The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(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”). 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.
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, 2019 is a 53-week year, with the additional week being included in our first fiscal quarter. Accordingly, the information presented below includes 40 weeks of operations for the nine months ended August 31, 2019 as compared with 39 weeks included in the nine months ended August 25, 2018.
Lane Venture Acquisition
On December 21, 2017, we purchased certain assets and assumed certain liabilities of Lane Venture from Heritage Home Group, LLC. Lane Venture is being operated as a component of our wholesale segment (see Note 3, Business Combinations). Results of operations for the Lane Venture business are included in our condensed consolidated statements of income since the date of acquisition.
Recently Adopted Accounting Pronouncements
Effective as of the beginning of fiscal 2019, we have adopted 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 with comparative amounts in prior period cash flow statements reclassified to conform to the current period presentation. Accordingly, for the nine months ended August 25, 2018 we have reclassified investments in Company-owned life insurance (net of death benefits received) of $672 from cash flows from operating activities to cash flows from investing activities, and we have reclassified $78 representing the portion of a debt payment attributable to discount accretion from cash flows from financing activities to cash flows from operating activities.
As of the beginning of fiscal 2019, we also adopted Accounting Standards Update No. 2014-09, Revenue – Revenue from Contracts with Customers (Topic 606 or “ASC 606”). Refer to Note 14, Revenue Recognition, for more information regarding the impact of ASC 606 on our financial statements.
7 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
2. Interim Financial Presentation
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and nine months ended August 31, 2019 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 24, 2018.
Income Taxes and Impact of the Tax Cuts and Jobs Act
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.
On December 22, 2017, The Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduced the federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018 for all corporate taxpayers. Our effective tax rates of 30.5% and 28.4% for the three and nine months ended August 31, 2019, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences.
Because the Act specified the new 21% tax rate beginning on January 1, 2018, we were only subject to the reduced rate for 11 months of fiscal 2018. Therefore, we computed our income tax expense for fiscal 2018 using a blended federal statutory rate of 22.2%. Our effective tax rates for the three and nine months ended August 25, 2018 were 23.1% and 40.8%, respectively. The effective tax rate for the nine months ended August 25, 2018 differs from the blended statutory rate primarily due to a discrete charge of $2,032 arising from the re-measurement of our deferred tax assets at the lower statutory rate. Other items impacting our effective tax rate for the three and nine months ended August 25, 2018 included the effects of state income taxes and various permanent differences including the favorable impacts of excess tax benefits on stock-based compensation of $26 and $223, respectively, non-taxable life insurance proceeds of $266 during the nine months ended August 25, 2018, and the Section 199: Domestic Production Activities Deduction, which was eliminated by the Act for our fiscal 2019 tax return.
8 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
3. Business Combinations
Acquisition of Lane Venture
On December 21, 2017, we purchased certain assets and assumed certain liabilities of Lane Venture from Heritage Home Group, LLC for $15,556 in cash. Lane Venture is a manufacturer and distributor of premium outdoor furniture, and is now being operated as a component of our wholesale segment.
Under the acquisition method of accounting, the fair value of the consideration transferred was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date with the remaining unallocated amount recorded as goodwill.
The allocation of the $15,556 all-cash purchase price to the acquired assets and liabilities of the Lane Venture business, was as follows:
Allocation of the fair value of consideration transferred:
|
|
|
|
|
Identifiable assets acquired:
|
|
|
|
|
|
Accounts receivable, net of reserve
|
|
$
|
1,507
|
|
Inventory, net of reserve
|
|
|
3,718
|
|
Prepaid expenses and other current assets
|
|
|
37
|
|
Intangible assets
|
|
|
7,360
|
|
Total identifiable assets acquired
|
|
|
12,622
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
(357
|
)
|
Other accrued liabilities
|
|
|
(852
|
)
|
Total liabilities assumed
|
|
|
(1,209
|
)
|
Net identifiable assets acquired
|
|
|
11,413
|
|
Goodwill
|
|
|
4,143
|
|
Total net assets acquired
|
|
$
|
15,556
|
|
Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the value assigned to the tangible and intangible assets and liabilities recognized in connection with the acquisition and is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill are the expected synergies arising from combining the Company’s manufacturing and distribution capabilities with Lane Venture’s position in the outdoor furnishings market, a segment of the market not previously served by Bassett.
