NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(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 nor any other of our counterparties represent VIEs.
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.
Revenues from logistical services are generated by our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) which we acquired in fiscal 2015. Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated in consolidation, and Zenith’s operating costs and expenses are included in selling, general and administrative expenses in our condensed consolidated statements of income.
2. Interim Financial Presentation
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the quarter ended February 25, 2017 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 26, 2016.
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 rates of 27.2% and 37.0% for the quarters ended February 25, 2017 and February 27, 2016, respectively, differ from the federal statutory rate primarily due to the effects of state income taxes and various permanent differences including the favorable impacts of excess tax benefits on stock-based compensation and the Section 199: Domestic Production Activities Deduction. During the quarter ended February 25, 2017, our income tax provision includes excess tax benefits on stock-based compensation in the amount of $327. No excess tax benefit was recognized during the quarter ended February 27, 2016.
3. Business Combination –
Licensee Store Acquisition
During the quarter ended February 25, 2017, we acquired the operations of the Bassett Home Furnishings (“BHF”) store located in Columbus, Ohio for a purchase price of $655. The store had been owned and operated by a licensee that had determined that continued ownership of a BHF store was no longer consistent with its future business objectives. We believe that Columbus, Ohio represents a viable market for a BHF store.
The purchase price was allocated as follows:
Inventory
|
|
$
|
343
|
|
Goodwill
|
|
|
312
|
|
Purchase price
|
|
$
|
655
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
The inputs into our valuation of the acquired assets reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 inputs as specified in the fair value hierarchy in ASC 820,
Fair Value Measurements and Disclosures
. See Note 4.
The pro forma impact of the acquisition and the results of operations for the Columbus store since acquisition are not material to our consolidated results of operations for the quarter ended February 25, 2017.
4. Financial Instruments and Fair Value Measurements
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, cost method investments, accounts payable and notes payable/long-term debt. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, and accounts payable approximate fair value. Our cost method investments generally involve entities for which it is not practical to determine fair values.
Investments
Our short-term investments of $23,125 at both February 25, 2017 and November 26, 2016 consisted of certificates of deposit (CDs) with original terms of twelve months, bearing interest at rates ranging from 0.28% to 1.10%. At February 25, 2017, the weighted average remaining time to maturity of the CDs was approximately four months and the weighted average yield of the CDs was approximately 0.65%. 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 February 25, 2017 and November 26, 2016 approximates their fair value.
Fair Value Measurement
The Company accounts for items measured at fair value in accordance with ASC Topic 820,
Fair Value Measurements and Disclosures
. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs
– Quoted prices for identical instruments in active markets.
Level 2 Inputs
– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs
– Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. The recurring estimate of the fair value of our notes payable for disclosure purposes (see Note 8) involves Level 3 inputs. Our primary non-recurring fair value estimates typically involve business acquisitions (Note 3) which involve a combination of Level 2 and Level 3 inputs.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
5. Accounts Receivable
Accounts receivable consists of the following:
|
|
February 25,
2017
|
|
|
November 26,
2016
|
|
Gross accounts receivable
|
|
$
|
19,214
|
|
|
$
|
19,157
|
|
Allowance for doubtful accounts
|
|
|
(744
|
)
|
|
|
(799
|
)
|
Accounts receivable, net
|
|
$
|
18,470
|
|
|
$
|
18,358
|
|
Activity in the allowance for doubtful accounts for the quarter ended February 25, 2017 was as follows:
Balance at November 26, 2016
|
|
$
|
799
|
|
Reductions to allowance
|
|
|
(55
|
)
|
Balance at February 25, 2017
|
|
$
|
744
|
|
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 4.
6
. Inventories
Inventories are valued at the lower of cost or market. Cost is determined for domestic furniture inventories using the last-in, first-out (LIFO) method. The costs for imported inventories are determined using the first-in, first-out (FIFO) method.
