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Item 1. Financial Statements

2021-04-01 compared with 2020-10-01 · 153 added, 439 removed, 427 unchanged (58% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

FOR THE PERIODS ENDED FEBRUARY 27, 2021 AND FEBRUARY 29, 2020 –

(In thousands)

Nine Months Ended

August 29, 2020

August 31, 2019

Quarter Ended

February 27, 2021

February 29, 2020

Operating activities:

Net income (loss)

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

$ 4,011  

$ 1,210  

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

Depreciation and amortization

Gain on lease modification

( 20 )  

(Gain) loss on sale of property and equipment

Asset impairment charges

Goodwill impairment charge

Inventory valuation charges

Bad debt valuation charges (recoveries)

Deferred income taxes

1 unchanged sentence

Accounts receivable

( 2,380 )  

( 8,050 )  

Other current assets

( 768 )  

Right of use assets under operating leases

2 unchanged sentences

Obligations under operating leases

( 7,072 )  

Net cash provided by (used in) operating activities

1 unchanged sentence

Purchases of property and equipment

( 895 )  

Proceeds from sales of property and equipment

Purchases of investments

Proceeds from maturities of investments

( 302 )  

Net cash used in investing activities

( 1,189 )  

Financing activities:

Cash dividends

Proceeds from the exercise of stock options

( 3,718 )  

Other issuance of common stock

Repurchases of common stock

( 534 )  

Taxes paid related to net share settlement of equity awards

( 219 )  

Repayments of finance lease obligations

( 173 )  

Repayments of notes payable

Net cash used in financing activities

( 4,561 )  

Change in cash and cash equivalents

( 766 )  

Cash and cash equivalents - beginning of period

45,799  

19,687  

Cash and cash equivalents - end of period

$ 45,033  

$ 12,189  

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

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

7 unchanged sentences

To date we have concluded that none of our licensees nor any other of our counterparties represent VIEs.

Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of operations net of estimates for returns and allowances.

Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of income net of estimates for returns and allowances.

Revenues from logistical services are generated by our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”).

Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated in consolidation, and Zenith’s operating costs and expenses are included in selling, general and administrative expenses in our condensed consolidated statements of operations.

Our fiscal year, which ends on the last Saturday of November, periodically results in a 53 -week year instead of the normal 52 weeks.

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

Accordingly, the information presented below includes 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

Effective as of the beginning of fiscal 2021, we have adopted Accounting Standards Update No.

2016 - 02, Leases (Topic 842 ).

The guidance in ASU 2016 - 02 (as subsequently amended by ASU 2018 - 01, ASU 2018 - 10, ASU 2018 - 11 and ASU 2018 - 20 ) requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

We have adopted this standard using the modified retrospective approach.

Refer to Note 11, Leases, for more information regarding our leases and the adoption of the new standard.

2016 - 13, Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments (“ASU 2016 - 13”

The guidance in ASU 2016 - 13 replaces the incurred loss impairment methodology under current GAAP.

The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments.

We determined that the guidance in ASU 2016 - 13 applied to our trade receivables and contract assets, and that there was no material impact to our financial condition or results of operations as a result of the adoption.

Effective as of the beginning of fiscal 2021, we have adopted Accounting Standards Update No.

2018 - 15, Accounting Standards Update No.

2018 - 15 –

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350 - 40 ):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

The amendments in ASU 2018 - 15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018 - 15.

We adopted ASU 2018 - 15 on a prospective basis and the adoption did not have a material impact upon our financial position or results of operations.

Impact of the COVID- 19 Pandemic Upon our Financial Condition and Results of Operations

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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 primarily during the second fiscal quarter of 2020.

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. 

These measures had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 2020.

Therefore, our results of operations for the quarter ended February 29, 2020 were not impacted by COVID- 19.

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(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.

During fiscal 2020, in response to the restrictive measures imposed by governmental authorities 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 primarily during the second fiscal quarter.

This extended period of suspended operations had had a material adverse impact upon our results of operations during the second fiscal quarter and resulted in a significant net loss for the year ended November 28, 2020.

However, since restarting our manufacturing operations and reopening stores, we have seen a significant improvement in business conditions which allowed us to return to overall profitability for the third and fourth fiscal quarters of 2020 continuing into the first quarter of fiscal 2021.

Whereas most state and local governments have eased restrictions on commercial retail activity and mass vaccination programs in the U.S.

are underway, it is nevertheless 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.

