10-Q 1 bset20240525_10q.htm FORM 10-Q bset20240525_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 June 1, 2024

 

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 (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)

 

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 July 5, 2024, 8,792,381 shares of common stock of the Registrant were outstanding.

 

1 of 35

  

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

ITEM PAGE
     
PART I - FINANCIAL INFORMATION
     
1. Condensed Consolidated Financial Statements as of June 1, 2024 (unaudited) and November 25, 2023 and for the three and six months ended June 1, 2024 (unaudited) and May 27, 2023 (unaudited)
     
  Condensed Consolidated Statements of Operations 3
     
  Condensed Consolidated Statements of Comprehensive Income (Loss) 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 20
     
3. Quantitative and Qualitative Disclosures About Market Risk 32
     
4. Controls and Procedures 32
     
PART II - OTHER INFORMATION
 
1. Legal Proceedings 33
     
2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 33
     
3. Defaults Upon Senior Securities 33
     
5. Other Information 33
     
6. Exhibits 33

 

2 of 35

 
 

  

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED JUNE 1, 2024 AND MAY 27, 2023 UNAUDITED

(In thousands except per share data)

 

   

Quarter Ended

   

Six Months Ended

 
                                 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 
                                 

Net sales of furniture and accessories

  $ 83,410     $ 100,519     $ 169,964     $ 208,217  

Cost of furniture and accessories sold

    39,650       47,686       78,337       98,187  

Gross profit

    43,760       52,833       91,627       110,030  
                                 

Selling, general and administrative expenses

    46,707       51,366       96,931       105,861  

Asset impairment charges

    5,515       -       5,515       -  

Gain on revaluation of contingent consideration

    -       1,013       -       1,013  

Income (loss) from operations

    (8,462 )     2,480       (10,819 )     5,182  
                                 

Interest income

    627       569       1,383       721  

Other loss, net

    (276 )     (505 )     (380 )     (1,072 )

Income (loss) before income taxes

    (8,111 )     2,544       (9,816 )     4,831  
                                 

Income tax expense (benefit)

    (910 )     468       (1,422 )     1,310  
                                 

Net income (loss)

  $ (7,201 )   $ 2,076     $ (8,394 )   $ 3,521  
                                 

Basic earnings (loss) per share

  $ (0.82 )   $ 0.24     $ (0.96 )   $ 0.40  
                                 

Diluted earnings (loss) per share

  $ (0.82 )   $ 0.24     $ (0.96 )   $ 0.40  
                                 

Regular dividends per share

  $ 0.18     $ 0.16     $ 0.34     $ 0.32  

 

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

 

3 of 35

 
 

 

PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE PERIODS ENDED JUNE 1, 2024 AND MAY 27, 2023 UNAUDITED

(In thousands)

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 
                                 

Net income (loss)

  $ (7,201 )   $ 2,076     $ (8,394 )   $ 3,521  

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    (9 )     (93 )     (234 )     (279 )

Income taxes related to foreign currency translation adjustments

    2       24       60       74  

Amortization associated with Long Term Cash Awards (LTCA)

    15       31       30       63  

Income taxes related to LTCA

    (4 )     (8 )     (8 )     (16 )

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

    (5 )     -       (11 )     -  

Income taxes related to SERP

    2       -       3       -  
                                 

Other comprehensive income (loss), net of tax

    1       (46 )     (160 )     (158 )
                                 

Total comprehensive income (loss)

  $ (7,200 )   $ 2,030     $ (8,554 )   $ 3,363  

 

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

 

4 of 35

 

 

PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 1, 2024 AND NOVEMBER 25, 2023

(In thousands)

 

   

(Unaudited)

         
   

June 1, 2024

   

November 25, 2023

 
Assets                

Current assets

               

Cash and cash equivalents

  $ 42,646     $ 52,407  

Short-term investments

    17,814       17,775  

Accounts receivable, net

    13,495       13,736  

Inventories

    56,875       62,982  

Recoverable income taxes

    2,896       2,574  

Other current assets

    9,377       8,480  

Total current assets

    143,103       157,954  
                 

Property and equipment, net

    79,802       83,981  
                 

Deferred income taxes

    6,085       4,645  

Goodwill and other intangible assets

    14,213       16,067  

Right of use assets under operating leases

    94,748       100,888  

Other

    7,313       6,889  

Total long-term assets

    122,359       128,489  

Total assets

  $ 345,264     $ 370,424  
                 

Liabilities and Stockholders Equity

               

Current liabilities

               

