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EX-32.B - EXHIBIT 32.B - BASSETT FURNITURE INDUSTRIES INCex32-b.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 27, 2016

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________________ to _______________________

 

Commission File No. 0-209

 

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

(Exact name of Registrant as specified in its charter)

 

 

Virginia

 

54-0135270

 
 

(State or other jurisdiction

 

(I.R.S. Employer

 
 

of incorporation or organization) 

 

Identification No.)

 

 

3525 Fairystone Park Highway

Bassett, Virginia 24055

(Address of principal executive offices)

(Zip Code)

 

(276) 629-6000

(Registrant's telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes     X     No             

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large Accelerated Filer _______ Accelerated Filer     X        Non-accelerated Filer               Smaller Reporting Company             

 

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

 

At March 18, 2016, 10,892,609 shares of common stock of the Registrant were outstanding.

 

 
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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

ITEM                                                              

    PAGE
 
PART I - FINANCIAL INFORMATION
     

1.

Condensed Consolidated Financial Statements as of February 27, 2016 (unaudited) and November 28, 2015 and for the quarters ended February 27, 2016 (unaudited) and February 28, 2015 (unaudited)

 
     
 

Condensed Consolidated Statements of Income and Retained Earnings

3
     
 

Condensed Consolidated Statements of Comprehensive Income

4
     
 

Condensed Consolidated Balance Sheets

5
     
 

Condensed Consolidated Statements of Cash Flows

6
     
 

Notes to Condensed Consolidated Financial Statements

7
     

2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

     

3.

Quantitative and Qualitative Disclosures About Market Risk

34

     

4.

Controls and Procedures

34

     

PART II - OTHER INFORMATION

     

1.

Legal Proceedings

36

     

2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

     

3.

Defaults Upon Senior Securities

36

     

6.

Exhibits

36

 

 
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PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE PERIODS ENDED FEBRUARY 27, 2016 AND FEBRUARY 28, 2015 – UNAUDITED

(In thousands except per share data) 

 

   

Quarter Ended

 
                 
   

February 27,

2016

   

February 28,

2015

 

Sales revenue:

               

Furniture and accessories

  $ 92,402     $ 89,548  

Logistics

    14,471       3,259  

Total sales revenue

    106,873       92,807  
                 

Cost of furniture and accessories sold

    41,986       41,930  
                 

Selling, general and administrative expenses excluding new store pre-opening costs

    58,957       47,475  

New store pre-opening costs

    139       -  

Lease exit costs

    -       419  

Asset impairment charges

    -       106  

Income from operations

    5,791       2,877  
                 

Remeasurement gain on acquisition of affiliate

    -       7,212  

Other loss, net

    (657 )     (622 )

Income before income taxes

    5,134       9,467  
                 

Income tax expense

    1,900       3,511  

Net income

  $ 3,234     $ 5,956  
                 

Retained earnings-beginning of period

    120,904       106,339  

Cash dividends

    (962 )     (821 )

Retained earnings-end of period

  $ 123,176     $ 111,474  
                 

Basic earnings per share

  $ 0.30     $ 0.57  
                 

Diluted earnings per share

  $ 0.30     $ 0.56  
                 

Dividends per share

  $ 0.09     $ 0.08  

 

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

 

 
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PART I – FINANCIAL INFORMATION – CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

FOR THE PERIODS ENDED FEBRUARY 27, 2016 AND FEBRUARY 28, 2015 – UNAUDITED

(In thousands)

 

   

Quarter Ended

 
                 
   

February 27,

2016

   

February 28,

2015

 
                 

Net income

  $ 3,234     $ 5,956  

Other comprehensive income:

               

Amortization associated with supplemental executive retirement defined benefit plan (SERP)

    91       59  

Income taxes related to SERP

    (34 )     (22 )
                 

Other comprehensive income, net of tax

    57       37  
                 

Total comprehensive income

  $ 3,291     $ 5,993  

 

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

 

 
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PART I – FINANCIAL INFORMATION – CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

FEBRUARY 27, 2016 AND NOVEMBER 28, 2015

(In thousands)

 

   

(Unaudited)

         
   

February 27,

2016

   

November 28,

2015

 
Assets                

Current assets

               

Cash and cash equivalents

  $ 25,113     $ 36,268  

Short-term investments

    23,125       23,125  

Accounts receivable, net

    19,741       21,197  

Inventories

    57,539       59,896  

Other current assets

    8,124       6,798  

Total current assets

    133,642       147,284  
                 

Property and equipment, net

    101,810       96,104  
                 

Deferred income taxes

    12,634       13,471  

Goodwill and other intangible assets

    17,601       17,682  

Other

    7,967       8,002  

Total long-term assets

    38,202       39,155  

Total assets

  $ 273,654     $ 282,543  
                 

Liabilities and Stockholders’ Equity

               

Current liabilities

               

Accounts payable

  $ 20,234     $ 20,916  

Accrued compensation and benefits

    11,472       14,345  

Customer deposits

    23,284       23,999  

Dividends payable

    -       2,184  

Current portion of long-term debt

    5,855       5,273  

Other accrued liabilities

    10,191       13,133  

Total current liabilities

    71,036       79,850  
                 

Long-term liabilities

               

Post employment benefit obligations

    12,674       12,694  

Notes payable

    7,793       8,500  

Other long-term liabilities

    3,918       4,133  

Total long-term liabilities

    24,385       25,327  
                 
                 

Stockholders’ equity

               

Common stock

    54,463       54,580  

Retained earnings

    123,176       120,904  

Additional paid-in capital

    3,215       4,560  

Accumulated other comprehensive loss

    (2,621 )     (2,678 )

Total stockholders' equity

    178,233       177,366  

Total liabilities and stockholders’ equity

  $ 273,654     $ 282,543  

 

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

 

 
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PART I – FINANCIAL INFORMATION – CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED FEBRUARY 27, 2016 AND FEBRUARY 28, 2015 – UNAUDITED

(In thousands)

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 

Operating activities:

               

Net income

  $ 3,234     $ 5,956  

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

               

Depreciation and amortization

    2,817       2,146  

Equity in undistributed income of investments and unconsolidated affiliated companies

    -       (220 )

