<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999
-------------
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.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-0837346
- --------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
One Mason Drive
P.O. Box 460
Jamestown, New York 14702-0460
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(716)665-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _________
-------
Number of shares of Common Stock outstanding as of April 3, 1999: 10,481,359
shares of Class A Common Stock and 3,395,365 shares of Class B Common Stock.
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
APRIL 3, JANUARY 2,
1999 1999
-------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash $ 3,182 $ 2,236
Accounts receivable 36,591 39,714
Inventories 56,539 61,629
Prepaid expenses and other current assets 6,251 6,182
-------- --------
Total Current Assets 102,563 109,761
Property, Plant and Equipment, Net 197,276 191,218
Other Assets 28,070 28,151
-------- --------
TOTAL ASSETS $327,909 $329,130
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 26,438 $ 36,198
Income taxes 747 107
Other accrued liabilities 42,143 32,703
Current portion of long-term debt 635 707
-------- --------
Total Current Liabilities 69,963 69,715
Deferred Income Taxes 3,300 5,998
Other Long-term Liabilities 8,447 8,744
Long-term Debt 127,923 121,054
-------- --------
Total Liabilities 209,633 205,511
Stockholders' Equity:
Common Stock:
Class A, $.10 par, 20,000,000 shares authorized,
10,544,838 shares issued 1,054 1,054
Class B, $.10 par, 6,000,000 shares authorized,
3,395,365 shares issued 340 340
Paid-in capital 20,656 20,656
Retained earnings 96,495 102,629
Accumulated other comprehensive income (loss) 527 (264)
-------- --------
119,072 124,415
Less treasury stock, 63,479 Class A shares (796) (796)
-------- --------
Total Stockholders' Equity 118,276 123,619
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $327,909 $329,130
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
APRIL 3, APRIL 4,
1999 1998
--------- --------
(In thousands, except shares
and per share data)
<S> <C> <C>
Net Sales $111,585 $108,813
Costs and Expenses:
Cost of sales 81,332 78,321
Selling, general and administrative 25,958 20,602
Restructuring 9,672 0
Interest 2,034 1,012
-------- --------
118,996 99,935
(Loss) Earnings Before Income Taxes (7,411) 8,878
Income Tax (Benefit) Expense (1,971) 3,414
-------- --------
Net (Loss) Earnings ($5,440) $ 5,464
======== ========
(Loss) Earnings per Share
Basic ($0.39) $0.40
Diluted ($0.38) $0.37
Weighted Average Shares Outstanding
Basic 13,876,860 13,721,362
Diluted 14,271,384 14,815,427
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
APRIL 3, APRIL 4,
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net (loss) earnings ($5,440) $ 5,464
Adjustment to reconcile:
Depreciation and amortization 3,958 2,770
Deferred income taxes (2,949) (500)
Change in assets and liabilities affecting cash flows:
Accounts receivable 2,700 1,066
Inventories 4,489 (5,138)
Prepaid expenses and other current assets 138 (86)
Accounts payable (9,211) 2,780
Income taxes 640 3,878
Other accrued liabilities 10,029 (3,884)
-------- -------
Net cash provided by operating activities 4,354 6,350
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Capital expenditures (11,505) (8,739)
Increase in other assets (491) (256)
-------- -------
Net cash used in investing activities (11,996) (8,995)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Repayment of long-term debt (251) (498)
Proceeds from long-term debt 9,164 2,885
Dividends paid (694) (480)
-------- -------
Net cash provided by financing activities 8,219 1,907
EFFECT OF EXCHANGE RATE CHANGES ON CASH 369 (42)
NET INCREASE (DECREASE) IN CASH 946 (780)
CASH AT BEGINNING OF PERIOD 2,236 3,399
-------- -------
CASH AT END OF PERIOD $ 3,182 $ 2,619
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Thirteen weeks ended April 3, 1999
1. The accounting policies used in preparing these statements are the same
as those used in preparing the Company's consolidated financial
statements for the year ended January 2, 1999. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's annual report to stockholders for the year ended January 2,
1999.
The Company operates and manages its business in one reportable industry
segment--the design, manufacture and sale of both RTA (ready to
assemble) and set-up furniture for the home and office.
