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 AUGUST 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 October 5, 2000, 11,772,854 shares of common stock of the Registrant were
outstanding.
1 of 16
2
PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE PERIODS ENDED AUGUST 26, 2000 AND AUGUST 28, 1999 - UNAUDITED
(Dollars in thousands except per share data)
Nine Months Ended Quarter Ended
------------------------------------- ------------------------------------
August 26, 2000 August 28, 1999 August 26, 2000 August 28, 1999
--------------- --------------- --------------- ---------------
Net sales $ 278,542 $ 291,885 $ 91,155 $ 88,803
Cost of sales 225,929 228,768 75,287 68,579
--------- --------- --------- ---------
Gross profit 52,613 63,117 15,868 20,224
Selling, general and administrative 44,573 53,072 13,606 17,209
--------- --------- --------- ---------
Income from operations 8,040 10,045 2,262 3,015
Other income, net 11,807 10,316 4,069 3,508
--------- --------- --------- ---------
Income before income taxes 19,847 20,361 6,331 6,523
Income taxes (6,309) (6,482) (2,026) (2,118)
Income before cumulative effect
of accounting change 13,538 13,879 4,305 4,405
Cumulative effect of accounting
change (net of income taxes of $171) (364) - - -
--------- --------- --------- ---------
Net income 13,174 13,879 4,305 4,405
Retained earnings-beginning of period 187,973 193,130 189,183 191,824
Cash dividends (7,142) (7,551) (2,354) (2,479)
Purchase and retirement of
common stock (2,871) (10,167) - (4,459)
--------- --------- --------- ---------
Retained earnings-end of period $ 191,134 $ 189,291 $ 191,134 $ 189,291
========= ========= ========= =========
Basic earnings per share:
Income before cumulative effect
of accounting change $ 1.14 $ 1.10 $ 0.37 $ 0.36
Cumulative effect of accounting change (0.03) - - -
--------- --------- --------- ---------
$ 1.11 $ 1.10 $ 0.37 $ 0.36
========= ========= ========= =========
Diluted earnings per share:
Income before cumulative effect
of accounting change $ 1.14 $ 1.10 $ 0.37 $ 0.36
Cumulative effect of accounting change (0.03) - - -
--------- --------- --------- ---------
$ 1.11 $ 1.10 $ 0.37 $ 0.36
========= ========= ========= =========
Dividends per share $ 0.60 $ 0.60 $ 0.20 $ 0.20
========= ========= ========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
2 of 16
3
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 26, 2000 AND NOVEMBER 27, 1999
(in thousands)
(Unaudited)
Assets August 26, 2000 November 27, 1999
- ---------------------------------------------------------------- --------------- -----------------
Current assets
Cash and cash equivalents $ 2,541 $ 5,740
Trade accounts receivable, net 70,968 64,731
Inventories, net 54,555 50,206
Other current assets 7,765 6,175
Refundable income taxes 1,006 1,006
Deferred income taxes 9,340 9,314
--------------- -----------------
Total current assets 146,175 137,172
--------------- -----------------
Property & equipment
Cost 236,484 227,439
Less accumulated depreciation 136,423 134,284
--------------- -----------------
Total property & equipment 100,061 93,155
--------------- -----------------
Other long-term assets
Investment securities 18,290 23,057
Investment in affiliated companies 78,881 67,558
Other 23,697 21,887
--------------- -----------------
Total other long-term assets 120,868 112,502
--------------- -----------------
Total assets $ 367,104 $ 342,829
=============== =================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 20,490 $ 30,122
Accrued liabilities 21,885 26,806
--------------- -----------------
Total current liabilities 42,375 56,928
--------------- -----------------
Long-term liabilities
Employee benefits 10,659 10,998
Notes Payable 51,500 18,000
Deferred income taxes 5,464 1,152
--------------- -----------------
Total long-term liabilities 67,623 30,150
--------------- -----------------
Stockholders' Equity
Common stock 58,864 60,474
Additional paid in capital - -
Retained earnings 191,134 187,973
Accumulated other comprehensive income -
unrealized holding gains, net of income tax effect 7,341 7,993
Unamortized stock compensation (233) (689)
--------------- -----------------
Total stockholders' equity 257,106 255,751
--------------- -----------------
Total liabilities and stockholders' equity $ 367,104 $ 342,829
=============== =================
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
3 of 16
4
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 26, 2000 AND AUGUST 28, 1999 - UNAUDITED
(in thousands)
2000 1999
---------- ----------
Net income $ 13,174 $ 13,879
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 7,454 6,090
Equity in undistributed income of affiliated companies (8,888) (8,405)
Provision for deferred income taxes 4,312 3,315
Net (gain) loss from sales of investment securities (1,585) (1,457)
Net (gain) loss from sales of property and equipment (175) -
Net (gain) loss from sales of affiliate investments (1,394) -
Compensation earned under restricted stock plan 180 180
Changes in long-term liabilities (339) (379)
Changes in operating assets and liabilities:
Trade accounts receivable (6,466) 113