A portion of the fair value of the consideration transferred was assigned to identifiable intangible assets as follows:
|
|
Useful Life
|
|
|
|
|
|
Description
|
|
In Years
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
Indefinite
|
|
|
$
|
6,848
|
|
Customer relationships
|
|
|
9
|
|
|
|
512
|
|
Total acquired intangible assets
|
|
|
|
|
|
$
|
7,360
|
|
The finite-lived intangible asset is being amortized on a straight-line basis over its estimated useful life. The indefinite-lived intangible asset and goodwill are not amortized but will be tested for impairment annually or between annual tests if an indicator of impairment exists.
The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and Disclosures. See Note 4.
Acquisition costs related to the Lane Venture acquisition totaled $256 during the nine months ended August 25, 2018, and are included in selling, general and administrative expenses in the condensed consolidated statements of income. The acquisition costs are primarily related to legal, accounting and valuation services.
The pro forma results of operations for the acquisition of Lane Venture have not been presented because they are not material to our consolidated results of operations for the nine months ended August 25, 2018.
9 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
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. 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.
Investments
Our short-term investments of $17,643 at August 31, 2019 and $22,643 at November 24, 2018 consisted of certificates of deposit (CDs). At August 31, 2019, the CDs had original terms averaging nine months, bearing interest at rates ranging from 0.85% to 2.70%. At August 31, 2019, the weighted average remaining time to maturity of the CDs was approximately four months and the weighted average yield of the CDs was approximately 2.31%. 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 August 31, 2019 and November 24, 2018 approximates their fair value. During the three and nine months ended August 31, 2019 and August 25, 2018, CDs totaling $5,000 and $482, respectively, matured and the proceeds were not reinvested. These maturities are included in cash flows from investing activities in our condensed consolidated statements of cash flows.
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.
10 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
5. Accounts Receivable
Accounts receivable consists of the following:
|
|
August 31,
2019
|
|
|
November 24,
2018
|
|
Gross accounts receivable
|
|
$
|
21,429
|
|
|
$
|
19,809
|
|
Allowance for doubtful accounts
|
|
|
(789
|
)
|
|
|
(754
|
)
|
Accounts receivable, net
|
|
$
|
20,640
|
|
|
$
|
19,055
|
|
Activity in the allowance for doubtful accounts for the nine months ended August 31, 2019 was as follows:
Balance at November 24, 2018
|
|
$
|
754
|
|
Additions to allowance, net
|
|
|
35
|
|
Balance at August 31, 2019
|
|
$
|
789
|
|
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
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 Lane Venture 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:
|
|
August 31,
2019
|
|
|
November 24,
2018
|
|
Wholesale finished goods
|
|
$
|
25,756
|
|
|
$
|
30,750
|
|
Work in process
|
|
|
458
|
|
|
|
432
|
|
Raw materials and supplies
|
|
|
17,504
|
|
|
|
15,503
|
|
Retail merchandise
|
|
|
32,848
|
|
|
|
27,599
|
|
Total inventories on first-in, first-out method
|
|
|
76,566
|
|
|
|
74,284
|
|
LIFO adjustment
|
|
|
(8,545
|
)
|
|
|
(8,326
|
)
|
Reserve for excess and obsolete inventory
|
|
|
(2,556
|
)
|
|
|
(1,766
|
)
|
|
|
$
|
65,465
|
|
|
$
|
64,192
|
|
11 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
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
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 24, 2018
|
|
$
|
1,500
|
|
|
$
|
266
|
|
|
$
|
1,766
|
|
Additions charged to expense
|
|
|
1,481
|
|
|
|
272
|
|
|
|
1,753
|
|
Write-offs
|
|
|
(741
|
)
|
|
|
(222
|
)
|
|
|
(963
|
)
|
Balance at August 31, 2019
|
|
$
|
2,240
|
|
|
$
|
316
|
|
|
$
|
2,556
|
|
Additions charged to expense for our wholesale segment during the nine months ended August 31, 2019 includes a $390 inventory valuation charge arising from our decision to exit the juvenile furniture line of business.
