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
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.
The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees 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.
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”). The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheets as assets and liabilities of discontinued operations. See Note 12, Discontinued Operations, for additional information. Costs incurred by Bassett for logistical services performed for Bassett by Zenith are included in selling, general and administrative expenses.
Recently Adopted Accounting Pronouncements
Effective as of the beginning of fiscal 2022, we have adopted Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 became effective for us as of the beginning of our 2022 fiscal year. We adopted ASU 2019-12 on a prospective basis and the adoption did not have a material impact upon our financial condition or results of operations.
Impact of the COVID-19 Pandemic Upon our Financial Condition and Results of Operations
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a global pandemic. The significant adverse economic impact of the pandemic upon our results of operations was limited to fiscal 2020, however we continue to experience the logistical challenges faced by the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.
While we have begun making progress in reducing our order backlogs, pandemic-related labor shortages and supply chain disruptions are ongoing and order cancellations could result if the present delays in order fulfillment continue. Furthermore, a resurgence in COVID-19 cases could prompt a return to tighter restrictions on commercial and retail activity in certain areas of the country. Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 pandemic upon our financial condition and future results of operations, as well as upon the significant estimates and assumptions we utilize in reporting certain assets and liabilities.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(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 months ended February 26, 2022 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 27, 2021.
Income Taxes
We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.
Our effective tax rates for the three months ended February 26, 2022 and February 27, 2021 of 26.3% and 29.4%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including charges of $135 during the three months ended February 27, 2021 related to the vesting of stock awards.
3. Financial Instruments and Investments
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit (CDs), accounts receivable, and accounts payable. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in CDs, accounts receivable, and accounts payable approximate fair value.
Investments
Our short-term investments of $17,715 at February 26, 2022 and November 27, 2021 consisted of CDs. At February 26, 2022, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.05% to 0.85%. At February 26, 2022, the weighted average remaining time to maturity of the CDs was approximately five months and the weighted average yield of the CDs was approximately 0.24%. 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 26, 2022 and November 27, 2021 approximates their fair value.
4. Accounts Receivable
Accounts receivable consists of the following:
| | | February 26, 2022 | | | November 27, 2021 | |
| Gross accounts receivable | | $ | 26,317 | | | $ | 21,134 | |
| Allowance for credit losses | | | (714 | ) | | | (567 | ) |
| Accounts receivable, net | | $ | 25,603 | | | $ | 20,567 | |
We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit losses could differ from those estimates.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Activity in the allowance for credit losses for the three months ended February 26, 2022 was as follows:
| Balance at November 27, 2021 | | $ | 567 | |
| Additions charged to expense | | | 147 | |
| Write-offs against allowance | | | - | |
| Balance at February 26, 2022 | | $ | 714 | |
We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 3.
5. Inventories
Domestic furniture inventories are valued at the lower of cost, which is determined using the last-in, first-out (LIFO) method, or market. Imported inventories and those applicable to our Lane Venture and Bassett Outdoor lines are valued at the lower of cost, which is determined using the first-in, first-out (FIFO) method, or net realizable value.
Inventories were comprised of the following:
| | | February 26, 2022 | | | November 27, 2021 | |
| Wholesale finished goods | | $ | 42,838 | | | $ | 40,254 | |
| Work in process | | | 636 | | | | 482 | |
| Raw materials and supplies | | | 21,610 | | | | 21,653 | |
| Retail merchandise | | | 32,303 | | | | 30,914 | |
| Total inventories on first-in, first-out method | | | 97,387 | | | | 93,303 | |
| LIFO adjustment | | | (10,916 | ) | | | (10,483 | ) |
| Reserve for excess and obsolete inventory | | | (4,792 | ) | | | (4,816 | ) |
| | | $ | 81,679 | | | $ | 78,004 | |
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
| | | Wholesale Segment | | | Retail Segment | | | Total | |
| | | | | | | | | | | | | |
| Balance at November 27, 2021 | | $ | 3,683 | | | $ | 1,133 | | | $ | 4,816 | |
| Additions charged to expense | | | 325 | | | | 214 | | | | 539 | |
| Write-offs | | | (360 | ) | | | (203 | ) | | | (563 | ) |
| Balance at February 26, 2022 | | $ | 3,648 | | | $ | 1,144 | | | $ | 4,792 | |
Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2022 and do not anticipate that our methodology is likely to change in the future.
6. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
| | | February 26, 2022 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Intangible Assets, Net | |
| Intangibles subject to amortization | | | | | | | | | | | | |
| Customer relationships | | $ | 512 | | | $ | (237 | ) | | $ | 275 | |
| | | | | | | | | | | | | |
| Intangibles not subject to amortization: | | | | | | | | | | | | |
| Trade names | | | | | | | | | | | 6,848 | |
| Goodwill | | | | | | | | | | | 7,217 | |
| | | | | | | | | | | | | |
| Total goodwill and other intangible assets | | | | | | | | | | $ | 14,340 | |
| | | November 27, 2021 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Intangible Assets, Net | |
| Intangibles subject to amortization | | | | | | | | | | | | |
| Customer relationships | | $ | 512 | | | $ | (223 | ) | | $ | 289 | |
| | | | | | | | | | | | | |
| Intangibles not subject to amortization: | | | | | | | | | | | | |
| Trade names | | | | | | | | | | | 6,848 | |
| Goodwill | | | | | | | | | | | 7,217 | |
| | | | | | | | | | | | | |
| Total goodwill and other intangible assets | | | | | | | | | | $ | 14,354 | |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
The carrying amounts of goodwill by reportable segment at both February 26, 2022 and November 27, 2021 are as follows:
| | | Original | | | Accumulated | | | | | |
| | | Recorded | | | Impairment | | | Carrying | |
| | | Value | | | Losses | | | Amount | |
| | | | | | | | | | | | | |
| Wholesale | | $ | 9,188 | | | $ | (1,971 | ) | | $ | 7,217 | |
| Retail | | | 1,926 | | | | (1,926 | ) | | | - | |
| | | | | | | | | | | | | |
| Total goodwill | | $ | 11,114 | | | $ | (3,897 | ) | | $ | 7,217 | |
Goodwill and other intangible assets associated with our logistical services segment totaling $9,023 and $9,094 at February 26, 2022 and November 27, 2021, respectively, are included in assets of discontinued operations held for sale in the accompanying balance sheets (see Note 12).
Amortization expense associated with intangible assets during the three months ended February 26, 2022 and February 27, 2021 was as follows:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| | | | | | | | | |
| Intangible asset amortization expense | | $ | 14 | | | $ | 14 | |
Estimated future amortization expense for intangible assets that exist at February 26, 2022 is as follows:
| Remainder of fiscal 2022 | | $ | 43 | |
| Fiscal 2023 | | | 57 | |
| Fiscal 2024 | | | 57 | |
| Fiscal 2025 | | | 57 | |
| Fiscal 2026 | | | 57 | |
| Fiscal 2027 | | | 4 | |
| | | | | |
| Total | | $ | 275 | |
7. Bank Credit Facility
Our bank credit facility provides for a line of credit of up to $25,000. At February 26, 2022, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we had outstanding standby letters of credit with another bank totaling $325. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:
| | ● | Consolidated fixed charge coverage ratio of not less than 1.4 times, |
| | ● | Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and |
| | ● | Minimum tangible net worth of $140,000. |
We were in compliance with these covenants at February 26, 2022 and expect to remain in compliance for the foreseeable future. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
8. Post Employment Benefit Obligations
Defined Benefit Plans
We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for the Supplemental Plan was $9,149 and $9,192 as of February 26, 2022 and November 27, 2021, respectively.
We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $2,000 to certain management employees in the amount of $400 each. The liability for the LTC Awards was $1,565 and $1,548 as of February 26, 2022 and November 27, 2021, respectively.
The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:
| | | February 26, 2022 | | | November 27, 2021 | |
| Accrued compensation and benefits | | $ | 913 | | | $ | 913 | |
| Post employment benefit obligations | | | 9,801 | | | | 9,827 | |
| | | | | | | | | |
| Total pension liability | | $ | 10,714 | | | $ | 10,740 | |
Components of net periodic pension costs for our defined benefit plans for the three months ended February 26, 2022 and February 27, 2021 are as follows:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Service cost | | $ | 9 | | | $ | 31 | |
| Interest cost | | | 58 | | | | 48 | |
| Amortization of prior service costs | | | 31 | | | | 31 | |
| Amortization of loss | | | 33 | | | | 15 | |
| | | | | | | | | |
| Net periodic pension cost | | $ | 131 | | | $ | 125 | |
The components of net periodic pension cost other than the service cost component, which is included in selling, general and administrative expenses, are included in other loss, net in our condensed consolidated statements of operations.
Deferred Compensation Plans
We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. Our liability under this plan was $1,650 and $1,648 as of February 26, 2022 and November 27, 2021, respectively.