Inventory (10,708) (7,176)
Prepaid expenses and other (1,786) (2,841)
Refundable income taxes - 5,651
Accounts payable and accrued liabilities (5,632) 1,888
---------- ----------
Net cash provided by (used in) operating activities (11,853) 10,858
---------- ----------
Investing activities:
Purchases of property and equipment (16,151) (38,153)
Proceeds from sales of property and equipment 1,330 1,023
Proceeds from sale of bedding division - 6,500
Proceeds from sales of affiliate investments 1,748 -
Proceeds from sales of investment securities 4,772 37,797
Investments in affiliated companies (4,200) (7,950)
Dividend from affiliate 2,000 5,448
Other, net (2,616) (3,477)
---------- ----------
Net cash (used in) investing activities (13,117) 1,188
---------- ----------
Financing activities:
Borrowings under notes payable 33,500 4,000
Issuance of common stock - 293
Repurchase of common stock (4,587) (13,409)
Cash dividends (7,142) (7,551)
---------- ----------
Net cash provided by (used in) financing activities 21,771 (16,667)
---------- ----------
Net change in cash and cash equivalents (3,199) (4,621)
Cash and cash equivalents, beginning of period 5,740 5,499
---------- ----------
Cash and cash equivalents, end of period $ 2,541 $ 878
========== ==========
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
4 of 16
5
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 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 August 26, 2000 and November 27, 1999 consisted of the
following:
August 26, November 27,
2000 1999
--------------------------------
Finished goods $ 48,664 $ 41,823
Work in process 8,578 9,880
Raw materials and supplies 23,317 17,881
Retail merchandise - 6,076
--------------------------------
Total inventories valued at first-in, first-out (FIFO) cost 80,559 75,660
LIFO adjustment (26,004) (25,454)
--------------------------------
Total inventories, net $ 54,555 $ 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 nine months ended August 26, 2000 and August 28, 1999 are as
follows:
2000 1999
-------------------------
Revenues $69,367 $34,624
Income from operations 19,440 26,505
Net income 8,189 8,404
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 its net assets and $.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
6
BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2000 (Dollars in thousands except share and per share data)
Note F. Comprehensive income:
For the quarters ended August 26, 2000, and August 28, 1999, total comprehensive
income was $3,851 and $4,151, respectively. Included in total comprehensive
income is net income of $4,305 and $4,405 and unrealized gains (losses), net of
tax of ($454) and ($254). Comprehensive income was $12,522 and $13,211,
consisting of net income of $13,174 and $13,879 and unrealized holding gains
(losses), net of tax of ($652) and ($668) for the nine month periods ended
August 26, 2000, and August 28, 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, The 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
7
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 26, 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 through 2006. The fair market value of this financial
instrument at August 26, 2000, was approximately $1.1 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:
Weighted
Average Earnings
Net Income Shares per share
-----------------------------------------------------
For the nine months ended August 26, 2000
- -----------------------------------------
Net Income available to common stockholders $ 13,538 11,837,375 $ 1.14
Add effect of dilutive securities:
Options and restricted stock - 2,951 -
-----------------------------------------------------
Diluted earnings per share $ 13,538 11,840,326 $ 1.14
=====================================================
For the quarter ended August 26, 2000
- -----------------------------------------
Net income available to common stockholders $ 4,305 11,741,230 $ 0.37
Add effect of dilutive securities:
Options and restricted stock - 9,987 -
-----------------------------------------------------
Diluted earnings per share $ 4,305 11,751,217 $ 0.37
=====================================================
For the nine months ended August 28, 1999
- -----------------------------------------
Net Income available to common stockholders $ 13,879 12,609,312 $ 1.10
Add effect of dilutive securities:
Options and restricted stock - - -
-----------------------------------------------------
Diluted earnings per share $ 13,879 12,609,312 $ 1.10
=====================================================
For the quarter ended August 28, 1999
- -----------------------------------------
Net income available to common stockholders $ 4,405 12,419,758 $ 0.36
Add effect of dilutive securities:
Options and restricted stock - - -
-----------------------------------------------------
Diluted earnings per share $ 4,405 12,419,758 $ 0.36
=====================================================
Options to purchase 1.8 and 1.4 million shares of common stock were outstanding
during the third quarters of 2000 and 1999, respectively, that could potentially
dilute basic EPS in the future.
