EDGAR 10-K Filing

Company CIK: 10329
Filing Year: 2022
Filename: 10329_10-K_2022_0001437749-22-001938.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
(dollar amounts in thousands except per share data)
General
Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 119-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.
With 97 BHF stores at November 27, 2021, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products, including the Lane Venture outdoor furniture products, through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.
The BHF stores feature custom order furniture, free in-home and virtual design visits (“home makeovers”) and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.
We have factories in Newton, North Carolina that manufacture Bench Made custom upholstered and outdoor furniture. We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom dining offerings, including our Bench Made line of solid hardwood furniture. We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. Our logistics team then ships the product to one of our home delivery hubs or to a location specified by our licensees. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam, Thailand and China. Over 75% of the products we currently sell are manufactured in the United States.
During fiscal 2018 we acquired Lane Venture, a manufacturer and distributor of premium outdoor furniture and is operated as a component of our wholesale segment. This acquisition marked our entry into the market for outdoor furniture and we believe that Lane Venture has provided a foundation for us to become a significant participant in this category. Our strategy is to distribute this brand outside of our BHF store network only.
With the knowledge we have gained through operating Lane Venture, we have developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.
We also own Zenith Freight Lines, LLC (“Zenith”) which provides logistical services to Bassett along with other furniture manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored to the needs of Bassett and the furniture industry. Over 60% of Zenith’s revenue is generated from services provided to non-Bassett customers.
Ongoing Impact of the COVID-19 Pandemic and Related Supply Chain and Labor Issues Upon Our Business
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country 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 had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 2020.
In response to the above and for the protection of our employees and customers, we temporarily closed our dedicated BHF stores, our manufacturing locations and many of our warehouses for several weeks primarily during the second fiscal quarter of 2020. The disruption to our operations caused by the COVID-19 pandemic resulted in a significant loss for the year ended November 28, 2020. By the end of the third quarter of fiscal 2020 we had reopened all stores and resumed manufacturing activity, allowing us to return to profitability beginning with the third quarter of fiscal 2020 and continuing through fiscal 2021.
Since restarting our manufacturing operations and reopening stores, the pace of incoming wholesale orders from both the retail stores and our independent dealers outside the BHF store network have far exceeded our post reopening forecasts. Wholesale orders for fiscal 2021 increased 29% as compared to 2020. In addition, wholesale orders for fiscal 2021 represented a 28% increase as compared to pre-pandemic levels of fiscal 2019. However, various supply chain disruptions and logistical challenges have created significant delays in order fulfillment resulting in abnormally high backlogs. In addition, inflationary pressures throughout the supply chain have resulted in us implementing multiple wholesale price increases over the last several months. We expect that wholesale gross margins will be slightly impacted during the first half of fiscal 2022 as we cycle through the backlog.
To address our growing backlog, in fiscal 2021 we opened another upholstery manufacturing facility in Newton, NC, adjacent to our existing 500,000 square foot complex. Production from this additional 123,000 square foot facility began in early June and is dedicated to our opening price point “Everyday Value” product. The added space will also allow us to expand our Bench Made motion program, previously referred to as Magnificent Motion, that has exceeded our sales projections since its debut in early 2020.
We continue to closely monitor the COVID-19 pandemic and its lingering impact on the economy, the consumer and our business. While the rate of incoming orders at both our wholesale and retail segments remains strong, there are continuing logistical challenges faced by us and the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. Although unable to predict with certainty, we expect gradual decreases in wholesale and retail backlogs over the course of fiscal 2022 driven by an anticipated lower rate of future incoming orders coupled with increased manufacturing and shipping activity. Whereas the progress in mass vaccination programs in the U.S. has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, it is nevertheless possible that the recent resurgence in COVID-19 cases due to the Delta and Omicron variants, as well as any future variants of the coronavirus entering the U.S., could prompt a return to tighter restrictions in certain areas of the country. Furthermore, pandemic-related labor shortages and supply chain disruptions remain unresolved and order cancellations could result if the present delays in order fulfillment continue for an extended period of time. Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 pandemic upon our financial condition and future results of operations.
Operating Segments
We have strategically aligned our business into three reportable segments: Wholesale, Retail - Company-owned stores, and Logistical Services.
The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of BHF stores (Company-owned retail stores and licensee-owned stores) and independent furniture retailers. Our retail segment consists of 63 Company-owned and operated BHF stores. The following table shows the number of Company-owned stores by state as of November 27, 2021:
Number of
Number of
State
Stores
State
Stores
Alabama
Missouri
Arizona
Nevada
Arkansas
New Jersey
California
New York
Connecticut
North Carolina
Delaware
Ohio
Florida
Oklahoma
Georgia
Pennsylvania
Kansas
South Carolina
Kentucky
Tennessee
Maryland
Texas
Massachusetts
Virginia
Total
Our six locations in the state of New York include a 16,000 square foot clearance center in Middletown, New York. Unlike our other 62 BHF locations, the clearance center offers only clearance merchandise at reduced price points and without design consulting services.
Wholesale Segment Overview
The wholesale furniture industry is very competitive and there are a large number of manufacturers both within and outside the United States who compete in the market on the basis of product quality, price, style, delivery and service. Additionally, many retailers source imported product directly, thus bypassing domestic furniture manufacturers and wholesale importers. We believe that we can be successful in the current competitive environment because our products represent excellent value combining attractive prices, quality and styling, prompt delivery, and superior service.
Wholesale shipments by category for the last three fiscal years, excluding intercompany sales to our retail segment, are summarized below:
External
Intercompany
Total
External
Intercompany
Total
External
Intercompany
Total
Bassett Custom Upholstery
$ 105,445
$ 69,533
$ 174,978
59.2 %
$ 71,840
$ 56,360
$ 128,200
58.0 %
$ 78,856
$ 73,559
$ 152,415
58.4 %
Bassett Leather
36,157
36,218
12.3 %
20,487
21,436
9.7 %
17,083
2,137
19,220
7.4 %
Bassett Custom Wood
24,079
24,066
48,145
16.3 %
19,682
19,629
39,311
17.8 %
21,264
24,818
46,082
17.6 %
Bassett Casegoods
17,378
18,610
35,988
12.2 %
13,719
18,409
32,128
14.5 %
17,221
23,699
40,920
15.7 %
Accessories (1)
-
-
-
0.0 %
-
-
-
0.0 %
1,720
2,468
0.9 %
Total
$ 183,059
$ 112,270
$ 295,329
100.0 %
$ 125,728
$ 95,347
$ 221,075
100.0 %
$ 135,172
$ 125,933
$ 261,105
100.0 %
(1)
Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to our retail segment or to third party customers such as licensees or independent furniture retailers. Our retail segment and third party customers now source their accessory items directly from the accessory vendors.
Approximately 24% of our 2021 wholesale sales were of imported product compared to 24% and 23% in 2020 and 2019, respectively. We define imported product as fully finished product that is sourced. Our domestic product includes certain products that contain components which were also sourced. We continue to believe that a blended strategy including domestically produced products primarily of a custom-order nature combined with sourcing of major collections provides the best value and quality of products to our customers.
The dollar value of our wholesale backlog, representing orders received but not yet shipped to the BHF store network or independent dealers, was $90,057 at November 27, 2021 and $54,874 at November 28, 2020. We believe that the backlog will gradually decrease over the course of 2022 to a more manageable level as supply chain constraints begin to ease and because we do not believe the pace of business experienced in late fiscal 2020 through most of fiscal 2021 is sustainable.
We use lumber, fabric, leather, foam and other materials in the production of wood and upholstered furniture. These components are purchased from a variety of domestic and international suppliers and are widely available. The price and availability of foam, which is highly dependent on the cost of oil and available capacity of oil refineries, can be subject to significant volatility from time to time. We currently assemble and finish these components in our five manufacturing facilities in the United States.
Retail Segment Overview - Company-Owned Retail Stores
The retail furniture industry remains very competitive and includes local furniture stores, regional furniture retailers, national department and chain stores, single-vendor branded retailers and on-line retailers. As a whole, our store network with 63 Company-owned stores and 34 licensee-owned stores, ranks in the top 30 in retail furniture sales in the United States. Our Company-owned store network peaked at 70 stores in fiscal 2019. Since that time, we have closed seven underperforming locations.
Net sales for our Company-owned retail stores by major product category for the last three fiscal years are summarized below:
Bassett Custom Upholstery
$ 139,527
56.3 %
$ 112,888
53.3 %
$ 142,865
53.2 %
Bassett Leather
0.1 %
2,326
1.1 %
3,782
1.4 %
Bassett Custom Wood
30,931
12.5 %
28,942
13.7 %
35,092
13.1 %
Bassett Casegoods
42,658
17.2 %
35,728
16.9 %
44,827
16.7 %
Accessories, mattresses & other (1)
34,485
13.9 %
32,060
15.1 %
42,127
15.7 %
Total
$ 247,827
100.0 %
$ 211,944
100.0 %
$ 268,693
100.0 %
(1)
Includes sales of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.
The COVID crisis has given us the opportunity to look inward and to make structural improvements to our business model. We instituted a “virtual appointment” program for our stores in late March of 2020, whereby consumers digitally engage with our designers and transact without physically visiting a store. Adding this new form of engagement is one of the many lasting changes that have come out of the pandemic.
We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website and our online orders over the last two years. While the growth in website traffic and orders moderated somewhat in fiscal 2021 compared to 2020, both have nearly doubled since 2019. Digital advertising dominated our marketing expenditures for the majority of the year as we chose to spend less on traditional television and direct mail advertising. We plan to continue with increased levels of spending on digital advertising and outreach during 2022.
The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While our Custom Upholstery, Custom Dining, and Bench Made product lines continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on-line, we will not compromise on our in-store experience or the quality of our in-home makeover capabilities.
We also continue to re-examine the performance of every one of our stores. Store traffic has been declining for three years and the effect on our retail model has become increasingly challenging. We believe that on a market-by-market basis, there will be fewer stores in the future. We will continue to evaluate store-by-store performance as we seek the optimal store count in the markets in which we compete at retail.
We also plan to heavily emphasize our “Made in America” story and utilize locally harvested and organic materials when possible. As part of this, we recently rebranded our premier Custom Upholstery line to be part of the Bench Made program emphasizing that those products are artisan crafted with exceptional domestic materials and are made to order. In addition, we expanded our Bench Made solid wood dining offerings to provide a sleeker more contemporary styling product to complement our initial Bench Made dining offerings.
Logistical Services Segment Overview
Zenith is a specialized supply chain solutions provider, offering the home furnishings industry the benefit of an asset-based network to move product with greater efficiency, enhanced speed to market, less damage and a single source of shipment visibility. We provide fully integrated solutions with the highest commitment to customer care and service as we seek to go beyond our customers’ transactional expectations to create collaborative partnerships that provide a single source network to:
●
Better manage inventory across multiple locations and provide total audit-ready accountability
●
Reduce line haul and delivery costs
●
Ensure availability of high-volume items in stores
●
Integrate the omnichannel nature of today’s retail supply chain
●
Management and predictability of the total landed cost of goods
Our customer solutions are provided through the following services:
●
Network line haul freight (middle mile)
●
Warehousing, distribution and inventory management
At November 27, 2021, our shipping and delivery fleet consisted of the following:
Owned
Leased
Total
Tractors
Trailers
Local delivery trucks
We own a central warehousing and national distribution hub located in Conover, North Carolina, and we lease fourteen facilities in ten states across the continental United States from which we operate regional freight terminals and provide warehouse and distribution services.
Recent Development Regarding Zenith
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith Freight Lines, LLC to J.B. Hunt Transport Services, Inc. for approximately $87,000 in cash. We expect the transaction to close by February 28, 2022 subject to customary closing conditions.
Trademarks
Our trademarks, including “Bassett” and the names of some of our marketing divisions, products and collections, are significant to the conduct of our business. This is important due to consumer recognition of the names and identification with our broad range of products. Certain of our trademarks are licensed to independent retailers for use in full store and store gallery presentations of our products. We also own copyrights that are important in the conduct of our business.
Government Regulations
We believe that we have materially complied with all federal, state and local standards regarding safety, health and pollution and environmental controls.
Our logistical services segment is also subject to regulation by several federal governmental agencies, including the Department of Transportation (“DOT”). Specifically the Federal Motor Carrier Safety Administration and the Surface Transportation Board, which are agencies within the DOT. We are also subject to rules and regulations of various state agencies. These regulatory authorities have broad powers, generally governing matters such as authority to engage in motor carrier operations, motor carrier registration, driver hours of service, safety and fitness of transportation equipment and drivers and other matters.
We may also be affected by laws and regulations of countries from which we source goods. Labor, environmental and other laws and regulations change over time, especially in the developing countries from which we source. Changes in these areas of regulation could negatively impact the cost and availability of sourced goods. The timing and extent to which these regulations could have an adverse effect on our financial position or results of operations is difficult to predict. In addition, the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products could negatively impact the cost of such goods. Based on the present facts, we do not believe that they will have a material adverse effect on our financial position or future results of operations.
Human Capital
We employed 2,219 people as of November 27, 2021. Our associate count represents an increase of 202 from a year ago, which can be attributed to increased production capacity at our upholstery facilities and the restoration of COVID-19 related headcount reductions in our logistical services segment. Headcount by segment is as follows:
●
1,034 in the wholesale segment
●
541 in the retail segment
●
644 in the logistical services segment
Invested… In Each Other
This theme permeates everything we do at Bassett. We believe that our associates are most productive when we invest in their personal wellbeing, work environment and professional development. We also strive to maintain an inclusive and diverse workplace free from discrimination and harassment.
Personal & Financial Wellbeing
●
We have a strong safety program which includes COVID-19 protocols which meet or exceed Centers for Disease Control guidelines.
●
We hosted COVID-19 vaccination clinics for associates and spouses at several of our facilities.
●
Our wellness programs, including onsite health clinics, personalized health coaching, mental health counseling, and incentivizing healthy lifestyle choices, are designed to improve associate health and reduce healthcare costs for both the associate and the Company.
●
We offer comprehensive benefit plans including Company subsidized health insurance, 401(k) Plan with Company matching contributions, and paid time off. We believe our benefit plans are competitive and meet the needs of most of our associates.
Work Environment
We continue to make substantial investments in our facilities designed to improve associate comfort, increase manufacturing capacity and gain efficiencies. These include:
●
Updated break areas, restrooms and lighting in several of our manufacturing facilities.
●
Continued renovations at our corporate headquarters.
●
Introduction of “Bassett TV” in our manufacturing facilities and offices as a communication tool.
We are also conducting associate focus groups to solicit input for further improving our work-life experience.
Professional Development
We offer a tuition reimbursement program for associates who desire to further their education and we strive to provide opportunities for advancement within our organization. Online training designed to enhance the in-store and follow up experiences for customer and associate alike is required for our customer-facing associates.
Discrimination and Harassment Policy
We continue to maintain and enforce our policy prohibiting discrimination and harassment in our workplace. Our managers are trained in how to prevent, recognize and respond to possible inappropriate behavior. Associates have several available avenues for reporting concerns, including a confidential hotline. We promptly and carefully investigate each complaint of harassment or discrimination.
Major Customers
Our risk exposure related to our customers, consisting primarily of trade accounts receivable along with certain guarantees, net of recognized reserves, totaled approximately $30,048 and $24,476 at November 27, 2021 and November 28, 2020, respectively. At November 27, 2021 and November 28, 2020, approximately 22% and 24%, respectively, of the aggregate risk exposure, net of reserves, was attributable to five customers. In fiscal 2021, 2020 and 2019, no customer accounted for more than 10% of total consolidated net sales. However, two customers accounted for approximately 23%, 29% and 44% of our consolidated revenue from logistical services during 2021, 2020 and 2019, respectively.
Available Information
We file our annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov.
Through our website, www.bassettfurniture.com, we make available free of charge as soon as reasonably practicable after electronically filing or furnishing with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments thereto.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. The risk factors below represent what we believe are the known material risk factors with respect to us and our business. Any of the following risks could materially adversely affect our business, operations, industry, financial position or future financial results.
