BUSH INDUSTRIES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2001

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
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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
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(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of December 29, 2001, 10,379,843 shares of Class A Common Stock were
outstanding and the aggregate market value (based on the closing price on the
New York Stock Exchange on December 28, 2001 which was $10.85 per share) of the
Class A Common Stock held by non-affiliates was approximately $55,565,000. As of
December 29, 2001, 3,395,365 shares of Class B Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on May 16, 2002, 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
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ITEM 1. BUSINESS
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(a) GENERAL DEVELOPMENT OF BUSINESS
-------------------------------

Bush Industries, Inc. (the "Company" or the "Registrant"), 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.

On June 30, 1997, the Company acquired a 51% interest in the Rohr Gruppe, a
German furniture manufacturer, which name was subsequently changed to Rohr-Bush
GmbH & Co. ("Rohr-Bush"). On February 29, 2000, the Company executed a
definitive agreement with certain members of the Rohr family to acquire the
family's approximately 49% remaining interest in Rohr-Bush. The transaction
closed in October 2000. The Bush Furniture Europe segment is comprised of
Rohr-Bush.

In July 2001, the Company announced a plan to reorganize its operations
into four operating segments based principally on the natural alignment of its
customers, markets and products. The four operating segments, which are
discussed in more detail below, are as follows: Bush Business Furniture, Bush
Furniture, Bush Furniture Europe, and Bush Technologies. This reorganization was
substantially completed by the end of 2001.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------

The Company operates its business in four reportable segments: (1) Bush
Business Furniture, which concentrates on the business office and the home
office markets with sales to the office superstore and dealer channels; (2) Bush
Furniture, which focuses on home entertainment, home office and other home
furnishings products; (3) Bush Furniture Europe, which sells commercial, home
office and other furnishings in the European market; and (4) Bush Technologies,
which is focused on the cell phone accessories after-market, as well as the
utilization of surface technologies in automotive interiors, cosmetics, sporting
goods and consumer electronics. The Company operates several manufacturing and
warehouse facilities throughout North America and in Germany.

(c) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------

The Company's furniture segments are engaged primarily in the design,
manufacture and sale of ready-to-assemble ("RTA") and assembled furniture
products in various price ranges for both business and consumer use. The
Company's furniture product line includes audio/video home entertainment
centers, audio cabinets, television/VCR carts, wall units, bookcases, bedroom
furniture, computer desks and workstations, desks, hutches, armoires and file
cabinets.

3

The Company's diverse RTA furniture product line is sold by all three
furniture segments. RTA product is designed for ease of assembly, to ensure that
such products can be readily assembled by following simple, easy to read
diagramed instructions, contained with each RTA product sold. To enhance
customer service, the Company maintains a toll-free number in the United States
to assist consumers with any questions with respect to the assembly of Bush
products. Assembled furniture sold by Bush Furniture Europe is designed to be a
high quality product that appeals to popular price points. Assembled commercial
office furniture sold by Bush Business Furniture is designed to meet industry
(ANSI/BIFMA) standards.

The Company's surface technologies segment is engaged in the finishing and
decoration of various substrate materials through painting, the application of
the HydroGraFix process, and the use of advanced surface technologies. The
Company, through its wholly owned subsidiary, The ColorWorks, Inc., holds the
master license to the "HydroGraFix" film processing technology in the Western
Hemisphere, portions of Central Europe and South Africa. The HydroGraFix process
permits the decoration of a variety of geometric shapes, including complex
three-dimensional parts. Cellular phones, laptop computers, sporting goods such
as firearms and archery equipment, cosmetics and automotive interior components
are examples of major product lines decorated by Bush Technologies. With respect
to cell phones, Bush Technologies has also introduced the concept of being a
supplier of both functional accessories and decorated faceplates from multiple
manufactures to major retailers.

Marketing and Distribution

The Company's furniture products are marketed to a variety of retailers for
sale to both business and consumer end-users. Bush Business Furniture's
customers include office superstores, office furniture retailers, wholesalers,
contract stationers and dealers. Bush Furniture's customers include national
chains, electronic and computer superstores, discount mass merchants, home
furnishings retailers, department stores, home improvement centers and
independent wholesale distributors. Bush Furniture Europe's customers include
buying groups, office furniture retailers, office supply superstores and home
furnishings retailers. The Company's furniture products are sold both through
independent manufacturers' representatives and directly by the Company's sales
personnel. The Company's furniture products are currently sold to approximately
2,200 customers, and the Company estimates that its products are currently
carried in approximately 12,000 retail outlets.

Bush Technologies offers finishing and decorating processing services to
manufacturers and end-users of various products. Bush Technologies generally
provides such services directly and also sublicenses the "HydroGraFix" film
processing technology to third parties in varying fields of application and/or
geographic areas. Functional cell phone accessories and decorated faceplates
from multiple manufactures are sold to major retailers.

Sources and Availability of Raw Materials

The Company purchases the raw materials used in the production of its
furniture at each manufacturing location from a variety of sources on a global
basis. The Company believes that none of the materials required for its
furniture manufacturing operations are proprietary in nature and that

4

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 surface
technologies and 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.

Customers

For the fiscal year ended December 29, 2001, the Company had three
customers which accounted for approximately 14%, 14% and 12% of the Company's
total gross sales. No other single customer accounted for more than 10% of the
Company's total gross sales for the fiscal year ended December 29, 2001. While
the loss of any substantial customer could have a material short-term impact on
the Company's business, the Company believes that its diverse furniture
distribution channels would minimize the long-term impact of any such loss.

Backlog

The Company believes that order backlog at any particular point in time is
not predictive of future sales performance since, as is standard in the
furniture industry, a customer may cancel a product order prior to shipment
without penalty. The Company has historically filled orders within approximately
one to six 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 furniture 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 furniture industry marketplace are price, quality, function, innovative
product design, style, supply chain management 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.

5

Competition in the surface technology segment comes not only from other
manufacturers employing derivatives of the Company's production methods, but
also from alternative product design methods that are available to produce
decorated surfaces. The Company believes it provides high quality, cost
effective surface decorating through a wide range of options that include
painting, the application of the HydroGraFix process and the use of advanced
surface technologies.

Environmental Compliance

Environmental aspects of the Company's business are regulated primarily by
federal and state laws and by the ordinances of the localities where the
Company's facilities are located. See Item 3, "Legal Proceedings", for
additional information regarding environmental compliance.

Employees

As of the 2001 fiscal year end, the Company employed a total of
approximately 3,000 employees. Since Rohr-Bush is an active member of the German
employers' association for the wood and plastics processing industry, it is
governed by the collective bargaining agreements for this industry. There are no
other collective bargaining agreements covering any of the Company's employees.
The Company believes it has good employee relations.

6

(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
------------------------------------------------
OPERATIONS AND EXPORT SALES
---------------------------

For the 2001 fiscal year ended December 29, 2001, the Company generated
domestic sales of approximately $280,689,000 (or approximately 81.2% of total
sales) and foreign sales of approximately $65,117,000 (or approximately 18.8% of
total sales). Of the total foreign sales, approximately $10,858,000 (or
approximately 3.1% of total sales) represented products exported by the Company
from the United States. For the 2000 fiscal year ended December 30, 2000 and the
1999 fiscal year ended January 1, 2000, the Company generated domestic sales of
approximately $384,171,000 and $359,073,000, respectively (or approximately
85.1% of total sales for the 2000 fiscal year and approximately 81.3% of total
sales for the 1999 fiscal year). Foreign sales for the fiscal years ended
December 30, 2000 and January 1, 2000, respectively, were approximately
$67,026,000 and $82,633,000 (or approximately 14.9% of total sales for the 2000
fiscal year and approximately 18.7% of total sales for the 1999 fiscal year). Of
such total foreign sales, approximately $11,170,000 and $11,909,000 represented
products exported by the Company from the United States for the fiscal years
ended December 30, 2000 and January 1, 2000, respectively (or approximately 2.5%
for the 2000 fiscal year and 2.7% for the 1999 fiscal year).

7

ITEM 2. PROPERTIES
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The following table summarizes the Company's principal facilities as of
March 15, 2002. All properties primarily relate to the furniture segments,
except for the Greensboro, NC and Rutherfordton, NC facilities which relate to
the surface technologies segment.

Approximate
Principal Character and Square Owned/Leased
use of Property Location Footage (Lease Expiration Date)
- ----------------------- -------- ------- -----------------------

Manufacturing, warehouse and
office facilities Erie, PA 1,115,000 Owned (1)

Manufacturing, warehouse and
office facilities Mastholte, Germany 815,000 Owned

Manufacturing, warehouse and Allen Street
office facilities Jamestown, NY 450,000 Owned

Manufacturing, warehouse and Mason Drive
corporate office facilities Jamestown, NY 440,000 Owned

Manufacturing and
warehouse facility St. Paul, VA 285,000 Owned

Manufacturing facility Mantinghausen, Germany 208,000 Owned

Warehouse facility Falconer, NY 162,000 Leased (December 2005)

Manufacturing and warehouse Tiffany Street
facility Jamestown, NY 145,000 Owned

Manufacturing facility Tijuana, Mexico 135,000 Leased (September 2002)

Manufacturing and warehouse
facilities Greensboro, NC 125,000 Owned

Manufacturing facility Little Valley, NY 78,000 Owned

Manufacturing facility Rutherfordton, NC 26,000 Owned

Showroom High Point, NC 21,000 Leased (October 2005)

Sales office and
design studio Ft. Myers, FL 4,000 Leased (March 2007)

Showroom Chicago, IL 3,000 Leased (December 2005)

_____________________________________
(1) Legal title to the facility is in EIDCO, Inc. in accordance with the terms
of low interest financing being provided by the Commonwealth of
Pennsylvania.