Accounts payable

  $ 12,188     $ 16,338  

Accrued compensation and benefits

    8,424       8,934  

Customer deposits

    23,021       22,788  

Current portion operating lease obligations

    18,293       18,827  

Other current liabilites and accrued expenses

    9,056       11,003  

Total current liabilities

    70,982       77,890  
                 

Long-term liabilities

               

Post employment benefit obligations

    10,758       10,207  

Long-term portion of operating lease obligations

    90,646       97,357  

Other long-term liabilities

    1,218       1,529  

Total long-term liabilities

    102,622       109,093  
                 

Stockholders equity

               

Common stock

    43,808       43,842  

Retained earnings

    127,807       139,354  

Additional paid-in capital

    52       93  

Accumulated other comprehensive income (loss)

    (7 )     152  

Total stockholders' equity

    171,660       183,441  

Total liabilities and stockholders equity

  $ 345,264     $ 370,424  

 

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

 

5 of 35

 
 

 

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 JUNE 1, 2024 AND MAY 27, 2023 UNAUDITED

(In thousands)

 

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

 

Operating activities:

               

Net income (loss)

  $ (8,394 )   $ 3,521  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    5,291       4,909  

Asset impairment charges

    5,515       -  

Gain on revaluation of contingent consideration

    -       (1,013 )

Inventory valuation charges

    3,879       2,475  

Deferred income taxes

    (1,440 )     392  

Other, net

    689       1,388  

Changes in operating assets and liabilities:

               

Accounts receivable

    241       3,005  

Inventories

    2,228       12,670  

Other current assets

    (1,217 )     953  

Right of use assets under operating leases

    8,707       9,105  

Customer deposits

    233       (12,022 )

Accounts payable and other liabilities

    (6,930 )     (8,715 )

Obligations under operating leases

    (10,721 )     (10,255 )

Net cash provided by (used in) operating activities

    (1,919 )     6,413  
                 

Investing activities:

               

Purchases of property and equipment

    (3,683 )     (7,405 )

Proceeds from the disposal of discontinued operations, net

    -       1,000  

Other

    (383 )     (637 )

Net cash used in investing activities

    (4,066 )     (7,042 )
                 

Financing activities:

               

Cash dividends

    (3,153 )     (2,832 )

Other issuance of common stock

    179       177  

Repurchases of common stock

    (489 )     (3,450 )

Taxes paid related to net share settlement of equity awards

    (161 )     (109 )

Repayments of finance lease obligations

    (153 )     (137 )

Net cash used in financing activities

    (3,777 )     (6,351 )

Effect of exchange rate changes on cash and cash equivalents

    1       (42 )

Change in cash and cash equivalents

    (9,761 )     (7,022 )

Cash and cash equivalents - beginning of period

    52,407       61,625  

Cash and cash equivalents - end of period

  $ 42,646     $ 54,603  

 

 

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

 

6 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(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.

 

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

 

Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal 52 weeks. The current fiscal year ending November 30, 2024 is a 53-week year, with the additional week being included in our first fiscal quarter. Accordingly, the information presented below includes 27 weeks of operations for the six months ended June 1, 2024 as compared with 26 weeks included in the six months ended May 27, 2023.

 

 

 

2. Interim Financial Presentation and Other Information

 

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 June 1, 2024 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 25, 2023.

 

Income Taxes

 

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

 

Our effective tax rate was 11.2% and 14.5% for the three and six months ended June 1, 2024, respectively. The effective rates for the three and six months ended June 1, 2024 differ from the federal statutory rate of 21% primarily due to increases in the valuation allowance placed on deferred tax assets associated with Noa Home Inc. (“Noa Home”), the effects of state income taxes and various permanent differences.

 

Our effective tax rate was 18.4% and 27.1% for the three and six months ended May 27, 2023, respectively. The effective rates for the three and six months ended May 27, 2023 differ from the federal statutory rate of 21% primarily due to the non-taxable gain on revaluation of contingent consideration associated with the acquisition of Noa Home (see Note 9), increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences.

 

Non-cash Investing and Financing Activity

 

During the six months ended June 1, 2024 and May 27, 2023, $3,476 and $3,881, respectively, of lease right-of-use assets were added through the recognition of the corresponding lease obligations.

 

7 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

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 $17,814 and $17,775 at June 1, 2024 and November 25, 2023, respectively, consisted of CDs. At June 1, 2024, the CDs had original terms averaging seven months, bearing interest at rates ranging from 0.7% to 5.4% and the weighted average remaining time to maturity was approximately three months and the weighted average yield of the CDs was approximately 4.97%. 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 June 1, 2024 and November 25, 2023 approximates their fair value.

