10-Q 1 bset20220528b_10q.htm FORM 10-Q bset20220528_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 28, 2022

 

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. 000-00209

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

(Exact name of Registrant as specified in its charter)

 

Virginia 54-0135270

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

Common Stock ($5.00 par value)

 

BSET

 

NASDAQ

 

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   ☐  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒    No   ☐  

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   Accelerated Filer 
Non-accelerated Filer    Smaller Reporting Company 
      Emerging Growth Company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No   ☒  

 

At June 24, 2022, 9,247,410 shares of common stock of the Registrant were outstanding.

 

Page 1 of 37

 

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

ITEM   PAGE
     
  PART I - FINANCIAL INFORMATION  
     

1.

Condensed Consolidated Financial Statements as of May 28, 2022 (unaudited) and November 27, 2021 and for the three and six months ended May 28, 2022 (unaudited) and May 29, 2021 (unaudited)  
     

  

Condensed Consolidated Statements of Income

3

     

  

Condensed Consolidated Statements of Comprehensive Income

4

     

 

Condensed Consolidated Balance Sheets

5

     

 

Condensed Consolidated Statements of Cash Flows

6

     

 

Notes to Condensed Consolidated Financial Statements

7

     

2.         

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

     

3.         

Quantitative and Qualitative Disclosures About Market Risk

34

     

4.

Controls and Procedures

34

     

 

PART II - OTHER INFORMATION  
     

1.

Legal Proceedings

35

     

2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

35

     

3.

Defaults Upon Senior Securities

35

     

6.

Exhibits

36

 

Page 2 of 37

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 UNAUDITED

(In thousands except per share data)

 

   

Quarter Ended

   

Six Months Ended

 
                                 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 
                                 

Net sales of furniture and accessories

  $ 128,706     $ 109,997     $ 246,570     $ 211,652  

Cost of furniture and accessories sold

    62,767       52,911       123,239       101,163  

Gross profit

    65,939       57,086       123,331       110,489  
                                 

Selling, general and administrative expenses

    54,927       50,001       105,841       97,842  

Income from operations

    11,012       7,085       17,490       12,647  
                                 

Other loss, net

    (627 )     (259 )     (1,256 )     (560 )

Income from continuing operations before income taxes

    10,385       6,826       16,234       12,087  
                                 

Income tax expense

    2,642       1,749       4,200       3,313  
                                 

Income from continuing operations

    7,743       5,077       12,034       8,774  
                                 

Discontinued operations:

                               

Income from operations of logistical services

    -       1,222       1,712       1,644  

Gain on disposal

    53,254       -       53,254       -  

Income tax expense

    13,879       325       14,309       433  
                                 

Income from discontinued operations

    39,375       897       40,657       1,211  
                                 

Net income

  $ 47,118     $ 5,974     $ 52,691     $ 9,985  
                                 

Basic earnings per share:

                               

Income from continuing operations

  $ 0.81     $ 0.51     $ 1.25     $ 0.89  

Income from discontinued operations

    4.14       0.09       4.22       0.12  

Basic and diluted earnings per share

  $ 4.95     $ 0.60     $ 5.47     $ 1.01  
                                 

Diluted earnings per share:

                               

Income from continuing operations

  $ 0.81     $ 0.51     $ 1.25     $ 0.89  

Income from discontinued operations

    4.13       0.09       4.22       0.12  

Diluted earnings per share

  $ 4.94     $ 0.60     $ 5.47     $ 1.01  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

Page 3 of 37

 

 

 

PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 UNAUDITED

(In thousands)

 

   

Quarter Ended

   

Six Months Ended

 
                                 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 
                                 

Net income

  $ 47,118     $ 5,974     $ 52,691     $ 9,985  
Other comprehensive income:                                

Amortization associated with Long Term Cash Awards (LTCA)

    33       36       66       72  

Income taxes related to LTCA

    (8 )     (9 )     (16 )     (18 )

Amortization associated with supplemental executive retirement defined benefit plan (SERP)

    31       11       62       22  

Income taxes related to SERP

    (8 )     (3 )     (16 )     (6 )
                                 

Other comprehensive income, net of tax

    48       35       96       70  
                                 

Total comprehensive income

  $ 47,166     $ 6,009     $ 52,787     $ 10,055  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

Page 4 of 37

 

 

PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MAY 28, 2022 AND NOVEMBER 27, 2021

(In thousands)

 

   

(Unaudited)

         

 

 

May 28, 2022

   

November 27, 2021

 
Assets                

Current assets

               

