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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 October 2, 1999
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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
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BUSH INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-0837346
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(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
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(Address of principal executive offices)
(Zip Code)
(716) 665-2000
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(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
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Number of shares of Common Stock outstanding as of October 2, 1999: 10,484,794
shares of Class A Common Stock and 3,395,365 shares of Class B Common Stock.
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BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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OCTOBER 2, JANUARY 2,
1999 1999
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(Unaudited)
(In thousands)
ASSETS
- ------
Current Assets:
Cash $2,327 $2,236
Accounts receivable 31,665 39,714
Inventories 58,351 61,629
Prepaid expenses and other current assets 7,099 6,182
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Total Current Assets 99,442 109,761
Property, Plant and Equipment, Net 197,626 191,218
Other Assets 27,414 28,151
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TOTAL ASSETS $324,482 $329,130
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $18,322 $36,198
Income taxes 1,032 107
Other accrued liabilities 40,440 32,703
Current portion of long-term debt 492 707
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Total Current Liabilities 60,286 69,715
Deferred Income Taxes 4,576 5,998
Other Long-term Liabilities 8,013 8,744
Long-term Debt / Other 128,673 121,054
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Total Liabilities 201,548 205,511
Stockholders' Equity:
Common Stock:
Class A, $.10 par, 20,000,000
shares authorized, 10,548,273 and
10,544,838 shares issued 1,055 1,054
Class B, $.10 par, 6,000,000 shares
authorized, 3,395,365 shares issued 340 340
Paid-in capital 20,674 20,656
Retained earnings 100,573 102,629
Accumulated other comprehensive income (loss)
1,088 (264)
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123,730 124,415
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Less treasury stock, 63,479 Class A shares (796) (796)
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Total Stockholders' Equity 122,934 123,619
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $324,482 $329,130
======== ========
See notes to condensed consolidated financial statements.
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BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
THIRTEEN WEEKS ENDED
-------------------------
OCTOBER 2, OCTOBER 3,
1999 1998
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(In thousands, except shares
and per share data)
Net Sales $107,819 $94,252
Costs and Expenses:
Cost of sales 74,720 68,766
Selling, general and administrative 25,068 22,285
Interest 2,547 1,737
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102,335 92,788
Earnings Before Income Taxes 5,484 1,464
Income Taxes 2,319 458
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Net Earnings $3,165 $1,006
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Earnings per Share
Basic $0.23 $0.07
Diluted $0.22 $0.07
Weighted Average Shares Outstanding
Basic 13,879,105 13,875,594
Diluted 14,391,017 14,697,724
See notes to condensed consolidated financial statements.
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BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
THIRTY-NINE WEEKS ENDED
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OCTOBER 2, OCTOBER 3,
1999 1998
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(In thousands, except shares
and per share data)
Net Sales $ 318,277 $ 300,154
Costs and Expenses:
Cost of sales 224,258 217,452
Selling, general and administrative 75,315 62,593
Restructuring 9,672 0
Interest 6,809 4,002
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316,054 284,047
Earnings Before Income Taxes 2,223 16,107
Income Taxes 2,197 5,744
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Net Earnings $ 26 $ 10,363
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Earnings per Share
Basic $0.00 $0.75
Diluted $0.00 $0.70
Weighted Average Shares Outstanding
Basic 13,877,608 13,806,992
Diluted 14,383,085 14,801,420
See notes to condensed consolidated financial statements.
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BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
THIRTY-NINE WEEKS ENDED
-----------------------
OCTOBER 2, OCTOBER 3,
1999 1998
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net earnings $26 $10,363
Adjustment to reconcile:
Depreciation and amortization 10,932 9,463
Deferred income taxes (3,162) (494)
Change in assets and liabilities affecting
cash flows:
Accounts receivable 10,063 6,107
Inventories 1,724 (23,035)
Prepaid expenses and other current assets (988) 711
Accounts payable (16,103) (3,707)
Income taxes 2,545 18
Other accrued liabilities 8,936 (8,574)
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Net cash provided by (used in)
operating activities 13,973 (9,148)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Capital expenditures (24,468) (40,036)
Investment in subsidiary 0 (7,000)
Increase in other assets (946) (1,440)
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Net cash used in investing activities (25,414) (48,476)
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CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Repayment of long-term debt (604) (11,265)
Proceeds from long-term debt 13,499 68,942
Exercise of stock options by employees 18 1,373
Dividends paid (2,082) (1,868)
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Net cash provided by financing activities 10,831 57,182
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 701 (2)
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NET INCREASE (DECREASE) IN CASH 91 (444)
CASH AT BEGINNING OF PERIOD 2,236 3,399
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CASH AT END OF PERIOD $2,327 $2,955
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See notes to condensed consolidated financial statements.
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BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Thirty-nine weeks ended October 2, 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 fiscal 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 fiscal 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 $4,989,000 is included in other
accrued liabilities as of October 2, 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 $0.8
million to cancel contractual variable costs, and approximately $1.6
million related to other manufacturing charges. Although all components of
the restructuring are expected to be substantially completed by the end of
1999, payments to terminated employees in Germany and payments to cancel
certain contractural variable costs will extend into the year 2000.
3. The following tables set forth total comprehensive income for the 13 week
and 39 week periods indicated below.
