Back to GetFilings.com
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 (FEE REQUIRED)
For the fiscal year ended December 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 Identification No.)
incorporation or organization)
One Mason Drive, Jamestown, New York 14702
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
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
- ------------------------- ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
(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
----- ------
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. [ ]
As of March 4, 1996, 5,975,387 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 March 4, 1996, which was $22.50 per share) of the Class A Common
Stock held by non-affiliates was approximately $115,803,000. As of March 4,
1996, 2,570,247 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 22, 1996 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
PART I
------
ITEM 1. BUSINESS
- ------- --------
(a) GENERAL DEVELOPMENT OF BUSINESS
-------------------------------
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 will ultimately include 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, or
approximately 500,000 square feet, is expected to be completed by April 1996
and will replace the Company's leased distribution and warehouse facility in
Saybrook, Ohio. Construction of the second phase of the expansion program, for
an additional approximately 500,000 square feet will commence in 1996 and is
scheduled to be completed late in the year. Manufacturing capacity,
incorporating newly developed advanced technology, will be added to this
facility as demand requires, with the first additions occurring in 1996.
As of March 15, 1996, the Company was in the process of negotiating the
purchase of a majority interest in The ColorWorks, Inc. (the consummation or
final terms of which no assurance can be given) for approximately $5.5 million,
payable principally in Bush Class A Common Stock. The ColorWorks, Inc., a North
Carolina based finishing and decorating firm, holds the master license to the
"HydroGraFix" film processing technology in North and South America, Central
Europe and South Africa.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
The Company engages in one industry segment, the design, manufacture and
sale of ready-to-assemble and assembled furniture products.
(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 also designs, manufactures and sells
assembled furniture. The Company's RTA
3
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
assembled products include home entertainment centers, home theater furniture
systems, and furniture for the home and commercial office.
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. In addition, the Company maintains a toll free number to assist consumers
with any questions with respect to the assembly of any product.
MARKETING AND DISTRIBUTION
The Company's 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 products are sold
both through independent manufacturers' representatives and directly by the
Company's sales personnel. The Company's products are currently sold to
approximately 800 customers, and the Company estimates that its products are
currently carried in approximately 15,000 retail outlets.
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 manufacturing operations are proprietary in nature and that an adequate
supply of raw materials is available from multiple sources.
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.
4
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 30, 1995, the Company had one customer,
OfficeMax, Inc., which accounted for approximately 14% 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 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
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.
EMPLOYEES
As of December 30, 1995, the Company employed a total of approximately
1,900 employees. There are no collective bargaining agreements covering any of
the Company's employees. The Company believes it has good employee relations.
5
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
-------------------------------------------------
OPERATIONS AND EXPORT SALES
----------------------------
For the 1995 fiscal year ended December 30, 1995, the Company generated
domestic sales of approximately $209,274,000 (or approximately 95.1% of total
sales) and foreign sales of approximately $10,740,000 (or approximately 4.9% of
total sales). For the 1994 fiscal year ended December 31, 1994 and the 1993
fiscal year ended January 1, 1994, the Company generated domestic sales of
approximately $203,280,000 and $165,567,000, respectively (or approximately
95.3% of total sales for the 1994 fiscal year and approximately 97.2% of total
sales for the 1993 fiscal year). Foreign sales for the fiscal years ended
December 31, 1994 and January 1, 1994, respectively, were approximately
$9,936,000 and $4,718,000 (or approximately 4.7% of total sales for the 1994
fiscal year and approximately 2.8% of total sales for the 1993 fiscal year.)
6
ITEM 2. PROPERTIES
- --------- ----------
The following table summarizes the Company's existing facilities as of
March 15, 1996:
Approximate Owned/Leased
Principal Character Square (Lease Expiration
and Use of Property Location Footage Date)
- -------------------------- ----------------- ----------- ------------------
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 1,020,000 Owned (2) (3)
Distribution and
warehouse facility Saybrook, OH 385,000 Leased (4)
Leased
Regional service center Erie, PA 8,000 (June, 2001)
Leased
Regional service center Oxnard, CA 8,000 (July, 2001)
Leased
Regional service center Fort Pierce, FL 6,000 (August, 2001)
Sub-leased (5) Rancho Leased
Cucamonga, CA 50,000 (June, 1997) (5)
Manufacturing facility Tijuana, Mexico 88,000 Leased
(December, 1996)
Manufacturing facility Greensboro, NC 152,000 Leased
(December, 1997)
Sales office and Leased
design studio Ft. Myers, FL 3,000 (January, 1999)
Showroom San Francisco, CA 4,000 Leased
(January, 1997)
Showroom High Point, NC 13,000 Leased
(April, 1997)
- -----------------------
7
(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) This is a new manufacturing and distribution facility. 188,000 square feet
are currently available under a conditional occupancy permit and a total of
485,000 square feet will be available by April 1996. The entire facility
is scheduled to be completed in 1996.
