UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________________ to _______________________
Commission File No.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction | (I.R.S. Employer |
of incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Zip Code)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
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Non-accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
At June 23, 2023,
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM | PAGE | |
PART I - FINANCIAL INFORMATION | ||
1. | Condensed Consolidated Financial Statements as of May 27, 2023 (unaudited) and November 26, 2022 and for the three and six months ended May 27, 2023 (unaudited) and May 28, 2022 (unaudited) | |
Condensed Consolidated Statements of Income | 3 | |
Condensed Consolidated Statements of Comprehensive Income | 4 | |
Condensed Consolidated Balance Sheets | 5 | |
Condensed Consolidated Statements of Cash Flows | 6 | |
Notes to Condensed Consolidated Financial Statements | 7 | |
2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 22 |
3. | Quantitative and Qualitative Disclosures About Market Risk | 33 |
4. | Controls and Procedures | 34 |
PART II - OTHER INFORMATION | ||
1. | Legal Proceedings | 35 |
2. | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 35 |
3. | Defaults Upon Senior Securities | 35 |
6. | Exhibits | 35 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MAY 27, 2023 AND MAY 28, 2022 – UNAUDITED
(In thousands except per share data)
Quarter Ended |
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
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Net sales of furniture and accessories |
$ | $ | $ | $ | ||||||||||||
Cost of furniture and accessories sold |
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Gross profit |
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Selling, general and administrative expenses |
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Gain on revaluation of contingent consideration |
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Income from operations |
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Other income (loss), net |
( |
) | ( |
) | ( |
) | ||||||||||
Income from continuing operations before income taxes |
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Income tax expense |
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Income from continuing operations |
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Discontinued operations: |
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Income from operations of logistical services |
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Gain on disposal |
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Income tax expense |
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Income from discontinued operations, net of tax |
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Net income |
$ | $ | $ | $ | ||||||||||||
Basic earnings per share: | ||||||||||||||||
Income from continuing operations |
$ | $ | $ | $ | ||||||||||||
Income from discontinued operations |
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Basic and diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
Diluted earnings per share: |
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Income from continuing operations |
$ | $ | $ | $ | ||||||||||||
Income from discontinued operations |
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Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
Regular dividends per share |
$ | $ | $ | $ | ||||||||||||
Special dividend per share |
$ | $ | $ | $ |
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
PART I – FINANCIAL INFORMATION – CONTINUED
ITEM 1. FINANCIAL STATEMENTS
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIODS ENDED MAY 27, 2023 AND MAY 28, 2022 – UNAUDITED
(In thousands)
Quarter Ended |
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
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Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||
Income taxes related to foreign currency translation adjustments |
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Amortization associated with |
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Long Term Cash Awards (LTCA) |
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Income taxes related to LTCA |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Amortization associated with supplemental executive retirement defined benefit plan (SERP) |
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Income taxes related to SERP |
( |
) | ( |
) | ||||||||||||
Other comprehensive income (loss), net of tax |
( |
) | ( |
) | ||||||||||||
Total comprehensive income |
$ | $ | $ | $ |
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
PART I – FINANCIAL INFORMATION – CONTINUED
ITEM 1. FINANCIAL STATEMENTS
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 27, 2023 AND NOVEMBER 26, 2022
(In thousands)
(Unaudited) |
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May 27, 2023 |
November 26, 2022 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents |
$ | $ | ||||||
Short-term investments |
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Accounts receivable, net |
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Inventories |
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Recoverable income taxes |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Deferred income taxes |
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Goodwill and other intangible assets |
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Right of use assets under operating leases |
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Other |
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Total long-term assets |
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Total assets |
$ | $ | ||||||
Liabilities and Stockholders’ Equity |
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Current liabilities | ||||||||
Accounts payable |
$ | $ | ||||||
Accrued compensation and benefits |
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Customer deposits |
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Current portion operating lease obligations |
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Other current liabilites and accrued expenses |
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Total current liabilities |
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Long-term liabilities | ||||||||
Post employment benefit obligations |
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Long-term portion of operating lease obligations |
