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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number 1-8884
------------
BUSH INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 16-0837346
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
One Mason Drive
P.O. Box 460
Jamestown, New York 14702-0460
-------------------------------
(Address of principal executive offices)
(Zip Code)
(716) 665-2000
--------------------------------------- ---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
---
Number of shares of Common Stock outstanding as of September 28, 2002:
10,445,453 shares of Class A Common Stock and 3,395,365 shares of Class B Common
Stock.
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
SEPTEMBER 28, DECEMBER 29,
2002 2001
------------- ------------
(In thousands)
ASSETS
- ------
Current Assets:
Cash $ 1,358 $ 1,589
Accounts receivable 15,843 16,872
Inventories 57,836 55,297
Prepaid expenses and other current assets 8,378 11,491
------------- ------------
Total Current Assets 83,415 85,249
Property, Plant and Equipment, Net 200,550 207,334
Other Assets 29,797 28,594
------------- ------------
TOTAL ASSETS $ 313,762 $ 321,177
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 23,634 $ 17,184
Income taxes 830 43
Other accrued liabilities 20,791 24,052
Current portion of long-term debt 457 447
------------- ------------
Total Current Liabilities 45,712 41,726
Deferred Income Taxes 12,371 11,123
Other Long-term Liabilities 8,068 7,237
Long-term Debt 107,093 121,118
------------- ------------
Total Liabilities 173,244 181,204
------------- ------------
Stockholders' Equity:
Common Stock:
Class A, $.10 par, 20,000,000 shares authorized,
10,837,983 and 10,768,243 shares issued 1,084 1,077
Class B, $.10 par, 6,000,000 shares authorized,
3,395,365 shares issued 340 340
Paid-in capital 23,637 22,916
Retained earnings 123,217 123,164
Accumulated other comprehensive income 1,422 1,666
------------- ------------
149,700 149,163
Less treasury stock, 392,530 and 388,400 Class A shares (5,826) (5,775)
Less notes receivable related to common stock (3,356) (3,415)
------------- ------------
Total Stockholders' Equity 140,518 139,973
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 313,762 $ 321,177
============= ============
See notes to condensed consolidated financial statements.
2
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
THIRTEEN WEEKS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands, except shares
and per share data)
Net Sales $ 84,411 $ 80,614
Costs and Expenses:
Cost of sales 62,333 57,857
Selling, general and administrative 19,220 19,304
Interest expense 1,904 1,945
----------- -----------
83,457 79,106
Earnings Before Income Taxes 954 1,508
Income Taxes 462 659
----------- -----------
Net Earnings $ 492 $ 849
=========== ===========
Earnings per Share
Basic $ 0.04 $ 0.06
Diluted $ 0.04 $ 0.06
Weighted Average Shares Outstanding
Basic 13,841,944 13,739,299
Diluted 13,857,005 14,029,798
See notes to condensed consolidated financial statements.
3
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(Unaudited)
THIRTY-NINE WEEKS ENDED
------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands, except shares
and per share data)
Net Sales $ 251,672 $ 260,856
Costs and Expenses:
Cost of sales 182,457 183,839
Selling, general and administrative 60,002 59,532
Interest expense 5,490 6,880
------------- -------------
247,949 250,251
Earnings Before Income Taxes 3,723 10,605
Income Taxes 1,597 4,422
------------- -------------
Net Earnings $ 2,126 $ 6,183
============= =============
Earnings per Share
Basic $ 0.15 $ 0.45
Diluted $ 0.15 $ 0.44
Weighted Average Shares Outstanding
Basic 13,813,286 13,699,444
Diluted 14,036,925 14,137,026
See notes to condensed consolidated financial statements.
