<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Virginia 54-0135270
------------------ ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3525 Fairystone Park Highway
Bassett, Virginia 24055
-------------------------
(Address of principal executive offices)
(Zip Code)
(540) 629-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
At October 5, 1998 12,961,252 shares of common stock of the Registrant were
outstanding.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS - UNAUDITED
(In thousands except per share data)
<TABLE>
<CAPTION>
Thirty-nine weeks ended Thirteen weeks ended
----------------------- --------------------
August 29, 1998 August 31, 1997 August 29, 1998 August 31, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $294,761 $333,256 $98,093 $110,252
Cost of sales 240,962 294,530 80,403 101,600
------- ------- ------ -------
Gross profit 53,799 38,726 17,690 8,652
Selling, general and administrative 47,761 62,691 15,608 21,212
Non-recurring charges 0 16,289 0 2,360
------ ------ ------ -------
Income (loss) from operations 6,038 (40,254) 2,082 (14,920)
Other income, net 7,837 9,927 1,977 4,486
------ ------ ------ -------
Income (loss) before income taxes 13,875 (30,327) 4,059 (10,434)
Income taxes (3,354) 14,663 (932) 5,362
------ ------ ------ -------
Net income (loss) 10,521 (15,664) 3,127 (5,072)
Retained earnings-beginning of period 188,761 222,417 190,930 202,985
Cash dividends (7,812) (10,437) (2,587) (2,603)
Purchase and retirement of
common stock 0 (1,006) 0 0
------ ------ ------ -------
Retained earnings-end of period $191,470 $195,310 $191,470 $195,310
======== ======== ======== ========
Basic earnings per share $0.81 $(1.20) $0.24 $(0.39)
===== ======= ===== =======
Diluted earnings per share $0.80 $(1.20) $0.24 $(0.39)
===== ======= ===== =======
Dividends per share $0.60 $0.80 $0.20 $0.20
===== ===== ===== =====
</TABLE>
- ------------------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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<PAGE> 3
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
AUGUST 29, 1998 AND NOVEMBER 30, 1997
(in thousands except per share data)
<TABLE>
<CAPTION>
Assets August 29,1998 November 30, 1997
- ------ -------------- -----------------
<S> <C> <C>
Current assets:
Cash & cash equivalents $34,613 $29,552
Marketable securities 0 49,985
Trade accounts receivable, net 57,985 57,327
Inventories 72,532 66,930
Less LIFO adjustment (25,779) (25,216)
-------- --------
46,753 41,714
Prepaid expenses 929 1,405
Refundable income taxes 7,422 5,025
Deferred income taxes 14,392 15,476
------ ------
Total current assets 162,094 200,484
------- -------
Property & equipment:
Cost 177,801 168,026
Less allowances for depreciation (127,617) (124,547)
--------- ---------
Total property & equipment 50,184 43,479
------ ------
Other long-term assets:
Investment securities 31,402 29,922
Investment in affiliated companies 52,770 30,502
Deferred income taxes 1,110 1,866
Assets held for sale 1,690 3,506
Other 16,497 10,566
------ ------
Total other long-term assets 103,469 76,362
------- ------
Total assets $315,747 $320,325
======== ========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $15,633 $21,694
Other accrued liabilities 26,831 26,213
------ ------
Total current liabilities 42,464 47,907
------ ------
Long-term liabilities:
Employee benefits 10,937 11,248
------ ------
Stockholders' equity:
Common stock 64,827 65,256
Additional paid in capital 533 2,438
Retained earnings 191,470 188,761
Unrealized holding gains, net of income tax effect 6,751 5,575
Unamorized stock compensation (1,235) (860)
------- ----
Total stockholders' equity 262,346 261,170
------- -------
Total liabilities and stockholders' equity $315,747 $320,325
======== ========
- ------------------------------------------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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<PAGE> 4
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED SATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE 39 WEEK PERIOD ENDED AUGUST 29, 1998 AND AUGUST 31, 1997
(in thousands except per share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $ 10,521 ($15,664)
Adjustments to reconcile net income to net cash provided
by operating activities:
Non-recurring charges - 11,980
Depreciation and amortization 5,200 5,003
Equity in undistributed income of affiliated companies (3,785) (4,119)
Provision for losses on trade accounts receivable 446 6,370
Provision for deferred income taxes 1,088 (16,435)
Net gain from sales of investment securities (975) (1,761)
Net gain from sales of property & equipment (260) (1,285)
Compensation earned under restricted stock plan 168 -
Changes in operating assets & liabilities:
Trade accounts receivable (1,104) (867)