7 of 16
8
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 26, 2000
(Dollars in thousands except share and per share data)
Note J. Segment Information:
Segment information for the periods ended August 26, 2000 and August 28, 1999
were as follows:
For the nine months ended August 26, 2000
Wood Upholstery Other Consolidated
----------------------------------------------------------------------
Net sales $195,353 $ 73,607 $ 9,582 $278,542
Operating income (loss) 28,226 6,508 (26,694) 8,040
Depreciation and amortization 3,768 621 3,065 7,454
Capital expenditures 4,931 2,014 9,206 16,151
For the nine months ended August 28, 1999
Wood Upholstery Other Consolidated
----------------------------------------------------------------------
Net sales $189,773 $ 77,655 $ 24,457 $291,885
Operating income (loss) 33,344 6,739 (30,038) 10,045
Depreciation and amortization 3,106 548 2,436 6,090
Capital expenditures 11,446 4,960 21,747 38,153
For the quarter ended August 26, 2000
Wood Upholstery Other Consolidated
----------------------------------------------------------------------
Net sales $ 62,551 $ 25,609 $ 2,995 $ 91,155
Operating income (loss) 7,482 2,224 (7,444) 2,262
Depreciation and amortization 1,208 213 947 2,368
Capital expenditures 728 315 1,383 2,426
For the quarter ended August 28, 1999
Wood Upholstery Other Consolidated
----------------------------------------------------------------------
Net sales $ 60,924 $ 22,535 $ 5,344 $ 88,803
Operating income (loss) 10,544 1,752 (9,281) 3,015
Depreciation and amortization 1,004 177 788 1,969
Capital expenditures 4,734 2,052 8,995 15,781
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 nine months 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.
Note K. Subsequent Event:
After the end of the third quarter of 2000, the Company agreed to enter into a
new credit facility led by Branch Banking & Trust (BB&T), replacing an existing
facility with another bank. The new facility will provide for a 3 year, $70
million revolving credit line tied to and secured by receivables and inventory.
The borrowing rates are expected to range from LIBOR plus 0.625 to LIBOR plus
1.375 based on the Company's debt ratio, as defined.
8 of 16
9
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 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 -Periods ended August 26, 2000 compared with periods ended
August 28, 1999
In the third quarter of 2000 Bassett reported $91.2 million in sales, an
increase of 2.6% from the $88.8 million reported for the third quarter of 1999.
This increase is due entirely to the growth of the Company's BFD stores; four
new stores were opened in third quarter 2000. Sales for the nine months ended
August 26, 2000 were $278.5 million versus $291.9 million for the nine months
ended August 28, 1999, reflecting a decline of 4.6%. This decline was due
partially to the disposal of certain businesses. In April of 1999, the Company
sold its Bedding Division, which had revenues of $11.9 million for the nine
months ended August 28, 1999. 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 $1.8 million for third quarter of
1999 and $3 million for the first nine months of 1999. On a comparable sales
basis, sales were only $86.8 million in third quarter of 1999 and $277 million
for the first nine months of 1999, reflecting an increase of 5.1% for the
quarter and a marginal increase of 0.5% year to date. The growth of BFD stores
has more than offset the recent softening in retail furniture demand and
disruptions earlier in the year associated with the Company-wide software
implementation.
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 nine months ended August 26, 2000 and August 28, 1999:
For the Nine Months Ended For the Quarter Ended
August 26, 2000 August 28, 1999 August 26, 2000 August 28, 1999
-------------------------------------------- ---------------------------------------
Gross margin 18.9% 21.6% 17.4% 22.8%
S,G&A 16.0% 18.2% 14.9% 19.4%
Operating income 2.9% 3.4% 2.5% 3.4%
Overall gross margin decreased by 5.4 percentage points from 22.8% in the third
quarter of 1999 to 17.4% in the third quarter of 2000. This decrease is due
primarily to issues within the Wood Division relating to lumber prices, product
mix and production schedules, as discussed in the following segment information.
