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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 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
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Commission file number 1-8884
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BUSH INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-0837346
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
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
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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
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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]
Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 29, 2002, 10,446,579 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 June 28, 2002 which was $12.00 per share) of the Class A Common
Stock held by non-affiliates was approximately $63,322,000. In determining the
market value of non-affiliate stock, shares of the registrant's Class A Common
Stock beneficially owned by each executive officer, director and greater than 5%
stockholder have been excluded. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. With respect to
greater than 5% stockholders who are not executive officers and directors, the
registrant has relied on the information contained in Schedule 13G's that were
filed with the Securities and Exchange Commission prior to June 29, 2002. As of
December 28, 2002 there were 10,444,405 shares of Class A Common Stock and
3,395,365 shares of Class B Common Stock 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 15, 2003, are incorporated by
reference into Part III hereof. Certain exhibits listed in Part IV of this
Annual Report on Form 10-K are incorporated by reference from prior filings made
by the registrant under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934.
2
PART I
ITEM 1. BUSINESS
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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.
The Company organizes 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.
On February 27, 2003, the Company approved plans to restructure certain of
its operations. In conjunction with such plans the Company will close its St.
Paul, Virginia manufacturing facility and relocate certain operations to other
plants, close three of its retail outlet stores and utilize third party
liquidators to expedite the sale of excess inventory (which will create space in
the Company's Erie, Pennsylvania facility to launch new production strategies),
and terminate production and management level employees in various locations.
The Company expects to incur losses in the range of approximately $16 to $18
million associated with implementing these plans during 2003. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
The Company's website is http://www.bushfurniture.com. The Company makes
available on this website, free of charge, access to its Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy
Statement on Schedule 14A and amendments to those materials filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after the Company electronically submits such
material to the Securities and Exchange Commission (the "Commission"). In
addition, the Commission's website is http://www.sec.gov. The Commission makes
available on this website, free of charge, reports, proxy and information
statements, and other information regarding issuers, such as the Company, that
file electronically with the Commission. Information on the Company's website or
the Commission's website is not part of this document.
3
(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. See Note 11 to the
Consolidated Financial Statements.
(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.
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 the
Company's 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 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. Although the master license expires
in 2006, the Company believes that it will still be able to continue to use the
process in its North Carolina facilities. The Company is exploring the ability
to extend the term of the master license, the success of which no assurance can
be given. The HydroGraFix process permits the decoration of a variety of
geometric shapes, including complex three-dimensional parts. Cell 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.
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
4
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 2,100 customers, and the
Company estimates that its products are carried in approximately 10,000 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. Decorated faceplates from multiple manufactures are sold to
distributors and 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 an
adequate supply of raw materials is available from multiple sources.
Bush Technologies acquires various plastic housings for cell phones that
Bush Technologies decorates directly from the OEM manufacturers and their source
suppliers. In many instances Bush Technologies is contractually or otherwise
required to obtain these plastic substrates directly from these manufacturers
and their source suppliers. During fiscal 2002, Bush Technologies had difficulty
in obtaining an adequate substrate supply with respect to certain cell phone
platforms from these manufacturers and to the extent of such shortfall, Bush
Technologies' business was adversely impacted. Bush Technologies is currently
addressing this issue with these manufacturers to ensure that an adequate supply
of raw materials will be available, although no assurance can be given that
there will be ample supply in the future. In addition, in connection with the
HydroGraFix process, Bush Technologies obtains the film and chemicals used in
the process from the company from which the master license to the HydroGraFix
process was obtained, and to date, has not had any difficulty in obtaining an
adequate supply of these raw materials. Except as described above, Bush
Technologies believes that an adequate supply of raw materials used in its
business 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.
5
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 28, 2002, the Company had four customers
which accounted for approximately 17%, 14%, 13% 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 28, 2002. The
loss of any substantial customer could have a material impact on the Company's
results of operations.
Backlog
The Company believes that order backlog at any particular point in time is
not predictive of future sales performance. As is standard in the furniture
industry, a customer may cancel a product order prior to shipment without
penalty. In addition, Bush Technologies customers may generally cancel orders
prior to shipment without penalty. The Company has historically filled orders
within approximately one to six weeks of the receipt of a purchase order. With
respect to Bush Technologies, the timing between receipt of purchase orders and
filling those orders is specific to the customer and product-type.
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. In addition, the furniture market has experienced increased
competition from importers of furniture products, particularly from the Far
East, and primarily China. 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.
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 other
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,
6
"Legal Proceedings", for additional information regarding environmental
compliance.
Employees
As of the 2002 fiscal year end, the Company employed a total of
approximately 3,050 employees. As part of the Company's restructuring that was
announced in the first quarter of 2003, approximately 300 of these employees
will be laid off. 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.
Important Factors and Considerations
With respect to forward-looking statements of the Company, as more fully
described in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operation," the Company cautions that its
forward-looking statements are further qualified by those factors and
considerations that could cause actual results to differ materially from those
in the forward-looking statements. Certain of such important factors and
considerations are set forth in Exhibit 99.1 to this Annual Report on Form 10-K.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
--------------------------------------------
For the 2002 fiscal year ended December 28, 2002, the Company generated
domestic sales of approximately $278,727,000 (or approximately 81.9% of total
sales) and foreign sales of approximately $61,443,000 (or approximately 18.1% of
total sales). Of the total foreign sales, approximately $10,654,000 (or
approximately 3.1% of total sales) represented products exported by the Company
from the United States. For the 2001 fiscal year ended December 29, 2001 and the
2000 fiscal year ended December 30, 2000, the Company generated domestic sales
of approximately $280,689,000 and $384,171,000, respectively (or approximately
81.2% of total sales for the 2001 fiscal year and approximately 85.1% of total
sales for the 2000 fiscal year). Foreign sales for the fiscal years ended
December 29, 2001 and December 30, 2000, respectively, were approximately
$65,117,000 and $67,026,000 (or approximately 18.8% of total sales for the 2001
fiscal year and approximately 14.9% of total sales for the 2000 fiscal year). Of
such total foreign sales, approximately $10,858,000 and $11,170,000 represented
products exported by the Company from the United States for the fiscal years
ended December 29, 2001 and December 30, 2000, respectively (or approximately
3.1% for the 2001 fiscal year and 2.5% for the 2000 fiscal year).
7
ITEM 2. PROPERTIES
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The following table summarizes the Company's principal facilities as of
March 1, 2003. All properties primarily relate to the furniture segments, except
for the Greensboro, NC and Rutherfordton, NC facilities which relate to the
surface technologies segment. As part of the Company's restructuring that was
announced in the first quarter of 2003, the Company plans to close its St. Paul,
Virginia facility and, if possible, sell such property.
Approximate
Principal Character and use of Square Owned/Leased
Property Location Footage (Lease Expiration Date)
- ---------------------------------- ----------------------------- ------------------ ------------------------
Manufacturing, warehouse and
office facilities Erie, PA 1,115,000 Owned(1)(2)
Manufacturing, warehouse and
office facilities Mastholte, Germany 815,000 Owned
Manufacturing, warehouse and Allen Street
office facilities Jamestown, NY 450,000 Owned(2)
Manufacturing, warehouse and Mason Drive
corporate office facilities Jamestown, NY 440,000 Owned(2)
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(2)
Manufacturing facility Tijuana, Mexico 135,000 Leased (September 2003)
Manufacturing and warehouse
facilities Greensboro, NC 125,000 Owned(2)
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)
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(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
(2) In the first quarter of fiscal year 2003, the Company entered into a
seventh amendment to its revolving credit facility with JPMorgan Chase Bank
and other lending institutions. As a result of this amendment, the Company
has agreed to place mortgages on these properties in favor of JPMorgan
Chase Bank and the other lending institutions.
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
9
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.
