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Item 1. Financial Statements

2020-10-01 compared with 2020-07-09 · 400 added, 110 removed, 466 unchanged (52% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED MAY 30, 2020 AND JUNE 1, 2019 –

FOR THE PERIODS ENDED AUGUST 29, 2020 AND AUGUST 31, 2019 –

(In thousands)

Six Months Ended

Nine Months Ended

August 29, 2020

August 31, 2019

Operating activities:

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Obligations under operating leases

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities:

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Purchases of investments

Net cash provided by (used in) investing activities

Proceeds from maturities of investments

Net cash used in investing activities

Financing activities:

14 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

12 unchanged sentences

The prior fiscal year ending November 30, 2019 was a 53 -week year, with the additional week being included in the first fiscal quarter of 2019.

Accordingly, the information presented below includes 26 weeks of operations for the six months ended May 30, 2020 as compared with 27 weeks included in the six months ended June 1, 2019.

Accordingly, the information presented below includes 39 weeks of operations for the nine months ended August 29, 2020 as compared with 40 weeks included in the nine months ended August 31, 2019.

Recently Adopted Accounting Pronouncements

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) outbreak to be a global pandemic.

In response to this declaration and the rapid spread of COVID- 19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

In response to this declaration and the rapid spread of COVID- 19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

These measures have had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce.

In response to these measures and for the protection of our employees and customers, we temporarily closed our dedicated stores, our manufacturing locations and many of our warehouses for several weeks during the second fiscal quarter of 2020.

While as of May 30, 2020, we had reopened most of our stores and resumed manufacturing and shipping activities, the extended period of suspended operations has had a material adverse impact upon our results of operations for the three and six months ended May 30, 2020.

In addition to operating losses resulting from severely reduced sales volumes, we also recorded charges for goodwill impairment (Note 6 ) as well as for the impairment of certain other long-lived assets (Note 9 ).

Whereas most state and local governments have begun to ease restrictions on commercial retail activity, it is possible that a resurgence in COVID- 19 cases could prompt a return to tighter restrictions in certain areas of the county.

Furthermore, the economic recession brought on by the pandemic may have a continuing adverse impact on consumer demand for our products.

Therefore, significant uncertainty remains regarding the ongoing impact of the COVID- 19 outbreak upon our financial condition and future results of operations, as well as upon the significant estimates and assumptions we utilize in reporting certain assets and liabilities.

This extended period of suspended operations has had a material adverse impact upon our results of operations for the nine months ended August 29, 2020.

In addition to operating losses resulting from severely reduced sales volumes, our loss for the nine months ended August 29, 2020 also included charges for goodwill impairment (Note 6 ) as well as for the impairment of certain other long-lived assets (Note 9 ) taken during the second quarter of 2020.

However, since restarting our manufacturing operations and reopening stores, we have seen a significant improvement in business conditions which has allowed us to return to overall profitability for the third fiscal quarter of 2020 and to generate positive cash flow during the period.

All retail stores that were temporarily closed during the second quarter had reopened by mid- June, and written orders taken at both the retail and wholesale segments exceeded levels from the third fiscal quarter of 2019.

The improvement in operating cash flow allowed us to restore the temporary salary and wage reductions which had been enacted during the second quarter, resume the payment of quarterly dividends, including the payment of the dividend declared and subsequently suspended during the second quarter, and to resume share repurchases under our share repurchase program.

Tempering these improvements are the continuing logistical challenges faced by the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. 

PART I-FINANCIAL INFORMATION-CONTINUED

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Whereas most state and local governments have eased restrictions on commercial retail activity, it is possible that a resurgence in COVID- 19 cases could prompt a return to tighter restrictions in certain areas of the country.

Furthermore, while the home furnishings industry has fared much better during the pandemic than certain other sectors of the economy, continued economic weakness may eventually have an adverse impact upon our business, and order cancellations could result if the present delays in order fulfillment continue for an extended period of time.

Interim Financial Presentation

All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The results of operations for the three and six months ended May 30, 2020 are not necessarily indicative of results for the full fiscal year.

The results of operations for the three and nine months ended August 29, 2020 are not necessarily indicative of results for the full fiscal year.

These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10 -K for the year ended November 30, 2019.

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A major provision of the CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years.