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 2019 and do not anticipate that our methodology is likely to change in the future.
12 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
|
|
August 31, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,550
|
|
|
$
|
(1,023
|
)
|
|
$
|
2,527
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(546
|
)
|
|
|
288
|
|
Total intangible assets subject to amortization
|
|
|
4,384
|
|
|
|
(1,569
|
)
|
|
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
9,338
|
|
|
|
-
|
|
|
|
9,338
|
|
Goodwill
|
|
|
16,043
|
|
|
|
-
|
|
|
|
16,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$
|
29,765
|
|
|
$
|
(1,569
|
)
|
|
$
|
28,196
|
|
|
|
November 24, 2018
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,550
|
|
|
$
|
(829
|
)
|
|
$
|
2,721
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(456
|
)
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
4,384
|
|
|
|
(1,285
|
)
|
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
9,338
|
|
|
|
-
|
|
|
|
9,338
|
|
Goodwill
|
|
|
16,043
|
|
|
|
-
|
|
|
|
16,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$
|
29,765
|
|
|
$
|
(1,285
|
)
|
|
$
|
28,480
|
|
There were no accumulated impairment losses on goodwill as of August 31, 2019 or November 24, 2018.
The carrying amounts of goodwill by reportable segment at both August 31, 2019 and November 24, 2018 were as follows:
Wholesale
|
|
$
|
9,188
|
|
Retail
|
|
|
1,926
|
|
Logistical services
|
|
|
4,929
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
16,043
|
|
13 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
Amortization expense associated with intangible assets during the three and nine months ended August 31, 2019 and August 25, 2018 was as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
$
|
95
|
|
|
$
|
95
|
|
|
$
|
285
|
|
|
$
|
280
|
|
Estimated future amortization expense for intangible assets that exist at August 31, 2019 is as follows:
Remainder of fiscal 2019
|
|
$
|
95
|
|
Fiscal 2020
|
|
|
379
|
|
Fiscal 2021
|
|
|
379
|
|
Fiscal 2022
|
|
|
279
|
|
Fiscal 2023
|
|
|
259
|
|
Fiscal 2024
|
|
|
259
|
|
Thereafter
|
|
|
1,165
|
|
|
|
|
|
|
Total
|
|
$
|
2,815
|
|
8. Notes Payable and Bank Credit Facility
Real Estate Notes Payable
Certain of our retail real estate properties were financed through commercial mortgages with outstanding principal totaling $292 at November 24, 2018, which was included in other current liabilities and accrued expenses in the accompanying condensed consolidated balance sheet. These obligations were paid in full during the third quarter of fiscal 2019.
Fair Value
We believe that the carrying amount of our notes payable approximated fair value at November 24, 2018. 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 4.
Bank Credit Facility
Our credit facility with our bank provides for a line of credit of up to $25,000. This credit facility 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. The credit facility will mature in December 2021.
At August 31, 2019, we had $2,798 outstanding under standby letters of credit against our line, leaving availability under our credit line of $22,202. In addition, we have outstanding standby letters of credit with another bank totaling $325.
14 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
9. 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 $10,065 and $10,574 as of August 31, 2019 and November 24, 2018, respectively.
We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $2,000 to certain management employees in the amount of $400 each. The liability for the LTC Awards was $1,147 and $1,078 as of August 31, 2019 and November 24, 2018, respectively.