We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan. Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $2,155 and $1,789 as of February 26, 2022 and November 27, 2021, respectively.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:
| | | February 26, 2022 | | | November 27, 2021 | |
| Accrued compensation and benefits | | $ | 296 | | | $ | 296 | |
| Post employment benefit obligations | | | 3,509 | | | | 2,631 | |
| | | | | | | | | |
| Total deferred compensation liability | | $ | 3,805 | | | $ | 2,927 | |
We recognized expense under our deferred compensation arrangements during the three months ended February 26, 2022 and February 27, 2021 as follows:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Deferred compensation expense | | $ | 54 | | | $ | 153 | |
9. Commitments and Contingencies
We are involved in various legal and environmental matters which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
10. Lease Guarantees
We have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to three years. We were contingently liable under licensee lease obligation guarantees in the amounts of $1,854 and $1,845 at February 26, 2022 and November 27, 2021, respectively.
In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at February 26, 2022 and November 27, 2021 was not material.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
11. Earnings Per Share
The following reconciles basic and diluted earnings per share:
| | | Net Income | | | Weighted Average Shares | | | Net Income Per Share | |
| For the quarter ended February 26, 2022: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic earnings per share - continuing operations | | $ | 4,291 | | | | 9,750,432 | | | $ | 0.44 | |
| Add effect of dilutive securities: | | | | | | | | | | | | |
| Restricted shares | | | - | | | | 8,545 | | | | - | |
| Diluted earnings per share - continuing operations | | $ | 4,291 | | | | 9,758,977 | | | $ | 0.44 | |
| | | | | | | | | | | | | |
| Basic earnings per share - discontinued operations | | $ | 1,282 | | | | 9,750,432 | | | $ | 0.13 | |
| Add effect of dilutive securities: | | | | | | | | | | | | |
| Restricted shares | | | - | | | | 8,545 | | | | - | |
| Diluted earnings per share - discontinued operations | | $ | 1,282 | | | | 9,758,977 | | | $ | 0.13 | |
| | | | | | | | | | | | | |
| For the quarter ended February 27, 2021: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic earnings per share - continuing operations | | $ | 3,698 | | | | 9,919,518 | | | $ | 0.37 | |
| Add effect of dilutive securities: | | | | | | | | | | | | |
| Options and restricted shares | | | - | | | | 20,287 | | | | - | |
| Diluted earnings per share - continuing operations | | $ | 3,698 | | | | 9,939,805 | | | $ | 0.37 | |
| | | | | | | | | | | | | |
| Basic earnings per share - discontinued operations | | $ | 313 | | | | 9,919,518 | | | $ | 0.03 | |
| Add effect of dilutive securities: | | | | | | | | | | | | |
| Options and restricted shares | | | - | | | | 20,287 | | | | - | |
| Diluted earnings per share - discontinued operations | | $ | 313 | | | | 9,939,805 | | | $ | 0.03 | |
For the three months ended February 26, 2022 and February 27, 2021, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| | | | | | | | | |
| Unvested shares | | | 51,300 | | | | - | |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
12. Discontinued Operations
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”) for approximately $86,900 in cash subject to a customary post-closing working capital adjustment. The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheets as assets and liabilities of discontinued operations held for sale.
The following table summarizes the major classes of assets and liabilities of the discontinued operations, as reported in the condensed consolidated balance sheets as of February 26, 2022 and November 27, 2021:
| | | February 26, 2022 | | | November 27, 2021 | |
| Carrying amounts of major classes of assets included as part of discontinued operations: | | | | | | | | |
| Accounts receivable, net | | $ | 7,174 | | | $ | 7,601 | |
| Other current assets | | | 3,506 | | | | 3,463 | |
| Property and equipment, net | | | 23,891 | | | | 24,898 | |
| Goodwill and other intangible assets | | | 9,023 | | | | 9,094 | |
| Right of use assets under operating leases | | | 17,729 | | | | 18,193 | |
| Other | | | 565 | | | | 572 | |
| | | | | | | | | |
| | | $ | 61,888 | | | $ | 63,821 | |
| | | | | | | | | |
| Balance sheet classification: | | | | | | | | |
| Current assets of discontinued operations held for sale | | $ | 61,888 | | | $ | 11,064 | |
| Long-term assets of discontinued operations held for sale | | | - | | | | 52,757 | |
| | | | | | | | | |
| Total assets of discontinued operations held for sale | | $ | 61,888 | | | $ | 63,821 | |
| | | | | | | | | |
| Carrying amounts of major classes of liabilities included as part of discontinued operations: | | | | | | | | |
| Accounts payable | | $ | 3,575 | | | $ | 4,336 | |
| Accrued compensation and benefits | | | 2,582 | | | | 3,295 | |
| Current portion operating lease obligations | | | 7,585 | | | | 7,458 | |
| Other current liabilites and accrued expenses | | | 902 | | | | 1,006 | |
| Long-term portion of operating lease obligations | | | 10,332 | | | | 10,996 | |
| Other long-term liabilities | | | 4,916 | | | | 5,214 | |
| | | | | | | | | |
| | | $ | 29,892 | | | $ | 32,305 | |