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

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.

The results of operations for the three months ended February 27, 2021 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 28, 2020.

1 unchanged sentence

Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

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 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.

Our effective tax rates for the quarters ended February 27, 2021 and February 29, 2020 of 29.4 % and 34.5 %, respectively, differ from the federal statutory rate of 21 % primarily due to the effects of state income taxes and various permanent differences, including tax deficiencies of $ 135 and $ 114 during the quarters ended February 27, 2021 and February 29, 2020, respectively, arising from stock-based compensation.

Financial Instruments and Fair Value Measurements

2 unchanged sentences

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 %.

Our short-term investments of $ 17,715 at February 27, 2021 and November 28, 2020 consisted of CDs.

At February 27, 2021, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.05 % to 1.20 %.

At February 27, 2021, the weighted average remaining time to maturity of the CDs was approximately five months and the weighted average yield of the CDs was approximately 0.12 %.

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 August 29, 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 February 27, 2021 and November 28, 2020 approximates their fair value.

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

Fair Value Measurement  

The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures .

11 unchanged sentences

We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items.

Our primary non-recurring fair value estimates typically involve business acquisitions or the impairment of long-lived assets (see Note 6 regarding the impairment of goodwill, Note 9 regarding the impairment of certain long-lived assets and Note 11 regarding the impairment of lease right-of-use assets upon adoption of ASC Topic 842 ) which involve a combination of Level 2 and Level 3 inputs.

Our primary non-recurring fair value estimates typically involve business acquisitions or the impairment of long-lived assets which involve a combination of Level 2 and Level 3 inputs.

Accounts Receivable

8 unchanged sentences

$ 22,340  

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

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics.

Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less.

Actual credit losses could differ from those estimates.

Activity in the allowance for doubtful accounts for the three months ended February 27, 2021 was as follows:

Balance at November 28, 2020

$ 1,211  

Additions charged to expense

Write-offs against allowance

Balance at August 29, 2020

Balance at February 27, 2021

$ 1,194  

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

19 unchanged sentences

( 4,478 )  

Total Inventories

$ 62,936  

16 unchanged sentences

$ 1,101  

$ 4,522  

Additions charged to expense

1 unchanged sentence

( 275 )  

Balance at August 29, 2020

Balance at February 27, 2021

$ 3,366  

$ 1,112  

$ 4,478  

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

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

1 unchanged sentence

Goodwill and other intangible assets consisted of the following:

August 29, 2020

February 27, 2021

Intangibles subject to amortization

27 unchanged sentences

$ 23,827  

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.

Due to the impact of the COVID- 19 pandemic, we performed an interim impairment assessment of our remaining goodwill as of May 30, 2020.

In accordance with ASC Topic 350, Intangibles –

Goodwill & Other (“ASC Topic 350”

) , we first assessed qualitative factors to determine whether it was more likely than not that the fair value of our reporting units was less than their carrying amounts as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in ASC Topic 350.

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 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 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 ).

Under the income approach, we determined fair value based on the present value of the most recent cash flow projections for the reporting unit as of the date of the analysis and calculated a terminal value utilizing a terminal growth rate.

The significant assumptions under this approach included, among others:

income projections, which are dependent on future sales, new product introductions, customer behavior, competitor pricing, operating expenses, the discount rate, and the terminal growth rate.

The cash flows used to determine fair value were dependent on a number of significant management assumptions such as our expectations of future performance and the expected future economic environment, which are partly based upon our historical experience as well as our estimate of the period of time required to recover from the impact of the COVID- 19 pandemic.

Our estimates are subject to change given the inherent uncertainty in predicting future results, including uncertainties surrounding the continuing impact of COVID- 19 upon consumer spending and our ability to keep our retail store locations open to the public.

Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant.

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)

Changes in the carrying amounts of goodwill by reportable segment are as follows:

Balance as of November 30, 2019

$ 9,188  

$ 4,929  

$ 14,117  

Goodwill impairment

( 1,971 )  

Balance as of August 29, 2020

$ 7,217  

$ 4,929  

The carrying amounts of goodwill by reportable segment at both February 27, 2021 and November 28, 2020 are as follows:

$ 9,188  

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

$ ( 1,971 )  

$ 7,217  

Balance as of August 29, 2020

( 1,926 )  

Logistical services

Total goodwill

$ 16,043  

$ ( 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

Nine Months Ended

Intangible asset amortization expense

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

Remainder of fiscal 2020

$ 12,146  

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

Bank Credit Facility

Amortization expense associated with intangible assets during the three months ended February 27, 2021 and February 29, 2020 was as follows:

Quarter Ended

Intangible asset amortization expense

Estimated future amortization expense for intangible assets that exist at February 27, 2021 is as follows:

Remainder of fiscal 2021

$ 2,248  

Bank Credit Facility

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 .