(3) Legal title to the facility will be in EIDCO, Inc. in accordance with low
interest financing to be provided by the Commonwealth of Pennsylvania.
(4) This facility is on a month-to-month rental agreement and will be vacated
as soon as the 485,000 square foot portion of the expansion project in
Erie, PA is available and the inventory currently at the Saybrook, OH
facility is transferred to the Erie, PA facility.
(5) 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.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
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 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. 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 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. The Company believes that the
outcome of these proceedings, of which no assurance can be given, will not
materially adversely affect its operations.
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 operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 30, 1995.
8
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
- ------- ----------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
(a) Market Information. The Company's Class A Common Stock has been traded
------------------
on the New York Stock Exchange since July 14, 1994, under the symbol "BSH".
From April 24, 1985 through July 13, 1994 the Company's Class A Common Stock was
traded on the American Stock Exchange under the symbol "BSH". 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 since
July 14, 1994 and on the American Stock Exchange through July 13, 1994, for the
periods indicated, and as adjusted to reflect the January 20, 1995 stock split
effectuated in the form of a twenty-five percent dividend and the January 7,
1994 stock split effectuated in the form of a fifty percent dividend:
Quarter High Low
- ---------- ------ ------
January 1, 1994 - March 31, 1994 $22.20 $15.80
April 1, 1994 - June 30, 1994 $26.70 $16.70
July 1, 1994 - September 30, 1994 $23.40 $20.10
October 1, 1994 - December 31, 1994 $22.80 $13.60
January 1, 1995 - March 31, 1995 $16.70 $10.13
April 1, 1995 - June 30, 1995 $12.75 $10.63
July 1, 1995 - September 30, 1995 $14.63 $11.00
October 1, 1995 - December 31, 1995 $19.88 $14.25
(b) Holders. As of March 4, 1996, the number of holders of record of the
-------
Company's Class A Common Stock was approximately 420. The Company believes that
there are approximately an additional 2,000 holders who owned shares of the
Company's Class A Common Stock in street name. As of the same date, there were
approximately 11 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 $0.025 per share for each of the four quarters of
1995.
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
9
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 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.
10
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following selected financial data of the Company for the 1991 through
1995 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.
(In Thousands, except share and per share data)
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Earnings Data (1)
- ----------------------
Net Sales............. $ 220,014 $ 213,216 $ 170,285 $ 127,990 $ 126,459
Earnings Before
Income Taxes.......... $ 20,744 $ 19,842 $ 11,908 $ 4,569 $ 4,249
Net Earnings.......... $ 12,550 $ 12,004 $ 7,145 $ 2,771 $ 2,405
Earnings Per Share
Primary.......... $ 1.42 $ 1.29 $ 0.82 $ 0.32 $ 0.28
Fully Diluted.... $ 1.36 $ 1.29 $ 0.82 $ 0.32 $ 0.28
Number of Weighted
Average Class A and
Class B Shares
Outstanding
Primary.......... 8,847,029 9,341,381 8,681,008 8,694,008 8,580,180
Fully Diluted.... 9,227,461 9,341,381 8,696,744 8,695,230 8,624,138
Balance Sheet Data
- ----------------------
Working Capital....... $ 24,018 $ 34,421 $ 26,903 $ 23,634 $ 11,130
Total Assets.......... $ 102,606 $ 100,958 $ 83,522 $ 72,161 $ 78,017
Long-term Debt........ $ 15,031 $ 16,774 $ 16,108 $ 18,809 $ 10,284
Stockholders' Equity.. $ 59,113 $ 52,265 $ 39,938 $ 31,852 $ 29,249
- ----------------------
(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 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.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL
While slowing somewhat in 1995, 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.