4
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
THIRTY-NINE WEEKS ENDED
---------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net earnings $ 2,126 $ 6,183
Adjustment to reconcile to net cash provided by operating activities:
Depreciation and amortization 14,772 14,454
Deferred income taxes 1,301 949
Change in assets and liabilities affecting cash flows:
Accounts receivable 1,295 19,037
Inventories (1,685) 6,491
Prepaid expenses and other current assets 3,191 541
Accounts payable 5,792 (14,533)
Income taxes 889 (2,519)
Other accrued liabilities (3,504) (16,943)
-------- --------
Net cash provided by operating activities 24,177 13,660
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Capital expenditures (4,412) (8,598)
Increase in other assets (1,037) (560)
-------- --------
Net cash used for investing activities (5,449) (9,158)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Repayment of long-term debt (17,686) (2,844)
Exercise of stock options by employees 621 1,160
Dividends paid (2,073) (2,053)
Payments received for notes receivable 4 0
-------- --------
Net cash used for financing activities (19,134) (3,737)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 175 (44)
-------- --------
NET (DECREASE) INCREASE IN CASH (231) 721
CASH AT BEGINNING OF PERIOD 1,589 1,225
-------- --------
CASH AT END OF PERIOD $ 1,358 $ 1,946
======== ========
See notes to condensed consolidated financial statements.
5
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Thirty-nine weeks ended September 28, 2002
(Unaudited)
1. The accounting policies used in preparing these statements are the same as
those used in preparing the Company's consolidated financial statements for
the fiscal year ended December 29, 2001. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report to stockholders for the fiscal year ended December 29, 2001.
The foregoing financial information reflects all adjustments which are, in
the opinion of management, of a normal and recurring nature and necessary
for a fair presentation. The interim results are not necessarily indicative
of the results which may be expected for a full year.
2. 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. The number of stock options excluded from the
computation of diluted earning per share due to their antidilutive effect
were 209,875 and 213,208 for the thirteen and thirty-nine weeks ended
September 28, 2002, respectively and 168,500 and 116,420 for the thirteen
and thirty-nine weeks ended September 29, 2001, respectively.
3. 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. The following tables set forth total comprehensive
income for the 13 week and 39 week periods indicated below.
THIRTEEN WEEKS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
Net earnings $ 492 $849
Accumulated other comprehensive loss (281) (23)
----- ----
Total comprehensive income $ 211 $826
===== ====
6
THIRTY-NINE WEEKS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
Net earnings $2,126 $6,183
Accumulated other comprehensive loss (244) (182)
------ ------
Total comprehensive income $1,882 $6,001
====== ======
4. Inventories consist of the following:
SEPTEMBER 28, DECEMBER 29,
2002 2001
------------- ------------
(In thousands)
Raw material $16,092 $16,137
Work in progress 6,456 5,570
Finished goods 35,288 33,590
------- -------
$57,836 $55,297
======= =======
5. Segment Reporting
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 office, home office, home entertainment and other home
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 evaluates performance of the segments based on earnings before
income taxes. The accounting policies of the segments are the same as those
described and referenced in Note 1.
The following tables set forth reportable segment data for the periods
indicated below.
THIRTEEN WEEKS ENDED
------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
Net Sales from External Customers:
Bush Business Furniture $44,580 $41,478
Bush Furniture 23,704 26,943
Bush Furniture Europe 10,124 9,190
Bush Technologies 6,003 3,003
------- -------
Consolidated Net Sales $84,411 $80,614
======= =======
7
THIRTEEN WEEKS ENDED
------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
Inter-segment Sales:
Bush Business Furniture $ 0 $ 0
Bush Furniture 0 0
Bush Furniture Europe 975 705
Bush Technologies 0 92
------- -------
Total $ 975 $ 797
======= =======
Earnings (Loss) Before Income Taxes:
Bush Business Furniture $ 1,944 $ 2,298
Bush Furniture 883 754
Bush Furniture Europe (1,404) (1,620)
Bush Technologies (469) 76
------- -------
Consolidated Earnings Before Income Taxes $ 954 $ 1,508
======= =======
THIRTY-NINE WEEKS ENDED
------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(In thousands)
Net Sales from External Customers:
Bush Business Furniture $123,130 $115,944
Bush Furniture 75,152 83,099
Bush Furniture Europe 38,667 41,047
Bush Technologies 14,723 20,766
-------- --------
Consolidated Net Sales $251,672 $260,856
======== ========
Inter-segment Sales:
Bush Business Furniture $ 0 $ 0
Bush Furniture 0 0
Bush Furniture Europe 1,725 3,085
Bush Technologies 0 136
-------- --------
Total $ 1,725 $ 3,221
======== ========
Earnings (Loss) Before Income Taxes:
Bush Business Furniture $ 6,383 $ 4,957
Bush Furniture 2,332 173
Bush Furniture Europe (2,999) (1,341)
Bush Technologies (1,993) 6,816
-------- --------
Consolidated Earnings Before Income Taxes $ 3,723 $ 10,605
======== ========
8
SEPTEMBER 28, DECEMBER 29,
2002 2001
------------- ------------
(In thousands)
Total Assets:
Bush Business Furniture and Bush Furniture (*) $228,463 $243,383
Bush Furniture Europe 58,833 56,054
Bush Technologies 26,466 21,740
-------- --------
Consolidated Total Assets $313,762 $321,177
======== ========
(*) 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,
identifiable assets are not allocated between Bush Business
Furniture and Bush Furniture.