Our bank credit facility provides for a line of credit of up to $ 25,000 .

At February 27, 2021, we had $ 3,181 outstanding under standby letters of credit against our line, leaving availability under our credit line of $ 21,819 .

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

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.

We were in compliance with all covenants under the agreement as of February 27, 2021 and expect to remain in compliance through the end of fiscal 2021.

The credit facility matures on January 31, 2022.

2 unchanged sentences

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 $ 8,706 and $ 8,779 as of August 29, 2020 and November 30, 2019, respectively.

The liability for the Supplemental Plan was $ 8,525 and $ 8,565 as of February 27, 2021 and November 28, 2020, 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 $ 1,393 and $ 1,311 as of August 29, 2020 and November 30, 2019, respectively.

The liability for the LTC Awards was $ 1,533 and $ 1,506 as of February 27, 2021 and November 28, 2020, respectively.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

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

4 unchanged sentences

$ 10,071  

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:

Components of net periodic pension costs for our defined benefit plans for the three months ended February 27, 2021 and February 29, 2020 are as follows:

Quarter Ended

Nine Months Ended

February 27, 2021

February 29, 2020

Interest cost

2 unchanged sentences

Net periodic pension cost

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

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

Deferred Compensation Plans

We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation.

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

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

Our liability under this plan was $ 1,664 and $ 1,677 as of February 27, 2021 and November 28, 2020, 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 $ 1,124 and $ 894 as of August 29, 2020 and November 30, 2019, respectively.

Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $ 1,533 and $ 1,250 as of February 27, 2021 and November 28, 2020, respectively.

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

February 27, 2021

November 28, 2020

Accrued compensation and benefits

3 unchanged sentences

$ 2,927  

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

Nine Months Ended

Deferred compensation expense

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(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.

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 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 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

During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company.

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

Accordingly, we recognized a charge of $ 835 during the 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.

We recognized expense under our deferred compensation arrangements during the three months ended February 27, 2021 and February 29, 2020 as follows:

Quarter Ended

February 27, 2021

February 29, 2020

Deferred compensation expense

Commitments and Contingencies

1 unchanged sentence

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.

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.

The guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use (“ROU”) asset and a lease liability.

We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United States for warehousing and distribution hubs used in our retail and logistical services segments.

We also lease tractors and trailers used in our logistical services segment, and local delivery trucks used in our retail segment.

We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset.

Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years.

We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors.

Any options that meet this criteria are included in the lease term at lease commencement.

Most of our leases do not have an interest rate implicit in the lease.

As a result, for purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by applying a spread above the U.S.

Treasury borrowing rates.

In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease.

Some of our leases contain variable rent payments based on a Consumer Price Index or percentage of sales.

Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.

We adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings.

We elected the package of transition expedients available for expired or existing contracts, which allowed the carry-forward of historical assessments of ( 1 ) whether contracts are or contain leases, ( 2 ) lease classification and ( 3 ) initial direct costs. 

In addition, we have elected the practical expedient to not separate lease and non-lease components when determining the ROU asset and lease liability and have elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.

We have also elected the hindsight practical expedient to determine the lease term for existing leases.

In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.

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

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

The difference between the additional lease assets and lease liabilities, net of the $ 1,302 deferred tax impact, was $ 3,785 and was recorded as an adjustment to retained earnings.

This adjustment to retained earnings primarily represents the impairment of right-of-use assets associated with certain underperforming retail locations.

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

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

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:

Accounting for Lease Concessions Related to the Effects of the COVID- 19 Pandemic ("FASB Staff Q&A") issued in April 2020, we have elected to account for any lease concessions resulting directly from COVID- 19 as if the enforceable rights and obligations for the concessions existed in the respective contracts at lease inception and as such we will not account for any concession as a lease modification.

Guidance from the FASB Staff Q&A provided methods to account for rent deferrals which include the option to treat the lease as if no changes to the lease contract were made or to treat deferred payments as variable lease payments.

The FASB Staff Q&A allows entities to select the most practical approach and does not require the same approach be applied consistently to all leases.

As a result, we expect to account for the deferrals as if no changes to the lease contract were made and will continue to recognize lease expense, on a straight-line basis, during the deferral period.

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

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)

Lease liabilties, long-term (3)

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

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

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

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

$ 8,028  

95,815  

Logistical services

17,046  

Total right of use assets

$ 120,889  

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

Quarter Ended

Nine Months Ended

August 29, 2020

August 31, 2020

Operating lease cost

$ 8,441  

$ 26,005  

Financing lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Short-term lease cost

Variable lease cost (net of abatements received)

( 624 )  

Sublease income

( 395 )  

Total lease cost

$ 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 August 29, 2020:

Weighted average remaining lease terms (years)

Weighted average discount rates

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

$ 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.

Minimum future lease payments due to us under these subleases are as follows:

Remainder of fiscal 2020

Total minimum future rental income

$ 4,856  

Lease Guarantees

We also have guaranteed certain lease obligations of licensee operators.

Lease guarantees range from one to ten years.

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

We have guaranteed certain lease obligations of licensee operators.

Lease guarantees range from one to three years.

We were contingently liable under licensee lease obligation guarantees in the amounts of $ 2,064 and $ 1,811 at February 27, 2021 and November 28, 2020, 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 August 29, 2020 and November 30, 2019 was not material.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

(Dollars in thousands except share and per share data)

Earnings (Loss) Per Share

The following reconciles basic and diluted earnings (loss) per share:

Weighted Average

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

16,263  

Diluted earnings per share

$ 2,178  

9,971,645  

$ 0.22  

For the quarter ended August 31, 2019:

Basic earnings per share

The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at February 27, 2021 and November 28, 2020 was not material.

Earnings Per Share

The following reconciles basic and diluted earnings per share:

Weighted Average Shares

Net Income Per Share

For the quarter ended February 27, 2021:

Basic loss per share

$ 4,011  

4 unchanged sentences

20,287  

Diluted earnings per share

$ 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:

Options and restricted shares*

Diluted loss per share

1 unchanged sentence

9,939,805  

For the nine months ended August 31, 2019:

$ 0.40  

For the quarter ended February 29, 2020:

Basic earnings per share

9 unchanged sentences

$ 0.12  

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

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

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

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

For the three months ended February 27, 2021 and February 29, 2020, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

Quarter Ended

February 27, 2021

February 29, 2020

Unvested shares

34,000  

Segment Information

3 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 income (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 income.

Retail –

Company-owned s tores.

 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.

2 unchanged sentences

In addition to providing shipping and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry.

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

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

Zenith’s total operating costs, including those associated with providing logistical services to the Company as well as to third -party customers, are included in selling, general and administrative expenses and were $ 19,621 and $ 20,480 for the three months ended February 27, 2021 and February 29, 2020, 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

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

1 unchanged sentence

Quarter Ended

Nine Months Ended

February 27, 2021

February 29, 2020

Sales Revenue

1 unchanged sentence

$ 65,017  

$ 153,588  

$ 198,602  

Retail - Company-owned stores

1 unchanged sentence

65,846  

147,161  

198,736  

Logistical services

1 unchanged sentence

21,315  

54,422  

60,743  

Inter-company eliminations:

1 unchanged sentence

( 29,004 )  

( 30,860 )  

( 68,466 )  

Logistical services

2 unchanged sentences

$ 112,120  

$ 91,559  

$ 109,419  

$ 267,480  

$ 338,450  

Income (Loss) from Operations

1 unchanged sentence

$ 2,713  

$ ( 1,344 )  

$ 10,399  

Retail - Company-owned stores

( 1,585 )  

( 431 )  

( 12,004 )  

Logistical services

1 unchanged sentence

( 329 )  

Early retirement program

Asset impairment charges

$ 6,021  

Goodwill impairment charge

$ 2,210  

Litigation expense

( 1,050 )  

$ 2,747  

$ 3,400  

$ ( 26,272 )  

$ 5,050  

Depreciation and Amortization

$ 2,338  

$ 2,397  

Retail - Company-owned stores

2 unchanged sentences

$ 3,623  

$ 10,249  

$ 10,092  

Capital Expenditures

$ 2,810  

Retail - Company-owned stores

1 unchanged sentence

$ 1,340  

$ 2,214  

$ 10,651  

Identifiable Assets

February 27, 2021

November 28, 2020

$ 177,204  

8 unchanged sentences

$ 402,549  

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)