8

ITEM 3. LEGAL PROCEEDINGS
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On June 17, 1996, an approximate five-mile long area in Little Valley, New
York was added to the federal Superfund national priorities list, and with
respect thereto, the Company is not aware of any potentially responsible parties
having been identified as of the date hereof. In December 1996, the Company
responded to a request for information from the United States Environmental
Protection Agency ("EPA"), relating to the Company's Little Valley, New York
property. No assurance can be given that the Company's response will be
sufficient for the EPA, or that the EPA will not pursue further inquiries. The
Company understands that the EPA has provided the New York State Department of
Environmental Conservation ("DEC") with comments on the investigatory work
developed and implemented by the Company with respect to a DEC Order on Consent,
as more fully described below. Previously, in November 1995, the Company was
notified by the DEC of an alleged violation of a certain environmental
regulation concerning the presence of contaminates in the groundwater, including
trichloroethene, beneath the Company's property located in Little Valley, New
York.

Between November 1995 and March 1999, the Company and the DEC had
discussions concerning the scope of a work plan to conduct a subsurface
investigation at the property. Those discussions resulted in the Company
entering into an Order on Consent with the DEC to perform investigatory work as
set forth in a work plan. As a result of the implementation of the work under
the DEC Order on Consent, a groundwater evaluation report was submitted to the
DEC on July 6, 1999. The Company received comments on the groundwater evaluation
from the DEC on or about September 30, 1999, which included a request for
additional information and investigatory work. During November and December
1999, the Company's consultant implemented that additional investigatory work,
and submitted a revised groundwater evaluation report to the DEC on February 21,
2000. That report was approved by the DEC on March 31, 2000. As a result of that
approval, on July 6, 2000, the Company's consultant submitted a remediation
report which evaluated the potential for unacceptable risk to human health or
the environment, and evaluated remedial alternatives. The report included a
recommended course of action, with supporting rationale. The Company is awaiting
the DEC's response.

By letter dated July 7, 2000, the EPA requested access to the Company's
property in Little Valley to implement additional environmental sampling. The
Company, the EPA and the DEC representatives discussed this request for access
and related technical aspects. By letter dated August 23, 2000, the Company
indicated to the EPA that it would not refuse access for the EPA or its
authorized representatives or contractors to implement the investigatory work,
and requested a number of tasks be completed prior to and after entry. The EPA
mobilized in mid-November 2000, and implemented the work during various times
through early January 2001. The Company also took additional environmental
samples at this time. Except for one subsequent site walk over by the EPA, the
Company has not received any further information or requests from the EPA with
respect to its sampling or otherwise. Although no assurance can be given, the
Company believes that its financial statements will not be materially adversely
affected by the foregoing.

9

The Company has also become aware of the possible presence of certain
levels of contaminates on the Greensboro, North Carolina property owned by The
ColorWorks, Inc., a wholly owned subsidiary of the Company. The Company has
procured a $20,000,000 environmental insurance policy relating thereto. The
Company is responsible for certain deductibles under the insurance policy and,
in the unlikely event any such environmental costs are not covered by insurance,
the Company may be responsible for certain costs. However, based on an initial
assessment of the situation, the Company believes, although no assurance can be
given, that the Company's financial statements will not be materially adversely
affected by the foregoing.

As of December 29, 2001, the Company is a party to various other legal
proceedings arising in the ordinary course of business. The Company believes
that these pending actions would not materially adversely affect the Company's
financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------

No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 29, 2001.

10

PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
- ------ ---------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

(a) Market Information. The Company's Class A Common Stock is traded on
------------------
the New York Stock Exchange. The Company's Class B Common Stock is not publicly
traded.

The following table sets forth the high and low sales prices of the
Company's Class A Common Stock, as reported on the New York Stock Exchange for
the periods indicated:

Quarter High Low
- ---------------------------------- ------ ------

January 1, 2000 - March 31, 2000 $17.13 $12.06
April 1, 2000 - June 30, 2000 $17.88 $12.94
July 1, 2000 - September 30, 2000 $16.19 $11.31
October 1, 2000 - December 31, 2000 $12.94 $10.25

January 1, 2001 - March 31, 2001 $15.30 $11.44
April 1, 2001 - June 30, 2001 $16.05 $12.30
July 1, 2001 - September 30, 2001 $13.25 $ 8.10
October 1, 2001 - December 31, 2001 $12.05 $ 8.10

(b) Holders. As of December 29, 2001, the number of holders of record of
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the Company's Class A Common Stock was approximately 430. The Company believes
that there are approximately an additional 1,200 holders who own shares of the
Company's Class A Common Stock in street name. As of the same date, there were
approximately 17 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 $0.05 per share in each quarter of 2000 and 2001.

The determination as to the payment and the amount of future cash dividends
will depend upon the Company's then current financial condition, capital
requirements, results of operations and other factors deemed relevant by the
Company's Board of Directors. In addition, a certain loan agreement to which the
Company is a party limits the amount of cash dividends that the Company can
declare, and also imposes certain conditions with respect thereto. The Company's
Certificate of 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.

11

ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------

The following selected financial data of the Company for the 1997 through
2001 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)
-----------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Earnings Data
- ------------------------------------------

Net Sales ................................ $ 345,806 $ 451,197 $ 441,706 $ 413,527 $ 325,289
Earnings Before
Income Taxes ............................. $ 1,694 $ 37,309 $ 11,856 $ 18,361 $ 34,978
Net Earnings ............................. $ 257 $ 22,777 $ 5,762 $ 11,482 $ 22,120

Earnings Per Share
Basic ............................... $ 0.02 $ 1.66 $ 0.42 $ 0.83 $ 1.64
Diluted ............................. $ 0.02 $ 1.60 $ 0.40 $ 0.78 $ 1.52

Number of Weighted Average Class A
and Class B Shares Outstanding
Basic ............................... 13,720,085 13,680,629 13,878,060 13,824,331 13,464,479
Diluted ............................. 14,106,573 14,209,311 14,412,660 14,747,523 14,523,356

Balance Sheet Data
- ------------------------------------------

Working Capital .......................... $ 43,523 $ 56,235 $ 40,456 $ 40,046 $ 28,111
Total Assets ............................. $ 321,177 $ 366,551 $ 329,581 $ 329,130 $ 243,778
Long-term Debt ........................... $ 121,118 $ 140,376 $ 124,765 $ 121,054 $ 56,955
Stockholders' Equity ..................... $ 139,973 $ 141,710 $ 124,579 $ 123,619 $ 112,430

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------

General

The Company operates its business in four reportable segments: (1) Bush
Business Furniture, which concentrates on the business office and the home
office markets with sales to the office superstore and dealer channels; (2) Bush
Furniture, which focuses on home entertainment, home office and other home
furnishings products; (3) Bush Furniture Europe, which sells commercial, home
office and other furnishings in the European market; and (4) Bush Technologies,
which is focused on the cell phone accessories after-market, as well as the
utilization of surface technologies in automotive interiors, cosmetics, sporting
goods and consumer electronics. The Company operates several manufacturing and
warehouse facilities throughout North America and in Germany.

On June 30, 1997, the Company acquired a 51% interest in the Rohr Gruppe, a
German furniture manufacturer, which name was subsequently changed to Rohr-Bush
GmbH & Co. ("Rohr-Bush"). On February 29, 2000, the Company executed a
definitive agreement with certain members of the Rohr family to acquire the
family's approximately 49% remaining interest in Rohr-Bush. This transaction
closed in October 2000.

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142). The FASB also issued
Statement of Financial Accounting Standards No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" (SFAS No. 143), and
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), in August and
October 2001, respectively.

SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The Company does not believe that the adoption of
SFAS No. 141 will have a material impact on its financial statements.

Effective December 30, 2001 (the first day of fiscal 2002), the Company
adopted SFAS No. 142. Under the new rules, the Company will no longer amortize
goodwill and other intangible assets with indefinite lives, but such assets will
be subject to periodic testing for impairment. On an annual basis, and when
there is reason to suspect that their values have been diminished or impaired,
these assets must be tested for impairment, and write-downs to be included in
results from operations may be necessary. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date of
adoption. Any goodwill impairment loss recognized as a result of the
transitional goodwill impairment test will be recorded as a cumulative effect of
a change in accounting principle no later than the end of fiscal year 2002. The
Company is currently evaluating, but has not yet determined, the impact of SFAS
No. 142 on its financial position and results of operations. However, the
Company expects that a substantial amount of its intangible assets will no
longer be amortized. Goodwill and other intangible assets subject to SFAS No.
142

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were approximately $15 million as of December 29, 2001 and the associated
amortization was approximately $1.4 million in fiscal year 2001.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS No. 143 will not have
a material impact on its consolidated results of operations and financial
position upon adoption. The Company plans to adopt SFAS No. 143 effective
December 29, 2002 (the first day of fiscal 2003).