6. Goodwill
Effective December 30, 2001 (the first day of fiscal 2002), the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142, goodwill is
no longer amortized, but reviewed for impairment annually, or more
frequently if certain indicators arise. A requirement of SFAS No. 142 is to
complete the initial step of a transitional goodwill impairment test within
six months of adoption of SFAS No. 142 and to complete the final step of
the transitional impairment test by the end of the fiscal year. Any
goodwill impairment loss resulting from the transitional impairment test
will be recorded as a cumulative effect of a change in accounting principle
no later than the end of fiscal year 2002. Subsequent impairment losses
will be reflected in operating income or loss in the consolidated
statements of operations.
The Company has completed the initial step of the transitional evaluation
to determine whether there has been an indication of goodwill impairment.
As a result of this transitional evaluation, the Company is in the process
of completing the final step and may record a non-cash charge for goodwill
impairment of up to approximately $2.4 million in the fourth quarter of
fiscal year 2002 as a cumulative effect of a change in accounting
principle. The potential impairment is related to the Bush Furniture Europe
segment.
Goodwill and other intangible assets subject to SFAS No. 142 were
approximately $15 million as of December 29, 2001. For the thirteen and
thirty-nine weeks ended September 28, 2002 there was no goodwill
amortization expense and there were no changes made to reduce the carrying
amount of goodwill.
Actual results of operations for the thirteen and thirty-nine weeks ended
September 28, 2002 and September 29, 2001 and as adjusted results of
operations for the thirteen and thirty-nine weeks ended September 29, 2001
had the non-amortization provisions of SFAS No. 142 been applied in those
periods are as follows:
9
THIRTEEN WEEKS ENDED
---------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(in thousands, except per share amounts)
Net earnings:
As reported $ 492 $ 849
Goodwill amortization, net of income taxes 0 275
----- ------
As adjusted $ 492 $1,124
===== ======
Basic earnings per share:
As reported $0.04 $ 0.06
As adjusted $0.04 $ 0.08
Diluted earnings per share:
As reported $0.04 $ 0.06
As adjusted $0.04 $ 0.08
THIRTY-NINE WEEKS ENDED
---------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
(in thousands, except per share amounts)
Net earnings:
As reported $2,126 $6,183
Goodwill amortization, net of income taxes 0 829
------ ------
As adjusted $2,126 $7,012
====== ======
Basic earnings per share:
As reported $ 0.15 $ 0.45
As adjusted $ 0.15 $ 0.51
Diluted earnings per share:
As reported $ 0.15 $ 0.44
As adjusted $ 0.15 $ 0.50
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q 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.
RESULTS OF OPERATIONS:
Third quarter sales for the 13 week period ended September 28, 2002 were
$84,411,000 and sales for the 39 week period ended September 28, 2002 were
$251,672,000. This represents an increase of $3,797,000, or approximately 4.7%,
compared to net sales of $80,614,000 for the 13 week period ended September 29,
2001, and a 39 week period decrease of $9,184,000, or approximately 3.5%,
compared to net sales of $260,856,000 for the 39 week period ended September 29,
2001. The sales increase for the 13 week period ended September 28, 2002
primarily reflect increases in Bush Business Furniture, Bush Technologies and
Bush Furniture Europe, partially offset by a decrease in Bush Furniture. The
sales decrease for the 39 week period ended September 28, 2002 primarily
reflects decreases in Bush Furniture, Bush Technologies and Bush Furniture
Europe, partially offset by an increase in Bush Business Furniture. Though sales
were up slightly in the 13 week period ended September 28, 2002, the current
economic slowdown in both North America and Germany continues to create a
challenging environment in which to grow sales and exerts a downward pressure on
gross margins.