As a result, our effective tax rates for the three and six months ended May 30, 2020 were ( 36.4 %) and ( 36.5 %), respectively, which differ from the federal statutory rate of 21 % primarily due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35 %, and to the effects of state income taxes and various permanent differences.

Our effective tax rates for the three and six months ended June 1, 2019 were 20.0 % and 23.8 %, respectively, and differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including the recognition of non-taxable proceeds from Company-owned life insurance.

As a result, our effective tax rates for the three and nine months ended August 29, 2020 were 36.8 % and ( 36.5 %), respectively, which differ from the federal statutory rate of 21 % primarily due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35 %, and to the effects of state income taxes and various permanent differences, including those related to the non-taxability of Company-owned life insurance.

Our effective tax rates for the three and nine months ended August 31, 2019 were 30.5 % and 28.4 %, respectively, and differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including those related to the non-taxability of Company-owned life insurance.

Financial Instruments and Fair Value Measurements

Financial Instruments

Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, and accounts payable.

Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, and accounts payable approximate fair value.

Our short-term investments of $ 17,673 at May 30, 2020 and $ 17,436 at November 30, 2019 consisted of certificates of deposit (CDs).

At May 30, 2020, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.30 % to 2.00 %.

At May 30, 2020, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 1.19 %.

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.

Our short-term investments of $ 17,661 at August 29, 2020 and $ 17,436 at November 30, 2019 consisted of CDs.

At August 29, 2020, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.10 % to 2.00 %.

At August 29, 2020, the weighted average remaining time to maturity of the CDs was approximately five months and the weighted average yield of the CDs was approximately 0.31 %.

Each CD is placed with a federally insured financial institution and all deposits are within federal deposit insurance limits.

Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at May 30, 2020 and November 30, 2019 approximates their fair value.

Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at August 29, 2020 and November 30, 2019 approximates their fair value.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Fair Value Measurement  

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Quoted prices for identical instruments in active markets.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousands except share and per share data)

Level 2 Inputs –

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Gross accounts receivable

$ 20,502  

$ 22,193  

Allowance for doubtful accounts

( 1,403 )  

Accounts receivable, net

Activity in the allowance for doubtful accounts for the six months ended May 30, 2020 was as follows:

$ 19,099  

$ 21,378  

Activity in the allowance for doubtful accounts for the nine months ended August 29, 2020 was as follows:

Balance at November 30, 2019

1 unchanged sentence

Write-offs against allowance

Balance at May 30, 2020

Balance at August 29, 2020

$ 1,403  

We believe that the carrying value of our net accounts receivable approximates fair value.

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

3 unchanged sentences

Wholesale finished goods

$ 25,493  

$ 27,792  

Work in process

Raw materials and supplies

14,255  

17,293  

Retail merchandise

31,774  

31,534  

Total inventories on first-in, first-out method

72,053  

77,352  

LIFO adjustment

( 8,896 )  

Reserve for excess and obsolete inventory

( 4,556 )  

Total Inventories

$ 58,601  

$ 66,302  

We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO.

12 unchanged sentences

Balance at November 30, 2019

$ 2,054  

$ 2,362  

Additions charged to expense

Balance at May 30, 2020

( 1,491 )  

( 129 )  

Balance at August 29, 2020

$ 3,843  

$ 4,556  

Our estimates and assumptions have been reasonably accurate in the past.

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

Goodwill and other intangible assets consisted of the following:

Accumulated Amortization

August 29, 2020

Intangibles subject to amortization

Customer relationships

$ 3,550  

$ ( 1,282 )  

$ 2,268  

Technology - customized applications

( 665 )  

Total intangible assets subject to amortization

$ 4,384  

$ ( 1,947 )  

Intangibles not subject to amortization:

12,146  

Total goodwill and other intangible assets

$ 23,921  

November 30, 2019

Accumulated Amortization

Intangibles subject to amortization

Customer relationships

$ 3,550  

$ ( 1,088 )  

$ 2,462  

Technology - customized applications

( 575 )  

Total intangible assets subject to amortization

$ 4,384  

$ ( 1,663 )  

Intangibles not subject to amortization:

14,117  

Total goodwill and other intangible assets

$ 26,176  

We normally test the carrying amount of our goodwill on an annual basis as of the beginning of our fourth quarter, the most recent annual test having been performed as of September 1, 2019 which resulted in the full impairment of the goodwill previously allocated to our retail reporting unit.