Cash and cash equivalents

  $ 71,610     $ 34,374  

Short-term investments

    17,715       17,715  

Accounts receivable, net

    22,836       20,567  

Inventories

    92,865       78,004  

Recoverable income taxes

    1,724       8,379  

Current assets of discontinued operations held for sale

    -       11,064  

Retail real estate held for sale

    3,623       -  

Other current assets

    11,349       10,181  

Total current assets

    221,722       180,284  
                 

Property and equipment, net

    73,706       69,168  
                 

Deferred income taxes

    6,985       3,189  

Goodwill and other intangible assets

    14,326       14,354  

Right of use assets under operating leases

    91,256       95,955  

Long-term assets of discontinued operations held for sale

    -       52,757  

Other

    5,758       5,953  

Total long-term assets

    118,325       172,208  

Total assets

  $ 413,753     $ 421,660  
                 
Liabilities and Stockholders Equity                

Current liabilities

               

Accounts payable

  $ 26,952     $ 23,988  

Accrued compensation and benefits

    12,620       12,639  

Customer deposits

    46,391       51,492  

Current portion operating lease obligations

    20,291       20,235  

Current liabilities of discontinued operations held for sale

    -       16,095  

Other current liabilites and accrued expenses

    14,832       9,770  

Total current liabilities

    121,086       134,219  
                 

Long-term liabilities

               

Post employment benefit obligations

    13,055       12,968  

Long-term portion of operating lease obligations

    88,803       94,845  

Long-term liabilities of discontinued operations held for sale

    -       16,210  

Other long-term liabilities

    668       686  

Total long-term liabilities

    102,526       124,709  
                 

Stockholders equity

               

Common stock

    46,396       48,811  

Retained earnings

    145,471       115,631  

Additional paid-in capital

    -       113  

Accumulated other comprehensive loss

    (1,726 )     (1,823 )

Total stockholders' equity

    190,141       162,732  

Total liabilities and stockholders equity

  $ 413,753     $ 421,660  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

Page 5 of 37

 

 

 

PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 UNAUDITED

(In thousands)

 

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

 
Operating activities:                

Net income

  $ 52,691     $ 9,985  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                

Depreciation and amortization

    6,065       6,893  

Gain on disposal of discontinued operations

    (53,254 )     -  

Deferred income taxes

    (3,796 )     1,201  

Other, net

    915       255  
Changes in operating assets and liabilities:                

Accounts receivable

    (1,829 )     (3,442 )

Inventories

    (14,861 )     (12,415 )

Other current assets

    6,421       25  

Right of use assets under operating leases

    11,153       12,558  

Customer deposits

    (5,101 )     8,149  

Accounts payable and other liabilities

    4,891       2,775  

Obligations under operating leases

    (12,241 )     (13,934 )

Net cash provided by (used in) operating activities

    (8,946 )     12,050  
                 
Investing activities:                

Purchases of property and equipment

    (12,638 )     (3,483 )

Proceeds from sales of property and equipment

    9       96  

Proceeds from the disposal of discontinued operations, net

    85,521       -  

Other

    (538 )     (335 )

Net cash provided by (used in) investing activities

    72,354       (3,722 )
                 
Financing activities:                

Cash dividends

    (17,170 )     (4,954 )

Proceeds from the exercise of stock options

    -       42  

Other issuance of common stock

    177       172  

Repurchases of common stock

    (8,642 )     (2,925 )

Taxes paid related to net share settlement of equity awards

    -       (219 )

Repayments of finance lease obligations

    (537 )     (467 )

Net cash used in financing activities

    (26,172 )     (8,351 )

Change in cash and cash equivalents

    37,236       (23 )

Cash and cash equivalents - beginning of period

    34,374       45,799  

Cash and cash equivalents - end of period

  $ 71,610     $ 45,776  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

Page 6 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

1. 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 (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.

 

The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees represent VIEs. We are the primary beneficiary of one VIE by virtue of our control over the activities that most significantly impact the entity’s economic performance. This VIE was created to effect the purchase of real property in the state of Florida (see Note 12, Discontinued Operations & Assets Held for Sale – Retail Real Estate Held for Sale).

 

Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of income net of estimates for returns and allowances.

 

On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”). The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment as well as the gain realized upon disposal are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheet as of November 27, 2021 as assets and liabilities of discontinued operations held for sale. See Note 12, Discontinued Operations & Assets Held for Sale, for additional information. Costs incurred by Bassett for logistical services performed for Bassett by Zenith are included in selling, general and administrative expenses.

 

Recently Adopted Accounting Pronouncements

 

Effective as of the beginning of fiscal 2022, we have adopted Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 became effective for us as of the beginning of our 2022 fiscal year. We adopted ASU 2019-12 on a prospective basis and the adoption did not have a material impact upon our financial condition or results of operations.

 

Certain prior year amounts have been reclassified to conform with the current year presentation.

 

 

2. Interim Financial Presentation

 

All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and six months ended May 28, 2022 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 27, 2021.

 

Income Taxes

 

We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision.  Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.

