Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2008

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 0-209

 

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

(Exact name of Registrant as specified in its charter)

 

 

 

Virginia   54-0135270

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3525 Fairystone Park Highway

Bassett, Virginia 24055

(Address of principal executive offices)

(Zip Code)

(276) 629-6000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.)

Large Accelerated Filer  ¨     Accelerated Filer  x    Non-accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

At May 31, 2008, 11,638,478 shares of common stock of the Registrant were outstanding.

 

 

 


Table of Contents

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

 

ITEM

        PAGE
PART I - FINANCIAL INFORMATION   

1.      Condensed Consolidated Financial Statements as of May  31, 2008 (unaudited) and November 24, 2007 and for the quarters and six months ended May 31, 2008 (unaudited) and May 26, 2007 (unaudited)

  
   Condensed Consolidated Statements of Operations and Retained Earnings    3
   Condensed Consolidated Balance Sheets    4
   Condensed Consolidated Statements of Cash Flows    5
   Notes to Condensed Consolidated Financial Statements    6

2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

   16

3.      Quantitative and Qualitative Disclosures About Market Risk

   23

4.      Controls and Procedures

   24
PART II - OTHER INFORMATION   

1.      Legal Proceedings

   25

2.      Unregistered Sales of Equity Securities and Use of Proceeds

   25

4.      Submission of Matters to a Vote of Security Holders

   25

6.      Exhibits

   26

 

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Table of Contents

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE PERIODS ENDED MAY 31, 2008 AND MAY 26, 2007-UNAUDITED

(In thousands except per share data)

 

     Quarter Ended     Six Months Ended  
     May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Net sales

   $ 74,862     $ 75,432     $ 156,460     $ 148,852  

Cost of sales

     45,344       51,486       94,316       102,595  
                                

Gross profit

     29,518       23,946       62,144       46,257  

Selling, general and administrative

     31,043       26,058       63,258       51,882  

Proxy defense costs

     1,418       —         1,418       —    

Restructuring, asset impairment charges and unusual gains, net

     (958 )     1,935       (958 )     5,544  

Lease exit costs

     —         1,934       —         1,934  
                                

Loss from operations

     (1,985 )     (5,981 )     (1,574 )     (13,103 )

Other income, net

     97       2,782       284       3,692  
                                

Loss before income taxes

     (1,888 )     (3,199 )     (1,290 )     (9,411 )

Income tax benefit

     1,497       779       1,416       2,804  
                                

Net income (loss)

   $ (391 )   $ (2,420 )   $ 126     $ (6,607 )

Retained earnings-beginning of period

     129,135       144,982       131,725       151,535  

Change in Accounting Principle–Adoption of FIN 48 (See Note 12)

     —         —         (746 )     —    

Cash dividends

     (2,625 )     (2,361 )     (4,986 )     (4,727 )
                                

Retained earnings-end of period

   $ 126,119     $ 140,201     $ 126,119     $ 140,201  
                                

Basic earnings (loss) per share

   $ (0.03 )   $ (0.20 )   $ 0.01     $ (0.56 )
                                

Diluted earnings (loss) per share

   $ (0.03 )   $ (0.20 )   $ 0.01     $ (0.56 )
                                

Dividends per share

   $ 0.225     $ 0.20     $ 0.425     $ 0.40  
                                

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

 

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Table of Contents

PART I-FINANCIAL INFORMATION-CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MAY 31, 2008 AND NOVEMBER 24, 2007

(In thousands)

 

      (Unaudited)
May 31, 2008
   November 24, 2007

Assets

     

Current assets

     

Cash and cash equivalents

   $ 6,280    $ 3,538

Accounts receivable, net

     42,930      38,612

Inventories

     45,341      50,550

Deferred income taxes

     7,058      6,001

Other current assets

     12,127      12,421
             

Total current assets

     113,736      111,122
             

Property and equipment

     

Cost

     154,269      153,995

Less accumulated depreciation

     97,287      100,770
             

Property and equipment, net

     56,982      53,225
             

Investments

     63,723      76,924

Retail real estate

     30,448      31,207

Notes receivable, net

     14,541      14,128

Deferred income taxes

     11,247      9,902

Other

     12,037      14,195
             
     131,996      146,356
             

Total assets

   $ 302,714    $ 310,703
             

Liabilities and Stockholders’ Equity

     

Current liabilities

     

Accounts payable

   $ 18,233    $ 26,104

Accrued compensation and benefits

     5,034      5,611

Customer deposits

     9,021      8,894

Dividends payable

     2,628      2,363

Other accrued liabilities

     12,306      13,622
             

Total current liabilities

     47,222      56,594
             

Long-term liabilities

     

Post employment benefit obligations

     14,289      14,493

Long-term revolving debt

     16,000      10,000

Real estate notes payable

     21,757      18,850

Distributions in excess of affiliate earnings

     12,629      12,244

Other long-term liabilities

     5,040      3,670
             
     69,715      59,257
             

Commitments and Contingencies

     

Stockholders’ equity

     

Common stock

     58,192      59,033

Retained earnings

     126,119      131,725

Additional paid-in-capital

     1,019      2,180

Accumulated other comprehensive income

     447      1,914
             

Total stockholders’ equity

     185,777      194,852
             

Total liabilities and stockholders’ equity

   $ 302,714    $ 310,703
             

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

 

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PART I-FINANCIAL INFORMATION-CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED MAY 31, 2008 AND MAY 26, 2007-UNAUDITED

(In thousands)

 

     Six Months Ended  
   May 31, 2008     May 26, 2007  

Operating activities:

    

Net income (loss)

   $ 126     $ (6,607 )

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

    

Depreciation and amortization

     3,949       4,779  

Equity in undistributed income of investments and unconsolidated affiliated companies

     (1,628 )     (5,027 )

Provision for restructuring, asset impairment charges and unusual gains, net

     (958 )     5,544  

Impairment of retail real estate

     352       —    

Provision for lease exit costs

     —         1,934  

Income from investments

     (1,007 )     (1,496 )

Provision for losses on trade accounts receivable

     2,036       1,388  

Deferred income taxes

     (650 )     (724 )

Other, net

     8       122  

Changes in operating assets and liabilities

    

Accounts receivable

     (7,307 )     (7,853 )

Inventories

     5,209       7,002  

Other current assets

     68       (3,574 )

Accounts payable and accrued liabilities

     (11,019 )     3,028  
                

Net cash used in operating activities

     (10,821 )     (1,484 )
                

Investing activities:

    

Purchases of property and equipment

     (1,205 )     (844 )

Purchases of retail real estate

     (497 )     —    

Proceeds from sales of property and equipment

     2,184       1,069  

Acquisition of Charleston stores

     (216 )     —    

Proceeds from sales of investments

     14,196       11,042  

Purchases of investments

     (2,872 )     (6,987 )

Dividends from an affiliate

     2,811       2,811  

Net cash received on licensee notes

     512       699  

Other, net

     167       (48 )
                

Net cash provided by investing activities

     15,080       7,742  
                

Financing activities:

    

Net borrowings under revolving credit facility

     6,000       1,000  

Repayments of long-term debt

     —         (770 )

Repayments of real estate notes payable

     (381 )     (334 )

Issuance of common stock

     85       348  

Repurchases of common stock

     (2,231 )     (476 )

Cash dividends

     (4,990 )     (4,730 )
                

Net cash used in financing activities

     (1,517 )     (4,962 )
                

Change in cash and cash equivalents

     2,742       1,296  

Cash and cash equivalents - beginning of period

     3,538       6,051  
                

Cash and cash equivalents - end of period

   $ 6,280     $ 7,347  
                

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

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(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 for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, “the Company”) and our majority owned subsidiaries of which we have operating control. The equity method of accounting is used for our investments in affiliated companies in which we exercise significant influence but do not maintain control, unless consolidated pursuant to Financial Accounting Standards Board (“FASB”) Revised Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN46R”).