Inventory (5,039) 21,908
Prepaid expenses 476 (695)
Refundable income taxes (2,397) (175)
Accounts payable and accrued liabilities (5,443) 10,191
Long-term liabilities (311) 235
------- ------
Net cash provided by (used in) operating activities (1,415) 14,686
------- ------
Investing activities:
Purchases of property and equipment (13,062) (7,210)
Proceeds from sales of property & equipment 3,233 1,877
Purchases of investment securities (1,796) (979)
Dividend received from affiliate 31,517 21,245
Proceeds from sale of investments securities 3,219 2,873
Other assets (5,931) (4,508)
Investment in affiliated companies (50,000) -
Proceeds from sale of marketable securities, net 49,985 -
------ ------
Net cash provided by investing activities 17,165 13,298
------ ------
Financing activities:
Issuance of common stock 243 55
Purchase of common stock (3,120) (1,350)
Cash dividends paid (7,812) (10,437)
------- --------
Net cash used in financing activities (10,689) (11,732)
-------- --------
Net change in cash and cash equivalents 5,061 16,252
Cash and cash equivalents, beginning of period 29,552 57,285
------ ------
Cash and cash equivalents, end of period $34,613 $73,537
======= =======
- ------------------------------------------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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<PAGE> 5
BASSETT FURNTURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 29, 1998 (in thousands except share and per share data)
Note A. Basis of presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Note B. Inventories:
Inventories are carried at last-in, first-out (LIFO) cost which is not in
excess of market. Inventories at August 29, 1998 and November 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
August 29, November 30,
1998 1997
---- ----
<S> <C> <C>
Finished goods $35,190 $29,485
Work in process 9,850 9,025
Raw materials and supplies 27,492 28,420
------ ------
Total inventories valued at first-in, first-out (FIFO) cost 72,532 66,930
LIFO adjustment (25,779) (25,216)
-------- -------
Total inventories $46,753 $41,714
======= =======
</TABLE>
Note C. Investment in affiliated companies:
Summarized combined income statement information for the Company's equity
method investments for the thirty-nine week period ended August 29,1998 and the
nine month period ended August 31, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $29,927 $29,253
Income from operations 16,650 15,915
Net income 9,973 10,544
</TABLE>
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<PAGE> 6
BASSETT FURNTURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 29, 1998 (in thousands except share and per share data)
Note D. Restructuring, Impaired Assets and Nonrecurring Charges:
During 1997, the Company commenced the restructuring of certain of its
operations and recorded restructuring and impaired asset charges of $20,646. Of
these charges, $14,397 was utilized during 1997, leaving $6,249 in reserves to
be utilized in future periods as the remaining activities related to the
restructuring charges are completed. The restructuring plans included the
closure of 14 manufacturing facilities and the severance of approximately 1,000
employees. As of November 30, 1997, five of the 14 facilities were closed and
approximately 600 employees had been severed. During the first quarter of
fiscal 1998, the remaining nine facilities were closed and approximately 400
employees were severed. In the second quarter of 1998, one additional Mattress
Division plant at Chehalis, Washington, was closed. The related exit costs
were not material, thus additional one-time charges were not recorded.
Activity within the restructuring reserves was as follows:
<TABLE>
<CAPTION>
- ----------------- ------------ ----------- ------------ ----------- ---------- ---------- ------------
November Reserves February Reserves May 30, Reserves August 29,
30, 1997 utilized 28, 1998 utilized 1998 utilized 1998
reserve in 1st Qtr reserve in 2nd Qtr reserve in 3rd reserve
balance 1998 balance 1998 balance Qtr 1998 balance
- ----------------- ------------ ----------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Severance &
related
employee
benefit costs $4,910 $1,620 $3,290 $832 $2,458 $312 $1,846
Lease exit costs 614 32 582 34 548 35 513
Other 725 0 725 46 679 91 588
----- - --- -- --- -- ---
Total $6,249 $1,652 $4,597 $912 $3,685 $ 438 $ 2,947
====== ====== ====== ==== ====== ===== =======
- ----------------- ------------ ----------- ------------ ----------- ---------- ---------- ------------
</TABLE>
The Company projected at November 30, 1997, that it would incur an additional
$10,540 of charges during 1998 as a result of (1) operating inefficiencies at
plants involved in consolidations and (2) costs incurred at idle facilities.