Inventories were comprised of the following:
|
|
February 25,
2017
|
|
|
November 26,
2016
|
|
Wholesale finished goods
|
|
$
|
23,516
|
|
|
$
|
24,392
|
|
Work in process
|
|
|
364
|
|
|
|
369
|
|
Raw materials and supplies
|
|
|
13,437
|
|
|
|
11,343
|
|
Retail merchandise
|
|
|
27,266
|
|
|
|
26,265
|
|
Total inventories on first-in, first-out method
|
|
|
64,583
|
|
|
|
62,369
|
|
LIFO adjustment
|
|
|
(7,871
|
)
|
|
|
(7,804
|
)
|
Reserve for excess and obsolete inventory
|
|
|
(1,239
|
)
|
|
|
(1,350
|
)
|
|
|
$
|
55,473
|
|
|
$
|
53,215
|
|
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.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(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 26, 2016
|
|
$
|
1,061
|
|
|
$
|
289
|
|
|
$
|
1,350
|
|
Additions charged to expense
|
|
|
139
|
|
|
|
120
|
|
|
|
259
|
|
Write-offs
|
|
|
(242
|
)
|
|
|
(128
|
)
|
|
|
(370
|
)
|
Balance at February 25, 2017
|
|
$
|
958
|
|
|
$
|
281
|
|
|
$
|
1,239
|
|
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 2017 and do not anticipate that our methodology is likely to change in the future.
7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
|
|
February 25, 2017
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,038
|
|
|
$
|
(422
|
)
|
|
$
|
2,616
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(248
|
)
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
3,872
|
|
|
|
(670
|
)
|
|
|
3,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
2,490
|
|
|
|
-
|
|
|
|
2,490
|
|
Goodwill
|
|
|
11,900
|
|
|
|
-
|
|
|
|
11,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$
|
18,262
|
|
|
$
|
(670
|
)
|
|
$
|
17,592
|
|
|
|
November 26, 2016
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,038
|
|
|
$
|
(371
|
)
|
|
$
|
2,667
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(219
|
)
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
3,872
|
|
|
|
(590
|
)
|
|
|
3,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
2,490
|
|
|
|
-
|
|
|
|
2,490
|
|
Goodwill
|
|
|
11,588
|
|
|
|
-
|
|
|
|
11,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$
|
17,950
|
|
|
$
|
(590
|
)
|
|
$
|
17,360
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
Changes in the carrying amounts of goodwill by reportable segment during the quarter ended February 25, 2017 were as follows:
|
|
Wholesale
|
|
|
Retail
|
|
|
Logistics
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 26, 2016
|
|
$
|
4,839
|
|
|
$
|
1,820
|
|
|
$
|
4,929
|
|
|
$
|
11,588
|
|
Goodwill arising from store acquisition (Note 3)
|
|
|
206
|
|
|
|
106
|
|
|
|
-
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 25, 2017
|
|
$
|
5,045
|
|
|
$
|
1,926
|
|
|
$
|
4,929
|
|
|
$
|
11,900
|
|
There were no accumulated impairment losses on goodwill as of February 25, 2017 or November 26, 2016.
Amortization expense associated with intangible assets during the quarters ended February 25, 2017 and February 27, 2016 was as follows:
|
|
Quarter Ended
|
|
|
|
February 25,
2017
|
|
|
February 27,
2016
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
$
|
80
|
|
|
$
|
81
|
|
8
.
Notes Payable and Bank Credit Facility
Our notes payable consist of the following:
|
|
February 25, 2017
|
|
|
|
Principal
Balance
|
|
|
Unamortized
Discount
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zenith acquisition note payable
|
|
$
|
3,000
|
|
|
$
|
(71
|
)
|
|
$
|
2,929
|
|
Real estate notes payable
|
|
|
1,124
|
|
|
|
-
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
4,124
|
|
|
|
(71
|
)
|
|
|
4,053
|
|
Less current portion
|
|
|
(3,391
|
)
|
|
|
71
|
|
|
|
(3,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
733
|
|
|
$
|
-
|
|
|
$
|
733
|
|
|
|
November 26, 2016
|
|
|
|
Principal
Balance
|
|
|
Unamortized
Discount
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zenith acquisition note payable
|
|
$
|
6,000
|
|
|
$
|
(108
|
)
|
|
$
|
5,892
|
|
Real estate notes payable
|
|
|
1,219
|
|
|
|
-
|
|
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
7,219
|
|
|
|
(108
|
)
|
|
|
7,111
|
|
Less current portion
|
|
|
(3,385
|
)
|
|
|
95
|
|
|
|
(3,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
3,834
|
|
|
$
|
(13
|
)
|
|
$
|
3,821
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
The future maturities of our notes payable are as follows:
Remainder of fiscal 2017
|
|
$
|
291
|
|
Fiscal 2018
|
|
|
3,412
|
|
Fiscal 2019
|
|
|
421
|
|
Fiscal 2020
|
|
|
-
|
|
Fiscal 2021
|
|
|
-
|
|
Fiscal 2022
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
4,124
|
|
Zenith
Acquisition Note Payable
As part of the consideration given for our acquisition of Zenith on February 2, 2015, we issued an unsecured note payable to the former owner in the amount of $9,000, payable in three annual installments of $3,000 due on each anniversary of the note. Interest is payable annually at the one year LIBOR rate. The note was recorded at its fair value in connection with the acquisition resulting in a debt discount that is amortized to the principal amount through the recognition of non-cash interest expense over the term of the note. Interest expense resulting from the amortization of the discount was $37 and $66 for the quarters ended February 25, 2017 and February 27, 2016, respectively. The current portion of the note due within one year, including unamortized discount, was $2,929 and $2,904 at February 25, 2017 and November 26, 2016, respectively.