 

 

 

4. Accounts Receivable

 

Accounts receivable consists of the following:

 

   

June 1, 2024

   

November 25, 2023

 

Gross accounts receivable

  $ 14,617     $ 14,271  

Allowance for doubtful accounts

    (1,122 )     (535 )

Accounts receivable, net

  $ 13,495     $ 13,736  

 

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 collectability 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.

 

Activity in the allowance for credit losses for the six months ended June 1, 2024 was as follows:

 

   

2024

 
         

Balance at November 25, 2023

  $ 535  

Additions charged to expense

    643  

Write-offs against allowance

    (56 )

Balance at June 1, 2024

  $ 1,122  

 

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.

 

8 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

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:

 

   

June 1, 2024

   

November 25, 2023

 

Wholesale finished goods

  $ 25,062     $ 27,521  

Work in process

    613       637  

Raw materials and supplies

    17,266       18,655  

Retail merchandise

    33,062       33,090  

Total inventories on first-in, first-out method

    76,003       79,903  

LIFO adjustment

    (11,757 )     (11,738 )

Reserve for excess and obsolete inventory

    (7,371 )     (5,183 )
    $ 56,875     $ 62,982  

 

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.

 

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

 

   

Wholesale

Segment

   

Retail Segment

   

Corporate
& Other (1)

   

Total

 
                                 

Balance at November 25, 2023

  $ 4,145     $ 1,038     $ -     $ 5,183  

Additions charged to expense

    2,977       402       500       3,879  

Write-offs

    (1,440 )     (251 )     -       (1,691 )

Balance at June 1, 2024

  $ 5,682     $ 1,189     $ 500     $ 7,371  

 

 

(1)

Consists of a $500 reserve established against the retail inventory held by Noa Home due to our decision to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

 

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 2024 and do not anticipate that our methodology is likely to change in the future.

 

9 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

6. Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets consisted of the following:

 

   

June 1, 2024

 
   

Gross Carrying

Amount

   

Accumulated

Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 512     $ (365 )   $ 147  
                         

Intangibles not subject to amortization:

                       

Trade names

                    6,849  

Goodwill

                    7,217  

Total goodwill and other intangible assets

                  $ 14,213  

 

   

November 25, 2023

 
   

Gross Carrying

Amount

   

Accumulated

Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 512     $ (337 )   $ 175  
                         

Intangibles not subject to amortization:

                       

Trade names

                    8,675  

Goodwill

                    7,217  

Total goodwill and other intangible assets

                  $ 16,067  

 

See Note 9 regarding the impairment of the trade name intangible asset for Noa Home.

 

There were no changes in the carrying amounts of goodwill during the six months ended June 1, 2024.

 

The carrying amounts of goodwill by reportable segment, including accumulated impairment losses, at both June 1, 2024 and November 25, 2023 were as follows:

 

   

Original

   

Accumulated

         
   

Recorded

   

Impairment

   

Carrying

 
   

Value

   

Losses

   

Amount

 
                         

Wholesale

  $ 9,188     $ (1,971 )   $ 7,217  

Retail

    1,926       (1,926 )     -  

Corporate and other

    5,409       (5,409 )     -  
                         

Total goodwill

  $ 16,523     $ (9,306 )   $ 7,217  

 

Amortization expense associated with intangible assets during the three and six months ended June 1, 2024 and May 27, 2023 was as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 
                                 

Intangible asset amortization expense

  $ 14     $ 14     $ 28     $ 28  

 

10 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

 

Estimated future amortization expense for intangible assets that exist at June 1, 2024 is as follows:

 

Remainder of fiscal 2024

  $ 28  

Fiscal 2025

    57  

Fiscal 2026

    57  

Fiscal 2027

    5  

Fiscal 2028

    -  

Fiscal 2029

    -  

Total

  $ 147  

 

  

 

7. Bank Credit Facility

 

On May 15, 2024, we entered into the Eighth Amended and Restated Credit Agreement with our bank (the “Credit Facility”). This credit facility provides for a line of credit of up to $25,000. At June 1, 2024, we had $6,013 outstanding under standby letters of credit against our line. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.75% and is secured by our accounts receivable and inventory. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, Consolidated Minimum Tangible Net Worth (as defined in the Credit Facility) shall at no time be less than $120,000. In addition, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis and commencing as of the end of the first fiscal quarter after the first date that the used commitment (the sum of any outstanding advances plus standby letters of credit) equals or exceeds $8,250:

 

 

Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.2 times and

 

 

Consolidated Lease Adjusted Leverage to EBITDAR Ratio (as defined in the Credit Facility) not to exceed 3.35 times.