Risks Related to the Coronavirus Pandemic
The coronavirus global pandemic which caused a significant disruption in non-essential retail commerce may continue to have a material adverse impact upon our financial condition and results of operations.
On March 11, 2020, the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restriction on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce. As a result of these circumstances, we temporarily closed our dedicated stores, our manufacturing locations and many of our warehouses. In addition, many of our office personnel were working remotely. By the end of June 2020, we had reopened all of our retail stores that had been temporarily closed. However, continuing logistical challenges faced by the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions have created significant delays in order fulfillment and increasing backlogs as we have not been able to produce and ship at the incoming rate of wholesale and retail orders. Although unable to predict with certainty, we expect gradual decreases in wholesale and retail backlogs over the course of 2022 driven by an anticipated lower rate of future incoming orders coupled with gradual easing of supply chain constraints. If we are unable to reduce the backlogs and increase the speed of order fulfillment it is possible that some of our customers may begin to cancel existing orders and require refunds of deposits, which could have an adverse impact upon our liquidity and results of operations. While the home furnishings industry has fared much better during the pandemic than other sectors of the economy, the recent surges in COVID-19 cases due to new variants of the virus and the resurgence of inflation brought on by labor and supply shortages may have an adverse impact upon our business. Should these conditions persist for a prolonged period, this may have a continuing material adverse impact on our ultimate financial condition and liquidity.
Risks Related to Our Retail Operations
We face a volatile retail environment and changing economic conditions that may further adversely affect consumer demand and spending.
Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Should current economic conditions weaken, the current rate of housing starts decline, or rising inflation persist, consumer confidence and demand for home furnishings could deteriorate which could adversely affect our business through its impact on the performance of our Company-owned stores, as well as our licensees and the ability of a number of them to meet their obligations to us.
Our retail stores face significant competition from national, regional and local retailers of home furnishings, including increasing on-line competition via the internet.
The retail market for home furnishings is highly fragmented and intensely competitive. We currently compete against a diverse group of retailers, including national department stores, regional or independent specialty stores, and dedicated franchises of furniture manufacturers. National mass merchants such as Costco also have limited product offerings. We also compete with retailers that market products through store catalogs and the internet. In addition, there are few barriers to entry into our current and contemplated markets, and new competitors may enter our current or future markets at any time. We have also seen increasing competition from retailers offering consumers the ability to purchase home furnishings via the internet for home delivery, and this trend is expected to continue. Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including aggressive advertising, pricing and marketing, extension of credit to customers on terms more favorable than we offer, and expansion into markets where we currently operate.
Competition from any of these sources could cause us to lose market share, revenues and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations.
Our licensee-owned stores may not be able to meet their obligations to us.
We have a significant amount of accounts receivable attributable to our network of licensee-owned stores. We also guarantee a limited number of leases of some of our licensees. If these stores do not generate the necessary level of sales and profits, the licensees may not be able to fulfill their obligations to us resulting in additional bad debt expenses and real estate related losses.
Risks Related to Our Brand and Product Offerings
Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could adversely impact our business, operating results and financial condition.
Sales of our furniture are dependent upon consumer acceptance of our designs, styles, quality and price. As with all retailers, our business is susceptible to changes in consumer tastes and trends. We attempt to monitor changes in consumer tastes and home design trends through attendance at international industry events and fashion shows, internal marketing research, and communication with our retailers and design consultants who provide valuable input on consumer tendencies. However, such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and trends in a timely manner could adversely impact our business, operating results and financial condition.
In addition, certain suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will be offered for sale, thereby exposing us to risks relating to shifts in consumer demand and trends, and any downturn in the U.S. economy.
Our success depends upon our brand, marketing and advertising efforts and pricing strategies, and if we are not able to maintain and enhance our brand, or if we are not successful in these efforts and strategies, our business and operating results could be adversely affected.
Maintaining and enhancing our brand is critical to our ability to expand our base of customers and drive increased traffic at both Company-owned and licensee-owned stores and to our website. Digital advertising and outreach dominated our marketing expenditures for fiscal 2021 and 2020, with no change in strategy expected for 2022. We also expect to invest more heavily in our website in 2022 to improve the navigation and the ordering capabilities to increase web sales. We cannot provide assurance that our marketing, advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be adversely affected.
Risks Related to Material Sourcing and Supply
Our use of foreign sources of production for a portion of our products exposes us to certain additional risks associated with international operations.
Our use of foreign sources for the supply of certain of our products exposes us to risks associated with overseas sourcing. These risks are related to government regulation, volatile ocean freight costs, delays in shipments, extended lead time in ordering and, more recently, disruptions in supply due to plant shut-downs and shipping delays resulting from surges in COVID infections in other parts of the world. Governments in the foreign countries where we source our products may change their laws, regulations and policies, including those related to tariffs and trade barriers, investments, taxation and exchange controls which could make it more difficult to service our customers resulting in an adverse effect on our earnings. We have experienced recent increases in ocean freight costs coupled with a lack of availability of shipping containers resulting in reduced flow of products primarily from Asia. Continued product delays and extended order lead times may adversely affect our ability to service our customers and respond to changes in demand, resulting in the purchase of excess inventory in the face of declining demand, or lost sales due to insufficient inventory in the face of increasing demand, either of which would also have an adverse effect on our earnings or liquidity.
Fluctuations in the price, availability and quality of raw materials could result in increased costs or cause production delays which might result in a decline in sales, either of which could adversely impact our earnings.
We use various types of wood, foam, fibers, fabrics, leathers, and other raw materials in manufacturing our furniture. Certain of our raw materials, including fabrics, are purchased both abroad and domestically. Fluctuations in the price, availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. For example, lumber prices fluctuate over time based on factors such as weather and demand, which in turn impact availability. More recently, general price inflation brought on by labor and supply shortages have forced us to implement four wholesale price increases during fiscal 2021. There is no guarantee that we will be able to successfully pass along additional cost increases as they arise, and rising inflation could have an adverse impact upon consumer demand for discretionary items such as home furnishings. Production delays or upward trends in raw material prices could result in lower sales or margins, thereby adversely impacting our earnings.
Risks Related to Our Logistical Services Operations
We may suffer adverse impacts from additional risks associated with the operations of Zenith, a freight transportation and logistics business.
Zenith exposes us to certain risks common to that business, including, but not limited to: difficulties attracting and retaining qualified drivers which could result in increases in driver compensation and could adversely affect our profitability and our ability to maintain or grow our fleet; adverse impacts from unfavorable fluctuations in the availability and price of diesel fuel; increased costs of compliance with, or liability for violation of, existing or future regulations in the highly regulated freight transportation industry; adverse impacts upon Zenith’s results of operations which may result from seasonal factors and harsh weather conditions; and the increased liability inherent with the operation of heavy over-the-road vehicles.
Risks Related to Electronic Data Processing and Digital Information
We rely extensively on computer systems to process transactions, summarize results and manage our business. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.
Our primary and back-up computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, natural disasters and errors by employees. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business computer systems or failure of our back-up systems could reduce our sales or result in longer production times. If our critical business computer systems or back-up systems are damaged or cease to function properly, we may have to make a significant investment to repair or replace them.
We may incur costs and reputational harm resulting from security risks we face in connection with our electronic processing, storage and transmission of confidential information.
We accept electronic payment cards in our stores and also gather certain personal identifiable information in the processing of our retail sales transactions. We also store and process confidential information pertaining to our employees and other third parties on our networks. We may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information. In addition, if there were a disclosure of confidential information provided by, or concerning, our employees, customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
General
We own our corporate office building, which includes an annex, located in Bassett, Va.
We own the following facilities, by segment:
Wholesale Segment:
Facility
Location
Bassett Wood Division
Martinsville, Va.
Bassett Wood Division
Bassett, Va.
Bassett Upholstery Division
Newton, N.C.
3 Warehouses
Bassett, Va.
In general, these facilities are suitable and are considered to be adequate for the continuing operations involved. All facilities are in regular use and provide adequate capacity for our manufacturing and warehousing needs. In addition to the owned properties shown above, we lease property in Newton, North Carolina for the manufacturing and warehousing operations of Lane Venture and Bassett Outdoor as well as a new upholstery manufacturing facility opened during 2021, and we lease a facility in Haleyville, Alabama which houses a production line for aluminum outdoor furniture. A former upholstery division manufacturing facility which occupied part of a regional distribution center in Grand Prairie, Texas that is leased by our logistical services segment was closed during the second quarter of fiscal 2020 and is currently subleased to another party.
Retail Segment:
Real estate associated with our retail segment consists of eight owned locations with an aggregate square footage of 201,096 and a net book value of $16,941. These stores are located as follows:
Concord, North Carolina Greensboro, North Carolina
Greenville, South Carolina Fredericksburg, Virginia
Houston, Texas (2 locations) Louisville, Kentucky
Knoxville, Tennessee
Of these locations, two are subject to land leases. Our remaining 55 store locations are leased from third-parties. In addition to retail stores, we also lease twelve locations for use as regional warehouses and home delivery distribution centers.
Logistical Services Segment:
Owned real estate associated with our logistical services segment is located in Conover, North Carolina and includes the following facilities:
Facility
Square Footage
Distribution center and corporate office
242,000
2 Maintenance facilities
15,142
2 Transit warehouses
86,135
In addition to the owned facilities listed above, we also lease warehouse space in fourteen locations across the United States with an aggregate square footage of 942,176.
See Note 14 to the Consolidated Financial Statements included under Item 8 of this Annual Report for more information with respect to our operating lease obligations.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
None.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
David C. Baker, 61, joined the Company in 2005 as Director, Store Operations. From 2006 to 2015 he served as Vice President - Corporate Retail, and in 2015 was appointed to Senior Vice President, Corporate Retail. In 2019, he was appointed Senior Vice President, Chief Retail Officer. Prior to joining Bassett, Mr. Baker managed Bassett stores for licensees from 1999 to 2005 after having previously managed stores for other furniture retail chains including Haverty’s and Rhodes Furniture.
John E. Bassett III, 63, has been with the Company since 1981 and served in various wood manufacturing and product sourcing capacities, including Vice President, Wood Manufacturing; Vice-President, Global Sourcing from 2001 to 2007 and Vice President, Wood in 2008. He was appointed Senior Vice President, Wood in 2009. In 2019, he was also promoted to the position of Senior Vice President, Chief Operations Officer.
Bruce R. Cohenour, 63, has been with the Company since 2011, starting as Senior Vice President of Upholstery Merchandising. In 2013, he was promoted to Senior Vice President of Sales and Merchandising. In 2019, he was appointed Senior Vice President, Chief Sales Officer. Prior to joining Bassett, Mr. Cohenour was with Hooker Furniture Corp. from 2007 through 2010, last serving as President of the Case Goods Division.
J. Michael Daniel, 60, joined the Company in 2007 as Corporate Controller. From April 2009 through December 2009, he served as Corporate Controller and Interim Chief Financial Officer. In January 2010, he was appointed Vice President and Chief Accounting Officer. In January 2013, he was promoted to Senior Vice President and Chief Financial Officer. In 2019, he was also promoted to the position of Senior Vice President, Chief Financial and Administrative Officer.
Jack L. Hawn, 68, has been with the Company since 2015 as Senior Vice President, Bassett and President, Zenith. His company, Zenith Transportation, Inc., was majority owner of Zenith (Zenith Freight Lines, LLC) from 1999 until its interest in Zenith was acquired by the Company in 2015. He has served as President of Zenith since its formation in 1999.
Jay R. Hervey, Esq., 62, has served as the General Counsel, Vice President and Secretary for the Company since 1997.
Kara Kelchner-Strong, 47, joined the Company in 2007 as Director, Retail Communications. In 2015, she was promoted to Vice President, Strategy and Planning. In 2018, she was appointed Vice President, Strategic Transformation Officer and in 2019, she was promoted to Senior Vice President, Customer Experience Officer. Prior to joining Bassett, she held several positions with Restoration Hardware.
Robert H. Spilman, Jr., 65, has been with the Company since 1984. Since 2000, he has served as Chief Executive Officer and President, and in 2016 also became the Chairman of the Board of Directors.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information:
Bassett’s common stock trades on the NASDAQ global select market system under the symbol “BSET.” We had approximately 4,950 beneficial stockholders at January 14, 2022.
Issuer Purchases of Equity Securities:
We are authorized to repurchase Company stock under a plan which was originally announced in 1998. On July 15, 2021, the Board of Directors increased the remaining limit of the repurchase plan to $20 million. The repurchase program does not include a specific time table or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of prevailing market conditions and other factors. There was no stock repurchase activity for the three months ended November 27, 2021. The approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program was $19,348.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands except share and per share data)
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 fiscal year ending November 30, 2019 was a 53-week year, with the additional week being included in the first fiscal quarter. Accordingly, the information presented below includes 53 weeks of operations for the year ended November 30, 2019 as compared to 52 weeks included in the years ended November 27, 2021 and November 28, 2020.
Impact of COVID-19
For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading "Ongoing Impact of the COVID-19 Pandemic and Related Supply Chain and Labor Issues Upon Our Business " in Part I, Item 1 of this report.
Overview
Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 119-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.
With 97 BHF stores at November 27, 2021, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.
The BHF stores feature custom order furniture, free in-home or virtual design visits (“home makeovers”) and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.
We have factories in Newton, North Carolina that manufacture Bench Made custom upholstered and outdoor furniture. We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom dining offerings, including our Bench Made line of solid hardwood furniture. We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. Our logistics team then ships the product to one of our home delivery hubs or to a location specified by our licensees. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam, Thailand and China. Over 75% of the products we currently sell are manufactured in the United States.
During fiscal 2018, we acquired Lane Venture, a manufacturer and distributor of premium outdoor furniture which is operated as a component of our wholesale segment. This acquisition marked our entry into the market for outdoor furniture and we believe that Lane Venture has provided a foundation for us to become a significant participant in this category. Our strategy is to distribute this brand outside of our BHF store network only.
With the knowledge we have gained through operating Lane Venture, we have developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.
We also own Zenith which provides logistical services to Bassett along with other furniture manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored to the needs of Bassett and the furniture industry. Approximately 60% of Zenith’s revenue is generated from services provided to non-Bassett customers.
We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website and our online orders over the last two years. While the growth in website traffic and orders moderated somewhat in late fiscal 2021 compared to 2020, both have nearly doubled since 2019. The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While our Custom Upholstery, Custom Dining, and Bench Made product lines continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on-line, we will not compromise on our in-store experience or the quality of our in-home makeover capabilities.
Analysis of Operations
The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2021 as compared to fiscal year 2020 and 2019. Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the revenue and profitability growth that has resulted from our product and marketing initiatives as well as the cost reductions implemented in fiscal 2020 is obtained by comparing our current year results to the pre-pandemic results of fiscal 2019. Therefore, 2019 results are presented below for the purpose of showing a comparison with 2021. For an analysis of the fiscal year 2020 results as compared to fiscal year 2019, see “Analysis of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2020 Annual Report on Form 10-K, filed with the SEC on January 21, 2021
Net sales revenue, cost of furniture and accessories sold, selling, general and administrative (“SG&A”) expense, new store pre-opening costs, other charges, and income from operations were as follows for the years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Comparative Change
2021 vs 2020
2021 vs 2019
2019*
Dollars
Percent
Dollars
Percent
Sales Revenue:
Furniture and accessories
$ 430,886
88.6 %
$ 337,672
87.5 %
$ 403,865
89.3 %
$ 93,214
27.6 %
$ 27,021
6.7 %
Logistics
55,648
11.4 %
48,191
12.5 %
48,222
10.7 %
7,457
15.5 %
7,426
15.4 %
Total net sales revenue
486,534
100.0 %
385,863
100.0 %
452,087
100.0 %
100,671
26.1 %
34,447
7.6 %
Cost of furniture and accessories sold
209,799
43.1 %
163,567
42.4 %
179,244
39.6 %
46,232
28.3 %
30,555
17.0 %
SG&A
196,831
40.5 %
176,368
45.7 %
217,913
48.2 %
20,463
11.6 %
(21,082 )
-9.7 %
New store pre-opening costs
-
0.0 %
-
0.0 %
1,117
0.2 %
-
NM
(1,117 )
-100.0 %
Cost of logistical services
53,905
11.1 %
46,946
12.2 %
46,367
10.3 %
6,959
14.8 %
7,538
16.3 %
Other charges
-
0.0 %
15,205
3.9 %
8,041
1.8 %
(15,205 )
-100.0 %
(8,041 )
-100.0 %
Income (loss) from operations
$ 25,999
5.3 %
$ (16,223 )
-4.2 %
$ (595 )
-0.1 %
$ 42,222
N/M
$ 26,594
N/M
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020.
