<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 MAY 29, 1999
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)
Virginia 54-0135270
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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 July 6, 1999, 12,516,857 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 INCOME AND RETAINED EARNINGS - UNAUDITED
(in thousands except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED QUARTER ENDED
---------------- -------------
MAY 29, 1999 MAY 30, 1998 MAY, 29 1999 MAY 30, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 203,468 $ 196,668 $ 103,659 $ 98,335
Cost of sales 161,428 160,559 81,195 79,808
--------- --------- --------- ---------
Gross profit 42,040 36,109 22,464 18,527
Selling, general and administrative 35,009 32,153 18,479 16,374
--------- --------- --------- ---------
Income from operations 7,031 3,956 3,985 2,153
Other income, net 6,808 5,860 3,456 3,113
--------- --------- --------- ---------
Income before income taxes 13,839 9,816 7,441 5,266
Income taxes (4,364) (2,422) (2,381) (1,307)
--------- --------- --------- ---------
Net income 9,475 7,394 5,060 3,959
Retained earnings-beginning of period 193,130 188,761 192,102 189,586
Cash dividends (5,072) (5,225) (2,521) (2,615)
Purchase and retirement of
common stock (5,709) 0 (2,817) 0
--------- --------- --------- ---------
Retained earnings-end of period $ 191,824 $ 190,930 $ 191,824 $ 190,930
========= ========= ========= =========
Basic earnings per share $ 0.75 $ 0.57 $ 0.40 $ 0.30
========= ========= ========= =========
Diluted earnings per share $ 0.75 $ 0.56 $ 0.40 $ 0.30
========= ========= ========= =========
Dividends per share $ 0.40 $ 0.40 $ 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
MAY 29, 1999 AND NOVEMBER 28, 1998
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
May 29, 1999 November 28, 1998
------------ -----------------
<S> <C> <C>
Assets
- ------
Current assets
Cash and cash equivalents $ 791 $ 5,499
Short-term investments 3,313 8,923
Trade accounts receivable, net 58,471 59,203
Inventories, net 45,137 47,285
Prepaid expenses 2,537 2,038
Refundable income taxes 2,287 8,018
Deferred income taxes 10,063 12,682
Receivable from sale of bedding division (Note H) 8,175 0
--------- ---------
Total current assets 130,774 143,648
--------- ---------
Property & equipment
Cost 205,065 185,392
Less allowances for depreciation 133,126 129,005
--------- ---------
Total property & equipment 71,939 56,387
--------- ---------
Other long-term assets
Investment securities 32,187 50,739
Investment in affiliated companies 64,183 52,769
Assets held for sale 401 1,023
Other 17,843 16,948
--------- ---------
Total other long-term assets 114,614 121,479
--------- ---------
Total assets $ 317,327 $ 321,514
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Accounts payable $ 23,021 $ 20,221
Accrued liabilities 21,348 24,514
--------- ---------
Total current liabilities 44,369 44,735
--------- ---------
Long-term liabilities
Employee benefits 11,006 11,272
Deferred income taxes 319 595
--------- ---------
Total long-term liabilities 11,325 11,867
--------- ---------
Commitments and Contingencies (Note E)
Stockholders' Equity
Common stock 62,747 64,425
Additional paid in capital 0 0
Retained earnings 191,824 193,130
Unrealized holding gains, net of tax 7,872 8,286
Unamortized stock compensation (810) (929)
--------- ---------
Total stockholders' equity 261,633 264,912
--------- ---------
Total liabilities and stockholders' equity $ 317,327 $ 321,514
========= =========
</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
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 29, 1999 AND MAY 30, 1998 - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income $ 9,475 $ 7,394
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,121 3,464
Equity in undistributed income of affiliated companies (5,364) (3,331)
Provision for losses on trade accounts receivable -- 362
Provision for deferred income taxes 2,608 1,114
Net gain from sales of investment securities (955) (206)
Net gain from sales of property and equipment -- (349)
Compensation earned under restricted stock plan 119 105
Changes in operating assets and liabilities:
Trade accounts receivable (1,943) 6,732
Inventory (2,263) (6,305)
Prepaid expenses and other (576) 748