Provision for restructuring and asset impairment charges

    -       106  

Non-cash portion of lease exit costs

    -       419  

Remeasurement gain on acquisition of affiliate

    -       (7,212 )

Deferred income taxes

    803       4,278  

Other, net

    294       549  

Changes in operating assets and liabilities:

               

Accounts receivable

    1,509       1,021  

Inventories

    2,357       (4,404 )

Other current assets

    (1,326 )     (2,325 )

Customer deposits

    (715 )     3,122  

Accounts payable and accrued liabilities

    (6,553 )     (4,341 )

Net cash provided by (used in) operating activities

    2,420       (905 )
                 

Investing activities:

               

Purchases of property and equipment

    (8,568 )     (3,918 )

Proceeds from sales of property and equipment

    20       -  

Cash paid for business acquisition, net of cash acquired

    -       (7,374 )

Capital contribution to affiliate

    -       (1,345 )

Net cash used in investing activities

    (8,548 )     (12,637 )
                 

Financing activities:

               

Cash dividends

    (3,146 )     (2,923 )

Proceeds from the exercise of stock options

    -       1,410  

Other issuance of common stock

    84       85  

Repurchases of common stock

    (1,774 )     (191 )

Excess tax benefits from stock-based compensation

    -       456  

Repayments of notes payable

    (4,395 )     (372 )

Proceeds from equipment loans

    4,204       660  

Net cash used in financing activities

    (5,027 )     (875 )

Change in cash and cash equivalents

    (11,155 )     (14,417 )

Cash and cash equivalents - beginning of period

    36,268       26,673  
              .  

Cash and cash equivalents - end of period

  $ 25,113     $ 12,256  

 

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

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board as the source of authoritative GAAP.

 

The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. The equity method of accounting was used for our investment in an affiliated company in which we exercised significant influence but did not maintain a controlling interest prior to the Zenith acquisition mentioned below. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees nor any other of our counterparties represent VIEs.

 

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

 

Zenith Acquisition

 

Prior to February 2, 2015 we held a 49% interest in Zenith Freight Lines, LLC (“Zenith”) for which we used the equity method of accounting. On February 2, 2015 we acquired the remaining 51% ownership interest (see Note 3, Business Combinations). Accordingly, the results of Zenith have been consolidated with our results since the date of the acquisition. Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated, and Zenith’s operating costs and expenses since the date of acquisition are included in selling, general and administrative expenses in our condensed consolidated statements of income. Our equity in the earnings of Zenith prior to the date of the acquisition is included in other loss, net, in the accompanying condensed consolidated statements of income.

 

2. Interim Financial Presentation

 

All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three months ended February 27, 2016 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 28, 2015.

 

We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter. Our effective tax rates for the quarters ended February 27, 2016 and February 28, 2015 differ from the federal statutory rate primarily due to the effects of state income taxes and various permanent differences.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

3. Business Combination – Acquisition of Zenith

 

Prior to February 2, 2015 we held a 49% interest in Zenith for which we used the equity method of accounting. Zenith provides domestic transportation and warehousing services primarily to furniture manufacturers and distributors and also provides home delivery services to furniture retailers. We historically have contracted with Zenith to provide substantially all of our domestic freight, transportation and warehousing needs for the wholesale business. In addition, Zenith provides home delivery services for many of our Company-owned retail stores. On February 2, 2015, we acquired the remaining 51% of Zenith in exchange for cash, Bassett common stock and a note payable with a total fair value of $19,111. The value of the Bassett common stock was based on the closing market price of our shares on the acquisition date, discounted for lack of marketability due to restrictions on the seller’s ability to transfer the shares. The restrictions on one half of the shares expired on the first anniversary of the acquisition, with the remainder expiring on the second anniversary. The note is payable in three annual installments of $3,000 each beginning February 2, 2016, and has been discounted to its fair value as of the date of the acquisition based on our estimated borrowing rate.

 

The carrying value of our 49% interest in Zenith prior to the acquisition was $9,480 (see Note 8, unconsolidated affiliated company). In connection with the acquisition, this investment was remeasured to a fair value of $16,692 resulting in the recognition of a gain of $7,212 during the quarter ended February 28, 2015. The impact of this gain upon our basic and diluted earnings per share was approximately $0.42, net of the related tax expense. The remeasured fair value of our prior interest in Zenith was estimated based on the fair value of the consideration transferred to acquire the remaining 51% of Zenith less an estimated control premium.

 

Under the acquisition method of accounting, the fair value of the consideration transferred along with the fair value of our previous 49% interest in Zenith was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date with the remaining unallocated amount recorded as goodwill.

 

The total fair value of the acquired business was determined as follows:

 

Fair value of consideration transferred in exchange for 51% of Zenith:

       

Cash

  $ 9,000  

Bassett common stock, 89,485 shares, par value $5.00 per share, fair value at closing $18.72 per share

    1,675  

Note payable

    8,436  

Total fair value of consideration transferred to seller

    19,111  

Less effective settlement of previous amounts payable to Zenith at acquisition

    (3,622 )

Total fair value of consideration net of effective settlement

    15,489  

Fair value of Bassett's previous 49% interest in Zenith

    16,692  
         

Total fair value of acquired business

  $ 32,181  

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

The allocation of the fair value of the acquired business is as follows:

 

Identifiable assets acquired:

       

Acquired cash and cash equivalents

  $ 1,677  

Accounts receivable, net

    3,399  

Prepaid expenses and other current assets

    496  

Property and equipment

    18,110  

Other long-term assets

    646  

Intangible assets

    6,362  

Total identifiable assets acquired

    30,690  

Liabilities assumed:

       

Accounts payable and accrued liabilities

    (4,038 )

Notes payable

    (4,329 )

Total liabilities assumed

    (8,367 )

Net identifiable assets acquired

    22,323  

Goodwill

    9,858  

Total net assets acquired

  $ 32,181  

 

Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the value assigned to tangible and intangible assets and liabilities. Approximately $6,982 of the acquired goodwill is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill were Zenith’s reputation for best-in-class, fully integrated logistical services which are uniquely tailored to the needs of the furniture industry, as well as their ability to provide expedited delivery service which is increasingly in demand in the furniture industry.