The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:
|
|
August 31,
2019
|
|
|
November 24,
2018
|
|
Accrued compensation and benefits
|
|
$
|
798
|
|
|
$
|
798
|
|
Post employment benefit obligations
|
|
|
10,414
|
|
|
|
10,854
|
|
|
|
|
|
|
|
|
|
|
Total pension liability
|
|
$
|
11,212
|
|
|
$
|
11,652
|
|
Components of net periodic pension costs for our defined benefit plans for the three and nine months ended August 31, 2019 and August 25, 2018 are as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
Service cost
|
|
$
|
47
|
|
|
$
|
49
|
|
|
$
|
141
|
|
|
$
|
147
|
|
Interest cost
|
|
|
110
|
|
|
|
105
|
|
|
|
331
|
|
|
|
315
|
|
Amortization of prior service costs
|
|
|
31
|
|
|
|
31
|
|
|
|
94
|
|
|
|
93
|
|
Amortization of transition obligation
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
33
|
|
Amortization of loss
|
|
|
46
|
|
|
|
65
|
|
|
|
138
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
234
|
|
|
$
|
261
|
|
|
$
|
704
|
|
|
$
|
783
|
|
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.
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 $1,782 and $1,837 as of August 31, 2019 and November 24, 2018, 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 $786 and $611 as of August 31, 2019 and November 24, 2018, respectively.
15 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:
|
|
August 31,
2019
|
|
|
November 24,
2018
|
|
Accrued compensation and benefits
|
|
$
|
266
|
|
|
$
|
266
|
|
Post employment benefit obligations
|
|
|
2,302
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
Total deferred compensation liability
|
|
$
|
2,568
|
|
|
$
|
2,319
|
|
We recognized expense under our deferred compensation arrangements during the three and nine months ended August 31, 2019 and August 25, 2018 as follows:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
Deferred compensation expense
|
|
$
|
84
|
|
|
$
|
161
|
|
|
$
|
267
|
|
|
$
|
320
|
|
10. Other Operating Gains and Losses
Fiscal 2019
Early Retirement Program
During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company. Twenty-three employees accepted the offer, which expired on February 28, 2019. These employees are to receive pay equal to one-half their current salary plus benefits over a period of one year from the final day of each individual’s active employment. Accordingly, we recognized a charge of $835 during the nine months ended August 31, 2019. The unpaid obligation of $564 is included in other current liabilities and accrued expenses in our condensed consolidated balance sheet as of August 31, 2019.
Fiscal 2018
Sale of Retail Location
In May 2018 we sold the land and building occupied by our Spring, Texas retail store in connection with the eventual relocation of the store to another site in the Houston market. We received net cash proceeds of $2,463 from the sale, resulting in a gain of $165 recognized during the nine months ended August 25, 2018 which is included in income from operations in our accompanying condensed consolidated statements of income.