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The more likely than not threshold is defined as having a likelihood of more than 50 percent.

Based on our qualitative assessment as described above, we concluded that it was necessary to perform the quantitative evaluation for the wood reporting unit in the current quarter.

Based on our qualitative assessment as described above, we concluded that it was necessary to perform the quantitative evaluation for the wood reporting unit in the second fiscal quarter.

As a result of this test, we concluded that the carrying value of our wood reporting unit exceeded its fair value by an amount in excess of the goodwill previously allocated to the reporting unit.

Therefore, we recognized a goodwill impairment charge of $ 1,971 for the three and six months ended May 30, 2020.

Therefore, we recognized a goodwill impairment charge of $ 1,971 for the nine months ended August 29, 2020.

The determination of the fair value of our wood reporting unit was primarily based on an income approach that utilized discounted cash flows for the reporting unit and other Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure (see Note 3 ).

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

Balance as of November 30, 2019

$ 9,188  

$ 4,929  

$ 14,117  

Goodwill impairment

Balance as of May 30, 2020

The carrying amounts of our goodwill at May 30, 2020 and November 30, 2019 included the following accumulated impairment losses:

( 1,971 )  

Balance as of August 29, 2020

$ 7,217  

$ 4,929  

$ 12,146  

The carrying amounts of our goodwill at August 29, 2020 and November 30, 2019 included the following accumulated impairment losses:

Balance as of November 30, 2019

Balance as of May 30, 2020

Amortization expense associated with intangible assets during the three and six months ended May 30, 2020 and June 1, 2019 was as follows:

$ 1,926  

Balance as of August 29, 2020

$ 1,971  

$ 1,926  

$ 3,897  

Amortization expense associated with intangible assets during the three and nine months ended August 29, 2020 and August 31, 2019 was as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

Intangible asset amortization expense

Estimated future amortization expense for intangible assets that exist at May 30, 2020 is as follows:

Estimated future amortization expense for intangible assets that exist at August 29, 2020 is as follows:

Remainder of fiscal 2020

$ 2,437  

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

Bank Credit Facility

Our existing credit facility with our bank as of May 30, 2020 provides for a line of credit of up to $ 25,000 .

At May 30, 2020, we had $ 4,773 outstanding under standby letters of credit against our line, leaving availability under our credit line of $ 20,227 .

Our bank credit facility, which was amended effective June 15, 2020, provides for a line of credit of up to $ 50,000 .

At August 29, 2020, we had $ 2,181 outstanding under standby letters of credit against our line, leaving availability under our credit line of $ 47,819 .

In addition, we have outstanding standby letters of credit with another bank totaling $ 325 .

Effective June 15, 2020, we executed an amended credit facility with our bank to increase the maximum amount available under our credit line to $ 50,000 through December 31, 2020, after which date the maximum availability will return to the original amount of $ 25,000 .

Under the terms of our credit facility, the maximum amount available under our credit line will remain at $ 50,000 through December 31, 2020, after which date the maximum availability will be reduced to $ 25,000 .

The line bears interest at the rate of LIBOR plus 1.9 %, with a fee of 0.25 % charged for the unused portion of the line and is secured by a general lien on our accounts receivable and inventory.

In addition, all covenants based on financial ratios have been waived for the remainder of fiscal 2020, and the maturity of the facility was extended from December 5, 2021 to January 31, 2022.

In addition, all covenants based on financial ratios have been waived for the remainder of fiscal 2020.

The credit facility matures on January 31, 2022.

Post Employment Benefit Obligations

1 unchanged sentence

We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives.

The liability for the Supplemental Plan was $ 8,695 and $ 8,779 as of May 30, 2020 and November 30, 2019, respectively.

The liability for the Supplemental Plan was $ 8,706 and $ 8,779 as of August 29, 2020 and November 30, 2019, respectively.

We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017.

1 unchanged sentence

As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $ 2,000 to certain management employees in the amount of $ 400 each.

The liability for the LTC Awards was $ 1,366 and $ 1,311 as of May 30, 2020 and November 30, 2019, respectively.

The liability for the LTC Awards was $ 1,393 and $ 1,311 as of August 29, 2020 and November 30, 2019, respectively.