THIRTEEN WEEKS ENDED
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OCTOBER 2, OCTOBER 3,
1999 1998
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(In thousands)
Net income $3,165 $1,006
Accumulated other comprehensive loss (207) (290)
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Total comprehensive income $2,958 $716
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THIRTY-NINE WEEKS ENDED
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OCTOBER 2, OCTOBER 3,
1999 1998
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(In thousands)
Net income $26 $10,363
Accumulated other comprehensive income (loss) 1,352 (488)
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Total comprehensive income $1,378 $9,875
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4. Inventories consist of the following:
OCTOBER 2, JANUARY 2,
1999 1999
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(In thousands)
Raw material $15,563 $17,663
Work in progress 8,704 9,754
Finished goods 34,084 34,212
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$58,351 $61,629
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Except for the historical information contained herein, the matters discussed
in this 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:
- ----------------------
Third quarter sales for the 13 week period ended October 2, 1999 were
$107,819,000 and sales for the 39 week period ended October 2, 1999 were
$318,277,000. This represents an increase of $13,567,000, or approximately
14.4%, compared to net sales of $94,252,000 for the 13 week period ended October
3, 1998 and a 39 week period increase of $18,123,000, or approximately 6.0%,
compared to net sales of $300,154,000 for the 39 week period ended October 3,
1998. The sales increase for the quarter resulted from good sell through at
retail, primarily from new product placements at several key major retail
customers earlier this year. It was partially offset by lower sales in the
European operation which was a result of the planned downsizing of operations
made during the first quarter of 1999.
Cost of sales increased $5,954,000 for the 13 week period ended October 2,
1999, compared to the 13 week period ended October 3, 1998. Cost of sales as
an approximate percentage of net sales decreased by 3.7% from 73.0% in the third
quarter of 1998 to 69.3% in the third quarter of 1999. Cost of sales increased
by $6,806,000 for the 39 week period ended October 2, 1999, compared to the 39
week period ended October 3, 1998. Cost of sales as an approximate percentage
of net sales decreased by 1.9% from 72.4% in the first 39 weeks of 1998 to 70.5%
in the first 39 weeks of 1999. The decrease in cost of sales as a percentage of
net sales was primarily a result of improved operating performance.
Selling, general and administrative expenses increased $2,783,000 for the 13
week period ended October 2, 1999, compared to the 13 week period ended October
3, 1998. For the 39 week period ended October 2, 1999, selling, general and
administrative expenses increased by $12,722,000, as compared to the 39 week
period ended October 3, 1998. The increase in selling, general and
administrative expenses for both the 13 week and 39 week period ended October 2,
1999 were 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 other expenses related to increased overall sales volumes. Selling, general
and administrative expenses as an approximate percentage of net sales decreased
by 0.3% from 23.6% in the third quarter of 1998 to 23.3% in the third quarter of
1999 and increased by 2.8% from 20.9% in the first 39 weeks of 1998 to 23.7% in
the first 39 weeks of 1999.
Interest expense for the 13 week period ended October 2, 1999 increased to
$2,547,000 (or approximately 2.4% of net sales) from $1,737,000 (or
approximately 1.8% of net sales) for the 13 week period ended October 3, 1998.
Interest expense for the 39 week period ended October
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2, 1999 increased to $6,809,000 (or approximately 2.1% of net sales) from
$4,002,000 (or approximately 1.3% of net sales). The increase in interest
expense was primarily due to both an increase in average debt, primarily related
to the Company's capital expenditures and an increase in average inventory
levels, and higher average interest rates paid on the Company's revolving credit
facility.
The consolidated effective income tax rate for the 13 and 39 week periods
ended October 2, 1999 was 42.3% and 98.8%, respectively. The tax rates for the
same periods in 1998 were 31.3% and 35.7%, respectively. The variance in rates
for both the 13 and 39 week periods is primarily related to the impact of the
lower deferred tax rates attributable to the 51% owned Rohr-Bush subsidiary and
the relationship of the Rohr-Bush operating loss to consolidated income being
different in each period.
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 $4,989,000 is included in other accrued liabilities as of
October 2, 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 $0.8 million to cancel contractual variable costs, and
approximately $1.6 million related to other manufacturing charges. Although all
components of the restructuring are expected to be substantially completed by
the end of 1999, payments to terminated employees in Germany and payments to
cancel certain contractural variable costs will extend into the year 2000.
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. 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 completed the inventory, assessment and strategy phases for
both information technology ("IT") and non-IT systems. As of November 1, 1999,
the conversion / upgrade and testing phases of IT and non-IT systems were
substantially complete.
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 November
1, 1999, the Company had received responses from approximately 95% of those
questioned. The Company is following up the questionnaires,
9
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where necessary, to ensure Year 2000 compliance and uninterrupted services and
supplies to the Company.
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 be 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 November 15, 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:
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Working capital at third quarter-end 1999 decreased by $890,000, as compared
to working capital at year-end 1998. Such decreased working capital was due, in
part, to a decrease in accounts receivable, a decrease in inventory and an
increase in accrued liabilities, partially offset by a decrease in accounts
payable. Total assets at third quarter-end 1999 decreased $4,648,000 over year-
end 1998 primarily as a result of a decrease in accounts receivable and
inventories, partially offset by an increase in net property, plant and
equipment. In addition, total liabilities decreased by $3,963,000 at third
quarter-end 1999, due mostly to decreases in accounts payable and deferred
income taxes, partially offset by increases in other accrued liabilities and
long term debt.
The Company spent $24,468,000 on capital expenditures during the first three
quarters of 1999, which were financed primarily with cash flows from operating
activities and increased debt. 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
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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 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 of the Company under the credit facility, and evidenced the lenders'
consent to certain transactions, including the restructuring effectuated by the
Company.
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 consolidated 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.
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Part II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON 8-K
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(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
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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: November 12, 1999 By: /s/ Robert L. Ayres
----------------- ----------------------------
(Signature)
Robert L. Ayres
Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
13
