction,
immediately prior to or concurrently with the execution of this Amendment, of
the following conditions precedent:
(a) Exchange of Revolving Credit Notes. Mellon shall have received a
----------------------------------
new Revolving Credit Note in the principal amount of $46,750,000 conforming
to the requirements of the Credit Agreement, duly executed by the Borrower.
The Chase Manhattan Bank shall have received a new Revolving Credit Note in
the principal amount of $38,250,000 conforming to the requirements of the
Credit Agreement, duly executed by the Borrower. Upon receipt of such new
Revolving Credit Notes by Mellon and The Chase Manhattan Bank, Mellon and
The Chase Manhattan Bank shall mark the prior $40,000,000 and $35,000,000
Revolving Credit Notes previously executed by the Borrower in connection
with the Credit Agreement "exchanged" and return such prior Revolving
Credit Notes to the Borrower. Upon receipt of such new Revolving Credit
Notes by Mellon and The Chase Manhattan Bank and of the outstanding
principal amount of all Loans made by it, together with accrued interest
thereon and any other amounts owing to it under the Credit Agreement, the
Branch Banking and Trust Company
-3-
<PAGE>
shall mark the prior $10,000,000 Revolving Credit Note previously executed
by the Borrower in connection with the execution of the Credit Agreement
"cancelled" and return such prior note to the Borrower.
(b) Legal Fees. The Borrower agrees to reimburse the Agent for
----------
reasonable fees and expenses of its counsel, Reed Smith Shaw & McClay,
incurred in connection with this Amendment.
(c) Other Documents. The Agent shall have received, with copies and
---------------
executed counterparts for each Lender, executed copies of all such security
agreements, pledge agreements or other agreements as the Agent or Lenders
may reasonably deem necessary, all such agreements being duly executed by
the Borrower.
Section 5. Miscellaneous.
--------- -------------
(a) The rights and obligations (including without limitation any
indemnification rights and obligations but excluding any obligation to make
Loans) of Branch Banking and Trust Company under the Credit Agreement shall
remain in full force and effect, and Branch Banking and Trust Company shall be
entitled thereto and shall remain obligated to perform thereunder, to the extent
that any such right and obligation arose, arises or relates in any manner to any
action taken by the Borrower, the Issuing Bank, any Lender or any other Person
(including without limitation the Branch Banking and Trust Company) in
connection with the Credit Agreement prior to the Effective Date of this
Amendment.
(b) Except as amended hereby, the provisions of the Credit Agreement are
hereby ratified and confirmed in all respects by the parties hereto and shall
remain in full force and effect as between such parties.
(c) This Amendment shall be deemed to be a contract under the laws of the
Commonwealth of Pennsylvania and for all purposes shall be construed in
accordance with and governed by the laws of such Commonwealth, without regard to
conflicts of law principles.
(d) This Amendment may be executed in as many counterparts as may be
deemed necessary and convenient and by the separate parties hereto on separate
counterparts, each of which when so executed and delivered shall be deemed to
constitute an original, but all such separate counterparts shall constitute but
one and the same instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto by their officers hereunto duly
authorized have executed this Amendment as of the date and year first written
above.
BUSH INDUSTRIES, INC.
By: /s/ Neil Frederick
-------------------------------
Title: Treasurer
----------------------------
MELLON BANK, N.A.,
individually and as Agent
By: /s/ Mike Anselmo
-------------------------------
Title: Vice President
----------------------------
BRANCH BANKING AND TRUST
COMPANY
By: /s/ Hoyt Almond
-------------------------------
Title: Senior Vice President
----------------------------
THE CHASE MANHATTAN BANK,
individually and as successor
to Chemical Bank and The
Chase Manhattan Bank, N.A.
By: /s/ Robert McArdle
-------------------------------
Title: Vice President
----------------------------
-5-
<PAGE>
EXHIBIT 21.1
------------
As of December 28, 1996, the following are wholly-owned subsidiaries of Bush
Industries, Inc.:
Bush Industries of Pennsylvania, Inc., a Delaware Corporation
Bush Industries of Ohio, Inc., a Delaware Corporation
Bush Management, Inc., a Florida Corporation
Bush Service Group, Inc., a Delaware Corporation
Bush Industries De Mexico, S.A. DE C.V., a Mexican Corporation
Bush Comercial De Mexico, S.A. DE C.V., a Mexican Corporation
The ColorWorks, Inc., a North Carolina Corporation
Bush Technologies, Inc., a Delaware Corporation
<PAGE>
Exhibit 23.1
------------
Consent of Deloitte & Touche, LLP, Independent Public Auditors
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Bush Industries, Inc.
We consent to the incorporation by reference in Registration Statement No.'s 33-
77820, 33-77814, 33-69846, 33-69848, 33-66540, 33-66542, 33-63723 and 333-02617
of Bush Industries, Inc. on Form S-8 and 333-14819 and 333-09291 of Bush
Industries, Inc. on Form S-3 of our report dated February 7, 1997, appearing in
this Annual Report on Form 10-K of Bush Industries, Inc. for the year ended
December 28, 1996.
DELOITTE & TOUCHE LLP
Buffalo, New York
March 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 2,810
<SECURITIES> 0
<RECEIVABLES> 26,899
<ALLOWANCES> 2,036
<INVENTORY> 26,300
<CURRENT-ASSETS> 58,114
<PP&E> 126,255
<DEPRECIATION> 41,900
<TOTAL-ASSETS> 152,464
<CURRENT-LIABILITIES> 29,901
<BONDS> 36,339
0
0
<COMMON> 1,351
<OTHER-SE> 82,966
<TOTAL-LIABILITY-AND-EQUITY> 152,464
<SALES> 256,332
<TOTAL-REVENUES> 256,332
<CGS> 176,378
<TOTAL-COSTS> 176,378
<OTHER-EXPENSES> 47,722
<LOSS-PROVISION> 757
<INTEREST-EXPENSE> 2,131
<INCOME-PRETAX> 29,344
<INCOME-TAX> 10,857
<INCOME-CONTINUING> 18,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,487
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.30
</TABLE>