By letter dated February 24, 2003, the EPA has requested that the Company
enter into a "Tolling Agreement". EPA contends that it has a cause of action
against the Company for the recovery of response costs incurred by EPA in
connection with or related to the Little Valley Superfund Site ("the Site"). On
March 13, 2003, the Company executed a Tolling Agreement with EPA and submitted
the Agreement to EPA. Although no assurance can be given, the Company believes
that its financial statements will not be materially adversely affected by the
foregoing.
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 28, 2002, 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
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No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 28, 2002.
10
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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(a) Market Information. The Company's Class A Common Stock is traded on the
-------------------
New York Stock Exchange ("NYSE"). The Company's Class B Common Stock is not
publicly traded. The ability of the Company to continue to have its Class A
Common Stock included for trading on the NYSE is dependent upon the Company's
ability to satisfy the continued listing requirements of the NYSE; including
having a market capitalization of $15 million and/or a per share price of at
least $1.00 per share. No assurance can be given that the continued listing
requirements will be satisfied and that the Company's Class A Common Stock will
continue to be traded on the NYSE.
The following table sets forth the high and low sales prices of the
Company's Class A Common Stock, as reported on the NYSE for the periods
indicated:
Quarter High Low
- ------- ---- ---
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
January 1, 2002 - March 31, 2002 $13.00 $10.55
April 1, 2002 - June 30, 2002 $13.90 $10.00
July 1, 2002 - September 30, 2002 $12.68 $7.10
October 1, 2002 - December 31, 2002 $8.10 $3.85
(b) Holders. As of December 28, 2002, the number of holders of record of
--------
the Company's Class A Common Stock was approximately 400. The Company believes
that there are approximately an additional 1,100 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 has suspended the payment of all cash dividends
----------
on its Class A and Class B Common Stock effective as of the first quarter of
2003 to conserve cash, fund the restructuring initiative that was announced in
the first quarter of fiscal 2003 and to comply with the seventh amendment to the
Company's revolving credit facility, dated as of February 28, 2003, which
prohibits the payment of cash dividends by the Company. The Company had
previously instituted a quarterly cash dividend for holders of Class A and Class
B Common Stock during the fourth quarter of 1992. Dividends had been declared
and paid for each succeeding quarter, and the Company declared cash dividends of
$0.05 per share in each quarter of 2001 and 2002.
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 1998 through
2002 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)
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Earnings Data
- -------------
Net Sales.................................. $340,170 $345,806 $451,197 $441,706 $413,527
Earnings Before Income Taxes and
Cumulative Effect of Accounting Change.... $2,254 $1,694 $37,309 $11,856 $18,361
Earnings Before Cumulative Effect of
Accounting Change......................... $940 $257 $22,777 $5,762 $11,482
Cumulative Effect of Accounting Change..... ($2,398) $0 $0 $0 $0
Net (Loss) Earnings........................ ($1,458) $257 $22,777 $5,762 $11,482
Basic (Loss) Earnings
Per Share
Before Cumulative Effect
of Accounting Change..................... $0.07 $0.02 $1.66 $0.42 $0.83
Cumulative Effect
of Accounting Change..................... ($0.17) $0.00 $0.00 $0.00 $0.00
-------- -------- ------- -------- --------
Net (Loss) Earnings....................... ($0.10) $0.02 $1.66 $0.42 $0.83
Diluted (Loss) Earnings
Per Share
Before Cumulative Effect
of Accounting Change..................... $0.07 $0.02 $1.60 $0.40 $0.78
Cumulative Effect
of Accounting Change..................... ($0.17) $0.00 $0.00 $0.00 $0.00
-------- -------- -------- -------- --------
Net (Loss) Earnings....................... ($0.10) $0.02 $1.60 $0.40 $0.78
Number of Weighted Average Class A
and Class B Shares Outstanding
Basic..................................... 13,820,153 13,720,085 13,680,629 13,878,060 13,824,331
Diluted................................... 13,914,384 14,106,573 14,209,311 14,412,660 14,747,523
12
(In Thousands, except share and per share data)
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Balance Sheet Data
- -------------------
Working Capital........................ $34,801 $43,523 $56,235 $40,456 $40,046
Total Assets........................... $310,105 $321,177 $366,551 $329,581 $329,130
Long-term Debt......................... $100,223 $121,118 $140,376 $124,765 $121,054
Stockholders' Equity................... $136,085 $139,973 $141,710 $124,579 $123,619
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATION
------------
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, prices, changes in estimates regarding the Company's future
contractual obligations and other factors discussed in the Company's filings
with the Securities and Exchange Commission.
OVERVIEW
The Company's results of operations for fiscal 2002 have been adversely
affected by the continuing economic slowdown and the uncertain geopolitical
environment. These effects relate to all segments of the Company's business,
including the Company's domestic and German operations. In addition, the
Company's furniture operations have been negatively impacted by the increased
competition from lower cost imports, particularly from the Far East, and
primarily from China.
As a consequence, in part, of the continued economic slowdown, the Company
has announced a restructuring of some of its operations to reduce costs and
streamline its operations.
On February 27, 2003, the Company approved plans to restructure certain of
its operations. In conjunction with such plans the Company will close its St.
Paul, Virginia manufacturing facility and relocate certain operations to other
plants, close three of its retail outlet stores and utilize third party
liquidators to expedite the sale of excess inventory (which will create space in
the Company's Erie, Pennsylvania facility to launch new production strategies),
and terminate production and management level employees in various locations.
The Company expects to incur losses in the range of approximately $16 to $18
million associated with implementing these plans during 2003.
In addition, the Company has recently amended its revolving credit
facility, as discussed below, to modify some of the financial covenants and
ratios required. Further, the amendment prohibits the Company from paying any
cash dividends on its capital stock and requires the Company, among other
things, to place a mortgage on certain of its real property in favor of its
lenders. The outstanding principal amount of the loan, plus accrued interest, is
due under the revolving credit facility, absent any extension or further
amendment, in June 2004. The Company is exploring
14
various alternatives with respect to such debt obligation, the ultimate outcome
of which no assurance can be given.
The Company's net sales declined approximately 1.6% in fiscal year 2002
from the Company's 2001 fiscal year and 24.6% from the Company's 2000 fiscal
year. The Company believes that the following factors will continue to impact
the Company's results of operations and financial condition: any slowdown of
consumer spending in North America and Europe, particularly in superstores; any
stalling of growth in sales of personal computers, which reduces the need for
computer desks and workcenters; inventory reductions by the Company's customers,
particularly at office superstores; competition from imports using alternative
materials, including metal and glass, and competition from imported assembled
furniture; consolidation and/or liquidation of furniture retailers; the
uncertain international political climate; and changing consumer demand and/or
changing technologies resulting in the obsolescence of certain products.
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.
15
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
--------------------------------
2002 2001 2000
---- ---- ----
Net Sales...................................... 100.0% 100.0% 100.0%
Cost of Sales.................................. 72.8% 73.0% 68.2%
----- ----- -----
Gross Profit.............................. 27.2% 27.0% 31.8%
Selling, General and Administrative Expenses... 24.4% 24.0% 21.7%
Gain on Sale of Assets......................... 0.0% 0.0% (0.8)%
----- ----- -----
Operating Income.......................... 2.8% 3.0% 10.9%
Interest Expense............................... 2.1% 2.5% 2.6%
----- ----- -----
Earnings Before Income Taxes and
Cumulative Effect of Accounting Change... 0.7% 0.5% 8.3%
Income Taxes................................... 0.4% 0.4% 3.3%
----- ----- -----
Earnings Before Cumulative
Effect of Accounting Change.............. 0.3% 0.1% 5.0%
Cumulative Effect of Accounting Change......... (0.7)% - -
----- ----- -----
Net (Loss) Earnings....................... (0.4)% 0.1% 5.0%
===== ===== =====
The following paragraphs provide an analysis of the changes in net sales,
selected cost and expense items, and net earnings for fiscal years 2000 through
2002.