Our consolidated net sales by segment were as follows:
Comparative Change
2021 vs 2020
2021 vs 2019
2019*
Dollars
Percent
Dollars
Percent
Sales Revenue
Wholesale sales of furniture and accessories
$ 295,329
$ 221,075
$ 261,105
$ 74,254
33.6 %
$ 34,224
13.1 %
Less: Sales to retail segment
(112,270 )
(95,347 )
(125,933 )
(16,923 )
17.7 %
13,663
-10.8 %
Wholesale sales to external customers
183,059
125,728
135,172
57,331
45.6 %
47,887
35.4 %
Retail sales of furniture and accessories
247,827
211,944
268,693
35,883
16.9 %
(20,866 )
-7.8 %
Consolidated net sales of furniture and accessories
430,886
337,672
403,865
93,214
27.6 %
27,021
6.7 %
Logistical services revenue
86,977
75,158
80,074
11,819
15.7 %
6,903
8.6 %
Less: Services to wholesale segment
(31,329 )
(26,967 )
(31,852 )
(4,362 )
16.2 %
-1.6 %
Logistical services to external customers
55,648
48,191
48,222
7,457
15.5 %
7,426
15.4 %
Total sales revenue
$ 486,534
$ 385,863
$ 452,087
$ 100,671
26.1 %
$ 34,447
7.6 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020.
Total sales revenue for fiscal 2021 increased $100,671, or 26.1%, from prior year due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a near total shut-down of our manufacturing and retail operations from late March through early May of 2020, followed by an exceptionally strong recovery in demand for home furnishings that has continued into fiscal 2021. Sales of furniture and accessories for fiscal 2021 increased $34,447 or 7.6%, over fiscal 2019. This growth as compared to fiscal 2019 is attributable not only to the exceptionally strong demand for home furnishings that has benefited our industry over the past eighteen months, but also due to increases in our wholesale business through growth in our Lane Venture line of outdoor furniture, the introduction of our Bassett Outdoor line of outdoor furniture sold through our BHF store network, and the expansion of our wholesale customer base of independent dealers partially offset by lower retail sales from the closure of seven Company-owned stores since the end of 2019.
Cost of furniture and accessories sold as a percentage of total revenue for the fiscal 2021 increased over fiscal 2020 and 2019 primarily due to rising raw material and inbound freight costs, partially offset by improved leverage on fixed costs during fiscal 2021 versus 2020 when our operations were temporarily shut down due to the pandemic. SG&A expenses as a percentage of sales for fiscal 2021 decreased significantly from fiscal 2020 and 2019 due to increased leverage of fixed costs due to higher sales volume coupled with the fact that we have been able to maintain various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic. This was partially offset by increased operating costs in the logistical services segment.
Other charges of $15,205 incurred during fiscal 2020 included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas in May of 2020, a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment, and $1,050 of litigation costs relating to certain wage and hour violation claims that had been asserted against the Company. These claims have since been settled at no additional cost.
Certain other items affecting comparability between fiscal 2021 and 2020 are discussed below in “Other Items Affecting Net Income”.
Segment Information
We have strategically aligned our business into three reportable segments as described below:
Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (licensee-owned stores and Company-owned stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. 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 consolidated statements of operations.
Retail - Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers.
Logistical services. With our acquisition of Zenith on February 2, 2015, we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping and warehousing services for the Company, the revenue from which is eliminated upon consolidation, 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 logistics revenue in our consolidated statement of operations. Zenith’s operating costs are included in selling, general and administrative expenses. See “Recent Development Regarding Zenith” under Part I, Item 1 of the Annual Report regarding our entry into an agreement to sell substantially all of the assets of Zenith.
The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results for the full fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Year Ended November 27, 2021
Wholesale
Retail
Logistics
Eliminations
Consolidated
Sales revenue:
Furniture & accessories
$ 295,329
$ 247,827
$ -
$ (112,270 ) (1)
$ 430,886
Logistics
-
-
86,977
(31,329 ) (2)
55,648
Total sales revenue
295,329
247,827
86,977
(143,599 )
486,534
Cost of furniture and accessories sold
202,026
118,455
-
(110,682 ) (3)
209,799
SG&A expense
75,813
122,328
-
(1,310 ) (4)
196,831
Cost of logistical services
-
-
85,234
(31,329 ) (5)
53,905
Income from operations
$ 17,490
$ 7,044
$ 1,743
$ (278 )
$ 25,999
Year Ended November 28, 2020
Wholesale
Retail
Logistics
Eliminations
Consolidated
Sales revenue:
Furniture & accessories
$ 221,075
$ 211,944
$ -
$ (95,347 ) (1)
$ 337,672
Logistics
-
-
75,158
(26,967 ) (2)
48,191
Total sales revenue
221,075
211,944
75,158
(122,314 )
385,863
Cost of furniture and accessories sold
152,982
107,233
-
(96,648 ) (3)
163,567
SG&A expense
63,506
114,208
-
(1,346 ) (4)
176,368
Cost of logistical services
-
-
73,913
(26,967 ) (5)
46,946
Income (loss) from operations (6)
$ 4,587
$ (9,497 )
$ 1,245
$ 2,647
$ (1,018 )
Year Ended November 30, 2019
Wholesale
Retail
Logistics
Eliminations
Consolidated
Sales revenue:
Furniture & accessories
$ 261,105
$ 268,693
$ -
$ (125,933 ) (1)
$ 403,865
Logistics
-
-
80,074
(31,852 ) (2)
48,222
Total sales revenue
261,105
268,693
80,074
(157,785 )
452,087
Cost of furniture and accessories sold
173,350
131,528
-
(125,634 ) (3)
179,244
SG&A expense
76,299
143,057
-
(1,443 ) (4)
217,913
New store pre-opening costs
-
1,117
-
-
1,117
Cost of logistical services
-
-
78,219
(31,852 ) (5)
46,367
Income (loss) from operations (6)
$ 11,456
$ (7,009 )
$ 1,855
$ 1,144
$ 7,446
(1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.
(2) Represents the elimination of logistical services billed to our wholesale segment.
(3) Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment.
(4) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate.
(5) Represents the elimination of the cost of logistical services provided by Zenith to our wholesale segment.
(6) Excludes the effects of goodwill and asset impairment charges, cost of early retirement program, litigation costs and lease exit costs which are not allocated to our segments.
Non-GAAP Financial Information
To supplement the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including income (loss) from operations before other charges and gross profit on wholesale sales of furniture and accessories by segment inclusive of intercompany sales. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below.
Income (Loss) from Operations before Other Charges
The following table reconciles income (loss) from operations as shown above for our consolidated segment results with income (loss) from operations as reported in accordance with GAAP for fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Consolidated segment income (loss) from operations excluding special charges
$ 25,999
$ (1,018 )
$ 7,446
Less:
Asset impairment charges
-
12,184
4,431
Goodwill impairment charge
-
1,971
1,926
Early retirement program
-
-
Litigation expense
-
1,050
Lease exit costs
-
-
Income (loss) from operations as reported
$ 25,999
$ (16,223 )
$ (595 )
Asset Impairment Charges
During fiscal 2020 the loss from operations included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas.
During fiscal 2019 the loss from operations included $4,431 of non-cash impairment charges recognized on the assets of six underperforming retail stores.
Goodwill Impairment Charges
Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our goodwill as of May 30, 2020. As a result, we recognized a non-cash charge of $1,971 during fiscal 2020 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment (see Note 6 to our Consolidated Financial Statements).
During fiscal 2019 our annual evaluation of the carrying value of our recorded goodwill resulted in the recognition of a $1,926 non-cash charge for the impairment of goodwill associated with our retail reporting unit (see Note 6 to our Consolidated Financial Statements).
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 received 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 year ended November 30, 2019.
Litigation Expense
During fiscal 2020 and 2019 we accrued $1,050 and $700, respectively for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company.
Lease Exit Costs
During fiscal 2019 we recognized a $149 charge for lease exit costs incurred in connection with the repositioning of a Company-owned retail store in Palm Beach, Florida to a new location within the same market.
Gross Profit by Segment
In the following analysis of results for our wholesale and retail segments, we present a measure of gross profit on sales which is inclusive of intercompany sales from our wholesale segment to our retail segment. We believe that this is a key metric by which to evaluate the performance of each segment and is consistent with management’s view of our operating results. The following table reconciles the sales, cost of sales and gross profit presented for each of the wholesale and retail segments to the consolidated amounts for sales, cost of sales and the implied gross profit in accordance with GAAP.
Year Ended November 27, 2021
Non-GAAP Presentation
GAAP Presentation
Wholesale
Retail
Eliminations
Consolidated
Sales revenue: furniture & accessories
$ 295,329
$ 247,827
$ (112,270 ) (1)
$ 430,886
Cost of furniture and accessories sold
202,026
118,455
(110,682 ) (2)
209,799
Gross profit
$ 93,303
$ 129,372
$ (1,588 ) (3)
$ 221,087
Year Ended November 28, 2020
Non-GAAP Presentation
GAAP Presentation
Wholesale
Retail
Eliminations
Consolidated
Sales revenue: furniture & accessories
$ 221,075
$ 211,944
$ (95,347 ) (1)
$ 337,672
Cost of furniture and accessories sold
152,982
107,233
(96,648 ) (2)
163,567
Gross profit
$ 68,093
$ 104,711
$ 1,301
(3)
$ 174,105
Year Ended November 30, 2019
Non-GAAP Presentation
GAAP Presentation
Wholesale
Retail
Eliminations
Consolidated
Sales revenue: furniture & accessories
$ 261,105
$ 268,693
$ (125,933 ) (1)
$ 403,865
Cost of furniture and accessories sold
173,350
131,528
(125,634 ) (2)
179,244
Gross profit
$ 87,755
$ 137,165
$ (299 ) (3)
$ 224,621
(1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.
(2) Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory.
(3) Represents the change for the period in the elimination of intercompany profit in ending retail inventory.
Wholesale Segment
Net sales, gross profit, SG&A expense and operating income for our Wholesale Segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Comparative Change
2021 vs 2020
2021 vs 2019
2019*
Dollars
Percent
Dollars
Percent
Net sales
$ 295,329
100.0 %
$ 221,075
100.0 %
$ 261,105
100.0 %
$ 74,254
33.6 %
$ 34,224
13.1 %
Gross profit (1)
93,303
31.6 %
68,093
30.8 %
87,755
33.6 %
25,210
37.0 %
5,548
6.3 %
SG&A
75,813
25.7 %
63,506
28.7 %
76,299
29.2 %
12,307
19.4 %
(486 )
-0.6 %
Income from operations
$ 17,490
5.9 %
$ 4,587
2.1 %
$ 11,456
4.4 %
$ 12,903
281.3 %
$ 6,034
52.7 %
(1)
Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under Non-GAAP Financial Information above.
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020.
Wholesale shipments by category for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019 are summarized below:
2019*
External
Intercompany
Total
External
Intercompany
Total
External
Intercompany
Total
Bassett Custom Upholstery
$ 105,445
$ 69,533
$ 174,978
59.2 %
$ 71,840
$ 56,360
$ 128,200
58.0 %
$ 78,856
$ 73,559
$ 152,415
58.4 %
Bassett Leather
36,157
36,218
12.3 %
20,487
21,436
9.7 %
17,083
2,137
19,220
7.4 %
Bassett Custom Wood
24,079
24,066
48,145
16.3 %
19,682
19,629
39,311
17.8 %
21,264
24,818
46,082
17.6 %
Bassett Casegoods
17,378
18,610
35,988
12.2 %
13,719
18,409
32,128
14.5 %
17,221
23,699
40,920
15.7 %
Accessories (1)
-
-
-
0.0 %
-
-
-
0.0 %
1,720
2,468
0.9 %
Total
$ 183,059
$ 112,270
$ 295,329
100.0 %
$ 125,728
$ 95,347
$ 221,075
100.0 %
$ 135,172
$ 125,933
$ 261,105
100.0 %
(1)
Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to our retail segment or to third party customers such as licensees or independent furniture retailers. Our retail segment and third-party customers now source their accessory items directly from the accessory vendors.
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020.
Fiscal 2021 as Compared to Fiscal 2020
Net sales for the fiscal year ended November 27, 2021 increased $74,254, or 33.6%, from the prior year due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of 2020, followed by an exceptionally strong recovery in demand for home furnishings that has continued through fiscal 2021. The increase in orders resulting from this surge in demand, coupled with continuing supply chain disruptions in the wake of the pandemic, has resulted in a wholesale backlog of $90,057 at November 27, 2021 as compared to $54,874 at November 28, 2020. As previously discussed, Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increased backlogs. For fiscal 2021, gross margins improved primarily due to improved leverage on fixed costs versus the prior year period when our operations were temporarily shut down due to the pandemic partially offset by various cost increases including foam, plywood and various other commodity costs and container freight and other logistics costs. As a result of the aforementioned cost increases, we have instituted multiple price increases during the year, some of which have not been fully realized in the operations as those price increases have generally not been implemented against the existing backlog at the time those increases were given. SG&A expenses as a percentage of sales for fiscal 2021 decreased significantly from fiscal 2020 due to increased leverage of fixed costs due to higher sales volume partially offset by higher spending in the marketing and information technology areas.
Fiscal 2021 as Compared to Fiscal 2019
Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the revenue growth that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019. Wholesale sales for fiscal 2021 increased $34,224 or 13.1% over fiscal 2019. On an average weekly basis normalizing for fiscal 2019 being a 53-week year, sales increased 15.3% over 2019. Shipments to the BHF store network declined 3.6% for fiscal 2021 as compared to fiscal 2019. Growth in shipments to the BHF store network of the Bassett Outdoor line of outdoor furniture, introduced in fiscal 2020, was offset by lower retail sales from the closure of seven Company-owned stores since the end of 2019 and the fact that fiscal 2021 included one less week of sales as compared to 2019. Shipments to the open market (independent dealers outside of the BHF store network) increased 41% for fiscal 2021 over fiscal 2019 primarily due to increases from existing dealers along with an expansion of the dealer base. Shipments of our Lane Venture line of outdoor furniture increased 35% for fiscal 2021, respectively, over the comparable fiscal 2019 periods. In addition, wholesale orders for fiscal 2021, increased 28% over fiscal 2019. Wholesale orders from independent dealers increased 67% for fiscal 2021 over fiscal 2019 driven by increases from existing dealers along with an expansion of the dealer base. Also, orders from the Bassett Home Furnishings store network for fiscal 2021 increased 4.7% over fiscal 2019 in spite of having seven fewer stores in the fleet during 2021 as well as one less week in 2021 as compared to 2019. Lane Venture orders increased by 83% for fiscal 2021 over fiscal 2019.
Retail Segment - Company Owned Stores
Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income (loss) for our retail segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Comparative Change
2021 vs 2020
2021 vs 2019
2019*
Dollars
Percent
Dollars
Percent
Net sales
$ 247,827
100.0 %
$ 211,944
100.0 %
$ 268,693
100.0 %
$ 35,883
16.9 %
$ (20,866 )
-7.8 %
Gross profit (1)
129,372
52.2 %
104,711
49.4 %
137,165
51.0 %
24,661
23.6 %
(7,793 )
-5.7 %
SG&A
122,328
49.4 %
114,208
53.9 %
143,057
53.2 %
8,120
7.1 %
(20,729 )
-14.5 %
New store pre-opening costs
-
0.0 %
-
0.0 %
1,117
0.4 %
-
0.0 %
(1,117 )
-100.0 %
Loss from operations
$ 7,044
2.8 %
$ (9,497 )
-4.5 %
$ (7,009 )
-2.6 %
$ 16,541
NM
$ 14,053
NM
(1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under Non-GAAP Financial Information above.