Real Estate Notes Payable
Certain of our retail real estate properties have been financed through commercial mortgages with outstanding principal totaling $1,124 and $1,219 at February 25, 2017 and November 26, 2016, respectively. The mortgages bear interest at fixed rates of 6.73%. They are collateralized by the respective properties with net book values totaling approximately $5,825 and $5,858 at February 25, 2017 and November 26, 2016, respectively. The current portion of these mortgages due within one year was $391 and $385 as of February 25, 2017 and November 26, 2016, respectively.
Fair Value
We believe that the carrying amount of our notes payable approximates fair value at both February 25, 2017 and November 26, 2016. In estimating the fair value, we utilize current market interest rates for similar instruments. The inputs into these fair value calculations 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.
Bank
Credit Facility
Our credit facility with our bank provides for a line of credit of up to $15,000. This credit facility, which matures in December of 2018, is unsecured and contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement and expect to remain in compliance for the foreseeable future.
At February 25, 2017, we had $1,972 outstanding under standby letters of credit against our line, leaving availability under our credit line of $13,028. In addition, we have outstanding standby letters of credit with another bank totaling $511.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
9. Post Employment Benefit Obligations
We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for this plan was $11,871 and $11,863 as of February 25, 2017 and November 26, 2016, respectively, and is recorded as follows in the condensed consolidated balance sheets:
|
|
February 25,
2017
|
|
|
November 26,
2016
|
|
Accrued compensation and benefits
|
|
$
|
776
|
|
|
$
|
776
|
|
Post employment benefit obligations
|
|
|
11,095
|
|
|
|
11,087
|
|
|
|
|
|
|
|
|
|
|
Total pension liability
|
|
$
|
11,871
|
|
|
$
|
11,863
|
|
Components of net periodic pension costs are as follows:
|
|
Quarter Ended
|
|
|
|
February 25,
2017
|
|
|
February 27,
2016
|
|
Service cost
|
|
$
|
38
|
|
|
$
|
36
|
|
Interest cost
|
|
|
107
|
|
|
|
106
|
|
Amortization of transition obligation
|
|
|
11
|
|
|
|
11
|
|
Amortization of loss
|
|
|
83
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
239
|
|
|
$
|
234
|
|
The components of net periodic pension cost other than the service cost component are included in other loss, net in our condensed consolidated statements of income.
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 $1,949 and $1,969 as of February 25, 2017 and November 26, 2016, respectively, and is recorded as follows in the condensed consolidated balance sheets:
|
|
February 25,
2017
|
|
|
November 26,
2016
|
|
Accrued compensation and benefits
|
|
$
|
296
|
|
|
$
|
296
|
|
Post employment benefit obligations
|
|
|
1,653
|
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
Total deferred compensation liability
|
|
$
|
1,949
|
|
|
$
|
1,969
|
|
We recognized expense under this plan during the quarters ended February 25, 2017 and February 27, 2016 as follows:
|
|
Quarter Ended
|
|
|
|
February 25,
2017
|
|
|
February 27,
2016
|
|
Deferred compensation expense
|
|
$
|
54
|
|
|
$
|
57
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
1
0
.
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.