The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:

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Total pension liability

Components of net periodic pension costs for our defined benefit plans for the three and six months ended May 30, 2020 and June 1, 2019 are as follows:

$ 10,099  

$ 10,090  

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Components of net periodic pension costs for our defined benefit plans for the three and nine months ended August 29, 2020 and August 31, 2019 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

Interest cost

2 unchanged sentences

Net periodic pension cost

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousands except share and per share data)

The components of net periodic pension cost other than the service cost component are included in other loss, net in our condensed consolidated statements of operations.

The components of net periodic pension cost other than the service cost component are included in other income (loss), net in our condensed consolidated statements of operations.

Deferred Compensation Plan s

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This plan has been frozen with no additional participants or deferrals permitted.

Our liability under this plan was $ 1,714 and $ 1,767 as of May 30, 2020 and November 30, 2019, respectively.

Our liability under this plan was $ 1,720 and $ 1,767 as of August 29, 2020 and November 30, 2019, respectively.

We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan.

Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $ 963 and $ 894 as of May 30, 2020 and November 30, 2019, respectively.

Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $ 1,124 and $ 894 as of August 29, 2020 and November 30, 2019, respectively.

Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:

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Total deferred compensation liability

We recognized expense under our deferred compensation arrangements during the three and six months ended May 30, 2020 and June 1, 2019 as follows:

$ 2,844  

$ 2,661  

We recognized expense under our deferred compensation arrangements during the three and nine months ended August 29, 2020 and August 31, 2019 as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

Deferred compensation expense

Other Operating Losses

Asset Impairment Charges

During the three and six months ended May 30, 2020 we recorded $ 11,114 of non-cash impairment charges on the assets of five underperforming retail stores, including $ 6,239 for the impairment of operating lease right-of-use assets associated with the leased locations.

Our estimates of the fair value of the impaired right-of-use assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure (see Note 3 ).

During the three and six months ended May 30, 2020 we incurred $ 1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closing of our custom upholstery manufacturing facility in Grand Prairie, Texas, in May.

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousand

s except share and per share data

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Other Gains & Losses

Asset Impairment Charges

During the nine months ended August 29, 2020 we recorded $ 11,114 of non-cash impairment charges on the assets of five underperforming retail stores, including $ 6,239 for the impairment of operating lease right-of-use assets associated with the leased locations.

During the nine months ended August 29, 2020 we incurred $ 1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closing of our custom upholstery manufacturing facility in Grand Prairie, Texas, in May.

Litigation Expense

During the three and six months ended May 30, 2020 we accrued an additional $ 1,050 for the estimated costs to resolve certain wage and hour violation claims that have been asserted against the Company and have received class action designation, bringing our total recorded reserve for these claims to $ 1,750 at May 30, 2020, which is included in other current liabilities and accrued expenses in our accompanying balance sheet.

During the nine months ended August 29, 2020 we accrued an additional $ 1,050 for the estimated costs to resolve certain wage and hour violation claims that have been asserted against the Company and have received class action designation, bringing our total recorded reserve for these claims to $ 1,750 at August 29, 2020, which is included in other current liabilities and accrued expenses in our accompanying balance sheet.

While the ultimate cost of resolving these claims may be substantially higher, the amount accrued represents our estimate of the most likely outcome of a mediated settlement.

Gains from Company-Owned Life Insurance

Other income (loss), net for the three and nine months ended August 29, 2020 includes a gain of $ 914 from the recognition of a death benefit from Company-owned life insurance.

Other loss, net for the nine months ended August 31, 2019 included a gain of $ 629 arising from death benefits from Company-owned life insurance.

Early Retirement Program

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These employees are to receive pay equal to one -half their current salary plus benefits over a period of one year from the final day of each individual’s active employment.

Accordingly, we recognized a charge of $ 835 during the six months ended June 1, 2019.

The unpaid balance of the obligation at May 30, 2020 and November 30, 2019 of $ 35 and $ 374 , respectively, is included in other current liabilities and accrued expenses in our condensed consolidated balance sheets.

Accordingly, we recognized a charge of $ 835 during the nine months ended August 31, 2019.

The unpaid balance of the obligation at August 29, 2020 and November 30, 2019 of $ 9 and $ 374 , respectively, is included in other current liabilities and accrued expenses in our condensed consolidated balance sheets.

Commitments and Contingencies

2 unchanged sentences

See Note 9 regarding litigation arising from certain wage and hour violations which have been asserted against the Company.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

During the first quarter of fiscal 2020, we adopted ASU 2016 - 02, Leases (Topic 842 ) and all related amendments.

