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 29, 2020
(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 prior fiscal year ending November 30, 2019 was a 53-week year, with the additional week being included in the first fiscal quarter of 2019. Accordingly, the information presented below includes 13 weeks of operations for the quarter ended February 29, 2020 as compared with 14 weeks included in the quarter ended March 2, 2019.
Recently Adopted Accounting Pronouncements
Effective as of the beginning of fiscal 2020, we have adopted 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 and ASU 2018-20) 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. We have adopted this standard using the modified retrospective approach. Refer to Note 11, Leases, for more information regarding our leases and the adoption of the new standard.
2. Interim Financial Presentation
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the quarter ended February 29, 2020 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 30, 2019.
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 quarters ended February 29, 2020 and March 2, 2019 of 34.5% and 26.4%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including a tax deficiency of $114 during the quarter ended February 29, 2020 arising from stock-based compensation.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
3. 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, and accounts 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 $17,677 at February 29, 2020 and $17,436 at November 30, 2019 consisted of certificates of deposit (CDs). At February 29, 2020, the CDs had original terms averaging seven months, bearing interest at rates ranging from 0.85% to 2.25%. At February 29, 2020, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 1.68%. 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 29, 2020 and November 30, 2019 approximates their fair value.
Fair Value Measurement
The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. Our primary non-recurring fair value estimates typically involve business acquisitions or the impairment of long-lived assets (see Note 11 regarding the impairment of lease right-of-use assets upon adoption of ASC Topic 842) which involve a combination of Level 2 and Level 3 inputs.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
4. Accounts Receivable
Accounts receivable consists of the following:
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Gross accounts receivable
|
|
$
|
24,087
|
|
|
$
|
22,193
|
|
Allowance for doubtful accounts
|
|
|
(882
|
)
|
|
|
(815
|
)
|
Accounts receivable, net
|
|
$
|
23,205
|
|
|
$
|
21,378
|
|
Activity in the allowance for doubtful accounts for the quarter ended February 29, 2020 was as follows:
Balance at November 30, 2019
|
|
$
|
815
|
|
Additions to allowance, net
|
|
|
67
|
|
Balance at February 29, 2020
|
|
$
|
882
|
|
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 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:
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Wholesale finished goods
|
|
$
|
26,897
|
|
|
$
|
27,792
|
|
Work in process
|
|
|
576
|
|
|
|
733
|
|
Raw materials and supplies
|
|
|
18,242
|
|
|
|
17,293
|
|
Retail merchandise
|
|
|
32,859
|
|
|
|
31,534
|
|
Total inventories on first-in, first-out method
|
|
|
78,574
|
|
|
|
77,352
|
|
LIFO adjustment
|
|
|
(8,772
|
)
|
|
|
(8,688
|
)
|
Reserve for excess and obsolete inventory
|
|
|
(2,287
|
)
|
|
|
(2,362
|
)
|
|
|
$
|
67,515
|
|
|
$
|
66,302
|
|
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 29, 2020
(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 30, 2019
|
|
$
|
2,054
|
|
|
$
|
308
|
|
|
$
|
2,362
|
|
Additions charged to expense
|
|
|
383
|
|
|
|
89
|
|
|
|
472
|
|
Write-offs
|
|
|
(445
|
)
|
|
|
(102
|
)
|
|
|
(547
|
)
|
Balance at February 29, 2020
|
|
$
|
1,992
|
|
|
$
|
295
|
|
|
$
|
2,287
|
|
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 2020 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 29, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,550
|
|
|
$
|
(1,152
|
)
|
|
$
|
2,398
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(606
|
)
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
4,384
|
|
|
$
|
(1,758
|
)
|
|
|
2,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
|
|
|
|
9,338
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
14,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
26,081
|
|
|
|
November 30, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Intangibles subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,550
|
|
|
$
|
(1,088
|
)
|
|
$
|
2,462
|
|
Technology - customized applications
|
|
|
834
|
|
|
|
(575
|
)
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
4,384
|
|
|
$
|
(1,663
|
)
|
|
|
2,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
|
|
|
|
9,338
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
14,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
26,176
|
|
The carrying amount of our goodwill included accumulated impairment losses of $1,926 as of February 29, 2020 and November 30, 2019.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
The carrying amounts of goodwill by reportable segment at both February 29, 2020 and November 30, 2019 were as follows:
Wholesale
|
|
$
|
9,188
|
|
Retail
|
|
|
-
|
|
Logistical services
|
|
|
4,929
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
14,117
|
|
Amortization expense associated with intangible assets during the quarters ended February 29, 2020 and March 2, 2019 was as follows:
|
|
Quarter Ended
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
$
|
95
|
|
|
$
|
95
|
|
Estimated future amortization expense for intangible assets that exist at February 29, 2020 is as follows:
Remainder of fiscal 2020
|
|
$
|
284
|
|
Fiscal 2021
|
|
|
379
|
|
Fiscal 2022
|
|
|
279
|
|
Fiscal 2023
|
|
|
259
|
|
Fiscal 2024
|
|
|
259
|
|
Fiscal 2025
|
|
|
259
|
|
Thereafter
|
|
|
907
|
|
|
|
|
|
|
Total
|
|
$
|
2,626
|
|
7. Bank Credit Facility
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 as of February 29, 2020. The credit facility will mature in December 2021. See Note 17, Subsequent Events, regarding a commitment received from our bank to amend the facility and increase the availability under the line.
