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 26, 2001
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. 1 was filed May 26, 2001, subsequent to the March 31,
2001, filing date to include the audited financial statements of the Bassett
Industries Alternative Asset Fund, LP (BIAAF), a significant affiliate of the
company, which has a fiscal year end of December 31, which is different than the
Company's fiscal year end. No other changes were made to the 10-K.
At July 9, 2001, 11,735,098 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 PERIODS ENDED MAY 26, 2001 AND MAY 27, 2000 - UNAUDITED
(Dollars in thousands except per share data)
Six Months Ended Quarter Ended
-------------------------------- ---------------------------------
May 26, 2001 May 27, 2000 May 26, 2001 May 27, 2000
--------------- --------------- --------------- ----------------
Net sales $ 156,318 $ 187,347 $ 73,765 $ 92,366
Cost of sales 130,666 150,876 62,672 74,468
--------------- --------------- --------------- ----------------
Gross profit 25,652 36,471 11,093 17,898
Selling, general and administrative 26,923 30,356 13,722 15,063
Gain on sale of property and equipment (3,028) - - -
Restructuring and impaired fixed asset charges 2,666 - 819 -
--------------- --------------- --------------- ----------------
Operating income (loss) (909) 6,115 (3,448) 2,835
Other income, net 3,355 7,462 2,677 3,804
--------------- --------------- --------------- ----------------
Income (loss) before income taxes 2,446 13,577 (771) 6,639
Income taxes (732) (4,344) 233 (2,124)
--------------- --------------- --------------- ----------------
Income (loss) before cumulative effect
of accounting change 1,714 9,233 (538) 4,515
Cumulative effect of accounting
change (net of income taxes of $171) - (364) - -
--------------- --------------- --------------- ----------------
Net income (loss) $ 1,714 $ 8,869 $ (538) $ 4,515
--------------- --------------- --------------- ----------------
Retained earnings-beginning of period 185,293 187,973 185,028 188,040
Cash dividends (4,690) (4,788) (2,344) (2,395)
Purchase and retirement of
common stock (205) (2,871) (34) (977)
--------------- --------------- --------------- ----------------
Retained earnings-end of period $ 182,112 $ 189,183 $ 182,112 $ 189,183
=============== =============== =============== ================
Basic earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.15 $ 0.78 $ (0.05) $ 0.38
Cumulative effect of accounting change - (0.03) - -
--------------- --------------- --------------- ----------------
Net income (loss) per share $ 0.15 $ 0.75 $ (0.05) $ 0.38
=============== =============== =============== ================
Diluted earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.15 $ 0.78 $ (0.05) $ 0.38
Cumulative effect of accounting change - (0.03) - -
--------------- --------------- --------------- ----------------
Net income (loss) per share $ 0.15 $ 0.75 $ (0.05) $ 0.38
=============== =============== =============== ================
Dividends per share $ 0.40 $ 0.40 $ 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
MAY 26, 2001 AND NOVEMBER 25, 2000
(in thousands)
(Unaudited)
Assets May 26, 2001 November 25, 2000
- ----------------------------------------------------------------- ------------------- -------------------------
Current assets
Cash and cash equivalents $ 3,712 $ 3,259
Trade accounts receivable, net 56,537 70,309
Inventories, net 40,086 50,201
Other current assets 6,419 6,069
Refundable income taxes 580 580
Deferred income taxes 6,457 6,457
------------------- -------------------------
Total current assets 113,791 136,875
------------------- -------------------------
Property & equipment
Cost 234,112 230,043
Less accumulated depreciation 137,453 136,071
------------------- -------------------------
Total property & equipment 96,659 93,972
------------------- -------------------------
Other long-term assets
Investment securities 12,713 15,043
Investment in affiliated companies 46,646 69,972
Deferred income taxes 3,726 2,061
Other 32,907 28,757
------------------- -------------------------
Total other long-term assets 95,992 115,833
------------------- -------------------------
Total assets $ 306,442 $ 346,680
=================== =========================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 13,633 $ 20,310
Accrued liabilities 20,438 21,583
------------------- -------------------------
Total current liabilities 34,071 41,893
------------------- -------------------------
Long-term liabilities
Employee benefits 10,534 10,647
Notes Payable 17,000 45,000
------------------- -------------------------
Total long-term liabilities 27,534 55,647
------------------- -------------------------
Commitments and Contingencies (Notes D and G)
Stockholders' Equity
Common stock 58,655 58,824
Additional paid-in capital - -
Retained earnings 182,112 185,293
Accumulated other comprehensive income -