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The provisions of
SFAS No. 144 are effective in fiscal years beginning after December 15, 2001,
with early adoption permitted, and in general are to be applied prospectively.
Effective December 30, 2001 (the first day of fiscal 2002), the Company adopted
SFAS No. 144 and does not expect that the adoption will have a material impact
on its consolidated results of operations and financial position.

Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K constitute "forward-looking
statements" within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve known and unknown risks
and uncertainties, which may cause the Company's actual results in future
periods to differ materially from forecasted results. Forward-looking statements
include statements regarding the intent, belief, projected or current
expectations of the Company or its Officers (including statements preceded by,
followed by or including forward-looking terminology such as "may," "will,"
"should," "believe," "expect," "anticipate," "estimate," "continue" or similar
expressions or comparable terminology), with respect to various matters. The
Company cannot guarantee future results, levels of activity, performance or
achievements. Factors that could cause or contribute to such differences
include, but are 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.

14

Results of Operations

The following table shows the approximate percentage of certain items
included in the Consolidated Statements of Earnings relative to net sales for
the fiscal years indicated:

Percentage of Net Sales
----------------------------
2001 2000 1999
------ ------- --------

Net Sales 100.0% 100.0% 100.0%
Cost of Sales 73.0% 68.2% 70.1%
----- ------ -------
Gross Profit 27.0% 31.8% 29.9%

Selling, General and Administrative Expenses 24.0% 21.7% 22.9%
Restructuring 0.0% 0.0% 2.2%
Gain on Sale of Assets 0.0% (0.8)% 0.0%
----- ------ -------
Operating Income 3.0% 10.9% 4.8%

Interest Expense 2.5% 2.6% 2.1%
----- ------ -------
Earnings Before Income Taxes 0.5% 8.3% 2.7%

Income Taxes 0.4% 3.3% 1.4%
----- ------ -------
Net Earnings 0.1% 5.0% 1.3%
===== ====== =======

The following paragraphs provide an analysis of the changes in net sales,
selected cost and expense items, and net earnings for fiscal years 1999 through
2001.

Results of Operations: Fiscal 2001 Compared to Fiscal 2000

The Company's net sales for the 2001 fiscal year compared to the 2000
fiscal year decreased $105,391,000, or approximately 23.4%, to $345,806,000. The
sales decrease primarily reflects a decrease in orders from the Company's North
American furniture customers due to the economic slowdown. Sales were also
negatively impacted by the inventory rationalization programs undertaken at the
office superstores in the second quarter of fiscal year 2001 and by customer
delays in new product launches at Bush Technologies.

The Company's cost of sales were $252,424,000 in fiscal year 2001 compared
to $307,686,000 in fiscal year 2000, or a decrease of $55,262,000. This decrease
primarily reflects the lower sales levels as compared to the prior year. The
cost of sales as an approximate percentage of net sales increased by 4.8% from
68.2% in 2000 to 73.0% in 2001. The increase in cost of sales as a percentage of
net sales primarily reflects lower absorption of manufacturing overhead as a
result of decreased production volumes, both as the result of the decreased
sales levels and the reduction of finished goods inventory levels, and as a
result of a $5,226,000 pre-tax, non-cash inventory write-down in the fourth
quarter of fiscal year 2001.

For 2001, selling, general and administrative expenses decreased by
$14,795,000 compared to 2000. The decrease in selling, general and
administrative expenses was primarily the result of a reduction in various
selling expenses such as commissions, marketing and promotional incentives.

15

These reductions were a result of both the Company's lower sales volumes and as
a result of a change in sales terms with two customers. This change, in which
various marketing and promotional incentives were replaced with a reduction in
sales prices to the two customers, had no impact on net earnings, but resulted
in a decrease in selling, general and administrative expenses and a
corresponding decrease in net sales. Since this change occurred in mid fiscal
year 2000, it impacted the second half of such year and all of fiscal year 2001.
Selling, general and administrative expenses increased as an approximate
percentage of net sales from 21.7% in 2000 to 24.0% in 2001.

Interest expense decreased to $8,553,000 in 2001 (or approximately 2.5% of
net sales) from $11,890,000 in 2000 (or approximately 2.6% of net sales). The
decrease in interest expense was primarily due to decreases in the interest
rates paid on the Company's revolving credit facility.

The Company's overall effective federal, state and local tax rate increased
from 39.0% in 2000 to 84.8% in 2001. The increase was primarily due to the
effects of permanent non-deductible items (such as certain travel and
entertainment expenses and the amortization of certain goodwill costs), fixed
taxes (such as Delaware franchise taxes) and a change in the mix of the
allocation of income for state income tax purposes. The impact of these items
was exaggerated by the lower level of earnings before income taxes upon which
the effective tax rates are computed.

For 2001, the Company generated net earnings after taxes of $257,000 (or
$0.02 basic earnings per share and $0.02 diluted earnings per share), as
compared to $22,777,000 (or $1.66 basic earnings per share and $1.60 diluted
earnings per share) for 2000.

Results of Operations: Fiscal 2000 Compared to Fiscal 1999

The Company's net sales for the 2000 fiscal year compared to the 1999
fiscal year increased $9,491,000, or approximately 2.1%, to $451,197,000. Strong
sales gains were achieved in the surface technologies segment. Furniture sales
were slightly below fiscal year 1999 levels due primarily to a general softening
of the economy in the second half of 2000, which created a sluggish retail sales
environment, inventory adjustments from several of our large customers and lower
sales in Bush Furniture Europe, which was part of the planned downsizing made as
part of the 1999 restructuring.

The Company's cost of sales were $307,686,000 in fiscal year 2000 compared
to $309,794,000 in fiscal year 1999, or a decrease of $2,108,000. The cost of
sales as an approximate percentage of net sales decreased by 1.9% from 70.1% in
1999 to 68.2% in 2000. Cost of sales decreased on higher sales volume as a
result of improved gross margins, primarily as a result of a mix into sales in
the surface technologies segment and improved gross margins in Bush Furniture
Europe.

For 2000, selling, general and administrative expenses decreased by
$3,024,000 compared to 1999. The decrease in selling, general and administrative
expenses was primarily a result of a change in the sales terms with two
customers. This change had no impact on net earnings, but resulted in a decrease
in selling, general and administrative expenses and a corresponding decrease

16

in net sales. Selling, general and administrative expenses decreased as an
approximate percentage of net sales from 22.9% in 1999 to 21.7% in 2000.

Interest expense increased to $11,890,000 in 2000 (or approximately 2.6% of
net sales) from $9,430,000 in 1999 (or approximately 2.1% 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 Company's overall effective federal, state and local tax rate decreased
from 51.4% in 1999 to 39.0% in 2000. The rate in fiscal year 1999 was
uncharacteristically high primarily due to the impact of the lower deferred tax
rates attributable to the then 51% owned Rohr-Bush subsidiary and the
relationship of the Rohr-Bush operating loss to consolidated income.

During the first quarter of 1999, the Company finalized plans to
restructure certain of its operations, resulting in non-recurring restructuring
costs amounting to $9,672,000 being charged to expense in 1999. As of January 1,
2000, all components of the restructuring were complete and the only liability
remaining for the restructuring was $1,685,000 for severance to terminated
employees. Cash paid to severed employees totaled $1,685,000 in the first half
of fiscal year 2000, resulting in no remaining liability at December 30, 2000.

In December 2000, the Company sold substantially all of the assets of its
retail service business, a division of the Company, to a third party in exchange
for shares of stock of the purchaser. Net sales of this retail service business
were not significant to the consolidated financial statements. The Company
recorded the shares of stock received at the fair value of approximately
$5,000,000, which resulted in a pre-tax gain of $3,618,000. The investment is
included in other assets on the consolidated balance sheet since the Company
expects to hold the investment on a long-term basis. The cost method is used to
account for this investment because the Company does not have the ability to
exercise significant influence over the purchaser's operating and financial
policies.

For 2000, the Company generated net earnings after taxes of $22,777,000 (or
$1.66 basic earnings per share and $1.60 diluted earnings per share), as
compared to $5,762,000 (or $0.42 basic earnings per share and $0.40 diluted
earnings per share) for 1999. This was an approximate 295.3% increase in net
earnings.

Liquidity and Capital Resources

Working capital at fiscal year end 2001 decreased $12,712,000 over fiscal
year end 2000, primarily as a result of a decease in accounts receivable and
inventories partially offset by decreases in other accrued liabilities, accounts
payable and income taxes payable and an increase in prepaid expenses and other
current assets. Inventory was reduced as production levels in fiscal year 2001
were reduced to attain the desired reduction in finished goods inventory and as
a result of a $5,226,000 pre-tax, non-cash inventory write-down in the fourth
quarter of fiscal year 2001. Accounts receivable, other accrued liabilities and
accounts payable decreased primarily as a result

17

of lower sales volumes and accounts receivables were further reduced by efforts
to expedite their collection. Incomes taxes payable decreased as a result of the
Company's decreased earnings, and the increase in prepaid expenses and other
current assets primarily represents an overpayment of taxes refunded in the
first quarter of fiscal year 2002. Total assets at fiscal year end 2001
decreased $45,374,000 over fiscal year end 2000 primarily as a result of a
decrease in accounts receivable and inventories, as discussed above, and a
decrease in property, plant and equipment which reflects capital expenditures
that are less than the level of depreciation. Total liabilities at fiscal year
end 2001 decreased by $43,637,000, as compared to fiscal year end 2000. Such
decrease in total liabilities was due primarily to decreases in other accrued
liabilities, accounts payable and income taxes payable, as described above, and
a decrease in long-term debt.