At February 29, 2020, we had $2,673 outstanding under standby letters of credit against our line, leaving availability under our credit line of $22,327. In addition, we have outstanding standby letters of credit with another bank totaling $325.
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 $8,756 and $8,779 as of February 29, 2020 and November 30, 2019, 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 $1,338 and $1,311 as of February 29, 2020 and November 30, 2019, respectively.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Accrued compensation and benefits
|
|
$
|
655
|
|
|
$
|
655
|
|
Post employment benefit obligations
|
|
|
9,439
|
|
|
|
9,435
|
|
|
|
|
|
|
|
|
|
|
Total pension liability
|
|
$
|
10,094
|
|
|
$
|
10,090
|
|
Components of net periodic pension costs for our defined benefit plans for the quarters ended February 29, 2020 and March 2, 2019 are as follows:
|
|
Quarter Ended
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
Service cost
|
|
$
|
43
|
|
|
$
|
47
|
|
Interest cost
|
|
|
67
|
|
|
|
110
|
|
Amortization of prior service costs
|
|
|
31
|
|
|
|
31
|
|
Amortization of transition obligation
|
|
|
-
|
|
|
|
-
|
|
Amortization of loss
|
|
|
1
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
142
|
|
|
$
|
234
|
|
The components of net periodic pension cost other than the service cost component are included in other loss, net in our condensed consolidated statements of income.
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 $1,752 and $1,767 as of February 29, 2020 and November 30, 2019, 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 $798 and $894 as of February 29, 2020 and November 30, 2019, respectively.
Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Accrued compensation and benefits
|
|
$
|
266
|
|
|
$
|
266
|
|
Post employment benefit obligations
|
|
|
2,283
|
|
|
|
2,395
|
|
|
|
|
|
|
|
|
|
|
Total deferred compensation liability
|
|
$
|
2,549
|
|
|
$
|
2,661
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
We recognized expense under our deferred compensation arrangements during the quarters ended February 29, 2020 and March 2, 2019 as follows:
|
|
Quarter Ended
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
Deferred compensation expense
|
|
$
|
96
|
|
|
$
|
99
|
|
9. Early retirement program
During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company. 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 quarter ended March 2, 2019. The unpaid balance of the obligation at February 29, 2020 and November 30, 2019 of $148 and $374, respectively, is included in other current liabilities and accrued expenses in our condensed consolidated balance sheets.
10. Commitments and Contingencies
We are involved in various legal and environmental matters, which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
11. Leases
During the first quarter of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. The guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use (“ROU”) asset and a lease liability.
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. We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet this criteria are included in the lease term at lease commencement.
Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by applying a spread above the U.S. Treasury borrowing rates. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. Some of our leases contain variable rent payments based on a Consumer Price Index or percentage of sales. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
We adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings. We elected the package of transition expedients available for expired or existing contracts, which allowed the carry-forward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, we have elected the practical expedient to not separate lease and non-lease components when determining the ROU asset and lease liability and have elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We have also elected the hindsight practical expedient to determine the lease term for existing leases. In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term. We have made an accounting policy election to not recognize ROU assets and lease liabilities on the balance sheet for those leases with initial terms of one year or less and instead such lease obligations will be expensed on a straight-line basis over the lease term.