RESULTS OF OPERATIONS: FISCAL 2002 COMPARED TO FISCAL 2001
The Company's net sales for the 2002 fiscal year compared to the 2001
fiscal year decreased $5,636,000, or approximately 1.6%, to $340,170,000. The
sales decrease primarily reflects decreases in Bush Furniture, Bush Technologies
and Bush Furniture Europe, partially offset by an increase in Bush Business
Furniture. 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 prices. In addition, competition from imports using
alternative materials, including metal and glass, are pressuring the low end of
the product mix at Bush Business Furniture, primarily at the office superstores.
The Company believes imports of RTA furniture are up from approximately 6% in
1999 to approximately 15% of the market today.
The Company's cost of sales were $247,645,000 in fiscal year 2002 compared
to $252,424,000 in fiscal year 2001, or a decrease of $4,779,000. This decrease
is primarily the result of a $5,226,000 pre-tax, non-cash inventory write-down
that was incurred in the fourth quarter of fiscal year 2001. The cost of sales
as an approximate percentage of net sales decreased by 0.2 percentage points
from 73.0% in 2001 to 72.8% in 2002. Without the $5,226,000 inventory
write-down, the cost of sales as an approximate percentage of net sales was
71.5% in fiscal year 2001. The 1.3 percentage point increase to 72.8% in fiscal
year 2002 primarily reflects the impact of lower gross
16
margins in the Bush Technologies segment resulting from competitive market
pressures. As a result of such competitive market pressures and lower gross
margins, Bush Technologies incurred a loss before income taxes of $2,850,000 in
fiscal year 2002, as compared to earnings before income taxes of $5,586,000 in
fiscal year 2001. In addition, due to the continued economic softness in Europe,
particularly in Germany, Bush Furniture Europe incurred a loss before income
taxes of $5,316,000 in fiscal year 2002, as compared to a loss before income
taxes of $3,423,000 in fiscal year 2001.
For fiscal year 2002, selling, general and administrative expenses were
virtually unchanged from fiscal year 2001, decreasing by $58,000. Selling,
general and administrative expenses increased as an approximate percentage of
net sales from 24.0% in 2001 to 24.4% in fiscal year 2002, primarily as a result
of selling, general and administrative expenses not decreasing proportionally as
much as the sales decrease.
Interest expense decreased to $7,194,000 in fiscal year 2002 (or
approximately 2.1% of net sales) from $8,553,000 in fiscal year 2001 (or
approximately 2.5% of net sales). The decrease in interest expense was primarily
due to a reduction in the Company's long-term debt.
The Company's overall effective federal, state and local tax rate decreased
from 84.8% in fiscal year 2001 to 58.3% in fiscal year 2002. The decrease is
primarily due to a lower overall effective state tax rate (attributable to the
greater impact in 2001 of the Bush Technologies segment income on the state tax
rate) and the reduced impact related to non-deductible goodwill no longer
required to be amortized in 2002 under Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.142").
For fiscal year 2002, the Company generated earnings before cumulative
effect of accounting change of $940,000 (or $.07 basic and diluted earnings per
share), as compared to $257,000 (or $0.02 basic and diluted earnings per share)
for fiscal year 2001. Had the non-amortization provisions of SFAS No.142 been
applied in fiscal year 2001, earnings before cumulative effect of accounting
change would have been $1,364,000 (or $0.10 basic and diluted earnings per
share).
Pursuant to SFAS No. 142, goodwill is no longer being amortized and must be
periodically tested for impairment. Upon adoption of SFAS No. 142, the Company
concluded that goodwill related to the Bush Furniture Europe segment was
impaired. As a result, effective December 30, 2001 (the first day of fiscal year
2002), the Company has recorded a non-cash charge for goodwill impairment of
$2,398,000 as a cumulative effect of accounting change (or $0.17 basic and
diluted loss per share).
Net loss for fiscal year 2002 was $1,458,000 (or $0.10 basic and diluted
loss per share), as compared to net earnings of $257,000 (or $0.02 basic and
diluted earnings per share) for fiscal year 2001. Had the non-amortization
provisions of SFAS No.142 been applied in fiscal year 2001, net earnings would
have been $1,364,000 (or $0.10 basic and diluted earnings per share).
17
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
percentage points 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 fiscal year 2001, selling, general and administrative expenses
decreased by $14,795,000 compared to fiscal year 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. 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 fiscal year 2000 to 24.0% in fiscal year
2001.
Interest expense decreased to $8,553,000 in fiscal year 2001 (or
approximately 2.5% of net sales) from $11,890,000 in fiscal year 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 fiscal year 2000 to 84.8% in fiscal year 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 fiscal year 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 fiscal year 2000.
18
LIQUIDITY AND CAPITAL RESOURCES
Working capital at fiscal year end 2002 decreased $8,722,000 over fiscal
year end 2001, primarily as a result of an increase in accounts payable. The
increase in accounts payables reflects actions taken to reduce working capital
requirements. Total assets at fiscal year end 2002 decreased $11,072,000 over
fiscal year end 2001, primarily as a result of 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 2002 decreased by $7,184,000,
as compared to fiscal year end 2001. Such decrease in total liabilities was due
primarily to a decrease in long-term debt, partially offset by an increase in
accounts payable and deferred income taxes.
Net cash provided by operating activities for the fiscal year ended
December 28, 2002 was $34,448,000, resulting primarily from an increase in
current liabilities, mostly accounts payable, and depreciation, amortization
(including the accounting charge for goodwill), and deferred taxes, partially
offset by the net loss.
During fiscal year 2002, the Company expended $5,533,000 on capital
expenditures versus $9,444,000 in the previous fiscal year. Capital expenditures
for 2003 are currently forecasted to be approximately $5 to $7 million. Other
assets increased $1,137,000 in fiscal year 2002, primarily as a result of an
increase in the cash surrender value of insurance policies and costs associated
with amending the Company's credit agreement. In fiscal year 2002, the Company
received $621,000 from the exercise of stock options by employees, received a
tax benefit of $103,000 from the exercise of such options and paid four
quarterly dividends totaling $2,766,000 to its stockholders. The cash dividend
for each of the quarters in 2002 was $0.05 per share. Cash flows provided by
operating activities in excess of other cash flow requirements were primarily
used to pay down $25,045,000 principal amount of 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
the first quarter of fiscal year 2003 the Company entered into a seventh
amendment, dated as of February 28, 2003. This amendment, among other things,
modified certain covenants under the credit facility, evidenced the lenders'
consent to certain transactions, including the restructuring to be effectuated
by the Company in the first quarter of 2003, granted a security interest in the
Company's real property in Jamestown, NY, Erie, PA and Greensboro, NC, prohibits
the payment of cash dividends by the Company and modified the amount of money
the Company can borrow under the credit facility from an aggregate $173,000,000
to an aggregate $163,000,000.
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, which varies from 2.0%
to 3.5%,
19
depending upon the Company's ability to satisfy certain quarterly financial
tests. Alternative base rate loans generally bear interest at the prime rate,
plus an applicable margin, which varies from 0.0% to 0.75% 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
$163,000,000 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.
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.
As of December 28, 2002, the following table illustrates the Company's
contractual obligations due in the future:
Payments due by period $(000)
--------------------------------------------------------------
Contractual Obligations Less than 1-3 3-5 More than
Total 1 year years years 5 years
----- ------ ----- ----- -------
Long-Term Debt Obligations..................... $100,685 $462 $97,505 $860 $1,858
Operating Lease Obligations.................... 6,890 2,985 3,427 464 14
Other Long-Term Liabilities Reflected on
the Registrant's Balance Sheet under GAAP... 7,530 250 500 500 6,280
-------- ------ -------- ------ ------
Total.......................................... $115,105 $3,697 $101,432 $1,824 $8,152
======== ====== ======== ====== ======
CRITICAL ACCOUNTING POLICIES
The policies identified below are important to the Company's business
operations and the understanding of its results of operations. The listing is
not intended to be a comprehensive list of all of the Company's accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States, with no need for management's judgment in their application. In other
cases, management is required to exercise judgment in the application of
accounting principles with respect to particular transactions. For a summary of
all of the Company's accounting policies, including the accounting policies
discussed below, see Note 1 to the Notes to Consolidated Financial Statements.
