<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 27, 2000
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 No X
----- -----
Form 10-K (a) Amendment No. 2 was filed April 11, 2000, subsequent to the March
31, 2000 filing date.
At July 6, 2000, 11,772,754 shares of common stock of the Registrant were
outstanding.
1 of 16
<PAGE> 2
PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE PERIODS ENDED MAY 27, 2000 AND MAY 29, 1999 - UNAUDITED
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
-------------------------- ----------------------------
May 27, 2000 May 29, 1999 May 27, 2000 May 29, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $187,347 $ 203,468 $ 92,366 $ 103,659
Cost of sales 150,876 161,428 74,468 81,195
------------ ------------ ------------ ------------
Gross profit 36,471 42,040 17,898 22,464
Selling, general and administrative 30,356 35,009 15,063 18,479
------------ ------------ ------------ ------------
Income from operations 6,115 7,031 2,835 3,985
Other income, net 7,462 6,808 3,804 3,456
------------ ------------ ------------ ------------
Income before income taxes 13,577 13,839 6,639 7,441
Income taxes (4,344) (4,364) (2,124) (2,381)
------------ ------------ ------------ ------------
Income before cumulative effect
of accounting change 9,233 9,475 4,515 5,060
Cumulative effect of accounting
change (net of income taxes of $171) (364) - - -
------------ ------------ ------------ ------------
Net income $ 8,869 $ 9,475 $ 4,515 $ 5,060
------------ ------------ ------------ ------------
Retained earnings-beginning of period 187,973 193,130 188,040 192,102
Cash dividends (4,788) (5,072) (2,395) (2,521)
Purchase and retirement of
common stock (2,871) (5,709) (977) (2,817)
------------ ------------ ------------ ------------
Retained earnings-end of period $189,183 $ 191,824 $ 189,183 $ 191,824
============ ============ ============ ============
Basic earnings per share:
Income before cumulative effect
of accounting change $ 0.78 $ 0.75 $ 0.38 $ 0.40
Cumulative effect of accounting change (0.03) - - -
------------ ------------ ------------ ------------
$ 0.75 $ 0.75 $ 0.38 $ 0.40
============ ============ ============ ============
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 0.78 $ 0.75 $ 0.38 $ 0.40
Cumulative effect of accounting change (0.03) - - -
------------ ------------ ------------ ------------
$ 0.75 $ 0.75 $ 0.38 $ 0.40
============ ============ ============ ============
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.
2 of 16
<PAGE> 3
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 27, 2000 AND NOVEMBER 27, 1999
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Assets May 27, 2000 November 27, 1999
-------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 508 $ 5,740
Trade accounts receivable, net 70,813 64,731
Inventories, net 60,353 50,206
Other current assets 6,883 6,175
Refundable income taxes 1,006 1,006
Deferred income taxes 9,314 9,314
-------------- -----------------
Total current assets 148,877 137,172
-------------- -----------------
Property & equipment
Cost 232,505 227,439
Less accumulated depreciation 133,632 134,284
-------------- -----------------
Total property & equipment 98,873 93,155
-------------- -----------------
Other long-term assets
Investment securities 19,849 23,057
Investment in affiliated companies 80,248 67,558
Other 18,139 21,887
-------------- -----------------
Total other long-term assets 118,236 112,502
-------------- -----------------
Total assets $ 365,986 $ 342,829
============== =================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 21,313 $ 30,122
Accrued liabilities 24,151 26,806
-------------- -----------------
Total current liabilities 45,464 56,928
-------------- -----------------
Long-term liabilities
Employee benefits 10,719 10,998
Notes Payable 50,500 18,000
Deferred income taxes 3,753 1,152
-------------- -----------------
Total long-term liabilities 64,972 30,150
-------------- -----------------
Stockholders' Equity
Common stock 58,864 60,474
Additional paid in capital - -
Retained earnings 189,183 187,973
Accumulated other comprehensive income -
unrealized holding gains, net of income tax effect 7,795 7,993
Unamortized stock compensation (292) (689)
-------------- -----------------
Total stockholders' equity 255,550 255,751
-------------- -----------------
Total liabilities and stockholders' equity $ 365,986 $ 342,829
============== =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
3 of 16
<PAGE> 4