Adoption of the standard resulted in the recording of additional net lease-related assets and lease-related liabilities of $146,585 and $151,672, respectively, as of December 1, 2019. The difference between the additional lease assets and lease liabilities, net of the $1,302 deferred tax impact, was $3,785 and was recorded as an adjustment to retained earnings. This adjustment to retained earnings primarily represents the impairment of right-of-use assets associated with certain underperforming retail locations. Our estimates of the fair value of the impaired ROU assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure (see Note 3). Our adoption of this standard did not have a material impact on our consolidated statements of earnings, comprehensive income or cash flows.
Supplemental balance sheet information related to leases as of February 29, 2020 is as follows:
Operating leases:
|
|
|
|
|
Right of use assets
|
|
$
|
144,468
|
|
Lease liabilties, short-term
|
|
|
29,516
|
|
Lease liabilties, long-term
|
|
|
131,978
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
Right of use assets (1)
|
|
$
|
1,017
|
|
Lease liabilties, short-term (2)
|
|
|
153
|
|
Lease liabilties, long-term (3)
|
|
|
866
|
|
(1) Included in property & equipment, net in our condensed consolidated balance sheet.
|
(2) Included in other current liabilites and accrued expenses in our condensed consolidated balance sheet.
|
(3) Included in other long-term liabilites and accrued expenses in our condensed consolidated balance sheet.
|
Our right-of-use assets under operating leases by segment are as follows:
Wholesale
|
|
$
|
11,238
|
|
Retail
|
|
|
111,617
|
|
Logistical services
|
|
|
21,613
|
|
Total right of use assets
|
|
$
|
144,468
|
|
The components of our lease cost for the quarter ended February 29, 2020 are as follows:
Operating lease cost
|
|
$
|
8,772
|
|
Financing lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
|
14
|
|
Interest on lease liabilities
|
|
|
4
|
|
Short-term lease cost
|
|
|
494
|
|
Variable lease cost
|
|
|
36
|
|
Sublease income
|
|
|
(394
|
)
|
Total lease cost
|
|
$
|
8,926
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
Supplemental lease disclosures for the quarter ended February 29, 2020 are as follows:
|
|
Operating
|
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurements of lease liabilities
|
|
$
|
11,652
|
|
|
$
|
16
|
|
Lease liabilities arising from new right-of-use assets
|
|
|
4,830
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease terms (years)
|
|
|
6.6
|
|
|
|
5.9
|
|
Weighted average discount rates
|
|
|
5.00
|
%
|
|
|
4.72
|
%
|
Future payments under our leases and the present value of the obligations as of February 29, 2020 are as follows:
|
|
Operating
Leases
|
|
|
Financing
Leases
|
|
|
|
|
|
|
|
|
|
|
Remainder of fiscal 2020
|
|
$
|
25,871
|
|
|
$
|
148
|
|
Fiscal 2021
|
|
|
34,390
|
|
|
|
197
|
|
Fiscal 2022
|
|
|
31,211
|
|
|
|
197
|
|
Fiscal 2023
|
|
|
26,080
|
|
|
|
197
|
|
Fiscal 2024
|
|
|
18,947
|
|
|
|
197
|
|
Fiscal 2025
|
|
|
15,626
|
|
|
|
197
|
|
Thereafter
|
|
|
37,301
|
|
|
|
33
|
|
Total lease payments
|
|
|
189,426
|
|
|
|
1,166
|
|
Less: interest
|
|
|
27,932
|
|
|
|
147
|
|
Total lease obligations
|
|
$
|
161,494
|
|
|
$
|
1,019
|
|
We sublease a small number of our leased locations to our licensees for operation as BFH network stores. The terms of these leases generally match those of the lease we have with the lessor. Minimum future lease payments due to us under these subleases are as follows:
Remainder of fiscal 2020
|
|
$
|
1,078
|
|
Fiscal 2021
|
|
|
1,395
|
|
Fiscal 2022
|
|
|
1,429
|
|
Fiscal 2023
|
|
|
1,113
|
|
Fiscal 2024
|
|
|
1,007
|
|
Fiscal 2025
|
|
|
1,007
|
|
Thereafter
|
|
|
381
|
|
Total minimum future rental income
|
|
$
|
7,410
|
|
Lease Guarantees
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 $1,785 and $1,776 at February 29, 2020 and November 30, 2019, 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 29, 2020 and November 30, 2019 was not material.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
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 February 29, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1,210
|
|
|
|
10,027,227
|
|
|
$
|
0.12
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
25,969
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
1,210
|
|
|
|
10,053,196
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
608
|
|
|
|
10,454,348
|
|
|
$
|
0.06
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted shares
|
|
|
-
|
|
|
|
28,893
|
|
|
|
-
|
|
Diluted earnings per share
|
|
$
|
608
|
|
|
|
10,483,241
|
|
|
$
|
0.06
|
|
For the quarters ended February 29, 2020 and March 2, 2019, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
|
|
Quarter Ended
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
|
|
|
|
|
|
|
|
|
Unvested shares
|
|
|
34,000
|
|
|
|
36,000
|
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
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 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 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 $20,480 and $21,039 for the quarters ended February 29, 2020 and March 2, 2019, respectively.