unrealized holding gains, net of income tax effect 4,379 5,418
Unamortized stock compensation (309) (395)
------------------- -------------------------
Total stockholders' equity 244,837 249,140
------------------- -------------------------
Total liabilities and stockholders' equity $ 306,442 $ 346,680
=================== =========================
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 SIX MONTHS ENDED MAY 26, 2001 AND MAY 27, 2000 - UNAUDITED
(in thousands)
2001 2000
------------- -------------
Net income $ 1,714 8,869
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 5,544 5,086
Equity in undistributed income of affiliated companies (3,214) (6,785)
Provision for write-down of property and equipment 1,600 -
Provision for deferred income taxes (1,665) 2,601
Net gain from sales of investment securities (914) (464)
Net gain from sales of property and equipment (3,028) (175)
Net (gain) loss on financial instrument (448) -
Compensation earned under restricted stock plan 86 397
Changes in operating assets and liabilities:
Trade accounts receivable 10,272 (6,311)
Inventory 10,115 (16,506)
Other current assets 188 (1,819)
Accounts payable and accrued liabilities (7,374) (2,543)
Long-term liabilities (113) $ (279)
------------- -------------
Net cash provided by (used in) operating activities $ 12,763 $ (17,929)
------------- -------------
Investing activities:
Purchases of property and equipment (10,527) (12,725)
Proceeds from sales of property and equipment 3,828 178
Dividends from affiliated companies 26,809 -
Proceeds from sales of investment securities 1,621 2,208
Investments in affiliated companies - (4,200)
Other, net (977) 4,007
------------- -------------
Net cash provided by (used in) investing activities $ 20,754 $ (10,532)
------------- -------------
Financing activities:
Borrowings (repayments) under notes payable (28,000) 32,500
Issuance of common stock 176 104
Repurchase of common stock (550) (4,587)
Cash dividends (4,690) (4,788)
------------- -------------
Net cash provided by (used in) financing activities (33,064) 23,229
------------- -------------
Net change in cash and cash equivalents 453 (5,232)
Cash and cash equivalents, beginning of period 3,259 5,740
------------- -------------
Cash and cash equivalents, end of period $ 3,712 $ 508
============= =============
Noncash transaction:
Conversion of accounts receivable to notes receivable of $3,500
from an affiliated company in 2001
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
MAY 26, 2001 (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 accounting principles generally
accepted in the United States 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 wholly-owned
subsidiaries. The equity method of accounting is used for the Company's
investment in affiliated companies in which the Company exercises significant
influence but does not maintain control.
Note B. 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, wrote 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 C. Inventories:
Inventories are carried at last-in, first-out (LIFO) cost, which is not in
excess of market. Inventories at May 26, 2001 and November 25, 2000 consisted of
the following:
May 26, November 25,
2001 2000
-----------------------------
Finished goods $ 41,966 $ 50,563
Work in process 5,519 8,708
Raw materials and supplies 18,201 18,368
-----------------------------
Total inventories on first-in, first-out cost method 65,686 77,639
LIFO adjustment (25,600) (27,438)
-----------------------------
Total inventories, net $ 40,086 $ 50,201
=============================
Note D. 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 26, 2001 and May 27, 2000 are as
follows:
2001 2000
-------------------------
Revenues $ 61,315 $ 47,838
Income from operations 12,330 14,558
Net income 3,376 10,159
LRG Furniture, LLC (LRG), an affiliated company, incurred start-up related
losses in fiscal 2000 and although additional losses have been incurred in the
first half 2001, operating performance has improved over fiscal 2000. In
addition, the Company has outstanding accounts and notes receivable from LRG and
has leases and loan guarantees with LRG. The Company has committed to provide
financial support to LRG, as needed, over the next two years.
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BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
May 26, 2001(Dollars in thousands except share and per share data)
Note E. Comprehensive income:
For the quarters ended May 26, 2001, and May 27, 2000, total comprehensive
income (loss) was ($983) and $5,136, respectively. Included in total
comprehensive income (loss) are net income (loss) of ($538) and $4,515 and
unrealized gains (losses), net of tax of ($445) and $621. Comprehensive income
was $675 and $8,671, consisting of net income of $1,714 and $8,869 and
unrealized holding losses, net of tax of ($1,039) and ($198) for the six month
periods ended May 26, 2001, and May 27, 2000, respectively.