The foregoing financial information reflects all adjustments which are,
in the opinion of management, of a normal recurring nature and necessary
for a fair presentation. The interim results are not necessarily
indicative of the results which may be expected for a full year.
2. During the first quarter of 1999, the Company finalized plans to
restructure certain of its operations. Non-recurring restructuring costs
amounting to $9,672,000 have been charged to expense in the first
quarter. A restructuring liability amounting to $9,006,000 is included
in other accrued liabilities as of April 3, 1999. Restructuring costs
include employee termination costs of approximately $6.1 million related
to cost reduction programs implemented on a worldwide basis. The
remaining components of significant restructuring costs include
approximately $1.2 million of costs to transition the assembly and
delivery service portion of the TASC operation to third party
subcontractors, approximately $1.6 million to cancel contractual
variable costs, and approximately $0.8 million related to other
manufacturing charges. All components of the restructuring are expected
to be substantially completed by the end of fiscal 1999.
3. Total comprehensive (loss) income for the first quarter of 1999 and 1998
was as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
APRIL 3, APRIL 4,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Net (loss) income ($5,440) $5,464
Accumulated other comprehensive income (loss) 791 (127)
------- ------
Total comprehensive (loss) income ($4,649) $5,337
</TABLE>
5
<PAGE>
4. Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 3, JANUARY 2,
1999 1999
--------- ----------
(In thousands)
<S> <C> <C>
Raw material $16,730 $17,663
Work in progress 8,975 9,754
Finished goods 30,834 34,212
------- -------
$56,539 $61,629
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Except for the historical information contained herein, the matters
discussed in this Form 10-Q 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.
RESULTS OF OPERATIONS:
- ----------------------
First quarter sales for the 13 week period ended April 3, 1999 were
$111,585,000. This represented an increase of $2,772,000, or approximately
2.5%, compared to net sales of $108,813,000 for the 13 week period ended April
4, 1998. The increase in net sales was attributable to new product placements
at several key major retail customers in the United States, and was partially
offset by a decrease in sales from the Company's German subsidiary, Rohr-Bush
GmbH & Co. ("Rohr-Bush"). These product introductions are a continuation of the
Company's aggressive new product program that commenced in the fourth quarter of
last year and will continue into the second half of 1999.
Cost of sales increased $3,011,000 for the 13 week period ended April 3,
1999, compared to the 13 week period ended April 4, 1998. The increase in cost
of sales was primarily due to higher sales volumes. Cost of sales as an
approximate percentage of net sales increased by 0.9% from 72.0% in the first
quarter of 1998 to 72.9% in the first quarter of 1999. The increase in cost of
sales as a percentage of net sales was a result of product mix and
underabsorption of additional fixed costs relating to an increase in additional
capacity.
Selling, general and administrative expenses increased $5,356,000 for the
13 week period ended April 3, 1999, compared to the 13 week period ended April
4, 1998 and as an approximate percentage of net sales increased from 18.9% in
the first quarter of 1998 to 23.3% in the first quarter of 1999. The increase
in selling, general and administrative expenses was a result of higher variable
selling expenses, both in general and as a result of a mix of sales into certain
customers. Additionally, it was impacted by costs relating to our service,
delivery and assembly initiative (TASC), and by expenses relating to increased
overall sales volumes.
Interest expense for the 13 week period ended April 3, 1999, increased to
$2,034,000 (or approximately 1.8% of net sales) from $1,012,000 (or
approximately 0.9% of net sales) for the 13 week period ended April 4, 1998.
The increase in interest expense was due to an increase in average debt
primarily related to the Company's capital expenditures and inventory growth
since the first quarter of 1998.
Income tax rate decreased as a percentage of earnings (loss) before income
taxes from 38.5% to 26.6% for the first quarter of 1998 compared to the first
quarter of 1999. The reduction was primarily the result of lower deferred tax
rates attributable to the Company's 51% owned Rohr-Bush subsidiary.