Income taxes 5,731 81
Accounts payable and accrued liabilities 741 (8,417)
Long-term liabilities (266) 376
-------- --------
Net cash provided by operating activities 11,428 1,768
-------- --------
Investing activities:
Purchases of property and equipment (22,372) (7,455)
Proceeds from sales of property and equipment 970 3,054
Purchases of investment securities -- (476)
Proceeds from sale of investment securities 24,439 1,532
Investment in affiliated companies (6,050) --
Dividend from affiliate -- 545
Other (579) 500
-------- --------
Net cash used in investing activities (3,592) (2,300)
-------- --------
Financing activities:
Issuance of common stock 29 243
Purchases of common stock (7,501) --
Cash dividends (5,072) (5,225)
-------- --------
Net cash used in financing activities (12,544) (4,982)
-------- --------
Net change in cash and cash equivalents (4,708) (5,514)
Cash and cash equivalents, beginning of period 5,499 29,552
-------- --------
Cash and cash equivalents, end of period $ 791 $ 24,038
======== ========
Supplemental disclosure of noncash activities:
Receivable from sale of bedding division (Note H) $ 8,175
========
</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 FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 29, 1999 (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 May 29, 1999 and November 28, 1998 consisted of the
following:
<TABLE>
<CAPTION>
May 29, November 28,
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 36,586 $ 37,430
Work in process 8,962 9,169
Raw materials and supplies 25,909 26,506
-------- --------
Total inventories valued at first-in, first-out (FIFO) cost 71,457 73,105
LIFO adjustment (26,320) (25,820)
-------- --------
Total inventories $ 45,137 $ 47,285
======== ========
</TABLE>
Note C. Investment in affiliated companies:
Summarized combined income statement information for the Company's equity method
investments for the six months ended May 29, 1999 and May 30, 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Revenues $22,200 $20,600
Income from operations 14,549 11,139
Net income 8,937 6,987
</TABLE>
Note D. Comprehensive income:
For the quarters ended May 29, 1999, and May 30, 1998, total comprehensive
income was $4,839 and $5,643, respectively. Included in total comprehensive
income is net income of $5,060 and $3,959 and unrealized holding gains (losses),
net of tax of ($221) and $1,684. Comprehensive income was $9,061 and $9,748,
consisting of net income of $9,475 and $7,394 and unrealized holding gains
(losses), net of tax, of ($414) and $2,354 for the six month periods ended May
29, 1999 and May 30, 1998, respectively.
Note E. Contingencies:
Legislation phased out interest deductions on certain policy loans related to
Company owned life insurance (COLI) as of January 1, 1999. The Company recorded
cumulative reductions to income tax expenses of approximately $8,000 as the
result of COLI interest deductions through November 28, 1998. The Internal
Revenue Service, on a national level, is evaluating its position regarding the
deductibility of COLI policy loan interest for years prior to January 1, 1999.
In 1998 and 1999, the IRS issued several Technical Advice Memoranda regarding
the deductibility of certain aspects of COLI for taxpayers unrelated to the
Company. Management understands that the adverse position taken by the IRS will
be subjected to extensive challenges in court. In the event that the IRS
prevails, the outcome could result in a material impact upon the Company's
future income taxes and results of operations.
5 of 14
<PAGE> 6
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 29, 1999 (in thousands except share and per share data)
Note E. Contingencies (continued):
The Company is also involved in various other claims and actions, including a
product specification lawsuit concerning its E. B. Malone subsidiary, and
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.
Note F. Investment Securities:
In the first quarter of 1999, the Company entered into a series of equity index
collars in order to manage equity risk exposures related to its approximate $24
million portfolio of equity securities. The collars expire quarterly over a
period of three years commencing December 1998.
Note G. Earnings per share:
The following reconciles basic and diluted earnings per share.