16 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
11. 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 retail and logistical services segments. We also lease tractors and trailers used in our logistical services segment, and local delivery trucks used in our retail 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 August 31, 2019:
|
|
Retail Stores
|
|
|
Warehousing
& Distribution
Centers
|
|
|
Transportation
Equipment
|
|
|
All Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of fiscal 2019
|
|
$
|
6,243
|
|
|
$
|
1,413
|
|
|
$
|
1,271
|
|
|
$
|
465
|
|
|
$
|
9,392
|
|
Fiscal 2020
|
|
|
24,305
|
|
|
|
5,378
|
|
|
|
4,878
|
|
|
|
1,741
|
|
|
|
36,302
|
|
Fiscal 2021
|
|
|
21,734
|
|
|
|
4,748
|
|
|
|
3,700
|
|
|
|
1,048
|
|
|
|
31,230
|
|
Fiscal 2022
|
|
|
19,242
|
|
|
|
4,551
|
|
|
|
2,557
|
|
|
|
525
|
|
|
|
26,875
|
|
Fiscal 2023
|
|
|
17,419
|
|
|
|
3,100
|
|
|
|
1,251
|
|
|
|
11
|
|
|
|
21,781
|
|
Fiscal 2024
|
|
|
13,445
|
|
|
|
1,299
|
|
|
|
989
|
|
|
|
5
|
|
|
|
15,738
|
|
Thereafter
|
|
|
41,008
|
|
|
|
676
|
|
|
|
340
|
|
|
|
-
|
|
|
|
42,024
|
|
Total future minimum lease payments
|
|
$
|
143,396
|
|
|
$
|
21,165
|
|
|
$
|
14,986
|
|
|
$
|
3,795
|
|
|
$
|
183,342
|
|
Improvement allowances received from lessors at the inception of a lease are deferred and amortized over the term of the lease. The unamortized balance of such amounts was $8,016 and $6,716 at August 31, 2019 and November 24, 2018, respectively, with the non-current portion of $6,793 and $5,715, respectively, included in other long term liabilities in our condensed consolidated balance sheets and the remaining current portion included in other current liabilities and accrued expenses. At August 31, 2019 and November 24, 2018 prepaid rent of $3,079 and $245, respectively, was included in other current assets in our condensed consolidated balance sheets.
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 $1,818 and $2,021 at August 31, 2019 and November 24, 2018, respectively.
17 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at August 31, 2019 and November 24, 2018 was not material.
12. 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 August 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2,157
|
|
|
|
10,212,259
|
|
|
$
|
0.21
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
28,276
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
2,157
|
|
|
|
10,240,535
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended August 25, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2,945
|
|
|
|
10,666,529
|
|
|
$
|
0.28
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
33,188
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
2,945
|
|
|
|
10,699,717
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended August 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3,210
|
|
|
|
10,368,891
|
|
|
$
|
0.31
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
26,914
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
3,210
|
|
|
|
10,395,805
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended August 25, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
6,321
|
|
|
|
10,684,720
|
|
|
$
|
0.59
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
46,632
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
6,321
|
|
|
|
10,731,352
|
|
|
$
|
0.59
|
|
18 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
For the three and nine months ended August 31, 2019 and August 25, 2018, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares
|
|
|
45,653
|
|
|
|
-
|
|
|
|
45,653
|
|
|
|
5,292
|
|
13. 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, which now include Lane Venture (see Note 3, Business Combinations), 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 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.
|
|
●
|
Logistical services. Our logistical services segment reflects the operations of Zenith. In addition to providing shipping 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 statements 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 $18,289 and $59,298 for the three and nine months ended August 31, 2019, and $19,979 and $62,011 for the three and nine months ended August 25, 2018, respectively.
|
During the fourth quarter of fiscal 2018, we substantially completed transferring operational control of home delivery services for BHF stores from Zenith to our retail segment, including the transfer of the assets and many of the employees used in providing that service. Accordingly, the results for the retail and logistical services segments for all periods presented have been restated to present the depreciation and amortization, capital expenditures and identifiable assets associated with home delivery services formerly provided by Zenith to the Bassett retail segment as though they had been incurred within the retail segment, and intercompany revenues for those services are no longer included in the logistical services segment. The impact of the restatement upon the income (loss) from operations for both the logistical services and retail segments was not material. Concurrently with the transfer of home delivery operations to retail, Zenith also ceased providing such services to third party customers. Revenues from Zenith’s home delivery services formerly provided to third party customers and the associated costs thereof continue to be reported in the logistical services segment. Zenith continues to provide other intercompany shipping and warehousing services to Bassett which are eliminated in consolidation.
19 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
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.