|
Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale and retail segments. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate, and the elimination of shipping and handling charges from Zenith for services provided to our wholesale and retail operations.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
The following table presents our segment information:
|
|
Quarter Ended
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
Sales Revenue
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
65,017
|
|
|
$
|
72,781
|
|
Retail - Company-owned stores
|
|
|
65,846
|
|
|
|
69,629
|
|
Logistical services
|
|
|
21,315
|
|
|
|
21,751
|
|
Inter-company eliminations:
|
|
|
|
|
|
|
|
|
Furniture and accessories
|
|
|
(31,921
|
)
|
|
|
(35,054
|
)
|
Logistical services
|
|
|
(8,137
|
)
|
|
|
(8,266
|
)
|
Consolidated
|
|
$
|
112,120
|
|
|
$
|
120,841
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
2,713
|
|
|
$
|
4,182
|
|
Retail - Company-owned stores
|
|
|
(1,249
|
)
|
|
|
(3,046
|
)
|
Logistical services
|
|
|
835
|
|
|
|
712
|
|
Inter-company elimination
|
|
|
(89
|
)
|
|
|
(64
|
)
|
Early retirement program
|
|
|
-
|
|
|
|
(835
|
)
|
Consolidated
|
|
$
|
2,210
|
|
|
$
|
949
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
809
|
|
|
$
|
818
|
|
Retail - Company-owned stores
|
|
|
1,730
|
|
|
|
1,505
|
|
Logistical services
|
|
|
1,084
|
|
|
|
1,047
|
|
Consolidated
|
|
$
|
3,623
|
|
|
$
|
3,370
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
422
|
|
|
$
|
1,065
|
|
Retail - Company-owned stores
|
|
|
561
|
|
|
|
4,017
|
|
Logistical services
|
|
|
357
|
|
|
|
470
|
|
Consolidated
|
|
$
|
1,340
|
|
|
$
|
5,552
|
|
|
|
As of
|
|
|
As of
|
|
|
|
February 29,
2020
|
|
|
November 30,
2019
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
142,014
|
|
|
$
|
144,392
|
|
Retail - Company-owned stores
|
|
|
211,784
|
|
|
|
91,997
|
|
Logistical services
|
|
|
61,436
|
|
|
|
39,377
|
|
Consolidated
|
|
$
|
415,234
|
|
|
$
|
275,766
|
|
Wholesale shipments by type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
February 29, 2020
|
|
|
March 2, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bassett Custom Upholstery
|
|
$
|
40,033
|
|
|
|
61.6
|
%
|
|
$
|
41,538
|
|
|
|
57.1
|
%
|
Bassett Leather
|
|
|
4,700
|
|
|
|
7.2
|
%
|
|
|
5,771
|
|
|
|
7.9
|
%
|
Bassett Custom Wood
|
|
|
11,290
|
|
|
|
17.4
|
%
|
|
|
11,675
|
|
|
|
16.0
|
%
|
Bassett Casegoods
|
|
|
8,994
|
|
|
|
13.8
|
%
|
|
|
12,640
|
|
|
|
17.4
|
%
|
Accessories (1)
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
1,157
|
|
|
|
1.6
|
%
|
Total
|
|
$
|
65,017
|
|
|
|
100.0
|
%
|
|
$
|
72,781
|
|
|
|
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.