Retail sales by major product category for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019 were as follows:
2019*
Bassett Custom Upholstery
$ 139,527
56.3 %
$ 112,888
53.3 %
$ 142,865
53.2 %
Bassett Leather
0.1 %
2,326
1.1 %
3,782
1.4 %
Bassett Custom Wood
30,931
12.5 %
28,942
13.7 %
35,092
13.1 %
Bassett Casegoods
42,658
17.2 %
35,728
16.9 %
44,827
16.7 %
Accessories, mattresses & other (1)
34,485
13.9 %
32,060
15.1 %
42,127
15.7 %
Total
$ 247,827
100.0 %
$ 211,944
100.0 %
$ 268,693
100.0 %
(1)
Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020.
Fiscal 2021 as Compared to Fiscal 2020
Net sales for fiscal 2021 increased $35,886 or 16.9% from the prior year due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a nearly total shut-down of our retail operations from late March through early May of that year, followed by an exceptionally strong recovery in demand for home furnishings that has continued through fiscal 2021. The increase in written sales (the value of sales orders taken but not delivered) resulting from this surge in demand has resulted in a retail backlog of $82,894 at November 27, 2021 as compared to $57,041 at November 28, 2020. As previously discussed, Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increased backlogs. Gross margins for fiscal 2021 increased by 280 basis points, primarily driven by lower levels of promotional activity coupled with improved margins on clearance activity. SG&A expenses for fiscal 2021 as a percentage of sales decreased significantly as compared to fiscal 2020. This was driven by workforce and other overhead reductions and greater leverage on fixed costs from higher sales volumes. In addition, over the course of fiscal 2020 we closed seven unprofitable store locations.
Fiscal 2021 as Compared to Fiscal 2019
Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the retail revenue trend that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019. Compared to fiscal 2019, net sales for fiscal 2021 decreased $20,866 or 7.8%, as sales increases from the introduction of the Bassett Outdoor product line were offset by sales decreases from having seven fewer stores in operation. On an average weekly basis normalizing for fiscal 2019 being a 53-week year, sales decreased 6.0% as compared to 2019. Written sales increased 3.0% for fiscal 2021, respectively over fiscal 2019 in spite of having seven fewer stores in operation and one less week on fiscal 2021.
Logistical Services Segment
Revenues, operating expenses and income from operations for our logistical services segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019:
Comparative Change
2021 vs 2020
2021 vs 2019
2019*
Dollars
Percent
Dollars
Percent
Logistics revenue
$ 86,977
100.0 %
$ 75,158
100.0 %
$ 80,074
100.0 %
$ 11,819
15.7 %
$ 6,903
8.6 %
Operating expenses
85,234
98.0 %
73,913
98.3 %
78,219
97.7 %
11,321
15.3 %
7,015
9.0 %
Income from operations
$ 1,743
2.0 %
$ 1,245
1.7 %
$ 1,855
2.3 %
$
40.0 %
$ (112 )
-6.0 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Analysis of Operations - Logistical Services
Net revenues for fiscal 2021 increased $11,819 over the prior year due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a near total shut-down of furniture retail operations throughout the country from late March through early May of 2020. Zenith’s operating expenses as a percentage of revenue for 2021 improved as compared to fiscal 2020 due to better operating efficiency in our middle mile service compared to fiscal 2020 when we were forced during the second quarter of 2020 to run some of our trucks at substantially lower than optimal load levels resulting in inefficiencies. These improvements were partially offset by significantly higher warehouse labor costs as Zenith has been challenged to find and retain freight-handling personnel in the warehousing operation since reopening from the COVID shutdown. Operating expense as a percent of revenue for 2021 increased as compared to 2019 primarily due to the previously mentioned increased labor costs.
Other Items Affecting Net Income (Loss)
Other items affecting net income (loss) for fiscal 2021 and 2020 are as follows:
Interest income (1)
$
$
Interest expense (2)
(322 )
(49 )
Net periodic pension costs (3)
(422 )
(499 )
Net gains (cost) of company-owned life insurance (4)
(364 )
Other
(705 )
(898 )
Total other loss, net
$ (1,759 )
$ (563 )
(1)
Consists of interest income arising from our short-term investments and interest-bearing cash equivalents. The decline in interest income for fiscal 2021 as compared with fiscal 2020 was due primarily to lower interest rates. See Note 3 to the Consolidated Financial Statements for additional information regarding our investments in certificates of deposit.
(2)
The increase in interest expense in fiscal 2021 over fiscal 2020 is due to the increase in finance leases for tractor, trailer and office equipment. See Note 14 to the Consolidated Financial Statements for additional information regarding our leases.
(3)
Represents the portion of net periodic pension costs not included in income from operations. See Note 9 to the Consolidated Financial Statements for additional information related to our defined benefit pension plans.
(4)
Includes a gain arising from death benefits from Company-owned life insurance of $914 in fiscal 2020.
Provision for Income taxes
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, for the year ended November 28, 2020, we were able to recognize tax benefits substantially in excess of the current federal statutory rate of 21% due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35%.
We recorded an income tax provision (benefit) of $6,198, $(6,365) and $188 in fiscal 2021, 2020 and 2019, respectively. Our effective tax rate for 2021 of 25.6% differs from the federal statutory rate of 21.0% due to the effects of state income taxes and various permanent differences. Our effective tax rate of 37.9% for 2020 differs from the federal statutory rate of 21.0% primarily due to the benefit of the CARES Act and to the effects of state income taxes and various permanent differences, including those related to the non-deductible goodwill impairment charge. Our effective tax rate of (10.8%) for 2019 differs from the federal statutory rate of 21.0% primarily due to the non-deductible goodwill impairment charge along with the effects of state income taxes and certain other non-deductible expense. See Note 12 to the Consolidated Financial Statements for additional information regarding our income tax provision (benefit), as well as our net deferred tax assets and other matters.
We have net deferred tax assets of $3,189 as of November 27, 2021, which, upon utilization, are expected to reduce our cash outlays for income taxes in future years. It will require approximately $12,000 of future taxable income to utilize our net deferred tax assets.
Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take advantage of opportunities as market conditions improve, and to execute our long-term retail strategies.
Cash Flows
Cash provided by operations for fiscal 2021 was $14,563 compared to $36,675 for fiscal 2020, representing a decrease of $22,112. This decrease in operating cash flow is primarily due to significantly increased investment in inventory as we work to fulfill our order backlog and cope with ongoing supply chain disruptions partially offset by increased customer deposits associated with the increase in retail backlogs.
Our overall cash position decreased by $11,425 during fiscal 2021, compared to an overall increase of $26,112 during fiscal 2020, a decline of $37,537 from the prior year. In addition to the decline in cash flows from operations, net cash used in investing activities during fiscal 2021 increased $7,824 to a net use of $11,571 compared to net cash used in investing activities of $3,747 for the prior year. This increase was primarily due to increased capital expenditures in the current year while the prior year period also included proceeds from the sale of our closed Gulfport store location. Net cash used in financing activities during fiscal 2021 increased $7,601 to a net use of $14,417 as compared to a net use of $6,816 for the prior year, primarily due to increased share repurchases of $5,566 during fiscal 2021 as compared to $2,208 repurchased during fiscal 2020 along with a special dividend of $2,479 declared and paid during fiscal 2021. As of November 27, 2021, $19,348 remains authorized under our existing share repurchase plan. With cash and cash equivalents and short-term investments totaling $52,089 on hand at November 27, 2021, expected future operating cash flows and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future.
Debt and Other Obligations
Our bank credit facility provides for a line of credit of up to $25,000. At November 27, 2021, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we have outstanding standby letters of credit with another bank totaling $325. 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. We were in compliance with all covenants under the agreement as of November 27, 2021. The credit facility matures on January 31, 2022.
On January 27, 2022, we entered into a new credit facility with our bank which also provides for a credit line of up to $25,000. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the new facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:
●
Consolidated fixed charge coverage ratio of not less than 1.4 times,
●
Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and
●
Minimum tangible net worth ratio of $140,000, which will change to $120,000 if we do not complete the sale of Zenith (see “Recent Development Regarding Zenith” under Part I, Item 1 of this Annual Report regarding our entry into an agreement to sell substantially all of the assets of Zenith).
We were in compliance with these covenants at November 27, 2021 and expect to remain in compliance for the foreseeable future. The new credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.
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 logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services and retail segments. The total future minimum lease payments for leases with terms in excess of one year at November 27, 2021 is $164,855, the present value of which is $141,674 and is included in our accompanying consolidated balance sheet at November 27, 2021. We were contingently liable under licensee lease obligation guarantees in the amount of $1,845 at November 27, 2021. Remaining terms under these lease guarantees range from approximately one to five years. See Note 14 to our consolidated financial statements for a schedule of future cash payments on our lease obligations and additional details regarding our leases and lease guarantees.
We provide post-employment benefits to certain current and former executives and management level employees of the Company. Included among these benefits are two defined-benefit plans with a combined projected benefit obligation of $10,740 at November 27, 2021. See Note 9 to our consolidated financial statements for a projection of future benefit payments under these plans from 2022 through 2031. We also have deferred compensation plans with a total liability of $3,437 at November 27, 2021, the current portion of which is $296. See Note 9 to our consolidated financial statements for additional information regarding these plans.
Dividends and Share Repurchases
During fiscal 2021, we declared and paid four quarterly dividends totaling $5,210, or $0.53 per share, as well as one special dividend totaling $2,479, or $0.25 per share. During fiscal 2021, we repurchased 204,714 shares of our stock for $5,566 under our share repurchase program. The weighted-average effect of these share repurchases on both our basic and diluted earnings per share was approximately $0.02 per share. On July 15, 2021, our Board of Directors increased the remaining limit of the repurchase plan to $20,000. The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as of November 27, 2021 was $19,348.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2022 will be approximately $25 to $30 million, approximately half of which will be used for the purchase and renovation of a site for a new retail store in a new market as well as repositions of two other retail locations, with the remainder used for the expansion and upgrade of our outdoor furniture manufacturing facilities in Haleyville, Alabama along with additional investments in technology and various other manufacturing upgrades within our wholesale segment. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the store program, our rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital expenditure and working capital requirements for the foreseeable future.
Fair Value Measurements
We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs- Quoted prices for identical instruments in active markets.
Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs- Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. Our primary non-recurring fair value estimates, typically involving the valuation of business acquisitions, goodwill impairments (see Note 7 to the Consolidated Financial Statements) and asset impairments (see Note 13 to the Consolidated Financial Statements) have utilized Level 3 inputs.
Off-Balance Sheet Arrangements
We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of BHF stores and Zenith distribution facilities. We have guaranteed certain lease obligations of licensee operators as part of our retail strategy. See Note 14 to the Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements.
Contingencies
We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which requires that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect our consolidated financial statements.
Revenue Recognition - We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606") effective as of November 25, 2018, the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer.
At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us.
At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. We typically collect a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. These deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $51,492 and $25,341 as of November 27, 2021 and November 28, 2020, respectively. Substantially all of the customer deposits held at November 28, 2020 related to performance obligations satisfied during fiscal 2021 and have therefore been recognized in revenue for the year ended November 27, 2021. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized upon delivery of the goods net of amounts payable to the third party service provider.
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. We recognize an asset for the amount of line-haul revenue earned but not yet billed which is included in other current assets. The balance of this asset was $1,240 and $783 at November 27, 2021 and November 28, 2020, respectively. 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. All invoices for logistical services are due 30 days from invoice date.
Allowance for credit losses - We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were $796 and $1,211 at November 27, 2021 and November 28, 2020, respectively, representing 2.7% and 5.1% of our gross accounts receivable balances at those dates, respectively. The allowance for credit losses is based on a review of specifically identified customer 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. Although actual losses have not differed materially from our previous estimates, future losses could differ from our current estimates. Unforeseen events such as a licensee or customer bankruptcy filing could have a material impact on our results of operations.
Inventories - Inventories accounted for under the first-in, first out (“FIFO”) method are stated at the lower of cost or net realizable value, and inventory accounted for under the last-in, first out method (“LIFO”) is stated at the lower of cost or market. Cost is determined for domestic furniture inventories, excluding outdoor furniture products, using the LIFO method. The cost of imported inventories and domestic outdoor furniture products is determined on a FIFO basis. We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. Our reserves for excess and obsolete inventory were $4,816 and $4,522 at November 27, 2021 and November 28, 2020, respectively, representing 5.8% and 7.6%, respectively, of our inventories on a LIFO basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required.
Goodwill - Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is allocated to the respective reporting unit: Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired.
In accordance with ASC Topic 350, Intangibles - Goodwill & Other, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in ASC Topic 350 (as amended by Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which we adopted for our annual evaluation of goodwill performed as of September 1, 2019). The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative evaluation process. Based on our qualitative assessment as described above for the annual test during fiscal 2019, we concluded that, given declines in our income from operations, primarily resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis in fiscal 2018, it was necessary to perform the quantitative evaluation in the current year. As a result of this test, we recorded an impairment charge of $1,926 during the year ended November 30, 2019. In addition, we performed an interim test of goodwill as of May 30, 2020 due to the severe impact of the COVID-19 pandemic and resulting business interruption during the second fiscal quarter of 2020. This interim test resulted in an impairment charge of $1,971 for the year ended November 28, 2020. For the annual tests of goodwill performed as of the beginning of the fourth fiscal quarters of 2020 and 2021, we performed the qualitative assessment as described above and concluded that there has been no additional impairment of our goodwill as of November 27, 2021.
The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, a goodwill impairment charge will be recognized in the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples, an income approach, that utilizes discounted cash flows for each reporting unit and other Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure, and, in the case of our retail reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value are 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. Our estimates are subject to change given the inherent uncertainty in predicting future results. 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. As part of the goodwill impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts.
Other Intangible Assets - Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. At November 27, 2021, our indefinite-lived intangible assets other than goodwill consist of trade names acquired in the acquisitions of Zenith and Lane Venture and have a carrying value of $9,338.
Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time. At November 27, 2021 our definite-lived intangible assets consist of customer relationships and customized technology applications acquired in the acquisition of Zenith and customer relationships acquired in the acquisition of Lane Venture with a total carrying value of $1,964.
Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store. Right of use assets under operating leases are written down to their estimated fair value. Our estimates of the fair value of the impaired right of use assets include 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.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our imports purchased outside of North America are denominated in U.S. dollars. Therefore, we believe that gains or losses resulting from changes in the value of foreign currencies relating to foreign purchases not denominated in U.S. dollars would not be material to our results from operations in fiscal 2021.
We are exposed to market risk from changes in the cost of raw materials used in our manufacturing processes, principally wood, woven fabric, and foam products. The cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil.
We are also exposed to commodity price risk related to diesel fuel prices for fuel used in our logistical services and retail segments. We manage our exposure to that risk primarily through the application of fuel surcharges to our customers.
We have potential exposure to market risk related to conditions in the commercial real estate market. Our retail real estate holdings of $16,971 and $17,338 at November 27, 2021 and November 28, 2020, respectively, for Company-owned stores, consisting of eight locations with a total of 201,096 square feet of space, could suffer significant impairment in value if we are forced to close additional stores and sell or lease the related properties during periods of weakness in certain markets. Additionally, if we are required to assume responsibility for payment under the lease obligations of $1,845 and $1,811 which we have guaranteed on behalf of licensees as of November 27, 2021 and November 28, 2020, respectively, we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased retail store locations and warehouse and distribution facilities. At November 27, 2021, the unamortized balance of such right-of-use assets totaled $104,799. Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Bassett Furniture Industries, Incorporated and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bassett Furniture Industries, Incorporated and Subsidiaries (the Company) as of November 27, 2021 and November 28, 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended November 27, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 27, 2021 and November 28, 2020, and the results of its operations and its cash flows for each of the three years in the period ended November 27, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of November 27, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated January 31, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Measurement of Reserves for Excess and Obsolete Inventories
Measurement of Reserves for Excess and Obsolete Inventories
Description of the Matter At November 27, 2021, the Company’s inventories were $78.0 million. As discussed in Note 2 and Note 6 to the consolidated financial statements, cost for domestic manufactured furniture inventories is determined using the last-in, first-out (“LIFO”) method and are stated at the lower of cost or market. The cost of imported inventories and domestic outdoor furniture products is determined using the first-in, first-out (“FIFO”) method and stated at the lower of cost or net realizable value. Reserves for excess and obsolete inventories are determined based upon historical write-offs, forecasted future demand, market conditions and, for domestic manufactured furniture, the respective valuations at LIFO.