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We have made an accounting policy election to not recognize ROU assets and lease liabilities on the balance sheet for those leases with initial terms of one year or less and instead such lease obligations will be expensed on a straight-line basis over the lease term.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousands except share and per share data)

Adoption of the standard resulted in the recording of additional net lease-related assets and lease-related liabilities of $ 146,585 and $ 151,672 , respectively, as of December 1, 2019.

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Our adoption of this standard did not have a material impact on our consolidated statements of operations, comprehensive income or cash flows.

We are currently in negotiations with a number of our lessors to obtain relief in the form of rent deferrals or abatements from rents currently due as a result of the effects of COVID- 19 on our business.

At May 30, 2020, the unpaid rent for the months of April and May subject to these negotiations totaled $ 4,470 and is included in other current liabilities and accrued expenses in our accompanying condensed consolidated balance sheet.

We have negotiated with a number of our landlords to obtain relief in the form of rent deferrals or abatements of rent currently past due as a result of the effects of COVID- 19 on our business.

At August 29, 2020, the unpaid rent was $ 2,769 which primarily represents rent deferred to fiscal 2021 and is included in other current liabilities and accrued expenses in our accompanying condensed consolidated balance sheet.

In accordance with FASB Staff Q&A - Topic 842 and Topic 840:

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For any abatements received, we will account for those as variable rent in the period in which the abatement is granted.

Supplemental balance sheet information related to leases as of May 30, 2020 is as follows:

For the three and nine months ended August 29, 2020, we were granted abatements against rent totaling $ 657 .

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Supplemental balance sheet information related to leases as of August 29, 2020 is as follows:

Operating leases:

Right of use assets

$ 120,889  

Lease liabilties, short-term

28,211  

Lease liabilties, long-term

117,009  

Finance leases:

Right of use assets (1)

$ 1,322  

Lease liabilties, short-term (2)

1 unchanged sentence

Included in property & equipment, net in our condensed consolidated balance sheet.

Included in other current liabilites and accrued expenses in our condensed consolidated balance sheet.

Included in other long-term liabilites and accrued expenses in our condensed consolidated balance sheet.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousands except share and per share data)

Our right-of-use assets under operating leases by segment as of May 30, 2020 are as follows:

( 2 ) Included in other current liabilites and accrued expenses in our condensed consolidated balance sheet.

( 3 ) Included in other long-term liabilites and accrued expenses in our condensed consolidated balance sheet.

Our right-of-use assets under operating leases by segment as of August 29, 2020 are as follows:

$ 8,028  

95,815  

Logistical services

17,046  

Total right of use assets

The components of our lease cost for the three and six months ended May 30, 2020 are as follows:

$ 120,889  

The components of our lease cost for the three and nine months ended August 29, 2020 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 29, 2020

August 31, 2020

Operating lease cost

$ 8,441  

$ 26,005  

Financing lease cost:

2 unchanged sentences

Short-term lease cost

Variable lease cost

Variable lease cost (net of abatements received)

( 624 )  

Sublease income

( 395 )  

Total lease cost

Supplemental lease disclosures as of May 30, 2020 and for the six months then ended are as follows:

For the six months ended May 30, 2020:

$ 7,904  

$ 25,615  

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Supplemental lease disclosures as of August 29, 2020 and for the nine months then ended are as follows:

For the nine months ended August 29, 2020:

Cash paid for amounts included in the measurements of lease liabilities

$ 25,113  

Lease liabilities arising from new right-of-use assets

As of May 30, 2020:

As of August 29, 2020:

Weighted average remaining lease terms (years)

Weighted average discount rates

Future payments under our leases and the present value of the obligations as of May 30, 2020 are as follows:

5.01 %  

Future payments under our leases and the present value of the obligations as of August 29, 2020 are as follows:

Financing Leases

Remainder of fiscal 2020

$ 9,354  

33,740  

30,431  

25,350  

18,462  

15,125  

38,127  

Total lease payments

170,589  

25,369  

Total lease obligations

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

(Dollars in thousands except share and per share data)

We sublease a small number of our leased locations to our licensees for operation as BFH network stores.

$ 145,220  

$ 1,321  

We sublease a small number of our leased locations to our licensees for operation as Bassett Home Furnishings (“BHF”) network stores.