As part of our efforts to standardize wholesale pricing throughout the country, we began in July 2007 invoicing all of the store network and certain wholesale customers on a fully landed basis such that the invoice price includes the freight charge for delivery. This business change resulted in approximately $4,084 and $8,693, respectively, of additional reported revenue and selling, general and administrative expenses for the quarter and six months ended May 31, 2008.

Due to our fiscal calendar, our six month period ended May 31, 2008 consisted of 27 weeks as compared to 26 weeks for the six month period ended May 26, 2007. Our second quarter of 2008 and 2007 consisted of 13 weeks. Our 2008 fiscal year will consist of 53 weeks.

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 and six months ended May 31, 2008, are not necessarily indicative of results for the 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, 2007.

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

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

3. Inventories

Inventories are valued at the lower of cost or market. Cost is determined for domestic furniture inventories using the last-in, first-out (LIFO) method. The costs for imported inventories are determined using the first-in, first-out (FIFO) method. During the quarters and six months ended May 31, 2008 and May 26, 2007, we liquidated certain LIFO inventories which decreased cost of sales as follows:

 

     May 31, 2008    May 26, 2007

Quarter ended

   $ 224    $ 1,067

Six months ended

     237      1,917

Inventories were comprised of the following:

 

     May 31, 2008     November 24, 2007  

Finished goods

   $ 29,732     $ 36,102  

Work in process

     234       247  

Raw materials and supplies

     8,663       7,887  

Retail merchandise

     13,884       13,723  
                

Total inventories at FIFO

     52,513       57,959  

LIFO adjustment

     (7,172 )     (7,409 )
                
   $ 45,341     $ 50,550  
                

4. Unconsolidated Affiliated Companies

The International Home Furnishings Center (“IHFC”) owns and leases out floor space in a showroom facility in High Point, North Carolina. We owned 46.9% of IHFC at May 31, 2008, and May 26, 2007, and accounted for the investment using the equity method since we do not maintain operating control of IHFC. Our investment reflects a credit balance of $12,629 and $12,244 at May 31, 2008, and November 24, 2007, respectively, which is reflected in the liabilities section in the accompanying consolidated balance sheets as “distributions in excess of affiliate earnings.” Based on current and expected future earnings of IHFC, we believe the market value of this investment is positive and substantially greater than its negative book value at May 31, 2008. This negative book value resulted from IHFC’s refinancing of its real estate based on the market value of the property and using the proceeds to pay a special dividend to its owners. We recorded income and received dividends from IHFC as follows:

 

     Quarter ended    Six months ended
     May 31, 2008    May 26, 2007    May 31, 2008    May 26, 2007

Income recorded

   $ 1,387    $ 1,659    $ 2,427    $ 2,986

Dividends received

     —        —        2,811      —  

Summarized unaudited income statement information for IHFC for its first six months of 2008 and 2007, respectively, is as follows:

 

     2008    2007

Revenue

   $ 22,045    $ 22,763

Operating income

     12,875      14,782

Net income

     5,179      6,373

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

In addition to our investment in IHFC, we have a 49% ownership interest in Zenith Freight Lines, LLC (“Zenith”) and we recorded the following loss in other income, net in our condensed consolidated statements of operations and retained earnings:

 

     Quarter ended    Six months ended  
     May 31, 2008     May 26, 2007    May 31, 2008     May 26, 2007  

Income (loss) in other income

   $ (114 )   $ 67    $ (342 )   $ (120 )

During the quarter ended February 24, 2007, we also owned a 30% interest in BFD Northeast, LLC (“BFDNE”) and accounted for that investment using the equity method. On February 28, 2007, we entered into an agreement with BFDNE whereby we contributed our 30% interest to BFDNE in exchange for certain assets (primarily inventory and leasehold improvements) of BFDNE’s two stores in Boston, Massachusetts, and the assumption of BFDNE’s outstanding bank debt. As part of the transaction, we also restructured amounts BFDNE previously owed us. For the six months ended May 26, 2007, we recorded losses of $(595) in other income, net in our condensed consolidated statement of operations and retained earnings for our share of BFDNE’s net losses.

5. Real Estate Notes Payable and Other Long-Term Debt

Certain of our retail real estate properties have been financed through commercial mortgages which are payable over periods of four to twenty years and have interest rates ranging from 6.73% to 9.18%. These mortgages are collateralized by the respective properties with net book values totaling approximately $32,377 and $25,767 at May 31, 2008, and November 24, 2007, respectively. The current portion of these mortgages, $2,370 and $672 as of May 31, 2008, and November 24, 2007, respectively, has been included as a current liability in other accrued liabilities in the accompanying condensed consolidated balance sheets. The long-term portion, $21,757 and $18,850 as of May 31, 2008, and November 24, 2007, respectively, is presented as real estate notes payable in the condensed consolidated balance sheets.

We amended our existing revolving credit facility in October 2007 by extending the agreement by two years and amending certain covenants. The credit facility provides for borrowings of up to $40,000 at a variable interest rate of LIBOR plus 1.5% (4.18% on May 31, 2008). The facility is secured by a pledge of certain marketable securities and substantially all of our receivables and inventories. Borrowings under the facility, which matures November 30, 2009, totaled $16,000 and $10,000 at May 31, 2008, and November 24, 2007, respectively. After coverage for letters of credit and certain loan guarantees, we had $13,584 available for borrowing under the facility at May 31, 2008. During the quarter ended May 31, 2008, we began discussions with our lender to amend certain covenants and increase the available amount due to general economic conditions and the previously announced special dividend and stock repurchase program. We expect to have an amended agreement by the end of the third quarter of 2008.

In the fourth quarter of 2007, we announced the acquisition of the operations of two stores in the Charleston, South Carolina area from a former licensee and that we had begun the process of acquiring the land and buildings for those stores. During the quarter ended March 1, 2008, we completed the acquisition of the land and buildings for $6,800. We funded the acquisition through additional real estate debt of approximately $5,000 and the use of preexisting accounts receivable from the former licensee.

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

6. Comprehensive Income

For the quarters ended May 31, 2008, and May 26, 2007, total comprehensive income (loss) was $(566) and $(2,122), respectively. For the six months ended May 31, 2008, and May 26, 2007, total comprehensive income (loss) was $(1,341) and $(6,613), respectively. Changes in accumulated other comprehensive income for the quarters and six months ended May 31, 2008 and May 26, 2007 are as follows:

 

     Quarter ended    Six months ended  
     May 31, 2008     May 26, 2007    May 31, 2008     May 26, 2007  

Balance at beginning of period

   $ 622     $ 3,016    $ 1,914     $ 3,320  

Unrealized holding gains (losses), net of tax

     (182 )     296      (1,481 )     (10 )

Amortization associated with SERP Plan

     7       2      14       4  
                               

Balance at end of period

   $ 447     $ 3,314    $ 447     $ 3,314  
                               

7. Restructuring, Asset Impairment Charges and Unusual Gains, net

The results for the quarter and six months ended May 31, 2008 included three unusual pretax items consisting of $1,418 of legal and other expenses for the proxy contest with Costa Brava Partnership III L.P., a $1,342 gain associated with the sale of our airplane and a $384 impairment charge associated with the writeoff of leasehold improvements for a closed store.