During fiscal year 2001, the Company expended $9,444,000 on capital
expenditures. Capital expenditures for 2002 are currently forecasted to be
approximately $7 million. In 2001, the Company received $1,160,000 from the
exercise of stock options by employees, received a tax benefit of $185,000 from
the exercise of such options and paid four quarterly dividends totaling
$2,741,000 to its stockholders. The cash dividend for each of the quarters in
2001 was $0.05 per share. Cash flows provided by operating activities in excess
of other cash flow requirements were primarily used to pay down long-term debt.

The Company has a revolving credit facility, initially dated as of June 26,
1997 and as amended, with JPMorgan Chase Bank and other lending institutions. In
fiscal year 2001 the Company entered into a sixth amendment, dated as of
December 28, 2001. This amendment modified certain covenants of the Company
under the credit facility, modified the pricing grid to reflect the newly
permitted ratios, granted a security interest in all domestic tangible personal
property and intangible assets of the Company, extended the maturity date of the
loan from June 30, 2003 to June 30, 2004 and modified the amount of money the
Company can borrow under the credit facility from an aggregate $210,000,000 to
an aggregate $173,000,000.

The credit facility provides for revolving credit loans, swing line loans
and multi-currency loans, within the parameters described below. The loan is due
June 30, 2004 with a balloon payment of the then remaining principal and any
accrued interest. 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 1.5% to 3.5%,
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 $20,000,000 in letters of credit, which issuance
will be deemed part of the $173,000,000 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

18

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.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------

Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk in the areas of interest rates and foreign
currency exchange rates.

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's revolving credit facility due to its variable
pricing. Based on the outstanding balance of long-term debt at fiscal year end
2001, a one percentage point change in interest rates would result in annual
interest expense fluctuating approximately $1.2 million.

The Company's exposure to foreign currency exchange risk relates primarily
to the cost of imported supplies and the cost/profitability of exported items,
the income statement and cash flow impact of converting foreign currency
denominated profit/loss into U.S. dollars and the balance sheet impact of
converting foreign currency denominated assets and liabilities into U.S.
dollars. The Company does not believe that a reasonably possible change of 10%
in any foreign currency exchange rate will materially affect the financial
position of the Company.

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.

19

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 16, 2002, 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 16, 2002, under the caption, "Executive
Compensation", to be filed by the Registrant.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- ------- ------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

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 16, 2002, 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 16, 2002, under the caption "Certain Transactions",
to be filed by the Registrant.

20

PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- -------- --------------------------------------------
REPORTS ON FORM 8-K
-------------------

(A) The consolidated balance sheets as of December 29, 2001 and December
30, 2000 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 29, 2001 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. (1)

3.2 Amendment to Certificate of Incorporation, dated June 30, 1994. (6)

3.3 Amendment to Certificate of Incorporation, dated July 9, 1993. (4)

3.4 By-Laws, as amended. (1) (14)

3.5 Amendment to By-Laws, dated July 18, 2001

10.1 The Registrant's 1985 Stock Plan, as amended. (4)

10.2 The Registrant's 1985 Incentive Stock Option Plan, as amended. (4)

21

10.3 Lease Agreement between County of Chautauqua Industrial Development Agency
and the Registrant dated January 1, 1990. (2)

10.4 Employment Agreement between the Registrant and Paul S. Bush dated July
29, 1992, as amended. (3)

10.5 Employment Agreement between the Registrant and Robert L. Ayres dated July
29, 1992, as amended. (3)

10.6 Employment Agreement between the Registrant and Lewis H. Aronson dated
July 29, 1992, as amended. (3)

10.7 Amendment, dated as of February 26, 2000, to Employment Agreement between
the Registrant and Lewis H. Aronson dated July 29, 1992, as amended.

10.8 Employment Agreement between the Registrant and Gregory P. Bush dated
October 10, 2000.

10.9 Employment Agreement between the Registrant and Larry C. Genareo dated
October 16, 2000.

10.10 Employment Agreement between the Registrant and Neil A. Frederick dated
October 16, 2000.

10.11 Split Dollar Insurance Agreements between the Registrant and Paul S. Bush
dated November 1, 1990 and March 15, 1991 and related Collateral
Assignment Agreements of same dates. (3)

10.12 Split Dollar Insurance Agreement between the Registrant and Robert L.
Ayres dated December 19, 1991 and related Collateral Assignment Agreement.
(3)

10.13 Performance Bonus Plan. (5)

10.14 The Registrant's 1995 Stock Plan. (7)

10.15 The Registrant's 1999 Stock Plan. (12)

10.16 Stock Redemption Agreement between the Registrant and Paul S. Bush dated
July 10, 1997. (8)

10.17 Credit and Guarantee Agreement, dated as of June 26, 1997, by and among
the Registrant, as Borrower, the Lenders party thereto from time to time,
The Chase Manhattan Bank as administrative agent and Mellon Bank, N.A., as
co-agent. (8)

22

10.18 First Amendment, dated as of August 17, 1998, to the Credit and Guarantee
Agreement dated as of June 26, 1997. (9)

10.19 Second Amendment, dated as of December 31, 1998, to the Credit and
Guarantee Agreement dated as of June 26, 1997. (10)

10.20 Third Amendment, dated as of March 31, 1999, to the Credit and Guarantee
Agreement dated as of June 26, 1997. (11)

10.21 Fourth Amendment, dated as of February 29, 2000, to the Credit and
Guarantee Agreement dated as of June 26, 1997. (13)

10.22 Fifth Amendment, dated as of May 2, 2000, to the Credit and Guarantee
Agreement dated as of June 26, 1997. (15)

10.23 Sixth Amendment, dated as of December 28, 2001, to the Credit and
Guarantee Agreement dated as of June 26, 1997. (16)

21.1 List of Subsidiaries of Registrant.

23.1 Consent of Deloitte & Touche LLP, independent 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 Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1989.

(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993.

(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994.

(5) Incorporated by reference to the Registrant's definitive Proxy Statement,
dated May 16, 1994.

(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.

(7) Incorporated by reference to the Registrant's definitive Proxy Statement,
dated March 29, 1995.

(8) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed September 10, 1997.

(9) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed September 14, 1998.

23

(10) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed March 10, 1999.

(11) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed June 15, 1999.

(12) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 dated November 3, 1999 (File No. 333-90255).

(13) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed March 17, 2000.

(14) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 2000.

(15) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed June 5, 2000.

(16) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed March 14, 2002.

(B) Reports on Form 8-K.
--------------------
During the first quarter of fiscal year 2002, an 8-K was filed on March 14,
2002 regarding an amendment to the Company's existing credit facility with
JPMorgan Chase Bank and other lending institutions.

24

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 19, 2002 By /s/Paul S. Bush
-----------------------
Paul S. Bush,
Chief Executive Officer

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 Chief Executive Officer and
Chairman of the Board
of Directors March 19, 2002

/s/Robert L. Ayres
- -----------------------------------
Robert L. Ayres President,
Chief Operating Officer
and Director March 19, 2002

/s/Lewis H. Aronson
- -----------------------------------
Lewis H. Aronson Corporate Executive Vice President
and Director March 19, 2002

/s/Douglas S. Bush
- -----------------------------------
Douglas S. Bush Vice President of Merchandising
and Director March 19, 2002

25

/s/Gregory P. Bush
- ---------------------------------
Gregory P. Bush President - Bush Furniture
and Director March 19, 2002

/s/Neil A. Frederick
- ---------------------------------
Neil A. Frederick Chief Financial Officer,
Treasurer, Corporate Vice President
and Director March 19, 2002

/s/Donald F. Hauck
- ---------------------------------
Donald F. Hauck Senior Vice President
and Director March 19, 2002

/s/Paul A. Benke
- ---------------------------------
Paul A. Benke Director March 19, 2002

/s/Jerald D. Bidlack
- ---------------------------------
Jerald D. Bidlack Director March 19, 2002

/s/David G. Dawson
- ---------------------------------
David G. Dawson Director March 19, 2002

/s/Robert E. Hallagan
- ---------------------------------
Robert E. Hallagan Director March 19, 2002

/s/Erland E. Kailbourne
- ---------------------------------
Erland E. Kailbourne Director March 19, 2002

26

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Bush Industries, Inc.
Jamestown, New York

We have audited the accompanying consolidated balance sheets of Bush Industries,
Inc. and subsidiaries (the "Company") as of December 29, 2001 and December 30,
2000, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended December 29,
2001. Our audits also included the financial statement schedule listed in the
Index at Item 14 (A)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 Bush Industries, Inc. and
subsidiaries as of December 29, 2001 and December 30, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 2001 in conformity with accounting principles generally
accepted in the United States of America. 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.