 

A portion of the fair value of consideration transferred was assigned to identifiable intangible assets as follows:

 

   

Useful Life

         
Description:  

In Years

   

Fair Value

 
                 

Customer relationships

    15     $ 3,038  

Trade names

    Indefinite       2,490  

Technology - customized applications

    7       834  
                 

Total acquired intangible assets

          $ 6,362  

 

The finite-lived intangible assets are being amortized on a straight-line basis over their useful lives. The indefinite-lived intangible asset and goodwill are not amortized but will be tested for impairment annually or between annual tests if an indicator of impairment exists.

 

The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and Disclosures. See Note 4.

 

Acquisition costs related to the Zenith acquisition totaled $121 during the quarter ended February 28, 2015 and are included in selling, general and administrative expenses in the condensed consolidated statements of income. The acquisition costs are primarily related to legal, accounting and valuation services.

 

The revenue of Zenith since February 2, 2015 that is included in our condensed consolidated statements of income for the quarters ended February 27, 2016 and February 28, 2015 is $14,471 and $3,259, respectively after the elimination of intercompany transactions. Pre-tax income (loss) of Zenith that is included in our condensed consolidated statements of income for the quarters ended February 27, 2016 and February 28, 2015 is $695 and $(20), respectively. The pro forma results of operations for the acquisition of Zenith have not been presented because they are not material to our consolidated results of operations.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

4. Financial Instruments and Fair Value Measurements

 

Financial Instruments

 

Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, cost method investments, accounts payable and notes payable/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. Our cost method investments generally involve entities for which it is not practical to determine fair values.

 

Investments

 

Our short-term investments of $23,125 at both February 27, 2016 and November 28, 2015 consisted of certificates of deposit (CDs) with original terms of twelve months, bearing interest at rates ranging from 0.28% to 1.00%. At February 27, 2016, the weighted average remaining time to maturity of the CDs was approximately four months and the weighted average yield of the CDs was approximately 0.42%. Each CD is placed with a Federally insured financial institution and all deposits are within Federal deposit insurance limits. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at February 27, 2016 and November 28, 2015 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. The recurring estimate of the fair value of our notes payable for disclosure purposes (see Note 9) involves Level 3 inputs. Our primary non-recurring fair value estimates typically involve business acquisitions (Note 3) which involve a combination of Level 2 and Level 3 inputs, and asset impairments (Note 11) which utilize Level 3 inputs.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

5. Accounts Receivable

 

Accounts receivable consists of the following:

 

 

   

February 27,

2016

   

November 28,

2015

 

Gross accounts receivable

  $ 20,863     $ 22,372  

Allowance for doubtful accounts

    (1,122 )     (1,175 )

Accounts receivable, net

  $ 19,741     $ 21,197  

 

At February 27, 2015 and November 28, 2015 approximately 35% and 34%, respectively, of gross accounts receivable, and approximately 33% and 32%, respectively, of the allowance for doubtful accounts were attributable to amounts owed to us by our licensees. Our remaining receivables are primarily due from national account customers, traditional distribution channel customers and logistical services customers.

 

Activity in the allowance for doubtful accounts for the three months ended February 27, 2016 was as follows: 

           

   

2016

 
         

Balance at November 28, 2015

  $ 1,175  

Reductions credited to income

    (50 )

Write-offs and other reductions

    (3 )

Balance at February 27, 2016

  $ 1,122  

 

We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.

 

6. Inventories

 

Inventories are valued at the lower of cost or market. Cost is determined for domestic furniture inventories using the last-in, first-out (LIFO) method. The costs for imported inventories are determined using the first-in, first-out (FIFO) method.

 

Inventories were comprised of the following:

 

   

February 27,

2016

   

November 28,

2015

 

Wholesale finished goods

  $ 28,555     $ 31,253  

Work in process

    346       318  

Raw materials and supplies

    10,637       9,793  

Retail merchandise

    27,576       27,680  

Total inventories on first-in, first-out method

    67,114       69,044  

LIFO adjustment

    (7,864 )     (7,751 )

Reserve for excess and obsolete inventory

    (1,711 )     (1,397 )
    $ 57,539     $ 59,896  

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.

 

 

Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:

 

 

   

Wholesale

Segment

   

Retail Segment

   

Total

 
                         

Balance at November 28, 2015

  $ 1,087     $ 310     $ 1,397  

Additions charged to expense

    712       140       852  

Write-offs

    (429 )     (109 )     (538 )

Balance at February 27, 2016

  $ 1,370     $ 341     $ 1,711  

 

Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2016 and do not anticipate that our methodology is likely to change in the future.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

7. Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets consisted of the following:

 

 

   

February 27, 2016

 
   

Gross

Carrying

Amount

   

 

Accumulated

Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 3,038     $ (220 )   $ 2,818  

Technology - customized applications

    834       (129 )     705  
                         

Total intangible assets subject to amortization

    3,872       (349 )     3,523  
                         

Intangibles not subject to amortization:

                       

Trade names

    2,490       -       2,490  

Goodwill

    11,588       -       11,588  
                         

Total goodwill and other intangible assets

  $ 17,950     $ (349 )   $ 17,601  

 

   

November 28, 2015

 
   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Intangible

Assets, Net

 

Intangibles subject to amortization

                       

Customer relationships

  $ 3,038     $ (169 )   $ 2,869  

Technology - customized applications

    834       (99 )     735  
                         

Total intangible assets subject to amortization

    3,872       (268 )     3,604  
                         

Intangibles not subject to amortization:

                       

Trade names

    2,490       -       2,490  

Goodwill

    11,588       -       11,588  
                         

Total goodwill and other intangible assets

  $ 17,950     $ (268 )   $ 17,682  

 

The carrying amounts of goodwill by reportable segment at both February 27, 2016 and November 28, 2015 were as follows:

 

Wholesale

  $ 4,839  

Retail

    1,820  

Logistical services

    4,929  
         

Total goodwill

  $ 11,588  

 

There were no accumulated impairment losses on goodwill as of February 27, 2016 or November 28, 2015.