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.
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:
Percentage of Net Sales
-----------------------
1995 1994 1993
------ ------ ------
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 70.1% 70.5% 70.2%
----- ----- -----
Gross Profit 29.9% 29.5% 29.8%
Selling, General and Administrative Expenses 19.6% 19.3% 21.8%
------ ------ ------
Operating Income 10.3% 10.2% 8.0%
Interest Expense 0.9% 0.9% 1.0%
----- ----- -----
Earnings Before Income Taxes 9.4% 9.3% 7.0%
Income Taxes 3.7% 3.7% 2.8%
----- ----- -----
Net Earnings 5.7% 5.6% 4.2%
===== ===== =====
12
The following paragraphs provide an analysis of the changes in net sales,
selected cost and expense items, and earnings for fiscal years 1993 through
1995. All earnings per share data have been retroactively adjusted to reflect
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 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 a record
$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 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 postretirement or postemployment 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
$1.42 primary earnings per share, $1.36 fully diluted earnings per share), as
compared to $12,004,000
13
(or $1.29 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.
RESULTS OF OPERATIONS: FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales for the 1994 fiscal year compared to the 1993
fiscal year increased $42,931,000, or approximately 25.2%, to $213,216,000. 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, deeper penetration with current retailers,
diversification into broader channels of distribution, and an improving economy.
The cost of sales increased $30,842,000 in 1994 primarily as a result of
higher sales volumes. The cost of sales as an approximate percentage of net
sales increased by 0.3% from 70.2% in 1993 to 70.5% in 1994 and correspondingly,
gross profit as an approximate percentage of net sales decreased by 0.3% to
29.5% in 1994 from 29.8% in 1993. In 1994, raw material costs increased at a
rate that was higher than the Company's ability to offset these costs through
increased production volume (which results in better absorption of manufacturing
overhead), product redesign, price increases and other measures.
While net sales increased by approximately 25.2%, selling, general and
administrative expenses increased in 1994 by only approximately 10.5% (or by
$3,915,000) compared to 1993. The increase in selling, general and
administrative expenses was primarily a result of increases in distribution
costs and in variable selling expenses such as commissions, marketing and
promotional incentives necessary to support the Company's increased sales
volumes. Selling, general and administrative expenses declined as an
approximate percentage of net sales from 21.8% in 1993 to 19.3% in 1994.
Interest expense in 1994 increased to $1,905,000 (or approximately 0.9% of
net sales) from $1,665,000 (or approximately 1.0% of net sales) in 1993. The
reduction in interest rates on the Company's loan facility with Mellon Bank was
more than offset by increases in the prime rate and LIBOR and by an increase in
average debt. The Company's overall effective federal, state and local tax rate
decreased from 40.0% in 1993 to 39.5% in 1994 primarily as a result of lower
state taxes. The exercise of stock options and the vesting of restricted stock
during 1994 resulted in a tax benefit amounting to $443,000, which has been
credited directly to paid-in capital and is not reflected in 1994's provision
for taxes. The Company has no material postretirement or postemployment
benefits as defined in SFAS No. 106, "Employers' Accounting for Postretirement
Other than Pensions", and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits".
For 1994, the Company generated net earnings after taxes of $12,004,000 (or
$1.29 per share), as compared to $7,145,000 (or $.82 per share) for 1993. This
was an approximate 68.0% increase in net earnings or an approximate 57.3%
increase in per share earnings. The increase in net earnings is primarily due to
increased sales and an increase in net earnings as a percent of sales from 4.2%
in 1993 to 5.6% in 1994, as described above.
14
LIQUIDITY AND CAPITAL RESOURCES
Working capital at year-end 1995 decreased by $10,403,000, as compared to
working capital at year-end 1994, primarily because of a decrease in cash,
inventories and accounts receivable and an increase in income taxes and other
accrued liabilities. Partially offsetting these factors was a decrease in notes
payable, accounts payable and the current portion of long-term debt. As a result
of the refinancing the Company completed in the summer of 1995, all of notes
payable and the majority of the current portion of long-term debt were
classified as long-term debt. Total assets at year-end 1995 increased
$1,648,000 over year-end 1994 as a result, in part, of the increase in net
property, plant and equipment and other assets, as offset by the decrease in
current assets. In addition, total liabilities decreased $5,200,000 at year-end
1995, due mostly to a decrease in notes payable, accounts payable, long-term
debt and the current portion of long-term debt, partially offset by an increase
in other accrued liabilities, income taxes and deferred income taxes.
