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 FEBRUARY 26, 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 April 7, 2000, 11,845,132 shares of common stock of the Registrant were
outstanding.
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PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE 13 WEEKS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 - UNAUDITED
(Dollars in thousands except per share data)
2000 1999
---- ----
Net Sales $ 94,981 $ 99,809
Cost of sales 76,408 80,233
-------- --------
Gross profit 18,573 19,576
Selling, general and administrative 15,293 16,530
-------- --------
Operating income 3,280 3,046
Other income, net 3,658 3,352
-------- --------
Income before income taxes and cumulative
effect of accounting change 6,938 6,398
Income taxes 2,220 1,983
-------- --------
Income before cumulative effect of accounting change 4,718 4,415
Cumulative effect of accounting change (net of income
taxes of $171) (364) 0
-------- --------
Net income 4,354 4,415
Retained earnings-beginning of period 187,973 193,130
Cash dividends (2,393) (2,551)
Purchase and retirement of
common stock (1,894) (2,892)
-------- --------
Retained earnings-end of period $188,040 $192,102
======== ========
Basic earnings per share:
Income before cumulative effect of accounting change $ 0.39 $ 0.34
Cumulative effect of accounting change (.03) --
-------- --------
Net income per share $ 0.36 $ 0.34
======== ========
Diluted earnings per share:
Income before cumulative effect of accounting change $ 0.39 $ 0.34
Cumulative effect of accounting change (.03) --
-------- --------
Net income per share $ 0.36 $ .34
======== ========
Dividends per share $ 0.20 $ 0.20
======== ========
- ------------------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 26, 2000 AND NOVEMBER 27, 1999
(In thousands)
(Unaudited)
Assets February 26, 2000 November 27, 1999
- ------ ----------------- -----------------
Current assets
Cash and cash equivalents $ 2,599 $ 5,740
Trade accounts receivable, net 69,556 64,731
Inventories, net 49,584 50,206
Other current assets 7,583 6,175
Refundable income taxes 1,006 1,006
Deferred income taxes 9,314 9,314
-------- --------
Total current assets 139,642 137,172
-------- --------
Property & equipment
Cost 233,317 227,439
Less accumulated depreciation 135,964 134,284
-------- --------
Total property & equipment 97,353 93,155
-------- --------
Other long-term assets
Investment securities 21,964 23,057
Investment in affiliated companies 76,461 67,558
Other 18,332 21,887
-------- --------
Total other long-term assets 116,757 112,502
-------- --------
Total assets $353,752 $342,829
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Accounts payable $ 26,606 $ 30,122
Accrued liabilities 21,416 26,806
-------- --------
Total current liabilities 48,022 56,928
-------- --------
Long-term liabilities
Employee benefits 10,919 10,998
Notes Payable 37,000 18,000
Deferred income taxes 3,429 1,152
-------- --------
Total long-term liabilities 51,348 30,150
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock 59,446 60,474
Additional paid in capital 0 0
Retained earnings 188,040 187,973
Accumulated other comprehensive income -
unrealized holding gains, net of income tax
effect 7,174 7,993
Unamortized stock compensation (278) (689)
-------- --------
Total stockholders' equity 254,382 255,751
-------- --------
Total liabilities and stockholders' equity $353,752 $342,829
======== ========
- ------------------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 13 WEEKS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 - UNAUDITED
(in thousands)
2000 1999
---- ----
Net income $ 4,354 $ 4,415
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 2,677 2,161
Equity in undistributed income of affiliated
companies (4,080) (2,288)
Provision for deferred income taxes 2,277 1,202
Net gain from sales of investment securities -- (391)
Net gain on financial instrument (1,366) --
Compensation earned under restricted stock plan 60 60
Changes in operating assets and liabilities:
Trade accounts receivable (5,054) (5,006)
Inventory (5,386) 1,506
Prepaid expenses and other 2,147 (400)
Income taxes -- 820
Accounts payable and accrued liabilities 627 (2,360)
Long-term liabilities (79) (117)
-------- -------
Net cash used in operating activities (3,823) (398)
-------- -------
Investing activities:
Purchases of property and equipment (7,979) (5,411)
Proceeds from sales of property and equipment -- 970
Proceeds from sales of investment securities -- 14,076
Investments in affiliated companies (4,200) (5,850)
Other (876) 308
-------- -------
Net cash provided by (used in) investing
activities (13,055) 4,093
-------- -------
Financing activities:
Borrowings under notes payable 19,000 --
Issuance of common stock 12 15
Repurchase of common stock (2,882) (3,778)
Cash dividends (2,393) (2,551)
-------- -------
Net cash provided by (used in) financing
activities 13,737 (6,314)
-------- -------
Net change in cash and cash equivalents (3,141) (2,619)
Cash and cash equivalents, beginning of period 5,740 5,499
-------- -------
Cash and cash equivalents, end of period $ 2,599 $ 2,880
======== =======
- ------------------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
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BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED
FEBRUARY 26, 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 February 26, 2000 and November 27, 1999 consisted of
the following:
February 26, November 27,
2000 1999
---- ----
Finished goods $ 43,794 $ 41,823
Work in process 10,595 9,880
Raw materials and supplies 20,849 17,881
Retail merchandise -- 6,076
-------- --------
Total inventories valued at first-in, first-out (FIFO) cost 75,238 75,660
LIFO adjustment (25,654) (25,454)
-------- --------
Total inventories $ 49,584 $ 50,206
======== ========
Note E. Investment in affiliated companies and joint venture:
Summarized combined income statement information for the Company's equity method
investments for the thirteen weeks ended February 26, 2000 and February 27, 1999
are as follows:
2000 1999
---- ----
Revenues $28,496 $ 9,420
Income from operations 7,593 6,333
Net income 3,462 3,808
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.