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 27, 2000 AND MAY 29, 1999 - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net income $ 8,869 $ 9,475
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 5,086 4,121
Equity in undistributed income of affiliated companies (6,785) (5,364)
Provision for deferred income taxes 2,601 2,608
Net gain from sales of investment securities (464) (955)
Net gain from sales of property and equipment (175) -
Compensation earned under restricted stock plan 397 119
Changes in operating assets and liabilities:
Trade accounts receivable (6,311) (1,943)
Inventory (16,506) (2,263)
Prepaid expenses and other (1,819) (576)
Income taxes - 5,731
Accounts payable and accrued liabilities (2,543) 741
Long-term liabilities (279) (266)
--------- ---------
Net cash provided by (used in) operating activities $(17,929) $ 11,428
--------- ---------
Investing activities:
Purchases of property and equipment (12,725) (22,372)
Proceeds from sales of property and equipment 178 970
Proceeds from sales of investment securities 2,208 24,439
Investments in affiliated companies (4,200) (6,050)
Other, net 4,007 (579)
--------- ---------
Net cash (used in) investing activities $(10,532) $ (3,592)
--------- ---------
Financing activities:
Borrowings under notes payable 32,500 -
Issuance of common stock 104 29
Repurchase of common stock (4,587) (7,501)
Cash dividends (4,788) (5,072)
--------- ---------
Net cash provided by (used in) financing activities 23,229 (12,544)
--------- ---------
Net change in cash and cash equivalents (5,232) (4,708)
Cash and cash equivalents, beginning of period 5,740 5,499
--------- ---------
Cash and cash equivalents, end of period $ 508 $ 791
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
4 of 16
<PAGE> 5
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 27, 2000 (Dollars 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.
The condensed consolidated financial statements include the accounts of Bassett
Furniture Industries, Incorporated (the "Company") and its subsidiaries, all of
which are wholly owned. In the first quarter of fiscal 2000, the Company merged
its retail operating segment into a new joint venture known as the Ladin Retail
Group (LRG). The Company does not control the joint venture and accordingly the
joint venture has been accounted for under the equity method of accounting.
Note B. Reclassifications:
For comparative purposes certain amounts for fiscal 1999 have been reclassified
to conform to fiscal 2000 presentation.
Note C. Cumulative Effect of Accounting Change:
In 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires start-up costs, as defined, to be expensed as
incurred. In accordance with this SOP, any previously capitalized start-up costs
are required to be written-off as a cumulative effect of a change in accounting
principle. The Company, upon adoption of this SOP in the first quarter of fiscal
2000, has written off the unamortized balance of such previously capitalized
start-up costs as of November 28, 1999, of $535 ($364 after tax) or $.03 per
diluted share as a cumulative effect of an accounting change.
Note D. Inventories:
Inventories are carried at last-in, first-out (LIFO) cost which is not in excess
of market. Inventories at May 27, 2000 and November 27, 1999 consisted of the
following:
<TABLE>
<CAPTION>
May 27, November 27,
2000 1999
--------------------------
<S> <C> <C>
Finished goods $ 50,582 $ 41,823
Work in process 10,135 9,880
Raw materials and supplies 25,490 17,881
Retail merchandise - 6,076
--------------------------
Total inventories valued at first-in, first-out (FIFO) cost 86,207 75,660
LIFO adjustment (25,854) (25,454)
--------------------------
Total inventories, net $ 60,353 $ 50,206
==========================
</TABLE>
Note E. Investment in affiliated companies and joint venture:
Summarized combined income statement information for the Company's equity method
investments for the six months ended May 27, 2000 and May 29, 1999 are as
follows:
<TABLE>
<CAPTION>
2000 1999
---------------------
<S> <C> <C>
Revenues $ 47,838 $ 22,200
Income from operations 14,558 14,549
Net income 10,159 8,937
</TABLE>
In the first quarter of 2000 the Company merged all of its eight BFD stores with
a licensee's five BFD stores to form a joint venture known as LRG. The Company
contributed the net assets from its retail operations - $1.7 million, along with
$4.2 million in cash, and the licensee contributed their net assets along with
$.5 million in cash. The effect of the merger has been included in the changes
in operating assets and liabilities in the Consolidated Statement of Cash Flows.