Note F. Restructuring and Impaired Fixed Asset Charges:
During fiscal year 2000, a decision was made to consolidate wood manufacturing
operations at two of the Company's facilities in Bassett, VA. These
restructuring activities continued in the first half of 2001 and included moving
production from one facility to another. One wood manufacturing facility, which
was identified for closure in the first quarter of 2001, was closed in the
second quarter of 2001, and all operations were absorbed by one of the remaining
facilities. In addition, several corporate office positions were eliminated in
the second quarter of 2001. All of these restructuring activities will result in
the elimination of approximately 600 positions. The following summarizes first
half 2001 restructuring:
Nov 25, May 26,
2000 First Second FY 2001 2001
reserve quarter Fixed asset quarter reserves reserve
balance charges write-down charges utilized balance
----------- ----------- --------------- -------------- ------------- ------------
Non-cash writedown
of property and
equipment to
net realizable value $ - $ 1,600 $ (1,600) $ - $ - $ -
Severance and related
employee benefit
costs 492 247 - 819 (938) 620
----------- ----------- --------------- -------------- ------------- ------------
$ 492 $ 1,847 $ (1,600) $ 819 $ (938) $ 620
=========== =========== =============== ============== ============= ============
The fixed asset writedown was entirely related to closing one facility in
Bassett, Virginia. Production and many of the employees from this facility were
transferred to another manufacturing facility in Bassett, Virginia.
Note G. Contingencies:
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.
The IRS has received favorable rulings on the non-deductibility of COLI loan
interest. Management understands that these rulings 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 legal and environmental matters,
which arise in the normal course of business. Although the final outcome of
these 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.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001 (Dollars in thousands except share and per share data)
Note H. Financial Instruments:
In 1999, the company entered into an equity collar arrangement in order to
reduce its exposure to fluctuations in its investment portfolio. In the first
quarter of 2000, the Company terminated this particular financial instrument and
recognized a gain of $1,366, which is included in other income in the accompany
consolidated statements of income, and entered into a new financial instrument
which more clearly correlates to its equity portfolio. In the second quarter of
2001, the Company terminated this equity collar arrangement, at a cost of
approximately $150.
The Company adopted the provisions of SFAS No. 133, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," in 2001 and has
determined that the impact of adopting this statement is immaterial.
Note I. Earnings per share:
The following reconciles basic and diluted earnings per share before cumulative
effect of accounting change:
Weighted
Average Earnings (loss)
Net Income (loss) Shares per share
------------------------------------------------------
For the six months ended May 26, 2001
- --------------------------------------------------------
Net income available to common stockholders $ 1,714 11,704,023 $ 0.15
Add effect of dilutive securities:
Options and restricted stock - 7,272 -
------------------------------------------------------
Diluted earnings per share $ 1,714 11,711,295 $ 0.15
======================================================
For the quarter ended May 26, 2001
- --------------------------------------------------------
Net loss available to common stockholders $ (538) 11,698,397 $ (0.05)
Add effect of dilutive securities:
Options and restricted stock - 10,780 -
------------------------------------------------------
Diluted loss per share $ (538) 11,709,177 $ (0.05)
======================================================
For the six months ended May 27, 2000
- --------------------------------------------------------
Net 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
======================================================
For the quarter ended May 27, 2000
- --------------------------------------------------------
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
======================================================
Options to purchase 1.7 million shares of common stock were outstanding during
the second quarters of both 2001 and 2000 that could potentially dilute basic
EPS in the future.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
(Dollars in thousands except share and per share data)
Note J. Segment Information:
Segment information for the periods ended May 26, 2001 and May 27, 2000 were as
follows:
For the six months ended May 26, 2001
Wood Imports Upholstery Other Consolidated
------------------------------------------------------------------------------------
Net sales $ 90,818 $ 15,990 $ 44,269 $ 5,241 $ 156,318
Operating income (loss) 8,166 3,587 4,097 (16,759) (909)
Depreciation and amortization 2,231 - 500 2,813 5,544
Capital expenditures 1,049 - 181 9,297 10,527
For the quarter ended May 26, 2001
Wood Imports Upholstery Other Consolidated
--------------------------------------------------------------------------------
Net sales $ 42,243 $ 7,344 $ 22,027 $ 2,151 $ 73,765
Operating income (loss) 2,435 1,629 1,937 (9,449) (3,448)
Depreciation and amortization 1,140 - 223 1,397 2,760
Capital expenditures 497 - 69 4,617 5,183
For the six months ended May 27, 2000
Wood Imports Upholstery Other Consolidated
------------------------------------------------------------------------------------
Net sales $ 117,462 $ 15,340 $ 47,998 $ 6,547 $ 187,347
Operating income (loss) 16,998 3,818 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
For the quarter ended May 27, 2000
Wood Imports Upholstery Other Consolidated
--------------------------------------------------------------------------------
Net sales $ 57,598 $ 7,725 $ 23,551 $ 3,492 $ 92,366
Operating income (loss) 8,323 1,820 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
The Company's other businesses consist of a contemporary furniture business
(Weiman), showroom, real estate, gain on sale of property and equipment,
restructuring and corporate operations, all included to reconcile segment
information to the Condensed Consolidated Financial Statements. Corporate
operations include overhead spending for accounting, marketing, information
technologies, selling and general expenses. Operating income by business segment
is defined as sales less direct operating costs and expenses.