We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services segment. Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years. Some store leases contain contingent rental provisions based upon sales volume. Our transportation equipment leases have terms ranging from two to seven years with fixed monthly rental payments plus variable charges based upon mileage. The following schedule shows future minimum lease payments under non-cancellable operating leases with terms in excess of one year as of February 25, 2017:
|
|
Retail Stores
|
|
|
Distribution
Centers
|
|
|
Transportation
Equipment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of fiscal 2017
|
|
$
|
15,887
|
|
|
$
|
3,297
|
|
|
$
|
2,546
|
|
|
$
|
21,730
|
|
Fiscal 2018
|
|
|
20,023
|
|
|
|
3,101
|
|
|
|
2,210
|
|
|
|
25,334
|
|
Fiscal 2019
|
|
|
18,045
|
|
|
|
2,091
|
|
|
|
1,843
|
|
|
|
21,979
|
|
Fiscal 2020
|
|
|
16,722
|
|
|
|
1,392
|
|
|
|
1,743
|
|
|
|
19,857
|
|
Fiscal 2021
|
|
|
14,425
|
|
|
|
1,349
|
|
|
|
1,169
|
|
|
|
16,943
|
|
Fiscal 2022
|
|
|
11,746
|
|
|
|
1,743
|
|
|
|
963
|
|
|
|
14,452
|
|
Thereafter
|
|
|
33,470
|
|
|
|
1,320
|
|
|
|
254
|
|
|
|
35,044
|
|
Total future minimum lease payments
|
|
$
|
130,318
|
|
|
$
|
14,293
|
|
|
$
|
10,728
|
|
|
$
|
155,339
|
|
We also have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to ten years. We were contingently liable under licensee lease obligation guarantees in the amount of $1,611 and $1,868 at February 25, 2017 and November 26, 2016, 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, liquidating the collateral (primarily inventory), and pursuing payment under the personal guarantees of the independent dealer. 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 February 25, 2017 and November 26, 2016 was not material.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
1
1
.
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 February 25, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2,861
|
|
|
|
10,613,639
|
|
|
$
|
0.27
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
105,636
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
2,861
|
|
|
|
10,719,275
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended February 27, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3,234
|
|
|
|
10,780,229
|
|
|
$
|
0.30
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
104,327
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
3,234
|
|
|
|
10,884,556
|
|
|
$
|
0.30
|
|
For the quarters ended February 25, 2017 and February 27, 2016, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
|
|
Quarter Ended
|
|
|
|
February 25,
2017
|
|
|
February 27,
2016
|
|
|
|
|
|
|
|
|
|
|
Unvested shares
|
|
|
-
|
|
|
|
2,000
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
1
2
. Segment
Information
We have strategically aligned our business into three 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 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 income.
|
|
●
|
Retail – Company-owned
s
tores.
Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores.
|
|
●
|
Logistical services
.
Our logistical services operating segment reflects the operations of Zenith. In addition to providing shipping, delivery and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistical services revenue in our condensed consolidated statement of income. Zenith’s total operating costs, including those associated with providing logistical services to the Company as well as to third-party customers, are included in selling, general and administrative expenses and were $22,560 and $23,934 for the quarters ended February 25, 2017 and February 27, 2016, respectively.