7
<PAGE>
During the first quarter of 1999, the Company finalized plans to
restructure certain of its operations. Non-recurring restructuring costs
amounting to $9,672,000 have been charged to expense in the first quarter. A
restructuring liability amounting to $9,006,000 is included in other accrued
liabilities as of April 3, 1999. Restructuring costs include employee
termination costs of approximately $6.1 million related to cost reduction
programs implemented on a worldwide basis. The remaining components of
significant restructuring costs include approximately $1.2 million of costs to
transition the assembly and delivery service portion of the TASC operation to
third party subcontractors, approximately $1.6 million to cancel contractual
variable costs, and approximately $0.8 million related to other manufacturing
charges. All components of the restructuring are expected to be substantially
completed by the end of fiscal 1999.
As described below, the Company is actively addressing its ability to
resolve any potential Year 2000 issues. The Year 2000 issue is the result of
computer software programs being written using two digits rather than four to
define the applicable year. Any of the Company's software programs, computer
hardware or equipment that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in system failures or miscalculation.
The Company has appointed a Year 2000 Corporate Compliance Team, which has
prepared an international compliance program and work plan for the Company and
is responsible for coordinating and inspecting compliance activities. The
Company's plan to resolve the Year 2000 issue includes five major phases.
First, in the inventory phase, all resources are inventoried to identify those
that have any type of software or hardware Year 2000 issues. Second, in the
assessment phase, all inventoried items are assessed to confirm that a Year 2000
related issue is present and the extent of remediation required. Third, in the
strategy phase, a remediation strategy is created to ensure substantial
completion of upgrades for critical systems by the middle of calendar 1999.
Fourth, in the conversion / upgrade phase, upgrades are performed on all items
identified in the inventory and assessment phases. Finally, in the testing
phase, all upgraded items are tested to verify Year 2000 readiness.
The Company has substantially completed the inventory, assessment and
strategy phases for both information technology ("IT") and non-IT systems. For
non-IT systems, the Company is dependent on equipment manufacturers to supply
the upgrades required to remediate Year 2000 issues. As of May 1, 1999, the
conversion / upgrade and testing phases of IT and non-IT systems was
approximately 90% complete and is targeted to be completed by the middle of
1999.
Part of the Company's initial assessment phase included a detailed Year
2000 questionnaire sent to all active vendors and customers. This questionnaire
included questions on products, services, IT and non-IT systems. As of May 1,
1999, the Company had received responses from approximately 87% of those
questioned. The Company is following up the questionnaires, where necessary, to
ensure Year 2000 compliance and uninterrupted services and supplies to the
Company.
8
<PAGE>
The Company utilizes both internal and external resources to address the
Year 2000 issue. The Company does not separately track the internal costs
incurred on the Year 2000 project. Such costs are principally payroll and
related costs for its internal IT personnel. Certain mainframe computer
software upgrades necessary to become Year 2000 compliant will not be an
incremental expense, as the software upgrade is provided as part of the
Company's software maintenance agreement. The total cost of the Year 2000
project, excluding the above items, is estimated to be less than $500,000.
The Company presently believes it has an effective plan in place to
anticipate and resolve any material potential Year 2000 issues in a timely
manner. In the event, however, that the Company does not properly identify Year
2000 issues or complete the conversion / upgrade phase and testing phase of its
systems on a timely basis with respect to the Year 2000 issues that are
identified, there can be no assurance that Year 2000 issues will not materially
and adversely affect the Company's results of operations or relationships with
third parties. In addition, disruptions in the economy generally resulting from
Year 2000 issues also could materially and adversely affect the Company. The
amount of potential liability and lost revenue that would be reasonably likely
to result from the failure by the Company and certain key third parties to
achieve Year 2000 compliance on a timely basis cannot be reasonably estimated at
this time.
The Company is developing a contingency plan for Year 2000 issues and
expects to have it in place by October 31, 1999. In addition, the Company is
forming a rapid response team as part of its IT group that will respond to any
operational problems during the Year 2000 date change period.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Working capital at first quarter-end 1999 decreased by $7,446,000, as
compared to working capital at year-end 1998. Such decreased working capital
was due, in part, to a decrease in accounts receivable and inventories and an
increase in other accrued liabilities due primarily to the restructuring charge.
Partially offsetting these factors was a decrease in accounts payable. Total
assets at first quarter-end 1999 decreased $1,221,000 over year-end 1998
primarily as a result of a decrease in inventory and accounts receivable,
partially offset by an increase in net property, plant and equipment. In
addition, total liabilities increased $4,122,000 at first quarter-end 1999, due
mostly to an increase in long-term debt.