5 of 16
<PAGE> 6
BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
May 27, 2000(Dollars in thousands except share and per share data)
Note F. Comprehensive income:
For the quarters ended May 27, 2000, and May 29, 1999, total comprehensive
income was $5,136 and $4,839, respectively. Included in total comprehensive
income is net income of $4,515 and $5,060 and unrealized gains (losses), net of
tax of $621 and ($221). Comprehensive income was $8,671 and $9,061, consisting
of net income of $8,869 and $9,475 and unrealized holding gains (losses), net of
tax of ($198) and ($414) for the six month periods ended May 27, 2000, and May
29, 1999, respectively.
Note G. 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 that were
manufactured by a subsidiary of the Company, E.B. Malone Corporation, with
allegedly different specifications than those originally manufactured for sale
by these retailers. The suit alleged 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 1998, the Superior Court dismissed the class action
allegations in plaintiffs' complaint and transferred the entire action out of
the class action department. The Court also dismissed many of the individual
claims. Plaintiffs then filed a notice of appeal from the class action ruling.
Plaintiffs also filed a petition for a writ of mandamus or other extraordinary
relief, which 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, 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.
On June 13, 2000, the Court of Appeal denied plaintiffs' appeal and entered an
order affirming the dismissal of the class action allegations. With the
dismissal of the class action allegations, the suit now consists of damage
claims by nine named plantiffs (seven individuals and two companies), together
with restitution claims for other purchasers under Business & Professions Code
17200. The Company intends to vigorously defend the remaining portions of this
suit. Because the Company believes that the two major retailers were unaware of
any alleged changes in specifications, the Company has agreed to indemnify the
two major retailers with respect to the above.
Legislation has phased out interest deductions on certain policy loans related
to Company owned life insurance (COLI) as of January 1, 1999. The Company has
recorded cumulative reductions to income tax expense of approximately $8,000 as
the result of COLI interest deductions through 1998. The Internal Revenue
Service, on a national level, has pursued an adverse position regarding the
deductibility of COLI policy loan interest for years prior to January 1, 1999.
In 1999, the IRS received a favorable Tax Court ruling on one taxpayer regarding
the non-deductibility of COLI loan interest. Management understands that this
ruling and 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 potential income tax and interest payments which could be material to
the Company's future results of operations.
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.
6 of 16
<PAGE> 7
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000 (Dollars in thousands except share and per share data)
Note H. Financial Instruments:
In the first quarter of 1999, the Company entered into an equity collar
arrangement in order to reduce its exposure to fluctuations in its investment
portfolio. The equity collar was a series of puts and calls on a market index,
covering a notional amount of securities, which expired quarterly in varying
amounts over a three year period. In the first quarter of 2000, the Company
terminated this particular financial instrument and recognized a gain of $1.4
million, which is included in other income, and entered into a new financial
instrument which more clearly correlates to its equity portfolio. The new
financial instrument has a notional value of $10.1 million and expires quarterly
in varying amounts over the next six years. The fair market value of this
financial instrument at May 27, 2000 was approximately $1 million and is
included in accrued liabilities on the accompanying consolidated balance sheet.
Note I. Earnings per share:
The following reconciles basic and diluted earnings per share before cumulative
effect of accounting change:
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Income Shares per share
------------------------------------------------
For the six months ended May 27, 2000
---------------------------------------------
<S> <C> <C> <C>
Income available to common stockholders $ 9,233 11,885,470 $ 0.78
Add effect of dilutive securities:
Options and restricted stock - 2,190 -
------------------------------------------------
Diluted earnings per share $ 9,233 11,887,660 $ 0.78
================================================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended May 27, 2000
---------------------------------------------
<S> <C> <C> <C>
Net income available to common stockholders $ 4,515 11,798,975 $ 0.38
Add effect of dilutive securities:
Options and restricted stock - 2,014 -
------------------------------------------------
Diluted earnings per share $ 4,515 11,800,989 $ 0.38
================================================
</TABLE>
<TABLE>
<CAPTION>
For the six months ended May 29, 1999
---------------------------------------------
<S> <C> <C> <C>
Income available to common stockholders $ 9,475 12,704,089 $ 0.75
Add effect of dilutive securities:
Options and restricted stock - 8,828 -
------------------------------------------------
Diluted earnings per share $ 9,475 12,712,917 $ 0.75
================================================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended May 29, 1999
---------------------------------------------
<S> <C> <C> <C>
Net income available to common stockholders $ 5,060 12,613,367 $ 0.40
Add effect of dilutive securities:
Options and restricted stock - 11,888 -
------------------------------------------------
Diluted earnings per share $ 5,060 12,625,255 $ 0.40
================================================
</TABLE>
Options to purchase 1.7 and 1.4 million shares of common stock were outstanding
during the second quarters of 2000 and 1999, respectively, that could
potentially dilute basic EPS in the future.