During the first quarter of 2007, we made the decision to cease operations at our wood manufacturing facility in Bassett, Va. The closure of the 323,000 square foot facility was completed during June of 2007 and affected approximately 280 employees or 15 percent of the Company’s workforce. The Company has sourced the majority of the products previously produced at this facility from overseas suppliers, continued to produce certain custom bedroom products domestically and discontinued providing certain slower selling items. As a result of this decision, we recorded a $3,609 charge in the first quarter of 2007 to write down the value of the plant and equipment and a $960 charge in the second quarter of 2007 for severance benefits. As of May 31, 2008, we have disbursed substantially all of the severance benefits.

During the second quarter of 2007, we also reduced our leased showroom space in the International Home Furnishings Center by approximately 60% and recorded a $975 charge to writeoff the net book value of the corresponding capitalized tenant improvements.

8. Lease Exit Costs

As part of our expense reduction initiatives in 2007, we concluded that three of our leased store locations would no longer be used by us as retail furniture locations. Accordingly, we recorded a $1,934 pretax charge to recognize the fair value of the future obligations associated with the leases.

9. 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 licensee-owned stores. We had obligations of $98,986 and $96,393 at May 31, 2008 and November 24, 2007, respectively, for future minimum lease payments under non-cancelable operating leases having remaining terms in excess of one year. As part of the expansion strategy for our store program, we 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 $12,343 and $12,672 at May 31, 2008, and November 24, 2007, respectively.

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

We have also guaranteed loans of certain of our licensees to finance initial inventory packages for those stores. The total contingent liabilities with respect to these loan guarantees as of May 31, 2008, and November 24, 2007, were $7,336 and $9,056, respectively.

In the event of default by an independent dealer under the guaranteed lease or loan, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer, liquidating the collateral (primarily inventory), and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease and loan guarantees at May 31, 2008, and November 24, 2007, were $369 and $428, respectively, and are recorded in accrued liabilities in the accompanying condensed consolidated balance sheets.

10. Post Employment Benefit Obligations

We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for this plan was $11,879 and $12,034 as of May 31, 2008 and November 24, 2007, respectively, and is recorded as follows in the consolidated balance sheets:

 

     May 31, 2008    November 24, 2007

Other accrued liabilities

   $ 984    $ 984

Post employment benefit obligations

     10,895      11,050
             

Total pension liability

   $ 11,879    $ 12,034
             

Components of net periodic pension costs are as follows:

 

     Quarter Ended    Six Months Ended
     May 31, 2008    May 26, 2007    May 31, 2008    May 26, 2007

Service cost

   $ 13    $ 25    $ 26    $ 50

Interest cost

     158      169      316      338

Amortization of transition obligation

     11      11      22      22

Amortization of unrecognized actuarial loss

     —        3      —        6
                           

Net periodic pension cost

   $ 182    $ 208    $ 364    $ 416
                           

We have an unfunded Deferred Compensation Plan that covers one current and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. We recognized expense of $114 for the second quarters of 2008 and 2007 and $228 for the six months ended May 31, 2008 and May 26, 2007, respectively. Our liability under this plan was $3,394 and $3,443 as of May 31, 2008 and November 24, 2007, respectively, and is reflected in post employment benefit obligations.

 

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Table of Contents

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

11. Earnings per share

The following reconciles basic and diluted earnings per share:

 

     Net Income
(Loss)
    Weighted Average
Shares
    Earnings
(loss) per
share
 

For the quarter ended May 31, 2008:

      

Net loss

   $ (391 )   11,759,895     $ (0.03 )

Add effect of dilutive securities:

      

Options

     —       —   *     —    
                      

Diluted earnings per share

   $ (391 )   11,759,895     $ (0.03 )
                      

For the quarter ended May 26, 2007:

      

Net loss

   $ (2,420 )   11,816,968     $ (0.20 )

Add effect of dilutive securities:

      

Options

     —       —   *     —    
                      

Diluted earnings per share

   $ (2,420 )   11,816,968     $ (0.20 )
                      

For the six months ended May 31, 2008:

      

Net income

   $ 126     11,785,536     $ 0.01  

Add effect of dilutive securities:

      

Options

     —       265       —    
                      

Diluted loss per share

   $ 126     11,785,801     $ 0.01  
                      

For the six months ended May 26, 2007:

      

Net loss

   $ (6,607 )   11,814,476     $ (0.56 )

Add effect of dilutive securities:

      

Options

     —       —   *     —    
                      

Diluted earnings per share

   $ (6,607 )   11,814,476     $ (0.56 )
                      

 

* Due to the net loss, the potentially dilutive securities would have been antidilutive and are therefore excluded.

Options to purchase approximately 1,278,000 and 1,342,000 shares of common stock at May 31, 2008 and May 26, 2007, respectively, were excluded from the computation as their effect is antidilutive.

12. Income Taxes

Effective November 25, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes”, which provides a comprehensive model for the recognition, measurement, presentation, and disclosure in a company’s financial statements of uncertain tax positions taken, or expected to be taken, on a tax return. Under FIN 48, if an income tax position exceeds a more likely than not (i.e. greater than 50%) probability of success upon tax audit, based solely on the technical merits of the position, the company is to recognize an income tax benefit in its financial statements. The tax benefits recognized are to be measured based on

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is to be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold for purposes of applying FIN 48. Therefore, if it can be established that the only uncertainty is when an item is taken on a tax return, such positions have satisfied the recognition step for purposes of FIN 48 and uncertainty related to timing should be assessed as part of measurement. FIN 48 requires that a liability associated with an unrecognized tax benefit be classified as a long-term liability, except for the amount for which a cash payment is expected to be made within one year. Further, companies are required to accrue interest and related penalties, if applicable, on all tax exposures consistent with the respective jurisdictional tax laws.

The adoption of FIN 48 resulted in a non-cash transition (cumulative effect of a change in accounting principle) adjustment of $746 which was recorded as a decrease to beginning retained earnings. The transition adjustment is a result, primarily, of tax positions associated with state income tax exposures and interest on certain temporary differences. Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.

As of the adoption date of FIN 48, we had unrecognized income tax benefits totaling $1,687, of which $902 would impact our effective income tax rate if recognized. We do not currently anticipate significant changes in such amounts over the next twelve months. As of the date of adoption, the total amount of accrued interest and penalties was $578. For the six months ended May 31, 2008, changes in accrued interest, penalties and unrecognized tax benefits as a result of tax positions taken in the current and prior years were not significant.

We remain subject to examination for tax years 2003 through 2006 for all of our major tax jurisdictions.

13. Fair Value Disclosures

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157” or “the Standard”). The Standard defines fair value, provides a consistent framework for measuring fair value under accounting principles generally accepted in the United States and expands fair value financial statement disclosure requirements. SFAS 157 does not require any new fair value measurements. It only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate to share-based payments (SFAS 123R, Share Based Payment.)

SFAS 157’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. The Standard 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.

The standard is effective for fiscal years beginning after November 15, 2007. Effective November 25, 2007, we adopted the provisions of SFAS No. 157.