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(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 $24,049 and $25,341 as of February 29, 2020 and November 30, 2019, respectively. Substantially all of the customer deposits held at November 30, 2019 related to performance obligations that were satisfied during the current period and have therefore been recognized in revenue for the quarter ended February 29, 2020.
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 of the total required time for the deliveries. The balances of assets recognized for shipping revenues earned but not billed as of February 29, 2020 and November 30, 2019 were not material. 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.
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.
See Note 13, Segment Information, for disaggregated revenue information.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
15. Changes to Stockholders’ Equity
The following changes in our stockholders’ equity occurred during the quarters ended February 29, 2020 and March 2, 2019:
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2020
|
|
|
March 2,
2019
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
50,581
|
|
|
$
|
52,638
|
|
Issuance of common stock
|
|
|
29
|
|
|
|
217
|
|
Forfeited shares
|
|
|
(35
|
)
|
|
|
-
|
|
Purchase and retirement of common stock
|
|
|
(402
|
)
|
|
|
(257
|
)
|
End of period
|
|
$
|
50,173
|
|
|
$
|
52,598
|
|
|
|
|
|
|
|
|
|
|
Common Shares Issued and Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
10,116,291
|
|
|
|
10,527,636
|
|
Issuance of common stock
|
|
|
5,743
|
|
|
|
43,472
|
|
Forfeited shares
|
|
|
(7,000
|
)
|
|
|
-
|
|
Purchase and retirement of common stock
|
|
|
(80,443
|
)
|
|
|
(51,468
|
)
|
End of period
|
|
|
10,034,591
|
|
|
|
10,519,640
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
195
|
|
|
$
|
-
|
|
Issuance of common stock
|
|
|
46
|
|
|
|
(118
|
)
|
Forfeited shares
|
|
|
35
|
|
|
|
-
|
|
Purchase and retirement of common stock
|
|
|
(361
|
)
|
|
|
(137
|
)
|
Stock based compensation
|
|
|
85
|
|
|
|
255
|
|
End of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
129,130
|
|
|
$
|
140,009
|
|
Cumulative effect of a change in accounting principal
|
|
|
(3,785
|
)
|
|
|
(21
|
)
|
Net income for the period
|
|
|
1,210
|
|
|
|
608
|
|
Purchase and retirement of common stock
|
|
|
(217
|
)
|
|
|
(608
|
)
|
Cash dividends
|
|
|
(1,260
|
)
|
|
|
(1,291
|
)
|
End of period
|
|
$
|
125,078
|
|
|
$
|
138,697
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
(1,236
|
)
|
|
$
|
(2,338
|
)
|
Amortization of pension costs, net of tax
|
|
|
25
|
|
|
|
58
|
|
End of period
|
|
$
|
(1,211
|
)
|
|
$
|
(2,280
|
)
|
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)
16. Recent Accounting Pronouncements
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.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. 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 will become effective for us as of the beginning of our 2022 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.
17. Subsequent Events
On March 11, 2020, the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including non-essential retail commerce.
In response to these measures and for the protection of our employees and customers, we have temporarily closed our dedicated stores, our manufacturing locations and many of our warehouses. In addition, many of our office personnel are working remotely. We continue to assess the situation on a daily basis, but we are unable to predict when and how quickly we will be able to resume retail and manufacturing operations. We have implemented several measures that we believe will ensure sufficient liquidity for the next several months.
While we are not able to estimate the full impact of the COVID-19 outbreak on our financial condition and future results of operations, we expect that this situation will have a significant adverse effect on our reported results for our second fiscal quarter of 2020 and possibly beyond.
Subsequent to February 29, 2020, we received a firm commitment from our bank to amend our credit facility to increase the maximum amount available under our credit line to $50,000 through December 31, 2020, after which date the maximum availability will return to the current amount of $25,000. The line will bear interest at the rate of LIBOR plus 1.9%, with a fee of 0.25% charged for the unused portion of the line, and will be secured by a general lien on our accounts receivable and inventory. In addition, all covenants based on financial ratios will be waived for the remainder of fiscal 2020, and the maturity of the facility will be extended from December 5, 2021 to January 31, 2022.
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
FEBRUARY 29, 2020
(Dollars in thousands except share and per share data)