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BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED
FEBRUARY 26, 2000
(Dollars in thousands except share and per share data)
Note F. Comprehensive income:
For the thirteen weeks ended February 26, 2000, and February 27, 1999, total
comprehensive income was $3,797 and $4,222, respectively. Included in total
comprehensive income for the first quarter was net income of $4,354 and $4,415,
respectively, and unrealized holding losses arising during the period, net of
tax of $557 and $193, 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.
The parties have recently briefed the issues on appeal, but the appellate court
has set no hearing date. 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 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.
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 February 26, 2000 was approximately $1 million and is
included in accrued liabilities on the accompanying balance sheet.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26, 2000
(Dollars in thousands except share and per share data)
Note I. Earnings per share:
The following reconciles basic and diluted earnings per share before cumulative
effect of accounting change:
Weighted Earnings per
Income Average Shares share
-----------------------------------------------
For the thirteen weeks ended February 26, 2000
- ----------------------------------------------
Income available to common stockholders $4,718 11,971,965 $0.39
Add effect of dilutive securities:
Options and restricted stock -- 818 --
-----------------------------------------------
Diluted earnings per share $4,718 11,972,783 $0.39
====== ========== =====
For the thirteen weeks ended February 27, 1999
- ----------------------------------------------
Income available to common stockholders $4,415 12,800,832 $0.34
Add effect of dilutive securities:
Options and restricted stock -- 3,093 --
-----------------------------------------------
Diluted earnings per share $4,415 12,803,925 $0.34
====== ========== =====
Options to purchase 1.4 and 1.3 million shares of common stock were outstanding
during the first quarters of 2000 and 1999, respectively, that could
potentially dilute basic EPS in the future.
Note J. Segment Information:
Segment information for the periods ended February 26, 2000 and February 27,
1999 was as follows:
As of February 26, 2000
Wood Upholstery Other Consolidated
---- ---------- ----- ------------
Net sales $67,479 $24,440 $ 3,062 $94,981
Operating income (loss) 10,673 1,914 (9,307) 3,280
Depreciation and amortization 1,268 237 1,172 2,677
Capital expenditures 1,692 1,176 5,111 7,979
As of February 27, 1999
Wood Upholstery Other Consolidated
---- ---------- ----- ------------
Net sales $61,549 $27,542 $10,718 $99,809
Operating income (loss) 9,718 2,674 (9,346) 3,046
Depreciation and amortization 1,024 191 946 2,161
Capital expenditures 1,784 912 2,715 5,411
The Company's other businesses consist of the Bedding Division (for the first
quarter of 1999), a contemporary furniture business (Wieman) the retail business
(for the first quarter of 1999) and corporate operations, all included to
reconcile segment information to the Condensed Consolidated Financial
Statements. Wholesale profitability includes the wholesale gross margin, which
is earned on wholesale sales to all retail stores. Operating income by business
segment is defined as sales less direct operating costs and expenses.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
February 26,2000
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations - First quarter 2000 compared with first quarter 1999
In the first quarter of 2000 Bassett reported $95.0 million in sales, a decline
of 4.8% from the $99.8 million reported for the first quarter 1999. The decline
in sales reflects the spin off of the Company's bedding division and retail
operations. In April of 1999, the Company sold its Bedding Division, which had
revenues of $7.2 million in the first quarter of 1999 (prior to the sale). 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). Offsetting this decline
were increases in core Bassett branded wholesale furniture sales. Core wholesale
furniture sales increased 2.5% in the first quarter of 2000 driven by the
opening of additional Bassett Furniture Direct ("BFD") stores. Three additional
stores were opened in the first quarter of 2000. Within the core wholesale
furniture segment, sales of wood products increased 9.6% while upholstery
product sales declined 11.3%. We continue to reposition our upholstery product
offerings and account structure in order to improve both service and
profitability.