The following table presents our segment information:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
Sales Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
62,690
|
|
|
$
|
63,847
|
|
|
$
|
198,602
|
|
|
$
|
190,735
|
|
Retail - Company-owned stores
|
|
|
66,539
|
|
|
|
65,430
|
|
|
|
198,736
|
|
|
|
198,773
|
|
Logistical services
|
|
|
18,899
|
|
|
|
20,119
|
|
|
|
60,743
|
|
|
|
62,770
|
|
Inter-company eliminations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and accessories
|
|
|
(30,860
|
)
|
|
|
(29,470
|
)
|
|
|
(95,789
|
)
|
|
|
(90,903
|
)
|
Logistical services
|
|
|
(7,849
|
)
|
|
|
(6,970
|
)
|
|
|
(23,842
|
)
|
|
|
(21,167
|
)
|
Consolidated
|
|
$
|
109,419
|
|
|
$
|
112,956
|
|
|
$
|
338,450
|
|
|
$
|
340,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
3,044
|
|
|
$
|
3,298
|
|
|
$
|
10,399
|
|
|
$
|
9,401
|
|
Retail - Company-owned stores
|
|
|
(431
|
)
|
|
|
858
|
|
|
|
(6,430
|
)
|
|
|
971
|
|
Logistical services
|
|
|
610
|
|
|
|
139
|
|
|
|
1,574
|
|
|
|
758
|
|
Inter-company elimination
|
|
|
177
|
|
|
|
29
|
|
|
|
342
|
|
|
|
907
|
|
Early retirement program
|
|
|
-
|
|
|
|
-
|
|
|
|
(835
|
)
|
|
|
-
|
|
Consolidated
|
|
$
|
3,400
|
|
|
$
|
4,324
|
|
|
$
|
5,050
|
|
|
$
|
12,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
752
|
|
|
$
|
793
|
|
|
$
|
2,397
|
|
|
$
|
2,253
|
|
Retail - Company-owned stores
|
|
|
1,612
|
|
|
|
1,333
|
|
|
|
4,661
|
|
|
|
4,602
|
|
Logistical services
|
|
|
993
|
|
|
|
1,106
|
|
|
|
3,034
|
|
|
|
3,065
|
|
Consolidated
|
|
$
|
3,357
|
|
|
$
|
3,232
|
|
|
$
|
10,092
|
|
|
$
|
9,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
670
|
|
|
$
|
1,154
|
|
|
$
|
2,810
|
|
|
$
|
3,484
|
|
Retail - Company-owned stores
|
|
|
1,482
|
|
|
|
3,519
|
|
|
|
6,872
|
|
|
|
8,002
|
|
Logistical services
|
|
|
186
|
|
|
|
297
|
|
|
|
969
|
|
|
|
1,146
|
|
Consolidated
|
|
$
|
2,338
|
|
|
$
|
4,970
|
|
|
$
|
10,651
|
|
|
$
|
12,632
|
|
|
|
As of
|
|
|
As of
|
|
Identifiable Assets
|
|
August 31,
2019
|
|
|
November 24,
2018
|
|
Wholesale
|
|
$
|
129,639
|
|
|
$
|
144,209
|
|
Retail - Company-owned stores
|
|
|
105,124
|
|
|
|
96,241
|
|
Logistical services
|
|
|
40,653
|
|
|
|
51,191
|
|
Consolidated
|
|
$
|
275,416
|
|
|
$
|
291,641
|
|
Wholesale shipments by type
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31, 2019
|
|
|
August 25, 2018
|
|
|
August 31, 2019
|
|
|
August 25, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bassett Custom Upholstery
|
|
$
|
36,809
|
|
|
|
58.7
|
%
|
|
$
|
35,186
|
|
|
|
55.1
|
%
|
|
$
|
115,200
|
|
|
|
58.0
|
%
|
|
$
|
105,259
|
|
|
|
55.2
|
%
|
Bassett Leather
|
|
|
4,480
|
|
|
|
7.1
|
%
|
|
|
4,748
|
|
|
|
7.4
|
%
|
|
|
14,714
|
|
|
|
7.4
|
%
|
|
|
16,356
|
|
|
|
8.6
|
%
|
Bassett Custom Wood
|
|
|
11,757
|
|
|
|
18.8
|
%
|
|
|
11,273
|
|
|
|
17.7
|
%
|
|
|
33,958
|
|
|
|
17.1
|
%
|
|
|
33,443
|
|
|
|
17.5
|
%
|
Bassett Casegoods
|
|
|
9,644
|
|
|
|
15.4
|
%
|
|
|
11,710
|
|
|
|
18.3
|
%
|
|
|
32,263
|
|
|
|
16.2
|
%
|
|
|
32,455
|
|
|
|
17.0
|
%
|
Accessories (1)
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
930
|
|
|
|
1.5
|
%
|
|
|
2,467
|
|
|
|
1.2
|
%
|
|
|
3,222
|
|
|
|
1.7
|
%
|
Total
|
|
$
|
62,690
|
|
|
|
100.0
|
%
|
|
$
|
63,847
|
|
|
|
100.0
|
%
|
|
$
|
198,602
|
|
|
|
100.0
|
%
|
|
$
|
190,735
|
|
|
|
100.0
|
%
|
|
(1)
|
Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to our retail segment or to third party customers such as licensees or independent furniture retailers. Our retail segment and third party customers now source their accessory items directly from the accessory vendors.