Deloitte & Touche LLP

Buffalo, New York
February 1, 2002

F-1

BUSH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2001 AND DECEMBER 30, 2000
- --------------------------------------------------------------------------------

(In Thousands)

ASSETS 2001 2000

CURRENT ASSETS:
Cash and cash equivalents $ 1,589 $ 1,225
Accounts receivable (less allowance for doubtful accounts of
$979 on December 29, 2001 and $1,341 on December 30, 2000) 16,872 38,110
Inventories 55,297 74,838
Prepaid expenses and other current assets 11,491 9,389
---------- ----------
Total current assets 85,249 123,562

PROPERTY, PLANT AND EQUIPMENT, NET 207,334 213,619

OTHER ASSETS 28,594 29,370
---------- ----------

TOTAL ASSETS $ 321,177 $ 366,551
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 17,184 $ 25,860
Income taxes 43 2,705
Other accrued liabilities 24,052 38,329
Current portion of long-term debt 447 433
---------- ----------
Total current liabilities 41,726 67,327

DEFERRED INCOME TAXES 11,123 10,664
OTHER LONG-TERM LIABILITIES 7,237 6,474
LONG-TERM DEBT 121,118 140,376
---------- ----------
Total liabilities 181,204 224,841
---------- ----------
COMMITMENTS (Note 6)

STOCKHOLDERS' EQUITY:
Common Stock - Class A 1,077 1,063
Common Stock - Class B 340 340
Paid-in capital 22,916 21,585
Retained earnings 123,164 125,648
Accumulated other comprehensive income 1,666 2,197
---------- ----------
Subtotal 149,163 150,833
Less treasury stock, at cost (5,775) (5,497)
Less notes receivable related to common stock (3,415) (3,626)
---------- ----------
Total stockholders' equity 139,973 141,710
---------- ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 321,177 $ 366,551
========== ==========

See notes to consolidated financial statements.

F-2

BUSH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
- --------------------------------------------------------------------------------

(In Thousands, except share and per share data)

2001 2000 1999

NET SALES $ 345,806 $ 451,197 $ 441,706
-------------- --------------- --------------

COSTS AND EXPENSES:
Cost of sales 252,424 307,686 309,794
Selling, general and administrative 83,135 97,930 100,954
Interest expense 8,553 11,890 9,430
Restructuring 0 0 9,672
Gain on sale of assets 0 (3,618) 0
-------------- --------------- --------------
344,112 413,888 429,850
-------------- --------------- --------------

EARNINGS BEFORE INCOME TAXES 1,694 37,309 11,856

INCOME TAXES 1,437 14,532 6,094
-------------- --------------- --------------

NET EARNINGS $ 257 $ 22,777 $ 5,762
============== =============== ==============

EARNINGS PER SHARE:
Basic $ 0.02 $ 1.66 $ 0.42
Diluted $ 0.02 $ 1.60 $ 0.40

WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 13,720,085 13,680,629 13,878,060
Diluted 14,106,573 14,209,311 14,412,660

See notes to consolidated financial statements.

F-3

BUSH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
- --------------------------------------------------------------------------------

(In Thousands, except share data)

Common Stock - Par Value $.10
-------------------------------------------
Class A Class B Paid-in Retained Comprehensive
-------------------- ---------------------
Shares Amount Shares Amount Capital Earnings Income (Loss)

BALANCE, JANUARY 2, 1999 10,544,838 $1,054 3,395,365 $ 340 $ 20,656 $ 102,629
Acquisition of treasury stock - - - - - -
Sale of stock to employees - - - - 88 -
Exercise of stock options 9,618 1 - - 58 -
Tax benefit from exercise of
stock options - - - - 24 -
Dividends paid - - - - - (2,776)
Comprehensive income:
Net earnings - - - - - 5,762 $ 5,762
Other comprehensive income:
Foreign currency translation - - - - - - 1,987
Minimum pension liability - - - - - - 10
----------- ------ ----------- ------ -------- ---------- --------
Total comprehensive income $ 7,759
========

BALANCE, JANUARY 1, 2000 10,554,456 1,055 3,395,365 340 20,826 105,615
Acquisition of treasury stock - - - - - -
Payments received for notes
receivable - - - - - -
Stock applied to notes receivable - - - - - -
Exercise of stock options 77,485 8 - - 651 -
Tax benefit from exercise of
stock options - - - - 108 -
Dividends paid - - - - - (2,744)
Comprehensive income:
Net earnings - - - - - 22,777 $22,777
Other comprehensive income:
Foreign currency translation - - - - - - 448
Minimum pension liability - - - - - - 16
----------- ------ ----------- ------ -------- ---------- --------
Total comprehensive income $ 23,241
========

BALANCE, DECEMBER 30, 2000 10,631,941 1,063 3,395,365 340 21,585 125,648
Payments received for notes
receivable - - - - - -
Stock applied to notes receivable - - - - - -
Stock received from escrow
account - - - - - -
Exercise of stock options 136,302 14 - - 1,146 -
Tax benefit from exercise of
stock options - - - - 185 -
Dividends paid - - - - - (2,741)
Comprehensive income (loss):
Net earnings - - - - - 257 $ 257
Other comprehensive income (loss):
Foreign currency translation - - - - - - (528)
Minimum pension liability - - - - - - (3)
----------- ------ ----------- ------ -------- ---------- --------
Total comprehensive loss $ (274)
========

BALANCE, DECEMBER 29, 2001 10,768,243 $1,077 3,395,365 $ 340 $ 22,916 $ 123,164
=========== ====== =========== ======= ======== ==========

Accumulated
Other
Comprehensive Treasury Stock Notes
--------------------
Income (Loss) Shares Amount Receivable

BALANCE, JANUARY 2, 1999 $ (264) 63,479 $ 796 $ -
Acquisition of treasury stock - 287,008 4,106 -
Sale of stock to employees - (268,574) (3,756) 3,844
Exercise of stock options - - - -
Tax benefit from exercise of
stock options - - - -
Dividends paid - - - -
Comprehensive income:
Net earnings - - - -
Other comprehensive income:
Foreign currency translation 1,987 - - -
Minimum pension liability 10 - - -
-------- --------- -------- ------
Total comprehensive income

BALANCE, JANUARY 1, 2000 1,733 81,913 1,146 3,844
Acquisition of treasury stock - 269,363 4,167 -
Payments received for notes
receivable - - - (34)
Stock applied to notes receivable - 14,530 184 (184)
Exercise of stock options - - - -
Tax benefit from exercise of
stock options - - - -
Dividends paid - - - -
Comprehensive income:
Net earnings - - - -
Other comprehensive income:
Foreign currency translation 448 - - -
Minimum pension liability 16 - - -
-------- --------- -------- ------
Total comprehensive income

BALANCE, DECEMBER 30, 2000 2,197 365,806 5,497 3,626
Payments received for notes
receivable - - - (45)
Stock applied to notes receivable - 14,776 166 (166)
Stock received from escrow
account - 7,818 112 -
Exercise of stock options - - - -
Tax benefit from exercise of
stock options - - - -
Dividends paid - - - -
Comprehensive income (loss):
Net earnings - - - -
Other comprehensive income (loss):
Foreign currency translation (528) - - -
Minimum pension liability (3) - - -
-------- --------- -------- ------

Total comprehensive loss

BALANCE, DECEMBER 29, 2001 $ 1,666 388,400 $ 5,775 $3,415
======== ========= ======== ======

See notes to consolidated financial statements.

F-4

BUSH INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
- --------------------------------------------------------------------------------

(In Thousands)
2001 2000 1999

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 257 $ 22,777 $ 5,762
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 19,647 18,666 17,203
Deferred income taxes 471 3,161 (1,558)
Gain on sale of assets 0 (3,618) 0
Changes in assets and liabilities affecting cash flows,
net of acquisitions:
Accounts receivable 21,442 (4,309) 7,514
Inventories 20,047 (21,078) 4,304
Prepaid expenses and other current assets (3,259) 92 (2,807)
Accounts payable (9,462) 5,929 (12,077)
Income taxes (1,342) 1,662 1,929
Other accrued liabilities (14,310) (39) 9,272
-------------- ----------- ------------
Net cash provided by operating activities 33,491 23,243 29,542
-------------- ----------- ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (9,444) (33,301) (31,663)
Acquisition of business, net of cash 0 (6,457) 0
Increase in other assets (719) (1,070) (1,125)
------------ ----------- ------------
Net cash used for investing activities (10,163) (40,828) (32,788)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (21,127) (495) (707)
Proceeds from long-term debt 0 22,977 10,106
Purchase of Class A Stock for treasury 0 (4,167) (4,106)
Exercise of stock options 1,160 659 59
Dividends paid ($0.20 per share) (2,741) (2,744) (2,776)
Payments received for notes receivable 45 34 0
------------ ----------- ------------
Net cash (used for) provided by financing activities (22,663) 16,264 2,576
------------ ----------- ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH (301) (158) 1,138
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 364 (1,479) 468

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,225 2,704 2,236
------------- ----------- ------------

CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,589 $ 1,225 $ 2,704
============== =========== ============

See notes to consolidated financial statements.

F-5

BUSH INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
- -------------------------------------------------------------------------------

1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements
consist of Bush Industries, Inc. and its majority-owned subsidiaries
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated.