We have $17,943 of marketable securities consisting of a combination of equity and fixed income securities with maturities that range from one to six years. We have the ability to liquidate these investments without restriction. We determine fair value for our marketable securities through quoted market prices. The adoption of SFAS No. 157 had no effect on the valuation of our marketable securities.

We also have $45,780 invested in the Bassett Industries Alternative Asset Fund LP (BIAAF) at May 31, 2008 which is recorded at fair value. We primarily determine the fair value of our investment in the BIAAF based on the net asset values which are determined by the investee fund, based on its underlying financial instruments as provided by the general partner. Investment balances by fund are presented below.

 

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

     May 31, 2008    November 24, 2007

Styx Partners, L.P.

   $ 14,221    $ 13,974

HBK Fund, L.P.

     13,194      13,589

Drawbridge Special Opportunities Fund, L.P.

     12,336      12,400

DB Zwirn Special Opportunities Fund, L.P.

     5,252      5,735

Cash and Other

     777      98

Contrarian Capital Trade Claims, L.P.

     —        5,983
             
   $ 45,780    $ 51,779
             

We are entitled to affect partial withdrawals from our capital account at the end of any calendar quarter or calendar year subject to the withdrawal provisions and notice periods required by the underlying managers. These notice periods range from sixty-five days to six months and may be subject to lockup periods of up to one year. However, we have requested our general partner to attempt to liquidate all of our investments in the BIAAF to fund a special dividend, our increased share repurchase program and capital spending for our new prototype stores. Subsequent to May 31, 2008, we received substantially all of our investment in the Drawbridge Special Opportunities Fund, L.P. for the stated net asset value. We have been informed that due to the magnitude of other redemption requests on the DB Zwirn Special Opportunities Fund, L,P., it is likely that it will be two to three years before our investment is fully redeemed. During the second quarter of 2008, we were informed that due to the overall level of redemption requests we will only receive $3,600 from the HBK Fund, L.P. during July with our remaining investment in this fund to be redeemed over the next two years. We expect to receive the total stated net asset value for both the Zwirn and HBK investments. We currently expect to receive substantially all of the proceeds from our investment in Styx Partners, L.P. early in 2009. Due to these liquidation restrictions, we have determined that a discount to the stated net asset values is necessary to reflect the fair value as proscribed by SFAS No. 157. Consequently, we recorded an additional fair value adjustment of $239 in the second quarter, in addition to the $304 adjustment recorded in the first quarter, for a total fair value adjustment of $543 as of May 31, 2008. This adjustment decreases the value of our investment in BIAAF and has been recorded in other income, net.

The fair values of our marketable securities and our investment in the BIAAF based on the level of inputs are summarized below:

 

     May 31, 2008
   Fair Value Measurements Using    Assets at
Fair Value
   Level 1    Level 2    Level 3   

Assets

           

Marketable Securities

   $ 17,943    —        —      $ 17,943

Investment in BIAAF

     —      —        45,780      45,780
                         

Total Assets

   $ 17,943    —      $ 45,780    $ 63,723
                         

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

The table below provides a reconciliation of all assets measured at fair value on a recurring basis which use level three or significant unobservable inputs for the period of March 1, 2008 to May 31, 2008.

 

     Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3 Inputs)
 
     Investment in BIAAF  

Balance at November 24, 2007

   $ 51,779  

Total losses included in earnings related to changes in underlying net assets

     (456 )

Total losses included in earnings related to liquidity discount

     (543 )

Redemptions

     (5,000 )

Transfers in and/or out of Level 3

     —    
        

Balance May 31, 2008

   $ 45,780  
        

14. Segment Information

We have strategically aligned our business into three reportable segments: Wholesale, Retail and Investments/Real Estate. 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 (independently-owned stores and Company-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses.

Our retail segment consists of Company-owned stores. Our retail segment includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores.

Our investments/real estate segment consists of our investments (Alternative Asset Fund and marketable securities), distributions in excess of affiliate earnings (IHFC) and retail real estate related to licensee stores. Although this segment does not have operating earnings, income from the segment is included in other income in our condensed consolidated statements of operations and retained earnings. Our equity investment in IHFC is not included in the identifiable assets of this segment since it has a negative book value and is therefore included in the long-term liabilities section of our condensed consolidated balance sheet. See Note 4 for a further discussion of IHFC.

Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. Inter-company income elimination represents 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 end retail consumer.

 

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

MAY 31, 2008

(Dollars in thousands except share and per share data)

 

The following table presents our segment information:

 

     Quarter Ended     Six Months Ended  
   May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Net Sales

        

Wholesale

   $ 61,991     $ 63,388     $ 131,299     $ 125,734  

Retail

     24,597       21,909       50,525       43,092  

Inter-company elimination

     (11,726 )     (9,865 )     (25,364 )     (19,974 )
                                

Consolidated

   $ 74,862     $ 75,432     $ 156,460     $ 148,852  
                                

Income (loss) from Operations

        

Wholesale

   $ 670     $ 377     $ 3,553     $ (783 )

Retail

     (2,354 )     (2,749 )     (4,411 )     (5,125 )

Inter-company elimination

     159       260       (256 )     283  

Proxy defense costs

     (1,418 )     —         (1,418 )     —    

Restructuring, asset impairment charges and unusual gains, net

     958       (1,935 )     958       (5,544 )

Lease exit costs

     —         (1,934 )     —         (1,934 )
                                

Consolidated

   $ (1,985 )   $ (5,981 )   $ (1,574 )   $ (13,103 )
                                

Depreciation and Amortization

        

Wholesale

   $ 903     $ 1,317     $ 1,867     $ 2,736  

Retail

     576       534       1,218       975  

Investments/real estate

     434       600       864       1,068  
                                

Consolidated

   $ 1,913     $ 2,451     $ 3,949     $ 4,779  
                                

Capital Expenditures

        

Wholesale

   $ 320     $ 443     $ 457     $ 627  

Retail

     342       183       748       217  

Investments/real estate

     246       —         497       —    
                                

Consolidated

   $ 908     $ 626     $ 1,702     $ 844  
                                
      As of
May 31, 2008
    As of
November 24, 2007
       

Identifiable Assets

      

Wholesale

   $ 150,248     $ 149,948    

Retail

     58,295       52,624    

Investments/real estate

     94,171       108,131    
                  

Consolidated

   $ 302,714     $ 310,703    
                  

 

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May 31, 2008

(Dollars in thousands except share and per share data)

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read along with the unaudited condensed consolidated financial statements included in this Form 10-Q, as well as the company’s 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission, which provides a more thorough discussion of the Company’s products and services, industry outlook, and business trends.

Bassett Furniture Industries Inc., based in Bassett, Va., is a leading retailer, manufacturer and marketer of branded home furnishings. Bassett’s products are sold primarily through Bassett Furniture Direct and Bassett stores, with secondary distribution through multi-line furniture stores, many with in-store Bassett Design Centers. Bassettbaby cribs and casegoods are sold through specialty stores and mass merchants.