For the nine months ended August 26, 2000, gross margins decreased by 2.7
percentage points from 21.6% in the first nine months of 1999 to 18.9%, a
decline of 12.5%. Gross margins were also negatively impacted in the first nine
months of 2000 due to lower than expected margins 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 bedding division,
the LRG joint venture and the costs of the new dining table top plant, gross
margins would have been down by only 2.9 percentage points on a quarter to
quarter comparison, and down by only 1.5 percentage points for the first nine
months of 2000 as compared to the same period in 1999. The Company continually
evaluates both its pricing practices and its labor and overhead cost structure
in an effort to improve its overall gross margin. Through consolidation of
the management of four wood plants in the Bassett area, approximately 40
salaried manufacturing positions were eliminated and further hourly position
reductions are expected to take place through normal attrition which will
directly affect future gross margins. Also, plans have begun for a new
centralized distribution center in Martinsville, VA to facilitate complete
on-time deliveries and improved customer service.
S,G&A expenses decreased in the third quarter from 19.4% in 1999 to 14.9% in
2000. For the nine months ended August 26, 2000, S,G&A expenses were 16.0%
versus 18.2% for the nine months ended August 28, 1999, reflecting a decrease of
2.2 percentage points. 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 decrease from 16.9% of sales for the first nine months of 1999 to
16% in the first nine months of 2000, due to tighter control over discretionary
spending. The Company plans to continue to target its marketing and
9 of 16
10
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 26, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
advertising spending to drive future sales growth. Additionally, approximately
20 salaried administrative positions were eliminated in administrative
consolidations. Management currently estimates S,G&A spending of approximately
15-16% of wholesale furniture sales over the next three years.
Other income increased to $4.1 million in the third quarter 2000 from $3.5
million in the third quarter 1999 and to $11.8 million for first nine months of
2000 from $10.3 million in the first nine months of 1999. The increase in 2000
was due primarily to continued strong returns on affiliate investments. A $1.4
million gain was recognized in the first quarter of 2000 on the termination of
an equity index collar and an additional $1.4 million gain was recognized in the
third quarter on the sales of certain affiliate and equity investments. These
results were partially offset by both the Company's share of losses in the LRG
joint venture ($3.6 million for the nine months ended August 26, 2000) and by
interest expense on outstanding notes payable ($2.4 million for the nine
months ended August 26, 2000). Management expects other income will continue to
be an integral component of the Company's future earnings.
The effective tax rate for the quarter and year to date approximated 32%, nearly
equal to that of last year, and still lower than the statutory federal income
tax rate due to exclusions for tax exempt income.
For the quarter and nine months ended August 26, 2000, income before cumulative
effect of the accounting change was $4.3 million or $.37 per diluted share and
$13.5 million or $1.14 per diluted share, respectively. This reflects a decrease
of 2.3% from the third quarter of 1999 and 2.5% from the first nine 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 $4.3 million or $.37 per diluted
share for the quarter and $13.2 million or $1.11 per diluted share for the first
nine months of 2000, compared to $4.4 million or $.36 per diluted share for the
quarter ended August 28, 1999 and $13.9 million or $1.10 per diluted share for
the nine months ended August 28, 1999.
Segment Information
The following is a discussion of operating results for each of Bassett's
business segments.
For the Nine Months Ended Quarter Ended
Wood Division August 26, 2000 August 28, 1999 August 26, 2000 August 28, 1999
--------------------------------------- --------------------------------------
Net sales $ 195,353 $ 189,773 $ 62,551 $ 60,924
Contribution to
profit and overhead $ 28,226 $ 33,344 $ 7,482 $ 10,544
Wood Division net sales increased by 2.7% in the third quarter 2000 and 2.9% in
the first nine months of 2000 due to the increased number of BFD stores. Sales
growth should be bolstered in the fourth quarter, as the Company expects to open
four additional BFD stores and eleven 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 17.3% of sales in
the third quarter of 1999 to 12% of sales in the third quarter of 2000, and from
17.6% to 14.4% for the nine months ended August 26, 2000. Several factors
contributed to the margin decline. Lumber prices increased by approximately 25%
on certain species in the first six months of 2000; however, lumber prices have
softened going into the second half of the year. Due to a build up of working
capital in the first half of the year, the Company initiated an Inventory
Reduction Program in the third quarter, which resulted in a higher percentage of
closeout sales and reduced production schedules.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
10 of 16
11
AUGUST 26, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
These reduced production schedules resulted in inefficiencies and excess
overhead capacities which significantly impacted margins for the quarter and
have led to the cost reduction actions previously discussed which were taken in
September of 2000.