 

Our effective tax rate was 26.0% for both the three and six months ended May 28, 2022, and 25.8% and 27.3% for the three and six months ended May 29, 2021, respectively. These effective rates differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax of $552 for the three and six months ended May 28, 2022 associated with non-deductible goodwill written off in connection with our sale of Zenith and included in income tax on discontinued operations, and tax benefits (deficiencies) of $18 and ($117) during the three and six months ended May 29, 2021 arising from stock-based compensation.

 

Page 7 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

Cash paid for income taxes, net of refunds, during the six months ended May 28, 2022 was $14,663, including approximately one half of the estimated tax payable on the taxable gain realized on our sale of Zenith. Cash paid for income taxes, net of refunds, during the six months ended May 29, 2021 was $626. These cash payments for income taxes are included in cash flows from operating activities in the accompanying condensed consolidated statement of cash flows.

 

Net recoverable income taxes at May 28, 2022 of $1,724 include a federal claim for refund of $8,511 arising from the carryback of our fiscal 2020 net operating loss (NOL) partially offset by an accrual for the remainder of the estimated tax payable on the taxable gain realized on our sale of Zenith. Net recoverable income taxes at November 27, 2021 of $8,379 consisted primarily of the federal claim for refund due to the 2020 NOL carryback.

 

 

3. Financial Instruments and Investments

 

Financial Instruments

 

Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit (CDs), accounts receivable, and accounts payable. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in CDs, accounts receivable, and accounts payable approximate fair value.

 

Investments

 

Our short-term investments of $17,715 at May 28, 2022 and November 27, 2021 consisted of CDs. At May 28, 2022, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.05% to 1.50%. At May 28, 2022, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 0.26%. Each CD is placed with a federally insured financial institution and all deposits are within federal deposit insurance limits. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at May 28, 2022 and November 27, 2021 approximates their fair value.

 

 

 

4. Accounts Receivable

 

Accounts receivable consists of the following:

 

   

May 28, 2022

   

November 27, 2021

 

Gross accounts receivable

  $ 23,595     $ 21,134  

Allowance for doubtful accounts

    (759 )     (567 )

Accounts receivable, net

  $ 22,836     $ 20,567  

 

We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit losses could differ from those estimates.

 

Page 8 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

Activity in the allowance for credit losses for the three and six months ended May 28, 2022 was as follows:

 

Balance at November 27, 2021

  $ 567  

Additions charged to expense

    180  

Write-offs against allowance

    12  

Balance at May 28, 2022

  $ 759  

 

We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 3.

 

 

5. Inventories

 

Domestic furniture inventories are valued at the lower of cost, which is determined using the last-in, first-out (LIFO) method, or market. Imported inventories and those applicable to our Lane Venture and Bassett Outdoor lines are valued at the lower of cost, which is determined using the first-in, first-out (FIFO) method, or net realizable value.

 

Inventories were comprised of the following:

 

   

May 28,

2022

   

November 27,

2021

 

Wholesale finished goods

  $ 52,430     $ 40,254  

Work in process

    610       482  

Raw materials and supplies

    22,560       21,653  

Retail merchandise

    34,290       30,914  

Total inventories on first-in, first-out method

    109,890       93,303  

LIFO adjustment

    (11,650 )     (10,483 )

Reserve for excess and obsolete inventory

    (5,375 )     (4,816 )
    $ 92,865     $ 78,004  

 

We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.

 

Page 9 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:

 

   

Wholesale

Segment

   

Retail Segment

   

Total

 
                         

Balance at November 27, 2021

  $ 3,683     $ 1,133     $ 4,816  

Additions charged to expense

    1,115       518       1,633  

Write-offs

    (568 )     (506 )     (1,074 )

Balance at May 28, 2022

  $ 4,230     $ 1,145     $ 5,375  

 

Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2022 and do not anticipate that our methodology is likely to change in the future.

 

 

6. Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets consisted of the following:

 

   

May 28, 2022

 
   

Gross

Carrying

Amount

   

Accumulated Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 512     $ (251 )   $ 261  
                         

Intangibles not subject to amortization:

                       

Trade names

                    6,848  

Goodwill

                    7,217  
                         

Total goodwill and other intangible assets

                  $ 14,326  

 

   

November 27, 2021

 
   

Gross

Carrying

Amount

   

Accumulated Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 512     $ (223 )   $ 289  
                         

Intangibles not subject to amortization:

                       

Trade names

                    6,848  

Goodwill

                    7,217  
                         

Total goodwill and other intangible assets

                  $ 14,354  

 

Page 10 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

The carrying amounts of goodwill by reportable segment at both May 28, 2022 and November 27, 2021 are as follows:

 

   

Original

   

Accumulated

         
   

Recorded

   

Impairment

   

Carrying

 
   

Value

   

Losses

   

Amount

 
                         

Wholesale

  $ 9,188     $ (1,971 )   $ 7,217  

Retail

    1,926       (1,926 )     -  

Total goodwill

  $ 11,114     $ (3,897 )   $ 7,217  

 

Goodwill and other intangible assets associated with our logistical services segment totaling $9,094 at November 27, 2021 are included in assets of discontinued operations held for sale in the accompanying balance sheet (see Note 12).