The preparation of this Annual Report on Form 10-K requires the Company to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and
20
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Revenue Recognition and Accounts Receivable
Revenues are recognized when products are shipped. Provisions for
discounts, rebates to customers, returns and other adjustments are provided for
in the same period that related sales are recorded. The recording of these
provisions requires the use of estimates, and future periods will be impacted if
the actual costs differ from the estimated amounts. For all sales, the Company
uses purchase orders from the customer, whether written, oral or electronically
transmitted, as evidence of the transaction. Collateral is generally not
requested from customers.
The Company performs periodic credit evaluations of its customers. The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon the Company's
historical experience and any specific customer collection issues that it has
identified. While such credit losses have historically been within the Company's
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same credit loss rates that it has
experienced in the past. In addition, in part, to limit credit risk on occasion
and to accelerate collections of certain outstanding accounts receivables, the
Company has sold certain accounts receivables, without recourse to it in the
event of non-payment, to certain banks. The Company's accounts receivable
balance was $16.5 million, net of allowance for doubtful accounts of $0.94
million as of December 28, 2002 and $16.9 million, net of allowance for doubtful
accounts of $0.98 as of December 29, 2001.
Inventories
Inventories, consisting of raw materials, work-in-progress and finished
goods, are stated at the lower of cost or market as determined by the first-in,
first-out method. Inventories that the Company estimates as either obsolete or
unmarketable are written down based upon the difference between the cost of the
inventory and its estimated market value. The Company's estimates as to such
value are based, in part, on projected future demand and market conditions. If
these estimates or related projections change in the future, additional
write-downs may be required. Obsolete and slow moving inventory reserves were
approximately $4,809,000 and $7,917,000 at December 28, 2002 and December 29,
2001, respectively.
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
$5,582,000 and $7,500,000 at December 28, 2002 and December 29, 2001,
respectively. Interest associated with construction indebtedness is capitalized.
Interest amounting to approximately $283,000, $971,000, and $1,984,000
associated with construction in progress was capitalized for 2002, 2001 and
2000, respectively.
21
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.
Other Assets/Goodwill
Other assets consist primarily of goodwill, cash value of life
insurance policies, advances on split dollar insurance arrangements, an
investment at cost, and other intangible assets. The Company tests long-lived
assets, exclusive of goodwill, for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. An
impairment loss shall be recognized if the carrying amount of long-lived assets,
to be held and used is not recoverable and exceeds its fair value based on the
sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. In the Company's review of such assets, it is required
to make certain estimates and projections. If these estimates or related
projections change in the future, the Company may be required to record
impairment charges for these assets.
At least annually and whenever events and changes in circumstances warrant,
the Company compares the fair value of the reporting unit to its carrying amount
to determine if there is potential impairment of goodwill. If the fair value of
the reporting unit is less than its carrying value, an impairment loss is
recorded to the extent that the fair value of the goodwill within the reporting
unit is less than their carrying value. Fair values for goodwill are determined
based on discounted cash flows, market multiples or appraised values as
appropriate. The conditions that would trigger an impairment assessment of
goodwill include a significant negative trend in the Company's operating results
or cash flows, a decrease in demand for the Company's products, a change in the
competitive environment and other industry and economic factors.
Accounting for Income Taxes
As part of the process of preparing the consolidated financial statements,
the Company is required to estimate its income taxes in each of the
jurisdictions in which it operates. This process involves the Company estimating
its actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, for tax and book purposes. These
differences result in deferred tax assets and liabilities, which are included
within the Company's consolidated balance sheet. The Company must then assess
the likelihood that its deferred tax assets will be recovered from future
taxable income and to the extent the Company believes that recovery is not
likely, it must establish a valuation allowance. To the extent the Company
establishes a valuation allowance or increases this allowance in a period, the
Company must include an expense within the tax provision in the statement of
operations. Significant management judgment is required in determining the
provision for income taxes, the deferred tax assets and liabilities and any
valuation allowance recorded against the net deferred tax assets. In the event
that actual results differ from the Company's estimates or it adjusts these
estimates in future periods, the Company may need to establish an additional
valuation allowance which could impact its financial position and results of
operations.
22
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (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
plans to adopt the provisions of SFAS No. 143 on December 29, 2002 (the first
day of fiscal 2003) and does not expect that the adoption of SFAS No. 143 will
have a material impact on its consolidated financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal of 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."
The provisions of SFAS No. 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002.
In 2002, the Company adopted Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure".
This standard provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. Additionally, the standard also requires prominent disclosures in
the Company's financial statements about the method of accounting used for
stock-based employee compensation, and the effect of the method used when
reporting financial results.
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
2002, 2001 and 2000.
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
2002, a one percentage point change in interest rates would result in annual
interest expense fluctuating approximately $1.0 million.
23
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 believes the primary impact on the Company of a reasonably
possible change of 10% in any foreign currency exchange rate would be an
increase or decrease of approximately $5.0 million in the US dollar equivalent
in foreign currency denominated debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 15).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
24
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 15, 2003, 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 15, 2003, 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 15, 2003, under the caption, "Security Ownership of
Management and Principal Stockholders", to be filed by the Registrant.
The following table sets forth information about the Company's Class A
Common Stock that may be issued upon the exercise of options, warrants and
rights under all of the Company's equity compensation plans as of December 28,
2002, including the 1995 Stock Plan and the 1999 Stock Plan.
Number of securities
Number of securities available for future
to be issued upon Weighted-average issuance under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
warrants and warrants and reflected in
Plan Category rights rights column (a))
- ------------- -------------------- -------------------- ---------------------
(a) (b) (c)
Equity compensation plans approved by
stockholders................................. 1,390,337 $10.04 568,465
Equity compensation plans not approved
by stockholders (1).......................... 0 N/A 166,961
--------- -------
Total.......................................... 1,390,337 735,426
25
(1) The 1999 Stock Plan provides for the issuance of up to 350,000 shares of
Class A Common Stock to employees, agents, independent contractors,
consultants, directors and executive officers of the Company and its
affiliates, except that no shares can be issued to the Company's executive
officers and directors unless the 1999 Stock Plan is approved by the
Company's stockholders. The Board of Directors, or a committee appointed by
the Board of Directors, has the power to select the recipients of awards
and to establish the terms of the awards.
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 15, 2003, under the caption "Certain Transactions",
to be filed by the Registrant.
ITEM 14. 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 annual 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. It should be noted that the design of any system of controls is
based in part upon certain assumptions, and there can be no assurance that any
design will succeed in achieving its stated goals.
Changes in internal controls. There were no significant changes in the
Company's internal controls or, to the Company's knowledge, in other factors
that would significantly affect such controls subsequent to the Evaluation Date.
26
PART IV
-------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(A) The consolidated balance sheets as of December 28, 2002 and December 29,
2001 and the related consolidated statements of operations, stockholders'
equity, cash flows and financial statement schedule for each of the three
years in the period ended December 28, 2002 are filed as part of this
report:
(1) Financial Statements Page
-------------------- ----
Independent Auditors' Report.................................. F-1
Consolidated Balance Sheets................................... F-2
Consolidated Statements of Operations......................... 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)(17)
10.1 The Registrant's 1985 Stock Plan, as amended.(4)
10.2 The Registrant's 1985 Incentive Stock Option Plan, as amended.(4)
10.3 Lease Agreement between County of Chautauqua Industrial Development Agency
and the Registrant dated January 1, 1990.(2)
27
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.(17)
10.8 Employment Agreement between the Registrant and Gregory P. Bush dated
October 10, 2000.(17)
10.9 Employment Agreement between the Registrant and Larry C. Genareo dated
October 16, 2000.(17)
10.10 Employment Agreement between the Registrant and Neil A. Frederick dated
October 16, 2000.(17)
10.11 Employment Agreement between the Registrant and David E. White dated
March 21, 2002.