The Company spent $20,989,000 on capital expenditures during 1995 (a
portion of which was 1995 construction costs associated with the first phase of
the Erie facility, as described below), which was financed with net cash flow
from operating activities. Capital expenditures in 1996 are currently
forecasted to be in the $29 to $34 million range, including the completion of a
new one million square-foot manufacturing and distribution facility. The new
facility is located in the Erie, Pennsylvania area, which is about 50 miles from
the Company's main manufacturing complex in Jamestown, New York. The first phase
of this expansion, or approximately 500,000 square feet, is expected to be
completed by April 1996 and will replace the Company's leased distribution and
warehouse facility in Saybrook, Ohio. Construction of the second phase of the
expansion program, for an additional approximately 500,000 square feet, will
commence in 1996 and is scheduled to be completed late in the year.
Manufacturing capacity, incorporating newly developed advanced technology, will
be added to this facility as demand requires, with the first additions occurring
in 1996.
As of March 15, 1996, the Company was still negotiating the purchase of a
majority interest in The ColorWorks, Inc. (the consummation or final terms of
which no assurance can be given) for approximately $5.5 million, payable
principally in Bush Class A Common Stock. The ColorWorks, Inc., a North
Carolina based finishing and decorating firm, holds the master license to the
"HydroGraFix" film processing technology in North and South America, Central
Europe and South Africa.
In 1995, the Company repurchased $5,260,000 of the Company's Class A Common
Stock (of the $8,000,000 authorized to be repurchased) and was still able to
decrease its total debt by $7,580,000. In addition, in 1995, the Company
received $382,000 from the exercise of stock options by employees. During 1995,
the Company paid four quarterly dividends totaling $877,000 to its stockholders.
On July 26, 1995, the Company replaced its $70,000,000 asset based working
capital and term loan facility with an unsecured $75,000,000 credit facility
with Mellon Bank and other
15
lending institutions. This 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. 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 will 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 $75,000,000 maximum amount of borrowing permitted
under the unsecured credit facility. As part of this refinancing, the Company
paid off all of its other long-term debt, with the exception of its Industrial
Development Revenue Bonds and a capitalized lease.
The line of credit agreement 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 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 operations in 1996.
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.
16
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 22, 1996, 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 22, 1996, 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 22, 1996, 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 22, 1996, under the caption "Certain Transactions",
to be filed by the Registrant.
17
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- -------- --------------------------------------------
REPORTS ON FORM 8-K
-------------------
(A) The consolidated balance sheets as of December 30, 1995 and December 31,
1994 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 30, 1995 are filed as part of this
report:
(1) Financial Statements Page
-------------------- ----
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
(2) Consolidated Financial Statement Schedules
------------------------------------------
Schedule II - Valuation and Qualifying Accounts.. S-1
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)
18
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)
19
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.
10.18 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.
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 30, 1994.
(9) Incorporated by reference to the Registrant's Current Report on
Form 8-K, filed August 4, 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 30, 1995.
20
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
INDEPENDENT AUDITOR'S 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 30, 1995 and December 31, 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 30, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 30, 1995 and December 31, 1994, and the results of their operations and
their cash flows for each of the three years in the period ended December 30,
1995 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.