 

Amortization expense associated with intangible assets during the three and six months ended May 28, 2022 and May 29, 2021 was as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 
                                 

Intangible asset amortization expense

  $ 14     $ 14     $ 28     $ 28  

 

Estimated future amortization expense for intangible assets that exist at May 28, 2022 is as follows:

 

Remainder of fiscal 2022

  $ 28  

Fiscal 2023

    57  

Fiscal 2024

    57  

Fiscal 2025

    57  

Fiscal 2026

    57  

Fiscal 2027

    5  

Total

  $ 261  

 

 

7. Bank Credit Facility

 

Our bank credit facility provides for a line of credit of up to $25,000. At May 28, 2022, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we had outstanding standby letters of credit with another bank totaling $325 at May 28, 2022. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:

 

 

Consolidated fixed charge coverage ratio of not less than 1.4 times,

 

 

Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and

 

 

Minimum tangible net worth of $140,000.

 

We were in compliance with these covenants at May 28, 2022 and expect to remain in compliance for the foreseeable future. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.

 

Page 11 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

8. Post Employment Benefit Obligations

 

Defined Benefit Plans

 

We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for the Supplemental Plan was $9,105 and $9,192 as of May 28, 2022 and November 27, 2021, respectively.

 

We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $2,000 to certain management employees in the amount of $400 each. The liability for the LTC Awards was $1,543 and $1,548 as of May 28, 2022 and November 27, 2021, respectively.

 

The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:

 

   

May 28,

2022

   

November 27,

2021

 

Accrued compensation and benefits

  $ 913     $ 913  

Post employment benefit obligations

    9,735       9,827  
                 

Total pension liability

  $ 10,648     $ 10,740  

 

 

Components of net periodic pension costs for our defined benefit plans for the three and six months ended May 28, 2022 and May 29, 2021 are as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 

Service cost

  $ 9     $ 31     $ 18     $ 60  

Interest cost

    58       48       115       98  

Amortization of prior service costs

    31       31       63       63  

Amortization of loss

    33       15       67       30  
                                 

Net periodic pension cost

  $ 131     $ 125     $ 263     $ 251  

 

The components of net periodic pension cost other than the service cost component, which is included in selling, general and administrative expenses, are included in other loss, net in our condensed consolidated statements of operations.

 

Deferred Compensation Plans

 

We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. Our liability under this plan was $1,652 and $1,648 as of May 28, 2022 and November 27, 2021, respectively.

 

We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan. Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $1,964 and $1,789 as of May 28, 2022 and November 27, 2021, respectively.

 

Page 12 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:

 

   

May 28,

2022

   

November 27,

2021

 

Accrued compensation and benefits

  $ 296     $ 296  

Post employment benefit obligations

    3,320       3,142  
                 

Total deferred compensation liability

  $ 3,616     $ 3,437  

 

We recognized expense under our deferred compensation arrangements during the three and six months ended May 28, 2022 and May 29, 2021 as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 

Deferred compensation expense

  $ 7     $ 202     $ 61     $ 355  

 

 

9. Commitments and Contingencies

 

We are involved in various 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, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

 

 

10. Lease Guarantees

 

We have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to three years. We were contingently liable under licensee lease obligation guarantees in the amounts of $1,863 and $1,845 at May 28, 2022 and November 27, 2021, respectively.

 

In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at May 28, 2022 and November 27, 2021 was not material.

 

Page 13 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

11. Earnings Per Share

 

The following reconciles basic and diluted earnings per share:

 

   

Net Income

   

Weighted Average

Shares

   

Net Income

Per Share

 

For the quarter ended May 28, 2022:

                       
                         

Basic earnings per share - continuing operations

  $ 7,743       9,521,085     $ 0.81  

Add effect of dilutive securities:

                       

Restricted shares

    -       12,938       -  

Diluted earnings per share - continuing operations

  $ 7,743       9,534,023     $ 0.81  
                         

Basic earnings per share - discontinued operations

  $ 39,375       9,521,085     $ 4.14  

Add effect of dilutive securities:

                       

Restricted shares

    -       12,938       (0.01 )

Diluted earnings per share - discontinued operations

  $ 39,375       9,534,023     $ 4.13  
                         

For the quarter ended May 29, 2021:

                       
                         

Basic earnings per share - continuing operations

  $ 5,077       9,894,627     $ 0.51  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       5,476       -  