 

Amortization expense associated with intangible assets during the quarters ended February 27, 2016 and February 28, 2015 was $81 and $42, respectively.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

8. Unconsolidated Affiliate

 

Prior to February 2, 2015 we owned 49% of Zenith and accounted for our investment under the equity method. The balance of our investment in Zenith was adjusted for our equity in the earnings of Zenith through February 2, 2015 of $220 (included in other loss, net in our condensed consolidated statement of income for the quarter ended February 28, 2015), and increased by $1,345 representing our 49% share of a $2,745 capital contribution made to Zenith, a portion of which was used for retirement of certain of Zenith’s debt prior to the acquisition. This activity resulted in a carrying value for our investment in Zenith of $9,480 on the date of acquisition. See Note 3 regarding the remeasurement of this carrying value to fair value in connection with the acquisition and the resulting remeasurement gain of $7,212.

 

9. Notes Payable and Bank Credit Facility

 

Our notes payable consist of the following: 

 

   

February 27, 2016

 
   

Principal

Balance

   

Unamortized

Discount

   

Net Carrying

Amount

 
                         

Zenith acquisition note payable

  $ 6,000     $ (246 )   $ 5,754  

Transportation equipment notes payable

    5,112       -       5,112  

Real estate notes payable

    2,782       -       2,782  
                         

Total Debt

    13,894       (246 )     13,648  

Less current portion

    (6,030 )     175       (5,855 )
                         

Total long-term debt

  $ 7,864     $ (71 )   $ 7,793  

 

   

November 28, 2015

 
   

Principal

Balance

   

Unamortized

Discount

   

Net Carrying

Amount

 
                         

Zenith acquisition note payable

  $ 9,000     $ (312 )   $ 8,688  

Transportation equipment notes payable

    2,152       -       2,152  

Real estate notes payable

    2,933       -       2,933  
                         

Total Debt

    14,085       (312 )     13,773  

Less current portion

    (5,477 )     204       (5,273 )
                         

Total long-term debt

  $ 8,608     $ (108 )   $ 8,500  

 

The future maturities of our notes payable are as follows:

 

Remainder of fiscal 2016

  $ 2,534  

Fiscal 2017

    4,809  

Fiscal 2018

    4,515  

Fiscal 2019

    1,509  

Fiscal 2020

    527  

Fiscal 2021

    -  

Thereafter

    -  
    $ 13,894  

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

Zenith Acquisition Note Payable

 

As part of the consideration given for our acquisition of Zenith on February 2, 2015, we issued an unsecured note payable to the former owner in the amount of $9,000, payable in three annual installments of $3,000 due on each anniversary of the note, the first installment having been paid on February 2, 2016. Interest is payable annually at the one year LIBOR rate, which was established at 0.62% on February 2, 2015 and resets on each anniversary of the note, having reset to the current rate of 1.14% on February 2, 2016. The note was recorded at its fair value in connection with the acquisition resulting in a debt discount that is amortized to the principal amount through the recognition of non-cash interest expense over the term of the note. Interest expense resulting from the amortization of the discount for the quarters ended February 27, 2016 and February 28, 2015 was $66 and $24, respectively. The current portion of the note due within one year, including unamortized discount, was $2,825 and $2,796 at February 27, 2016 and November 28, 2015, respectively.

 

Transportation Equipment Notes Payable

 

Certain of the transportation equipment operated in our logistical services segment is financed by notes payable in the amount of $5,112 and $2,152 at February 27, 2016 and November 28, 2015, respectively. These notes are payable in fixed monthly payments of principal and interest at fixed and variable rates ranging from 2.60% to 3.75% at February 27, 2016, with remaining terms of fifteen to forty-five months. The current portion of these notes due within one year was $1,514 and $901 at February 27, 2016 and November 28, 2015, respectively. The notes are secured by tractors, trailers and local delivery trucks with a total net book value of $6,552 and $3,796 at February 27, 2016 and November 28, 2015, respectively.

 

Real Estate Notes Payable

 

Certain of our retail real estate properties have been financed through commercial mortgages with outstanding principal totaling $1,623 and $1,709 at February 27, 2016 and November 28, 2015, respectively. The mortages bear interest at fixed rates of 6.73%. They are collateralized by the respective properties with net book values totaling approximately $5,959 and $5,993 at February 27, 2016 and November 28, 2015, respectively. The current portion of these mortgages due within one year was $357 and $351 as of February 27, 2016 and November 28, 2015, respectively.

 

Certain of the real estate located in Conover, NC and operated in our logistical services segment is subject to a note payable in the amount of $1,159 and $1,224 at February 27, 2016 and November 28, 2015, respectively. The note is payable in monthly installments of principal and interest at the fixed rate of 3.75% through October 2016, at which time the remaining balance on the note of approximately $1,004 will be due. Therefore, the entire balance of this note is included in the current portion of our long-term debt at February 27, 2016 and November 28, 2015. The note is secured by land and buildings with a total net book value of $6,191 and $6,226 at February 27, 2016 and November 28, 2015, respectively.

 

Fair Value

 

We believe that the carrying amount of our notes payable approximates fair value at both February 27, 2016 and November 28, 2015. In estimating the fair value, we utilize current market interest rates for similar instruments. The inputs into these fair value calculations 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 3.

 

Bank Credit Facility

 

Effective December 5, 2015, we entered into a new credit facility with our bank which provides for a line of credit of up to $15,000. This credit facility, which matures in December of 2018, is unsecured and contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement and expect to remain in compliance for the foreseeable future.

 

 
15 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

At February 27, 2016, we had $1,970 outstanding under standby letters of credit against our line, leaving availability under our credit line of $13,030. In addition, we have outstanding standby letters of credit with another bank totaling $356.

 

10. Post Employment Benefit Obligations

 

We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for this plan was $11,683 and $11,678 as of February 27, 2016 and November 28, 2015, respectively, and is recorded as follows in the condensed consolidated balance sheets:

  

 

   

February 27,

2016

   

November 28,

2015

 

Accrued compensation and benefits

  $ 749     $ 749  

Post employment benefit obligations

    10,934       10,929  
                 

Total pension liability

  $ 11,683     $ 11,678  

 

Components of net periodic pension costs are as follows:

 

 

   

Quarter Ended

 
   

February 27,

2016

   

February 28,

2015

 

Service cost

  $ 36     $ 26  

Interest cost

    106       94  

Amortization of transition obligation

    11       11  

Amortization of loss

    81       48  
                 

Net periodic pension cost

  $ 234     $ 179  

  

 

We have an unfunded Deferred Compensation Plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. We recognized expense of $57 and $54 for the quarters ended February 27, 2016 and February 28, 2015, respectively. Our liability under this plan was $2,060 and $2,085 as of February 27, 2016 and November 28, 2015, respectively, and is recorded as follows in the condensed consolidated balance sheets:

 

 

   

February 27,

2016

   

November 28,

2015

 

Accrued compensation and benefits

  $ 320     $ 320  

Post employment benefit obligations

    1,740       1,765  
                 

Total deferred compensation liability

  $ 2,060     $ 2,085  

 

 
16 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

11. Impairment Charges and Accrued Lease Exit Costs

 

During the quarter ended February 28, 2015 we announced the closing of our Company-owned retail store location in Memphis, Tennessee. In connection with this closing, we recognized non-cash charges of $419 for the accrual of lease exit costs and $106 for the write off of abandoned leasehold improvements and other store assets.

 

The following table summarized the activity related to our accrued lease exit costs:

 

Balance at November 28, 2015

  $ 566  
         

Provisions made to adjust previous estimates

    27  

Payments and other

    (130 )

Accretion of interest on obligations and other

    3  
         

Balance at February 27, 2016

  $ 466  
         

Current portion included in other accrued liabilities

  $ 277  

Long-term portion included in other long-term liabilities

    189  
    $ 466  

 

12. Commitments and Contingencies

 

 

We are involved in various legal and environmental matters, which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

 

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 segment. Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years. Some store leases contain contingent rental provisions based upon sales volume. Our transportation equipment leases have terms ranging from two to seven years with fixed monthly rental payments plus variable charges based upon mileage. The following schedule shows future minimum lease payments under non-cancellable operating leases with terms in excess of one year as of February 27, 2016:

 

 

   

Retail Stores

   

Distribution

Centers

   

Transportation Equipment

   

Total

 
                                 

Remainder of fiscal 2016

  $ 13,755     $ 3,041     $ 2,543     $ 19,339  

Fiscal 2017

    17,167       3,984       2,672       23,823  

Fiscal 2018

    14,787       2,736       1,447       18,970  

Fiscal 2019

    12,906       1,745       1,420       16,071  

Fiscal 2020

    11,578       1,230       1,355       14,163  

Fiscal 2021

    8,920       1,254       781       10,955  

Thereafter

    19,347       3,023       668       23,038  

Total future minimum lease payments

  $ 98,460     $ 17,013     $ 10,886     $ 126,359  

 

We also have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to ten years. We were contingently liable under licensee lease obligation guarantees in the amount of $2,386 and $2,494 at February 27, 2016 and November 28, 2015, respectively.

 

 
17 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

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 (primarily inventory), and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at February 27, 2016 and November 28, 2015 was not material.

 

 

13. Earnings Per Share

 

 

The following reconciles basic and diluted earnings per share: 

 

   

Net Income

   

Weighted Average Shares

   

Net Income Per Share

 

For the quarter ended February 27, 2016:

                       
                         

Basic earnings per share

  $ 3,234       10,780,229     $ 0.30  

Add effect of dilutive securities: Options and restricted shares

    -       104,327       -  

Diluted earnings per share

  $ 3,234       10,884,556     $ 0.30  
                         

For the quarter ended February 28, 2015:

                       
                         

Basic earnings per share

  $ 5,956       10,480,656     $ 0.57  

Add effect of dilutive securities: Options and restricted shares

    -       175,856       (0.01 )

Diluted earnings per share

  $ 5,956       10,656,512     $ 0.56  

 

 

For the three months ended February 27, 2016 and February 28, 2015, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

 

 

   

Quarter Ended

 
   

February 27,

2016

   

February 28,

2015

 
                 

Unvested shares

    2,000       46,000  

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

14. 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 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. Also included in our wholesale segment are our short-term investments and our holdings of retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other income (loss), net, in our condensed consolidated statements of income.

 

 

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.

 

 

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, delivery and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistical services revenue in our condensed consolidated statement of income. Zenith’s operating costs are included in selling, general and administrative expenses and total $23,934 for the three months ended February 27, 2016 and $6,007 from the date of acquisition through February 28, 2015. Amounts charged by Zenith to the Company for logistical services prior to the date of acquisition are included in selling, general and administrative expenses, and our equity in the earnings of Zenith prior to the date of acquisition is included in other income (loss), net, in the accompanying statements of income.

 

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

 

 
19 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

The following table presents our segment information:

 

 

   

Quarter Ended

 
   

February 27,

2016

   

February 28,

2015

 

Sales Revenue

               

Wholesale

  $ 59,576     $ 58,805  

Retail - Company-owned stores

    61,595       57,183  

Logistical services

    24,679       5,999  

Inter-company eliminations:

               

Furniture and accessories

    (28,769 )     (26,440 )

Logistical services

    (10,208 )     (2,740 )

Consolidated

  $ 106,873     $ 92,807  
                 

Income (loss) from Operations

               

Wholesale

  $ 4,398     $ 2,927  

Retail - Company-owned stores

    316       (42 )

Logistical services

    744       (8 )

Inter-company elimination

    333       525  

Lease exit costs

    -       (419 )

Asset impairment charges

    -       (106 )

Consolidated

  $ 5,791     $ 2,877  
                 

Depreciation and Amortization

               

Wholesale

  $ 456     $ 534  

Retail - Company-owned stores

    1,531       1,355  

Logistical services

    830       257  

Consolidated

  $ 2,817     $ 2,146  
                 

Capital Expenditures

               

Wholesale

  $ 1,537     $ 961  

Retail - Company-owned stores

    2,021       2,111  

Logistical services

    5,010       846  

Consolidated

  $ 8,568     $ 3,918  
                 

 

Identifiable Assets

 

As of

February 27,

2016

   

As of

November 28,

2015

 

Wholesale

  $ 132,623     $ 146,878  

Retail - Company-owned stores

    91,548       88,878  

Logistical services

    49,483       46,787  

Consolidated

  $ 273,654     $ 282,543  

 

 
20 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

15. Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates ASC Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Companies are allowed to select between two transition methods: (1) a full retrospective transition method with the application of the new guidance to each prior reporting period presented, or (2) a retrospective transition method that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is not permitted. Therefore the amendments in ASU 2014-09 will become effective for us as of the beginning of our 2019 fiscal year. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and have not made any decision on the method of adoption.

 

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventory within the scope of this Update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. Therefore the amendments in ASU 2015-11 will become effective for us as of the beginning of our 2018 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.

 

In July 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Any current period adjustments to provisional amounts that would have impacted a prior period’s earnings had they been recognized at the acquisition date are required to be presented separately on the face of the income statement or disclosed in the notes. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. Therefore the amendments in ASU 2015-16 will become effective for us as of the beginning of our 2017 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.

 

 
21 of 38

 

 

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Furthermore, equity investments without readily determinable fair values are to be assessed for impairment using a quantitative approach. The amendments in ASU 2016-01 should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. The amendments in ASU 2016-01 will become effective for us as of the beginning of our 2019 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. The guidance in ASU 2016-02 will become effective for us as of the beginning of our 2020 fiscal year. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements, which we expect will have a material effect on our statement of financial position, and have not made any decision on the method of adoption with respect to the optional practical expedients.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

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

 

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, specialty stores and mass merchants. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 114-year history has instilled the principles of quality, value, and integrity in everything that we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and to meet the demands of a global economy.

 

With 91 BHF stores at February 27, 2016, we have leveraged our strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories.  We created our store program in 1997 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.  The store features custom order furniture ready for delivery in less than 30 days, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories.  We believe that our capabilities in custom upholstery have become unmatched in recent years. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its delivery.  The selling philosophy in the stores is based on building strong long-term relationships with each customer.  Sales people are referred to as Design Consultants and are each trained to evaluate customer needs and provide comprehensive solutions for their home decor. We continue to strengthen the sales and design talent within our Company-owned retail stores.  Our Design Consultants undergo extensive Design Certification training. This training has strengthened their skills related to our house call and design business, and is intended to increase business with our most valuable customers.

 

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, specialty stores and mass merchants. We use a network of over 25 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.  

 

For many years we owned 49% of Zenith Freight Lines, LLC (“Zenith”). During that time the strategic significance of our partnership with Zenith had risen to include the over-the-road transportation of furniture, the operation of regional freight terminal, warehouse and distribution facilities in eleven states, and the management of various home delivery facilities that service Bassett Home Furnishings stores and other clients in local markets around the United States. On February 2, 2015, we acquired the remaining 51% of Zenith, which now operates as a wholly-owned subsidiary of Bassett. Our acquisition of Zenith brings to our Company the ability to deliver best-of-class shipping and logistical support services that are uniquely tailored to the needs of the furniture industry, as well as the ability to provide the expedited delivery service which is increasingly demanded by our industry. We believe that our ownership of Zenith will not only enhance our own wholesale and retail distribution capabilities, but will provide additional growth opportunities as Zenith continues to expand its service to other customers.

 

In September of 2011, we announced the formation of a strategic partnership with HGTV (Home and Garden Television), a division of Scripps Networks, LLC, which combines our heritage in the furniture industry with the penetration of 96 million households in the United States that HGTV enjoys today.  As part of this alliance, the in-store design centers have been co-branded with HGTV to more forcefully market the concept of a “home makeover”, an important point of differentiation for our stores that also mirrors much of the programming content on the HGTV network. We believe the new co-branded design centers coupled with the targeted national advertising on HGTV have played a key role in our improved comparable store sales since their introduction. In October of 2015, we announced the extension of our partnership with HGTV through 2019. While continuing to feature HGTV branded custom upholstery products in our HGTV Home Design Studios in Bassett Home Furnishings stores, we will now expand the concept to select independent dealers. We believe this will provide additional growth outside our BHF store network.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

At February 27, 2016, our BHF store network included 59 Company-owned stores and 32 licensee-owned stores. During the first quarter of 2016, we closed one underperforming store in Tucson, Arizona. We also expect to close two additional underperforming stores during the second quarter in Egg Harbor, New Jersey and Fountain Valley, California at the end of their respective lease terms. In addition, we expect to open a new store in Sterling, Virginia during the second quarter of 2016 and Hunt Valley, Maryland late in 2016.

 

Due to the improved operating performance of our retail network along with continued improvement in underlying economic factors such as the housing market and consumer confidence, we have been expanding our retail presence in various parts of the country. As part of this expansion, we opened one new store and relocated two stores during fiscal 2015 and opened six new stores and relocated two stores in fiscal 2014. Our plan is to average opening three to five new stores, net of closings, over the next five years, primarily in underpenetrated markets where we currently have stores.

 

As with any retail operation, prior to opening a new store we incur such expenses as rent, training costs and other payroll related costs. These costs generally range between $100 to $300 per store depending on the overall rent costs for the location and the period between the time when we take physical possession of the store space and the time of the store opening. Generally, rent payments during a buildout period between delivery of possession and opening of a new store are deferred and therefore straight line rent expense recognized during that time does not require cash. Inherent in our retail business model, we also incur losses in the two to three months of operation following a new store opening. Like other furniture retailers, we do not recognize a sale until the furniture is delivered to our customer. Because our retail business model does not involve maintaining a stock of retail inventory that would result in quick delivery and because of the custom nature of many of our furniture offerings, delivery to our customers usually occurs about 30 days after an order is placed. We generally require a deposit at the time of order and collect the remaining balance when the furniture is delivered, at which time the sale is recognized. Coupled with the previously discussed store pre-opening costs, total start-up losses can range from $300 to $500 per store. While our retail expansion is initially costly, we believe our site selection and new store presentation will generally result in locations that operate at or above a retail break-even level within a reasonable period of time following store opening. Factors affecting the length of time required to achieve this goal on a store-by-store basis may include the level of brand recognition, the degree of local competition and the depth of penetration in a particular market. Even as new stores ramp up to break-even, we do realize additional wholesale sales volume that leverages the fixed costs in our wholesale business.

 

Our wholesale operations include an upholstery plant in Newton, North Carolina that produces a wide range of upholstered furniture. In February 2016, we began production in a new manufacturing facility in Grand Prairie, Texas. The new plant is producing a portion of the upholstery assortment for customers and stores in the Texas area and the western United States. We believe that we are an industry leader with our quick-ship custom upholstery offerings. We also operate a custom dining manufacturing facility in Martinsville, Virginia. Most of our wood furniture and certain of our upholstery offerings are sourced through several foreign plants, primarily in Vietnam, Indonesia and China. We define imported product as fully finished product that is sourced internationally. For the first quarter of fiscal 2016, approximately 35% of our wholesale sales were of imported product compared to 38% for the first quarter of fiscal 2015.

 

An important new product introduction in 2015 was “Bench Made”, a selection of American dining furniture that appeared in retail showrooms during the second quarter of 2015. Partnering with nearby hardwood component manufacturers, we are preparing, distressing, finishing, and assembling an assortment of solid maple tables and chairs in our newly renovated Company-owned facility in Bassett, Virginia. During 2016 we are expanding “Bench Made” offerings to include bedroom and occasional furniture. Also in 2016 we have begun moving to a living area centric floor plan for our retail locations that will focus more on the upholstery products that are driving our sales today complemented by both imported and domestically produced entertainment and occasional furnishings. All of these new products have been carefully designed in coordination with our merchants, designers, engineers and finishing technicians to achieve the upscale casual decor that we believe speaks to today’s consumer.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

Results of Operations – Quarter ended February 27, 2016 compared with quarter ended February 28, 2015:

 

Net sales of furniture and accessories, logistics revenue, cost of furniture and accessories sold, selling, general and administrative (SG&A) expense, other charges and income from operations were as follows for the periods ended February 27, 2016 and February 28, 2015:

  

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Sales revenue:

                               

Furniture and accessories

  $ 92,402       86.5 %   $ 89,548       96.5 %

Logistics revenue

    14,471       13.5 %     3,259       3.5 %

Total sales revenue

    106,873       100.0 %     92,807       100.0 %

Cost of furniture and accessories sold

    41,986       39.3 %     41,930       45.2 %

SG&A expenses

    58,957       55.2 %     47,475       51.2 %

New store pre-opening costs

    139       0.1 %     -       0.0 %

Other charges

    -       0.0 %     525       0.5 %
                                 

Income from operations

  $ 5,791       5.4 %   $ 2,877       3.1 %

  

 

On a consolidated basis, we reported total sales revenue for the first quarter of 2016 of $106,873 as compared to $92,807 for the first quarter of 2015. Total revenues for the first quarter of 2016 include $14,471 of logistics revenue for the full quarter as compared to $3,259 for the first quarter of 2015 from the date of our acquisition of Zenith, February 2, 2015, through February 28, 2015. Revenue from sales of furniture and accessories, net of estimates for returns and allowances, for the first quarter of 2016 were $92,402, an increase of $2,854, or 3.2%, over the first quarter of 2015. Gross profit on the sale of furniture and accessories for the first quarter of 2016 was $50,416, or 54.6% of the respective revenue, as compared with $47,618, or 53.2%, for the comparable prior year period. Improved margins at wholesale were partially offset by lower margins at retail resulting from store closure activity. Operating income was $5,791 for the first quarter of 2016 as compared to $2,877 for the first quarter of 2015, an increase of $2,914 driven primarily by greater leveraging of fixed costs and $525 of charges recorded in the first quarter of 2015 related to the closing of our Company-owned retail store in Memphis, Tennessee. In addition, Zenith contributed $744 to our operating income for the first quarter of 2016, whereas the impact of Zenith’s one month of operations following acquisition upon our operating results for the first quarter of 2015 was not significant.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

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 (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both 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. Also included in our wholesale segment are our short-term investments and our holdings of retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other income (loss), net, in our condensed consolidated statements of income.

 

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.

 

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, delivery and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistical services revenue in our condensed consolidated statement of income. Zenith’s operating costs are included in selling, general and administrative expenses. Amounts charged by Zenith to the Company for transportation and logistical services prior to February 2, 2015 are included in selling, general and administrative expenses, and our equity in the earnings of Zenith prior to the date of acquisition is included in other income (loss), net, in the accompanying statements of income.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results:

 

   

Quarter Ended February 27, 2016

 
   

Wholesale

   

Retail

   

Logistics

   

Eliminations

     

Consolidated

 
                                           

Sales revenue:

                                         

Furniture & accessories

  $ 59,576     $ 61,595     $ -     $ (28,769 ) (1)   $ 92,402  

Logistics

    -       -       24,679       (10,208 ) (2)     14,471  

Total sales revenue

    59,576       61,595       24,679       (38,977 )       106,873  

Cost of furniture and accessories sold

    39,298       31,315       -       (28,627 ) (3)     41,986  

SG&A expense

    15,880       29,825       23,935       (10,683 ) (4)     58,957  

New store pre-opening costs

    -       139       -       -         139  

Income from operations

  $ 4,398     $ 316     $ 744     $ 333       $ 5,791  

 

   

Quarter Ended February 28, 2015

 
   

Wholesale

   

Retail

   

Logistics

   

Eliminations

     

Consolidated

 
                                           

Sales revenue:

                                         

Furniture & accessories

  $ 58,805     $ 57,183     $ -     $ (26,440 ) (1)   $ 89,548  

Logistics

    -       -       5,999       (2,740 ) (2)     3,259  

Total sales revenue

    58,805       57,183       5,999       (29,180 )       92,807  

Cost of furniture and accessories sold

    39,982       28,400       -       (26,452 ) (3)     41,930  

SG&A expense

    15,896       28,825       6,007       (3,253 ) (4)     47,475  

New store pre-opening costs

    -       -       -       -         -  

Income (loss) from operations (5)

  $ 2,927     $ (42 )   $ (8 )   $ 525       $ 3,402  

 

(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 and retail segments.

(3) 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.