Wholesale shipments by type

Quarter Ended

Nine Months Ended

August 29, 2020

August 31, 2019

August 29, 2020

August 31, 2019

February 27, 2021

February 29, 2020

Bassett Custom Upholstery

2 unchanged sentences

$ 40,033  

58.7 %  

$ 90,283  

58.8 %  

$ 115,200  

Bassett Leather

10.8 %  

13,559  

14,714  

Bassett Custom Wood

2 unchanged sentences

11,290  

26,504  

17.3 %  

33,958  

Bassett Casegoods

3 unchanged sentences

$ 65,017  

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.

Our retail segment and third -party customers now source their accessory items directly from the accessory vendors.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

Revenue Recognition

5 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 $ 35,721 and $ 25,341 as of August 29, 2020 and November 30, 2019, respectively.

Substantially all of the customer deposits held at November 30, 2019 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the nine months ended August 29, 2020.

These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $ 44,674 and $ 39,762 as of February 27, 2021 and November 28, 2020, respectively.

Approximately 76 % of the customer deposits held at November 28, 2020 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the quarter ended February 27, 2021.

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 August 29, 2020 and November 30, 2019 were not material.

The balances of assets recognized for shipping revenues earned but not billed as of February 27, 2021 and November 28, 2020 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

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

1 unchanged sentence

The following changes in our stockholders’

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

Quarter Ended

Nine Months Ended

equity occurred during the three months ended February 27, 2021 and February 29, 2020:

February 27, 2021

February 29, 2020

Common Stock:

2 unchanged sentences

$ 50,581  

$ 52,638  

Issuance of common stock

Forfeited shares

( 35 )  

Purchase and retirement of common stock

( 178 )  

( 1,742 )  

( 861 )  

End of period

1 unchanged sentence

$ 50,173  

$ 49,883  

$ 50,578  

Common Shares Issued and Outstanding:

2 unchanged sentences

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

( 35,512 )  

( 348,383 )  

( 172,350 )  

End of period

1 unchanged sentence

10,034,591  

9,976,513  

10,115,696  

Additional Paid-in Capital:

1 unchanged sentence

Issuance of common stock

( 21 )  

Forfeited shares

1 unchanged sentence

( 66 )  

( 270 )  

( 563 )  

Stock based compensation

4 unchanged sentences

$ 129,130  

$ 140,009  

Cumulative effect of a change in accounting principal

( 3,785 )  

Net income (loss) for the period

( 16,964 )  

Net income for the period

Purchase and retirement of common stock

( 509 )  

( 2,487 )  

( 332 )  

Cash dividends declared

( 3,719 )  

( 1,264 )  

( 3,306 )  

End of period

1 unchanged sentence

$ 125,078  

$ 104,743  

$ 135,533  

Accumulated Other Comprehensive Loss:

1 unchanged sentence

$ ( 1,394 )  

$ ( 2,223 )  

$ ( 1,236 )  

Amortization of pension costs, net of tax

1 unchanged sentence

$ ( 1,359 )  

$ ( 2,165 )  

$ ( 1,162 )  

PART I-FINANCIAL INFORMATION-CONTINUED

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

AUGUST 29, 2020

FEBRUARY 27, 2021

(Dollars in thousands except share and per share data)

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No.

2016 - 13, Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments (“ASU 2016 - 13”

The guidance in ASU 2016 - 13 replaces the incurred loss impairment methodology under current GAAP.

The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments.

For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

ASU 2016 - 13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods.

The guidance in ASU 2016 - 13 will become effective for us as of the beginning of our 2021 fiscal year.

We are currently evaluating the impact that this guidance will have upon our financial position and results of operations, if any.

In August 2018, the FASB issued Accounting Standards Update No.

2018 - 15, Accounting Standards Update No.

2018 - 15 –

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350 - 40 ):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018 - 15.

The amendments in ASU 2018 - 15 will become effective for us as of the beginning of our 2021 fiscal year.

Early adoption is permitted, including adoption in any interim period.

We are currently evaluating the impact that this guidance will have upon our financial position and results of operations, if any.

In December 2019, the FASB issued Accounting Standards Update No.

8 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 29, 2020

FEBRUARY 27, 2021

(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