10.12 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)
10.13 Split Dollar Insurance Agreement between the Registrant and Robert L.
Ayres dated December 19, 1991 and related Collateral Assignment Agreement.
(3)
10.14 Performance Bonus Plan.(5)
10.15 The Registrant's 1995 Stock Plan.(7)
10.16 The Registrant's 1999 Stock Plan.(12)
10.17 Stock Redemption Agreement between the Registrant and Paul S. Bush dated
July 10, 1997.(8)
10.18 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)
28
10.19 First Amendment, dated as of August 17, 1998, to the Credit and Guarantee
Agreement dated as of June 26, 1997.(9)
10.20 Second Amendment, dated as of December 31, 1998, to the Credit and
Guarantee Agreement dated as of June 26, 1997.(10)
10.21 Third Amendment, dated as of March 31, 1999, to the Credit and Guarantee
Agreement dated as of June 26, 1997.(11)
10.22 Fourth Amendment, dated as of February 29, 2000, to the Credit and
Guarantee Agreement dated as of June 26, 1997.(13)
10.23 Fifth Amendment, dated as of May 2, 2000, to the Credit and Guarantee
Agreement dated as of June 26, 1997.(15)
10.24 Sixth Amendment, dated as of December 28, 2001, to the Credit and
Guarantee Agreement dated as of June 26, 1997.(16)
10.25 Seventh Amendment dated as of February 28, 2003, to the Credit and
Guarantee Agreement dated as of June 26, 1997.(18)
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
99.1 Statement regarding Forward Looking Information.
- -------------
(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.
29
(9) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed September 14, 1998.
(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.
(17) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 29, 2001.
(18) Incorporated by reference to the Registrants Current Report on Form 8-K,
filed March 19, 2003.
(B) Reports on Form 8-K.
During the first quarter of fiscal year 2003, an 8-K was filed on
March 19, 2003 regarding an amendment to the Company's existing credit
facility with JPMorgan Chase Bank and other lending institutions.
30
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 26, 2003 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 26, 2003
/s/Robert L. Ayres
- -----------------------
Robert L. Ayres President, Chief Operating Officer,
Chief Financial Officer
and Director March 26, 2003
/s/Lewis H. Aronson
- -----------------------
Lewis H. Aronson Corporate Executive Vice President
and Director March 26, 2003
/s/Douglas S. Bush
- -----------------------
Douglas S. Bush Vice President of Merchandising
and Director March 26, 2003
31
SIGNATURE TITLE DATE
--------- ----- ----
/s/Gregory P. Bush
- ---------------------
Gregory P. Bush President - Bush Furniture
and Director March 26, 2003
/s/Neil A. Frederick
- -----------------------
Neil A. Frederick Treasurer, Corporate Vice President
and Director March 26, 2003
/s/Donald F. Hauck
- -----------------------
Donald F. Hauck Senior Vice President
and Director March 26, 2003
/s/Paul A. Benke
- -----------------------
Paul A. Benke Director March 26, 2003
/s/Jerald D. Bidlack
- -----------------------
Jerald D. Bidlack Director March 26, 2003
/s/David G. Dawson
- -----------------------
David G. Dawson Director March 26, 2003
/s/Robert E. Hallagan
- -----------------------
Robert E. Hallagan Director March 26, 2003
/s/Erland E. Kailbourne
- -----------------------
Erland E. Kailbourne Director March 26, 2003
32
CERTIFICATIONS
I, Paul S. Bush, certify that:
1. I have reviewed this annual report on Form 10-K of Bush Industries, Inc;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
33
6. The registrant's other certifying officers and I have indicated in this
annual report whether 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: March 26, 2003 By: /s/ Paul S. Bush
--------------- -----------------
(Signature)
Paul S. Bush
Chairman of the Board and
Chief Executive Officer
34
I, Robert L. Ayres, certify that:
1. I have reviewed this annual report on Form 10-K of Bush Industries, Inc;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
35
6. The registrant's other certifying officers and I have indicated in this
annual report whether 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: March 26, 2003 By: /s/ Robert L. Ayres
--------------- ----------------------
(Signature)
Robert L. Ayres
President,
Chief Operating Officer and
Chief Financial Officer
36
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 28, 2002 and December 29,
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
28, 2002. Our audits also included the financial statement schedule listed in
the Index at Item 15 (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 28, 2002 and December 29, 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 2002, 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.
As discussed in Note 1 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets."
Deloitte & Touche, LLP
Buffalo, New York
February 3, 2003
(February 28, 2003 as to Note 14)
F-1
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 2002 AND DECEMBER 29, 2001 (in thousands)
- ---------------------------------------------------------------------------------------------------------
ASSETS 2002 2001
CURRENT ASSETS:
Cash and cash equivalents $ 2,729 $ 1,589
Accounts receivable (less allowance for doubtful accounts of $938
on December 28, 2002 and $979 on December 29, 2001) 16,544 16,872
Inventories 56,204 55,297
Prepaid expenses and other current assets 10,668 11,491
-------- --------
Total current assets 86,145 85,249
PROPERTY, PLANT AND EQUIPMENT, NET 196,922 207,334
OTHER ASSETS 27,038 28,594
-------- --------
TOTAL ASSETS $310,105 $321,177
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 26,608 $ 17,184
Other accrued liabilities 24,274 24,095
Current portion of long-term debt 462 447
-------- --------
Total current liabilities 51,344 41,726
DEFERRED INCOME TAXES 14,923 11,123
OTHER LONG-TERM LIABILITIES 7,530 7,237
LONG-TERM DEBT 100,223 121,118
-------- --------
Total liabilities 174,020 181,204
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common Stock - Class A 1,084 1,077
Common Stock - Class B 340 340
Paid-in capital 23,633 22,916
Retained earnings 118,940 123,164
Accumulated other comprehensive income 1,245 1,666
-------- --------
Subtotal 145,242 149,163
Less treasury stock, at cost 5,838 5,775
Less notes receivable related to common stock 3,319 3,415
-------- --------
Total stockholders' equity 136,085 139,973
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $310,105 $321,177
======== ========
See notes to consolidated financial statements.
F-2
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 28, 2002, DECEMBER 29, 2001 AND DECEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------------
(In Thousands, except share and per share data)
2002 2001 2000
NET SALES $ 340,170 $ 345,806 $ 451,197
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 247,645 252,424 307,686
Selling, general and administrative 83,077 83,135 97,930
Interest expense 7,194 8,553 11,890
Gain on sale of assets - - (3,618)
----------- ----------- -----------
337,916 344,112 413,888
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,254 1,694 37,309
INCOME TAXES 1,314 1,437 14,532
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 940 257 22,777
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,398) - -
----------- ----------- -----------
NET (LOSS) EARNINGS $ (1,458) $ 257 $ 22,777
=========== =========== ===========
BASIC (LOSS) EARNINGS PER SHARE:
Before cumulative effect of accounting change $ 0.07 $ 0.02 $ 1.66
Cumulative effect of accounting change (0.17) - -
----------- ----------- -----------
Net (loss) earnings $ (0.10) $ 0.02 $ 1.66
=========== =========== ===========
DILUTED (LOSS) EARNINGS PER SHARE:
Before cumulative effect of accounting change $ 0.07 $ 0.02 $ 1.60
Cumulative effect of accounting change (0.17) - -
----------- ----------- -----------
Net (loss) earnings $ (0.10) $ 0.02 $ 1.60
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 13,820,153 13,720,085 13,680,629
Diluted 13,914,384 14,106,573 14,209,311
See notes to consolidated financial statements.