Nature of Operations - The Company is a diversified global furniture
manufacturer and supplier of surface technologies. The Company operates
its business in four reportable segments: (1) Bush Business Furniture,
which concentrates on the business office and the home office markets with
sales to the office superstore and dealer channels; (2) Bush Furniture,
which focuses on home entertainment, home office and other home
furnishings products; (3) Bush Furniture Europe, which sells commercial,
home office and other furnishings in the European market; and (4) Bush
Technologies, which is focused on the cell phone accessories after-market,
as well as the utilization of surface technologies in automotive
interiors, cosmetics, sporting goods and consumer electronics. The Company
operates several manufacturing and warehouse facilities throughout North
America and in Germany.

Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash
equivalents.

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 3-20 years;
transportation equipment 3-7 years; office equipment 3-10 years; and
leasehold improvements 3-10 years or the lease term, if less. Construction
in progress is recorded in property, plant and equipment and amounted to
$7,500,000 and $29,124,000 at December 29, 2001 and December 30, 2000,
respectively. Interest associated with construction indebtedness is
capitalized. Interest amounting to approximately $971,000, $1,984,000 and
$1,333,000 associated with construction in progress was capitalized for
2001, 2000 and 1999, respectively.

The cost of repairs and maintenance is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or sale of an
asset, its cost and related accumulated depreciation or amortization are
removed from the accounts and any gain or loss is recorded in income or
expense. The Company continually reviews property, plant and equipment to
determine that the carrying values have not been impaired by estimating
the future undiscounted cash flows expected to result from the use of the
property, plant and equipment.

F-6

Other Assets - Other assets consist primarily of goodwill, cash value of
officer's life insurance policies, investment at cost, and certain
intangible assets. Goodwill is being amortized on a straight-line basis
generally over 15 years. Intangible amortization expense was $1,523,000,
$1,613,000 and $1,524,000 for 2001, 2000 and 1999, respectively. The
Company continually reviews its long-lived assets to determine that the
carrying values have not been impaired whenever significant events or
changes occur which might impair recovery of their recorded costs. The
Company measures expected future cash flows and compares them to the
carrying amount of the asset to determine whether any impairment loss is
to be recognized.

Fair Value of Financial Instruments - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair
value of short-term instruments approximates their recorded values due to
the short-term nature of the instruments. The fair value of long-term debt
instruments approximates their recorded values primarily due to interest
rates approximating current rates available for similar instruments.

Foreign Currency Translation - Essentially all assets and liabilities are
translated into U.S. dollars at year-end exchange rates, while elements of
the income statement and cash flow statement are translated at average
exchange rates in effect during the year. Adjustments arising from the
translation of net assets located outside the United States are recorded
as a component of comprehensive income.

Stock-Based Compensation - The Company accounts for stock-based
compensation in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123). As permitted in that standard, the Company has elected to continue
to follow the recognition provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for employee stock-based compensation. No
employee stock-based compensation expense was recorded for the years ended
December 29, 2001, December 30, 2000 and January 1, 2000.

Income Taxes - Deferred taxes are recorded for temporary differences
between the financial reporting and tax basis of assets and liabilities
using the anticipated tax rate when taxes are expected to be paid or
recovered. A valuation allowance is recorded to reduce the carrying
amounts of deferred tax assets unless it is more likely than not that such
assets will be realized.

Supplemental Cash Flow Information - Cash paid for interest, net of
amounts capitalized was $8,650,000, $11,772,000 and $10,835,000 and cash
paid for income taxes was $6,301,000, $9,783,000 and $5,714,000 in 2001,
2000 and 1999, respectively.

Revenue Recognition - Revenues are recognized when products are shipped.
Provisions for discounts, rebates to customers, returns and other
adjustments are provided for in the same period the related sales are
recorded.

Financial Statement Year End - The Company's year end is the closest
Saturday to December 31. Fiscal years for the consolidated financial
statements included herein ended on December 29, 2001 (52 weeks), December
30, 2000 (52 weeks) and January 1, 2000 (52 weeks). The accounts of two of
the Company's wholly-owned subsidiaries, Rohr-Bush GmbH & Co. and
Bush-Viotechnik GmbH, have been consolidated on the basis of a year ending
in October. Such fiscal period corresponds with those companies' fiscal
year end.

F-7

Earnings Per Share (EPS) - Basic EPS excludes dilution and is computed by
dividing net income by the weighted average number of shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock. The dilutive effect of outstanding options
issued by the Company are reflected in diluted EPS using the treasury stock
method. Under the treasury stock method, options will only have a dilutive
effect when the average market price of common stock during the period
exceeds the exercise price of the options. There were 168,859, 133,983 and
104,019 stock options excluded from the computation of diluted earnings per
share due to their antidilutive effect in 2001, 2000 and 1999,
respectively.

Comprehensive Income - Comprehensive income includes all changes in
stockholders' equity during the period except those resulting from
investments by owners and distribution to owners. The Company's
comprehensive income includes net earnings, an amount for foreign currency
translation and a minimum pension liability adjustment.

Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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.

Recent Accounting Pronouncements - In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS No. 141), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS
No. 142). The FASB also issued Statement of Financial Accounting Standards
No. 143, "Accounting for Obligations Associated with the Retirement of
Long-Lived Assets" (SFAS No. 143), and Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144), in August and October 2001, respectively.

SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The Company does not believe that the adoption
of SFAS No. 141 will have a material impact on its financial statements.

Effective December 30, 2001 (the first day of fiscal 2002), the Company
adopted SFAS No. 142. Under the new rules, the Company will no longer
amortize goodwill and other intangible assets with indefinite lives, but
such assets will be subject to periodic testing for impairment. On an
annual basis, and when there is reason to suspect that their values have
been diminished or impaired, these assets must be tested for impairment,
and write-downs to be included in results from operations may be necessary.
SFAS No. 142 also requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. Any goodwill
impairment loss recognized as a result of the transitional goodwill
impairment test will be recorded as a cumulative effect of a change in
accounting principle no later than the end of fiscal year 2002. The Company
is currently evaluating, but has not yet determined, the impact of SFAS No.
142 on its financial position and results of operations. However, the
Company expects that a substantial amount of its intangible assets will no
longer be amortized. Goodwill and other intangible assets subject to SFAS
No. 142 were approximately $15 million as of December 29, 2001.

F-8

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143
is effective in fiscal years beginning after June 15, 2002, with early
adoption permitted. The Company expects that the provisions of SFAS No. 143
will not have a material impact on its consolidated results of operations
and financial position upon adoption. The Company plans to adopt SFAS No.
143 effective December 29, 2002 (the first day of fiscal 2003).

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No.
144 superseded Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of"(SFAS No. 121), and APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." The provisions of SFAS No. 144 are effective in fiscal
years beginning after December 15, 2001, with early adoption permitted, and
in general are to be applied prospectively. Effective December 30, 2001
(the first day of fiscal 2002), the Company adopted SFAS No. 144 and does
not expect that the adoption will have a material impact on its
consolidated results of operations and financial position.

2. INVENTORIES

Inventories consist of (in thousands):

December 29, December 30,
2001 2000

Raw materials $ 16,137 $ 13,421
Work in progress 5,570 5,452
Finished goods 33,590 55,965
--------- ---------

Total $ 55,297 $ 74,838
========= =========
3. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of:

December 29, December 30,
2001 2000
(in thousands)

Land $ 6,173 $ 5,934
Building and improvements 124,082 120,503
Machinery and equipment 189,117 181,629
Transportation equipment 1,103 1,160
Office equipment 14,942 12,838
Leasehold improvements 1,466 1,403
--------- ---------
336,883 323,467
Less accumulated depreciation (129,549) (109,848)
--------- ---------

Total $ 207,334 $ 213,619
========= =========
Depreciation expense was $18,124,000, $17,053,000 and $15,679,000 for 2001,
2000 and 1999, respectively.

F-9

4. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of (in thousands):

December 29, December 30,
2001 2000

Payroll, profit sharing and related liabilities $ 10,302 $ 12,983
Commissions and sales related expenses 10,835 23,321
Other 2,915 2,025
---------- ----------

Total $ 24,052 $ 38,329
========== ==========

5. LONG-TERM DEBT

Long-term debt consists of:

December 29, December 30,
2001 2000
(in thousands)

Revolving credit facility with the first contractual principal payment
due June 2004. $ 117,129 $ 135,940

Pennsylvania Industrial Development Authority loan, issued
October 3, 1996, interest at a rate of 3%. Monthly principal and
interest payments of $13,812 are due through 2011. 1,420 1,541

Pennsylvania Industrial Development Authority loan, issued
February 26, 1997, interest at a rate of 3.75%. Monthly
principal and interest payments of $14,544 are due through 2012. 1,483 1,600

Pennsylvania Sunny Day Loan Fund loan, issued June 27, 1996,
interest at a rate of 3%. Monthly principal and interest payments
of $13,812 are due through 2011. 1,379 1,501

Pennsylvania Machinery & Equipment Loan Fund loan, issued
November 6, 1996, interest at a rate of 3%. Monthly principal
and interest payments of $6,707 are due through 2003. 154 227
---------- ----------
Total debt 121,565 140,809
Less current portion (447) (433)
---------- ----------

Total long-term debt $ 121,118 $ 140,376
========== ==========

F-10

The Company has a revolving credit facility with a consortium of banks.
Effective December 28, 2001, the Company entered into an amendment to its
revolving credit facility which modified the aggregate commitments under
the amended revolving credit facility to $173.0 million from $210.0
million. In addition, certain financial covenant ratios were amended. The
amended revolving credit facility is available through June 30, 2004 and
borrowings are secured by all domestic tangible personal property and
intangible assets of the Company. The Company classifies borrowings under
the facility as long-term because there are no contractual obligations for
repayment until June 30, 2004. Interest is payable on the average daily
balance of loans outstanding, primarily on a NYBOR based rate (4.63% at
December 29, 2001) and a rate based on an eurocurrency rate for certain
foreign currencies (6.50% at December 29, 2001). In addition, the credit
agreement permits the Company to request the issuance of up to a maximum
of $20.0 million in letters of credit, which issuance will be deemed part
of the $173.0 million maximum amount of borrowing permitted under the
credit facility. As of December 29, 2001, letters of credit amounting to
approximately $4.6 million were outstanding.