The total of these expenses incurred during each of the 13 week periods ended
August 29, 1998, May 30, 1998 and February 28, 1998 was $976, $1,537 and
$1,469, respectively.
Note E. Commitments and Contingencies:
A suit was filed in June, 1997, in the Superior Court of the State of
California for the County of Los Angeles (the "Superior Court") against the
Company, two major retailers and certain current and former employees of the
Company. The suit sought certification of a class consisting of all consumers
who purchased certain mattresses and box springs from the major retailers
which were manufactured by a subsidiary of the Company, E. B. Malone
Corporation, with different specifications than those originally manufactured
for sale by these retailers. The suit alleged
6 of 17
<PAGE> 7
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29, 1998 (in thousands except share and per share data)
Note E. Commitments and Contingencies (continued):
various causes of action, including negligent misrepresentation, breach of
warranty, violations of deceptive practices laws and fraud. Plaintiffs sought
compensatory damages of $100 million and punitive damages. In September, 1997,
the Superior Court sustained the Company's demurrers to several of plaintiffs'
causes of action, but granted the plaintiffs leave to amend. Plaintiffs'
Second Amended Complaint added certain independent retailers and consumers as
additional plaintiffs. In December, 1997, the Superior Court once again
sustained the Company's demurrers to several of plaintiffs' causes of action,
but also once again granted plaintiffs leave to amend. Plaintiffs filed a
Third Amended Complaint. In February, 1998, the Superior Court sustained the
Company's demurrers to many of the individual claims, this time without
granting plaintiffs leave to amend. The Superior Court also sustained the
Company's demurrer to the class action allegations in the Third Amended
Complaint, without granting leave to amend, and transferred the entire action
out of the class action department. Plaintiffs have filed a notice of appeal
from the class action ruling. Plaintiffs also filed a petition for a writ of
mandamus or other extraordinary relief seeking immediate review of the other
demurrer rulings, which petition was denied.
The suit was subsequently transferred from the Superior Court for the County of
Los Angeles to the Superior Court for Orange County. After the case was
transferred to Orange County, Demurrers were filed on behalf of all current and
former employees of the Company who had been named as defendants. Shortly
before the hearing on the demurrers, the plaintiffs stipulated to a dismissal
with prejudice of all individual defendants. Additionally, all remaining
claims against the Company were stayed by the Court pending Plaintiffs' appeal
of the dismissal of their class action allegations. Although it is impossible
to predict the ultimate outcome of this litigation, the Company intends to
vigorously defend this suit because it believes that the damages sought are
unjustified and because this case is inappropriate for class action treatment.
Because the Company believes that the two major retailers were unaware of the
changes in specifications, the Company has agreed to indemnify the two major
retailers with respect to the above.
The Company is also involved in various other claims and actions, including
environmental matters at certain of its plant facilities, which arise in the
normal course of business. Although the final outcome of these legal and
environmental matters cannot be determined, based on the facts presently known,
it is management's opinion that the final resolution of these matters will not
have a material adverse effect on the Company's financial position or future
results of operations.
The Board of Directors for Bassett Furniture Industries, Inc. has approved a
stock repurchase program for up to 1.3 million shares of its Common Stock for
an aggregate purchase price not to exceed $40 million. Bassett currently has
approximately 13 million shares outstanding. The repurchases may be effected
from time to time in accordance with applicable securities laws, through open
market transactions, in block purchases, in privately negotiated transactions,
or otherwise, and on such terms and conditions, all as may be approved by any
Authorized Officer.
The Board of Directors adopted a Shareholder Rights Plan, which replaces a
similar plan that expired on May 16, 1998. The Plan was not adopted in
response to any specific effort to acquire control of the Company. If a person
or group acquires beneficial ownership of 20% or more of the Common Stock
outstanding, each Right distributed under the Plan will entitle its holder
(other than such person or group) to purchase, at the Right's then-current
exercise price, a number of shares of the Company's Common Stock having a
market value of twice such price. Detailed descriptions of the Rights are
being sent to the Company's shareholders and have been filed with the
Securities and Exchange Commission.
7 of 17
<PAGE> 8
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29, 1998 (in thousands except share and per share data)
Note F. Earnings per share:
The Company adopted SFAS No. 128, "Earnings per Share," effective December 1,
1997. As a result, the Company's reported earnings per share for 1997 have been
restated. The effect of this accounting change on previously reported earnings
per share (EPS) data was not material.