F-3
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 28, 2002, DECEMBER 29, 2001 AND DECEMBER 30, 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 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
Payments received for notes receivable - - - - - -
Stock applied to notes receivable - - - - - -
Exercise of stock options 69,740 7 - - 614 -
Tax benefit from exercise of stock options - - - - 103 -
Dividends paid - - - - - (2,766)
Comprehensive loss:
Net loss - - - - - (1,458) $ (1,458)
Other comprehensive loss:
Foreign currency translation - - - - - - (414)
Minimum pension liability - - - - - - (7)
---------- ------- --------- ----- -------- --------- --------
Total comprehensive loss $ (1,879)
========
BALANCE, DECEMBER 28, 2002 10,837,983 $ 1,084 3,395,365 $ 340 $ 23,633 $ 118,940
========== ======= ========= ===== ======== =========
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands, except share data)
Accumulated
Other Treasury Stock
Comprehensive ---------------------- Notes
Income (Loss) Shares Amount Receivable
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
Payments received for notes receivable - - - (33)
Stock applied to notes receivable - 5,178 63 (63)
Exercise of stock options - - - -
Tax benefit from exercise of stock options - - - -
Dividends paid - - - -
Comprehensive loss:
Net loss - - - -
Other comprehensive loss:
Foreign currency translation (414) - - -
Minimum pension liability (7) - - -
------- ------- ------- -------
Total comprehensive loss
BALANCE, DECEMBER 28, 2002 $ 1,245 393,578 $ 5,838 $ 3,319
======= ======= ======= =======
See notes to consolidated financial statements.
F-4
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 28, 2002, DECEMBER 29, 2001 AND DECEMBER 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (1,458) $ 257 $ 22,777
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 20,053 19,647 18,666
Cumulative effect of accounting change 2,398 - -
Deferred income taxes 2,404 471 3,161
Gain on sale of assets - - (3,618)
Changes in assets and liabilities affecting cash flows,
net of acquisition:
Accounts receivable 597 21,442 (4,309)
Inventories 24 20,047 (21,078)
Prepaid expenses and other current assets 76 (3,259) 92
Accounts payable 8,622 (9,462) 5,929
Income taxes 2,337 (1,342) 1,662
Other accrued liabilities (605) (14,310) (39)
-------- -------- ---------
Net cash provided by operating activities 34,448 33,491 23,243
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,533) (9,444) (33,301)
Acquisition of business, net of cash - - (6,457)
Increase in other assets (1,137) (719) (1,070)
-------- -------- ---------
Net cash used for investing activities (6,670) (10,163) (40,828)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (25,045) (21,127) (495)
Proceeds from long-term debt - - 22,977
Purchase of Class A Stock for treasury - - (4,167)
Exercise of stock options 621 1,160 659
Dividends paid ($0.20 per share) (2,766) (2,741) (2,744)
Payments received for notes receivable 33 45 34
-------- -------- ---------
Net cash (used for) provided by financing activities (27,157) (22,663) 16,264
-------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 519 (301) (158)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,140 364 (1,479)
CASH AND CASH EQUIVALENTS, Beginning of year 1,589 1,225 2,704
-------- -------- ---------
CASH AND CASH EQUIVALENTS, End of year $ 2,729 $ 1,589 $ 1,225
======== ======== =========
See notes to consolidated financial statements.
F-5
BUSH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 2002, DECEMBER 29, 2001 AND DECEMBER 30, 2000
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
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.
Principles of Consolidation--The consolidated financial statements consist
of Bush Industries, Inc. and its wholly owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Accounting Change--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). SFAS No. 142
addresses the financial accounting and reporting for acquired goodwill and
other intangible assets with indefinite lives. Pursuant to SFAS No. 142,
goodwill is no longer being amortized and must be periodically tested for
impairment. Upon adoption of SFAS No. 142, the Company concluded that
goodwill related to the Bush Furniture Europe segment was impaired. As a
result, the Company has recorded a non-cash charge for goodwill impairment
of $2,398,000 as a cumulative effect of accounting change effective
December 30, 2001. The fair value of the Bush Furniture Europe reporting
unit was estimated using an average of the price to revenues method and
the discounted cash flow method and reflect the losses and declining
financial condition at the Company's German subsidiary.
Actual results of operations for each of the three years in the period
ended December 28, 2002 and as adjusted results of operations for 2001 and
2000 had the non-amortization provisions of SFAS No. 142 been applied in
those periods are as follows:
2002 2001 2000
Net (loss) earnings:
As reported $(1,458) $ 257 $22,777
Goodwill amortization, net of income taxes - 1,107 1,116
------- ------ -------
As adjusted $(1,458) $1,364 $23,893
======= ====== =======
Basic (loss) earnings per share:
As reported $ (0.10) $ 0.02 $ 1.66
As adjusted $ (0.10) $ 0.10 $ 1.75
Diluted (loss) earnings per share:
As reported $ (0.10) $ 0.02 $ 1.60
As adjusted $ (0.10) $ 0.10 $ 1.68
F-6
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
$5,582,000 and $7,500,000 at December 28, 2002 and December 29, 2001,
respectively. Interest associated with construction indebtedness is
capitalized. Interest amounting to approximately $283,000, $971,000 and
$1,984,000 associated with construction in progress was capitalized for
2002, 2001 and 2000, 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.
Other Assets--Other assets consist primarily of goodwill, cash value of
life insurance policies, advances on split dollar insurance arrangements,
an investment at cost, and other intangible assets. The Company tests
long-lived assets, exclusive of goodwill, for recoverability whenever
events or changes in circumstances indicate that its carrying amount may
not be recoverable in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." An impairment loss shall be recognized if the carrying
amount of long-lived assets, to be held and used is not recoverable and
exceeds its fair value based on the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
Goodwill approximated $13.0 million and $15.4 million at December 28, 2002
and December 29, 2001, respectively. SFAS No. 142 requires the Company to
compare the fair value of the reporting unit to its carrying amount on at
least an annual basis to determine if there is potential impairment. If
the fair value of the reporting unit is less than its carrying value, an
impairment loss is recorded to the extent that the fair value of the
goodwill within the reporting unit is less than their carrying value. Fair
values for goodwill are determined based on discounted cash flows, market
multiples or appraised values as appropriate.
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.
F-7
Stock-Based Compensation--In 2002, the Company adopted Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". This standard provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation.
Additionally, the standard also requires prominent disclosures in the
Company's financial statements about the method of accounting used for
stock-based employee compensation, and the effect of the method used when
reporting financial results.
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 2002, 2001 and 2000.
Pro forma information regarding net earnings (loss) and earnings (loss)
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 was
estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 2002, 2001 and 2000,
respectively: risk free interest rate of 5.25%, 5.02% and 6.37%; dividend
yield of 2.07%, 1.59% and 1.45%; volatility factors of the expected market
price of the Company's common stock of 67%, 46% and 34%; 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 net earnings (loss) and earnings (loss) per share as if the
fair value based method had been applied to all outstanding and unvested
awards in each year is as follows (in thousands except per share data):
2002 2001 2000
Net (loss) earnings as reported $(1,458) $ 257 $22,777
Less total stock-based employee compensation
expense determined under fair value based
method, net of related tax effects (46) (43) (162)
-------- ------ -------
Pro forma net (loss) earnings $(1,504) $ 214 $22,615
======== ====== =======
Earnings per share:
Basic - as reported $ (0.10) $ 0.02 $ 1.66
Basic - pro forma $ (0.11) $ 0.02 $ 1.65
Diluted - as reported $ (0.10) $ 0.02 $ 1.60
Diluted - pro forma $ (0.11) $ 0.02 $ 1.59
F-8
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 $6,918,000, $8,650,000 and $11,772,000 and cash paid for
income taxes was $798,000, $6,301,000 and $9,783,000 in 2002, 2001 and
2000, respectively. In addition, the Company received a refund of taxes
amounting to $5,335,000 in 2002.
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 28, 2002 (52 weeks), December
29, 2001 (52 weeks) and December 30, 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.