Auditing management’s lower of cost or net realizable value or market determination for excess or obsolete inventories was complex due to the highly judgmental nature and estimation uncertainty in determining future demand and market conditions.
How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s determination of the reserves for excess and obsolete inventories. For example, we tested controls over management’s review of the calculation of reserves for excess and obsolete inventories which included their review of the significant assumptions described above.
Our audit procedures to test the reserves for excess and obsolete inventories included, among others, testing the completeness and accuracy of the underlying data used in management’s analyses. We evaluated the reasonableness of management’s assumptions by performing a retrospective review of the prior year assumptions to actual activity, including write-off history. We held discussions with senior financial and operational management to determine whether any strategic or operational changes in the business would impact expected demand for or related carrying value of inventory. We also performed sensitivity analyses of significant assumptions to evaluate the impact that changes would have on the inventory reserves. We searched for and evaluated information that corroborated or contradicted the Company’s assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Richmond, Virginia
January 31, 2022
Consolidated Balance Sheets
Bassett Furniture Industries, Incorporated and Subsidiaries
November 27, 2021 and November 28, 2020
(In thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
$ 34,374 $ 45,799
Short-term investments
17,715 17,715
Accounts receivable, net of allowance for credit losses of $796 and $1,211 as of November 27, 2021 and November 28, 2020, respectively
28,168 22,340
Inventories
78,004 54,886
Recoverable income taxes
8,379 9,666
Other current assets
13,644 10,272
Total current assets
180,284 160,678
Property and equipment, net
94,066 90,917
Other long-term assets
Deferred income taxes, net
3,189 4,587
Goodwill and other intangible assets
23,448 23,827
Right of use assets under operating leases
114,148 116,903
Other
6,525 5,637
Total other long-term assets
147,310 150,954
Total assets
$ 421,660 $ 402,549
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$ 28,324 $ 23,426
Accrued compensation and benefits
15,934 16,964
Customer deposits
51,492 39,762
Current portion of operating lease obligations
27,693 27,078
Other accrued liabilities
10,776 11,141
Total current liabilities
134,219 118,371
Long-term liabilities
Post employment benefit obligations
12,968 12,089
Long-term portion of operating lease obligations
105,841 111,972
Other long-term liabilities
5,900 2,087
Total long-term liabilities
124,709 126,148
Commitments and Contingencies
Stockholders’ equity
Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding 9,762,125 at November 27, 2021 and 9,942,787 at November 28, 2020
48,811 49,714
Retained earnings
115,631 109,710
Additional paid-in-capital
113 -
Accumulated other comprehensive loss
(1,823 ) (1,394 )
Total stockholders' equity
162,732 158,030
Total liabilities and stockholders’ equity
$ 421,660 $ 402,549
The accompanying notes to consolidated financial statements are an integral part of these statements.
Consolidated Statements of Operations
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 27, 2021, November 28, 2020, and November 30, 2019
(In thousands, except per share data)
Sales revenue:
Furniture and accessories
$ 430,886 $ 337,672 $ 403,865
Logistics
55,648 48,191 48,222
Total sales revenue
486,534 385,863 452,087
Cost of furniture and accessories sold
209,799 163,567 179,244
Selling, general and administrative expenses excluding new store pre-opening costs
196,831 176,368 217,913
New store pre-opening costs
- - 1,117
Cost of logistical services
53,905 46,946 46,367
Asset impairment charges
- 12,184 4,431
Goodwill impairment charge
- 1,971 1,926
Litigation expense
- 1,050 700
Lease exit costs
- - 149
Early retirement program
- - 835
Income (loss) from operations
25,999 (16,223 ) (595 )
Interest income
54 236 568
Interest expense
(322 ) (49 ) (6 )
Other loss, net
(1,491 ) (750 ) (1,707 )
Income (loss) before income taxes
24,240 (16,786 ) (1,740 )
Income tax expense (benefit)
6,198 (6,365 ) 188
Net income (loss)
$ 18,042 $ (10,421 ) $ (1,928 )
Net income per share
Basic income (loss) per share
$ 1.83 $ (1.05 ) $ (0.19 )
Diluted income (loss) per share
$ 1.83 $ (1.05 ) $ (0.19 )
Dividends per share
Regular dividends
$ 0.53 $ 0.46 $ 0.50
Special dividend
$ 0.25 $ - $ -
The accompanying notes to consolidated financial statements are an integral part of these statements.
Consolidated Statements of Comprehensive Income (Loss)
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 27, 2021, November 28, 2020, and November 30, 2019
(In thousands)
Net income (loss)
$ 18,042 $ (10,421 ) $ (1,928 )
Other comprehensive income (loss):
Recognize prior service cost associated
Actuarial adjustment to Long Term Cash Awards (LTCA)
26 (86 ) (141 )
Amortization associated with LTCA
144 125 124
Income taxes related to LTCA
(44 ) (10 ) 4
Actuarial adjustment to supplemental executive retirement defined benefit plan (SERP)
(788 ) (259 ) 1,313
Amortization associated with SERP
44 8 184
Income taxes related to SERP
190 64 (382 )
Other comprehensive income (loss), net of tax
(428 ) (158 ) 1,102
Total comprehensive income (loss)
$ 17,614 $ (10,579 ) $ (826 )
The accompanying notes to consolidated financial statements are an integral part of these statements.
Consolidated Statements of Cash Flows
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 27, 2021, November 28, 2020, and November 30, 2019
(In thousands)
Operating activities:
Net income (loss)
$ 18,042 $ (10,421 ) $ (1,928 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
14,597 13,480 13,500
Non-cash goodwill impairment charge
- 1,971 1,926
Non-cash asset impairment charges
- 12,184 4,431
Non-cash portion of lease exit costs
- - 149
Bad debt valuation charges
(156 ) 492 61
Net (gain) loss on disposals of property and equipment
(367 ) (81 ) 515
Gains on lease modifications
(37 ) (1,313 ) -
Inventory valuation charges
2,969 4,922 2,254
Deferred income taxes
1,545 2,513 (2,890 )
Other, net
765 (51 ) 1,497
Changes in operating assets and liabilities
Accounts receivable
(5,672 ) (1,454 ) (2,616 )
Inventories
(26,087 ) 6,494 (5,196 )
Other current and long-term assets
(2,241 ) (9,325 ) 1,017
Right of use assets under operating leases
26,243 32,107 -
Customer deposits
11,730 14,421 (1,816 )
Accounts payable and accrued liabilities
2,153 5,965 (1,095 )
Obligations under operating leases
(28,921 ) (35,229 ) -
Net cash provided by operating activities
14,563 36,675 9,809
Investing activities:
Purchases of property and equipment
(10,750 ) (6,029 ) (17,375 )
Proceeds from sales of property and equipment
382 2,345 1,643
Cash paid for business acquisitions, net of cash acquired
- - -
Puchases of investments
- (295 ) -
Proceeds from maturities of investments
- 16 5,207
Other
(1,203 ) 216 (648 )
Net cash used in investing activities
(11,571 ) (3,747 ) (11,173 )
Financing activities:
Cash dividends
(7,689 ) (4,544 ) (5,133 )
Proceeds from exercise of stock options
42 - 25
Issuance of common stock
363 285 328
Repurchases of common stock
(5,566 ) (2,208 ) (7,345 )
Taxes paid related to net share settlement of equity awards
(219 ) (228 ) -
Repayment of finance lease obligations
(1,348 ) (121 ) -
Payments on notes and equipment loans
- - (292 )
Net cash used in financing activities
(14,417 ) (6,816 ) (12,417 )
Change in cash and cash equivalents
(11,425 ) 26,112 (13,781 )
Cash and cash equivalents - beginning of year
45,799 19,687 33,468
Cash and cash equivalents - end of year
$ 34,374 $ 45,799 $ 19,687
The accompanying notes to consolidated financial statements are an integral part of these statements.
Consolidated Statements of Stockholders’ Equity
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 27, 2021, November 28, 2020, and November 30, 2019
(In thousands, except share and per share data)
Accumulated
Additional
other
Common Stock
paid-in
Retained
comprehensive
Shares
Amount
capital
earnings
income (loss)
Total
Balance, November 24, 2018
10,527,636 $ 52,638 $ - $ 140,009 $ (2,338 ) $ 190,309
Comprehensive income (loss)
Net loss
- - - (1,928 ) - (1,928 )
Amortization of defined benefit plan costs, net of tax
- - - - 230 230
Actuarial adjustments to defined benefit plans, net of tax
- - - - 872 872
Cumulative effect of a change in accounting principle
- - - (21 ) - (21 )
Regular dividends ($0.50 per share)
- - - (5,133 ) - (5,133 )
Issuance of common stock
102,303 511 217 - - 728
Purchase and retirement of common stock
(513,649 ) (2,568 ) (980 ) (3,797 ) - (7,345 )
Stock-based compensation
- - 958 - - 958
Balance, November 30, 2019
10,116,290 50,581 195 129,130 (1,236 ) 178,670
Comprehensive income (loss)
Net loss
- - - (10,421 ) - (10,421 )
Amortization of defined benefit plan costs, net of tax
- - - - 98 98
Actuarial adjustments to defined benefit plans, net of tax
- - - - (256 ) (256 )
Cumulative effect of a change in accounting principle
- - - (3,785 ) - (3,785 )
Regular dividends ($0.455 per share)
- - - (4,545 ) - (4,545 )
Issuance of common stock
43,218 216 69 - - 285
Purchase and retirement of common stock
(216,721 ) (1,083 ) (684 ) (669 ) - (2,436 )
Stock-based compensation
- - 420 - - 420
Balance, November 28, 2020
9,942,787 49,714 - 109,710 (1,394 ) 158,030
Comprehensive income (loss)
Net income
- - - 18,042 - 18,042
Amortization of defined benefit plan costs, net of tax
- - - - 138 138
Actuarial adjustments to defined benefit plans, net of tax
- - - - (567 ) (567 )
Regular dividends ($0.53 per share)
- - - (5,210 ) - (5,210 )
Special dividend ($0.25 per share)
- - - (2,479 ) - (2,479 )
Issuance of common stock
34,902 175 230 - - 405
Purchase and retirement of common stock
(215,564 ) (1,078 ) (275 ) (4,432 ) - (5,785 )
Stock-based compensation
- - 158 - - 158
Balance, November 27, 2021
9,762,125 $ 48,811 $ 113 $ 115,631 $ (1,823 ) $ 162,732
The accompanying notes to consolidated financial statements are an integral part of these statements.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
1.
Description of Business
Bassett Furniture Industries, Incorporated (together with its consolidated subsidiaries, “Bassett”, “we”, “our”, the “Company”) based in Bassett, Virginia, is a leading manufacturer, marketer and retailer of branded home furnishings. Bassett’s full range of furniture products and accessories, designed to provide quality, style and value, are sold through an exclusive nation-wide network of 97 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 97 stores, the Company owns and operates 63 stores (“Company-owned retail stores”) with the other 34 being independently owned (“licensee operated”). We also distribute our products through other multi-line furniture stores, many of which feature Bassett galleries or design centers.
We sourced approximately 24% of our wholesale products from various foreign countries, with the remaining volume produced at our five domestic manufacturing facilities.
Impact of the COVID-19 Pandemic Upon our Financial Condition and Results of Operations
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country 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 had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 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 much of the second fiscal quarter of 2020. This extended period of suspended operations had a material adverse impact upon our results of operations during the second fiscal quarter of 2020 and resulted in a significant net loss for 2020. In addition to operating losses resulting from severely reduced sales volumes, we also recorded charges for goodwill impairment (Note 7) as well as for the impairment of certain other long-lived assets (Note 13). 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 through fiscal 2021. 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.
Whereas the progress in mass vaccination programs in the U.S. has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, the recent resurgence in COVID-19 cases due to the Delta and Omicron variants, as well as any future variants of the coronavirus entering the U.S., could prompt a return to tighter restrictions in certain areas of the country. Furthermore, pandemic-related labor shortages and supply chain disruptions are ongoing and order cancellations could result if the present delays in order fulfillment continue. Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 pandemic 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.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Our fiscal year ends on the last Saturday in November, which periodically results in a 53-week year. Fiscal 2019 contained 53 weeks while fiscal 2021 and 2020 each contained 52 weeks. The Consolidated Financial Statements include the accounts of Bassett Furniture Industries, Incorporated and our majority-owned subsidiaries in which we have a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated, and Zenith’s operating costs and expenses are reported as cost of logistical services in our consolidated statements of operations. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Unless otherwise indicated, references in the Consolidated Financial Statements to fiscal 2021, 2020 and 2019 are to Bassett's fiscal year ended November 27, 2021, November 28, 2020 and November 30, 2019, respectively. References to the “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board as the source of authoritative GAAP.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
We analyzed our licensees under the requirements for variable interest entities (“VIEs”). All of these licensees operate as BHF stores and are furniture retailers. We sell furniture to these licensees, and in some cases have extended credit beyond normal terms, made lease guarantees, guaranteed loans, or loaned directly to the licensees. We have recorded reserves for potential exposures related to these licensees. See Note 14 for disclosure of leases and lease guarantees. Based on financial projections and best available information, all licensees have sufficient equity to carry out their principal operating activities without subordinated financial support. Furthermore, we believe that the power to direct the activities that most significantly impact the licensees’ operating performance continues to lie with the ownership of the licensee dealers. Our rights to assume control over or otherwise influence the licensees’ significant activities only exist pursuant to our license and security agreements and are in the nature of protective rights as contemplated under ASC Topic 810. We completed our assessment for other potential VIEs, and concluded that there were none. We will continue to reassess the status of potential VIEs including when facts and circumstances surrounding each potential VIE change.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates include allowances for doubtful accounts, calculation of inventory reserves, the valuation of our reporting units for the purpose of testing the carrying value of goodwill, and the valuation of our right of use assets. We also utilize estimates in determining the valuation of income tax reserves, lease guarantees, insurance reserves, and assumptions related to our post-employment benefit obligations. Actual results could differ from those estimates.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers, requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer.
At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us.
At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. We typically collect a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. These deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $51,492 and $39,762 as of November 27, 2021 and November 28, 2020, respectively. Substantially all of the customer deposits held at November 28, 2020 related to performance obligations satisfied during fiscal 2021 and have therefore been recognized in revenue for the year ended November 27, 2021. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized upon delivery of the goods net of amounts payable to the third party service provider.
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. We recognize an asset for the amount of line-haul revenue earned but not yet billed which is included in other current assets. The balance of this asset was $1,240 and $783 at November 27, 2021 and November 28, 2020, respectively. 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. All invoices for logistical services are due 30 days from invoice date.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. - when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At November 27, 2021 and November 28, 2020, our balance of prepaid commissions included in other current assets was $6,221 and $4,279, respectively. We do not incur sales commissions in our logistical services segment.
For our accounting and reporting under ASC 606, we apply the following policy elections and practical expedients:
•
We exclude from revenue amounts collected from customers for sales tax, which is consistent with our policy prior to the adoption of ASC 606.
•
We do not adjust the promised amount of consideration for the effects of a significant financing component since the period of time between transfer of our goods or services and the collection of consideration from the customer is less than one year.
•
We do not disclose the value of unsatisfied performance obligations because the transfer of goods or services is made within one year of the placement of customer orders.
See Note 18 for disaggregated revenue information.
Cash Equivalents and Short-Term Investments
The Company considers cash on hand, demand deposits in banks and all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Our short-term investments consist of certificates of deposit that have original maturities of twelve months or less but greater than three months.