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
ended February 26, 2000 and February 27, 1999:
2000 1999
---- ----
Gross margin 19.6% 19.6%
S, G &A 16.1% 16.6%
Operating income 3.5% 3.1%
Overall gross margins remained flat for the first quarter 2000 compared to the
first quarter 1999. On a continuing operations basis, margins improved slightly
from 19.2% in the first quarter 1999 to 19.6% in the first quarter 2000 by
consolidation and absorption efficiencies, new investments in technology and
equipment, manufacturing process improvements and product enhancements. Gross
margins were negatively impacted in the first quarter 2000 due to start-up costs
of approximately $900 at the new dining table top plant. The consolidation of
the J.D. Bassett plant in the Wood Division is in process and the closing of the
Dumas plant in the Upholstery Division was completed during the first quarter of
2000. The consolidation of this volume into other upholstery plants is expected
to have a positive effect on future margins.
S,G&A expenses decreased slightly from 16.6% for the first quarter of 1999 to
16.1% for the first quarter of 2000. The decrease is mainly attributable to the
retail operations being transferred to the joint venture at the beginning of
fiscal 2000. The Company plans to continue to focus its spending on marketing
and advertising in order to drive its sales growth. Management has targeted S,G
&A spending in the wholesale furniture segment to be an approximate 16.5% of
wholesale furniture sales over the next five years.
Other income increased to $3.7 million in the first quarter 2000 from $3.4
million in the first quarter 1999. The increase in 2000 was due primarily to
strong returns on affiliate investments and a gain recognized on the termination
of an equity index collar. These results were offset by the Company's share of
losses in the LRG joint venture. Other income will continue to be an integral
component of the Company's future earnings. Management plans to continue to make
investments in companies which are strategically aligned with Bassett and the
home furnishings industry.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26,2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The effective tax rate was 32% in the first quarter of 2000 compared to 31% in
the first quarter of 1999. The tax rates are lower than the statutory federal
income tax rate due to exclusions for tax exempt income.
For the quarter ended February 26, 2000, income before cumulative effect of the
accounting change was $4.7 million or $.39 per diluted share, the effect of the
accounting change was $364 after the impact of income taxes or $.03 per diluted
share and net income was $4.4 million or $.36 per diluted share, compared to
$4.4 million or $.34 per diluted share for the first quarter ended February 27,
1999.
Segment Information
The following is a discussion of operating results for each of Bassett's
business segments.
Quarter Ended Quarter Ended
Wood Division February 26, 2000 February 27, 1999
--------------------------------------------------------
Net sales $67,479 $61,549
Contribution to profit and overhead $10,673 $ 9,718
Wood Division net sales grew 9.6% in the first quarter 2000 over the first
quarter 1999 results, due to the expansion of the BFD store program, new product
introductions, and improvements in product styling, quality, and service.
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 has remained at 15.8 as a
percentage of net sales in the first quarter of 2000 and 1999. Quarter over
quarter the results have improved 9.8% due to the combination of consolidation
and absorption efficiencies and investments in equipment and technology, and
manufacturing process improvements.
Two of the Company's wood manufacturing facilities posted notable improvements
in their contribution to profit and overhead from the first quarter 1999 to the
first quarter 2000. One plant located in Bassett, VA (J.D. Bassett plant) and
one in Mt. Airy, North Carolina, achieved these results for the reasons noted
above as well as a plant consolidation in process at the J. D. Bassett plant. In
addition, sales of the Company's import products have more than doubled on a
quarter to quarter comparison, improving sales and profitability for the Wood
Division. Offsetting these positive results were approximately $900 of start-up
related costs associated with the Dining Table Top plant located in
Martinsville, Virginia.
Quarter Ended Quarter Ended
Upholstery Division February 26, 2000 February 27, 1999
--------------------------------------------------------
Net sales $24,440 $27,542
Contribution to profit and overhead $ 1,914 $ 2,674
Net sales for the Upholstery Division have declined for the first quarter 2000
compared to the first quarter 1999, as the Company continues its repositioning
of this segment and refinement of product offerings. Management decided to exit
certain distribution channels, which were incompatible with the Bassett brand
image and its current primary channels of distribution. The Company is focusing
this segment on its BFD stores, its At Home with Bassett galleries, and several
of its major customers.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26,2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Contribution to profit and overhead has deteriorated on a quarter to quarter
comparison due to losses sustained in closing the Dumas, Arkansas plant and a
deterioration of the sales base. The Company is implementing several operational
initiatives to improve results including cellular manufacturing and investments
in new cutting and sewing equipment.