7 of 16
<PAGE> 8
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
(Dollars in thousands except share and per share data)
Note J. Segment Information:
Segment information for the periods ended May 27, 2000 and May 29, 1999 were as
follows:
For the six months ended May 27, 2000
<TABLE>
<CAPTION>
Wood Upholstery Other Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 132,802 $ 47,998 $ 6,547 $ 187,347
Operating income (loss) 20,816 4,109 (18,810) 6,115
Depreciation and amortization 2,511 414 2,161 5,086
Capital expenditures 3,527 1,687 7,511 12,725
</TABLE>
For the six months ended May 29, 1999
<TABLE>
<CAPTION>
Wood Upholstery Other Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 128,721 $ 55,120 $ 19,627 $ 203,468
Operating income (loss) 22,654 4,972 (20,595) 7,031
Depreciation and amortization 2,061 330 1,730 4,121
Capital expenditures 8,731 1,935 11,706 22,372
</TABLE>
For the quarter ended May 27, 2000
<TABLE>
<CAPTION>
Wood Upholstery Other Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 65,323 $ 23,551 $ 3,492 $ 92,366
Operating income (loss) 10,143 2,191 (9,499) 2,835
Depreciation and amortization 1,243 177 989 2,409
Capital expenditures 1,835 1,511 2,400 5,746
</TABLE>
For the quarter ended May 29, 1999
<TABLE>
<CAPTION>
Wood Upholstery Other Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 67,168 $ 27,542 $ 8,949 $ 103,659
Operating income (loss) 13,063 2,315 (11,393) 3,985
Depreciation and amortization 1,037 139 784 1,960
Capital expenditures 6,947 1,023 8,991 16,961
</TABLE>
The Company's other businesses consist of the Bedding Division (for the first
five months of fiscal 1999), a contemporary furniture business (Weiman), the
retail business (for the first half of 1999) and corporate operations, all
included to reconcile segment information to the Condensed Consolidated
Financial Statements. Operating income by business segment is defined as sales
less direct operating costs and expenses.
8 of 16
<PAGE> 9
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations -Periods ended May 27, 2000 compared with periods ended
May 29, 1999
In the second quarter of 2000 Bassett reported $92.4 million in sales, a decline
of 11% from the $103.7 million reported for the second quarter of 1999. Sales
for the six months ended May 27, 2000 were $187.3 million versus $203.5 million
for the six months ended May 29, 1999, reflecting a decline of 8.0%. Both
declines were due partially to the disposal of certain businesses. In April of
1999, the Company sold its Bedding Division, which had revenues of $4.4 million
and $11.6 million for the second quarter of 1999 and the six months ended May
29, 1999, respectively. In the first quarter of 2000, the Company merged its
eight BFD stores and formed a new joint venture known as the Ladin Retail Group
(LRG). Corporate retail sales totaled $1.3 million for second quarter of 1999
and $1.5 million for the first six months of 1999. On a comparable sales basis,
sales were only $98 million in second quarter of 1999 and $190.4 million for the
first six months of 1999, reflecting a decline of only 5.7% and 1.6%,
respectively. These declines were due primarily to shipping delays associated
with a new company-wide software package which was implemented during the second
quarter of 2000, and a slight softening in retail furniture demand.