 

Since our used commitment was less than $8,250 at June 1, 2024, we were not required to test the Consolidated Fixed Charge Coverage Ratio or the Consolidated Lease Adjusted Leverage to EBITDAR Ratio. Had we been required to test those ratios, we would not have been able to achieve the required levels for either of these ratios. Consequently, our availability under the Credit Facility is currently limited to an additional $2,237.

 

 

 

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 $5,827 and $5,778 as of June 1, 2024 and November 25, 2023, 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 five management employees in the amount of $400 each. We are accounting for the LTC Awards as a defined benefit pension plan. Currently, two of those employees have retired and are receiving benefits. The liability for the LTC Awards was $1,279 and $1,234 as of June 1, 2024 and November 25, 2023, respectively.

 

11 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

 

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

 

   

June 1, 2024

   

November 25, 2023

 

Accrued compensation and benefits

  $ 792     $ 792  

Post employment benefit obligations

    6,314       6,220  

Total pension liability

  $ 7,106     $ 7,012  

 

Components of net periodic pension costs for our defined benefit plans for the three and six months ended June 1, 2024 and May 27, 2023 are as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 

Service cost

  $ 3     $ 7     $ 7     $ 14  

Interest cost

    98       93       195       185  

Amortization of prior service costs

    25       31       51       63  

Amortization of loss

    (16 )     -       (32 )     -  

Net periodic pension cost

  $ 110     $ 131     $ 221     $ 262  

 

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 $1,656 and $1,655 as of June 1, 2024 and November 25, 2023, 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 $3,117 and $2661 as of June 1, 2024 and November 25, 2023, respectively.

 

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:

 

   

June 1, 2024

   

November 25, 2023

 

Accrued compensation and benefits

  $ 329     $ 329  

Post employment benefit obligations

    4,443       3,987  

Total deferred compensation liability

  $ 4,772     $ 4,316  

 

We recognized expense under our deferred compensation arrangements during the three and six months ended June 1, 2024 and May 27, 2023 as follows:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 

Deferred compensation expense (benefit)

  $ 171     $ 119     $ 626     $ 197  

 

12 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

9. Other Gains and Losses

 

Fiscal 2024

 

During the three and six months ended June 1, 2024, we recognized non-cash charges for asset impairments totaling $5,515 which consisted of the following:

 

 

$2,887 in our retail segment which included $1,978 related to the impairment of leasehold improvements and $750 from the impairment of right-of-use assets at certain underperforming retail stores, as well as $159 for the impairment of right-of-use assets at certain warehouse locations resulting from the consolidation of our retail warehouses.

 

$727 for the impairment of plant and equipment in our wholesale segment related to the consolidation of our domestic wood production facilities.

 

$1,901 for the impairment of long-lived assets at Noa Home. During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months. $1,827 of these charges are for the full impairment of the Noa Home trade name intangible asset, and $74 relates to the full impairment of customized software used in the Noa Home operations.

 

Our estimates of the fair value of the impaired right-of-use assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure.

 

Fiscal 2023

 

During the three and six months ended May 27, 2023, we recognized a non-cash gain of $1,013 resulting from the write-down of our contingent consideration obligation to the former owners of Noa Home. Subsequent to the acquisition of Noa Home on September 2, 2022, the parties concluded that the revenue and EBITDA targets originally set forth in the purchase agreement by which the Noa Home co-founders were to earn the contingent consideration were likely not to be met within the originally anticipated time frame and therefore agreed to replace the contingent consideration payable that was recognized at the acquisition date with two fixed payments of C$200 each. The first payment was made in June of 2023 and the second payment will be made in December of 2024.

 

 

 

10. 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.

 

Lease Guarantees

 

We were contingently liable under licensee lease obligation guarantees in the amounts of $5,322 and $1,845 at June 1, 2024 and November 25, 2023, respectively. The remaining term under these lease guarantees extends for six years.

 

In the event of default by the licensee, 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 licensee 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 obligation, net of recorded reserves. The fair value of these lease guarantees (an estimate of the cost to the Company to perform on the guarantee) at June 1, 2024 and November 25, 2023 was not material.