<TABLE>
<CAPTION> Income Shares Per share
amount
--------------------------------------------------------
<S> <C> <C> <C>
For the thirty-nine weeks ended August 29, 1998
- ----------------------------------------------------------------
Net income available to common stockholders $10,521 13,014,703 $0.81
Effect of dilutive securities:
Options issued to directors and employees - 99,424 -
Restricted stock issued to employees - 4,162 -
--------------------------------------------------------
Diluted earnings per share $10,521 13,118,289 $0.80
======== =========== =====
For the thirteen weeks ended August 29, 1998
- ----------------------------------------------------------------
Net income available to common stockholders $3,127 12,997,947 $0.24
Effect of dilutive securities:
Options issued to directors and employees - 82,961 -
Restricted stock issued to employees - 1,887 -
--------------------------------------------------------
Diluted earnings per share $3,127 13,082,795 $0.24
======= =========== =====
- ------------------------------------------------------------------------------------------------------------------------
For the nine months ended August 31, 1997
- ----------------------------------------------------------------
Net income (loss) available to common stockholders $(15,664) 13,047,785 $(1.20)
Effect of dilutive securities:
Options issued to directors and employees - 15,793 -
--------------------------------------------------------
Diluted earnings per share $(15,664) 13,063,578 $(1.20)
========= =========== =======
For the three months ended August 31, 1997
- ----------------------------------------------------------------
Net income (loss) available to common stockholders $(5,072) 13,017,883 $(.39)
Effect of dilutive securities:
Options issued to directors and employees - 3,489 -
--------------------------------------------------------
Diluted earnings per share $(5,072) 13,021,372 $(.39)
======== =========== ======
</TABLE>
Options to purchase 804,898 shares of common stock at prices ranging from
$32.25 to $37.40 per share were outstanding during the third quarter of 1998
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares. In 1997, 149,067 shares at a price of $37.40 were similarly excluded.
8 of 17
<PAGE> 9
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
Note F. Earnings per share (continued):
Basic earnings per common share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The major components of net income expressed as a percentage of net sales are as
follows. The proforma data and the following discussions of net sales and costs
and expenses excludes the effect of sales from closed operations and the effect
of nonrecurring charges.
For the 39 weeks ended August 29, 1998 and the nine months ended August 31, 1997
and 1996
<TABLE>
<CAPTION>
1998 Actual 1998 Proforma 1997 Actual 1997 Proforma 1996 Actual
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Cost of sales 81.7% 80.5% 88.4% 83.3% 84.0%
Gross profit 18.3 19.5 11.6 16.7 16.0
SG&A expenses 16.2 16.1 18.8 14.8 13.9
Income from operations 2.0 3.4 (12.1) 1.8 2.1
Other income, net 2.7 2.7 3.0 3.0 3.5
Income before income taxes 4.7 6.1 (9.1) 4.9 5.6
Income taxes 1.1 1.6 (4.4) 0.9 1.3
Net income 3.6 4.5 (4.7) 4.0 4.4
</TABLE>
For the 13 weeks ended August 29, 1998 and the three months ended August 31,
1997 and 1996
<TABLE>
<CAPTION>
1998 Actual 1998 Proforma 1997 Actual 1997 Proforma 1996 Actual
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Cost of sales 82.0% 80.9% 88.4% 82.5% 83.7%
Gross profit 18.0 19.1 11.6 17.5 16.3
SG&A expenses 15.9 15.9 18.8 14.7 13.6
Income from operations 2.1 3.1 (12.1) 2.8 2.7
Other income, net 2.0 2.0 3.0 4.1 3.0
Income before income taxes 4.1 5.1 (9.1) 6.9 5.7
Income taxes 1.0 1.3 (4.4) 1.4 1.3
Net income 3.2 3.8 (4.7) 5.6 4.4
</TABLE>
Net Sales
Net sales for the third quarter compared with prior years was as follows:
<TABLE>
<CAPTION>
Year-to-date
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $294,761 $333,256 $332,232
% change from prior year (11.6)% (0.3)% (8.2)%
Third Quarter
-------------
1998 1997 1996
---- ---- ----
Net sales $98,093 $110,252 $109,008
% change from prior year (11.0)% 1.1% (8.5)%
</TABLE>
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<PAGE> 10
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
Wood Division sales continued to be strong through the third quarter, increasing
18% over the third quarter of 1997 and 18% over the comparable nine months of
1997. Upholstery Division sales were down 18% below the third quarter 1997
volume and 15% below the nine month volume in 1997. Mattress division sales were
down 26% below third quarter 1997 volumes and 24% behind the nine-month 1997
totals. The Weiman Division showed a 5% increase in sales volume for the quarter
compared to the prior year, and an 8% increase over the comparable nine months
of 1997. The sales decline in the Upholstery Division is attributable to the
consolidation of motion furniture manufacturing into the Dumas, Arkansas plant,
which resulted in the elimination of numerous SKU's and related sales.