Bassett Furniture Direct (“BFD” or “store”) was created in 1997 as a single source home furnishings retail store that provides a unique combination of stylish, well-made furniture and accessories with a high level of customer service. This service includes complimentary room planning, in-home design visits, fast delivery, and custom-order furniture. The retail store program had 127 stores in operation at the end of the second quarter of 2008, 31 of which we own and operate. During the remainder of 2008, we plan to remodel several corporate locations at varying levels of magnitude to incorporate the new store design which was unveiled late in fiscal 2007. We also expect that over the remainder of 2008 six to eight licensee stores will remodel to incorporate certain aspects of the new design. Although management will continue to work closely with its licensee stores to ensure the success of both the licensee and Bassett, the Company expects nine to ten underperforming stores to close during the remainder of 2008.

We define imported product as fully finished product that is sourced internationally. In the first half of 2008, 56% of our wholesale sales were of imported product compared to 46% in the first half of 2007. Our domestic product includes certain products that contain components which are also sourced internationally. We continue to believe that a blended strategy including domestically produced products primarily of a custom-order nature combined with importing certain product categories and major collections, provides the best combination of value and quality to our customers.

Overall conditions for our industry and our Company have been difficult throughout 2007 and the first half of 2008 with new housing starts down significantly, a deteriorating consumer credit environment and increasing costs tied to petroleum products. With that as a backdrop, we have continued to thoughtfully and prudently invest in the long-term health and future of our retail network. Although we believe the remainder of 2008 will continue to be difficult, we plan simultaneously to continue to adjust our overall cost structure and further evaluate the performance of our corporate and licensee stores while properly supporting our retail initiatives that are the foundation of the Company’s plans for the future.

Maintenance of a strong balance sheet is a stated management goal and vital to our retail growth strategy. The store program entails key business risks, including the realization of receivables and the coverage of both direct and contingent liabilities primarily associated with retail real estate. We have established decision criteria and business disciplines aimed at minimizing potential losses from these risks.

Key marketing initiatives for Bassett during the first half of 2008 included the mailing of our spring 2008 catalog, development of the summer 2008 catalog and the production of a new series of television commercials that began airing in April. The catalog better defines and enhances Bassett’s brand image while explaining to our consumers our product and service capabilities. The new television advertisements present the Bassett brand as a choice for an enhanced lifestyle. In addition to the catalog and television advertisements, the Company has several other marketing and merchandising initiatives underway including product introductions centered around the Company’s core middle price point category and the development and circulation of our fall catalog.

For the remainder of 2008, our primary areas of focus are to improve store level retail performance and to reduce our wholesale cost structure. Amidst an extremely challenging retail environment, we must drive improvement in our retail segment’s results and we are squarely focused on selling more furniture in our Bassett stores. This enterprise-wide

 

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May 31, 2008

(Dollars in thousands except share and per share data)

 

effort involves every aspect of our Company – merchandising, marketing, operations, recruiting, training and information technology. We have developed a financial plan aimed at reducing our retail losses to a breakeven level by 2010.

Results of Operations – Quarter and Six Months ended May 31, 2008 compared with the Quarter and Six Months ended May 26, 2007:

Net sales, gross profit, selling, general and administrative (SG&A) expense, and operating (loss) were as follows for the periods ended May 31, 2008 and May 26, 2007:

 

     Quarter Ended     Six Months Ended  
     May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Net sales

   $ 74,862     100.0 %   $ 75,432     100.0 %   $ 156,460     100.0 %   $ 148,852     100.0 %
                                                        

Gross profit

     29,518     39.4 %     23,946     31.7 %     62,144     39.7 %     46,257     31.1 %

SG&A

     31,043     41.5 %     26,058     34.5 %     63,258     40.4 %     51,882     34.9 %

Unusual charges, net

     460     0.6 %     3,869     5.1 %     460     0.3 %     7,478     5.0 %
                                                        

Operating loss

   $ (1,985 )   -2.7 %   $ (5,981 )   -7.9 %   $ (1,574 )   -1.0 %   $ (13,103 )   -8.8 %
                                                        

On a consolidated basis, we reported net sales for the second quarter of 2008 of $74,862, a decrease of $570 or 1% from sales levels attained in the second quarter of 2007. The 2008 reported sales have been positively impacted by reported revenue of $4,084 due to a change in our business practices with respect to freight for the delivery of wholesale furniture to our retail stores. During July of 2007, we began invoicing these customers on a fully landed basis such that the dealer invoice price includes the freight charge for delivery. Sales for the six months ended May 31, 2008 were $156,460, an increase of $7,608 or 5%. The 2008 reported sales have been positively impacted by reported revenue of $8,693 due to the change noted above with respect to freight for the delivery of wholesale furniture to our retail stores. Due to our fiscal calendar, the six months ended May 31, 2008 included 27 weeks compared to 26 weeks for the six months ended May 26, 2007.

Segment Information

We have strategically aligned our business into three reportable segments: Wholesale, Retail and Investments/Real Estate. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of stores (independently-owned stores and Company-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both corporate and licensee owned stores.

Our retail segment consists of Company-owned stores. Our retail segment includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores.

Our investments/real estate segment consists of our investments (Alternative Asset Fund and marketable securities), distributions in excess of affiliate earnings (IHFC) and retail real estate related to licensee stores. Although this segment does not have operating earnings, income from the segment is included in other income, net in our condensed consolidated statements of income and retained earnings.

 

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May 31, 2008

(Dollars in thousands except share and per share data)

 

The following is a discussion of operating results for our wholesale and retail segments:

Wholesale Segment

 

     Quarter Ended     Six Months Ended  
     May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Net sales

   $ 61,991    100.0 %   $ 63,388    100.0 %   $ 131,299    100.0 %   $ 125,734     100.0 %
                                                     

Gross profit

     18,102    29.2 %     14,229    22.4 %     39,094    29.8 %     27,544     21.9 %

SG&A

     17,432    28.1 %     13,852    21.9 %     35,541    27.1 %     28,327     22.5 %
                                                     

Operating income (loss)

   $ 670    1.1 %   $ 377    0.6 %   $ 3,553    2.7 %   $ (783 )   -0.6 %
                                                     

Net sales for the wholesale segment were $61,991 for the second quarter of 2008 as compared to $63,388 for the second quarter of 2007, a decrease of 2%. The 2008 reported sales were positively impacted by reported revenue of $4,084 due to a change in the Company’s business practices as described above. Approximately 54% of wholesale shipments during the second quarter of 2008 were imported products as compared to 44% for the second quarter of 2007. Gross margins for the wholesale segment were 29.2% for the second quarter of 2008 as compared to 22.4% for the second quarter of 2007. Excluding the effects of the business practice change described above, gross margins for the second quarter of 2008 would have been 24.2%, a 1.8 percentage point increase over 2007. This increase is primarily due to an improved product mix associated with increased imported products which carry a higher margin and the significant wind down costs incurred in 2007 in connection with the closing of the Bassett plant.

Net sales for the wholesale segment were $131,299 for the six months ended May 31, 2008 as compared to $125,734 for the six months ended May 26, 2007, an increase of 4%. Due to our fiscal calendar, the six months ended May 31, 2008 included 27 weeks compared to 26 weeks for the six months ended May 26, 2007. The 2008 reported sales also have been positively impacted by reported revenue of $8,693 due to a change in the Company’s business practices as described above. Gross margins for the wholesale segment were 29.8% for the six months ended May 31, 2008 as compared to 21.9% for the six months ended May 26, 2007. Excluding the effects of the business practice change described above, gross margins for the second quarter of 2008 would have been 24.8%, a 2.9 percentage point increase over 2007. This increase is primarily due to an improved product mix associated with increased imported products which carry a higher margin and the significant wind down costs in 2007 associated with the closing of the Bassett plant.