Beginning in the first quarter of 2001, the results of the Import Division are
reported separately in the segment information. For prior reporting, the results
of the Import Division were included in the Wood Division.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
(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 26, 2001 compared with periods ended
May 27, 2000
In the second quarter of 2001 the Company reported $73,765 in net sales, a
decline of 20% from the $92,366 reported for the second quarter of 2000. The
decline in sales is primarily the result of a continued soft retail sector and
the loss of two major customers to bankruptcy in late 2000. For the first half
of 2001, sales have declined by 16% compared to the same period in the prior
year. In response to these current business conditions, the Company continues to
focus on four key areas which are: expanding the Bassett Furniture Direct (BFD)
and @Home with Bassett (@Home) programs, providing better service levels,
reducing working capital and reducing its fixed cost structure.
The transition of the Company's distribution channels continued into the second
quarter of 2001 as nearly 46% of total Company sales were through proprietary
channels compared to only 40% in the first half of 2000. Sales to the BFD and
@Home channels increased by 5% in the first half of 2001 compared to the first
half of 2000. During the first half of 2001, five BFD stores were opened,
bringing the total BFD's open at the end of the quarter to 61. Also in the first
half, 18 @Home's were opened or converted from existing galleries, bringing the
total @Home's to 176 by the end of the second quarter.
Gross margin; gain on sale of property and equipment; restructuring and
impaired asset charges; selling, general and administrative (S,G&A) expenses;
and operating income (loss) as a percentage of net sales were as follows for the
quarters and six months ended May 26, 2001 and May 27, 2000:
For the Six Months Ended For the Quarter Ended
May 26, 2001 May 27, 2000 May 26, 2001 May 27, 2000
----------------------------- ------------------------------
Gross margin 16.4% 19.5% 15.0% 19.4%
Gain on sale of property and equipment 1.9% - - -
Restructuring and impaired fixed asset charges 1.7% - 1.1% -
S,G&A 17.2% 16.2% 18.6% 16.3%
Operating income (loss) (0.6%) 3.3% (4.7%) 3.1%
The decrease in gross margin compared to the prior year for both the second
quarter 2001 and the six month period ended May 26, 2001, was primarily a result
of reduced production levels, the costs related to transitioning product from
one wood plant to another, and the lower margins resulting from liquidating
certain finished goods inventories. In response, the Company continues to
aggressively reduce costs across the Company and restructure manufacturing
capacities through plant consolidations. The consolidation of the
table plant in the Wood Division and the transfer of occasional tables to
another facility were completed during the second quarter of 2001.
Included in operating income for the six months ended May 26, 2001 was a
one-time gain of $3,028 on the sale of its former showroom in Thomasville, North
Carolina, during the first quarter of 2001.
In late 2000, the Company made a decision to consolidate production in the Wood
Division. As a result of this decision, the Company incurred $247 in related
restructuring expenses during the first quarter of 2001 in addition to those
charged in fiscal year 2000. Also during the first quarter of 2001, additional
restructuring activities, which include further consolidation within the Wood
Division, resulted in a charge of $1,600 related to the writedown of property
and equipment. This writedown was entirely related to closing one facility in
Bassett, Virginia. Production and many of the employees from this facility were
transferred to another manufacturing facility in Bassett, Virginia. The Company
incurred additional charges in the second quarter of 2001 as a result of these
first quarter consolidations and related reductions in corporate office
staffing, of approximately $819. These charges were primarily severance and
other employee benefit costs.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
S,G&A expenses increased as a percentage of sales for the second quarter of
fiscal 2000 due to the relative amount of fixed expenses to the reduced sales
levels. However, the Company's total SG&A spending decreased from $15,063 in the
second quarter of 2000 to $13,722 for the second quarter of 2001. For the six
month period, SG&A spending is down 11% from the prior year level. The Company
continues to closely monitor discretionary spending and adjust to current sales
demands with spending reductions in corporate overhead and marketing. Management
is committed to reducing costs and has targeted S,G&A spending to approximate
15% of net sales over the next three years.