Accounts Receivable
Substantially all of our trade accounts receivable is due from customers located within the United States. We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the 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.
Concentrations of Credit Risk and Major Customers
Financial instruments that subject us to credit risk consist primarily of investments, accounts and notes receivable and financial guarantees. Investments are managed within established guidelines to mitigate risks. Accounts and notes receivable and financial guarantees subject us to credit risk partially due to the concentration of amounts due from and guaranteed on behalf of independent licensee customers. At November 27, 2021 and November 28, 2020, our aggregate exposure from receivables and guarantees related to customers consisted of the following:
Accounts receivable, net of allowances (Note 4)
$ 28,168 $ 22,340
Contingent obligations under lease and loan guarantees, less amounts recognized (Note 14)
1,794 1,760
Other
86 376
Total credit risk exposure related to customers
$ 30,048 $ 24,476
At November 27, 2021 and November 28, 2020, approximately 22% and 24%, respectively, of the aggregate risk exposure, net of reserves, shown above was attributable to five customers. In fiscal 2021, 2020 and 2019, no customer accounted for more than 10% of total consolidated net sales. However, two customers accounted for approximately 23%, 29% and 44% of our consolidated revenue from logistical services during 2021, 2020 and 2019, respectively.
We have no foreign manufacturing or retail operations. We define export sales as sales to any country or territory other than the United States or its territories or possessions. Our export sales were approximately $488, $789, and $1,846 in fiscal 2021, 2020, and 2019, respectively. All of our export sales are invoiced and settled in U.S. dollars.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Inventories
Inventories (retail merchandise, finished goods, work in process and raw materials) accounted for under the first-in, first out (“FIFO”) method are stated at the lower of cost or net realizable value or, in the case of inventory accounted for under the last-in, first out (“LIFO”) method, at the lower of cost or market. Cost is determined for domestic manufactured furniture inventories using the LIFO method because we believe this methodology provides better matching of revenue and expenses. The cost of imported inventories as well as Lane Venture and Bassett Outdoor product inventories are determined on a first-in, first-out (“FIFO”) basis. Inventories accounted for under the LIFO method represented 53% and 53% of total inventory before reserves at November 27, 2021 and November 28, 2020, respectively. We estimate inventory reserves for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required.
Property and Equipment
Property and equipment is comprised of all land, buildings and leasehold improvements and machinery and equipment used in the manufacturing and warehousing of furniture, our Company-owned retail operations, our logistical services operations, and corporate administration. This property and equipment is stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets utilizing the straight-line method. Buildings and improvements are generally depreciated over a period of 10 to 39 years. Machinery and equipment are generally depreciated over a period of 5 to 10 years. Leasehold improvements are amortized based on the underlying lease term, or the asset’s estimated useful life, whichever is shorter.
Goodwill
Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is allocated to the respective reporting unit: Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired.
In accordance with ASC Topic 350, Intangibles - Goodwill & Other, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in ASC Topic 350 (as amended by Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which we adopted for our annual evaluation of goodwill performed as of September 1, 2019). The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative evaluation process. Based on our qualitative assessment as described above for the annual test during fiscal 2019, we concluded that, given declines in our income from operations, primarily resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis in fiscal 2018, it was necessary to perform the quantitative evaluation. As a result of this test, we recorded an impairment charge of $1,926 during the year ended November 30, 2019. In addition, we performed an interim test of goodwill as of May 30, 2020 due to the severe impact of the COVID-19 pandemic and resulting business interruption during the second fiscal quarter of 2020. This interim test resulted in an impairment charge of $1,971 for the year ended November 28, 2020. For the annual tests of goodwill performed as of the beginning of the fourth fiscal quarters of 2021 and 2020, we performed the qualitative assessment as described above and concluded that there was no additional impairment of our goodwill as of November 27, 2021 or November 28, 2020.
The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, a goodwill impairment charge will be recognized in the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples, an income approach, that utilizes discounted cash flows for each 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 4), and, in the case of our retail reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value are 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. Our estimates are subject to change given the inherent uncertainty in predicting future results. 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. As part of the goodwill impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts. See Note 7 for additional information regarding the results of our annual goodwill impairment test performed as of September 1, 2019 and our interim test performed as of May 30, 2020.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Leases
Effective as of the beginning 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.
Prior to fiscal 2020, our leases have been accounted for and reported in accordance with ASC Topic 840, Leases. Total lease payments over the non-cancellable term of a lease were recognized as rent expense on a straight-line basis over the lease term, with the excess of expense recognized over lease payments made carried as a deferred rent liability on the balance sheet. Any lease incentive payments received from lessors were recorded as a liability on the balance sheet and amortized as a reduction of rent expense over the term of the lease.
See Note 14 for additional information regarding our leases.
Other Intangible Assets
Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time.
Impairment of Long Lived Assets
We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use and eventual disposition of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on discounted cash flows or appraised values depending on the nature of the assets. The long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future.
When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store. ROU assets under operating leases are written down to their estimated fair value. 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).
Income Taxes
We account for income taxes under the liability method which requires that we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 12.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Despite our belief that our liability for unrecognized tax benefits is adequate, it is often difficult to predict the final outcome or the timing of the resolution of any particular tax matters. We may adjust these liabilities as relevant circumstances evolve, such as guidance from the relevant tax authority or our tax advisors, or resolution of issues in the courts. These adjustments are recognized as a component of income tax expense in the period in which they are identified.
We evaluate our deferred income tax assets to determine if valuation allowances are required or should be adjusted. A valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward or carryback periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified. See Note 12.
New Store Pre-Opening Costs
Income from operations for fiscal 2021, 2020 and 2019 includes new store pre-opening costs of $0, $0 and $1,117, respectively. Such costs consist of expenses incurred at the new store location during the period prior to its opening and include, among other things, facility occupancy costs such as rent and utilities and local store personnel costs related to pre-opening activities including training. New store pre-opening costs do not include costs which are capitalized in accordance with our property and equipment capitalization policies, such as leasehold improvements and store fixtures and equipment. Such capitalized costs associated with new stores are depreciated commencing with the opening of the store. There are no pre-opening costs associated with stores acquired from licensees, as such locations were already in operation at the time of their acquisition.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Shipping and Handling Costs
Costs incurred to deliver wholesale merchandise to customers are recorded in selling, general and administrative expense and totaled $17,829, $14,779, and $18,402 for fiscal 2021, 2020 and 2019, respectively. Costs incurred to deliver retail merchandise to customers, including the cost of operating regional distribution warehouses, are also recorded in selling, general and administrative expense and totaled $22,494, $19,024, and $23,710 for fiscal 2021, 2020 and 2019, respectively.
Advertising
Costs incurred for producing and distributing advertising and advertising materials are expensed when incurred and are included in selling, general and administrative expenses. Advertising costs totaled $15,272, $12,671, and $20,674 in fiscal 2021, 2020, and 2019, respectively.
Insurance Reserves
We have self-funded insurance programs in place to cover workers’ compensation and health insurance. These insurance programs are subject to various stop-loss limitations. We accrue estimated losses using historical loss experience. Although we believe that the insurance reserves are adequate, the reserve estimates are based on historical experience, which may not be indicative of current and future losses. We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.
Supplemental Cash Flow Information
Refer to the supplemental lease disclosures in Note 14 for cash flow impacts of leasing transactions during fiscal 2020. Otherwise, there were no material non-cash investing or financing activities during fiscal 2021 or 2020. During the fourth quarter of fiscal 2019, we purchased certain fixed assets and inventory with a total purchase price of $2,225, of which $375 was paid for with the issuance of 24,590 shares if our common stock.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
Effective as of the beginning of fiscal 2021, we have adopted 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 previous GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. We assessed the guidance under ASU 2016-13 as applied to our trade receivables and contract assets, and determined 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 - 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 (“ASU 2018-15”). ASU 2018-15 was issued 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 condition or results of operations.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Recent Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 will become effective for us as of the beginning of our 2022 fiscal year. Early adoption is permitted, including adoption in any interim period. We are currently evaluating the impact that this guidance will have upon our financial position and results of operations, if any.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect on previously reported net income or Stockholders’ equity. The cost of logistical services, previously included in our statements of operations within selling, general and administrative expenses excluding new store pre-opening costs, is now presented separately.
3.
Financial Instruments, Investments and Fair Value Measurements
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, accounts payable and long-term debt. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, and accounts payable approximate fair value.
Investments
Our short-term investments of $17,715 at both November 27, 2021 and November 28, 2020 consisted of certificates of deposit (CDs) with original terms of six to twelve months, bearing interest at rates ranging from 0.01% to 0.85%. At November 27, 2021, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 0.04%. Each CD is placed with a federally insured financial institution and all deposits are within Federal deposit insurance limits. As the CDs mature, we expect to reinvest them in CDs of similar maturities of up to one year. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at November 27, 2021 and November 28, 2020 approximates their fair value.
Fair Value Measurement
The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs- Quoted prices for identical instruments in active markets.
Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs- Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. Our primary non-recurring fair value estimates typically involve business acquisitions (Note 3) which involve a combination of Level 2 and Level 3 inputs, goodwill impairment testing (Note 8), which involves Level 3 inputs, and asset impairments (Note 14) which utilize Level 3 inputs.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
4. Accounts Receivable
Accounts receivable consists of the following:
November 27, 2021
November 28, 2020
Gross accounts receivable
$ 28,964 $ 23,551
Allowance for credit losses
(796 ) (1,211 )
Net accounts receivable
$ 28,168 $ 22,340
Activity in the allowance for credit losses was as follows:
Balance, beginning of the year
$ 1,211 $ 815
Additions (recoveries) charged to expense
(156 ) 492
Reductions to allowance, net
(259 ) (96 )
Balance, end of the year
$ 796 $ 1,211
We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.
5. Inventories
Inventories consist of the following:
November 27, 2021
November 28, 2020
Wholesale finished goods
$ 40,254 $ 25,001
Work in process
482 516
Raw materials and supplies
21,653 14,836
Retail merchandise
30,914 27,946
Total inventories on first-in, first-out method
93,303 68,299
LIFO adjustment
(10,483 ) (8,891 )
Reserve for excess and obsolete inventory
(4,816 ) (4,522 )
$ 78,004 $ 54,886
We source a significant amount of our wholesale product from other countries. During 2021, 2020 and 2019, purchases from our two largest vendors located in Vietnam and China were $34,658, $15,378 and $15,221 respectively.
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Wholesale Segment
Retail Segment
Total
Balance at November 30, 2019
$ 2,054 $ 308 $ 2,362
Additions charged to expense
3,745 1,177 4,922
Write-offs
(2,378 ) (384 ) (2,762 )
Balance at November 28, 2020
3,421 1,101 4,522
Additions charged to expense
2,057 912 2,969
Write-offs
(1,795 ) (880 ) (2,675 )
Balance at November 27, 2021
$ 3,683 $ 1,133 $ 4,816
6. Property and Equipment
Property and equipment consist of the following:
November 27,
November 28,
Land
$ 9,478 $ 9,478
Buildings and leasehold improvements
117,297 114,961
Machinery and equipment
130,534 118,112
Property and equipment at cost
257,309 242,551
Less accumulated depreciation
(163,243 ) (151,634 )
Property and equipment, net
$ 94,066 $ 90,917
The net book value of our property and equipment by reportable segment is a follows:
November 27,
November 28,
Wholesale
$ 30,020 $ 26,999
Retail - Company-owned stores
39,148 44,820
Logistical Services
24,898 19,098
Total property and equipment, net
$ 94,066 $ 90,917
Depreciation expense associated with the property and equipment shown above was included in income from operations in our consolidated statements of operations as follows:
Cost of goods sold (wholesale segment)
$ 1,797 $ 1,552 $ 1,402
Selling, general and adminstrative expenses:
Wholesale segment
1,532 1,516 1,672
Retail segment
6,580 6,578 7,479
Logistical services segment
4,308 3,454 3,697
Total included in selling, general and adminstrative expenses
12,420 11,548 12,848
Total depreciation expense included in income from operations
$ 14,217 $ 13,100 $ 14,250
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
November 27, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
Intangibles subject to amortization:
Customer relationships
$ 3,550 $ (1,606 ) $ 1,944
Technology - customized applications
834 (814 ) 20
Total intangible assets subject to amortization
$ 4,384 $ (2,420 ) 1,964
Intangibles not subject to amortization:
Trade names
9,338
Goodwill
12,146
Total goodwill and other intangible assets
$ 23,448
November 28, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
Intangibles subject to amortization:
Customer relationships
$ 3,550 $ (1,346 ) $ 2,204
Technology - customized applications
834 (695 ) 139
Total intangible assets subject to amortization
$ 4,384 $ (2,041 ) 2,343
Intangibles not subject to amortization:
Trade names
9,338
Goodwill
12,146
Total goodwill and other intangible assets
$ 23,827
Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our remaining goodwill as of May 30, 2020, the end of our 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 year ended November 28, 2020. Our subsequent annual goodwill impairment tests, conducted as of the beginning of our fourth fiscal quarters of 2020 and 2021, resulted in no additional impairments.
The determination of the fair value of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples, and an income approach, that utilizes discounted cash flows for each 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 determine fair value based on the present value of the most recent cash flow projections for each reporting unit as of the date of the analysis and calculate a terminal value utilizing a terminal growth rate. The significant assumptions under this approach include, 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 are 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. Our estimates are subject to change given the inherent uncertainty in predicting future results. 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. As part of the goodwill impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Changes in the carrying amounts of goodwill by reportable segment were as follows:
Wholesale
Retail
Logistics
Total
Balance as of November 30, 2019
$ 9,188 $ - $ 4,929 $ 14,117
Goodwill impairment
(1,971 ) - - (1,971 )
Balance as of November 28, 2020
7,217 - 4,929 12,146
No changes in fiscal 2021
- - - -
Balance as of November 27, 2021
$ 7,217 $ - $ 4,929 $ 12,146
Accumulated impairment losses were $3,897, $3,897 and $1,926 at November 27, 2021, November 28, 2020 and November 30, 2019, respectively.
The weighted average useful lives of our finite-lived intangible assets and remaining amortization periods as of November 27, 2021 are as follows:
Useful Life
in Years
Remaining
Amortization
Period in
Years
Customer relationships
14 8
Technology - customized applications
7 0
Amortization expense associated with intangible assets during fiscal 2021, 2020 and 2019 was $379, $379 and $379, respectively and is included in selling, general and administrative expense in our consolidated statement of operations. All expense arising from the amortization of intangible assets is associated with our logistical services segment except for $57, $57 and $57 in fiscal 2021, 2020 and 2019, respectively, associated with our wholesale segment. Estimated future amortization expense for intangible assets that exist at November 27, 2021 is as follows:
Fiscal 2022
$ 279
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total
$ 1,964
8. Bank Credit Facility
Bank Credit Facility
Our bank credit facility provides for a line of credit of up to $25,000. At November 27, 2021, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we have outstanding standby letters of credit with another bank totaling $325. 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. We were in compliance with all covenants under the agreement as of November 27, 2021. The credit facility matures on January 31, 2022.
On January 27, 2022, we entered into a new credit facility with our bank which also provides for a credit line of up to $25,000. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the new facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:
●
Consolidated fixed charge coverage ratio of not less than 1.4 times,
●
Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and
●
Minimum tangible net worth ratio of $140,000, which will change to $120,000 if we do not complete the sale of Zenith (see Note 20, Subsequent Event, regarding our entry into an agreement to sell substantially all of the assets of Zenith).
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
We were in compliance with these covenants at November 27, 2021 and expect to remain in compliance for the foreseeable future. The new credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.
Total interest paid, including the interest component of financing lease payments, during fiscal 2021, 2020 and 2019 was $322, $49 and $7, respectively.
9. Post-Employment Benefit Obligations
Management Savings Plan
On May 1, 2017, our Board of Directors, upon the recommendation of the Organization, Compensation and Nominating Committee (the “Committee”), adopted the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Plan”). The Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees.