|
Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale and retail segments. 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, and the elimination of shipping and handling charges from Zenith for services provided to our wholesale and retail operations.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
The following table presents our segment information:
|
|
Quarter Ended
|
|
|
|
February 25,
2017
|
|
|
February 27,
2016
|
|
Sales Revenue
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
61,975
|
|
|
$
|
59,576
|
|
Retail - Company-owned stores
|
|
|
61,593
|
|
|
|
61,595
|
|
Logistical services
|
|
|
22,334
|
|
|
|
24,679
|
|
Inter-company eliminations:
|
|
|
|
|
|
|
|
|
Furniture and accessories
|
|
|
(29,870
|
)
|
|
|
(28,769
|
)
|
Logistical services
|
|
|
(10,140
|
)
|
|
|
(10,208
|
)
|
Consolidated
|
|
$
|
105,892
|
|
|
$
|
106,873
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Operations
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
5,893
|
|
|
$
|
4,398
|
|
Retail - Company-owned stores
|
|
|
(1,343
|
)
|
|
|
316
|
|
Logistical services
|
|
|
(226
|
)
|
|
|
744
|
|
Inter-company elimination
|
|
|
340
|
|
|
|
333
|
|
Consolidated
|
|
$
|
4,664
|
|
|
$
|
5,791
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
644
|
|
|
$
|
456
|
|
Retail - Company-owned stores
|
|
|
1,472
|
|
|
|
1,531
|
|
Logistical services
|
|
|
1,235
|
|
|
|
830
|
|
Consolidated
|
|
$
|
3,351
|
|
|
$
|
2,817
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
1,627
|
|
|
$
|
1,537
|
|
Retail - Company-owned stores
|
|
|
3,703
|
|
|
|
2,021
|
|
Logistical services
|
|
|
280
|
|
|
|
5,010
|
|
Consolidated
|
|
$
|
5,610
|
|
|
$
|
8,568
|
|
|
|
As of
|
|
|
As of
|
|
Identifiable Assets
|
|
February 25,
2017
|
|
|
November 26,
2016
|
|
Wholesale
|
|
$
|
129,200
|
|
|
$
|
139,477
|
|
Retail - Company-owned stores
|
|
|
92,447
|
|
|
|
88,855
|
|
Logistical services
|
|
|
48,002
|
|
|
|
49,935
|
|
Consolidated
|
|
$
|
269,649
|
|
|
$
|
278,267
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
1
3
. Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates ASC Topic 606,
Revenue from Contracts with Customers
, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Companies are allowed to select between two transition methods: (1) a full retrospective transition method with the application of the new guidance to each prior reporting period presented, or (2) a retrospective transition method that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures. In addition, during 2016 the FASB has issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09, and ASU 2016-11, which rescinds certain SEC guidance within the ASC effective upon an entity’s adoption of ASU 2014-09. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is not permitted. Therefore the amendments in ASU 2014-09 will become effective for us as of the beginning of our 2019 fiscal year. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and have not made any decision on the method of adoption.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory
. ASU 2015-11 requires that inventory within the scope of this Update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. Therefore the amendments in ASU 2015-11 will become effective for us as of the beginning of our 2018 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Furthermore, equity investments without readily determinable fair values are to be assessed for impairment using a quantitative approach. The amendments in ASU 2016-01 should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. The amendments in ASU 2016-01 will become effective for us as of the beginning of our 2019 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases (Topic 842)
. The guidance in ASU 2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. The guidance in ASU 2016-02 will become effective for us as of the beginning of our 2020 fiscal year. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements, which we expect will have a material effect on our statement of financial position, and have not made any decision on the method of adoption with respect to the optional practical expedients.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
In August 2016, the FASB issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing existing diversity in practice with respect to these items. Among the types of cash flows addressed are payments for costs related to debt prepayments or extinguishments, payments representing accreted interest on discounted debt, payments of contingent consideration after a business combination, proceeds from insurance claims and company-owned life insurance, and distributions from equity method investees, among others. The amendments in ASU 2016-15 are to be adopted retrospectively and will become effective for as at the beginning of our 2019 fiscal year. Early adoption, including adoption in an interim period, is permitted. The adoption of this guidance is not expected to have a material impact upon our presentation of cash flows.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations
(Topic
805
):
Clarifying the Definition of a Business
. ASU 2017-01 provides a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) does not constitute a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in ASU 2017-01 (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in ASU 2017-01 shall apply prospectively and will become effective for as at the beginning of our 2019 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Intangibles – Goodwill and Other
(Topic
350
):
Simplifying the Test for Goodwill Impairment
. ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.
Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in ASU 2017-04 will become effective for us as of the beginning of our 2021 fiscal year.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)
In March 2017, the FASB issued Accounting Standards Update No. 2017-07,
Compensation – Retirement Benefits
(Topic
715
):
Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost
. Under existing GAAP, an entity is required to present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. The amendments in ASU 2017-07 require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in ASU 2017-07 shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic
postretirement benefit in assets.
Early adoption is permitted, and we have elected to adopt the amendments in ASU 2017-07 effective as of the beginning of our 2017 fiscal year. The adoption of this guidance did not have a material impact upon our financial condition or results of operations.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 25, 2017
(Dollars in thousands except share and per share data)