/s/ Deloitte & Touche LLP
Buffalo, New York
February 9, 1996
F-1
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 30, 1995 AND DECEMBER 31, 1994
- -------------------------------------------------------------------------------
(In Thousands)
1995 1994
ASSETS
CURRENT ASSETS:
Cash $ 2,929 $ 4,151
Accounts receivable (less allowance for doubtful accounts of $1,011,000
on December 30, 1995 and $635,000 on December 31, 1994) 22,321 27,967
Inventories (Note 2) 21,582 28,865
Prepaid expenses and other current assets (Note 7) 3,697 3,729
-------- --------
Total current assets 50,529 64,712
PROPERTY, PLANT AND EQUIPMENT (Note 5):
Land 2,379 479
Buildings and improvements 29,228 18,673
Machinery and equipment 46,394 38,489
Transportation equipment 394 371
Office equipment 6,184 5,690
Leasehold improvements 1,216 1,148
-------- --------
85,795 64,850
Accumulated depreciation 36,179 30,433
-------- --------
49,616 34,417
OTHER ASSETS 2,461 1,829
-------- --------
TOTAL ASSETS $102,606 $100,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 3) $ 0 $ 2,595
Accounts payable 7,567 9,431
Income taxes (Note 7) 2,124 186
Other accrued liabilities (Note 4) 16,419 14,436
Current portion of long-term debt (Note 5) 401 3,643
-------- --------
Total current liabilities 26,511 30,291
DEFERRED INCOME TAXES (Note 7) 1,951 1,628
LONG-TERM DEBT (Note 5) 15,031 16,774
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Common Stock-Class A 629 626
Class B 257 257
Paid-in capital 7,146 6,714
Retained earnings 56,341 44,668
-------- --------
64,373 52,265
Less treasury stock-320,000 shares at cost 5,260 0
-------- --------
59,113 52,265
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $102,606 $100,958
======== ========
See notes to consolidated financial statements.
F-2
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
- --------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1995 1994 1993
(52 WEEKS) (52 WEEKS) (52 WEEKS)
NET SALES $ 220,014 $ 213,216 $ 170,285
COSTS AND EXPENSES:
Cost of sales 154,294 150,334 119,492
Selling, general and administrative 43,054 41,135 37,220
Interest 1,922 1,905 1,665
---------- ---------- ----------
199,270 193,374 158,377
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 20,744 19,842 11,908
INCOME TAXES (Note 7) 8,194 7,838 4,763
---------- ---------- ----------
NET EARNINGS $ 12,550 $ 12,004 $ 7,145
========== ========== ==========
EARNINGS PER SHARE (Note 8)
Primary $1.42 $1.29 $0.82
Fully diluted $1.36 $1.29 $0.82
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 8)
Primary 8,847,029 9,341,381 8,681,008
Fully diluted 9,227,461 9,341,381 8,696,744
See notes to consolidated financial statements.
F-3
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
- -------------------------------------------------------------------------------
(In Thousands, except share data)
Common Stock-Par Value $.10 Treasury Stock Notes Receivable
------------------------------------ ---------------- and Deferred
Class A Class B Class A/B Compensation
---------------- ----------------- Paid-in Retained ---------------- Related to
Shares Amount Shares Amount Capital Earnings Shares Amount Common Stock
BALANCE, JANUARY 2, 1993 3,018,647 $302 1,626,192 $162 $5,694 $26,638 58,225 $366 $578
Conversion of Class B stock to Class A 175,390 18 (175,390) (18) 0 0 0 0 0
Exercise of stock options by employees 45,740 4 0 0 202 0 (58,225) (366) 0
Amortization of deferred compensation 0 0 0 0 0 0 0 0 (144)
Received from employees 0 0 0 0 0 0 0 0 (170)
Tax benefit from exercise of stock options 0 0 0 0 608 0 0 0 0
Dividends declared 0 0 0 0 0 (554) 0 0 0
Net earnings 0 0 0 0 0 7,145 0 0 0
Three-for-two stock split 1,619,817 162 725,401 74 (235) 0 0 0 0
--------- ---- --------- ---- ------ ------- -------- ------ -----
BALANCE, JANUARY 1, 1994 4,859,594 486 2,176,203 218 6,269 33,229 0 0 264
Conversion of Class B stock to Class A 120,000 12 (120,000) (12) 0 0 0 0 0
Exercise of stock options by employees 32,290 3 0 0 179 0 0 0 0
Amortization of deferred compensation 0 0 0 0 0 0 0 0 (120)
Received from employees 0 0 0 0 0 0 0 0 (144)
Tax benefit from exercise of stock options
and vesting of restricted stock 0 0 0 0 443 0 0 0 0
Dividends declared 0 0 0 0 0 (565) 0 0 0
Net earnings 0 0 0 0 0 12,004 0 0 0
Five-for-four stock split 1,252,826 125 514,044 51 (177) 0 0 0 0
--------- ---- --------- ---- ------ ------- -------- ------ -----
BALANCE, DECEMBER 31, 1994 6,264,710 626 2,570,247 257 6,714 44,668 0 0 0
Purchase of treasury stock 0 0 0 0 0 0 320,000 5,260 0
Excercise of stock options by employees 29,458 3 0 0 379 0 0 0 0
Tax benefit from exercise of stock options 0 0 0 0 53 0 0 0 0
Dividends declared 0 0 0 0 0 (877) 0 0 0
Net earnings 0 0 0 0 0 12,550 0 0 0
--------- ---- --------- ---- ------ ------- -------- ------ ----
BALANCE, DECEMBER 30, 1995 6,294,168 $629 2,570,247 $257 $7,146 $56,341 320,000 $5,260 $ 0
========= ==== ========= ==== ====== ======= ======== ====== ====
See notes to consolidated financial statements.