 

13 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

11. Earnings (Loss) Per Share

 

The following reconciles basic and diluted earnings (loss) per share:

 

   

Net Income

(Loss)

   

Weighted Average

Shares

   

Net Income

(Loss) Per

Share

 

For the quarter ended June 1, 2024:

                       
                         

Basic loss per share

  $ (7,201 )     8,762,815     $ (0.82 )

Add effect of dilutive securities:

                       

Restricted shares*

    -       -       -  

Diluted loss per share - continuing operations

  $ (7,201 )     8,762,815     $ (0.82 )
                         

For the quarter ended May 27, 2023:

                       
                         

Basic earnings per share

  $ 2,076       8,810,178     $ 0.24  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       11,853       -  

Diluted earnings per share

  $ 2,076       8,822,031     $ 0.24  
                         

For the six months ended June 1, 2024:

                       
                         

Basic earnings per share - continuing operations

  $ (8,394 )     8,751,315     $ (0.96 )

Add effect of dilutive securities:

                       

Restricted shares*

    -       -       -  

Diluted earnings per share - continuing operations

  $ (8,394 )     8,751,315     $ (0.96 )
                         

For the six months ended May 27, 2023:

                       
                         

Basic earnings per share - continuing operations

  $ 3,521       8,839,029     $ 0.40  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       18,881       -  

Diluted earnings per share - continuing operations

  $ 3,521       8,857,910     $ 0.40  

 

*Due to the net loss for the period, potentially dilutive securities would have been anti-dilutive and are therefore excluded.

 

For the three and six months ended June 1, 2024 and May 27, 2023, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 
                                 

Unvested shares

    64,409       15,113       64,409       66,113  

 

14 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

12. 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 includes Lane Venture.

 

 

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.

 

In addition to the two reportable segments described above, we include our remaining business activities and assets in a reconciling category known as Corporate and other. This category includes the shared costs of corporate functions such as treasury and finance, information technology, accounting, human resources, legal and others, including certain product development and marketing functions benefitting both wholesale and retail operations. In addition to property and equipment and various other assets associated with the shared corporate functions, the identifiable assets of Corporate and other include substantially all of our cash and our investments in CDs. We consider our corporate functions to be other business activities and have aggregated them with any of our operating segments that do not meet the requirements to be reportable segments. As of and for the periods ended June 1, 2024 and May 27, 2023, the only such operating segment included in Corporate and other is Noa Home, which was acquired on September 2, 2022. All sales reported in our Corporate and other category are attributable to Noa Home, which generates substantially all of its sales outside of the United States. During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

 

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.

 

15 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

 

The following table presents our segment information:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 

Sales Revenue

                               

Wholesale sales of furniture and accessories

  $ 52,609     $ 61,774     $ 107,310     $ 131,658  

Less: Sales to retail segment

    (20,751 )     (24,330 )     (44,514 )     (54,429 )

Wholesale sales to external customers

    31,858       37,444       62,796       77,229  

Retail sales of furniture and accessories

    50,468       60,778       104,222       125,740  

Corporate and other - Noa Home

    1,084       2,297       2,946       5,248  

Consolidated net sales of furniture and accessories

  $ 83,410     $ 100,519     $ 169,964     $ 208,217  
                                 

Income (Loss) before Income Taxes:

                               

Income (loss) from operations:

                               

Wholesale

  $ 5,687     $ 7,005     $ 12,446     $ 15,999  

Retail - Company-owned stores

    (2,222 )     755       (3,834 )     2,285  

Net expenses - Corporate and other

    (6,942 )     (6,949 )     (14,537 )     (14,720 )

Inter-company elimination

    530       656       621       605  

Asset impairment charges (see Note 9)

    (5,515 )     -       (5,515 )     -  

Gain on revaluation of contingent consideration (see Note 9)

    -       1,013       -       1,013  

Consolidated income (loss) from operations

    (8,462 )     2,480       (10,819 )     5,182  
                                 

Interest income

    627       569       1,383       721  

Other loss, net

    (276 )     (505 )     (380 )     (1,072 )

Consolidated income (loss) before income taxes

  $ (8,111 )   $ 2,544     $ (9,816 )   $ 4,831  
                                 

Depreciation and Amortization

                               

Wholesale

  $ 629     $ 614     $ 1,248     $ 1,220  

Retail - Company-owned stores

    1,337       1,533       2,717       2,832  

Corporate and other

    661       422       1,326       857  

Consolidated

  $ 2,627     $ 2,569     $ 5,291     $ 4,909  
                                 

Capital Expenditures

                               

Wholesale

  $ 371     $ 712     $ 534     $ 1,349  

Retail - Company-owned stores

    837       1,740       2,170       3,022  

Corporate and other

    399       1,612       979       3,034  

Consolidated

  $ 1,607     $ 4,064     $ 3,683     $ 7,405  

 

   

As of

   

As of

 
   

June 1, 2024

   

November 25, 2023

 
Identifiable Assets                

Wholesale

  $ 91,280     $ 99,004  

Retail - Company-owned stores

    159,721       166,604  

Corporate and other

    94,263       104,816  

Consolidated

  $ 345,264     $ 370,424  

 

See Note 13, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.