Wholesale SG&A increased $3,580 during the second quarter of 2008 as compared to 2007 and $7,214 for the six months ended May 31, 2008 as compared to 2007. Excluding the effects of the invoicing change described above, wholesale SG&A decreased $504 to 23.1% of net sales for the quarter and $1,479 to 21.9% for the six month period. This decrease is primarily due to implemented cost reduction programs as we continue to aggressively challenge our wholesale cost structure, partially offset by increased bad debt expense.

 

Wholesale shipments by type:    Quarter Ended     Six Months Ended  
     May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Wood

   $ 33,242    53.6 %   $ 34,599    54.6 %   $ 70,245    53.5 %   $ 69,960    55.6 %

Upholstery

     28,450    45.9 %     28,203    44.5 %     59,827    45.6 %     54,667    43.5 %

Other

     299    0.5 %     586    0.9 %     1,227    0.9 %     1,107    0.9 %
                                                    

Total

   $ 61,991    100.0 %   $ 63,388    100.0 %   $ 131,299    100.0 %   $ 125,734    100.0 %
                                                    

 

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May 31, 2008

(Dollars in thousands except share and per share data)

 

Retail Segment – Company-Owned Retail Stores

 

     Quarter Ended     Six Months Ended  
   May 31, 2008     May 26, 2007     May 31, 2008     May 26, 2007  

Net sales

   $ 24,597     100.0 %   $ 21,909     100.0 %   $ 50,525     100.0 %   $ 43,092     100.0 %
                                                        

Gross profit

     11,263     45.8 %     9,457     43.2 %     23,312     46.1 %     18,429     42.8 %

SG&A

     13,617     55.4 %     12,206     55.7 %     27,723     54.9 %     23,554     54.7 %
                                                        

Operating loss

   $ (2,354 )   -9.6 %   $ (2,749 )   -12.5 %   $ (4,411 )   -8.7 %   $ (5,125 )   -11.9 %
                                                        

Our 31 corporate stores continue to make progress despite difficult conditions at retail with sales of $24,597 in the second quarter of 2008 as compared to $21,909 in the second quarter of 2007. These sales increases have primarily resulted from the five additional Company-owned stores acquired during 2007 and a slight increase in comparable store sales (sales for stores open for longer than one year). Gross margins for the quarter increased 2.6 percentage points due to improved pricing and promotional strategies, partially offset by lower margins in the upstate New York market due to the closing of the Henrietta store during the second quarter. Our retail segment reduced total operating losses by $395, a 14% decrease. For our 25 comparable corporate stores, we reduced operating losses by approximately 27% in the second quarter of 2008 as compared to the second quarter of 2007. The Company believes that the combination of new product introductions, store prototype retrofits, better hiring and training of design consultants and continued improved marketing efforts will lead to further improvement in retail operating results.

Net sales for the six months ended May 31, 2008 were $50,525 as compared to $43,092 for the six months ended May 26, 2007. These sales increases have primarily resulted from the additional Company-owned stores and a slight increase in comparable store sales (sales for stores open for longer than one year). Due to our fiscal calendar, the six months ended May 31, 2008 included 27 weeks compared to 26 weeks for the six months ended May 26, 2007. Gross margins for the 2008 period increased 3.3 percentage points due to improved pricing and promotional strategies, partially offset by lower margins in the upstate New York market due to the closing of the Henrietta store during the second quarter of 2008. Our retail segment reduced total operating losses by $714, a 14% decrease. For our 25 comparable corporate stores, we reduced operating losses by approximately 34% in the first six months of 2008 as compared to the first six months of 2007.

Our retail segment includes the expenses of retail real estate utilized by Company-owned retail stores. Rental income and expenses from our properties utilized by independent licensees and partnership licensees are included in our investment and real estate segment.

We plan to utilize our Company-owned retail stores and selected licensee stores to develop best practices and drive the uniformity in our store network that we believe is key to the overall success of our store program. Our store strategy is currently focused on developing a more uniform set of business practices to assist licensees in the operations of stores and working with licensees to improve the profitability of their stores. We have developed a financial plan aimed at reducing these retail losses to a breakeven level within two years.

Other Items Affecting Net Income

The results for the quarter and six months ended May 31, 2008 included three unusual pretax items consisting of $1,418 of legal and other expenses for the proxy contest with Costa Brava Partnership III L.P., a $1,342 gain associated with the sale of our airplane and a $384 impairment charge associated with the writeoff of leasehold improvements for a closed store. The loss for the quarter ended May 26, 2007 included unusual pretax charges of $1,934 associated with lease exit costs for certain closed stores, $975 associated with the writeoff of tenant improvements from the downsizing of our showroom space and $960 associated with severance from the closure of the Bassett plant. In addition, the six months ended May 26, 2007 included a $3,609 pretax charge recorded in the first quarter of 2007 for the writedown of the plant and equipment for the closing of the Bassett plant.

Other income for the quarter and six months ended May 31, 2008 was $97 and $284 as compared to $2,782 and $3,692 for the quarter and six months ended May 26, 2007, respectively. These decreases were primarily due to market losses from our Alternative Asset Fund of approximately 1% in 2008 as compared to income of approximately 5% in 2007.

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

May 31, 2008

(Dollars in thousands except share and per share data)

 

The effective income tax rate was 79% and 24% in the second quarter of 2008 and 2007, respectively. The effective income tax rate was 110% and 30% for the six month periods of 2008 and 2007. The effective tax rate for the second quarter has been impacted by lower projected pretax income as compared to projections as of the end of the first quarter combined with the effect of certain income exclusions, primarily dividends received from our investment in IHFC. The effective tax rates for 2007 were impacted by the $5,544 restructuring and asset impairment charges and the $1,934 lease exit costs which were taxed at a 39% effective rate.

Adoption of FIN 48

Effective November 25, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes, which provides a comprehensive model for the recognition, measurement, presentation, and disclosure in a company’s financial statements of uncertain tax positions taken, or expected to be taken, on a tax return. Under FIN 48, if an income tax position exceeds a more likely than not (i.e. greater than 50%) probability of success upon tax audit, based solely on the technical merits of the position, the company is to recognize an income tax benefit in its financial statements. The tax benefits recognized are to be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If it is not more than likely than not that the benefit will be sustained on its technical merits, no benefit is to be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold for purposes of applying FIN 48. Therefore, if it can be established that the only uncertainty is when an item is taken on a tax return, such positions have satisfied the recognition step for purposes of FIN 48 and uncertainty related to timing should be assessed as part of measurement. FIN 48 requires that a liability associated with an unrecognized tax benefit be classified as a long-term liability, except for the amount for which a cash payment is expected to be made within one year. Further, companies are required to accrue interest and related penalties, if applicable, on all tax exposures consistent with the respective jurisdictional tax laws.

The adoption of FIN 48 resulted in a non-cash transition (cumulative effect of a change in accounting principle) adjustment of $746 which was recorded as a decrease to beginning retained earnings. The transition adjustment is a result, primarily, of tax positions associated with state income tax exposures and interest on certain temporary differences. Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.

As of the adoption date of FIN 48, we had unrecognized income tax benefits totaling $1,687, of which $902 would impact our effective income tax rate if recognized. We do not currently anticipate significant changes in such amounts over the next twelve months. As of the date of adoption, the total amount of accrued interest and penalties was $578. For the six months ended May 31, 2008, changes in accrued interest, penalties and unrecognized tax benefits as a result of tax positions taken in the current and prior years were not significant.