Other income declined slightly in the second quarter of 2001, $2,677 compared to
$3,804 for the second quarter 2000 due primarily to reduced earnings from the
Company's investment in a limited partnership. For the six month period ended
May 26, 2001, other income is well below prior year levels for two key reasons:
a large gain on a financial instrument which was recorded in the first quarter
of 2000, and lower earnings from the Company's investment in a limited
partnership and from affiliated investments in the first half of 2001. The
reduced affiliated earnings in 2001 was partially the result of an affiliate's
recognition of an extraordinary loss related to the early extinguishment of debt
during the first quarter. Included in other income are the Company's regular
investment earnings, earnings from its equity in undistributed income of
affiliated companies and interest expense. Other income is expected to continue
to be an integral component of the Company's future earnings.
The effective tax rate was 30% in the first half of 2001 compared to 31% in the
first half of 2000. The effective tax rates are lower than the statutory federal
income tax rate due to exclusions for tax exempt income.
For the quarter ended May 26, 2001, the net loss was $538 or $.05 per diluted
share, compared to net income of $4,515 or $.38 per diluted share for the
quarter ended May 27, 2000. For the six months ended May 26, 2001, net income
was $1,714 or $.15 per diluted share, compared to $8,869 or $.75 per diluted
share for the six months ended May 27, 2000.
Segment Information
The following is a discussion of operating results for each of Bassett's
business segments.
For the Six Months Ended Quarter Ended
Wood Division May 26, 2001 May 27, 2000 May 26, 2001 May 27, 2000
---------------------------------- ----------------------------------
Net sales $ 90,818 $ 117,462 $ 42,243 $ 57,598
Contribution to profit
and overhead $ 8,166 $ 16,998 $ 2,435 $ 8,323
Wood Division net sales decreased in both the second quarter 2001 and for the
six months ended May 26, 2001, compared to the second quarter and first half
2000 results, due to import pressures, the loss of two major customers, and the
soft retail furniture environment. Sales and production levels were at near
breakeven levels after allocating corporate overhead for the first half of 2001.
In an effort to improve sales and margins in this segment, the Company is
introducing new products, opening more BFD and @Home stores, repositioning the
division through cost reduction and continuous improvement initiatives, as well
as improving 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. Wood Division
contribution to profit and overhead dropped from 14.4% of net sales in the
second quarter of 2000 to 5.8% of net sales in the second quarter of 2001,
primarily as a result of lower sales and production levels and sales of
discontinued inventories at lower margins. These same factors impacted six month
results for 2001 compared to 2000. In order to improve performance, the Company
has closed one facility and consolidated production of two manufacturing
facilities in the Wood Division. These changes will improve labor efficiencies
and decrease the overall cost structure of the division
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
by approximately $15 million on an annualized basis. These changes better
position the manufacturing capacity of the division with current business
demands in addition to providing for future profitability improvement.
For the Six Months Ended Quarter Ended
Import Division May 26, 2001 May 27, 2000 May 26, 2001 May 27, 2000
---------------------------------- ----------------------------------
Net sales $ 15,990 $ 15,340 $ 7,344 $ 7,725
Contribution to profit
and overhead $ 3,587 $ 3,818 $ 1,629 $ 1,820
Beginning in the first quarter of 2001, the results of the Import Division are
reported separately in the segment information. For prior reporting, the results
of the Import Division were included in the Wood Division.
Net sales for the Import Division declined somewhat during the second quarter
but still have increased 4.2% in the first half of 2001 compared to the first
half of 2000. The Company expects the sales of this segment to increase, which
should, in turn, increase the Company's overall gross margin. The products of
the Import Division will continue to supplement the product offerings of the
other divisions, as well as include complete suites of bedroom and dining room
furniture.
Import Division contribution to profit and overhead decreased from 24.9% of net
sales in the first half of 2000 to 22.4% of net sales in 2001. The decrease was
a result of an increase in freight, handling and related overhead costs for the
division. The expected sales growth of this segment requires the Company to
focus more attention on forecasting and purchasing practices, inventory
management, logistics and quality.