<TABLE>
<CAPTION>
Earnings per
Income Shares share
------ ------ -----
<S> <C> <C> <C>
For the six months ended May 29, 1999
- -------------------------------------
Basic earnings per share $ 9,475 12,704,089 $0.75
Effect of dilutive securities:
Options and restricted stock -- 8,828 --
---------- ---------- -----
Diluted earnings per share $ 9,475 12,712,917 $0.75
========== ========== =====
For the quarter ended May 29, 1999
- -------------------------------------
Basic earnings per share $ 5,060 12,613,367 $0.40
Effect of dilutive securities:
Options and restricted stock -- 11,888 --
---------- ---------- -----
Diluted earnings per share $ 5,060 12,625,255 $0.40
========== ========== =====
- -----------------------------------------------------------------------------------
For the six months ended May 30, 1998
- -------------------------------------
Basic earnings per share $ 7,394 13,023,627 $0.57
Effect of dilutive securities:
Options and restricted stock -- 113,690 (.01)
---------- ---------- -----
Diluted earnings per share $ 7,394 13,137,317 $0.56
========== ========== =====
For the quarter ended May 30, 1998
- -------------------------------------
Basic earnings per share $ 3,959 13,027,005 $0.30
Effect of dilutive securities:
Options and restricted stock -- 131,084 --
---------- ---------- -----
Diluted earnings per share $ 3,959 13,158,089 $0.30
========== ========== =====
</TABLE>
Options to purchase 1,361,788 shares of common stock at prices ranging from
$22.50 to $37.40 per share were outstanding during the six months ended May 29,
1999 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 1998, 804,898 shares ranging from $32.25 to $37.40 were
similarly excluded.
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<PAGE> 7
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 29, 1999 (in thousands except share and per share data)
Note H. Sale of Bedding Division:
Subsequent to the end of the second quarter of 1999, the Company finalized the
sale of its Bedding Division to Premier Bedding Group LLC (PBG), a new company
formed by LIS Corporation. The sale was effective as of April 30, 1999, and
accordingly the net assets to be sold have been combined into a receivable from
sale of bedding division in the May 29, 1999 Condensed Consolidated Balance
Sheet. Net sales and operating income (losses) for the bedding division were
$4,399 and $(474) in the second quarter of 1999, and $10,392 and $313 in the
second quarter of 1998. For the six month period ended May 29, 1999 net sales
were $11.6 million and operating losses were $0.4 million. For the six month
period ended May 30, 1998, net sales were $20.5 million and operating income was
$0.6 million. Total net assets for the division approximated $11 million as of
May 29, 1999 and November 28, 1998. As of May 29, 1999 this total included the
$8.2 million of net assets to be sold and certain other assets retained by the
Company.
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<PAGE> 8
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 29,1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Operating Results
The second quarter periods of fiscal 1999 and 1998 each consisted of thirteen
weeks. The six-month periods for 1999 and 1998 both consisted of twenty-six
weeks. Since the bedding division was sold effective April 30, 1999, results for
this division were included for only nine weeks for the quarter and twenty-two
weeks for the six-month period of 1999.
For the quarter, net sales increased 5.4% to $103.7 million in 1999, from $98.3
million in 1998. Sales for the six months ended May 29, 1999 were $203.5
million, an increase of $6.8 million, or 3.4% compared to sales of $196.7
million for the six months ended May 30, 1998. The sales increase for the
quarter was led by the Bassett Furniture Direct (BFD) stores which grew from $12
million in the second quarter of 1998 to $18 million in the second quarter of
1999, but also included notable gains with two large national accounts. There
are currently 44 BFD stores across the country, including four additional
company-owned stores opened or acquired during the second quarter. For the
six-month period ended May 29, 1999, sales to BFD's have increased 67% over the
six months ended May 30, 1998, and now represent 19% of total net sales, up from
12% in the first half of 1998.
Retail sales from the six company-owned BFD stores, none of which were open in
fiscal 1998, totaled $2.1 million for the second quarter and $2.4 million for
the first six months of 1999. Sales of Bassett branded home furnishings were up
even greater percentages, than these highlighted above, as declines in bedding
division sales lowered the Company's overall sales growth percentages. Bedding
division sales for the second quarter ended May 29, 1999 of $4.4 million and
the six month period ended May 29, 1999 of $11.6 million were approximately $6
million and $9 million below the comparable 1998 periods. Wood Division sales
increased 16% for the quarter due to BFD expansion and improved product
offerings.
The gross profit margin was 21.7% in the second quarter of 1999 and 20.7% for
the six month period ended May 29, 1999, compared with 18.8% in the second
quarter of 1998 and 18.4% for the six month period ended May 30, 1998.
Non-recurring charges of $1.5 million and $3.0 million were recorded to cost of
sales in the second quarter of 1998 and the six month period ended May 30, 1998,
respectively. On a continuing operations basis, second quarter margins improved
from 19.6% in 1998 to 21.7% in 1999 due primarily to the Wood Division, where
the impact of price increases, increased production levels, process
improvements, and product mix have improved gross margin by approximately two
percentage points for this division. In addition, retail operations with higher
gross margins are included in the 1999 results.
The operating margin was 3.8% in the second quarter of 1999 compared to 2.2% in
the second quarter of 1998. For the six month periods ended May 29, 1999 and May
30, 1998, operating margin improved from 2.0% to 3.5%. Nonrecurring charges
totaling $1.5 million and $3.0 million were recorded in the second quarter of
1998 and the six month period ended May 30, 1998, respectively. On a continuing
operations basis, operating margin was basically equal to last year as we
continue to invest in the Bassett brand, on systems, and our organization
infrastructure, especially in retail. Operating losses in our retail division
approximated $.6 million for the second quarter of 1999 and $.8 million for the
six month period ended May 29, 1999. These losses represent both start-up
related costs for the four new company-owned stores and losses associated with
two acquired stores. Operating losses for the bedding division approximated $.5
million for the second quarter of 1999 and the six months ended May 29, 1999 due
primarily to declining sales, product mix, and the impending sale of the
business.
8 of 14
<PAGE> 9
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 29,1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Operating Results (continued)
Other income increased from $3.1 million in the second quarter of 1998 and $5.9
million for the six months ended May 30, 1998 to $3.5 million in the second
quarter of 1999 and $6.8 million in the six months ended May 29, 1999 due to
improved investment earnings and a more strategic investment of our excess
capital.
The effective tax rate was 32% in the second quarter of 1999 and six months
ended May 29, 1999, compared to 25% in the second quarter of 1998 and six months
ended May 30, 1998. This increase is the result of the phase out of interest
deductions on certain policy loans related to Company owned life insurance
(COLI). The 1999 effective tax rate was lower than the statutory federal income
tax rate due to exclusions for tax exempt and undistributed affiliate income.
For the quarter ended May 29, 1999, net income was $5.1 million, or $.40 per
diluted share, compared to net income of $4.0 million or $.30 per diluted share,
for the same quarter a year ago. Net income for the six month period ended May
29, 1999 was $ 9.5 million, or $.75 per diluted share, compared to $7.4 million,
or $.56 per diluted share, for the comparable period of the previous year.
Liquidity and Capital Resources
Cash provided by operating activities for the six months ended May 29, 1999 was
$11.5 million compared to $1.8 million provided by operating activities in the
six month period ended May 30, 1998. This change was due primarily to improved
profitability, a $5.7 million income tax refund received in the second quarter
of 1999, and the unusually high utilization of cash for payables and accruals in
the first six months of 1998.
The Company has invested $22.4 million in property and equipment in 1999 for
real estate, manufacturing equipment to improve productivity, new enterprise
wide information systems, and its new dining room table plant. Cash proceeds of
$24.4 million were received from municipal bonds which were sold or matured
during the year. These funds were invested in property and equipment as
discussed above, and selected strategic investment opportunities, linked to the
Company's marketing and distribution strategies. These proceeds along with cash
provided by operating activities were also used to fund two quarterly dividend
payments totaling $5.1 million and to repurchase $7.5 million of Company stock.
The Company purchased and retired 162,000 shares of its Common Stock during the
second quarter of 1999 and has now purchased and retired 337,000 shares for the
six month period ended May 29, 1999. These purchases were part of the Company's
stock repurchase program, approved in 1998, which allows the Company to
repurchase up to 1.3 million shares for an aggregate purchase price not to
exceed $40 million. The average cost of the shares purchased during the second
quarter was $22.71, resulting in a total expenditure of $3.7 million.
The Company plans to invest approximately $50 to $60 million per year over the
next few years to aggressively execute its BFD expansion and upgrade its
manufacturing capabilities. The Company's solid financial position with
significant liquidity and no debt affords it many options. Management intends to
examine opportunities to strengthen its balance sheet and increase shareholder
value which may require debt financing. The Company has not typically used the
debt or equity markets as sources of funds or capital.