As of November 25, 2007, we remained subject to examination for tax years 2003 through 2006 for all of our major tax jurisdictions.

Liquidity and Capital Resources

Our May 31, 2008 balance sheet, with $13,584 available on our revolving line of credit coupled with a sizeable investment portfolio, continues to bolster our retail growth strategy. This strategy includes capital expenditures for Company-owned stores and entering into operating leases and lease and loan guarantees for our licensees. Capital spending for retail real estate is expected to be approximately $4,000 in 2008 largely for store build-outs related to our new prototype. We also expect to increase our capital expenditures for retail real estate and store build-outs to $6,000 to $7,000 in 2009 and $10,000 to $11,000 in 2010. We currently anticipate that manufacturing capital spending for fiscal 2008 will approximate $1,800, primarily for machinery and equipment and information technology related to our initiative to develop e-commerce capabilities in 2008. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the new prototype stores, our rate of growth, our operating results and any other adjustments in our operating plan needed in response to competition, acquisition opportunities or unexpected events. We believe that our existing cash and investment portfolio that remains after the orderly liquidation of the

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

May 31, 2008

(Dollars in thousands except share and per share data)

 

Alternative Asset Fund (as discussed below), and our borrowing capacity, together with cash provided by operations, will be more than sufficient to meet our capital expenditure and working capital requirements for the foreseeable future.

We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of licensee-owned stores. We had obligations of $98,986 and $96,393 at May 31, 2008 and November 24, 2007, respectively, for future minimum lease payments under non-cancelable operating leases having remaining terms in excess of one year. 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 $12,343 and $12,672 at May 31, 2008, and November 24, 2007, respectively. We have also guaranteed loans of certain of our licensees to finance initial inventory packages for those stores. The total contingent liabilities with respect to these loan guarantees as of May 31, 2008, and November 24, 2007, were $7,336 and $9,056, respectively.

Our cash requirements for the first six months of 2008 were funded through $11,324 of net investment sales, $2,811 in dividends from our investment in the International Home Furnishings Center and $6,000 in additional borrowings on the revolving credit facility. Net accounts receivable increased $4,318 during the six months ended May 31, 2008, due primarily to the slower pace of collections from certain store licensees related primarily to the overall retail environment. We continually assess our level of bad debt reserves and recorded $2,036 in provision for losses on accounts receivable in 2008. Although we believe we have adequate reserves for bad debts, we will continue to work with our dealers to help limit bad debt exposure. We expect nine to ten underperforming stores to close during the remainder of 2008.

We used $10,821 of cash in operating activities during the six months ended May 31, 2008 primarily due to the continued difficult environment at retail as well as increased cash requirements to fund the January new product rollout. Representing one of the most extensive redesigns and rollouts in our recent history, the new product has been well-received at retail and should help to fuel future sales growth. Due to the lead time to source the majority of the new product, inventory and accounts payable balances were unusually high at the end of fiscal 2007. Our inventory levels peaked in January and began returning to more normalized levels during February. We believe that the inventory levels as of May 31, 2008 represent a sustainable and more normalized level. Our accounts payable balance was reduced by $7,871 during the 27 week period and has returned to a more normalized level. We also funded $4,990 in dividends and repurchased $2,231 of common stock under the previously announced $20,000 share repurchase plan. In the fourth quarter of 2007, we announced the acquisition of the operations of two stores in the Charleston, South Carolina area from a former licensee and that we had begun the process of acquiring the land and building of those stores. During the quarter ended March 1, 2008, we completed the acquisition of the land and building for $6,800. We funded the acquisition through additional real estate debt of approximately $5,000 and the use of preexisting accounts receivable from the former licensee.

Subsequent to May 31, 2008, we announced that our Board of Directors had approved the first installment of $0.75 per share to be paid as part of the $1.25 special dividend announced in April. Accordingly, $0.75 per share will be paid to shareholders of record as of July 16, 2008 with a payment date of August 1, 2008. We also received $12,000 in June from the liquidation of part of the Alternative Asset Fund that will be used in part to fund the special dividend and additional repurchases of common stock. The second installment of $0.50 per share is expected to be paid in October 2008 as further proceeds from liquidating additional portions of our investment portfolio are received.

During the quarter ended May 31, 2007, we began discussions with our lender to amend certain covenants and increase the available amount under our revolving credit facility due to general economic conditions and the previously announced special dividend and stock repurchase program. We expect to have an amended agreement by the end of the third quarter of 2008.

 

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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

May 31, 2008

(Dollars in thousands except share and per share data)

 

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 10-K for the fiscal year ended November 24, 2007, except as follows:

Income Taxes – We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109”, on November 25, 2007. We account for our uncertain tax positions in accordance with this standard. The federal, state, and local income tax laws and regulations to which we are subject are voluminous, inherently complex and are often ambiguous. We are required to make many subjective judgments and assumptions regarding our income tax exposures. Interpretations of these income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated balance sheets and statements of operations.

Investments – Investments in our Alternative Asset Fund and our marketable securities portfolio are recorded at their fair value. We account for the Alternative Asset Fund by marking it to market value each month based primarily on the net asset values provided by the general partner. We provide discounts on those values based on the redemption restrictions of the respective fund and record changes in the discount as a component of earnings. Such discounts are highly subjective and are likely to result in actual redemption amounts that differ from those presented in the balance sheet. Unrealized holding gains and losses, net of the related income tax effect, on our marketable securities portfolio are excluded from income and are reported as other comprehensive income in stockholders’ equity. Realized gains and losses from our marketable securities portfolio are included in income and are determined using the specific identification method for ascertaining the cost of securities sold.

Off-Balance Sheet Arrangements

We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of both Company-owned and licensee stores. We have guaranteed certain lease obligations of licensee operators of the stores, as part of our retail expansion strategy. We also have guaranteed loans of certain of our dealers to finance initial inventory packages for these stores. See Note 9 to our condensed consolidated financial statements for further discussion of operating leases, lease guarantees and loan guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements.

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, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

 

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PART II-OTHER INFORMATION

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

MAY 31, 2008

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk:

We are exposed to market risk for changes in market prices of our various types of investments. Our investments include marketable securities and an investment partnership (Alternative Asset Fund). Our marketable securities portfolio, which totaled $17,943, at May 31, 2008, is diversified among eight different money managers and sixteen different medium to large capitalization equity interests. Although there are no maturity dates for our equity investments, we will liquidate these holdings as necessary to fund operations or other growth strategies. Maturity dates on other investments in the portfolio range from one to six years. As part of our current debt facility, we have pledged $15 million of these securities as collateral.