(4) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate, and the elimination of logisitcal services charged by Zenith to Bassett's retail and wholesale segments as follows:

 

   

Quarter ended

 
   

February 27,

2016

   

February 28,

2015

 
                 

Intercompany logistical services

  $ (10,208 )   $ (2,740 )

Intercompany rents

    (475 )     (513 )
                 

Total SG&A expense elimination

  $ (10,683 )   $ (3,253 )

 

(5) Excludes the effects of asset impairment charges and lease exit costs, which are not allocated to our segments.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

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

 

Wholesale segment

 

Results for the wholesale segment for the three months ended February 27, 2016 and February 28, 2015 are as follows:

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Net sales

  $ 59,576       100.0 %   $ 58,805       100.0 %

Gross profit

    20,278       34.0 %     18,823       32.0 %

SG&A expenses

    15,880       26.6 %     15,896       27.0 %
                                 

Income from operations

  $ 4,398       7.4 %   $ 2,927       5.0 %

 

 

Net sales for the wholesale segment were $59,576 for the first quarter of 2016 as compared to $58,805 for the first quarter of 2015, an increase of $771 or 1.3%. This sales increase was driven by a 5.1% increase in shipments to the BHF store network partially offset by a 5.2% decrease in open market shipments (outside the BHF store network). The decrease in the sales to the open market was due to lower sales of the HGTV Home Collections brand that was discontinued in late 2015. Gross margins for the wholesale segment increased to 34.0% for the first quarter of 2016 as compared to 32.0% for the first quarter of 2015 driven largely by higher margins in the domestic upholstery operation from improved pricing strategies and improved margins in the import wood operation from lower levels of discounting. SG&A as a percentage of sales decreased to 26.6% as compared to 27.0% for the first quarter of 2015 primarily due to lower spending in various sales and marketing activities and other fixed costs. The prior year period also included $121of costs associated with the acquisition of Zenith Freight Lines, LLC. Operating income was $4,398 or 7.4% of sales as compared to $2,927 or 5.0% of sales in the prior year quarter.   

 

Wholesale shipments by type:

 

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Wood

  $ 22,232       37.3 %   $ 20,313       34.5 %

Upholstery

    36,762       61.7 %     37,872       64.4 %

Other

    582       1.0 %     620       1.1 %

Total

  $ 59,576       100.0 %   $ 58,805       100.0 %

 

 

Wholesale Backlog

 

The dollar value of wholesale backlog, representing orders received but not yet shipped to dealers and Company stores, was $15,645 at February 27, 2016 as compared with $17,715 at February 28, 2015.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

Retail – Company-owned stores segment

 

Results for the retail segment for the three months ended February 27, 2016 and February 28, 2015 are as follows:

 

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Net sales

  $ 61,595       100.0 %   $ 57,183       100.0 %

Gross profit

    30,280       49.2 %     28,783       50.3 %

SG&A expenses

    29,825       48.4 %     28,825       50.4 %

New store pre-opening costs

    139       0.2 %     -       0.0 %

Income (loss) from operations

  $ 316       0.5 %   $ (42 )     -0.1 %

 

Results for the 58 comparable stores are as follows:


 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Net sales

  $ 59,660       100.0 %   $ 56,256       100.0 %

Gross profit

    29,562       49.6 %     28,349       50.4 %

SG&A expenses

    28,727       48.2 %     28,201       50.1 %

Income from operations

  $ 835       1.4 %   $ 148       0.3 %

 

“Comparable” stores include those locations that have been open and operated by the Company for all of each respective comparable period.

 

 

Results for all other stores are as follows: 

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28, 2015

 
                                 

Net sales

  $ 1,935       100.0 %   $ 927       100.0 %

Gross profit

    718       37.1 %     434       46.8 %

SG&A expenses

    1,098       56.7 %     624       67.3 %

New store pre-opening costs

    139       7.2 %     -       0.0 %

Loss from operations

  $ (519 )     -26.8 %   $ (190 )     -20.5 %

 

Net sales for the 59 Company-owned BHF stores were $61,595 for the first quarter of 2016 as compared to $57,183 for the first quarter of 2015, an increase of $4,412 or 7.7%. The increase was primarily due to a $3,404 or 6.1% increase in comparable store sales coupled with a $1,008 increase in non-comparable store sales.

 

While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores decreased by 0.9% for the first quarter of 2016 as compared to the first quarter of 2015.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

The consolidated retail operating income for the first quarter of 2016 was $316 as compared to a loss of $42 for the first quarter of 2015. The 58 comparable stores generated operating income of $835 for the quarter, or 1.4% of sales, as compared to $148, or 0.3% of sales, for the prior year quarter. Gross margins were 49.6% for the first quarter of 2016 compared to 50.4% for the first quarter of 2015. Lower gross margins were due primarily to two store closing sales that began in the first quarter of 2016 and will be completed during the second quarter. Also, Company-owned stores experienced increased clearance activity in reducing imported wood furniture placements to make room for more upholstery on its retail floors. SG&A expenses for comparable stores increased $526 to $28,727 or 48.2% of sales as compared to 50.1% of sales for the first quarter of 2015. This decrease as a percentage of sales is primarily due to greater leverage of fixed costs due to higher sales volumes.

 

Losses from the non-comparable stores in the first quarter of fiscal 2016 were $519 compared with $190 for the first quarter of fiscal 2015, an increase of $329. This increase includes $139 of pre-opening costs recognized in the first quarter of 2016 associated with the Sterling, Virginia store expected to open during the second quarter of 2016. These costs include rent, training costs and other payroll-related costs specific to a new store location incurred during the period leading up to its opening and generally range between $100 to $300 per store based on the overall rent costs for the location and the period between the time when the Company takes possession of the physical store space and the time of the store opening. Also included in the non-comparable store loss for the first quarter of 2016 are post-opening losses from the Woodland Hills, California store which opened during the fourth quarter of 2015, and losses arising from the closure of our store in Tucson, Arizona. We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $300 to $500 per store.

 

Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each new store will be ongoing.  

 

 

Retail Backlog

 

The dollar value of our retail backlog, representing orders received but not yet delivered to customers, was $31,290, or an average of $530 per open store at February 27, 2016 as compared with was $33,836, or an average of $564 per open store at February 28, 2015.

 

 
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PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 27, 2016

(Dollars in thousands except share and per share data)

 

Logistical services segment

 

 

Results for our logistical services segment for the quarters ended February 27, 2016 and February 28, 2015 are as follows:

 

 

   

Quarter Ended

 
   

February 27, 2016

   

February 28. 2015 (1)