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Other long-term liabilities |
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Total long-term liabilities |
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Stockholders’ equity |
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Common stock |
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Retained earnings |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
( |
) | ||||||
Total stockholders' equity |
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Total liabilities and stockholders’ equity |
$ | $ |
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
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 27, 2023 AND MAY 28, 2022 – UNAUDITED
(In thousands)
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
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Operating activities: | ||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization |
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Gain on disposal of discontinued operations |
( |
) | ||||||
Gain on revaluation of contingent consideration |
( |
) | ||||||
Deferred income taxes |
( |
) | ||||||
Other, net |
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Changes in operating assets and liabilities: |
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Accounts receivable |
( |
) | ||||||
Inventories |
( |
) | ||||||
Other current assets |
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Right of use assets under operating leases |
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Customer deposits |
( |
) | ( |
) | ||||
Accounts payable and other liabilities |
( |
) | ||||||
Obligations under operating leases |
( |
) | ( |
) | ||||
Net cash provided by (used in) operating activities |
( |
) | ||||||
Investing activities: |
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Purchases of property and equipment |
( |
) | ( |
) | ||||
Proceeds from sales of property and equipment |
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Proceeds from the disposal of discontinued operations, net |
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Other |
( |
) | ( |
) | ||||
Net cash provided by (used in) investing activities |
( |
) | ||||||
Financing activities: |
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Cash dividends |
( |
) | ( |
) | ||||
Other issuance of common stock |
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Repurchases of common stock |
( |
) | ( |
) | ||||
Taxes paid related to net share settlement of equity awards |
( |
) | ||||||
Repayments of finance lease obligations | ( |
) | ( |
) | ||||
Net cash used in financing activities |
( |
) | ( |
) | ||||
Effect of exchange rate changes on cash and cash equivalents |
( |
) | ||||||
Change in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents - beginning of period |
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Cash and cash equivalents - end of period |
$ | $ |
The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.
The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees represent VIEs. During the second and third fiscal quarters of 2022, we were the primary beneficiary of one VIE by virtue of our control over the activities that most significantly impact the entity’s economic performance. This VIE was created to effect a Section 1031 like-kind exchange involving the purchase of real property in Tampa, Florida, for $
Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of income net of estimates for returns and allowances.
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”). The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment for the three and six months ended May 28, 2022 are presented in the accompanying condensed consolidated statements of income as discontinued operations. See Note 12, Discontinued Operations, for additional information. Costs incurred by Bassett for logistical services performed for Bassett by Zenith were included in selling, general and administrative expenses for the six months ended May 28, 2022.
On September 2, 2022, we acquired
Certain prior year amounts have been reclassified to conform to the current year presentation (see Note 13, Segments).
2. Interim Financial Presentation and Other Information
All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and six months ended May 27, 2023 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 26, 2022.
Income Taxes
We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.
Our effective tax rate was
Non-cash Investing and Financing Activity
During the six months ended May 27, 2023 and May 28, 2022, $
3. Business Combinations
On September 2, 2022, we acquired
Under the acquisition method of accounting, the fair value of the consideration transferred was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date with the remaining unallocated amount recorded as goodwill.
The allocation of the fair value of the acquired business has been based on a preliminary valuation. Our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of the fair value of consideration transferred that are not yet finalized relate to the fair values of certain tangible and intangible assets acquired and the residual goodwill. As of May 27, 2023, there have been no changes to the preliminary allocation of the purchase price (translated into U.S. dollars as of the acquisition date) which is as follows:
Fair value of consideration given in exchange for 100% of Noa Home: | ||||
Cash |
$ | |||
Fair value of contingent consideration as of acquisition date |
||||
Total fair value of consideration given |
$ | |||
Allocation of the fair value of consideration transferred: | ||||
Identifiable assets acquired: | ||||
Cash |
$ | |||
Inventory |
||||
Other current assets |
||||
Property & equipment |
||||
Intangible asset - trade name |
||||
Total identifiable assets acquired |
||||
Liabilities assumed: | ||||
Accounts payable |
( |
) | ||
Customer deposits |
( |
) | ||
Other current liabilities and accrued expenses |
( |
) | ||
Total liabilities assumed |
( |
) | ||
Net identifiable assets acquired |
||||
Goodwill |
||||
Total net assets acquired |
$ |
Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the value assigned to the tangible and intangible assets and liabilities recognized in connection with the acquisition and is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill are the expected synergies arising from combining the Company’s manufacturing and distribution capabilities with Noa Home’s position in the international e-commerce market for home furnishings and accessories.