 

16 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

13. 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 at the time delivery is scheduled. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $23,021 and $22,788 as of June 1, 2024 and November 25, 2023, respectively. Substantially all of the customer deposits held as of November 25, 2023 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the six months ended June 1, 2024.

 

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 June 1, 2024 and November 25, 2023, our balance of prepaid commissions included in other current assets was $2,464 and $2,245, respectively.

 

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 June 1, 2024 and May 27, 2023, excluding intercompany transactions between our segments, is a follows:

 

   

Quarter Ended

 
   

June 1, 2024

   

May 27, 2023

 
   

Wholesale

   

Retail

   

Corporate

& Other (2)

   

Total

   

Wholesale

   

Retail

   

Corporate

& Other

   

Total

 

Bassett Custom Upholstery

  $ 21,921     $ 27,256     $ -     $ 49,177     $ 24,156     $ 34,711     $ -     $ 58,867  

Bassett Leather

    3,563       1,117       -       4,680       6,078       577       -       6,655  

Bassett Custom Wood

    3,427       8,522       -       11,949       4,201       9,798       -       13,999  

Bassett Casegoods

    2,947       6,390       -       9,337       3,009       7,771       -       10,780  

Accessories, mattresses and other (1)

    -       7,183       1,084       8,267       -       7,921       2,297       10,218  

Consolidated net sales of furniture and accessories

  $ 31,858     $ 50,468     $ 1,084     $ 83,410     $ 37,444     $ 60,778     $ 2,297     $ 100,519  

 

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

 
   

Wholesale

   

Retail

   

Corporate

& Other (2)

   

Total

   

Wholesale

   

Retail

   

Corporate

& Other

   

Total

 

Bassett Custom Upholstery

  $ 42,222     $ 57,059     $ -     $ 99,281     $ 48,659     $ 70,870     $ -     $ 119,529  

Bassett Leather

    7,522       1,944       -       9,466       12,883       1,071       -       13,954  

Bassett Custom Wood

    7,185       16,720       -       23,905       9,079       19,467       -       28,546  

Bassett Casegoods

    5,867       13,775       -       19,642       6,608       17,821       -       24,429  

Accessories, mattresses and other (1)

    -       14,724       2,946       17,670       -       16,511       5,248       21,759  

Consolidated net sales of furniture and accessories

  $ 62,796     $ 104,222     $ 2,946     $ 169,964     $ 77,229     $ 125,740     $ 5,248     $ 208,217  

 

 

(2)

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

 

(3)

Corporate and other for the three and six months ended June 1, 2024 and May 27, 2023 includes the sales of Noa Home.

 

17 of 35

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 1, 2024
(Dollars in thousands except share and per share data)

  

 

14. Changes to Stockholders Equity

 

The following changes in our stockholders’ equity occurred during the three and six months ended June 1, 2024 and May 27, 2023:

 

   

Quarter Ended

   

Six Months Ended

 
   

June 1, 2024

   

May 27, 2023

   

June 1, 2024

   

May 27, 2023

 

Common Stock:

                               
                                 

Beginning of period

  $ 43,883     $ 44,311     $ 43,842     $ 44,759  

Issuance of common stock

    98       95       191       187  

Purchase and retirement of common stock

    (173 )     (506 )     (225 )     (1,046 )
                                 

End of period

  $ 43,808     $ 43,900     $ 43,808     $ 43,900  
                                 

Common Shares Issued and Outstanding:

                               
                                 

Beginning of period

    8,776,349       8,862,137       8,768,221       8,951,839  

Issuance of common stock

    19,629       19,029       38,117       37,410  

Purchase and retirement of common stock

    (34,646 )     (101,254 )     (45,006 )     (209,337 )
                                 

End of period

    8,761,332       8,779,912       8,761,332       8,779,912  
                                 

Additional Paid-in Capital:

                               
                                 

Beginning of period

  $ 175     $ -