The revolving credit facility 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. In
addition, the revolving credit facility provides for certain limitations
of the amount of cash dividends that the Company can declare.

A five-year summary of aggregate principal payments on outstanding
long-term debt is (in thousands):

2002 $ 447
2003 462
2004 117,526
2005 410
2006 423
Thereafter 2,297
----------

Total $ 121,565
==========

6. COMMITMENTS

The Company has incurred rental expense for manufacturing and warehouse
space and equipment. A summary of rent expense follows (in thousands):

2001 2000 1999

Real estate $ 1,882 $ 1,094 $ 1,310
Equipment 2,372 2,259 2,156

Minimum future obligations over the next five years under operating leases
that have initial or remaining noncancelable terms in excess of one year
are summarized as follows (in thousands):

2002 $ 2,837
2003 1,059
2004 754
2005 508
2006 228

F-11

7. INCOME TAXES

The provision for income taxes is as follows (in thousands):

2001 2000 1999

Current:
Federal $ 528 $ 10,041 $ 6,867
State 438 1,330 785
------ --------- ---------
966 11,371 7,652
------ --------- ---------

Deferred:
Federal 844 2,786 584
State 87 326 60
Foreign (460) 49 (2,202)
------ --------- ---------
471 3,161 (1,558)
------ --------- ---------

Total $1,437 $ 14,532 $ 6,094
====== ========= =========

The types and tax effects of temporary differences included in deferred
tax assets and liabilities are as follows (in thousands):

2001 2000

Deferred Tax Assets:
Accounts receivable $ 348 $ 473
Accrued expenses 2,910 3,687
Inventories 1,984 2,310
Deferred income 343 390
State investment and federal minimum tax credit carryforward 8,112 3,048
Subsidiary net operating loss carryforward 3,477 3,256
----------- ----------
17,174 13,164

Deferred Tax Liabilities:
Property, plant and equipment (15,740) (14,482)
Other assets (1,313) (1,360)
----------- ----------

Subtotal 121 (2,678)

Total valuation allowance (7,474) (3,048)
----------- ----------

Net deferred tax liability $ (7,353) $ (5,726)
=========== ==========

2001 2000

Reported as (in thousands):
Current asset (included in prepaid expenses
and other current assets) $ 3,770 $ 4,938
Long-term liability (11,123) (10,664)
----------- ----------

Net deferred tax liability $ (7,353) $ (5,726)
=========== ==========

F-12

The Company has recorded a valuation allowance primarily in anticipation
that certain state investment tax credits will expire prior to their
usage. State investment and subsidiary net operating loss carryforwards of
approximately $7.5 million and $10.0 million begin to expire in 2003 and
2011, respectively. Substantially all of the subsidiary net operating loss
carryforwards are a result of foreign operations and have no expiration
date.

The provision for income taxes differs in each of the years from the
federal statutory rate due to the following:

2001 2000 1999

Statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefits 25.2 2.8 4.4
Effect of non-deductible costs 19.1 0.9 2.6
Effect of foreign tax rates 2.0 0.5 8.9
Other, net 3.5 (0.2) 0.5
------- ------ ------

Effective tax rate 84.8% 39.0% 51.4%
======= ====== ======

The Company realized tax benefits amounting to $185,000, $108,000 and
$24,000 as the result of stock option transactions during 2001, 2000 and
1999, respectively. The benefit has been credited to paid-in capital and
is not reflected in the current year provision for taxes.

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.

The Company has a stock redemption agreement with the principal
shareholder, which provides that upon his death the Company may be
required to redeem a portion of the Company's stock then owned by the
shareholder's estate. The redemption price per share shall be determined
at the then market price based upon a thirty day average prior to the
closing of any such stock redemption. The amount of the redemption is
limited to approximately $21.4 million which will be funded by the
proceeds from life insurance policies maintained on the life of the
principal shareholder. The shareholder's estate can request the Company to
redeem shares under the agreement until the maximum time period permitted
to pay estate taxes has elapsed.

In October 1999, the Company sold 268,574 shares of common stock at fair
value to certain employees of the Company in exchange for notes
receivable. Repayment of the notes will commence in the fourth quarter of
2003 through payroll deductions.

F-13

9. STOCK PLANS

The Company currently has two open stock plans which provide for the
issuance of Class A Common Stock. As of December 29, 2001, there were
609,465 shares of Class A Common Stock available for issuance under the
1995 Stock Plan and 166,961 shares of Class A Common Stock under the 1999
Stock Plan. Incentive Stock Options granted under the 1995 Stock 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 this plan shall be
determined by the Compensation Committee of the Board of Directors, in its
sole discretion. The vesting of outstanding stock options vary, however,
they generally vest over a two to seven year period and expire ten years
from the date of grant. No option can be exercised within one year after
the date of grant. Under the 1999 Stock Plan, shares may be awarded for
such consideration as determined by the Company.

As of December 29, 2001, there were outstanding options to purchase
1,256,577 shares of Class A Common Stock under the current and prior plans
at prices ranging from $8.91 to $29.93 that were vested and could be
exercised. Of these outstanding options, 1,211,827 have an exercise price
of $8.91.

The following is a summary of option transactions:

2001 2000 1999

Options outstanding, beginning of year 1,483,411 1,555,131 1,574,889
Options granted 68,000 30,000 15,500
Options exercised/cancelled (160,709) (101,720) (35,258)
----------- --------- ---------

Options outstanding, end of year 1,390,702 1,483,411 1,555,131
=========== ========= ==========

All of the options outstanding expire at various dates from 2003 through
2011. The option price of the shares subject to options exercised in 2001
ranged from $1.69 to $10.86. The weighted-average exercise prices of options
were $8.51, $8.50 and $6.12 for fiscal years 2001, 2000 and 1999,
respectively. The weighted-average grant-date fair value of options granted
were $12.98, $13.88 and $10.34 for fiscal years 2001, 2000 and 1999,
respectively.

In addition to the options granted under the aforementioned plans, the
Company has outstanding 48,376 shares (all exercisable) subject to
non-qualifying options granted to certain key individuals which can be
exercised through 2003 at an exercise price of $8.91.

Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options and awards under the fair value
method of that standard. The fair value of those options were estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for the years ended December 29, 2001,
December 30, 2000 and January 1, 2000, respectively: risk free interest rate
of 5.02%, 6.37% and 6.55%; dividend yield of 1.59%, 1.45% and 1.45%;
volatility factors of the expected market price of the Company's common stock
of 46%, 34% and 44%; and a weighted-average expected life of seven years for
all three years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings, basic and diluted earnings per share for
the years ended December 29, 2001, December 30, 2000 and January 1, 2000 were
$214,000, $0.02 and $0.02; $22,615,000, $1.65 and $1.59; and $5,729,000,
$0.41 and $0.40, respectively.

F-14

10. PENSIONS

The Company sponsors a defined benefit plan for eligible non-U.S. employees
at its German facility.

The following are reconciliations of the benefit obligation, the funded
status of the plan, and the amounts recognized in the consolidated balance
sheets (in thousands):

2001 2000

Change in benefit obligation:
Benefit obligation at beginning of year $ 5,362 $ 6,059
Service cost 58 116
Interest cost 335 342
Foreign currency exchange rate changes 147 (1,187)
Actuarial gain 154 205
Benefits paid (176) (173)
--------- ----------

Benefit obligations at end of year 5,880 5,362
--------- ----------

Funded status (the plan is unfunded) (5,880) (5,362)
Unrecognized net actuarial gain 154 205
--------- ----------

Net amount recognized $ (5,726) $ (5,157)
========= ==========

Amounts recognized in the balance sheets consist of:

2001 2000

Accrued benefit liability (included in other long-term liabilities) $ (5,794) $ (5,222)
Accumulated other comprehensive loss 68 65
---------- ----------

Net amount recognized $ (5,726) $ (5,157)
========== ==========

There were no plan assets at December 29, 2001 and December 30, 2000. The
plan is funded to the extent of benefits paid.