Gross margin, selling, general and administrative (S,G&A) expenses, and
operating income as a percentage of net sales were as follows for the quarters
and six months ended May 27, 2000 and May 29, 1999:
<TABLE>
<CAPTION>
For the Six Months Ended For the Quarter Ended
May 27, 2000 May 29, 1999 May 27, 2000 May 29, 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Gross margin 19.5% 20.7% 19.4% 21.7%
S,G&A 16.2% 17.2% 16.3% 17.8%
Operating income 3.3% 3.5% 3.1% 3.8%
</TABLE>
Overall gross margin decreased by 2.3 percentage points from 21.7% in the second
quarter of 1999 to 19.4% in the second quarter of 2000. For the six months ended
May 27, 2000, gross margins decreased by 1.2 percentage points from 20.7% in the
first six months of 1999 to 19.5%. Gross margins were negatively impacted in the
first six months of 2000 due to start-up costs of approximately $0.9 million at
the new dining table top plant, plus the closing of the Dumas plant in the
Upholstery Division in the first quarter. Excluding the effects of the disposal
of the two divisions and the start-up costs of the new dining table top plant,
gross margins would have been down by only 1.4 percentage points on a quarter to
quarter comparison, and down by only 1.0 percentage points for the first six
months of 2000 as compared to the same period in 1999. A considerable increase
in certain lumber prices, together with volume related production issues at
several facilities further impacted the decline in margins for the first half of
the fiscal year. The Company continually evaluates both its pricing practices
and its labor and overhead cost structure in an effort to improve its overall
gross margin. The Company has undertaken several initiatives in the areas of
material yields and set up time reduction to drive divisional gross margin
improvement in the future.
S,G&A expenses decreased in the second quarter from 17.8% in 1999 to 16.3% in
2000. For the six months ended May 27, 2000, S,G&A expenses were 16.2% versus
17.2% for the six months ended May 29, 1999. These decreases were mainly
attributable to the retail operations being transferred to the joint venture at
the beginning of fiscal 2000. Exclusive of the retail operations, as a
percentage of sales, S,G&A experienced a slight increase due to a national
marketing campaign and a new company-wide information system. The Company plans
to continue to focus its spending on marketing and advertising in order to
drive future sales growth. Management targets S,G&A spending to approximate
16.5% of wholesale furniture sales over the next five years.
9 of 16
<PAGE> 10
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Other income increased to $3.8 million in the second quarter 2000 from $3.5
million in the second quarter 1999 and to $7.5 million for first six months of
2000 from $6.8 million in the first six months of 1999. The increase in 2000 was
due primarily to continued strong returns on affiliate investments.
Additionally, a $1.4 million gain was recognized in the first quarter of 2000 on
the termination of an equity index collar. These results were offset by both the
Company's share of losses in the LRG joint venture ($2.3 million for the six
months ended May 29, 2000)and by interest expense on the outstanding notes
payable ($1.3 million for the six months ended May 27, 2000). Other income will
continue to be an integral component of the Company's future earnings.
The effective tax rate was flat from second quarter 1999 to second quarter 2000
at 32%. However, for the six months ended May 27, 2000, the tax rate increased
slightly from 31.5% for the first six months of 1999 to 32% in 2000. The tax
rates are lower than the statutory federal income tax rate due to exclusions for
tax exempt income.
For the quarter and six months ended May 27, 2000, income before cumulative
effect of the accounting change was $4.5 million or $.38 per diluted share and
$9.2 million or $.78 per diluted share, respectively. This reflects a decrease
of 10.8% from the second quarter of 1999 and 2.6% from the first six months of
1999. The effect of the accounting change was $364 after the impact of income
taxes or $.03 per diluted share. Net income was $4.5 million or $.38 per diluted
share for the quarter and $8.9 million or $.75 per diluted share for the first
six months of 2000, compared to $5.1 million or $.40 per diluted share for the
quarter ended May 29, 1999 and $9.5 million or $.75 per diluted share for the
six months ended May 29, 1999.
Segment Information
The following is a discussion of operating results for each of Bassett's
business segments.
<TABLE>
<CAPTION>
For the Six Months Ended Quarter Ended
Wood Division May 27, 2000 May 29, 1999 May 27, 2000 May 29, 1999
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 132,802 $ 128,721 $ 65,323 $ 67,168
Contribution to profit
and overhead $ 20,816 $ 22,654 $ 10,143 $ 13,063
</TABLE>
Wood Division net sales decreased by 2.7% in the second quarter 2000, but
increased by 3.2% in the first six months of 2000. The decrease this quarter is
due to shipping issues with the new software package and some attrition in the
Company's traditional distribution channels. Actions have been taken to address
issues with the new software in order to improve shipping performance. Sales
growth will be bolstered in the second half of the year, as the Company expects
to open eight BFD stores and over thirty At Home with Bassett galleries.