Cost of sales increased $4,476,000 for the 13 week period ended September
28, 2002, compared to the 13 week period ended September 29, 2001. Cost of sales
as an approximate percentage of net sales increased by 2.0 percentage points
from 71.8% in the third quarter of 2001 to 73.8% in the third quarter of 2002.
The increase in cost of sales for the 13 week period ended September 28, 2002
reflects the increased sales levels and the impact of the increase in cost of
sales as a percentage of net sales. Cost of sales decreased by $1,382,000 for
the 39 week period ended September 28, 2002, compared to the 39 week period
ended September 29, 2001. Cost of sales as an approximate percentage of net
sales increased by 2.0 percentage points from
11
70.5% in the first 39 weeks of 2001 to 72.5% in the first 39 weeks of 2002. The
reduction in cost of sales for the 39 week period ended September 28, 2002
reflects the lower sales levels as compared to the prior year, partially offset
by the impact of the increase in cost of sales as a percentage of net sales. The
increase in cost of sales as an approximate percentage of net sales for the 13
and 39 week periods ended September 28, 2002 primarily reflects the impact of
lower gross margins in the Bush Technologies segment.
Selling, general and administrative expenses for the 13 week period ended
September 28, 2002 were similar to the 13 week period ended September 29, 2001,
decreasing by $84,000. For the 39 week period ended September 28, 2002 as
compared to the 39 week period ended September 29, 2001, selling, general and
administrative expenses increased by $470,000, primarily as the result of an
increase in various marketing expenses and promotional incentives. Selling,
general and administrative expenses as an approximate percentage of net sales
decreased by 1.1 percentage points from 23.9% in the third quarter of 2001 to
22.8% in the third quarter of 2002 and increased by 1.0 percentage points from
22.8% in the first 39 weeks of 2001 to 23.8% in the first 39 weeks of 2002.
Interest expense for the 13 week period ended September 28, 2002 decreased
to $1,904,000 (or approximately 2.3% of net sales) from $1,945,000 (or
approximately 2.4% of net sales) for the 13 week period ended September 29,
2001. Interest expense for the 39 week period ended September 28, 2002 decreased
to $5,490,000 (or approximately 2.2% of net sales) from $6,880,000 (or
approximately 2.6% of net sales). The decrease in interest expense was primarily
due to a reduction in the Company's long-term debt.
The consolidated effective income tax rates for the 13 and 39 week periods
ended September 28, 2002 were 48.4% and 42.9%, respectively. The tax rates for
the comparable periods in 2001 were 43.7% and 41.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at third quarter-end 2002 decreased by $5,820,000, as
compared to working capital at year-end 2001. Such decreased working capital was
due, in part, to an increase in accounts payable and income taxes and a decrease
in prepaid expenses and other current assets and accounts receivable, partially
offset by a decrease in other accrued liabilities and an increase in
inventories. The decrease in prepaid expenses and other current assets primarily
reflects an overpayment of income taxes in fiscal year 2001 that was refunded in
the first quarter of fiscal year 2002. The decrease in accounts receivable and
the increase in accounts payable reflect actions taken to reduce working capital
requirements. Total assets at third quarter-end 2002 decreased $7,415,000 over
year-end 2001 primarily as a result of a decrease in property, plant and
equipment, prepaid expenses and other current assets and accounts receivable
partially offset by an increase in inventories and other assets. The decrease in
property, plant and equipment primarily reflects capital expenditures that are
less than the level of depreciation. In addition, total liabilities decreased
$7,960,000 at third quarter-end 2002 as compared to year-end 2001, due
12
mostly to a decrease in long-term debt and other accrued liabilities partially
offset by an increase in accounts payable, deferred income taxes and income
taxes and other long-term liabilities.
The Company spent $4,412,000 on capital expenditures during the first three
quarters of 2002, which were financed primarily with cash flows from operating
activities. Capital expenditures for fiscal year 2002 are currently forecasted
to be approximately $6 to $7 million.
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, as there are no required principal payments due until June 30, 2004.