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 172,419, 168,859 and 133,983 stock options excluded from the
computation of diluted earnings per share due to their antidilutive effect
in 2002, 2001 and 2000, 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 loss or 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 August 2001, the Financial Accounting
Standards Board (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
plans to adopt the provisions of SFAS No. 143 on December 29, 2002 (the
first day of fiscal 2003) and does not expect that the adoption of SFAS
No. 143 will have a material impact on its consolidated financial
statements.
F-9
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal of
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." The provisions of SFAS No. 146 are effective
prospectively for exit or disposal activities initiated after December 31,
2002.
2. INVENTORIES
Inventories consist of (in thousands):
December 28, December 29,
2002 2001
Raw materials $13,766 $16,137
Work in progress 7,150 5,570
Finished goods 35,288 33,590
------- -------
Total $56,204 $55,297
======= =======
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of:
December 28, December 29,
2002 2001
(in thousands)
Land $ 6,465 $ 6,173
Buildings and improvements 128,289 124,082
Machinery and equipment 194,827 189,117
Transportation equipment 1,181 1,103
Office equipment 14,299 14,942
Leasehold improvements 1,668 1,466
--------- --------
346,729 336,883
Less accumulated depreciation (149,807) (129,549)
--------- -------
Total $ 196,922 $207,334
========= ========
Depreciation expense was $19,886,000, $18,124,000 and $17,053,000 for
2002, 2001 and 2000, respectively.
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of (in thousands):
December 28, December 29,
2002 2001
Payroll, profit sharing and related liabilities $11,473 $10,302
Commissions and sales related expenses 9,678 10,835
Other 3,123 2,958
------- -------
Total $24,274 $24,095
======= =======
F-10
5. LONG-TERM DEBT
Long-term debt consists of:
December 28, December 29,
2002 2001
(in thousands)
Revolving credit facility with the first contractual principal payment
due June 30, 2004. $ 96,697 $117,129
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. 1,295 1,420
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. 1,362 1,483
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. 1,253 1,379
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 in 2003. 78 154
-------- --------
Total debt 100,685 121,565
Less current portion 462 447
-------- --------
Total long-term debt $100,223 $121,118
======== ========
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 a maximum of $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. Maximum borrowings under
the revolving credit facility are subject to certain limitations as
defined in the agreement. The Company classifies borrowings under the
facility as long-term because there are no contractual obligations for
repayment until June 30, 2004. At the Company's option, borrowings may be
effectuated, subject to certain conditions, primarily on a NYBOR based
rate, an applicable eurocurrency rate for certain foreign currencies, or
an alternative base rate. At December 28, 2002, borrowings outstanding
were primarily at the eurocurrency rate (6.0625%) and at the alternative
base rate (4.25%). 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
28, 2002, letters of credit amounting to approximately $4.6 million were
outstanding.
F-11
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):
Fiscal Year
2003 $ 462
2004 97,095
2005 410
2006 423
2007 437
Thereafter 1,858
--------
Total $100,685
========
6. COMMITMENTS AND CONTINGENCIES
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 consolidated
financial statements.
The Company has incurred rental expense for manufacturing and warehouse
space and equipment. A summary of rent expense follows (in thousands):
2002 2001 2000
Real estate $2,224 $1,882 $1,094
Equipment 2,409 2,372 2,259
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):
Fiscal Year
2003 $2,985
2004 2,093
2005 1,334
2006 373
2007 91
F-12
7. INCOME TAXES
The provision for income taxes is as follows (in thousands):
2002 2001 2000
Current:
Federal $(1,055) $ 528 $ 10,041
State (35) 438 1,330
------- -------- --------
(1,090) 966 11,371
------- -------- --------
Deferred:
Federal 1,849 844 2,786
State 108 87 326
Foreign 447 (460) 49
------- -------- --------
2,404 471 3,161
------- -------- --------
Total $ 1,314 $ 1,437 $ 14,532
======= ======== ========
The types and tax effects of temporary differences included in deferred tax
assets and liabilities are as follows (in thousands):
2002 2001
Deferred Tax Assets:
Accounts receivable $ 330 $ 348
Accrued expenses 2,601 2,910
Inventories 1,425 1,984
Deferred income 237 343
State investment and federal minimum tax credit carryforward 7,515 8,112
Subsidiary net operating loss carryforward 3,313 3,477
-------- --------
15,421 17,174
Deferred Tax Liabilities:
Property, plant and equipment (18,671) (15,740)
Other assets (1,313) (1,313)
-------- --------
Subtotal (4,563) 121
Total valuation allowance (7,515) (7,474)
-------- --------
Net deferred tax liability $(12,078) $ (7,353)
======== ========
2002 2001
Reported as (in thousands):
Current asset (included in prepaid expenses
and other current assets) $ 2,845 $ 3,770
Long-term liability (14,923) (11,123)
-------- --------
Net deferred tax liability $(12,078) $ (7,353)
======== ========
F-13
The Company has recorded a valuation allowance primarily in anticipation
that certain state investment tax credits will expire prior to their
usage. State investment tax credits and subsidiary net operating loss
carryforwards of approximately $7.5 million and $9.5 million begin to
expire in 2003. 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:
2002 2001 2000
Statutory rate 35.0 % 35.0 % 35.0 %
State taxes, net of federal benefits 12.9 25.2 2.8
Effect of non-deductible costs 6.8 19.1 0.9
Effect of foreign tax rates 1.2 2.0 0.5
Other, net 2.4 3.5 (0.2)
---- ---- ----
Effective tax rate 58.3 % 84.8 % 39.0 %
==== ==== ====
The Company realized tax benefits amounting to $103,000, $185,000 and
$108,000 as the result of stock option transactions during 2002, 2001 and
2000, 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 the fourth quarter of 1999, the Company sold 268,574 shares of common
stock at fair value to certain employees and directors of the Company in
exchange for notes receivable. Repayment of the notes will commence in the
fourth quarter of 2003 through payroll deductions.
F-14
9. STOCK PLANS
The Company currently has two open stock plans, which provide for the
issuance of Class A Common Stock. As of December 28, 2002, there were
568,465 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 28, 2002, there were outstanding options to purchase
1,281,062 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, 1,190,462 have an exercise price
of $8.91.
The following is a summary of option transactions:
2002 2001 2000
Options outstanding, beginning of year 1,390,702 1,483,411 1,555,131
Options granted 41,000 68,000 30,000
Options exercised/cancelled (41,365) (160,709) (101,720)
--------- --------- ---------
Options outstanding, end of year 1,390,337 1,390,702 1,483,411
========= ========= =========
All of the options outstanding expire at various dates from 2003 through
2012. The option price of the shares exercised in 2002 was $8.91. The
weighted-average exercise prices of options were $8.91, $8.51 and $8.50
for fiscal years 2002, 2001 and 2000, respectively. The weighted-average
grant-date fair value of options granted were $12.40, $12.98 and $13.88
for fiscal years 2002, 2001 and 2000, respectively.
In addition to the options under the aforementioned plans, 48,375
non-qualifying options previously granted to key individuals were
exercised in 2002 at an exercise price of $8.91. At December 28, 2002,
there were no non-plan options outstanding.
F-15
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):
2002 2001
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,880 $ 5,362
Service cost 62 58
Interest cost 364 335
Foreign currency exchange rate changes 481 147
Actuarial gain 202 154
Benefits paid (233) (176)
------- -------
Benefit obligations at end of year 6,756 5,880
------- -------
Funded status (the plan is unfunded) (6,756) (5,880)
Unrecognized net actuarial gain 202 154
------- -------
Net amount recognized $(6,554) $(5,726)
======= =======
Amounts recognized in the balance sheets consist of:
2002 2001
Accrued benefit liability
(included in other long-term liabilities) $(6,629) $(5,794)
Accumulated other comprehensive gain 75 68
------- -------
Net amount recognized $(6,554) $(5,726)
======= =======
There were no plan assets at December 28, 2002 and December 29, 2001. The
plan is funded to the extent of benefits paid.