A portion of the fair value of the consideration transferred in the amount of $
The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and Disclosures.
Subsequent to the acquisition date, the parties concluded that the targets originally set forth by which the Noa Home co-founders were to earn the contingent consideration would likely not be met within the initially anticipated time frame. Therefore, we have agreed to replace the contingent consideration with two fixed payments of C$
The revenues and results of operations of Noa Home for the three and six months ended May 27, 2023 were not material. The pro forma impact of the acquisition has not been presented because it was not material to our consolidated results of operations for the three and six months ended May 28, 2022.
4. Financial Instruments and Investments
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit (CDs), accounts receivable, and accounts payable. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in CDs, accounts receivable, and accounts payable approximate fair value.
Investments
Our short-term investments of $
5. Accounts Receivable
Accounts receivable consists of the following:
May 27, 2023 |
November 26, 2022 |
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Gross accounts receivable |
$ | $ | ||||||
Allowance for doubtful accounts |
( |
) | ( |
) | ||||
Accounts receivable, net |
$ | $ |
We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit losses could differ from those estimates.
Activity in the allowance for credit losses for the six months ended May 27, 2023 was as follows:
Balance at November 26, 2022 |
$ | |||
Additions charged to expense |
||||
Write-offs against allowance |
( |
) | ||
Balance at May 27, 2023 |
$ |
We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.
6. Inventories
Domestic furniture inventories are valued at the lower of cost, which is determined using the last-in, first-out (LIFO) method, or market. Imported inventories and those applicable to our Lane Venture and Bassett Outdoor lines are valued at the lower of cost, which is determined using the first-in, first-out (FIFO) method, or net realizable value.
Inventories were comprised of the following:
May 27, 2023 |
November 26, 2022 |
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Wholesale finished goods |
$ | $ | ||||||
Work in process |
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Raw materials and supplies |
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Retail merchandise |
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Total inventories on first-in, first-out method |
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LIFO adjustment |
( |
) | ( |
) | ||||
Reserve for excess and obsolete inventory |
( |
) | ( |
) | ||||
$ | $ |
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Wholesale |
Retail Segment |
Total |
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Balance at November 26, 2022 |
$ | $ | $ | |||||||||
Additions charged to expense |
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Write-offs |
( |
) | ( |
) | ( |
) | ||||||
Balance at May 27, 2023 |
$ | $ | $ |
Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2023 and do not anticipate that our methodology is likely to change in the future.
7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
May 27, 2023 |
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Gross Carrying |
Accumulated |
Intangible |
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Intangibles subject to amortization | ||||||||||||
Customer relationships |
$ | $ | ( |
) | $ | |||||||
Intangibles not subject to amortization: | ||||||||||||
Trade names |
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Goodwill |
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Total goodwill and other intangible assets |
$ |
November 26, 2022 |
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Gross Carrying |
Accumulated |
Intangible |
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Intangibles subject to amortization | ||||||||||||
Customer relationships |
$ | $ | ( |
) | $ | |||||||
Intangibles not subject to amortization: | ||||||||||||
Trade names |
||||||||||||
Goodwill |
||||||||||||
Total goodwill and other intangible assets |
$ |
Changes in the carrying amounts of goodwill by reportable segment were as follows:
Wholesale |
Retail |
Corporate & Other |
Total |
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Balance as of November 26, 2022 |
$ | $ | $ | $ | ||||||||||||
Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||
Balance as of May 27, 2023 |
$ | $ | $ | $ |
Accumulated impairment losses at both May 27, 2023 and November 26, 2022 were $
Due to the decline in the share price of our common stock through the end of the second quarter of 2023, we performed a qualitative analysis of our goodwill as of May 27, 2023 and concluded that it was not more likely than not that the carrying value of our reporting units with goodwill exceeded their fair values.