F-4
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
- --------------------------------------------------------------------
(IN THOUSANDS)
1995 1994 1993
(52 WEEKS) (52 WEEKS) (52 WEEKS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,550 $ 12,004 $ 7,145
Adjustment to reconcile:
Depreciation and amortization 6,010 5,807 5,342
Deferred income taxes (422) 549 (1,396)
Change in assets and liabilities affecting cash flows:
Accounts receivable 5,646 (9,203) (461)
Inventories 7,283 (8,595) (1,589)
Prepaid expenses and other current assets 403 (123) (83)
Accounts payable (1,864) 2,333 2,028
Income taxes 2,365 (547) 947
Other accrued liabilities 1,983 375 5,595
---------- ---------- ----------
Net cash provided by operating activities 33,954 2,600 17,528
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,989) (10,851) (5,418)
Increase in other assets (852) (181) (502)
---------- ---------- ----------
Net cash used in investing activities (21,841) (11,032) (5,920)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (paydown) of line of credit (2,595) 2,595 (1,761)
Repayment of long-term debt (12,050) (3,886) (3,508)
Proceeds from long-term debt 7,065 4,732 0
Purchase of Class A stock for treasury (5,260) 0 0
Exercise of stock options by employees 382 182 572
Dividends paid (877) (565) (554)
Decrease in notes receivable 0 144 170
---------- ---------- ----------
Net cash provided by (used in) financing activities (13,335) 3,202 (5,081)
NET (DECREASE) INCREASE IN CASH (1,222) (5,230) 6,527
CASH, BEGINNING OF YEAR 4,151 9,381 2,854
---------- ---------- ----------
CASH, END OF YEAR $ 2,929 $ 4,151 $ 9,381
========== ========== ==========
See notes to consolidated financial statements.
F-5
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 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. Sales are
made primarily to retailers on credit throughout the United States and one
customer accounted for total gross sales of approximately 14% in 1995, 13% in
1994 and 11% in 1993.
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.
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.
OTHER ASSETS - Other assets consist primarily of cash value of officer's life
insurance policies and unamortized finance costs.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS - The Company has no material
postretirement or postemployment benefits as defined in 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 instruments approximates their recorded values.
INCOME TAXES - The Company has computed its tax provision in accordance with
SFAS No. 109 which requires that deferred taxes be 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.
F-6
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.
2. INVENTORIES
Inventories consist of the following (in thousands):
December 30, December 31,
1995 1994
Raw materials $ 4,459 $ 7,403
Work in progress 2,324 3,598
Finished goods 14,799 17,864
-------- --------
Total $21,582 $28,865
======== ========
3. NOTES PAYABLE - LINE OF CREDIT
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 $75,000,000, on an unsecured basis.
Interest is payable on the average daily balance of loans outstanding on a
base rate (8.5% at December 30, 1995) or euro rate (6.63% at December 30,
1995) 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 $75,000,000 maximum amount of borrowing permitted. As of December
30, 1995, letters of credit amounting to $4,706,247 (including $1,637,500 for
Industrial Development Revenue Bonds - see Note 5) were outstanding.
The line of credit agreement provides for achieving total funded debt to
capital and total funded debt 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.
F-7
The Company has classified the line of credit as long-term based on
management's estimate of the long-term nature of this loan (see Note 5).