|
20 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
14. Revenue Recognition
We adopted ASU 2014-09, Revenue - Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606") effective as of November 25, 2018, the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects 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. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us.
At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. We typically collect a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. These deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $22,484 and $27,157 as of August 31, 2019 and November 24, 2018, respectively. Substantially all of the customer deposits held at November 24, 2018 related to performance obligations satisfied during the current period and have therefore been recognized in revenue for the nine months ended August 31, 2019. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized upon delivery of the goods net of amounts payable to the third party service provider.
For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method based on our estimate the amount of time freight has been in transit as of the reporting date compared with our estimate total required time for the deliveries. We recognize an asset for the amount of line-haul revenue earned but not yet billed which is included in other current assets. The balance of this asset was $466 at August 31, 2019 and $512 at the beginning of the first quarter of fiscal 2019. Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided and billed to the customer concurrently in the same period. All invoices for logistical services are due 30 days from invoice date.
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 August 31, 2019 and November 24, 2018, our balance of prepaid commissions included in other current assets was $2,184 and $2,739, respectively. We do not incur sales commissions in our logistical services segment.
We adopted ASC 606 using the modified retrospective method and applied the standard only to contracts that were not completed as of initial application. Results for reporting periods beginning after November 24, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. Our adoption of ASC 606 did not have a material impact on our consolidated financial statements except for our enhanced presentation and disclosures. We also expect the impact of the adoption of ASC 606 to be immaterial to our net income and financial position on an ongoing basis.
Upon adoption of ASC 606, we have adopted the following policy elections and practical expedients:
|
●
|
We exclude from revenue amounts collected from customers for sales tax, which is consistent with our policy prior to the adoption of ASC 606.
|
21 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
|
●
|
We do not adjust the promised amount of consideration for the effects of a significant financing component since the period of time between transfer of our goods or services and the collection of consideration from the customer is less than one year.
|
|
●
|
We do not disclose the value of unsatisfied performance obligations because the transfer of goods or services is made within one year of the placement of customer orders.
|
See Note 13, Segment Information, for disaggregated revenue information.