Amortization expense associated with intangible assets during the three and six months ended May 27, 2023 and May 28, 2022 was as follows:
Quarter Ended |
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
|||||||||||||
Intangible asset amortization expense |
$ | $ | $ | $ |
Estimated future amortization expense for intangible assets that exist at May 27, 2023 is as follows:
Remainder of fiscal 2023 |
$ | |||
Fiscal 2024 |
||||
Fiscal 2025 |
||||
Fiscal 2026 |
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Fiscal 2027 |
||||
Fiscal 2028 |
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Total |
$ |
8. Bank Credit Facility
Our bank credit facility provides for a line of credit of up to $
● |
Consolidated fixed charge coverage ratio of not less than |
● |
Consolidated lease-adjusted leverage ratio not to exceed |
● |
Minimum tangible net worth of $ |
We were in compliance with these covenants at May 27, 2023 and expect to remain in compliance for the foreseeable future. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.
9. Post Employment Benefit Obligations
Defined Benefit Plans
We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for the Supplemental Plan was $
We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $
The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:
May 27, 2023 |
November 26, 2022 | |||||||
Accrued compensation and benefits |
$ | $ | ||||||
Post employment benefit obligations |
||||||||
Total pension liability |
$ | $ |
Components of net periodic pension costs for our defined benefit plans for the three and six months ended May 27, 2023 and May 28, 2022 are as follows:
Quarter Ended |
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
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Service cost |
$ | $ | $ | $ | ||||||||||||
Interest cost |
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Amortization of prior service costs |
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Amortization of loss |
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Net periodic pension cost |
$ | $ | $ | $ |
The components of net periodic pension cost other than the service cost component, which is included in selling, general and administrative expenses, are included in other loss, net in our condensed consolidated statements of operations.
Deferred Compensation Plans
We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. Our liability under this plan was $
We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan. Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $
Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:
May 27, 2023 |
November 26, 2022 | |||||||
Accrued compensation and benefits |
$ | $ | ||||||
Post employment benefit obligations |
||||||||
Total deferred compensation liability |
$ | $ |
We recognized expense under our deferred compensation arrangements during the three and six months ended May 27, 2023 and May 28, 2022 as follows:
Quarter Ended |
Six Months Ended |
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May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
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Deferred compensation expense (benefit) |
$ | $ | $ | $ |
10. Commitments and Contingencies
We are involved in various legal and environmental matters which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
Lease Guarantees
We were contingently liable under a licensee lease obligation guarantee in the amounts of $
In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligation, net of recorded reserves. The fair value of this lease guarantee (an estimate of the cost to the Company to perform on the guarantee) at May 27, 2023 and November 26, 2022 was not material.
11. Earnings Per Share
The following reconciles basic and diluted earnings per share:
Net Income |
Weighted Average |
Net Income |
||||||||||
For the quarter ended May 27, 2023: |
||||||||||||
Basic earnings per share - continuing operations |
$ | $ | ||||||||||
Add effect of dilutive securities: | ||||||||||||
Restricted shares |
- | - | ||||||||||
Diluted earnings per share - continuing operations |
$ | $ | ||||||||||
For the quarter ended May 28, 2022: |
||||||||||||
Basic earnings per share - continuing operations |
$ | $ | ||||||||||
Add effect of dilutive securities: | ||||||||||||
Options and restricted shares |
- | - | ||||||||||
Diluted earnings per share - continuing operations |
$ | $ | ||||||||||
Basic earnings per share - discontinued operations |
$ | $ | ||||||||||
Add effect of dilutive securities: | ||||||||||||
Options and restricted shares |
- | ( |
) | |||||||||
Diluted earnings per share - discontinued operations |
$ | $ | ||||||||||
For the six months ended May 27, 2023: |
||||||||||||
Basic earnings per share - continuing operations |
$ | $ | ||||||||||
Add effect of dilutive securities: |
||||||||||||
Restricted shares |
- | - | ||||||||||
Diluted earnings per share - continuing operations |
$ | $ | ||||||||||
For the six months ended May 28, 2022: |
||||||||||||
Basic earnings per share - continuing operations |
$ | $ | ||||||||||
Add effect of dilutive securities: |
||||||||||||
Options and restricted shares |
- | - | ||||||||||
Diluted earnings per share - continuing operations |
$ | $ | ||||||||||
Basic earnings per share - discontinued operations |
$ | $ | ||||||||||
Add effect of dilutive securities: |
||||||||||||
Options and restricted shares |
- | - | ||||||||||
Diluted earnings per share - discontinued operations |
$ | $ |
For the three and six months ended May 27, 2023 and May 28, 2022, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
Quarter Ended |
Six Months Ended |
|||||||||||||||
May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
|||||||||||||
Unvested shares |
12. Discontinued Operations
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith to J.B. Hunt. The sale was completed on February 28, 2022. During the second quarter of fiscal 2022, we received the following net proceeds:
Sales price prior to post-closing working capital adjustment |
$ | |||
Less: | ||||
Amount held in escrow for contingencies related to representations and warranties (1) |
||||
Seller expenses paid at closing |
||||
Net proceeds from the sale |
$ |
(1) |
This was held in escrow until the first anniversary of the sale, at which time the full amount was released to the Company on March 2, 2023. As of November 26, 2022, this amount is included in other current assets in the accompanying condensed consolidated balance sheets. |
The sales price was subject to customary post-closing working capital adjustments. For the three and six months ended May 28, 2022 we recognized a pre-tax gain on the sale of $
The operations of our logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income as discontinued operations.