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of (in thousands):
December 30, December 31,
1995 1994
Payroll, profit sharing and related liabilities $ 4,221 $ 3,577
Interest 83 233
Commissions and sales related expenses 9,829 8,772
Insurance 1,317 1,085
Contingency reserves 252 93
Other 717 676
------- -------
Total $16,419 $14,436
======= =======
5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
December 30, December 31,
1995 1994
Long-term portion of revolving line of credit
due July 31, 2000 (see Note 3) $14,056 $ 6,991
Term loan repayable in monthly installments
of $119,048 plus interest (7 7/8% at December
31, 1994) at 1 7/8% over the LIBOR rate or
1/8% over prime, collateralized by equipment 0 9,524
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 varying amounts
through 2000 1,275 1,607
Ten-year New York State Job Development
Authority first realty promissory note
originally issued for $3,600,000. Variable
interest rate (8 1/4% at December 31, 1994). 0 859
Five-year term loan due December 15, 1995,
repayable in monthly installments of $44,200
plus interest (8 5/8% at December 31, 1994)
at 1/8% over prime, collateralized by
specific equipment 0 503
Other long-term loans, notes payable and
capitalized leases 101 933
------- -------
Total debt 15,432 20,417
Less current portion 401 3,643
------- -------
Total long-term debt $15,031 $16,774
======= =======
F-8
The Industrial Development Revenue Bonds are supported by a $1,637,500 letter
of credit (which is included in the total letters of credit outstanding in
Note 3) expiring June 1996. 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):
1996 $ 401
1997 300
1998 300
1999 300
2000 and thereafter 14,131
6. COMMITMENTS AND CONTINGENCIES
The Company has incurred rental expense for manufacturing and warehouse space
and equipment. A summary of rent expense follows (in thousands):
1995 1994 1993
Real estate $1,855 $1,737 $1,412
Equipment 1,236 1,171 1,357
Equipment rental consists of payments made for transportation, computer and
manufacturing equipment. Certain real property leases have renewal and
purchase options. Minimum future obligations over the next five years
under all operating leases are summarized as follows (in thousands):
1996 $3,420
1997 2,539
1998 1,860
1999 1,495
2000 1,257
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 results of operations or
financial position.
7. INCOME TAXES
The provision for income taxes is as follows (in thousands):
1995 1994 1993
Current
Federal $7,698 $6,310 $5,216
State 918 979 943
Deferred (422) 549 (1,396)
------ ------ ------
Total $8,194 $7,838 $4,763
====== ====== ======
F-9
The tax effects of the principal temporary differences resulting in deferred
taxes are as follows (in thousands):
1995 1994 1993
Depreciation $ 84 $(179) $ (360)
Accrued expenses (369) 493 (956)
Accounts receivable and inventories (137) 235 (80)
----- ----- -------
$(422) $ 549 $(1,396)
===== ===== =======
The types and tax effects of temporary differences that cause significant
portions of deferred tax assets and liabilities are as follows:
1995 1994
Deferred Tax Assets:
Accounts receivable $ 373 $ 242
Accrued expenses 1,596 1,501
Inventories 533 418
New York State investment tax credit carryforward 2,242 2,252
------- -------
4,744 4,413
Deferred Tax Liabilities:
Property, plant and equipment (2,044) (1,750)
------- -------
Subtotal 2,700 2,663
Total valuation allowance (2,242) (2,252)
------- -------
Net deferred tax asset $ 458 $ 411
======= =======
1995 1994
Reported as:
Current asset (included in prepaid
expenses and other current assets) $ 2,409 $ 2,039
Long-term liability (1,951) (1,628)
------- -------
Total $ 458 $ 411
======= =======
The Company has recorded a valuation allowance in anticipation that New York
State investment tax credits will expire prior to their usage.
The provision for income taxes differs in each of the years from the federal
statutory rate due to the following:
1995 1994 1993
Statutory rate 35.0% 35.0% 35.0%
State taxes 2.8 3.6 4.9
Tax basis and rate adjustments 0.0 0.0 (0.5)
Effect of non-deductible costs 0.6 0.7 0.5
Other, net 1.1 0.2 0.1
---- ---- ----
Effective tax rate 39.5% 39.5% 40.0%
==== ==== ====
The Company realized tax benefits amounting to $53,000, $443,000, and $608,000
as the result of restricted stock and stock option transactions during 1995,
1994, and 1993, respectively. The benefit has been credited to paid-in capital
and is not reflected in the current year provision for taxes.
F-10
8. 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 November 29, 1994, the Board of Directors declared a 5-for-4 stock split
payable as a dividend to all holders of Class A and Class B Common Stock of
record on January 6, 1995, paid on January 20, 1995. All earnings per share
calculations and weighted average shares outstanding have been retroactively
restated to reflect the stock split.