The Plan is an account-based plan under which (i) participants may defer voluntarily the payment of current compensation to future years (“participant deferrals”) and (ii) the Company may make annual awards to participants payable in future years (“Company contributions”). The Plan permits each participant to defer up to 75% of base salary and up to 100% of any incentive compensation or other bonus, which amounts would be credited to a deferral account established for the participant. Such deferrals will be fully vested at the time of the deferral. Participant deferrals will be indexed to one or more deemed investment alternatives chosen by the participant from a range of alternatives made available under the Plan. Each participant’s account will be adjusted to reflect gains and losses based on the performance of the selected investment alternatives. A participant may receive distributions from the Plan: (1) upon separation from service, in either a lump sum or annual installment payments over up to a 15 year period, as elected by the participant, (2) upon death or disability, in a lump sum, or (3) on a date or dates specified by the participant (“scheduled distributions”) with such scheduled payments made in either a lump sum or substantially equal annual installments over a period of up to five years, as elected by the participant. Participant contributions commenced during the third quarter of fiscal 2017. Company contributions will vest in full (1) on the third anniversary of the date such amounts are credited to the participant’s account, (2) the date that the participant reaches age 63 or (3) upon death or disability. Company contributions are subject to the same rules described above regarding the crediting of gains or losses from deemed investments and the timing of distributions. Expense associated with deferred compensation under the Plan was $338, $264 and $196 for fiscal 2021, 2020 and 2019, respectively. Our liability for Company contributions and participant deferrals at November 27, 2021 and November 28, 2020 was $1,789 and $1,250, respectively, and is included in post-employment benefit obligations in our consolidated balance sheets.
On May 2, 2017, we made Long Term Cash Awards (“LTC Awards”) totaling $2,000 under the Plan to certain management employees in the amount of $400 each. The LTC Awards vest in full on the first anniversary of the date of the award if the participant has reached age 63 by that time, or, if later, on the date the participant reaches age 63, provided in either instance that the participant is still employed by the Company at that time. If not previously vested, the awards will also vest immediately upon the death or disability of the participant prior to the participant’s separation from service. The awards will be payable in 10 equal annual installments following the participant’s death, disability or separation from service. We are accounting for the LTC Awards as a defined benefit pension plan. During fiscal 2021, 2020 and 2019, we invested $647, $609 and $627 in life insurance policies covering all participants in the Plan. At November 27, 2021, these policies have a net death benefit of $14,998 for which the Company is the sole beneficiary. These policies are intended to provide a potential source of funds to meet the obligations arising from the deferred compensation and LTC Awards under the Plan, and serve as an economic hedge of the financial impact of changes in the liabilities. They are held in an irrevocable trust but are subject to claims of creditors in the event of the Company’s insolvency.
Supplemental Retirement Income Plan
We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. Upon retirement, the Supplemental Plan provides for lifetime monthly payments in an amount equal to 65% of the participant’s final average compensation as defined in the Supplemental Plan, which is reduced by certain social security benefits to be received and other benefits provided by us. The Supplemental Plan also provides a death benefit that is calculated as (a) prior to retirement death, which pays the beneficiary 50% of final average annual compensation for a period of 120 months, or (b) post-retirement death, which pays the beneficiary 200% of final average compensation in a single payment. We own life insurance policies on these executives with a current net death benefit of $2,054 at November 27, 2021 and we expect to substantially fund this death benefit through the proceeds received upon the death of the executive. Funding for the remaining cash flows is expected to be provided through operations. There are no benefits payable as a result of a termination of employment for any reason other than death or retirement, other than a change of control provision which provides for the immediate vesting and payment of the retirement benefit under the Supplemental Plan in the event of an employment termination resulting from a change of control.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Aggregated summarized information for the Supplemental Plan and the LTC Awards, measured as of the end of each year presented, is as follows:
`
Change in Benefit Obligation:
Projected benefit obligation at beginning of year
$ 10,071 $ 10,090
Service cost
120 172
Interest cost
196 268
Actuarial (gains) and losses
762 345
Benefits paid
(409 ) (804 )
Projected benefit obligation at end of year
$ 10,740 $ 10,071
Accumulated Benefit Obligation
$ 10,740 $ 10,034
Discount rate used to value the ending benefit obligations:
2.25 % 2.00 %
Amounts recognized in the consolidated balance sheet:
Current liabilities
$ 913 $ 613
Noncurrent liabilities
9,827 9,458
Total amounts recognized
$ 10,740 $ 10,071
Amounts recognized in accumulated other comprehensive income:
Prior service cost
$ 355 $ 480
Actuarial loss
2,093 1,394
Net amount recognized
$ 2,448 $ 1,874
Total recognized in net periodic benefit cost and accumulated
other comprehensive income:
$ 1,078 $ 785
Components of Net Periodic Pension Cost:
Service cost
$ 121 $ 172 $ 190
Interest cost
196 268 441
Amortization of prior service cost
126 126 126
Amortization of other loss
59 8 183
Net periodic pension cost
$ 502 $ 574 $ 940
Assumptions used to determine net periodic pension cost:
Discount rate
2.00 % 2.75 % 4.00 %
Increase in future compensation levels
3.00 % 3.00 % 3.00 %
Estimated Future Benefit Payments (with mortality):
Fiscal 2022
$ 913
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027 through 2031
3,692
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Of the $2,448 recognized in accumulated other comprehensive income at November 27, 2021, amounts expected to be recognized as components of net periodic pension cost during fiscal 2022 are as follows:
Prior service cost
$ 126
Other loss
Total expected to be amortized to net periodic pension cost in 2022
$ 177
The components of net periodic pension cost other than the service cost component are included in other loss, net in our consolidated statements of operations.
Deferred Compensation Plan
We have an unfunded Deferred Compensation Plan that covers one current and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or benefits permitted. We recognized expense of $204, $176, and $204 in fiscal 2021, 2020, and 2019, respectively, associated with the plan. Our liability under this plan was $1,648 and $1,676 as of November 27, 2021 and November 28, 2020, respectively. The non-current portion of this obligation is included in post-employment benefit obligations in our consolidated balance sheets, with the current portion included in accrued compensation and benefits.
Defined Contribution Plan
We have a qualified defined contribution plan (Employee Savings/Retirement Plan) that covers substantially all employees who elect to participate and have fulfilled the necessary service requirements. Employee contributions to the Plan are matched at the rate of 25% of up to 8% of gross pay, regardless of years of service. During fiscal 2020, the Company’s matching contribution was temporarily suspended for approximately six months as part of the cash conservation measures put into place in response to the impact of the COVID-19 pandemic but was resumed during the fourth quarter. Expense for employer matching contributions was $1,103, $611 and $1,157 during fiscal 2021, 2020 and 2019, respectively.
10. Accumulated Other Comprehensive Loss
The activity in accumulated other comprehensive loss for the fiscal years ended November 27, 2021 and November 28, 2020, which is comprised solely of post-retirement benefit costs related to our SERP and LTC Awards, is as follows:
Balance at November 30, 2019
$ (1,236 )
Actuarial losses
(345 )
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 28, 2020
(1,394 )
Actuarial losses
(762 )
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 27, 2021
$ (1,823 )
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
11. Capital Stock and Stock Compensation
We account for our stock-based employee and director compensation plans in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period) which we recognize on a straight-line basis. Compensation expense related to restricted stock and stock options included in selling, general and administrative expenses in our consolidated statements of operations for fiscal 2021, 2020 and 2019 was as follows:
Stock based compensation expense
$ 158 $ 420 $ 958
Incentive Stock Compensation Plans
2021 Plan
On March 10, 2021, our shareholders approved the Bassett Furniture Industries, Incorporated 2021 Stock Incentive Plan (the “2021 Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are eligible to receive incentive awards under the 2021 Plan. Our Organization, Compensation and Nominating Committee (the “OCN Committee”) selects eligible key employees and outside consultants to receive awards under the 2021 Plan in its discretion. Our Board of Directors or any committee designated by the Board of Directors selects eligible non-employee directors to receive awards under the 2021 Plan in its discretion. Five hundred thousand (500,000) shares of common stock are reserved for issuance under the 2021 Plan. Participants may receive the following types of incentive awards under the 2021 Plan: stock options, stock appreciation rights, payment shares, restricted stock, restricted stock units and performance shares. Stock options may be incentive stock options or non-qualified stock options. Stock appreciation rights may be granted in tandem with stock options or as a freestanding award. Non-employee directors and outside consultants are eligible to receive restricted stock and restricted stock units only. The full terms of the 2021 Plan have been filed as an exhibit to our Schedule 14A filed with the United States Securities and Exchange Commission on February 8, 2021.
2010 Plan
On April 14, 2010, our shareholders approved the Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan which was amended and restated effective January 13, 2016 (the “2010 Plan”). All non-employee directors, key employees and outside consultants for the Company were eligible to receive incentive awards under the 2010 Plan. The 2010 Plan expired in April of 2020 and no additional grants can be awarded under the plan.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model. The risk free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options using the simplified method. Forfeitures are recognized as they occur. We utilized the simplified method to determine the expected life of our options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns.
Stock Options
There were no new grants of options made in 2021, 2020 or 2019.
Changes in the outstanding options under our plans during the year ended November 27, 2021 were as follows:
Number of Shares
Weighted
Average
Exercise Price
Per Share
Outstanding at November 28, 2020
5,250 $ 8.02
Granted
- -
Exercised
(5,250 ) 8.02
Forfeited/Expired
- -
Outstanding at November 27, 2021
- -
Exercisable at November 27, 2021
- -
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Additional information regarding activity in our stock options during fiscal 2021, 2020 and 2019 is as follows:
Total intrinsic value of options exercised
$ 93 $ - $ 34
Total cash received from the exercise of options
42 - 25
Excess tax benefits recognized in income tax expense upon the exercise of options
18 - 6
Restricted Shares
Changes in the outstanding non-vested restricted shares during the year ended November 27, 2021 were as follows:
Number of Shares
Weighted
Average Grant
Date Fair
Value Per
Share
Non-vested restricted shares outstanding at November 28, 2020
34,500 $ 33.58
Granted
7,105 24.63
Vested
(31,000 ) 35.75
Forfeited
- -
Non-vested restricted shares outstanding at November 27, 2021
10,605 $ 21.24
During fiscal 2021, 31,000 restricted shares were vested and released, all of which had been granted to employees. During fiscal 2021 and 2020, 10,850 shares and 14,010 shares, respectively, were withheld to cover withholding taxes of $219 and $228, respectively, arising from the vesting of restricted shares. During fiscal 2021, 2020 and 2019, excess tax (expense) benefits of $(133), $(114) and $0, respectively, were recognized within income tax expense upon the release of vested shares.
Additional information regarding our outstanding non-vested restricted shares at November 27, 2021 is as follows:
Remaining
Restricted
Share Value
Restriction
Grant
Shares
at Grant Date
Period
Date
Outstanding
Per Share
(Years)
October 9, 2019
3,500 $ 14.37 0.9
March 10, 2021
7,105 24.63 0.3
10,605
Unrecognized compensation cost related to these non-vested restricted shares at November 27, 2021 is $58, all of which is expected to be recognized within fiscal 2022.
Employee Stock Purchase Plan
In March of 2017 we adopted and implemented the 2017 Employee Stock Purchase Plan (“2017 ESPP”) that allows eligible employees to purchase a limited number of shares of our stock at 85% of market value. Under the 2017 ESPP we sold 22,547, 50,217 and 23,460 shares to employees during fiscal 2021, 2020 and 2019, respectively, which resulted in an immaterial amount of compensation expense. There are 132,534 shares remaining available for sale under the 2017 ESPP at November 27, 2021.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
12. Income Taxes
The components of the income tax provision are as follows:
Current:
Federal
$ 4,437 $ (8,486 ) $ 2,150
State
178 155 892
Deferred:
Federal
435 2,457 (2,191 )
State
1,148 (491 ) (663 )
Total
$ 6,198 $ (6,365 ) $ 188
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, for the year ended November 28, 2020 we were able to recognize tax benefits substantially in excess of the current federal statutory rate of 21% due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35%.
A reconciliation of the statutory federal income tax rate and the effective income tax rate, as a percentage of income before income taxes, is as follows:
Statutory federal income tax rate
21.0 %
21.0 %
21.0 %
CARES Act benefit
- 21.1 -
State income tax, net of federal benefit
4.2 1.7 (14.0 )
Impairment of non-deductible goodwill
- (2.5 ) (23.2 )
Excess tax from stock-based compensation
0.4 (0.6 ) 0.3
Other
- (2.8 ) 5.1
Effective income tax rate
25.6 %
37.9 %
(10.8 )%
Excess tax (expense) benefits in the amount of $(115), $(114), and $22 were recognized as a component of income tax expense during fiscal 2021, 2020 and 2019, respectively, resulting from the exercise of stock options and the release of restricted shares. The fiscal 2020 and 2019 adjustments for impairment of non-deductible goodwill reflect the fact that there was no tax basis related to the impaired goodwill.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
The income tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred income tax assets and deferred income tax liabilities, are as follows:
November 27,
November 28,
Deferred income tax assets:
Trade accounts receivable
$ 199 $ 303
Inventories
3,121 3,086
Notes receivable
44 44
Post employment benefit obligations
3,562 3,260
State net operating loss carryforwards
153 1,321
Leases
5,055 5,850
Other
1,180 1,856
Gross deferred income tax assets
13,314 15,720
Valuation allowance
- -
Total deferred income tax assets
13,314 15,720
Deferred income tax liabilities:
Property and equipment
7,013 8,746
Intangible assets
1,712 1,404
Prepaid expenses and other
1,400 983
Total deferred income tax liabilities
10,125 11,133
Net deferred income tax assets
$ 3,189 $ 4,587
We have state net operating loss carryforwards available to offset future taxable state income of $3,010, which expire in varying amounts between 2030 and 2040. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards.
Income taxes paid, net of refunds received, during fiscal 2021, 2020 and 2019 were $3,092, $539, and $1,228, respectively.
We regularly evaluate, assess and adjust our accrued liabilities for unrecognized tax benefits in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period. Our accrued liabilities for uncertain tax benefits at November 27, 2021 and November 28, 2020 were $324 and $68, respectfully. Our liabilities for uncertain tax positions prior to 2021 were not material.
Significant judgment is required in evaluating the Company's federal and state tax positions and in the determination of its tax provision. Despite our belief that the liability for unrecognized tax benefits is adequate, it is often difficult to predict the final outcome or the timing of the resolution of any particular tax matter. We may adjust these liabilities as relevant circumstances evolve, such as guidance from the relevant tax authority, or resolution of issues in the courts. These adjustments are recognized as a component of income tax expense in the period in which they are identified. The Company also cannot predict when or if any other future tax payments related to these tax positions may occur.
We remain subject to examination for tax years 2018 through 2021 for all of our major tax jurisdictions.
13. Other Gains and Losses
Gains on Dispositions of Retail Store Locations
Selling, general and administrative expenses for the year ended November 28, 2020 include gains totaling $1,313 resulting from the settlement of lease obligations due to the early termination of leases at our retail store locations in Torrance, California and Culver City, California.
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 received 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 year ended November 30, 2019. All compensation accrued under the package had been paid out prior to November 28, 2020.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Asset Impairment Charges and Lease Exit Costs
During fiscal 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. We also 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.
During fiscal 2019, the loss from operations included $4,431 of non-cash impairment charges recognized on the assets of six underperforming retail stores. In addition, a $149 charge was accrued for lease exit costs incurred in connection with the repositioning of a Company-owned retail store in Palm Beach, Florida to a new location within the same market.
Litigation Expense
During fiscal 2020 and 2019 we accrued $1,050 and $700, respectively for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company (see Note 15).
Gains from Company-Owned Life Insurance
Other loss, net for the fiscal 2020 and 2019 includes gains of $914 and $629, respectively, arising from death benefits from Company-owned life insurance.
14. Leases and Lease Guarantees
Leases
Fiscal 2021 and 2020
Effective as of the beginning of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. See “Leases” under Note 2 for a discussion of our accounting policies and elections under Topic 842 as well as the impact of the adoption upon our financial statements.