The following table summarizes the major classes of line items constituting income of the discontinued operations, as reported in the condensed consolidated statements of income for the three and six months ended May 28, 2022:
Quarter Ended |
Six Months Ended |
|||||||
May 28, 2022 |
May 28, 2022 |
|||||||
Major line items constituting pretax income of discontinued operations: |
||||||||
Logistical services revenue |
$ | $ | ||||||
Cost of logistical services |
||||||||
Other loss, net |
( |
) | ||||||
Income from operations of logistical services |
||||||||
Gain on disposal |
||||||||
Pretax income of discontinued operations |
||||||||
Income tax expense |
||||||||
Income from discontinued operations, net of tax |
$ | $ |
The amounts for revenue and costs of logistical services shown above represent the results of Zenith’s business transactions with third parties. Zenith also charged Bassett for logistical services provided to our wholesale segment in the amount of $
Included in other loss, net, is interest arising from finance leases assumed by J.B. Hunt as part of the transaction. Such interest amounted to $
The following table summarizes the cash flows generated by discontinued operations during the six months ended May 28, 2022:
Six Months Ended | ||||
May 28, 2022 |
||||
Cash provided by operating activities |
$ | |||
Cash used in investing activities |
( |
) | ||
Cash used in financing activities |
( |
) | ||
Net cash provided by discontinued operations |
$ |
13. Segment Information
As of the beginning of fiscal 2023 we have strategically aligned our business into
reportable segments as defined in ASC 280, Segment Reporting, and as described below:
● |
Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations, which includes Lane Venture. |
● |
Retail – Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers. |
● |
Corporate and other – Corporate and other includes the shared costs of corporate functions such as treasury and finance, information technology, accounting, human resources, legal and others, including certain product development and marketing functions benefitting both wholesale and retail operations. In addition to property and equipment and various other assets associated with the shared corporate functions, the identifiable assets of Corporate and other include substantially all of our cash and our investments in CDs. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segment, the recently acquired Noa Home (see Note 3). |
Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate.
Prior to the beginning of fiscal 2023, the functions included in Corporate and other were included in our wholesale segment reportable segment, and Noa Home was included in our retail reportable segment for the fourth quarter of fiscal 2022 following its acquisition on September 2, 2022. We believe that the new alignment of our reporting segments provides our chief operating decision maker with clearer information with which to assess the operating results of our wholesale segment. Noa Home does not meet the requirements to be a separate reportable segment as it is below the thresholds of the revenue, income and asset tests. The segment information presented below for the three and six months ended May 28, 2022 and as of November 26, 2022 has been restated to reflect the new alignment of our reportable segments.
Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation in the accompanying condensed consolidated balances sheets and statements of income (see Note 12).