Diluted earnings per share - continuing operations

  $ 5,077       9,900,103     $ 0.51  
                         

Basic earnings per share - discontinued operations

  $ 897       9,894,627     $ 0.09  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       5,476       -  

Diluted earnings per share - discontinued operations

  $ 897       9,900,103     $ 0.09  
                         

For the six months ended May 28, 2022:

                       
                         

Basic earnings per share - continuing operations

  $ 12,034       9,636,813     $ 1.25  

Add effect of dilutive securities:

                       

Restricted shares

    -       2,917       -  

Diluted earnings per share - continuing operations

  $ 12,034       9,639,730     $ 1.25  
                         

Basic earnings per share - discontinued operations

  $ 40,657       9,636,813     $ 4.22  

Add effect of dilutive securities:

                       

Restricted shares

    -       2,917       -  

Diluted earnings per share - discontinued operations

  $ 40,657       9,639,730     $ 4.22  
                         

For the six months ended May 29, 2021:

                       
                         

Basic earnings per share - continuing operations

  $ 8,774       9,907,073     $ 0.89  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       12,629       -  

Diluted earnings per share - continuing operations

  $ 8,774       9,919,702     $ 0.89  
                         

Basic earnings per share - discontinued operations

  $ 1,211       9,907,073     $ 0.12  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       12,629       -  

Diluted earnings per share - discontinued operations

  $ 1,211       9,919,702     $ 0.12  

 

Page 14 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

For the three and six months ended May 28, 2022 and May 29, 2021, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 
                                 

Unvested shares

    15,799       -       67,099       7,105  

 

 

12. Discontinued Operations & Assets Held for Sale

 

Discontinued Operations

 

On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith to J.B. Hunt. The sale was completed on February 28, 2022, at which time we received the following net proceeds:

 

Sales price prior to post-closing working capital adjustment

  $ 86,939  

Less:

       

Amount held in escrow for contingencies related to representations and warranties (1)

    1,000  

Seller expenses paid at closing

    418  
         

Net proceeds from the sale (2)

  $ 85,521  

 

 

(1)

To be held in escrow until the first anniversary of the sale, at which time any amount not distributed or reserved for specified claims will be released to the Company. This amount is included in other current assets in the accompanying condensed consolidated balance sheet at May 28, 2022.

 

 

(2)

Included in cash flows from investing activities in the accompanying condensed consolidated statement of cash flows for the six months ended May 28, 2022.

 

The sales price is subject to a customary post-closing working capital adjustment which will be paid during the third quarter of fiscal 2022. Including the estimated effect of the working capital adjustment, we recognized a pre-tax gain from the sale of Zenith of $53,254.

 

The operations of our logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheet as assets and liabilities of discontinued operations held for sale as of November 27, 2021.

 

Page 15 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

The following table summarizes the major classes of assets and liabilities of the discontinued operations held for sale as reported in the condensed consolidated balance sheet as of November 27, 2021:

 

   

November 27, 2021

 

Carrying amounts of major classes of assets included as part of discontinued operations:

       
Accounts receivable, net   $ 7,601  

Other current assets

    3,463  

Property and equipment, net

    24,898  

Goodwill and other intangible assets

    9,094  

Right of use assets under operating leases

    18,193  

Other

    572  
    $ 63,821  
         

Balance sheet classification:

       

Current assets of discontinued operations held for sale

  $ 11,064  

Long-term assets of discontinued operations held for sale

    52,757  

Total assets of discontinued operations held for sale

  $ 63,821  
         

Carrying amounts of major classes of liabilities included as part of discontinued operations:

       

Accounts payable

  $ 4,336  

Accrued compensation and benefits

    3,295  

Current portion operating lease obligations

    7,458  

Other current liabilites and accrued expenses

    1,006  

Long-term portion of operating lease obligations

    10,996  

Other long-term liabilities

    5,214  
    $ 32,305  
         

Balance sheet classification:

       

Current liabilities of discontinued operations held for sale

  $ 16,095  

Long-term liabilities of discontinued operations held for sale

    16,210  

Total liabilities of discontinued operations held for sale

  $ 32,305  

 

Following the sale of Zenith, certain of Zenith’s liabilities primarily representing reserves and accrued liabilities for pre-disposal workers’ compensation, health insurance, auto liability claims and certain accrued compensation and benefits were retained by Bassett. These reserves and accruals total $1,390 at May 28, 2022 and are included in other current liabilities and accrued expenses in the accompanying condensed consolidated balance sheet.

 

Page 16 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

The following table summarizes the major classes of line items constituting income of the discontinued operations, as reported in the condensed consolidated statements of income for the three and six months ended May 28, 2022 and May 29, 2021:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 

Major line items constituting pretax income of discontinued operations:

                               

Logistical services revenue

  $ -     $ 14,062     $ 16,776     $ 26,080  

Cost of logistical services

    -       12,768       15,001       24,327  

Other loss, net

    -       (72 )     (63 )     (109 )
                                 

Income from operations of logistical services

    -       1,222       1,712       1,644  

Gain on disposal

    53,254       -       53,254       -  

Pretax income of discontinued operations

    53,254       1,222       54,966       1,644  

Income tax expense

    13,879       325       14,309       433  
                                 

Income from discontinued operations, net of tax

  $ 39,375     $ 897     $ 40,657     $ 1,211  

 

The amounts for revenue and costs of logistical services shown above represent the results of Zenith’s business transactions with third parties. Zenith also charged Bassett for logistical services provided to our wholesale segment in the amount of $9,121 during the six months ended May 28, 2022, and $8,182 and $16,245, respectively, for the three and six months ended May 29, 2021. We have entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith. Subsequent to the sale, we incurred $9,546 of expense during the three months ended May 28, 2022 for the performance of logistical services of which $7,893 had been paid in cash as of May 28, 2022.

 

Included in other loss, net, is interest arising from finance leases assumed by J.B. Hunt as part of the transaction. Such interest amounted to $78 for the six months ended May 28, 2022, and $78 and $121, respectively, for the three and six months ended May 29, 2021.

 

The following table summarizes the cash flows generated by discontinued operations during the six months ended May 28, 2022 and May 29, 2021:

 

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

 

Cash provided by operating activities

  $ 1,681     $ 3,646  

Cash used in investing activities

    (81 )     (1,138 )

Cash used in financing activities

    (371 )     (467 )
                 

Net cash provided by discontinued operations

  $ 1,229     $ 2,041  

 

Retail Real Estate Held for Sale

 

During the second quarter of fiscal 2022, we entered into a contract to sell one of our Company-owned store locations in Houston, Texas for approximately $8,200 net of closing costs. Accordingly, the $3,623 carrying value of the real property at that location is classified as retail real estate held for sale in the accompanying condensed consolidated balance sheet as of May 28, 2022. The sale closed on June 24, 2022, and we expect to vacate the premises by the end of the third quarter of fiscal 2022. This store will be relocated to a new leased store in the Houston market that we expect to open during the second quarter of fiscal 2023.

 

This sale, together with our recent purchase of real property in Tampa, Florida for $7,668 in cash during the second quarter of fiscal 2022 will be treated as an exchange of like-kind property under Section 1031 of the Internal Revenue Code of 1986, as amended, for the purpose of deferring the majority of the taxable gain of approximately $4,800 arising from the sale of the Houston property. A VIE was established during the second quarter of fiscal 2022 for purposes of acquiring the Tampa, Florida property, of which the Company is the primary beneficiary by virtue of our control over the activities that most significantly impact the entity's economic performance. We plan to remodel the Tampa property and open as a Company-owned store in the second quarter of fiscal 2023.

 

Page 17 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

13. Segment Information

 

We have strategically aligned our business into two reportable segments as defined in ASC 280, Segment Reporting, and as described below:

 

 

Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations, which include Lane Venture, as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our condensed consolidated statements of operations.

 

 

Retail  Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers.

 

Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate.

 

Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation in the accompanying condensed consolidated balances sheets and statements of income (see Note 12).

 

Page 18 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

The following table presents our segment information:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 

Sales Revenue

                               

Wholesale sales of furniture and accessories

  $ 87,501     $ 76,034     $ 170,986     $ 146,298  

Less: Sales to retail segment

    (34,415 )     (28,520 )     (64,143 )     (57,524 )

Wholesale sales to external customers

    53,086       47,514       106,843       88,774  

Retail sales of furniture and accessories

    75,620       62,483       139,727       122,878  

Consolidated net sales of furniture and accessories

  $ 128,706     $ 109,997     $ 246,570     $ 211,652  
                                 

Income from Operations

                               

Wholesale

  $ 3,434     $ 5,359     $ 6,819     $ 10,156  

Retail - Company-owned stores

    7,875       1,652       11,225       2,746  

Inter-company elimination

    (297 )     74       (554 )     (255 )

Consolidated

  $ 11,012     $ 7,085     $ 17,490     $ 12,647  
                                 

Depreciation and Amortization

                               

Wholesale

  $ 931     $ 823     $ 1,825     $ 1,621  

Retail - Company-owned stores

    1,479       1,581       2,974       3,097  

Consolidated

  $ 2,410     $ 2,404     $ 4,799     $ 4,718  
                                 

Capital Expenditures

                               

Wholesale

  $ 9,578     $ 1,409     $ 11,905     $ 2,166  

Retail - Company-owned stores

    717       119       733       137  

Consolidated

  $ 10,295     $ 1,528     $ 12,638     $ 2,303  

 

   

As of

   

As of

 

 

 

May 28,

2022

   

November 27,

2021

 
Identifiable Assets                

Wholesale

  $ 248,046     $ 196,853  

Retail - Company-owned stores

    165,707       160,986  

Discontinued Operations

    -       63,821  

Consolidated

  $ 413,753     $ 421,660  

 

See Note 14, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.

 

 

14. Revenue Recognition

 

We recognize revenue when we transfer promised goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. All wholesale and retail revenues are recorded net of estimated returns and allowances based on historical patterns. We typically collect a significant portion of the purchase price from our retail customers as a deposit upon order, with the balance typically collected upon delivery. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $46,391 and $51,492 as of May 28, 2022 and November 27, 2021, respectively. Approximately 90% of the customer deposits held at November 27, 2021 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the three and six months ended May 28, 2022.

 

Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At May 28, 2022 and November 27, 2021, our balance of prepaid commissions included in other current assets was $5,258 and $6,221, respectively.

 

Page 19 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

We exclude from revenue all amounts collected from customers for sales tax. We do not disclose amounts allocated to remaining unsatisfied performance obligations as they are expected to be satisfied within one year or less.

 

Disaggregated revenue information for sales of furniture and accessories by product category for the three and six months ended May 28, 2022 and May 29, 2021, excluding intercompany transactions between our segments, is a follows:

 

   

Quarter Ended

 
   

May 28, 2022

   

May 29, 2021

 
   

Wholesale

   

Retail

   

Total

   

Wholesale

   

Retail

   

Total

 

Bassett Custom Upholstery

  $ 33,838     $ 45,376     $ 79,214     $ 25,960     $ 35,378     $ 61,338  

Bassett Leather

    9,859       292       10,151       10,201       228       10,429  

Bassett Custom Wood

    5,660       11,237       16,897       6,839       7,624       14,463  

Bassett Casegoods

    3,729       9,188       12,917       4,514       10,704       15,218  

Accessories, mattresses and other (1)

    -       9,527       9,527       -       8,549       8,549  

Consolidated net sales of furniture and accessories

  $ 53,086     $ 75,620     $ 128,706     $ 47,514     $ 62,483     $ 109,997  

 

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

 
   

Wholesale

   

Retail

   

Total

   

Wholesale

   

Retail

   

Total

 

Bassett Custom Upholstery

  $ 65,750     $ 83,194     $ 148,944     $ 50,858     $ 69,839     $ 120,697  

Bassett Leather

    22,821       532       23,353       17,756       480       18,236  

Bassett Custom Wood

    11,643       20,644       32,287       12,176       13,082       25,258  

Bassett Casegoods

    6,629       17,480       24,109       7,984       21,781       29,765  

Accessories, mattresses and other (1)

    -       17,877       17,877       -       17,696       17,696  

Consolidated net sales of furniture and accessories

  $ 106,843     $ 139,727     $ 246,570     $ 88,774     $ 122,878     $ 211,652  

 

(1)

Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.

 

Page 20 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

15. Changes to Stockholders Equity

 

The following changes in our stockholders’ equity occurred during the three and six months ended May 28, 2022 and May 29, 2021:

 

   

Quarter Ended

   

Six Months Ended

 
   

May 28, 2022

   

May 29, 2021

   

May 28, 2022

   

May 29, 2021

 

Common Stock:

                               
                                 

Beginning of period

  $ 48,640     $ 49,567     $ 48,811     $ 49,714  

Issuance of common stock

    70       89       124       120  

Purchase and retirement of common stock

    (2,314 )     (394 )     (2,539 )     (572 )

End of period

  $ 46,396     $ 49,262     $ 46,396     $ 49,262  
                                 

Common Shares Issued and Outstanding:

                               
                                 

Beginning of period

    9,727,932       9,913,496       9,762,125       9,942,787  

Issuance of common stock

    14,180       17,815       24,976       24,036  

Purchase and retirement of common stock

    (462,844 )     (78,952 )     (507,833 )     (114,464 )

End of period

    9,279,268       9,852,359       9,279,268       9,852,359  
                                 

Additional Paid-in Capital:

                               
                                 

Beginning of period

  $ -     $ -     $ 113     $ -  

Issuance of common stock

    13       42       52       94  

Purchase and retirement of common stock

    (155 )     (90 )     (422 )     (156 )

Stock based compensation

    142       48       257       62  

End of period

  $ -     $ -     $ -     $ -  
                                 

Retained Earnings:

                               
                                 

Beginning of period

  $ 119,557     $ 109,493     $ 115,631     $ 109,710  

Net income for the period

    47,118       5,974       52,691       9,985  

Purchase and retirement of common stock

    (5,408 )     (1,907 )     (5,681 )     (2,415 )

Cash dividends declared

    (15,796 )     (1,235 )     (17,170 )     (4,955 )

End of period

  $ 145,471     $ 112,325     $ 145,471     $ 112,325  
                                 

Accumulated Other Comprehensive Loss:

                               
                                 

Beginning of period

  $ (1,774 )   $ (1,359 )   $ (1,823 )   $ (1,394 )

Amortization of pension costs, net of tax

    48       34       97       69  

End of period

  $ (1,726 )   $ (1,325 )   $ (1,726 )   $ (1,325 )

 

Page 21 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

16. Recent Accounting Pronouncements

 

In October 2021, the FASB issued Accounting Standards Update No. 2021-08– Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.