The terms of these leases generally match those of the lease we have with the lessor.

2 unchanged sentences

Total minimum future rental income

$ 4,856  

Lease Guarantees

1 unchanged sentence

Lease guarantees range from one to ten years.

We were contingently liable under licensee lease obligation guarantees in the amount of $ 1,793 and $ 1,776 at May 30, 2020 and November 30, 2019, respectively.

We were contingently liable under licensee lease obligation guarantees in the amount of $ 1,802 and $ 1,776 at August 29, 2020 and November 30, 2019, respectively.

In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory).

The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves.

The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at May 30, 2020 and November 30, 2019 was not material.

The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at August 29, 2020 and November 30, 2019 was not material.

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

2 unchanged sentences

Weighted Average

For the quarter ended May 30, 2020:

Basic loss per share

For the quarter ended August 29, 2020:

Basic earnings per share

$ 2,178  

9,955,382  

$ 0.22  

Add effect of dilutive securities:

Options and restricted shares

Diluted loss per share

For the quarter ended June 1, 2019:

16,263  

Diluted earnings per share

$ 2,178  

9,971,645  

$ 0.22  

For the quarter ended August 31, 2019:

Basic earnings per share

$ 2,157  

10,212,259  

$ 0.21  

Add effect of dilutive securities:

Options and restricted shares

28,276  

Diluted earnings per share

For the six months ended May 30, 2020:

$ 2,157  

10,240,535  

$ 0.21  

For the nine months ended August 29, 2020:

Basic loss per share

$ ( 16,964 )  

9,979,861  

Add effect of dilutive securities:

1 unchanged sentence

Diluted loss per share

For the six months ended June 1, 2019:

$ ( 16,964 )  

9,979,861  

For the nine months ended August 31, 2019:

Basic earnings per share

$ 3,210  

10,368,891  

$ 0.31  

Add effect of dilutive securities:

Options and restricted shares

26,914  

Diluted earnings per share

$ 3,210  

10,395,805  

$ 0.31  

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

For the three and six months ended May 30, 2020 and June 1, 2019, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

For the three and nine months ended August 29, 2020 and August 31, 2019, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

Quarter Ended

Six Months Ended

Nine Months Ended

Stock options

Unvested shares

45,653  

88,153  

45,653  

Total anti-dilutive securities

45,653  

93,403  

45,653  

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

4 unchanged sentences

Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores.

The earnings and costs associated with these assets are included in other loss, net, in our condensed consolidated statements of operations.

The earnings and costs associated with these assets are included in other income (loss), net, in our condensed consolidated statements of operations.

Retail –

5 unchanged sentences

Revenue from the performance of these services to other customers is included in logistical services revenue in our condensed consolidated statements of operations.

Zenith’s total operating costs, including those associated with providing logistical services to the Company as well as to third -party customers, are included in selling, general and administrative expenses and were $ 17,101 and $ 37,581 for the three and six months ended May 30, 2020, respectively, and $ 19,841 and $ 40,880 for the three and six months ended June 1, 2019, respectively.

Zenith’s total operating costs, including those associated with providing logistical services to the Company as well as to third -party customers, are included in selling, general and administrative expenses and were $ 16,826 and $ 54,407  for the three and nine months ended August 29, 2020, respectively, and $ 18,289 and $ 59,169  for the three and nine months ended August 31, 2019, respectively.

Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale and retail segments.

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

Quarter Ended

Six Months Ended

Nine Months Ended

Sales Revenue

$ 55,443  

$ 62,690  

$ 153,588  

$ 198,602  

Retail - Company-owned stores

48,144  

66,539  

147,161  

198,736  

Logistical services

17,848  

18,899  

54,422  

60,743  

Inter-company eliminations:

Furniture and accessories

( 23,246 )  

( 30,860 )  

( 68,466 )  

Logistical services

( 6,630 )  

( 7,849 )  

( 19,225 )  

$ 91,559  

$ 109,419  

$ 267,480  

$ 338,450  

Income (Loss) from Operations

$ 3,324  

$ 3,044  

$ ( 1,344 )  

$ 10,399  

Retail - Company-owned stores

( 1,585 )  

( 431 )  

( 12,004 )  

Logistical services

Inter-company elimination

( 14 )  

Early retirement program

Asset impairment charges

( 12,184 )  

Goodwill impairment charge

( 1,971 )  