The following table presents our segment information:
Quarter Ended |
Six Months Ended |
|||||||||||||||
May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
|||||||||||||
Sales Revenue | ||||||||||||||||
Wholesale sales of furniture and accessories |
$ | $ | $ | $ | ||||||||||||
Less: Sales to retail segment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Wholesale sales to external customers |
||||||||||||||||
Retail sales of furniture and accessories |
||||||||||||||||
Corporate and other |
||||||||||||||||
Consolidated net sales of furniture and accessories |
$ | $ | $ | $ | ||||||||||||
Income from Operations | ||||||||||||||||
Wholesale |
$ | $ | $ | $ | ||||||||||||
Retail - Company-owned stores |
||||||||||||||||
Net expenses - Corporate and other |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Inter-company elimination |
( |
) | ( |
) | ||||||||||||
Gain on revaluation of contingent consideration |
||||||||||||||||
Consolidated |
$ | $ | $ | $ | ||||||||||||
Depreciation and Amortization | ||||||||||||||||
Wholesale |
$ | $ | $ | $ | ||||||||||||
Retail - Company-owned stores |
||||||||||||||||
Corporate and other |
||||||||||||||||
Consolidated |
$ | $ | $ | $ | ||||||||||||
Capital Expenditures | ||||||||||||||||
Wholesale |
$ | $ | $ | $ | ||||||||||||
Retail - Company-owned stores |
||||||||||||||||
Corporate and other |
||||||||||||||||
Consolidated |
$ | $ | $ | $ |
As of |
As of |
|||||||
Identifiable Assets |
May 27, 2023 |
November 26, 2022 |
||||||
Wholesale |
$ | $ | ||||||
Retail - Company-owned stores |
||||||||
Corporate and other |
||||||||
Consolidated |
$ | $ |
See Note 14, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.
14. Revenue Recognition
We recognize revenue when we transfer promised goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. All wholesale and retail revenues are recorded net of estimated returns and allowances based on historical patterns. We typically collect a significant portion of the purchase price from our retail customers as a deposit upon order, with the balance typically collected upon delivery. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $
Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At May 27, 2023 and November 26, 2022, our balance of prepaid commissions included in other current assets was $
We exclude from revenue all amounts collected from customers for sales tax. We do not disclose amounts allocated to remaining unsatisfied performance obligations as they are expected to be satisfied within one year or less.
Disaggregated revenue information for sales of furniture and accessories by product category for the three and six months ended May 27, 2023 and May 28, 2022, excluding intercompany transactions between our segments, is a follows:
Quarter Ended |
||||||||||||||||||||||||||||||||
May 27, 2023 |
May 28, 2022 |
|||||||||||||||||||||||||||||||
Wholesale |
Retail |
Corporate & Other (2) |
Total |
Wholesale |
Retail |
Corporate & Other |
Total |
|||||||||||||||||||||||||
Bassett Custom Upholstery |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Bassett Leather |
||||||||||||||||||||||||||||||||
Bassett Custom Wood |
||||||||||||||||||||||||||||||||
Bassett Casegoods |
||||||||||||||||||||||||||||||||
Accessories, mattresses and other (1) |
||||||||||||||||||||||||||||||||
Consolidated net sales of furniture and accessories |
$ | $ | $ | $ | $ | $ | $ | $ |
Six Months Ended |
||||||||||||||||||||||||||||||||
May 27, 2023 |
May 28, 2022 |
|||||||||||||||||||||||||||||||
Wholesale |
Retail |
Corporate & Other (2) |
Total |
Wholesale |
Retail |
Corporate & Other |
Total |
|||||||||||||||||||||||||
Bassett Custom Upholstery |
$ | $ | 70,870 | $ | - | $ | 119,529 | $ | 65,750 | $ | 83,194 | $ | - | $ | 148,944 | |||||||||||||||||
Bassett Leather |
12,883 | 1,071 | - | 13,954 | 22,821 | 532 | - | 23,353 | ||||||||||||||||||||||||
Bassett Custom Wood |
9,079 | 19,467 | - | 28,546 | 11,643 | 20,644 | - | 32,287 | ||||||||||||||||||||||||
Bassett Casegoods |
6,608 | 17,821 | - | 24,429 | 6,629 | 17,480 | - | 24,109 | ||||||||||||||||||||||||
Accessories, mattresses and other (1) |
- | 16,511 | 5,248 | 21,759 | - | 17,877 | - | 17,877 | ||||||||||||||||||||||||
Consolidated net sales of furniture and accessories |
$ | 77,229 | $ | 125,740 | $ | 5,248 | $ | 208,217 | $ | 106,843 | $ | 139,727 | $ | - | $ | 246,570 |
(1) |
|
(2) |
|
15. Changes to Stockholders’ Equity
The following changes in our stockholders’ equity occurred during the three and six months ended May 27, 2023 and May 28, 2022:
Quarter Ended |
Six Months Ended |
|||||||||||||||
May 27, 2023 |
May 28, 2022 |
May 27, 2023 |
May 28, 2022 |
|||||||||||||
Common Stock: | ||||||||||||||||
Beginning of period |
$ | $ | $ | $ | ||||||||||||
Issuance of common stock |
||||||||||||||||
Purchase and retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
End of period |
$ | $ | $ | $ | ||||||||||||
Common Shares Issued and Outstanding: | ||||||||||||||||
Beginning of period |
||||||||||||||||
Issuance of common stock |
||||||||||||||||
Purchase and retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
End of period |
||||||||||||||||
Additional Paid-in Capital: | ||||||||||||||||
Beginning of period |
$ | $ | $ | $ | ||||||||||||
Issuance of common stock |
( |
) | ||||||||||||||