Eliminating the motion furniture consolidation, Upholstery sales were flat
compared to the prior year. These results are generally attributable to the
Company's strategic efforts to upgrade its upholstery product, improve margins
and better align its customer base with the Company's distribution strategy.
Mattress Division sales are down due to the loss as customers of Levitz
Furniture in late 1997 and JC Penney in July 1998, but have increased when those
sales are excluded from prior year sales. The Bassett Furniture Direct ("BFD")
stores continue to open according to schedule and are now accounting for a
significant portion of the Company's sales. Sales in BFD stores that had been
open for more than one year, showed improved sales over the prior year volumes
during the quarter. Certain recently introduced suites produced by the Wood
Division, combined with improvements in overall quality, account for the
significant sales increase.
Overall, the net decrease in sales resulted primarily from the discontinuance of
the National/Mt. Airy and Impact product lines, which accounted for $11,866 of
sales in the third quarter of 1997 compared to $496 in 1998 and $42,568
year-to-date in 1997 compared to $2,108 in 1998.
10 of 17
<PAGE> 11
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Costs and expenses
The Company has shown marked improvement in operating efficiencies as gross
profit margin has increased to 18.3% of net sales from 11.6% in 1997. This
improvement is a direct result of the efficiencies gained through the Company's
restructuring activities of 1997 and early 1998. In addition the Company has
several new plant managers and a new general manager of wood and upholstery
manufacturing operations. Management is aggressively attacking costs and
inefficiencies. Gross profit margins have improved in virtually every facility
compared to a year ago. All of the facilities that were involved in
consolidations have shown improvements in production volumes and operating
margins.
Management was disappointed with the plants' overall performance for the third
quarter. While the plants had achieved a gross profit margin excluding
non-recurring charges of 20.1% in the second quarter, the third quarter's gross
profit margin fell to 19.5%. The J.D. Bassett, Mt. Airy, and Dumas plants have
been involved with plant consolidations and, while having made significant
progress, and are still being adversely affected by the changes in product mix
and processes.
The 1997 cost of sales percentages were to up as the Company took nonrecurring,
unusual, and restructuring charges totaling $43,876. Of these charges, $14,310
effected cost of sales, $13,277 effected SG&A expenses and $16,289 were recorded
as restructuring charges. These charges were taken as the Company decided to
eliminate two product lines and close five plants in an effort to focus on its
core business and also to improve plant efficiencies by eliminating excess
manufacturing capacity. The Company incurred $6,000 in accounts receivable
losses as a major retail customer filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In addition, over $6,000 of losses were incurred in
inventory de-valuations due to the above described actions.
SG&A expenses excluding the effect of one-time charges in 1997, have increased
in 1998 as the Company continues to add key management positions to grow the
business, increases expenditures to promote the Bassett brand name and continues
expenditures to grow the BFD stores and introduced the @t Home With Bassett
Gallery concept. Expenses related to BFD stores and Gallery stores continue to
escalate as the total number of these stores grows.
SG&A expenses as a percentage of sales for 1997 were up slightly over 1996 due
to costs associated with product promotion, BFD and Gallery store programs and
the Company's focus on customer service.
Other income, net
Other income is down in 1998 by $2,090 compared to1997. The Company sold
investment securities during 1997, generating a year-to-date profit of $1,761.
In addition, the 1997 total include profits of $1,285 from the sale of closed
facilities. Excluding these items, the 1998 income is up significantly.
Management has re-evaluated its investment policies in 1998 and altered its
investment portfolio in order to obtain a higher yield.
Income taxes
The effective income tax rate for 1998 is 23.1 % compared to (48.3) % in 1997.
The 1997 rate is a negative rate due to the loss incurred as a result of the
restructuring and
11 of 17
<PAGE> 12
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
one-time charges. The 1998 rate is being forced upward as the Company continues
to improve it's operating income. In addition, many of the items in the current
investment portfolio, under the new investment strategy, have higher tax rates
than investments under the previous strategy.
Liquidity and Capital Resources
Cash used in operating activities in 1998 was $1,958 compared to $14,686
provided by operating activities in 1997. Cash flow from operations in 1997 was
up significantly because the Company was liquidating inventories and accounts
receivable related to closed divisions. In 1998, inventories have risen as the
Company is preparing itself for the fourth quarter, which is traditionally its
strongest sales period.
The current ratio as of August 29, 1998 and August 30, 1997, respectively, was
3.82 to 1 and 4.79 to 1. Working capital for 1998 was $119,780 compared to
$153,810 in 1997. There are no material commitments for capital expenditures at
August 29, 1998. Capital expenditures made in the future for normal expansion
are anticipated to be made from funds generated by operating activities. The
Company has not typically used the debt or equity markets as sources of funds or
capital.
Expenditures for property and equipment are up significantly as the Company is
striving to update the equipment in the manufacturing facilities to improve
productivity and product quality. In addition, expenditures for pollution
equipment have increased in 1998 as the Company seeks to exceed compliance
levels mandated by law.
The Company's consolidated financial statements are prepared on the basis of
historical dollars and are not intended to show the impact of inflation or
changing prices. Neither inflation nor changing prices has had a material effect
on the Company's consolidated financial position and results of operations in
prior years.
Contingencies
The Company is involved in various claims and litigation, including a lawsuit
concerning a subsidiary, E. B. Malone Corporation, as well as environmental
matters at certain plant facilities, which arise in the normal course of
business. The details of these matters are described in Note E in the Notes to
Condensed Consolidated Financial Statements. Although the final outcome of these
legal and environmental matters cannot be determined, based on the facts
presently known, it is management's opinion that the final resolution of these
matters will not have a material adverse effect on the Company's financial
position or future results of operations.
The Company's Board of Directors approved a stock repurchase program and adopted
a Shareholders Rights Plan. The details to these matters are described in Note E
in the Notes to Condensed Consolidated Financial Statements.
12 of 17
<PAGE> 13
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Year 2000
Over the past few years, the Company has been steadily reengineering its
business processes and information systems to prepare for the conversion to year
2000. This effort has incorporated an analysis of Year 2000 issues, and
management believes that appropriate and timely action has been taken to
minimize the impact of this event. The Year 2000 issue results from the
inability of many computer systems and applications to recognize the year 2000
as the year following 1999. This could cause systems to process critical
information incorrectly. The Company plans to implement new systems and
technologies in 1998 and 1999 that will provide solutions to these issues. The
most significant step in accomplishing this goal was completed in the first
quarter of 1998 when a comprehensive enterprise system (which had been installed
in over 4,400 companies and is Year 2000 compliant) was purchased;
implementation began immediately and should be completed in the third quarter of
1999. Earlier in 1998, the Company engaged a consultant, knowledgeable of the
enterprise system being installed, to advise and assist in the installation and
implementation of the system. Completion of implementation of this enterprise
system will insure the Company's readiness in software programs. The Company has
made a thorough survey to identify all microcontrollers that are embedded within
equipment to determine compliance in this area. All microcontrollers that were
identified as non-compliant were or will be replaced. The Company is now
preparing to make a second assessment of these microcontrollers to insure that
all have been properly identified and replaced.
The Company continues to work with its customers, suppliers and third party
service providers to identify external weaknesses and provide solutions which
will prevent the disruption of business activities at that time; it does not
believe that it will be significantly affected by direct suppliers of raw
materials or supplies that will be non-compliant. However, the Company cannot
guarantee that Year 2000 related systems or hardware issues of its business
partners will be corrected in a timely manner or that the failure of its
business partners to correct these issues would not have a material adverse
effect on its future results of operations or financial condition.
Management believes that the most likely "worst case scenario" will involve the
failure of service providers to be compliant, thereby potentially causing
business interruptions in the Company's normal channels of supply and
distribution. The Company does not believe that it will be significantly
affected by non-compliance by countries outside of the United States.
The Company is developing a contingency plan in the event that a business
interruption caused by Year 2000 problems should occur. Contingency plans are in
place for all information technology systems. The Company is preparing to
upgrade its existing mainframe computer system in order to ensure compliance.
Management is researching key raw materials markets to ensure that the Company
is adequately supplied in the event that a key supplier is not compliant.
The Company does not expect the cost of implementation to have a material
adverse effect on its future results of operations, liquidity or capital
resources. The total cost of the Year 2000 project is estimated at $3,500. This
total includes the new enterprise system that was purchased during 1998, which
was not purchased to achieve Year 2000 compliance in our information systems.
Instead it was purchased to provide management with the information and tools
that it needs to better manage the Company. The Year 2000 problem has slightly
accelerated the timetable for implementation, however. Of the total project
cost, $3,100 represents the purchase of new software and hardware, which will be
capitalized. The remaining will be expensed as incurred during 1998 and 1999. As
of the end of the third quarter, the Company has spent approximately $2,900 on
the project.
13 of 17
<PAGE> 14
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29,1998 (in thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Safe-harbor forward-looking statements
This discussion contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of Bassett Furniture
Industries, Incorporated. These forward-looking statements involve certain risks
and uncertainties. No assurance can be given that any such matters will be
realized. Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (I) competitive conditions in the industry in which the
Company operates; and (II) general economic conditions that are less favorable
than expected.
14 of 17
<PAGE> 15
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 29, 1998
Item 4. Submission of matters to a vote of security holders
a. Exhibits
(27) Financial Data Schedule
b. Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter.
Item 5. Other information
The Board of Directors for Bassett Furniture Industries, Inc. has
approved a stock repurchase program for up to 1.3 million shares of its Common
Stock for an aggregate purchase price not to exceed $40 million. Bassett
currently has approximately 13 million shares outstanding. The repurchases may
be effected from time to time in accordance with applicable securities laws,
through open market transactions, in block purchases, in privately negotiated
transactions, or otherwise, and on such terms and conditions, all as may be
approved by any Authorized Officer.
"This share repurchase program reflects our confidence in Bassett's
strategic plan and future opportunities for growth and reinforces management's
commitment to further enhance shareholder value," said Paul Fulton, Chairman and
Chief Executive Officer of the Company. He added, "Management and the Board of
Directors want to be in a position so that anytime it is felt that the market
evaluation our Company does not reflect the strengths and prospects of our
Company, we want to be in a position to repurchase our Common Stock on an
opportunistic basis."
Under the stock repurchase program, the Company repurchased 112,800
shares during the third quarter of 1998.
The Board of Directors also approved payment of a cash dividend of
$.20 per share to holders of record on August 17, 1998, payable on September 1,
1998.
The Board of Directors adopted a Shareholder Rights Plan, which
replaces a similar plan that expired on May 16, 1998. The Plan is not being
adopted in response to any specific effort to acquire control of the Company. If
a person or group acquires beneficial ownership of 20% or more of the Common
Stock outstanding, each Right distributed under the Plan will entitle its holder
(other than such person or group) to purchase, at the Right's then-current
exercise price, a number of shares of the Company's Common Stock having a market
value of twice such price. Detailed descriptions of the Rights will be sent to
the Company's shareholders and filed with the Securities and Exchange
Commission.
15 of 17
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BASSETT FURNITURE INDUSTRIES, INCORPORATED
/s/ DOUGLAS W. MILLER
- -----------------------------------------------------------------
Douglas W. Miller, Vice President, Chief Financial Officer
DATE: October 13, 1998
16 of 17
<PAGE> 17
BASSETT FURNITURE INDUSTRIES, INCORPORATED
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
<S> <C> <C>
27 Financial Data Schedule page 9
</TABLE>
17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-28-1998
<CASH> 34,613
<SECURITIES> 0
<RECEIVABLES> 59,747
<ALLOWANCES> 1,762
<INVENTORY> 46,753
<CURRENT-ASSETS> 162,094
<PP&E> 177,801
<DEPRECIATION> 127,617
<TOTAL-ASSETS> 315,747
<CURRENT-LIABILITIES> 42,464
<BONDS> 0
0
0
<COMMON> 64,827
<OTHER-SE> 197,519
<TOTAL-LIABILITY-AND-EQUITY> 315,747
<SALES> 294,761
<TOTAL-REVENUES> 302,598
<CGS> 240,962
<TOTAL-COSTS> 288,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 446
<INTEREST-EXPENSE> 4,087
<INCOME-PRETAX> 13,875
<INCOME-TAX> 3,354
<INCOME-CONTINUING> 10,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,521
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
</TABLE>