Weighted average assumptions for the years ended:

2001 2000 1999

Discount rate 6.00% 6.00% 6.00%
Rate of increase in compensation levels 2.50% 2.50% 2.50%

Components of net periodic benefit cost consisted of the following (in
thousands):

2001 2000 1999

Service cost $ 58 $ 116 $ 143
Interest cost 335 342 381
------ ------- ---------

Net periodic benefit cost $ 393 $ 458 $ 524
====== ======== =========

F-15

The Company also sponsors defined contribution plans which cover
substantially all of the Company's eligible U.S. employees. The plans
provide for a general employer contribution, a wage reduction feature
under Section 401(k) and a matching contribution. The general employer
contribution provides for a discretionary Company contribution of the
Company's Class A common stock. The matching contribution is made on
behalf of each eligible participant who makes a wage reduction
contribution. This matching contribution is made in cash and includes
certain limitations. Net pension cost related to the plans was $1,276,000,
$1,366,000 and $1,462,000 for the years ended December 29, 2001, December
30, 2000 and January 1, 2000, respectively.

11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION

During 2001, the Company announced a plan to reorganize its operations
into four operating segments based principally on the natural alignment of
its customers, markets and products. This reorganization was substantially
completed by the end of 2001. Accordingly, the segment information for the
prior years has been restated to conform to the current operating
structure. Inter-segment sales were made at prices approximating current
market value. Certain expenses relating to the North American furniture
segments, Bush Business Furniture and Bush Furniture, were allocated to
these two segments based on certain percentages and assumptions that the
Company believes are reasonable.

In evaluating segment performance, management focuses on earnings from
operations before income taxes. The earnings before income taxes exclude
nonrecurring charges such as restructuring charges and gains or losses on
the sale of assets. The accounting policies of the segments are the same
as those described in Note 1.

An analysis and reconciliation of the Company's business segment
information to the respective information in the consolidated financial
statements is as follows (all dollars are in thousands):

F-16

2001 2000 1999

Net sales from external customers:
Bush Business Furniture $152,080 $221,936 $205,159
Bush Furniture 114,432 142,093 150,647
Bush Furniture Europe 54,287 55,858 70,726
Bush Technologies 25,007 31,310 15,174
-------- -------- --------
Consolidated total $345,806 $451,197 $441,706
======== ======== ========
Inter-segment sales:
Bush Business Furniture $ - $ - $ -
Bush Furniture - - -
Bush Furniture Europe 4,084 16,060 1,662
Bush Technologies 179 1,143 872
-------- -------- --------
Total $ 4,263 $ 17,203 $ 2,534
======== ======== ========
Segment earnings (loss) before income taxes:
Bush Business Furniture $ 1,450 $ 17,285 $ 14,454
Bush Furniture (1,919) 6,954 16,747
Bush Furniture Europe (3,423) 416 (10,610)
Bush Technologies 5,586 9,036 937
-------- -------- --------
1,694 33,691 21,528
Gain on sale of assets - 3,618 -
Restructuring charge - - (9,672)
-------- -------- --------
Consolidated total $ 1,694 $ 37,309 $ 11,856
======== ======== ========
Interest expense:
Bush Business Furniture $ 3,458 $ 6,020 $ 3,986
Bush Furniture 2,473 3,461 2,647
Bush Furniture Europe 2,384 2,006 2,173
Bush Technologies 238 403 624
-------- -------- --------
Consolidated total $ 8,553 $ 11,890 $ 9,430
======== ======== ========
Depreciation and amortization:
Bush Business Furniture and Bush Furniture (1) $ 15,501 $ 14,022 $ 12,118
Bush Furniture Europe 3,248 3,500 3,649
Bush Technologies 898 1,144 1,436
-------- -------- --------
Consolidated total $ 19,647 $ 18,666 $ 17,203
======== ======== ========
Capital expenditures for long-lived assets:
Bush Business Furniture and Bush Furniture (1) $ 3,763 $ 25,344 $ 30,735
Bush Furniture Europe 4,470 4,608 812
Bush Technologies 1,211 3,349 116
-------- -------- --------
Consolidated total $ 9,444 $ 33,301 $ 31,663
======== ======== ========

F-17

December 29, December 30,
2001 2000

Identifiable assets:
Bush Business Furniture and Bush Furniture (1) $243,383 $291,228
Bush Furniture Europe 56,054 52,737
Bush Technologies 21,740 22,586
-------- --------

Consolidated total $321,177 $366,551
======== ========

(1) The Company's North American furniture segments, Bush Business Furniture and
Bush Furniture, share certain productive assets. These productive assets
manufacture components for both Bush Business Furniture and Bush Furniture
products. As a result, expenses related to depreciation and amortization,
and capital expenditures for long-lived assets are not allocated between
these two furniture segments. Further, identifiable assets are not
allocated between Bush Business Furniture and Bush Furniture.

The Company's geographic operations outside of the United States principally
include Germany. The Company's products are sold throughout the world. Net sales
by geographic area are presented by attributing net sales to external customers
based on the domicile of the selling location in thousands:

2001 2000 1999

Net sales by geographic area:
United States $291,547 $395,341 $370,982
Germany 54,259 55,856 70,724
-------- -------- --------

Total $345,806 $451,197 $441,706
======== ======== ========

December 29, December 30,
2001 2000

Long-lived assets by geographic area:
United States $193,289 $204,513
Germany 42,639 38,476
-------- --------

Total $235,928 $242,989
======== ========

Electronic and office product superstores and mass merchandisers, throughout the
United States and furniture stores in Europe, comprise a significant portion of
the Company's customer base. The Company performs ongoing credit evaluations of
its customers' financial condition and, generally, requires no collateral from
its customers. Although the Company's exposure to credit risk associated with
nonpayment by customers is affected by conditions or occurrences within the
retail industry, the majority of trade receivables were current at December 29,
2001. The Company has one United States customer that accounted for total gross
sales of approximately 14% in 2001, 20% in 2000 and 21% in 1999, and
approximately 5% and 13% of accounts receivable at December 29, 2001 and
December 30, 2000, respectively. The Company has a second United States customer
that accounted for total gross sales of approximately 14% in 2001, 18% in 2000
and 16% in 1999, and approximately 13% and 12% of accounts receivable at
December 29, 2001 and December 30, 2000, respectively. The Company has a third
United States customer that accounted for total gross sales of approximately 12%
in 2001, and approximately 15% of accounts receivable at December 29, 2001.
Gross sales for this third customer did not exceed 10% in 2000 or 1999.

F-18

12. ACQUISITIONS

In October 2000, the Company acquired the 49% minority interest in
Rohr-Bush GmbH & Co. and, as a result, the Company owns 100% of Rohr-Bush
GmbH & Co. The purchase price has been allocated primarily to property,
plant and equipment based on fair market value at the date of acquisition
in accordance with the purchase method of accounting. The purchase price,
including transaction costs, amounted to approximately $6.5 million.

13. RESTRUCTURING

During the first quarter of 1999, the Company finalized plans to
restructure certain of its operations resulting in non-recurring
restructuring costs amounting to $9,672,000 being charged to expense in
1999. All components of the restructuring were completed in 1999 with
severance payments completed during the first half of fiscal year 2000.

14. SALE OF ASSETS

In December 2000, the Company sold substantially all of the assets of its
retail service business, a division of the Company, to a third party in
exchange for shares of stock of the purchaser. Net sales of this retail
service business were not significant to the consolidated financial
statements. The Company recorded the shares of stock received at fair
value of approximately $5.0 million, which resulted in a pre-tax gain of
approximately $3.6 million. The investment is included in other assets on
the consolidated balance sheets since the Company expects to hold the
investment on a long-term basis. The cost method is used to account for
this investment because the Company does not have the ability to exercise
significant influence over the purchaser's operating and financial
policies.

15. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED

(In Thousands, except per share data)
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.

2001

Net sales $ 84,950 $ 80,614 $ 75,614 $104,628
Gross profit 16,365 (a) 22,757 22,489 31,771
Net earnings (loss) (5,926) (a) 849 1,421 3,913
Earnings (loss) per share - basic (0.43) 0.06 0.10 0.29
Earnings (loss) per share - diluted (0.43) (b) 0.06 0.10 0.28

2000

Net sales $118,033 $106,130 $104,868 $122,166
Gross profit 39,477 34,241 32,360 37,433
Net earnings 9,096 (c) 6,270 3,409 4,002
Earnings per share - basic 0.67 0.46 0.25 0.29
Earnings per share - diluted 0.65 0.44 0.24 0.28

(a) Fourth quarter 2001 gross profit and net loss includes a $5.2 million
pre-tax non-cash inventory write down.

(b) Fourth quarter 2001 diluted earnings per share were calculated using
basic weighted average shares outstanding because using diluted
weighted average shares outstanding would have been antidilutive.

(c) Fourth quarter 2000 net earnings includes a pre-tax gain on sale of
assets of $3,618,000.

******

F-19

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

Col. B
Balance at Col. D Col. E
Col. A Beginning Col. C Deductions - Balance at
Description of Period Additions Describe (1) End of Period
----------------------------------------------
Charged to
Charged to Other Accounts-
Costs & Expenses Describe

Allowance for
doubtful accounts

Fiscal 2001 $ 1,341 $ 810 $ 0 $ 1,172 $ 979

Fiscal 2000 $ 1,911 $ 833 $ 0 $ 1,403 $ 1,341

Fiscal 1999 $ 1,905 $ 690 $ 0 $ 684 $ 1,911

(1) Accounts written off, net of collections on accounts receivable previously
written off

S-1