9 of 14
<PAGE> 10
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 29,1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The current ratio as of May 29, 1999 and November 28, 1998, respectively, was
2.95 to 1 and 3.21 to 1. Working capital at May 29, 1999 was $86.4 million
compared to $98.9 million at November 28, 1998. 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 have 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 product
specification 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. 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.
Legislation phased out interest deductions on certain policy loans related to
Company owned life insurance (COLI) as of January 1, 1999. The Company recorded
cumulative reductions to income tax expenses of approximately $8,000 as the
result of COLI interest deductions through November 28, 1998. The Internal
Revenue Service, on a national level, is evaluating its position regarding the
deductibility of COLI policy loan interest for years prior to January 1, 1999.
In 1998 and 1999, the IRS issued several Technical Advice Memoranda regarding
the deductibility of certain aspects of COLI for taxpayers unrelated to the
Company. Management understands that the adverse position taken by the IRS will
be subjected to extensive challenges in court. In the event that the IRS
prevails, the outcome could result in a material impact upon the Company's
future income taxes and results of operations.
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 actions are being taken. 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 1999 that will provide solutions to
these issues. The most significant step in accomplishing this goal was
completed in the second 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
fourth quarter of 1999. 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. 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 now has a verification
program to insure that all microcontrollers 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.
10 of 14
<PAGE> 11
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 29,1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Year 2000 (continued)
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 companies 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 computer systems 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 new enterprise system is estimated at $8
million. This total includes the Year 2000 Project. The new system was not
purchased to solely achieve Year 2000 compliance in the Company's 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, $7 million represents the purchase of new software, new hardware,
and related implementation costs which will be capitalized. The remaining will
be expensed as incurred during 1999 and 2000. As of the end of the second
quarter, the Company has spent approximately $5 million on the project.
Market Risk
The Company has significant investments in both equity securities and municipal
securities. The Company does not use these securities for trading purposes and
is not a party to any leveraged derivatives. For securities held, the Company
utilizes a sensitivity analysis technique to evaluate the effect that
hypothetical changes in market prices will have on the Company's investment
securities. In the first quarter of 1999, the Company entered into a series of
equity index collars in order to manage risk exposures related to its portfolio
of equity securities. In the opinion of management, market changes in the
Company's equity securities portfolio are highly correlated to the equity index
collars. At May 29, 1999, the potential change in fair value of investment
securities and the equity index collars, assuming a 10% change in market prices
was approximately $3 million. This amount is not significant compared with the
overall financial position of the Company.
In addition, the Company has investments in affiliated companies accounted for
under the equity method of accounting.
Safe-harbor forward-looking statements
This report 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; (II) demand for the Company's products and acceptance of new
products; (III) fluctuations in raw material prices; and (IV) general economic
conditions that are less favorable than expected.
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<PAGE> 12
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 29, 1999
Item 4. Submission of matters to a vote of security holders
March 30, 1999
Vote of stockholders was reported in the 10-Q filed for the period ended
February 27, 1999.
Item 6.
a. Exhibits
(27) Financial Data Schedule
b. Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter.
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<PAGE> 13
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/ Barry C. Safrit
- -----------------------------------------------------------------
Barry C. Safrit, Vice President, Chief Accounting Officer
July 13, 1999
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<PAGE> 14
BASSETT FURNITURE INDUSTRIES, INCORPORATED
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-START> NOV-29-1998
<PERIOD-END> MAY-29-1999
<EXCHANGE-RATE> 1
<CASH> 791
<SECURITIES> 3,313
<RECEIVABLES> 60,871
<ALLOWANCES> 2,400
<INVENTORY> 45,137
<CURRENT-ASSETS> 130,774
<PP&E> 205,065
<DEPRECIATION> 133,126
<TOTAL-ASSETS> 317,327
<CURRENT-LIABILITIES> 44,369
<BONDS> 0
0
0
<COMMON> 62,747
<OTHER-SE> 198,886
<TOTAL-LIABILITY-AND-EQUITY> 317,327
<SALES> 203,468
<TOTAL-REVENUES> 210,276
<CGS> 161,428
<TOTAL-COSTS> 196,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,839
<INCOME-TAX> 4,364
<INCOME-CONTINUING> 9,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,475
<EPS-BASIC> .75
<EPS-DILUTED> .75
</TABLE>