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 first quarter of 2000
have been included as a component of other income.
The changes in "Other" operations from the first quarter of 2000 to the first
quarter of 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 $3.8 million for the first quarter ended
February 26, 2000 compared to $.4 million for the quarter ended February 27,
1999. The increase in 2000 was attributable to increased inventory levels
(timing of lumber purchases) and increases in accounts receivable (timing of
cash receipts), both due in part to the evolution of the Company's distribution
channels.
The Company invested $8.0 million in property and equipment in the first quarter
2000 for real estate, manufacturing equipment to improve productivity, and new
enterprise-wide information systems. Cash of $4.2 million was invested into the
new joint venture with LRG and no sales of investment securities took place in
the first quarter of 2000.
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 $19 million during the first
quarter of 2000.
Given this increase in borrowings, the Company is focusing on working capital
and its investing and financing activities. The Company has also begun
negotiations to increase its current revolving credit facility which should be
finalized in the third quarter of fiscal 2000.
The Company purchased and retired 195,000 shares of its Common Stock during the
first quarter of 2000. These purchases were part of the Company's stock
repurchase program, approved in fiscal 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 first
quarter of 2000 was $14.77, resulting in a total expenditure of $2.9 million.
The current ratio as of February 26, 2000 and November 27, 1999, respectively,
was 2.91 to 1 and 2.41 to 1. Working capital at February 26, 2000 was $91.6
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. Neither
inflation nor changing prices has had a material effect on the Company's
consolidated financial position and results of operations in prior years.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26,2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Year 2000:
April 2000 Update:
Through the first 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 thus far, however the Company remains vigilant in its testing and
preparations for any follow-on Year 2000 issues that may arise.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26,2000
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 $22 million at February
26, 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 $61 million at
February 26, 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.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26,2000
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. Important factors that could cause actual results to differ materially
from those contemplated by such forward-looking statements include:
o competitive conditions in the home furnishings industry
o general economic conditions that are less favorable than expected
o overall consumer demand for home furnishings
o timing and number of new BFD openings
o cost and availability of raw materials and labor
o information and technology advances, including Year 2000 issues
o effectiveness of marketing and advertising campaigns
o future tax legislation, or regulatory or judicial positions related to COLI
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PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
FEBRUARY 26, 2000
Item 4. Submission of matters to a vote of security holders The stockholders
were asked to vote on four proposals at the Annual Meeting of Stockholders held
on March 28, 2000: (1) election of nine directors, (2) proposal to approve the
BFI 2000 Employee Stock Purchase Plan, (3) proposal to amend the BFI 1993 Stock
Plan for nonemployee directors including an increase of 50,000 in the number of
shares of the Company's common stock available for issuance under the plan, and
(4) ratification of selection of Arthur Andersen LLP as independent public
accountants.
The results of the votes by the stockholders were as follows:
(1) Election of Directors:
Voted For Withheld
--------- --------
Paul Fulton 10,088,020 498,528
Amy W. Brinkley 10,087,520 499,028
Peter W. Brown M.D. 10,087,553 498,995
Thomas E. Capps 10,090,330 496,218
Willie D. Davis 10,087,820 498,728
Alan T. Dickson 10,089,272 497,276
Howard H. Haworth 10,088,020 498,528
Michael E Murphy 10,088,020 498,528
Robert H. Spilman Jr. 10,094,803 491,745
(2) Approval of 2000 Employee Stock Purchase Plan:
Voted for -9,407,415; against -484,329; abstained and broker non votes
-692,804
(3) Amendments to the Company's 1993 Stock Plan for Non-employee Directors:
Voted for - 9,082,870; against - 813,402; abstained and broker non votes -
690,276
(4) Ratification of Arthur Andersen LLP as independent public accountants:
Voted for - 9,782,346; against - 173,735; abstained and broker non votes
-630,467
Item 6.
a. Exhibits
(27) Financial Data Schedule
b. Reports on Form 8-K:
The Company filed Form 8-K on March 31, 2000, which announced the Company's
new CEO.
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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
April 11, 2000
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BASSETT FURNITURE INDUSTRIES INC.
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
27 Financial Data Schedule page 9
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