15. Changes to Stockholders’ Equity
The following changes in our stockholders’ equity occurred during the three and nine months ended August 31, 2019 and August 25, 2018:
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
|
August 31,
2019
|
|
|
August 25,
2018
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
52,262
|
|
|
$
|
53,736
|
|
|
$
|
52,638
|
|
|
$
|
53,690
|
|
Issuance of common stock
|
|
|
58
|
|
|
|
19
|
|
|
|
339
|
|
|
|
273
|
|
Purchase and retirement of common stock
|
|
|
(1,742
|
)
|
|
|
(429
|
)
|
|
|
(2,399
|
)
|
|
|
(637
|
)
|
End of period
|
|
$
|
50,578
|
|
|
$
|
53,326
|
|
|
$
|
50,578
|
|
|
$
|
53,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Issued and Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
10,452,345
|
|
|
|
10,747,122
|
|
|
|
10,527,636
|
|
|
|
10,737,950
|
|
Issuance of common stock
|
|
|
11,734
|
|
|
|
3,838
|
|
|
|
67,935
|
|
|
|
54,644
|
|
Purchase and retirement of common stock
|
|
|
(348,383
|
)
|
|
|
(85,683
|
)
|
|
|
(479,875
|
)
|
|
|
(127,317
|
)
|
End of period
|
|
|
10,115,696
|
|
|
|
10,665,277
|
|
|
|
10,115,696
|
|
|
|
10,665,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
-
|
|
|
$
|
382
|
|
|
$
|
-
|
|
|
$
|
962
|
|
Issuance of common stock
|
|
|
28
|
|
|
|
71
|
|
|
|
(69
|
)
|
|
|
18
|
|
Purchase and retirement of common stock
|
|
|
(270
|
)
|
|
|
(713
|
)
|
|
|
(649
|
)
|
|
|
(1,849
|
)
|
Stock based compensation
|
|
|
242
|
|
|
|
260
|
|
|
|
718
|
|
|
|
869
|
|
End of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
137,127
|
|
|
$
|
140,934
|
|
|
$
|
140,009
|
|
|
$
|
139,378
|
|
Cumulative effect of a change in accounting principal
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
-
|
|
Reclassification of certain tax effects from accumulated other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545
|
|
Net income for the period
|
|
|
2,157
|
|
|
|
2,945
|
|
|
|
3,210
|
|
|
|
6,321
|
|
Purchase and retirement of common stock
|
|
|
(2,487
|
)
|
|
|
(1,036
|
)
|
|
|
(3,798
|
)
|
|
|
(1,036
|
)
|
Cash dividends
|
|
|
(1,264
|
)
|
|
|
(1,338
|
)
|
|
|
(3,867
|
)
|
|
|
(3,703
|
)
|
End of period
|
|
$
|
135,533
|
|
|
$
|
141,505
|
|
|
$
|
135,533
|
|
|
$
|
141,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
(2,223
|
)
|
|
$
|
(2,956
|
)
|
|
$
|
(2,338
|
)
|
|
$
|
(2,570
|
)
|
Reclassification of certain tax effects from accumulated other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(545
|
)
|
Amortization of pension costs, net of tax
|
|
|
58
|
|
|
|
80
|
|
|
|
173
|
|
|
|
239
|
|
End of period
|
|
$
|
(2,165
|
)
|
|
$
|
(2,876
|
)
|
|
$
|
(2,165
|
)
|
|
$
|
(2,876
|
)
|
22 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 31, 2019
(Dollars in thousands except share and per share data)
16. Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01) 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. In addition, ASU 2018-11 provides for an additional (and optional) transition method by which entities may elect to initially apply the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and without retrospective application to any comparative prior periods presented. Also, ASU 2018-20 provides certain narrow-scope improvements to Topic 842 as it relates to lessors. 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 (refer to Note 11 for information regarding our leases currently classified as operating leases under ASC Topic 840). We have acquired a lease accounting software package and are currently in the process of entering lease data into the system and testing outputs against the requirements of Topic 842. We currently anticipate that we will adopt the guidance of ASU 2016-02 as of the beginning of our 2020 fiscal year using the optional transition method as provided by ASU 2018-11.
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.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Accounting Standards Update No. 2018-15 – Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018-15. The amendments in ASU 2018-15 will become effective for us as of the beginning of our 2021 fiscal year. Early adoption is permitted, including adoption in any interim period. We are currently evaluating the impact that this guidance will have upon our financial position and results of operations, if any.
23 of 40
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 31, 2019
(Dollars in thousands except share and per share data)