Weighted average assumptions for the years:
2002 2001 2000
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):
2002 2001 2000
Service cost $ 62 $ 58 $ 116
Interest cost 364 335 342
----- ----- -----
Net periodic benefit cost $ 426 $ 393 $ 458
===== ===== =====
F-16
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 $165,000,
$1,276,000 and $1,366,000 for 2002, 2001 and 2000, respectively. There
was no discretionary Company contribution in 2002.
11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Company operates in four operating segments based principally on the
natural alignment of its customers, markets and products. 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 (loss) before income taxes
exclude nonrecurring charges such as gains or losses on the sale of assets
and the cumulative effect of accounting change. The accounting policies of
the segments are the same as those described in Note 1.
The changes in the carrying amount of goodwill by operating segment for
the year ended December 28, 2002 are as follows (in thousands):
Bush
Business
Furniture Bush
and Bush Furniture Bush
Furniture Europe Technologies Total
Balance as of December 29, 2001 $9,464 $ 2,398 $3,538 $15,400
Impairment loss - (2,398) - (2,398)
------ -------- ------ -------
Balance as of December 28, 2002 $9,464 $ - $3,538 $13,002
====== ======== ====== =======
F-17
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):
2002 2001 2000
Net sales from external customers:
Bush Business Furniture $163,916 $152,080 $221,936
Bush Furniture 104,149 114,432 142,093
Bush Furniture Europe 50,784 54,287 55,858
Bush Technologies 21,321 25,007 31,310
-------- -------- --------
Consolidated total $340,170 $345,806 $451,197
======== ======== ========
Inter-segment sales:
Bush Business Furniture $ - $ - $ -
Bush Furniture - - -
Bush Furniture Europe 4,027 4,084 16,060
Bush Technologies - 179 1,143
-------- -------- --------
Total $ 4,027 $ 4,263 $ 17,203
======== ======== ========
Segment earnings (loss) before income taxes:
Bush Business Furniture $ 7,577 $ 1,450 $ 17,285
Bush Furniture 2,843 (1,919) 6,954
Bush Furniture Europe (5,316) (3,423) 416
Bush Technologies (2,850) 5,586 9,036
-------- -------- --------
2,254 1,694 33,691
Gain on sale of assets - - 3,618
-------- -------- --------
Consolidated total $ 2,254 $ 1,694 $ 37,309
======== ======== ========
Interest expense:
Bush Business Furniture $ 2,568 $ 3,458 $ 6,020
Bush Furniture 1,530 2,473 3,461
Bush Furniture Europe 2,777 2,384 2,006
Bush Technologies 319 238 403
-------- -------- --------
Consolidated total $ 7,194 $ 8,553 $ 11,890
======== ======== ========
Depreciation and amortization:
Bush Business Furniture and Bush Furniture (1) $ 16,667 $ 15,501 $ 14,022
Bush Furniture Europe (2) 2,141 3,248 3,500
Bush Technologies 1,245 898 1,144
-------- -------- --------
Consolidated total $ 20,053 $ 19,647 $ 18,666
======== ======== ========
Capital expenditures for long-lived assets:
Bush Business Furniture and Bush Furniture (1) $ 4,204 $ 3,763 $ 25,344
Bush Furniture Europe - 4,470 4,608
Bush Technologies 1,329 1,211 3,349
-------- -------- --------
Consolidated total $ 5,533 $ 9,444 $ 33,301
======== ======== ========
F-18
December 28, December 29,
2002 2001
Identifiable assets:
Bush Business Furniture and Bush Furniture (1) $225,429 $243,383
Bush Furniture Europe 58,115 56,054
Bush Technologies 26,561 21,740
-------- --------
Consolidated total $310,105 $321,177
======== ========
(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 including goodwill, are not allocated between Bush Business
Furniture and Bush Furniture.
(2) Excludes cumulative effect of accounting change for goodwill impairment
of $2,398.
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:
2002 2001 2000
Net sales by geographic area:
United States $289,381 $291,547 $395,341
Germany 50,789 54,259 55,856
-------- -------- --------
Total $340,170 $345,806 $451,197
======== ======== ========
December 28, December 29,
2002 2001
Long-lived assets by geographic area:
United States $182,520 $193,289
Germany 41,440 42,639
-------- --------
Total $223,960 $235,928
======== ========
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 28, 2002.
F-19
In 2002, the Company has four customers that individually exceeded 10
percent or more of the Company's gross revenues. Gross revenues and
accounts receivable balances, which primarily relate to Bush Business
Furniture and Bush Furniture, for these customers, are as follows (in
thousands):
Accounts Receivable
Gross Revenues ---------------------------
-------------------------- December 28, December 29,
2002 2001 2000 2002 2001
Customer A 17% 14% 20% 8% 5%
Customer B 14% 14% 18% 22% 13%
Customer C 13% - - 2% -
Customer D 12% - - 12% -
Gross revenues for customer C and D did not exceed 10% in 2001 or 2000.
12. ACQUISITION
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. 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.
14. SUBSEQUENT EVENTS
Restructuring--On February 27, 2003, the Company approved plans to
restructure certain of its operations. In conjunction with such plans the
Company will close its St. Paul, VA manufacturing facility and relocate
certain operations to other plants, close three of its retail outlet
stores and utilize third party liquidators to expedite the sale of excess
inventory (which will create space in the Company's Erie, PA facility to
launch new production strategies), and terminate production and management
level employees in various locations. The Company expects to incur
material losses associated with implementing these plans during 2003.
Debt Amendment-- Subsequent to December 28, 2002, the Company entered into
a seventh amendment, dated February 28, 2003, related to the Company's
revolving credit facility (see Note 5). This amendment, among other
things, modified certain covenants of the Company under the credit
facility, provided for additional security interest, and prohibits the
payment of cash dividends. In addition, the amendment modified the maximum
amount of borrowing permitted under the credit facility from an aggregate
of $173.0 million to an aggregate of $163.0 million.
F-20
15. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
(In Thousands, except per share data)
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
2002
Net sales $ 88,498 $ 84,411 $ 78,929 $ 88,332
Gross profit 23,310 22,078 22,480 24,657
(Loss) earnings before
cumulative effect of accounting
change (1,186) 492 541 1,093
Net (loss) earnings (1,186) 492 541 (1,305) (a)
(Loss) earnings per share before cumulative
effect of accounting change -
basic (0.09) 0.04 0.04 0.08
(Loss) earnings per share before cumulative
effect of accounting change -
diluted (0.09) (b) 0.04 0.04 0.08
Net (loss) earnings per share - basic (0.09) 0.04 0.04 (0.09) (a)
Net (loss) earnings per share - diluted (0.09) (b) 0.04 0.04 (0.09) (a)
2001
Net sales $ 84,950 $ 80,614 $ 75,614 $ 104,628
Gross profit 16,365 (c) 22,757 22,489 31,771
Net (loss) earnings (5,926) (c) 849 1,421 3,913
Net (loss) earnings per share - basic (0.43) 0.06 0.10 0.29
Net (loss) earnings per share - diluted (0.43) (b) 0.06 0.10 0.28
(a) In accordance with the transition provisions of SFAS No. 142, the
impairment loss associated with goodwill is reported as a change in
accounting principle as of the beginning of the period in which the change
is made, or December 30, 2001 (the first day of fiscal 2002). Accordingly,
the first quarter 2002 net loss includes a charge of $2.4 million recorded
as a cumulative effect of accounting change.
(b) Fourth quarter 2002 and 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 2001 gross profit and net loss includes a $5.2 million
pre-tax non-cash inventory write down.
******
F-21
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 2002 $ 979 $ 631 $ 0 $ 672 $ 938
Fiscal 2001 $ 1,341 $ 810 $ 0 $ 1,172 $ 979
Fiscal 2000 $ 1,911 $ 833 $ 0 $ 1,403 $ 1,341
(1) Accounts written off, net of collections on accounts receivable previously
written off
S-1