Litigation expense

( 1,050 )  

$ 2,747  

$ 3,400  

$ ( 26,272 )  

$ 5,050  

Depreciation and Amortization

$ 2,338  

$ 2,397  

Retail - Company-owned stores

Logistical services

$ 3,010  

$ 3,357  

$ 10,249  

$ 10,092  

Capital Expenditures

$ 2,810  

Retail - Company-owned stores

Logistical services

$ 2,338  

$ 2,214  

$ 10,651  

Identifiable Assets

$ 156,464  

$ 144,392  

Retail - Company-owned stores

180,252  

91,997  

Logistical services

57,600  

39,377  

$ 394,316  

$ 275,766  

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

Quarter Ended

Six Months Ended

Nine Months Ended

August 29, 2020

August 31, 2019

August 29, 2020

August 31, 2019

Bassett Custom Upholstery

$ 31,016  

55.9 %  

$ 36,809  

58.7 %  

$ 90,283  

58.8 %  

$ 115,200  

Bassett Leather

10.5 %  

13,559  

14,714  

Bassett Custom Wood

17.3 %  

11,757  

18.8 %  

26,504  

17.3 %  

33,958  

Bassett Casegoods

16.3 %  

15.4 %  

23,242  

15.1 %  

32,263  

Accessories (1)

$ 55,443  

100.0 %  

$ 62,690  

100.0 %  

$ 153,588  

100.0 %  

$ 198,602  

Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to our retail segment or to third party customers such as licensees or independent furniture retailers.

7 unchanged sentences

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 $ 23,191 and $ 25,341 as of May 30, 2020 and November 30, 2019, respectively.

Substantially all of the customer deposits held at November 30, 2019 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the six months ended May 30, 2020.

These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $ 35,721 and $ 25,341 as of August 29, 2020 and November 30, 2019, respectively.

For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the customer upon the completion of delivery to the destination.

Because the customer receives the benefits of these services as the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate of the total required time for the deliveries.

The balances of assets recognized for shipping revenues earned but not billed as of May 30, 2020 and November 30, 2019 were not material.

The balances of assets recognized for shipping revenues earned but not billed as of August 29, 2020 and November 30, 2019 were not material.

Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided and billed to the customer concurrently in the same period.

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

1 unchanged sentence

The following changes in our stockholders’

equity occurred during the three and six months ended May 30, 2020 and June 1, 2019:

equity occurred during the three and nine months ended August 29, 2020 and August 31, 2019:

Quarter Ended

Six Months Ended

Nine Months Ended

Common Stock:

Beginning of period

$ 49,977  

$ 52,262  

$ 50,581  

$ 52,638  

Issuance of common stock

Forfeited shares

( 35 )  

Purchase and retirement of common stock

( 174 )  

( 1,742 )  

( 861 )  

End of period

$ 49,883  

$ 50,578  

$ 49,883  

$ 50,578  

Common Shares Issued and Outstanding:

Beginning of period

9,995,356  

10,452,345  

10,116,291  

10,527,636  

Issuance of common stock

16,064  

11,734  

39,572  

67,935  

Forfeited shares

( 7,000 )  

Purchase and retirement of common stock

( 34,907 )  

( 348,383 )  

( 172,350 )  

End of period

9,976,513  

10,115,696  

9,976,513  

10,115,696  

Additional Paid-in Capital:

1 unchanged sentence

Issuance of common stock

( 21 )  

Forfeited shares

Purchase and retirement of common stock

( 99 )  

( 270 )  

( 563 )  

Stock based compensation

2 unchanged sentences

Beginning of period

$ 103,391  

$ 137,127  

$ 129,130  

$ 140,009  

Cumulative effect of a change in accounting principal

( 3,785 )  

Net income (loss) for the period

( 16,964 )  

Purchase and retirement of common stock

( 27 )  

( 2,487 )  

( 332 )  

Cash dividends declared

( 799 )  

( 1,264 )  

( 3,306 )  

End of period

$ 104,743  

$ 135,533  

$ 104,743  

$ 135,533  

Accumulated Other Comprehensive Loss:

Beginning of period

$ ( 1,187 )  

$ ( 2,223 )  

$ ( 1,236 )  

Amortization of pension costs, net of tax

End of period

$ ( 1,162 )  

$ ( 2,165 )  

$ ( 1,162 )  

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

30 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements