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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 JUNE 1, 2002
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)
(276) 629-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X____No _______
At July 15, 2002, 11,754,817 shares of common stock of the Registrant were
outstanding.
1 of 16
PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE PERIODS ENDED JUNE 1, 2002, AND MAY 26, 2001 - UNAUDITED
(In thousands except per share data)
Six Months Ended Quarter Ended
--------------------------- --------------------------
27 Weeks 26 Weeks 13 Weeks 13 Weeks
------------ ------------ ------------ ------------
June 1, 2002 May 26, 2001 June 1, 2002 May 26, 2001
------------ ------------ ------------ ------------
Net sales $ 165,692 $ 156,318 $ 80,904 $ 73,765
Cost of sales 130,515 130,666 62,455 62,672
------------ ------------ ------------ ------------
Gross profit 35,177 25,652 18,449 11,093
Selling, general and administrative 29,548 26,923 15,820 13,722
Gain on sale of property and equipment - (3,028) - -
Restructuring and impaired fixed asset charges - 2,666 - 819
------------ ------------ ------------ ------------
Operating income (loss) 5,629 (909) 2,629 (3,448)
Other income, net 2,765 3,355 1,544 2,677
------------ ------------ ------------ ------------
Income (loss) before income taxes 8,394 2,446 4,173 (771)
Income taxes (2,602) (732) (1,293) 233
------------ ------------ ------------ ------------
Net income (loss) $ 5,792 $ 1,714 $ 2,880 $ (538)
Retained earnings-beginning of period 173,011 185,293 173,601 185,028
Cash dividends (4,689) (4,690) (2,346) (2,344)
Issuance of common stock, net 160 (205) 139 (34)
------------ ------------ ------------ ------------
Retained earnings-end of period $ 174,274 $ 182,112 $ 174,274 $ 182,112
============ ============ ============ ============
Basic earnings (loss) per share $ 0.50 $ 0.15 $ 0.25 $ (0.05)
============ ============ ============ ============
Diluted earnings (loss) per share $ 0.49 $ 0.15 $ 0.24 $ (0.05)
============ ============ ============ ============
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.
2 of 16
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 1, 2002 AND NOVEMBER 24, 2001
(In thousands)
(Unaudited)
ASSETS June 1, 2002 November 24, 2001
- ------ ---------------------------------------
Current assets
Cash and cash equivalents $ 5,325 $ 5,347
Accounts receivable, net 44,612 51,487
Inventories, net 38,136 32,244
Other current assets 4,101 10,609
Refundable income taxes 2,728 2,728
Deferred income taxes 3,841 3,841
------------------ -------------------
Total current assets 98,743 106,256
------------------ -------------------
Property & equipment
Cost 227,835 225,632
Less accumulated depreciation 137,128 135,225
------------------ -------------------
Total property & equipment 90,707 90,407
------------------ -------------------
Other long-term assets
Investment securities 7,457 9,116
Investments in affiliated companies 62,196 62,636
Deferred income taxes 4,493 6,528
Notes receivable, net 18,913 14,551
Other 9,777 11,909
------------------ -------------------
Total other long-term assets 102,836 104,740
------------------ -------------------
Total assets $ 292,286 $ 301,403
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable $ 16,291 $ 15,010
Accrued liabilities 16,582 18,250
------------------ -------------------
Total current liabilities 32,873 33,260
------------------ -------------------
Long-term liabilities
Employee benefits 10,481 10,596
Long-term debt - 7,482
Deferred revenue from affiliate 13,845 15,593
------------------ -------------------
Total long-term liabilities 24,326 33,671
------------------ -------------------
Commitments and Contingencies
Stockholders' Equity
Common stock 58,726 58,636
Retained earnings 174,274 173,011
Accumulated other comprehensive income -
unrealized holding gains, net of income tax effect 2,219 3,047
Unamortized stock compensation (132) (222)
------------------ -------------------
Total stockholders' equity 235,087 234,472
------------------ -------------------
Total liabilities and stockholders' equity $ 292,286 $ 301,403
================== ===================
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
3 of 16
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 1, 2002 AND MAY 26, 2001 - UNAUDITED
(in thousands)
2002 2001
27 Weeks 26 Weeks
------------- -------------
Net income $ 5,792 $ 1,714
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,085 5,544
Equity in undistributed income of affiliated companies (4,096) (3,214)
Provision for deferred income taxes 2,602 (1,665)
Provision for writedown of property and equipment - 1,600
Net gain from sale of property and equipment - (3,028)
Net gain on financial instrument - (448)
Net gain from sales of investment securtities (302) (914)
Compensation earned under restricted stock plan 90 86
Changes in long-term liabilities (115) (113)
Changes in operating assets and liabilities:
Accounts receivable 6,305 10,272
Inventories (2,382) 10,115
Other current assets 6,550 188
Accounts payable and accrued liabilities (5,308) (7,374)
------------- -------------
Net cash provided by operating activities 14,221 12,763
------------- -------------
Investing activities:
Purchases of property and equipment (4,346) (10,527)
Proceeds from sales of property and equipment - 3,828
Dividends from affiliated companies 5,343 26,809
Proceeds from sales of investment securities 654 1,621
Investments in affiliated companies (2,118) -
Other, net (665) (977)
------------- -------------
Net cash provided by (used in) investing activities (1,132) 20,754
------------- -------------
Financing activities:
Repayments of long-term debt (8,671) (28,000)
Issuance of common stock 249 176
Repurchase of common stock - (550)
Cash dividends (4,689) (4,690)
------------- -------------
Net cash used in financing activities (13,111) (33,064)
------------- -------------
Net change in cash and cash equivalents (22) 453
Cash and cash equivalents, beginning of period 5,347 3,259
------------- -------------
Cash and cash equivalents, end of period $ 5,325 $ 3,712
============= =============
Supplemental disclosure of non-cash investing and financing activities: During
the second quarter of 2002, the Company acquired the net assets of five stores
formerly operated by its affiliate LRG Furniture, LLC (LRG) for net book value
(which approximated $0). Included in this transaction were inventories of
$3,439, payables of $4,213 and notes payable to bank of $1,189. Also, during
the second quarter of 2002, the Company converted $3,000 in accounts
receivable to a note receivable. These transactions have appropriately been
excluded from the cash flow statement.
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
4 of 16
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED JUNE 1, 2002 (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
investments in affiliated companies in which the Company exercises significant
influence but does not maintain control.
Certain amounts in the 2001 financial statements have been reclassified to
more closely conform with the 2002 presentation. The Company's 2002 fiscal
year contains 53 weeks. As a consequence, the first quarter of 2002 contained
14 weeks.
Note B. Inventories:
Inventories are valued at the lower cost or market. Cost is determined for
wholesale domestic furniture inventories using the last-in, first-out (LIFO)
method. The costs for imported inventories and retail inventories are
determined using the first-in, first-out (FIFO) method.
June 1, November 24,
2002 2001
------------ --------------
Finished goods $ 27,825 $ 29,289
Work in process 3,568 4,084
Raw materials and supplies 20,516 16,046
Retail merchandise 3,552 441
------------ --------------
Total inventories on first-in, first-out cost method 55,461 49,860
LIFO adjustment (17,325) (17,616)
------------ --------------
Total inventories, net $ 38,136 $ 32,244
============ ==============
Note C. Investments in Affiliated Companies:
The Company's investments in affiliated companies are summarized in the table
below:
Description
Affiliate % Ownership of business
- ------------------------- ------------ -------------
The Bassett Industries Investment
Alternative Asset Fund, LP 99.8% Partnership
International Home Home
Furnishings Furnishings
Center, Inc. (IHFC) 46.9% Showrooms
Zenith Freight Lines, LLC 49.0% Transportation
Furniture
LRG Furniture, LLC (LRG) 51.0% Retailer
5 of 16
BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED JUNE 1, 2002(Dollars in thousands
except share and per share data)
Summarized combined income statement information for the Company's equity
method investments, excluding LRG Furniture, LLC (LRG), for the six months
ended June 1, 2002 and May 26, 2001 are as follows:
2002 2001
---------- -----------
Revenues $ 27,556 $ 32,070
Income from operations 13,683 14,746
Net income 7,239 7,021
The recorded investment in the Bassett Industries Alternative Asset Fund, LP
was $57,702 and $58,652 at June 1, 2002 and November 24, 2001, respectively.
The Company received dividends of $3,000 during the first six months of 2002
related to this investment.
The Company paid $1,519 for an additional ownership interest in IHFC during
the first quarter of 2002, bringing its total ownership interest to 46.85%.
Dividends received during the first six months of 2002 totalled $2,343. During
the same period in 2001, IHFC refinanced its real estate which allowed for an
unusually large dividend of $25,059 to be paid to the Company. The large
dividend essentially reflected an advance on the Company's earnings and as
such, the investment in IHFC is shown as a credit balance in the liabilities
section of in the accompanying balance sheets. The recored investment of IHFC
was ($13,845) and ($15,593) at June 1, 2002 and November 24, 2001,
respectively.
The Company's investment in Zenith was recorded at $3,984 at June 1, 2002 and
November 24, 2001. Zenith continued to operate at a break-even level during
the first six months of 2002.
The Company had outstanding accounts and notes receivable from LRG, an
affiliated company, totaling $14,014 at the end of the second quarter of 2002.
Additionally, the Company has lease and loan guarantees with LRG. During the
second quarter of 2002, the Company completed its previously announced
acquisition of five stores from LRG for net book value. The Company has
committed to provide financial support to LRG, as needed, over the next two
years. Summarized combined financial statement information for LRG for the six
months ended June 1, 2002 and six months ended May 26, 2001 is presented below.
The 2002 results are impacted by the sale of five stores to Bassett at the
beginning of the second quarter of 2002.
2002 2001
---------- -----------
Total assets $9,923 $17,121
Total liabilities 21,601 27,062
Revenues 25,996 29,245
Net loss (798) (3,645)
6 of 16
BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED JUNE 1, 2002(Dollars in thousands
except share and per share data)
Note D. Comprehensive income:
For the quarters ended June 1, 2002 and May 26, 2001, total comprehensive
income (loss) was $2,532 and ($983), respectively. Included in total
comprehensive income (loss) are net income (loss) of $2,880 and ($538) and
unrealized holding losses, net of tax of $348 and $445. Comprehensive income
was $4,964 and $675, consisting of net income of $5,792 and $1,714 and
unrealized holding losses, net of tax of $828 and $1,039 for the six month
periods ended June 1, 2002 and May 26, 2001, respectively.
Note E. Restructuring, Impaired Fixed Assets and Other Unusual and
Nonrecurring Charges:
There were no restructuring, fixed asset impairments or other non-recurring
charges incurred during the first six months of 2002. However, $1,066 of
severance and related employee benefit costs were expensed during the first
six months of 2001, $819 of this amount in the second quarter of 2001,
associated with fiscal 2001 restructuring. Additionally, the Company recorded
an impaired asset charge of $1,600 in the first quarter of 2001, related to
the same restructuring. There was $364 remaining in the restructuring reserve
as of June 1, 2002 that relates to severance and employee benefits that will
be paid out over the remainder of 2002.
Note F. 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.
Management was actively engaged in negotiating a settlement with the IRS
during the second quarter of 2002. The Company believes it has adequate
reserves to address estimated settlement amounts.
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.
As part of the Company's expansion strategy for its retail stores, Bassett has
guaranteed certain lease obligations of licensee operators of the Bassett
Furniture Direct program. Lease guarantees range from three to ten years. The
Company was contingently liable under licensee lease obligation guarantees in
the amount of $26,191 and $25,708 at June 1, 2002 and November 24, 2001,
respectively.
Note G. Recent Accounting Pronouncements
The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" in the
first quarter of fiscal 2002. Instead of amortizing goodwill over a fixed
period of time, the Company will instead measure the fair value of acquired
businesses annually to determine if goodwill has been impaired. Goodwill
amortization, related to investments in affiliates, which was recorded during
the first six months and second quarter of 2001 and that will no longer be
recorded, was $112 and $56, respectively. There would have been no change to
basic or diluted earnings per share should the Company have adopted SFAS No.
142 in 2001.
7 of 16
BASSETT FURNTURE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-UNAUDITED JUNE 1, 2002(Dollars in thousands
except share and per share data)
Note H. Earnings per share:
The following reconciles basic and diluted earnings per share after cumulative
effect of accounting change:
Weighted
Average Earnings
Net Income Shares per share
----------------------------------------
For the six months ended June 1, 2002
- -----------------------------------------------
Net income available to common stockholders $ 5,792 11,703,394 $ 0.50
Add effect of dilutive securities:
Options and restricted stock - 136,298 (0.01)
----------------------------------------
Diluted earnings per share $ 5,792 11,839,692 $ 0.49
========================================
For the quarter ended June 1, 2002
- -----------------------------------------------
Net income available to common stockholders $ 2,880 11,709,712 $ 0.25
Add effect of dilutive securities:
Options and restricted stock - 230,282 (0.01)
----------------------------------------
Diluted earnings per share $ 2,880 11,939,994 $ 0.24
========================================
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 earnings (loss) per share $ (538) 11,709,177 $ (0.05)
========================================
Options to purchase 2.0 million and 1.7 million shares of common stock were
outstanding during the second quarters of 2002 and 2001, respectively, that
could potentially dilute basic EPS in the future.
8 of 16
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
(Dollars in thousands except share and per share data)
Note I. Segment Information:
Segment information for the periods ended June 1, 2002 and May 26, 2001 was as
follows:
For the six months ended June 1, 2002
Wood Imports Upholstery Other Consolidated
--------------------------------------------------------------------------------
Net sales $ 84,700 $ 19,542 $ 54,169 $ 7,281 $ 165,692
Operating income (loss) 9,835 4,492 7,174 (15,872) 5,629
Depreciation and amortization 1,813 - 465 2,807 5,085
Capital expenditures 1,082 - 396 2,868 4,346
For the quarter ended June 1, 2002
Wood Imports Upholstery Other Consolidated
--------------------------------------------------------------------------------
Net sales $ 40,188 $ 10,187 $ 25,849 $ 4,680 $ 80,904
Operating income (loss) 4,633 2,484 3,395 (7,883) 2,629
Depreciation and amortization 845 - 227 1,402 2,474
Capital expenditures 519 - 217 2,414 3,150
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
The Company's other business segment consists of a contemporary furniture
business, corporate retail stores and other corporate operations, including
certain selling, general and administrative expenses, all included to
reconcile segment information to the consolidated financial statements.
Operating income by business segment is defined as sales less direct operating
costs and expenses.
The Company's six corporately owned and operated stores had sales of $5,606
and a loss of ($546) for the six months ended June 1, 2002. Almost all of the
corporate store activity occurred in the second quarter of 2002. The
elimination of wholesale sales to the corporate stores amounted to $2,537 for
the six months ended June 1, 2002.
9 of 16
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
(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 June 1, 2002 compared with periods ended
May 26, 2001
The Company reported net sales of $165,692 for the six months ended June 1,
2002, an increase of 6% from $156,318 reported for the first six months of 2001.
Sales for the second quarter of 2002 increased by $7,139 or 10% over sales for
the second quarter of 2001. These increases are due to strong performances in
the Bassett Furniture Direct (BFD) retail stores and increasing success with
independent dealers through the Five Star program (a program offering prepaid
freight and quick delivery), which generated greater demand for the Company's
products, especially in upholstered furniture. The Company also acquired five
retail stores from LRG Furniture, LLC at the beginning of the second quarter of
2002. As a result, second quarter 2002 sales contain retail. The elimination of
wholesale sales to corporately owned retail stores amorated to $2,537 for the
second quarter of 2002.
Sales to the BFD and @Home channels increased by 25% in the second quarter of
2002 and for the first six months of 2002 compared to the same periods in 2001.
During the first six months of 2002, seven new BFD stores were opened, bringing
the total BFD's open at the end of the quarter to 73. There were a total of 180
@Home galleries at the end of the second quarter of 2002.
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 June 1, 2002, and May 26, 2001:
For the Six Months Ended For the Quarter Ended
June 1, 2002 May 26, 2001 June 1, 2002 May 26, 2001
------------------------------- --------------------------------
Gross margin 21.2% 16.4% 22.8% 15.0%
Gain on sale of property and equipment - 1.9% - -
Restructuring and impaired fixed asset
charges - 1.7% - 1.1%
S,G&A 17.8% 17.2% 19.6% 18.6%
Operating income (loss) 3.4% (0.6%) 3.2% (4.7%)
The increase in gross margin for the first six months and second quarter of 2002
compared to the prior year periods was a result of improved earnings from the
Upholstery Division, restructuring activities in the Wood Division completed in
fiscal 2001 and, to a lesser degree for the second quarter of 2002 only,
inclusion of retail sales. The overall improvement in the Company's operating
margins was due in part to the 2001 reductions in the Company's fixed cost
structure and the related completion of restructuring activities.
The Company recognized a one-time gain of $3,028 on the sale of its former
showroom in Thomasville, North Carolina, during the first quarter of 2001 which
was included in operating income in 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 $1,066 in related
restructuring expenses during the first six months of 2001. 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 have been transferred to other manufacturing
facilities.
S,G&A expenses were 17.8% of sales for the first six months of 2002 and 19.6% of
sales for the second quarter of 2002 compared to 17.2% and 18.6% of sales for
the period and quarter ended in 2001. The Company's total S,G&A spending
increased from $13,722 in the second quarter 2001 to $15,820 for the second
quarter of 2002 due in large part to the addition of corporate retail stores in
the second quarter of 2002. If the impact of corporate retail stores is removed,
SG&A costs for the second quarter of 2002 would have been $13,066. SG&A expenses
for the first six months of 2002 compared to to the first six months of 2001
also reflect the addition of retail in the second quarter. The Company continues
to closely monitor discretionary spending and adjusts expenses to current sales
10 of 16
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
demands with spending reductions in corporate overhead and marketing.
Management is committed to the further reduction of SG&A costs.
Other income for the first six months and for the quarter ended June 1, 2002,
was $590 and $1,133 below the period and quarter ended in 2001. The decreases
were largely attributable to lower earnings from the Company's investment in
the Bassett Alternative Asset Fund, LP, partially offset by improved results
from the LRG investment as well as better earnings from the Company's IHFC
investment. 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 31% in the second quarter of 2002 compared to 30%
in the second quarter of 2001. The effective tax rates are lower than the
statutory federal income tax rate due principally to exclusions for tax exempt
income.
For the quarter ended June 1, 2002, net income was $2,880 or $.24 per diluted
share, compared to a loss of ($538) or ($.05) per diluted share for the second
quarter ended May 26, 2001.
Year-to-date income for the first six months of 2002 was $5,792 or $.49 per
diluted share compared to $1,714 or $.15 per diluted share for the same period
in 2001.
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 June 1, 2002 May 26, 2001 June 1, 2002 May 26, 2001
--------------------------------- --------------------------------
Net sales $ 84,700 $ 90,818 $ 40,188 $ 42,243
Contribution to profit
and overhead $ 9,835 $ 8,166 $ 4,633 $ 2,435
Wood Division net sales decreased for the first six months and for the second
quarter of 2002 from levels attained in the 2001 periods due to continued
erosion of department store sales, the bankruptcies of two major customers
and a strategic decision by management to import certain product offerings
based on competitive pressures. The decline in shipments to the department
store channel was partially offset by an increase in shipments to the BFD
stores. 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 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 improved between periods (11.6% of sales
for 2002 as compared to 9% of sales for 2001) despite the 6.7% decline in
sales. The Company was able to achieve these results due to restructuring
efforts completed in 2001. Sales improvement, if realized, and complete
implementation of cost cutting initiatives should improve operating results
for this division in subsequent quarters.
11 of 16
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
For the Six Months Ended Quarter Ended
Import Division June 1, 2002 May 26, 2001 June 1, 2002 May 26, 2001
--------------------------------- ---------------------------------
Net sales $ 19,542 $ 15,990 $ 10,187 $ 7,344
Contribution to profit
and overhead $ 4,492 $ 3,587 $ 2,484 $ 1,629
Net sales for the Import Division increased 39% in the second quarter of 2002
compared to the second quarter of 2001 and 22.2% in a year over year comparison.
The Company expects the sales of this segment to continue to increase, which
should, in turn, increase the Company's overall margin position. The division
has benefited from the Company's decision to outsource certain wood furniture
previously manufactured domestically. Notable among the wood furniture now
imported are occasional tables and cribs. 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 increased from 22.2% of net
sales in the second quarter of 2001 to 24.4% of net sales in 2002. For the first
six months of 2002, Import Division contribution to profit and overhead was 23%
of sales compared to 22.4% of sales for prior year period. 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 June 1, 2002 May 26, 2001 June 1, 2002 May 26, 2001
--------------------------------- ---------------------------------
Net sales $ 54,169 $ 44,269 $ 25,849 $ 22,027
Contribution to profit
and overhead $ 7,174 $ 4,097 $ 3,395 $ 1,937
Net sales for the Upholstery Division have increased by 17% for the second
quarter 2002 compared to the second quarter 2001, and by 22% on a year-to-date
comparison, due to sales increases through the BFD channel. The Division's
product offerings have been bolstered by products with more contemporary styling
at better price points than those that were offered in the first six months of
2001. Additionally, the Company has implemented a quick ship delivery program
for certain dealers that guarantees delivery of furniture to the customer within
thirty days. Management also decided, during 2001, to exit certain distribution
channels, which were incompatible with the Bassett brand image and the Company's
current primary channels of distribution. The Company is focusing upholstery
distribution on its BFD stores, its @ 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
JUNE 1, 2002
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Contribution to profit and overhead increased from 8.8% of net sales for the
second quarter of 2001 to 13.1% of net sales for the second quarter of 2002.
The improvement was nearly identical for the first six months of 2002 compared
to the first six months of 2001. Increases were due to increased volume, a
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.
Liquidity and Capital Resources
Cash provided by operating activities was $14,221 for the six months ended
June 1, 2002, compared to $12,763 for the six months ended May 26, 2001. The
Company continued to reduce accounts receivable levels through better
collection efforts during 2002, though not at the same pace established in
2001. Inventories increased by $2,382 during the first six months of 2002
after a large reduction for the same period in 2001. The Company continues its
efforts to efficiently manage working capital. Some of these initiatives
include better planning and forecasting, improved purchasing practices,
discounting of slow-moving inventories, and more effective collection efforts.
The Company invested $4,346 in property and equipment in the first six months
of 2002 for retail real estate, computer related equipment for information
systems, and various manufacturing equipment. The Company invested $10,527
during the first six months of 2001 for retail real estate, the build out of
its leased showroom and computer related equipment for information systems.
During 2001, the Company realized proceeds of $3,828 on the sale of its former
showroom in Thomasville, North Carolina and received a special dividend from
an affiliated company of $25,059, which was utilized to reduce the Company's
overall debt position. During the first six months of 2002 the Company
expended $2,118 to increase its ownership interest in the International Home
Furnishings Center (IHFC) and to take an equity interest in a licensee
operator developing stores in New England.
During 2000, the Company entered into a three-year $70,000 revolving credit
facility with a new lender and three other participants. The facility was
amended in 2001 to address restrictive covenants and to reduce the total
facility to $60,000. During the first six months of 2002 the Company repaid
the entire amount of the obligation outstanding on this facility, to bring the
balance of long-term debt outstanding at the end of the second quarter to $0.
During the first six months of 2001, the Company repaid $28,000 of this
facility, principally by applying the special dividend from an affiliate. The
Company does not expect to substantially increase its level of borrowings in
fiscal year 2002.
The Company purchased and retired 50,500 shares of its Common Stock for $550
during the first six months 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. The Company made no
share repurchases in the first six months of 2002. Dividends in the amount of
$.40 per share were paid in the first six months of 2002 and 2001.
The current ratio as of June 1, 2002, and November 24, 2001, respectively, was
3.00 to 1 and 3.19 to 1. Working capital at June 1, 2002, was $65,870 compared
to $72,996 at November 24, 2001. 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.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
(Dollars in thousands except share and per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
General
The furniture industry is currently undergoing rapid change. The change has
been precipitated by both the growth of imported furniture (which has included
downward pressure on retail prices) and the consolidation and elimination of
traditional channels of distribution. Bassett Furniture Industries has
embraced these changes by reducing its domestic production of product that can
be more efficiently sourced overseas. The Company strives to provide its
customers with home furnishings at competitive prices and, with that goal in
mind, will continue to evaluate the cost effectiveness of domestic production
on a product by product basis. The Company also is continuing its focus on the
Bassett Furniture Direct distribution channel. Continual improvements to the
retail program are being made through improved product and better delivery,
service and training. The Company expects to open between 15 and 20 new stores
per year over the next several years. The Company believes that manufacturing
operating margins will continue to improve through its efforts to source more
product overseas and reengineer manufacturing processes.
Management intends to execute these strategies in such a way as to preserve
the Company's investments, minimize the need for borrowed funds and maintain a
strong balance sheet These new strategies entail key business risks, namely
the realization of inventories and receivables and the coverage of potential
contingent liabilities, for which management believes adequate reserves have
been established.
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, which totaled $7,457 at June 1,
2002, 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's investment in a limited partnership, which totaled $57,702 at
June 1, 2002, 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 and
subsidiaries. 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
- - the profitability of BFD licensees and Company owned BFD's
- - cost and availability of raw materials and labor
- - effectiveness of marketing and advertising campaigns
- - future tax legislation, or regulatory or judicial positions related
to COLI
- - information and technology advances
- - ability to execute new global sourcing strategies
14 of 16
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES INC. AND SUBSIDIARIES
JUNE 1, 2002
Item 4. Submission of matters to a vote of security holders
None
Item 6.
a. Exhibits: None
b. Reports on Form 8-K:
Form 8-K dated May 14, 2002, announcing a change in the Company's independent
public accountants was filed during the quarter
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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 15, 2002
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