9. STOCK OPTION PLANS
The Company has a stock option plan with 250,000 shares of Class A Common
Stock available for issuance. 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 less than one year after the date of grant.
As of December 30, 1995, there were options to purchase 486,694 shares of
Class A Common Stock at prices ranging from $2.27 - $21.80 that could be
exercised, as adjusted for stock splits effectuated in the form of stock
dividends.
A summary of the option transactions for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994 follows:
1995 1994 1993
Options outstanding, beginning of year 1,463,019 52,571 85,247
Options granted 0 1,170,000 4,019
Options cancelled (70,313) (19,872) (264)
Options exercised (29,458) (32,290) (53,965)
Effect of stock split (Note 8) 0 292,610 17,534
--------- --------- -------
Options outstanding, end of year 1,363,248 1,463,019 52,571
========= ========= =======
All of the options outstanding expire at various dates from 1997 through
2004. The option price of the shares exercised in 1995 ranged from $4.20
to $13.37.
In addition to the options granted under the aforementioned plans, the Company
has granted 56,250 non-qualifying options to certain key individuals which can
be exercised through 2003 at an exercise price of $13.37, as adjusted for
stock splits effectuated in the form of stock dividends.
F-11
10. 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 $722,000,
$688,000 and $709,000 for the years ended December 30, 1995, December 31, 1994
and January 1, 1994, respectively.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
1995 1994 1993
Cash paid during the years for:
Interest $2,069 $1,827 $1,687
Income taxes 6,251 7,835 5,722
Summary of noncash investing and financing activities:
During 1993, the Company entered into capital lease obligations in the amount
of $989,000 to finance equipment acquisitions.
12. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 - primary $ 0.55 $ 0.36 $ 0.21 $ 0.30
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 - primary* $ 0.35 $ 0.33 $ 0.31 $ 0.30
1993
Net sales $52,076 $43,715 $39,301 $35,193
Gross profit 15,667 13,445 11,907 9,774
Income taxes 1,939 1,464 1,020 340
Net earnings 2,909 2,196 1,530 510
Earnings per share - primary* $ 0.33 $ 0.25 $ 0.18 $ 0.06
* Restated for 5-for-4 stock split declared November 29, 1994 and the 3-for-2
stock split declared on November 11, 1993.
* * * * * *
F-12
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COL. C
ADDITIONS
COL. B -----------------------------------
BALANCE AT CHARGED TO COL. D COL E
COL. A BEGINNING CHARGED TO OTHER ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION OF PERIOD COSTS & EXPENSES DESCRIBE DESCRIBE(1) END OF PERIOD
Allowance for doubtful accounts
Fiscal 1995 $635 $713 $ 0 $337 $1,011
Fiscal 1994 732 (50) 0 47 635
Fiscal 1993 545 307 0 120 732
(1) Accounts written off, net of collections on accounts receivable previously
written off
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 25, 1996 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Paul S. Bush
- ------------------------
Paul S. Bush President, Chief
Executive Officer, and
Chairman of the Board
of Directors March 25, 1996
/s/Robert L. Ayres
- -----------------------
Robert L. Ayres Executive Vice President,
Chief Operating Officer,
Chief Financial Officer,
and Director March 25, 1996
/s/Lewis H. Aronson
- -----------------------
Lewis H. Aronson Vice President of
Corporate Development
and Director March 25, 1996
21
/s/Douglas S. Bush
- ---------------------
Douglas S. Bush Vice President of
Merchandising and
Director March 25, 1996
/s/Gregory P. Bush
- ---------------------
Gregory P. Bush Vice President of
Administration and
Director March 25, 1996
/s/Donald F. Hauck
- ---------------------
Donald F. Hauck Senior Vice President
and Director March 25, 1996
/s/David G. Messinger
- ---------------------
David G. Messinger Senior Vice President of
Sales and Marketing and
Director March 25, 1996
/s/Paul A. Benke
- ---------------------
Paul A. Benke Director March 25, 1996
/s/Jerald D. Bidlack
- ---------------------
Jerald D. Bidlack Director March 25, 1996
/s/Robert E. Hallagan
- ---------------------
Robert E. Hallagan Director March 25, 1996
22