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 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 future periods, to
the extent deemed necessary by the Company, the Company may seek to amend its
existing credit facility depending upon its then ability to satisfy certain
financial ratios and covenants. In addition, the credit agreement limits the
amount of cash dividends that the Company can declare, and also imposes certain
conditions with respect thereto.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), and
13
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142).
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 adoption of SFAS No. 141 had no material impact
on the Company's consolidated financial statements.
Effective December 30, 2001 (the first day of fiscal 2002), the Company
adopted SFAS No. 142. Under SFAS No. 142, goodwill is no longer amortized, but
reviewed for impairment annually, or more frequently if certain indicators
arise. A requirement of SFAS No. 142 is to complete the initial step of a
transitional goodwill impairment test within six months of adoption of SFAS No.
142 and to complete the final step of the transitional impairment test by the
end of the fiscal year. Any goodwill impairment loss resulting from the
transitional impairment test will be recorded as a cumulative effect of a change
in accounting principle no later than the end of fiscal year 2002. Subsequent
impairment losses will be reflected in operating income or loss in the
consolidated statements of operations.
The Company has completed the first step of the transitional evaluation to
determine whether there has been an indication of goodwill impairment. As a
result of this transitional evaluation, the Company is in the process of
completing the final step and may record a non-cash charge for goodwill
impairment of up to approximately $2.4 million in the fourth quarter of fiscal
year 2002 as a cumulative effect of a change in accounting principle. The
potential impairment is related to the Bush Furniture Europe segment.
Additionally, as a result of the adoption of SFAS 142, a substantial amount
of the Company's 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 and the associated pre-tax amortization was
approximately $1.4 million in fiscal year 2001.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Obligations Associated with the Retirement of
Long-Lived Assets" (SFAS No. 143). 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 financial statements upon
adoption. The Company plans to adopt SFAS No. 143 effective December 29, 2002
(the first day of fiscal 2003).
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit and Disposal Activities"
(SFAS No. 146). SFAS No. 146 revises the accounting for exit and disposal
activities under Emerging Issues Task Force Issue 94-3 "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity"
(EITF Issue No. 94-3), by spreading out the reporting of expenses related to
restructuring activities. Commitment to a plan to exit an activity or dispose of
long-lived assets
14
will no longer be sufficient to record a one-time charge for most anticipated
costs. Instead, companies will record exit or disposal costs when they are
"incurred" and can be measured at fair value, and they will subsequently adjust
the recorded liability for changes in estimated cash flows. The provisions of
SFAS No. 146 are effective prospectively for exit or disposal activities
initiated after December 31, 2002. Companies may not restate previously issued
financial statements for the effect of the provisions of SFAS No. 146 and
liabilities that a company previously recorded under EITF Issue No. 94-3 are
grandfathered. The Company expects that the effects of adoption, if any, would
relate solely to exit or disposal activities undertaken after December 31, 2002.
ITEM 3. 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 LIBOR
pricing. Based on the outstanding balance of long-term debt at the end of the
third quarter of fiscal year 2002, a one percentage point change in interest
rates would result in annual interest expense fluctuating approximately $1.1
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.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a
date (the "Evaluation Date") within 90 days before the filing date of this
quarterly report, have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and designed to ensure that
material information relating to the Company and its consolidated subsidiaries
is recorded, processed, summarized and reported in a timely manner.
Changes in internal controls. There were no significant changes in the
Company's internal controls or, to our knowledge, in other factors that would
significantly affect such controls subsequent to the Evaluation Date.
15
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSH INDUSTRIES, INC.
-------------------------------
(Registrant)
Date: November 8, 2002 By: /s/ Robert L. Ayres
---------------- --------------------------------
(Signature)
Robert L. Ayres
President,
Chief Operating Officer and
Chief Financial Officer
17
CERTIFICATIONS
I, Paul S. Bush, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bush Industries, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002 By: /s/ Paul S. Bush
---------------- -------------------------
(Signature)
Paul S. Bush
Chairman of the Board and
Chief Executive Officer
19
I, Robert L. Ayres, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bush Industries, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
20
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002 By: /s/ Robert L. Ayres
---------------- --------------------------------
(Signature)
Robert L. Ayres
President,
Chief Operating Officer and
Chief Financial Officer
21