For the Six Months Ended Quarter Ended
Upholstery Division May 26, 2001 May 27, 2000 May 26, 2001 May 27, 2000
---------------------------------- ---------------------------------
Net sales $ 44,269 $ 47,998 $ 22,027 $ 23,551
Contribution to profit
and overhead $ 4,097 $ 4,109 $ 1,937 $ 2,191
Net sales for the Upholstery Division have declined by 7.8% for the first half
2001 compared to the first half 2000, primarily due to the loss of a major
customer to bankruptcy in late 2000. Management also decided to exit certain
distribution channels, which were incompatible with the Bassett brand image and
the Company's current primary channels of distribution. This trend was similar
in the second quarter of 2001 and has been somewhat offset by sales increases of
upholstery products in the BFD stores. The Company is focusing upholstery
distribution on its BFD stores, its @ Home with Bassett galleries, and several
of its major customers.
Contribution to profit and overhead increased from 8.6% of net sales for the
first half of 2000 to 9.3% of net sales for the first half of 2001. Increases
were due to the consolidation of several manufacturing facilities over the last
two years, continuation of efforts to control labor and overhead spending, the
decision to exit certain distribution channels, introduction of new products and
the implementation of several operational initiatives. These include cellular
manufacturing and investments in new cutting and sewing equipment. The Company
plans additional profit improvements for the Upholstery Division through sales
growth of new products at higher margins and the related absorption efficiencies
resulting from increased sales and production levels.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources
Cash provided by operating activities was $12,763 for the six months ended May
26, 2001, compared to cash used in operating activities of $20,754 for the six
months ended May 27, 2000. This significant improvement in 2001 was due entirely
to the Company's initiatives to lower working capital levels, especially its
inventories and receivables. Some of these initiatives include better planning
and forecasting, improved purchasing practices, discounting of slow-moving
inventories, and more effective collection efforts. The current ratio as of May
26, 2001, and November 25, 2000, respectively, was 3.34 to 1 and 3.27 to 1.
Working capital at May 26, 2001, was $79,720 compared to $94,982 at November 25,
2000. 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 have had a material
effect on the Company's consolidated financial position and results of
operations in recent years.
The Company invested $10,527 in property and equipment in the first six months
of 2001 for manufacturing equipment, retail real estate, the build out of its
new leased showroom, and computer related equipment for information systems.
During the first quarter of 2001, the Company realized proceeds of $3,828 on the
sale of its former showroom in Thomasville, North Carolina. The Company also
received a special dividend from an affiliated company of $25,059, which was
primarily utilized to reduce the Company's overall debt position. A separate
dividend was received in the second quarter of $1,750 from the Company's
investment in a limited partnership.
During 2000, the Company entered into a three-year $70,000 revolving credit
facility with a new lender and three other participants. During the first half
of 2001, the Company has repaid $28,000 of this facility, principally by
applying the special dividend from an affiliate, bringing the balance at the end
of the second quarter to $17,000. The Company does not expect to substantially
increase its level of borrowings in fiscal year 2001, as it expects to continue
to lower inventory levels and sell certain nonproductive assets.
The Company purchased and retired 50,500 shares of its Common Stock for $550
during the first half of 2001. These purchases were part of the Company's stock
repurchase program, approved in fiscal 1998, which allows the Company to
repurchase up to $40,000 in Company stock. Also the Company made two dividend
payments during the first half of 2001 totaling $4,690.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
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 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 totaled $12,713 at May 26, 2001. The
portfolio is diversified among over twenty different medium to large
capitalization interests. Although there are no maturity dates for the
Company's equity investments, management has plans to liquidate its current
equity portfolio on a scheduled basis over the next four years. The Company
terminated a hedge instrument during the second quarter of 2001 and does not
currently plan to enter into any new hedge instruments.
The Company's investment in a limited partnership totaled $59,114 at May 26,
2001. The partnership 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
Certain statements contained in this discussion with respect to the financial
condition, results of operations and business of Bassett Furniture Industries,
Incorporated, particularly those preceded by, followed by or including the
words "will", "should", "targeted", "believes," "expects," "anticipates,"
"intends," "estimates," or similar expressions, constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. 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 and closings
- - not fully realizing cost reductions through restructurings
- - 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
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PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
May 26, 2001
Item 4. Submission of matters to a vote of security holders
None
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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 Financial Officer
July 10, 2001
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