| | | | | | | | | |
| Balance sheet classification: | | | | | | | | |
| Current liabilities of discontinued operations held for sale | | $ | 29,892 | | | $ | 16,095 | |
| Long-term liabilities of discontinued operations held for sale | | | - | | | | 16,210 | |
| | | | | | | | | |
| Total liabilities of discontinued operations held for sale | | $ | 29,892 | | | $ | 32,305 | |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
The following table summarizes the major classes of line items constituting income of the discontinued operations, as reported in the condensed consolidated statements of income for the three months ended February 26, 2022 and February 27, 2021:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Major line items constituting pretax income of discontinued operations: | | | | | | | | |
| Logistical services revenue | | $ | 16,776 | | | $ | 12,018 | |
| Cost of logistical services | | | 15,001 | | | | 11,558 | |
| Other loss, net | | | (63 | ) | | | (38 | ) |
| | | | | | | | | |
| Pretax income of discontinued operations | | | 1,712 | | | | 422 | |
| Income tax expense | | | 430 | | | | 109 | |
| | | | | | | | | |
| Income from discontinued operations | | $ | 1,282 | | | $ | 313 | |
The amounts shown above represent the results of Zenith’s business transactions with third parties. During the three months ended February 26, 2022 and February 27, 2021, Zenith also charged Bassett $9,121 and $8,063, respectively, for logistical services provided to our wholesale segment. We have entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith.
Other loss, net, of discontinued operations for the three months ended February 26, 2022 and February 27, 2021 includes interest in the amount of $78 and $43, respectively, arising from finance leases assumed by J.B. Hunt as part of the transaction.
The following table summarizes the cash flows generated by discontinued operations during the three months ended February 26, 2022 and February 27, 2021:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Cash provided by operating activities | | $ | 1,681 | | | $ | 2,841 | |
| Cash used in investing activities | | | (81 | ) | | | (120 | ) |
| Cash used in financing activities | | | (371 | ) | | | (173 | ) |
| | | | | | | | | |
| Net cash provided by discontinued operations | | $ | 1,229 | | | $ | 2,548 | |
13. Segment Information
We have strategically aligned our business into two reportable segments as defined in ASC 280, Segment Reporting, and as described below:
| | ● | Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations, which include Lane Venture, as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our condensed consolidated statements of operations. |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
| | ● | Retail – Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers. |
Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate.
Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation in the accompanying condensed consolidated balances sheets and statements of income (see Note 12).
The following table presents our segment information:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Sales Revenue | | | | | | | | |
| Wholesale sales of furniture and accessories | | $ | 83,485 | | | $ | 70,264 | |
| Less: Sales to retail segment | | | (29,728 | ) | | | (29,004 | ) |
| Wholesale sales to external customers | | | 53,757 | | | | 41,260 | |
| Retail sales of furniture and accessories | | | 64,107 | | | | 60,395 | |
| Consolidated net sales of furniture and accessories | | $ | 117,864 | | | $ | 101,655 | |
| | | | | | | | | |
| Income from Operations | | | | | | | | |
| Wholesale | | $ | 3,385 | | | $ | 4,797 | |
| Retail - Company-owned stores | | | 3,350 | | | | 1,094 | |
| Inter-company elimination | | | (257 | ) | | | (330 | ) |
| Consolidated | | $ | 6,478 | | | $ | 5,561 | |
| | | | | | | | | |
| Depreciation and Amortization | | | | | | | | |
| Wholesale | | $ | 894 | | | $ | 798 | |
| Retail - Company-owned stores | | | 1,495 | | | | 1,516 | |
| Consolidated | | $ | 2,389 | | | $ | 2,314 | |
| | | | | | | | | |
| Capital Expenditures | | | | | | | | |
| Wholesale | | $ | 2,327 | | | $ | 757 | |
| Retail - Company-owned stores | | | 16 | | | | 18 | |
| Consolidated | | $ | 2,343 | | | $ | 775 | |
| | | As of | | | As of | |
| | | February 26, 2022 | | | November 27, 2021 | |
| Identifiable Assets | | | | | | | | |
| Wholesale | | $ | 201,388 | | | $ | 196,853 | |
| Retail - Company-owned stores | | | 160,781 | | | | 160,986 | |
| Discontinued Operations | | | 61,888 | | | | 63,821 | |
| Consolidated | | $ | 424,057 | | | $ | 421,660 | |
See Note 14, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
14. Revenue Recognition
We recognize revenue when we transfer promised goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. All wholesale and retail revenues are recorded net of estimated returns and allowances based on historical patterns. We typically collect a significant portion of the purchase price from our retail customers as a deposit upon order, with the balance typically collected upon delivery. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $54,491 and $51,492 as of February 26, 2022 and November 27, 2021, respectively. Approximately 60% of the customer deposits held at November 27, 2021 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the three months ended February 26, 2022.
Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At February 26, 2022 and November 27, 2021, our balance of prepaid commissions included in other current assets was $6,330 and $6,221, respectively.
We exclude from revenue all amounts collected from customers for sales tax. We do not disclose amounts allocated to remaining unsatisfied performance obligations as they are expected to be satisfied within one year or less.
Disaggregated revenue information for sales of furniture and accessories by product category for the three months ended February 26, 2022 and February 27, 2021, excluding intercompany transactions between our segments, is a follows:
| | | Quarter Ended | |
| | | February 26, 2022 | | | February 27, 2021 | |
| | | Wholesale | | | Retail | | | Total | | | Wholesale | | | Retail | | | Total | |
| Bassett Custom Upholstery | | $ | 31,929 | | | $ | 37,818 | | | $ | 69,747 | | | $ | 24,884 | | | $ | 34,461 | | | $ | 59,345 | |
| Bassett Leather | | | 12,939 | | | | 240 | | | | 13,179 | | | | 7,558 | | | | 252 | | | | 7,810 | |
| Bassett Custom Wood | | | 5,980 | | | | 9,407 | | | | 15,387 | | | | 5,341 | | | | 5,458 | | | | 10,799 | |
| Bassett Casegoods | | | 2,909 | | | | 8,292 | | | | 11,201 | | | | 3,477 | | | | 11,077 | | | | 14,554 | |
| Accessories, mattresses and other (1) | | | - | | | | 8,350 | | | | 8,350 | | | | - | | | | 9,147 | | | | 9,147 | |
| Consolidated net sales of furniture and accessories | | $ | 53,757 | | | $ | 64,107 | | | $ | 117,864 | | | $ | 41,260 | | | $ | 60,395 | | | $ | 101,655 | |
| (1) | Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans. |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
15. Changes to Stockholders’ Equity
The following changes in our stockholders’ equity occurred during the three months ended February 26, 2022 and February 27, 2021:
| | | Quarter Ended | |
| | | | | | | | | |
| | | February 26, 2022 | | | February 27, 2021 | |
| Common Stock: | | | | | | | | |
| Beginning of period | | $ | 48,811 | | | $ | 49,714 | |
| Issuance of common stock | | | 54 | | | | 31 | |
| Purchase and retirement of common stock | | | (225 | ) | | | (178 | ) |
| End of period | | $ | 48,640 | | | $ | 49,567 | |
| | | | | | | | | |
| Common Shares Issued and Outstanding: | | | | | | | | |
| Beginning of period | | | 9,762,125 | | | | 9,942,787 | |
| Issuance of common stock | | | 10,796 | | | | 6,221 | |
| Purchase and retirement of common stock | | | (44,989 | ) | | | (35,512 | ) |
| End of period | | | 9,727,932 | | | | 9,913,496 | |
| | | | | | | | | |
| Additional Paid-in Capital: | | | | | | | | |
| Beginning of period | | $ | 113 | | | $ | - | |
| Issuance of common stock | | | 39 | | | | 52 | |
| Purchase and retirement of common stock | | | (267 | ) | | | (66 | ) |
| Stock based compensation | | | 115 | | | | 14 | |
| End of period | | $ | - | | | $ | - | |
| | | | | | | | | |
| Retained Earnings: | | | | | | | | |
| Beginning of period | | $ | 115,631 | | | $ | 109,710 | |
| Net income for the period | | | 5,573 | | | | 4,011 | |
| Purchase and retirement of common stock | | | (273 | ) | | | (509 | ) |
| Cash dividends declared | | | (1,374 | ) | | | (3,719 | ) |
| End of period | | $ | 119,557 | | | $ | 109,493 | |
| | | | | | | | | |
| Accumulated Other Comprehensive Loss: | | | | | | | | |
| Beginning of period | | $ | (1,823 | ) | | $ | (1,394 | ) |
| Amortization of pension costs, net of tax | | | 49 | | | | 35 | |
| End of period | | $ | (1,774 | ) | | $ | (1,359 | ) |
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
16. Recent Accounting Pronouncements
In October 2021, the FASB issued Accounting Standards Update No. 2021-08– Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)