The Bassett Industries Alternative Asset Fund L.P was organized under the Delaware Revised Uniform Limited Partnership Act and commenced operations on July 1, 1998. Private Advisors, L.L.C. is the general partner (the General Partner) of the Alternative Asset Fund. We and the General Partner are currently the only two partners. The objective of the Alternative Asset Fund is to achieve consistent positive returns, while attempting to reduce risk and volatility, by placing its capital with a variety of hedge funds and experienced portfolio managers. Such hedge funds and portfolio managers employ a variety of trading styles or strategies, including, but not limited to, convertible arbitrage, merger or risk arbitrage, distressed debt, long/short equity, multi-strategy and other market-neutral strategies. Our investment in the Alternative Asset Fund, which totaled $45,780 at May 31, 2008, includes investments in various other private limited partnerships, which contain contractual commitments with elements of market risk. These contractual commitments, which include fixed-income securities and derivatives, may involve future settlements, which give rise to both market and credit risk. The investment partnership’s exposure to market risk is determined by a number of factors, including the size, composition, and diversification of positions held, volatility of interest rates, market currency rates, and liquidity. Risks to these funds arise from possible adverse changes in the market value of such interests and the potential inability of counterparties to perform under the terms of the contracts. However, the risk to the Company is limited to the amount of the Alternative Asset Fund investment in each of the funds. We believe that at May 31, 2008 the Alternative Asset Fund did not hold any investments that have a material exposure, individually or in aggregate, to residential subprime loans either directly or through structured finance entities, such as collateralized debt obligations.

We are entitled to affect partial withdrawals from our capital account at the end of any calendar quarter or calendar year subject to the withdrawal provisions and notice periods required by the underlying managers. These notice periods range from sixty-five days to six months and may be subject to lockup periods of up to one year. However, we have requested our general partner to attempt to liquidate all of our investments in the BIAAF to fund a special dividend, our increased share repurchase program and capital spending for our new prototype stores. Subsequent to May 31, 2008, we received substantially all of our investment in the Drawbridge Special Opportunities Fund, L.P. for the stated net asset value. We have been informed that due to the magnitude of other redemption requests on the DB Zwirn Special Opportunities Fund, L,P., it is likely that it will be two to three years before our investment is fully redeemed. During the second quarter of 2008, we were informed that due to the overall level of redemption requests we will only receive $3,600 from the HBK Fund, L.P. during July, with our remaining investment in this fund to be redeemed over the next two years. We expect to receive the total stated net asset value for both the Zwirn and HBK investments. We currently expect to receive substantially all of the proceeds from our investment in Styx Partners, L.P. early in 2009.

 

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PART II-OTHER INFORMATION

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

MAY 31, 2008

 

Item 4. Controls and Procedures:

The Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Safe-harbor, forward-looking statements:

The discussion in items 2 and 3 above contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Bassett Furniture Industries, Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as “anticipates”, “believes”, “plans”, “estimates”, “expects”, “aimed” and “intends” or words or phrases of similar expression. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements are listed in our Annual Report on Form 10-K for fiscal 2007 and include:

 

   

competitive conditions in the home furnishings industry

 

   

general economic conditions

 

   

overall retail traffic levels and consumer demand for home furnishings

 

   

Bassett store openings

 

   

Store closings and the profitability of the stores (independent licensees and Company-owned retail stores)

 

   

ability to implement our Company-owned retail strategies and realize the benefits from such strategies as they are implemented

 

   

fluctuations in the cost and availability of raw materials, labor and sourced products (including fabrics from troubled suppliers)

 

   

results of marketing and advertising campaigns

 

   

information and technology advances

 

   

ability to execute new global sourcing strategies

 

   

performance of our marketable securities portfolio and our investment in BIAAF

 

   

delays or difficulties in converting some of our non-operating assets to cash

 

   

future tax legislation, or regulatory or judicial positions

 

   

ability to efficiently manage the import supply chain to minimize business interruption

 

   

continued profitability of our unconsolidated affiliated companies, particularly IHFC

 

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PART II-OTHER INFORMATION

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

MAY 31, 2008

 

Item 1. Legal Proceedings:

None.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:

 

     Total Number of
Shares Purchased
   Avg Price
Paid
   Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs

(1)
   Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased Under the Plans or
Programs (1)

March 2, 2008 - April 5, 2008

   —        n/a    —      $ 27,776

April 6, 2008 - May 3, 2008

   117,800    $ 11.90    117,800    $ 26,375

May 4, 2008 - May 31, 2008

   69,000    $ 12.05    69,000    $ 25,544

 

(1) The Company’s Board of Directors has authorized the repurchase of up to $60,000 in Company stock. This repurchase plan was initially announced on June 23, 1998. On March 17, 2008, the Board of Directors increased the repurchase plan by $20,000.

 

Item 4. Submission of Matters to a Vote of Security Holders:

The stockholders were asked to vote on two proposals at the Annual Meeting of Stockholders held on April 15, 2008: (1) election of eight directors and (2) ratification of the selection of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ended November 29, 2008.

The results of the votes by the stockholders were as follows:

(1) Election of Directors

 

     Voted For    Withheld

Peter W. Brown, M.D.

   7,924,207    104,340

Paul Fulton

   7,894,959    133,588

Howard H. Haworth

   7,923,459    105,088

George W. Henderson, III

   7,924,107    104,440

Kristina Herbig

   7,915,601    112,946

Dale C. Pond

   7,924,207    104,340

Robert H. Spilman, Jr.

   7,924,103    104,444

William C. Wampler, Jr.

   7,923,607    104,940

William C. Warden, Jr.

   7,923,707    104,840

(2) Ratification of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ended November 29, 2008: Voted for – 7,969,586; against – 52,268; abstained and broker non-votes- 6,693.

 

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PART II-OTHER INFORMATION

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

MAY 31, 2008

 

Item 6. Exhibits:

 

a. Exhibits:

Exhibit 3a – Articles of Incorporation as amended are incorporated herein by reference to the Exhibit to Form 10-Q for the fiscal quarter ended February 28, 1994.

Exhibit 3b – By-laws as amended are incorporated herein by reference to Exhibit 3 to Form 8-K filed on December 21, 2004.

Exhibit 10 – Agreement dated April 10, 2008 among the Registrant, Costa Brava Partnership III, L.P., and certain persons affiliated with Costa Brava Partnership III, L.P., incorporated herein by reference to Form 8-K filed on April 16, 2008.

Exhibit 31a – Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31b – Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32a – Chief Executive Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32b – Chief Financial Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

/s/ Robert H. Spilman, Jr.

Robert H. Spilman, Jr., President and Chief Executive Officer
July 10, 2008

/s/ Barry C. Safrit

Barry C. Safrit, Senior Vice President and Chief Financial Officer
July 10, 2008

 

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Section 302 CEO Certification

Exhibit 31a

CERTIFICATIONS

I, Robert H. Spilman, Jr., certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Bassett Furniture Industries, Incorporated;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July 10, 2008

 

/s/ Robert H. Spilman, Jr.

Robert H. Spilman, Jr.
President and Chief Executive Officer
Section 302 CFO Certification

Exhibit 31b

CERTIFICATIONS

I, Barry C. Safrit, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Bassett Furniture Industries, Incorporated;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July 10, 2008

 

/s/ Barry C. Safrit

Barry C. Safrit
Senior Vice President and Chief Financial Officer
Section 906 CEO Certification

Exhibit 32a

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bassett Furniture Industries, Incorporated (the “Company”) on Form 10-Q for the period ending May 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Robert H. Spilman, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Robert H. Spilman, Jr.

Robert H. Spilman, Jr.
President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Bassett Furniture Industries, Incorporated and will be retained by Bassett Furniture Industries, Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.

Section 906 CFO Certification

Exhibit 32b

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bassett Furniture Industries, Incorporated (the “Company”) on Form 10-Q for the period ending May 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Barry C. Safrit, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Barry C. Safrit

Barry C. Safrit
Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Bassett Furniture Industries, Incorporated and will be retained by Bassett Furniture Industries, Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.