The Company spent $11,505,000 on capital expenditures during the first
quarter of 1999, which were financed primarily with increased debt and net cash
flow from operating activities. Capital expenditures for fiscal year 1999 with
respect to the Company's existing facilities are currently forecasted to be
approximately $30 million.
The Company entered into a first amendment, dated as of August 17, 1998, to
its existing credit facility with The Chase Manhattan Bank, Mellon Bank, N.A.
and other lending institutions. The amendment modified the amount of money the
Company can borrow from an aggregate $155,000,000 to an aggregate $175,000,000.
In addition, the term of the credit facility was extended until June 30, 2003,
certain covenants were amended, and borrowings were
9
<PAGE>
permitted under the anticipated single currency of participating member states
of the European Union (the Euro). The Company entered into a second amendment,
dated as of December 31, 1998, to its existing credit facility with The Chase
Manhattan Bank, Mellon Bank, N.A. and other lending institutions. This amendment
modifies both the allowable consolidated leverage ratio and the allowable
consolidated cash flow coverage ratio. In addition, the pricing grid was
modified primarily to reflect the newly permitted ratios. The Company entered
into a third amendment, dated as of March 31, 1999, to its existing credit
facility with the Chase Manhattan Bank, Mellon Bank, N.A. and other lending
institutions. This amendment modified certain covenants and specified how the
restructuring charges would apply to the covenant tests.
The credit facility provides for revolving credit loans, swing line loans
and multi-currency loans, within the parameters described below. A balloon
payment of the then remaining principal and accrued interest is due on the
termination date of the loan. The Company has classified all of the 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 NYBOR rate, an eurocurrency rate for
dollars, an applicable eurocurrency rate for certain foreign currencies, a money
market rate, or an alternative base rate. Eurocurrency loans bear interest at
the then current applicable LIBOR rate, plus an applicable margin. The
applicable margin, which pertains only to LIBOR and NYBOR rate loans, varies
from 0.5% to 2.00%, depending upon the Company's ability to satisfy certain
quarterly financial tests, but is fixed at 2.00% until delivery of financial
statements for the fiscal period ending January 1, 2000. In addition, the
credit agreement permits the Company to request the issuance of up to a maximum
of $20,000,000 in letters of credit, which issuance will be deemed part of the
$175,000,000 maximum amount of borrowing permitted under the credit facility.
The line of credit agreement, as amended, provides for achieving certain
consolidated cash flow coverage and leverage ratios, prescribes minimum
consolidated 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. In addition, the
credit agreement limits the amount of cash dividends that the Company can
declare, and also imposes certain conditions with respect thereto.
10
<PAGE>
Part II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON 8-K
- ------- ---------------------------
(a) Exhibits: None.
(b) Reports on Form 8-K:
During the first quarter of 1999, an 8-K was filed on March 10,
1999 regarding the second amendment dated December 31, 1998 to
the Company's existing credit facility with The Chase Manhattan
Bank, N.A. and other lending institutions.
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSH INDUSTRIES, INC.
---------------------
(Registrant)
Date: May 14, 1999 By: /s/ Robert L. Ayres
------------- ---------------------------
(Signature)
Robert L. Ayres
Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 3,182
<SECURITIES> 0
<RECEIVABLES> 38,509
<ALLOWANCES> 1,918
<INVENTORY> 56,539
<CURRENT-ASSETS> 102,563
<PP&E> 297,811
<DEPRECIATION> 100,535
<TOTAL-ASSETS> 327,909
<CURRENT-LIABILITIES> 69,963
<BONDS> 127,923
0
0
<COMMON> 1,394
<OTHER-SE> 116,882
<TOTAL-LIABILITY-AND-EQUITY> 327,909
<SALES> 111,585
<TOTAL-REVENUES> 111,585
<CGS> 81,332
<TOTAL-COSTS> 81,332
<OTHER-EXPENSES> 25,922
<LOSS-PROVISION> 9,708
<INTEREST-EXPENSE> 2,034
<INCOME-PRETAX> (7,411)
<INCOME-TAX> (1,971)
<INCOME-CONTINUING> (5,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,440)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.38)
</TABLE>