Purchase and retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Stock based compensation |
||||||||||||||||
End of period |
$ | $ | $ | $ | ||||||||||||
Retained Earnings: | ||||||||||||||||
Beginning of period |
$ | $ | $ | $ | ||||||||||||
Net income for the period |
||||||||||||||||
Purchase and retirement of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Cash dividends declared |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
End of period |
$ | $ | $ | $ | ||||||||||||
Accumulated Other Comprehensive Loss: | ||||||||||||||||
Beginning of period |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
Cumulative translation adjustments, net of tax |
( |
) | ( |
) | ||||||||||||
Amortization of pension costs, net of tax |
||||||||||||||||
End of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
The balance of cumulative translation adjustments, net of tax, was a net loss of $
16. Recent Accounting Pronouncements
In October 2021, the FASB issued Accounting Standards Update No. 2021-08 – Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.
In March 2022, the FASB issued Accounting Standards Update No. 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to address certain concerns identified in the Post-Implementation Review process for ASU Topic 326. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings by creditors in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in ASU 2022-02 require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in ASU 2022-02 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted. We expect that the adoption of this standard will primarily impact our disclosures but do not expect that this guidance will have a material impact upon our financial position and results of operations.
In June 2022, the FASB issued Accounting Standards Update No. 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, the amendments in ASU 2022-03 require certain additional disclosures related to investments in equity securities subject to contractual sale restrictions. The amendments in ASU 2022-03 will become effective for us as of the beginning of our 2025 fiscal year. Early adoption is permitted. As of May 27, 2023 we do not hold any investments in equity securities, therefore we do not currently expect that this guidance will have a material impact upon our financial position and results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe-harbor, forward-looking statements:
This report 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”, “aims” 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 include:
• |
fluctuations in the cost and availability of raw materials, fuel, labor, delivery costs and sourced products, including those which may result from supply chain disruptions and shortages and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products |
• |
competitive conditions in the home furnishings industry |
• |
overall retail traffic levels in stores and on the web and consumer demand for home furnishings |
• |
ability of our customers and consumers to obtain affordable credit due to rising interest rates |
• |
the profitability of the stores (independent licensees and Company-owned retail stores) which may result in future store closings |
• |
ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing and advertising capabilities, as they are implemented |
• |
the risk that we may not achieve the strategic benefits of our acquisition of Noa Home Inc. |
• |
effectiveness and security of our information technology systems and possible disruptions due to cybersecurity threats, including any impacts from a network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance |
• |
future tax legislation, or regulatory or judicial positions |
• |
ability to efficiently manage the import supply chain to minimize business interruption |
• |
concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to business interruption from accidents, weather and other events and circumstances beyond our control |
Additionally, other risks that could cause actual results to differ materially from those contemplated by such forward-looking statements are set forth in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended November 26, 2022.
You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report or elsewhere, might not occur.
Overview
Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 121-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.
With 91 BHF stores at May 27, 2023, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly and casual environment for buying furniture and accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. In order for the Bassett brand to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.
The BHF stores feature custom order furniture, free in-home or virtual design visits (“home makeovers”) and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.
We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Digital outreach strategies have become the primary vehicle for brand advertising and customer acquisition. As a result, we are engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes. During fiscal 2022, we implemented a comprehensive Product Information Management system which allows us to enhance and standardize our product developme