Contribution to profit and overhead is defined by the Company as gross profit
less direct divisional operating expenses but excluding any allocation of
corporate overhead expenses, interest expense, or income taxes. For the Wood
Division, contribution to profit and overhead decreased from 19.4% of sales in
the second quarter of 1999 to 15.5% of sales in the second quarter of 2000, and
for the six months ended May 27, 2000 from 17.6% to 15.7%. Lumber prices
increased by approximately 25% on certain species in the first half of 2000.
This, coupled with volume related production issues at several facilities led
to the margin decline. Management believes lumber prices have stabilized and
will be lower in the second half of the year.
One of the Company's wood manufacturing facilities posted notable improvements
in its contribution to profit and overhead from the second quarter 1999 to
the second quarter 2000. The Mt. Airy, North Carolina plant's contribution
increased by 9.6% for the first six months of 2000 as a result of the
combination of consolidation and absorption efficiencies, investments in
equipment and technology and improvements in manufacturing processes.
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<PAGE> 11
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
In addition, sales of the Company's import products nearly doubled from the
first six months of 1999 to the first six months of 2000, improving sales and
profitability for the Wood Division. Offsetting these positive results were
approximately $0.9 million of start-up related costs associated with the Dining
Table Top plant located in Martinsville, Virginia.
<TABLE>
<CAPTION>
For the Six Months Ended Quarter Ended
Upholstery Division May 27, 2000 May 29, 1999 May 27, 2000 May 29, 1999
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 47,998 $ 55,120 $ 23,551 $ 27,542
Contribution to profit
and overhead $ 4,109 $ 4,972 $ 2,191 $ 2,315
</TABLE>
Net sales for the Upholstery Division have declined for the second quarter 2000
as compared to the second quarter 1999, as the Company continues its
repositioning of this segment and refinement of product offerings. Certain key
large accounts experienced sales declines for the first six months of 2000
compared to 1999. The Company has hired a new merchandising team in the
Upholstery Division to reverse this trend and continue the product line
repositioning. The Company is focusing this segment on its BFD stores, its At
Home with Bassett galleries, and several of its major customers.
Contribution to profit and overhead for the Upholstery Division has grown from
8.4% of sales in the second quarter of 1999 to 9.3% of sales in 2000. This
increase is a result of several operational initiatives put into place in an
effort to improve results, including closing the Dumas plant. For the six
months ended May 27, 2000, their contribution percentage has decreased slightly
from 9.0% of sales in the first six months of 1999 to 8.6% in the first six
months of 2000.
In the first quarter of 2000, the Company merged its eight BFD stores and
formed a new joint venture known as the Ladin Retail Group (LRG). Bassett
retains a 51% ownership of the joint venture but does not retain control of the
joint venture and accordingly the joint venture has been accounted for under
the equity method of accounting. The results of LRG's operations for the
periods ended May 27, 2000 have been included as a component of other income.
The changes in "Other" operations from the periods ended May 27, 2000, to the
periods ended May 29, 1999, detailed in Note J to the Condensed Consolidated
Financial Statements reflect the elimination of discontinued operations, the
sale of the Bedding Division, and the increase in corporate related marketing
and support structure spending.
Liquidity and Capital Resources
Cash used in operating activities was $17.9 million for the first six months of
2000 compared to net cash provided of $11.4 million for the same period in
1999. The increase in net cash used was attributable primarily to significantly
increased levels of inventory and accounts receivable. Inventory levels
increased in part to improve service and as a result of the increase in lumber
prices, but primarily from a significant shortfall in actual versus planned
sales for the first half of the year. Accounts receivable increased due to the
shift in the Company's sales distribution (towards BFD's), as well as
disruptions in supply experienced with the implementation of the new software
package.
The Company invested $12.7 million for the six months ended May 27, 2000 for
real estate, manufacturing equipment to improve productivity, and new
enterprise-wide information systems, as compared to $22.4 million for the six
months ended May 29, 1999. This decrease of $9.7 million is due to less real
estate expenditures versus
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<PAGE> 12
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
1999, plus the new dining table top plant which is included in 1999. In the
first quarter of 2000, cash of $4.2 million was invested into the new joint
venture with LRG and only minimal ($2.2 million) sales of investment securities
took place.