 

In March 2022, the FASB issued Accounting Standards Update No. 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to address certain concerns identified in the Post-Implementation Review process for ASU Topic 326. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings by creditors in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in ASU 2022-02 require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in ASU 2022-02 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted. We expect that the adoption of this standard will primarily impact our disclosures but do not expect that this guidance will have a material impact upon our financial position and results of operations.

 

Page 22 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Safe-harbor, forward-looking statements:

 

This report 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. Such forward-looking statements are identified by use of forward-looking words such as “anticipates”, “believes”, “plans”, “estimates”, “expects”, “aims” and “intends” or words or phrases of similar expression. 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:

 

fluctuations in the cost and availability of raw materials, fuel, labor, delivery costs and sourced products, including those which may result from general price inflation, supply chain disruptions and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products

 

competitive conditions in the home furnishings industry

 

overall retail traffic levels in stores and on the web and consumer demand for home furnishings

 

ability of our customers and consumers to obtain credit

 

the profitability of the Bassett stores (independent licensees and Company-owned retail stores) which may result in future store closings

 

ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing capabilities, as they are implemented

 

results of marketing and advertising campaigns

 

effectiveness and security of our information and technology systems and possible disruptions due to cybersecurity threats, including any impacts from a network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance

 

future tax legislation, or regulatory or judicial positions

 

ability to efficiently manage the import supply chain to minimize business interruption

 

concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to business interruption from accidents, weather and other events and circumstances beyond our control

 

the impact of the COVID-19 pandemic and resulting supply chain disruptions upon our ability to maintain normal operations at our retail stores and manufacturing facilities, and the resulting effects any future interruption of those operations may have upon our financial condition, results of operations and liquidity, as well as the impact of the pandemic upon general economic conditions, including consumer spending and the strength of the housing market in the United States

 

Additionally, other risks that could cause actual results to differ materially from those contemplated by such forward-looking statements are set forth in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended November 27, 2021.

 

You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report or elsewhere, might not occur.

 

Page 23 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

Overview

 

Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 120-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.

 

With 96 BHF stores at May 28, 2022, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly and casual environment for buying furniture and accessories.  Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service.  In order for the Bassett brand to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.  

 

The BHF stores feature custom order furniture, free in-home or virtual design visits (“home makeovers”) and coordinated decorating accessories.  Our philosophy is based on building strong long-term relationships with each customer.  Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor.  Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.

 

In the quarter ended May 28, 2022, we opened our first regional fulfillment center in Orlando, Florida where we are stocking our best sellers for much quicker delivery. This will add an element of immediacy to our proven platform of made to order custom furniture that has driven our strategy for the past two decades.  We plan to roll this out nationwide over the near term with the next center to be opened in New Jersey in the early fall.

 

In 2018, we added outdoor furniture to our offerings with the acquisition of the Lane Venture brand. Our strategy is to distribute these products outside of our BHF store network through a network of over 15 independent sales representatives. Using Lane Venture as a platform, we developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.

 

We have factories in Newton, North Carolina that manufacture both stationary and motion upholstered furniture for inside the home along with our outdoor furniture offerings. We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom bedroom and dining offerings. We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam, Thailand and China. Over 75% of the products we currently sell are manufactured in the United States.

 

We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website since 2019. The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While our Bench Made line of custom upholstery and custom bedroom and dining products continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines to best serve our customers online, in the store or wherever our customer might be. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities.

 

Page 24 of 37

 

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
MAY 28, 2022
(Dollars in thousands except share and per share data)

 

We are engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes. During the second quarter of 2022, we implemented a comprehensive Product Information Management system which will allow us to enhance and standardize our product development and data management and governance processes during the second half of 2022. This will result in more consistent data that our merchandizing and sales teams can use in analyzing various product and sales trends in order to make better informed decisions. We are also in the process of implementing a new eCommerce platform that we plan to introduce in 2023.  The new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation that we believe will result in increased web traffic and sales.  We expect to spend between $3,000 and $4,000 this fiscal year on these efforts.

 

Company-owned Retail Stores

 

As we continually monitor the performance of our Company-owned retail store loca