Sales of the Company's import products nearly doubled from the first nine months
of 1999 to the first nine months of 2000, favorably impacting sales and
profitability for the Wood Division. In addition, there were approximately $0.9
million of losses related under utilization of the Company's new Dining
Table Top plant located in Martinsville, Virginia.
For the Nine Months Ended Quarter Ended
Upholstery Division August 26, 2000 August 28, 1999 August 26, 2000 August 28, 1999
---------------------------------------- -----------------------------------------
Net sales $ 73,607 $ 77,655 $ 25,609 $ 22,535
Contribution to profit
and overhead $ 6,508 $ 6,739 $ 2,224 $ 1,752
Net sales for the Upholstery Division have increased quarter to quarter by
13.6%, but decreased from the first nine months of 1999 to the first nine months
of 2000 by 5.2%. The Company continues its repositioning of this segment and
refinement of product offerings. Certain key large accounts experienced sales
declines for the first half 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 (opening four in fourth quarter 2000), its At Home with Bassett
galleries, and several of its major customers.
Contribution to profit and overhead for the Upholstery Division has grown from
7.8% of sales in the third quarter of 1999 to 8.7% 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 nine
months ended August 26, 2000, the division's contribution percentage has
increased slightly from 8.7% of sales in the first nine months of 1999 to 8.8%
in the first nine 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 August 26,
2000 have been included as a component of other income.
The changes in "Other" operations from the periods ended August 28, 1999, to the
periods ended August 26,2000, 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 $11.9 million for the first nine months of
2000 compared to net cash provided of $10.9 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. Although inventory levels
decreased by nearly $6 million for the third quarter 2000, overall inventories
have still increased for the year due 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 nine months of the year. While
accounts receivable have remained flat for the quarter, in the first nine months
of 2000, accounts receivable have increased due to the shift in the Company's
sales distribution (towards BFD's), as well as repercussions from the slow
payment of certain significant customers.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 26, 2000
11 of 16
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The Company invested $16.2 million for the nine months ended August 26, 2000,
for real estate, manufacturing equipment to improve productivity, and new
enterprise-wide information systems, as compared to $38.2 million for the nine
months ended August 28, 1999. This decrease of $22 million is due to less real
estate expenditures versus 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. To generate additional cash for
the quarter, the Company sold $1.7 million of certain affiliate investments,
received $2 million in dividends from affiliated companies and sold equity
securities totaling $2.5 million. Year-to-date equity security sales total $4.8
million in fiscal 2000 compared to $37.8 million for the nine months ended
August 28, 1999, reflecting management's decision to finance its growth plans
with external borrowings.
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 $33.5 million for the nine
months ended August 26, 2000. Through the first half of the year, the Company
borrowed $32.5 million, but due to the Inventory Reduction Program implemented
in the third quarter, only $1 million was borrowed during third quarter 2000.
The increase in borrowings was used to fund the increase in working capital and
the capital expenditures discussed above. Subsequent to the end of the third
quarter, the Company signed a letter of intent to change lenders and will be
finalizing a new $70 million revolving credit facility in October.
The Company continues to focus 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 purchased and retired 321,000 shares of its Common Stock during the
first nine 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 nine months of 2000 was
$14.33, resulting in a total expenditure of $4.6 million. As of August 26, 2000,
the Company has completed approximately 67% of its current repurchase plan.
The current ratio as of August 26, 2000 and November 27, 1999, respectively, was
3.45 to 1 and 2.41 to 1. Working capital at August 26, 2000 was $103.8 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.
12 of 16
13
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 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 $18.3 million at August
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 through 2006.
The Company's investment in a limited partnership, which totaled $65.2 million
at August 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.
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
- - effectiveness of marketing and advertising campaigns
- - future tax legislation, or regulatory or judicial positions related to COLI
13 of 16
14
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
AUGUST 26, 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
14 of 16
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
October 10, 2000
15 of 16
16
BASSETT FURNITURE INDUSTRIES INC.
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
27 Financial Data Schedule page 9
16 of 16