The Company entered into a $50 million revolving credit facility in fiscal
1999. Management decided to borrow money at competitive rates rather than
further liquidate its investment portfolio, which continues to generate
favorable returns. Borrowings under the credit facility were $32.5 million for
the six months ended May 27, 2000. The increase in borrowings was used to fund
the increase in working capital and the capital expenditures discussed above.
Given this significant increase in borrowings, the Company is now focusing on
reducing working capital, with targeted plans for raw material inventories,
finished goods inventories and accounts receivable. This is one of two major
priorities for the Company in the second half of the year. The other major
priority is improving customer service through better communication and
complete on-time deliveries. The Company is also negotiating to increase
its current revolving credit facility which should be finalized in the third
quarter of fiscal 2000.
The Company purchased and retired 321,000 shares of its Common Stock during the
first six months of 2000. These purchases were part of the Company's stock
repurchase program, approved in fiscal 1998, which allows the Company to
repurchase shares for an aggregate purchase price not to exceed $40 million.
The average cost of the shares purchased during the first six months of 2000
was $14.33, resulting in a total expenditure of $4.6 million. As of May 27,
2000, the Company has completed approximately 67% of its current repurchase
plan.
The current ratio as of May 27, 2000 and November 27, 1999, respectively, was
3.27 to 1 and 2.41 to 1. Working capital at May 27, 2000 was $103.4 million
compared to $80.2 million at November 27, 1999. The Company's consolidated
financial statements are prepared on the basis of historical cost and are not
intended to show the impact of inflation or changing prices.
YEAR 2000:
July 2000 Update:
Through the second quarter of the year 2000, Bassett's operations throughout
the United States are fully functioning and have not experienced any
significant problems associated with the Y2K issue. We are pleased by the
results of our Year 2000 efforts, and that of our customers, suppliers, and
third party service providers.
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<PAGE> 13
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
MARKET RISK:
The Company is exposed to market risk for changes in market prices of its
various types of investments. The Company's investments include equity
securities, a financial instrument entered into in order to hedge its equity
securities, and an investment partnership included in its investments in
affiliated companies. The Company does not use these securities for trading
purposes and is not party to any leveraged derivatives.
The Company's equity securities portfolio, which totaled $19.8 million at May
27, 2000, is diversified among over twenty different medium to large
capitalization interests. The Company entered into an equity collar in 1999 to
reduce its exposure to fluctuations in the market value of these securities. In
the first quarter of 2000, management decided to liquidate this financial
instrument and enter into a new financial instrument which more clearly
correlates to its equity portfolio. The new financial instrument has a notional
value of $10.1 million and expires quarterly in varying amounts over the next
six years. Although there are no maturity dates for the Company's equity
investments, management has plans to liquidate both its current equity
portfolio and the related financial instrument on a scheduled basis over the
next six years.
The Company's investment in a limited partnership, which totaled $65 million at
May 27, 2000, invests in various other private limited partnerships which
contain contractual commitments with elements of market risk. These contractual
commitments, which include fixed-income securities and derivatives, may involve
future settlements, which give rise to both market and credit risk. The
investment partnership's exposure to market risk is determined by a number of
factors, including the size, composition, and diversification of positions
held, volatility of interest, market currency rates, and liquidity.
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. Important factors that could cause actual results to differ
materially from those contemplated by such forward-looking statements include:
- competitive conditions in the home furnishings industry
- general economic conditions that are less favorable than expected
- overall consumer demand for home furnishings
- timing and number of new BFD openings
- cost and availability of raw materials and labor
- information and technology advances, including Year 2000 issues
- effectiveness of marketing and advertising campaigns
- future tax legislation, or regulatory or judicial positions related to COLI
13 of 16
<PAGE> 14
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 27, 2000
Item 4. Submission of matters to a vote of security holders
March 28, 2000 vote of stockholders was reported in the 10-Q filed for the
period ended February 26, 2000.
Item 6.
a. Exhibits
(27) Financial Data Schedule
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<PAGE> 15
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 11, 2000
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<PAGE> 16
BASSETT FURNITURE INDUSTRIES INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
<S> <C> <C>
27 Financial Data Schedule page 9
</TABLE>
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