Supplemental balance sheet information related to our leases as of November 27, 2021 and November 28, 2020 is as follows:
November 27, 2021
November 28, 2020
Operating leases:
Right of use assets
$ 114,148 $ 116,903
Lease liabilties, short-term
27,693 27,078
Lease liabilties, long-term
105,841 111,972
Finance leases:
Right of use assets (1)
$ 7,538 $ 2,623
Lease liabilties, short-term (2)
1,759 534
Lease liabilties, long-term (3)
5,801 1,862
(1) Included in property & equipment, net in our consolidated balance sheet.
(2) Included in other current liabilites and accrued expenses in our consolidated balance sheet.
(3) Included in other long-term liabilites and accrued expenses in our consolidated balance sheet.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Our right-of-use assets under operating leases by segment as of November 27, 2021 and November 28, 2020 are as follows:
November 27, 2021
November 28, 2020
Wholesale
$ 9,842 $ 10,232
Retail
86,114 90,487
Logistical services
18,192 16,184
Total right of use assets
$ 114,148 $ 116,903
The components of our lease cost for the years ended November 27, 2021 and November 28, 2020 are as follows:
Lease cost:
Operating lease cost
$ 32,168 $ 33,207
Financing lease cost:
Amortization of right-of-use assets
1,434 213
Interest on lease liabilities
304 49
Short-term lease cost
1,986 2,040
Variable lease cost (net of abatements received)
321 (605 )
Sublease income
(1,670 ) (1,557 )
Total lease cost
$ 34,543 $ 33,347
Supplemental lease disclosures as of November 27, 2021 and November 28, 2020 and for the fiscal years then ended are as follows:
Operating
Financing
For the year ended November 28, 2020:
Cash paid for amounts included in the measurements of lease liabilities
$ 35,310 $ 260
Lease liabilities arising from new right-of-use assets
10,804 2,623
For the year ended November 27, 2021:
Cash paid for amounts included in the measurements of lease liabilities
35,432 1,668
Lease liabilities arising from new right-of-use assets
24,518 6,511
As of November 28, 2020:
Weighted average remaining lease terms (years)
6.2 4.3
Weighted average discount rates
4.98 % 4.43 %
As of November 27, 2021:
Weighted average remaining lease terms (years)
6.0 4.8
Weighted average discount rates
5.04 % 4.72 %
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Future payments under our leases and the present value of the obligations as of November 27, 2021 are as follows:
Operating
Leases
Financing Leases
Fiscal 2022
$ 33,493 $ 2,076
Fiscal 2023
30,579 1,949
Fiscal 2024
23,219 1,669
Fiscal 2025
19,106 1,171
Fiscal 2026
15,482 818
Thereafter
33,947 766
Total lease payments
155,826 8,449
Less: interest
22,292 889
Total lease obligations
$ 133,534 $ 7,560
As of November 27, 2021, we had a commitment to acquire twenty-three trucks under leases for use in our logistical services segment that are expected to commence at various times during fiscal 2022 and replace older units that will be coming off lease. Five of these leases are expected to have annual payments totaling approximately $267 per year over three years, and eighteen are expected to have annual payments totaling approximately $167 per year over five years. We also have a commitment to lease showroom space for use by our wholesale segment with payments averaging approximately $229 per year over eight years. This lease is expected to commence in the fourth quarter of fiscal 2022.
We sublease a small number of our leased locations to certain of our licensees for operation as 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:
Fiscal 2022
$ 1,979
Fiscal 2023
1,662
Fiscal 2024
1,027
Fiscal 2025
Fiscal 2026
Thereafter
-
Total minimum future rental income
$ 5,423
We negotiated with a number of our landlords to obtain relief in the form of rent deferrals or abatements of rent as a result of the effects of COVID-19 on our business. At November 28, 2020, the unpaid rent was $990 which primarily represented rent deferred to fiscal 2021 and is included in other current liabilities and accrued expenses in our accompanying condensed consolidated balance sheet. The remaining balance of deferred rent at November 27, 2021 was not material. 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 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 account for those as variable rent in the period in which the abatement is granted. For the year ended November 28, 2020, we were granted abatements against rent totaling $775.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Fiscal 2019
Prior to the adoption of Topic 842, we accounted for and reported our leases in accordance with Topic 840, Leases. In accordance with Topic 840 leases classified as operating leases were not included in our balance sheet as right of use assets or lease obligations as of November 30, 2019. During fiscal 2019 we had no leases which were classified as capital leases.
Lease expense was $41,809 for 2019. Real estate rental net loss (rental income less lease costs, depreciation, insurance, and taxes), related to licensee stores and other investment real estate, was $156 in 2019 and is reflected in other loss, net in the accompanying consolidated statements of operations.
Guarantees
As part of the strategy for our store program, 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 amount of $1,845 and $1,811 at November 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, liquidating the collateral, and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options are estimated to cover the maximum amount of our future payments under the guarantee obligations, net of reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at November 27, 2021 and November 28, 2020, were not material.
15. Contingencies
We are involved in various claims and actions which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations. We carried reserves for pending litigation claims in the amount of $100 and $1,050 as of November 27, 2021 and November 28, 2020, respectively, which are included in other current liabilities and accrued expenses in our accompanying balance sheets.
16. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)
$ 18,042 $ (10,421 ) $ (1,928 )
Denominator:
Denominator for basic income per share - weighted average shares
9,835,829 9,969,616 10,285,511
Effect of dilutive securities*
7,945 - -
Denominator for diluted income per share - weighted average shares and assumed conversions
9,843,774 9,969,616 10,285,511
Basic income (loss) per share:
Net income (loss) per share - basic
$ 1.83 $ (1.05 ) $ (0.19 )
Diluted income (loss) per share:
Net income (loss) per share - diluted
$ 1.83 $ (1.05 ) $ (0.19 )
*Due to the net losses in 2020 and 2019, the potentially dilutive securities would have been anti-dilutive and are therefore excluded.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
For fiscal 2021, 2020 and 2019, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:
Unvested restricted shares
- 90,153 45,036
Stock options
- 5,250 -
17. Segment Information
We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting, and as described below:
●
Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned stores retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our consolidated statements of operations.
●
Retail - Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers.
●
Logistical services. With our acquisition of Zenith in 2015, we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistics revenue in our consolidated statement of operations. See Note 20, Subsequent Event, regarding our entry into an agreement to sell substantially all of the assets of Zenith.
Inter-company sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale segment. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate, and the elimination of shipping and handling charges from Zenith for services provided to our wholesale operations.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
The following table presents segment information for each of the last three fiscal years:
Sales Revenue
Wholesale sales of furniture and accessories
$ 295,329 $ 221,075 $ 261,105
Less: Sales to retail segment
(112,270 ) (95,347 ) (125,933 )
Wholesale sales to external customers
183,059 125,728 135,172
Retail sales of furniture and accessories
247,827 211,944 268,693
Consolidated net sales of furniture and accessories
430,886 337,672 403,865
Logistical services revenue
86,977 75,158 80,074
Less: Services to wholesale segment
(31,329 ) (26,967 ) (31,852 )
Logistical services to external customers
55,648 48,191 48,222
Total sales revenue
$ 486,534 $ 385,863 $ 452,087
Income (loss) from Operations
Wholesale
$ 17,490 $ 4,587 $ 11,456
Retail
7,044 (9,497 ) (7,009 )
Logistical services
1,743 1,245 1,855
Inter-company elimination
(278 ) 2,647 1,144
Asset impairment charges
- (12,184 ) (4,431 )
Goodwill impairment charge
- (1,971 ) (1,926 )
Early retirement program
- - (835 )
Litigation expense
- (1,050 ) (700 )
Lease exit costs
- - (149 )
Consolidated income from operations
$ 25,999 $ (16,223 ) $ (595 )
Depreciation and Amortization
Wholesale
$ 3,386 $ 3,125 $ 3,178
Retail
6,580 6,578 6,303
Logistical services
4,631 3,777 4,019
Consolidated
$ 14,597 $ 13,480 $ 13,500
Capital Expenditures
Wholesale
$ 5,943 $ 2,434 $ 5,650
Retail
299 695 8,473
Logistical services
4,508 2,900 3,627
Consolidated
$ 10,750 $ 6,029 $ 17,750
Identifiable Assets
Wholesale
$ 197,543 $ 176,243 $ 144,392
Retail
160,929 169,105 91,997
Logistical services
63,188 57,201 39,377
Consolidated
$ 421,660 $ 402,549 $ 275,766
See Note 18 for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
18. Revenue Recognition
Disaggregated revenue information for sales of furniture and accessories by product category for fiscal years 2021, 2020 and 2019, excluding intercompany transactions between our segments, is as follows:
Wholesale
Retail
Total
Wholesale
Retail
Total
Wholesale
Retail
Total
Bassett Custom Upholstery
$ 105,445 $ 139,527 $ 244,972 $ 71,840 $ 112,888 $ 184,728 $ 78,856 $ 142,865 $ 221,721
Bassett Leather
36,157 226 36,383 20,487 2,326 22,813 17,083 3,782 20,865
Bassett Custom Wood
24,079 30,931 55,010 19,682 28,942 48,624 21,264 35,092 56,356
Bassett Casegoods
17,378 42,658 60,036 13,719 35,728 49,447 17,221 44,827 62,048
Accessories, mattresses and other (1) (2)
- 34,485 34,485 - 32,060 32,060 748 42,127 42,875
Consolidated Furniture and Accessories revenue
$ 183,059 $ 247,827 $ 430,886 $ 125,728 $ 211,944 $ 337,672 $ 135,172 $ 268,693 $ 403,865
(1)
Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.
(2)
Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to third party customers such as licensees or independent furniture dealers. These customers now source their accessory items from the accessory vendors.
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
19. Quarterly Results of Operations
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales revenue:
Furniture and accessories
$ 101,655 $ 109,997 $ 104,870 $ 114,364
Logistics
12,018 14,062 14,036 15,532
Total sales revenue
113,673 124,059 118,906 129,896
Cost of furniture and accessories sold
48,252 52,911 52,263 56,373
Income from operations
6,021 8,379 4,490 7,109
Net income
4,011 5,974 3,016 5,041
Basic earnings per share
0.40 0.60 0.31 0.52
Diluted earnings per share
0.40 0.60 0.31 0.52
First
Quarter
Second
Quarter (1)
Third
Quarter (2)
Fourth
Quarter (3)
Sales revenue:
Furniture and accessories
$ 98,942 $ 53,000 $ 80,341 $ 105,389
Logistics
13,178 10,801 11,218 12,994
Total sales revenue
112,120 63,801 91,559 118,383
Cost of furniture and accessories sold
45,270 29,452 38,418 50,427
Income (loss) from operations
2,210 (31,229 ) 2,747 10,049
Net income (loss)
1,210 (20,352 ) 2,178 6,543
Basic earnings (loss) per share
0.12 (2.04 ) 0.22 0.65
Diluted earnings (loss) per share
0.12 (2.04 ) 0.22 0.65
All quarters shown above for fiscal 2021 and 2020 consisted of 13-week fiscal periods.
(1)
Loss from operations reflects the severe impact of the COVID-19 pandemic on our operations due to the temporary closure of substantially all of our operations during the quarter (see Note 1) and includes a goodwill impairment charge of $1,971 (see Note 7), asset impairment charges of $12,184 and a litigation expense accrual of $1,050 (see Note 13). Net loss includes the benefit of carrying back the loss to tax years with 35% federal statutory rate as provided for in the CARES Act (see Note 12).
(2)
Net income includes a non-taxable gain of $914 arising from the recognition of a death benefit from Company-owned life insurance (see Note 13).
(3)
Income from operations includes a gain of $1,161 arising from the settlement of a lease obligation (see Note 13).
20. Subsequent Event
On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith Freight Lines, LLC to J.B. Hunt Transport Services, Inc. for approximately $87,000 in cash. We expect the transaction to close by February 28, 2022 subject to customary closing conditions.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.
We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our CEO and CFO, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of November 27, 2021 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of November 27, 2021, based on those criteria. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting.
Changes in internal control over financial reporting.
There have been no changes in our internal controls over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Bassett Furniture Industries, Incorporated and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Bassett Furniture Industries, Incorporated and Subsidiaries’ internal control over financial reporting as of November 27, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Bassett Furniture Industries, Incorporated and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of November 27, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of November 27, 2021 and November 28, 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended November 27, 2021, and the related notes and schedule and our report dated January 31, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Richmond, Virginia
January 31, 2022

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be contained in the Proxy Statement under the captions “Election of Directors,” “Board and Board Committee Information,” and “Delinquent Section 16(a) Reports” is incorporated herein by reference thereto. Please see section entitled “Information about our Executive Officers” in Item 4B of Part I of this report for information concerning executive officers.
The Registrant has a code of ethics that applies to all of its employees, officers and directors. The code of ethics is available on the Registrant’s website at www.bassettfurniture.com and the Registrant will post any amendments to, or waivers, from, the code of ethics on that website.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information to be contained in the Proxy Statement under the captions “Organization, Compensation and Nominating Committee Report,” “Compensation Discussion and Analysis,” “Executive Compensation,” and “Director Compensation” is incorporated herein by reference thereto.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information to be contained in the Proxy Statement under the headings “Principal Stockholders and Holdings of Management” and “Equity Compensation Plan Information” is incorporated herein by reference thereto.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be contained in the Proxy Statement under the captions “Board and Board Committee Information” and “Other Transactions” is incorporated herein by reference thereto.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information to be contained in the Proxy Statement under the caption “Audit and Other Fees” is incorporated herein by reference thereto.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(1)
Bassett Furniture Industries, Incorporated and Subsidiaries Audited Consolidated Financial Statements for the years ended November 27, 2021, November 28, 2020 and November 30, 2019.
(2)
Financial Statement Schedule:
Schedule II- Analysis of Valuation and Qualifying Accounts for the years ended November 27, 2021, November 28, 2020 and November 30, 2019
(3)
Listing of Exhibits
3A.
Articles of Incorporation as amended are incorporated herein by reference to Form 10-Q for the fiscal quarter ended February 28, 1994.
3B.
By-laws as amended to date are incorporated herein by reference to Exhibit 3 to Form 8-K filed with the SEC on January 19, 2020.
4A.
Seventh Amended and Restated Credit Agreement with Truist Bank dated January 27, 2022. Registrant hereby agrees to furnish the SEC, upon request, other instruments defining the rights of holders of long-term debt of the Registrant.
4B.
Description of Capital Stock is incorporated herein by reference to Form 10-K for the fiscal year ended November 30, 2019, filed January 23, 2020.
*10B.
Bassett Executive Deferred Compensation Plan is incorporated herein by reference to Form 10-K for the fiscal year ended November 30, 1997.
*10C.
Bassett Supplemental Retirement Income Plan is incorporated herein by reference to Form 10-K for the fiscal year ended November 30, 1997.
*10K.
Bassett Furniture Industries, Incorporated 2021 Stock Incentive Plan incorporated by reference to Schedule 14A filed on February 8, 2021
*10L.
Form of Performance Share Award Agreement, Restricted Stock Award Agreement and Stock Option Award Agreement under the Bassett Furniture Industries, Incorporated 2021 Stock Incentive Plan.
*10M.
Schedule of Terms for Employment Continuity Agreements with Certain Executive Officers.
*10N.
Restated Supplemental Retirement Income Plan, effective May 1, 2014, is incorporated herein by reference to Form 10-Q for the quarterly period ended May 31, 2014.
*10O.
Bassett Furniture Industries, Incorporated Management Savings Plan incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on May 5, 2017.
*10P.
Form of Long Term Cash Award under Bassett Furniture Industries, Incorporated Management Savings Plan incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on May 5, 2017.
21.
List of subsidiaries of the Registrant
23A.
Consent of Independent Registered Public Accounting Firm
31A.
Certification of Robert H. Spilman, Jr., President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31B.
Certification of J. Michael Daniel, Senior Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32A.
Certification of Robert H. Spilman, Jr., President and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32B.
Certification of J. Michael Daniel, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation
101.DEF
Inline XBRL Taxonomy Extension Definition
101.LAB
Inline XBRL Taxonomy Extension Labels
101.PRE
Inline XBRL Taxonomy Extension Presentation
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan or arrangement of the Company.