BASSETT FURNITURE INDUSTRIES INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
Forward-Looking Statements and Refuge:
This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business ofBassett Furniture Industries, Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as "anticipates", "believes", "plans", "estimates", "expects", "aims" and "intends" or words or phrases of similar expression. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include:
• the impact of the COVID-19 pandemic and resulting supply chain disruptions on
our ability to maintain normal operations at our retail stores, manufacturing
facilities and in our logistics services operations, and the resulting effects
any future interruption of these operations could have on our finances
condition, results of operations and liquidity, as well as the impact of the
pandemic on general economic conditions, including consumer spending and the
strength of the housing market inthe United States
• competitive conditions in the furniture industry
• overall in-store and web traffic levels and consumer demand for
home furnishings
• ability of our customers and consumers to obtain credit
• the profitability of the
Company-owned retail stores) which may result in future store closings
• ability to execute our corporate-owned retail strategies and achieve the
benefits from these strategies, including our initiatives to expand and improve
our digital marketing capabilities, as they are implemented
• fluctuations in the cost and availability of raw materials, fuel, labor,
delivery costs and sourced products, including those that may result from
supply chain disruptions and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products
• the results of marketing and advertising campaigns
• the effectiveness and security of our information and technology systems and
possible disruptions due to cybersecurity threats, including any impact of a
network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance
• future tax legislation, or regulatory or judicial positions
• ability to effectively manage import supply chain to minimize business
interruption
• concentration of domestic manufacturing, in particular of upholstery products,
and the resulting exposure to business interruption due to accidents, weather and
other events and circumstances beyond our control Additionally, other risks that could cause actual results to differ materially from those contemplated by such forward-looking statements are set forth in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the fiscal year endedNovember 27, 2021 . You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report or elsewhere, might not occur. 21 of 33
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
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 96 BHF stores at February 26, 2022 , 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 for
the Bassett brand to reach markets that cannot be effectively served by our
retail store network, we also distribute our products through other wholesale
channels including multi-line furniture stores, many of which feature Bassett
galleries or design centers. We use a network of over 30 independent sales
representatives who have stated geographical territories. These sales
representatives are compensated based on a standard commission rate. We believe
this blended strategy provides us the greatest ability to effectively distribute
our products throughout the United States and ultimately gain market share.
The BHF stores feature custom order furniture, free in-home or virtual design
visits ("home makeovers") and coordinated decorating accessories. Our
philosophy is based on building strong long-term relationships with each
customer. Sales people are referred to as "Design Consultants " and are trained
to evaluate customer needs and provide comprehensive solutions for their home
decor. Until a rigorous training and design certification program is completed,
Design Consultants are not authorized to perform in-home or virtual design
services for our customers.
In 2018, we added outdoor furniture to our offerings with the acquisition of the
Lane Venture brand. Our strategy is to distribute these products outside of our
BHF store network through a network of over 15 independent sales
representatives. Using Lane Venture as a platform, we 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 have factories in Newton, North Carolina that manufacture both stationary and
motion upholstered furniture for inside the home along with our outdoor
furniture offerings. We also have factories in Martinsville and Bassett,
Virginia that assemble and finish our custom dining offerings. 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. 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 .
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 since 2019. The migration to digital brand research has
caused us to comprehensively evaluate all of our American made custom products.
While our Bench Made line of Custom Upholstery and Custom Dining products
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 to best serve our customers online,
in the store or wherever our customer might be. 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 our in-store experience or the quality of our
in-home makeover capabilities.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
We are engaged in a multi-year cross-functional digital transformation
initiative which has begun by examining, enhancing and standardizing our product
development and data management and governance processes. This will result in
more consistent underlying data that our merchandising and sales teams can use
in analyzing various product and sales trends for making better informed
decisions. It will also provide a uniform view of product data that can be
leveraged by our website, retail locations and wholesale partners. We expect to
complete this initial phase in mid-2022 at which time we will begin the process
of implementing a new eCommerce platform that we plan to introduce in 2023.
the
new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation. We expect to spend between$3,000 and$4,000 this fiscal year on these efforts.
During the first quarter of fiscal 2022, we closed a retail store in
Sale of the assets of
During the first quarter of 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary,Zenith Freight Lines, LLC ("Zenith") to J.B. Hunt Transport Services, Inc. ("J.B. Hunt") for approximately$86,900 in cash. OnFebruary 28, 2022 the transaction was completed with us receiving approximately$85,500 after the payment of$400 in certain transaction costs and the funding of$1,000 held in escrow. The final purchase price is subject to a customary post-closing working capital adjustment. In the second quarter of 2022, we will recognize a substantial gain on this transaction. As a result, the operations of our logistical services segment, which consists entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income and in the following discussion as discontinued operations.
Impact of the COVID-19 pandemic on our financial condition and results of operations
OnMarch 11, 2020 , theWorld Health Organization declared the coronavirus ("COVID-19") outbreak to be a global pandemic. The significant adverse economic impact of the pandemic upon our results of operations was limited to fiscal 2020, however we continue to experience the 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. 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. 23 of 33
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Results from continuing operations – Periods ended
Consolidated results from continuing operations for the three months ended
Quarter Ended Change
February 26, 2022 February 27, 2021 Dollars Percent
Net sales of
furniture and
accessories $ 117,864 100.0 % $ 101,655 100.0 % $ 16,209 15.9 %
Cost of furniture and
accessories sold 60,471 51.3 % 48,252 47.5 % 12,219 25.3 %
Gross profit 57,393 48.7 % 53,403 52.5 % 3,990 7.5 %
SG&A expenses 50,915 43.2 % 47,842 47.1 % 3,073 6.4 %
Income from
operations $ 6,478 5.5 % $ 5,561 5.5 % $ 917 16.5 %
Total turnover for the three months ended
Gross margins for the three months endedFebruary 26, 2022 decreased 380 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices. While these rising costs have been somewhat mitigated by price increases implemented since the first quarter of 2021, the increase in order backlogs and order fulfillment times limited our ability to match revised pricing to manufacturing costs. Another wholesale price increase will be implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted. Segment Information
We have strategically aligned our business into two 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 ofBassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations, which include Lane Venture, 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 loss, net, in our condensed 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.
Our former logistics services segment which represented the activities of Zenith is now presented as discontinued operations.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Reconciliation of segment results to consolidated operating results
To supplement the financial measures prepared in accordance with GAAP, we
present gross profit by segment inclusive of the effects of intercompany sales
by our wholesale segment to our retail segment. Because these intercompany
transactions are not eliminated from our segment presentations and because we do
not present gross profit as a measure of segment profitability in the
accompanying condensed consolidated financial statements, the presentation of
gross profit by segment is considered to be a non-GAAP financial measure. The
reconciliation of this non-GAAP financial measure to the most directly
comparable financial measure calculated and presented in accordance with GAAP is
presented below along with the effects of various other intercompany
eliminations on our consolidated results of operations.
Quarter Ended February 26, 2022
Non-GAAP Presentation GAAP Presentation
Wholesale Retail Eliminations Consolidated
Net sales of furniture and accessories
(29,728 ) (1) $ 117,864
Cost of furniture and accessories sold 59,662 29,951
(29,142 ) (2) 60,471 Gross profit 23,823 34,156 (586 ) 57,393 SG&A expense 20,438 30,806 (329 ) (3) 50,915 Income from operations$ 3,385 $ 3,350 $ (257 ) $ 6,478 Quarter Ended February 27, 2021 Non-GAAP Presentation GAAP Presentation Wholesale Retail Eliminations Consolidated
Net sales of furniture and accessories
(29,004 ) (1) $ 101,655
Cost of furniture and accessories sold 47,288 29,309
(28,345 ) (2) 48,252 Gross profit 22,976 31,086 (659 ) 53,403 SG&A expense 18,179 29,992 (329 ) (3) 47,842 Income from operations$ 4,797 $ 1,094 $ (330 ) $ 5,561
Notes on the sector consolidation table:
Represents the elimination of sales from our wholesale segment to our (1) corporate-owned BHF stores. (2) Represents the elimination of purchases from our BHF stores belonging to the Société de
our wholesale segment, as well as the variation for the elimination period
intercompany earnings in ending retail inventory.
Represents the elimination of rent paid by our retail stores occupying (3) Company-owned real estate.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Wholesale Segment
Wholesale segment results for periods ended
Quarter Ended Change
February 26, 2022 February 27, 2021 Dollars Percent
Net sales $ 83,485 100.0 % $ 70,264 100.0 % $ 13,221 18.8 %
Gross profit (1) 23,823 28.5 % 22,976 32.7 % 847 3.7 %
SG&A expenses 20,438 24.5 % 18,179 25.9 % 2,259 12.4 %
Income from operations $ 3,385 4.1 % $ 4,797 6.8 % $ (1,412 ) -29.4 %
(1) Segment-level gross margin is considered a non-GAAP financial measure
due to the included effects of intercompany transactions. Refer to
reconciliation of gross margin by segment to consolidated gross margin
presented under the Reconciliation of Segment Results to Consolidated
Results of Operations above.
Wholesale sales by major product category are as follows:
Quarter Ended
February 26, 2022 February 27, 2021 Total Change
External Intercompany Total External Intercompany Total Dollars Percent
Bassett Custom Upholstery $ 31,929 $ 20,096 $ 52,025 62.3 % $ 24,884 $ 18,464 $ 43,348 61.7 % $ 8,677 20.0 %
Bassett Leather 12,939 12 12,951 15.5 % 7,558 29 7,587 10.8 % 5,364 70.7 %
Bassett Custom Wood 5,980 6,261 12,241 14.7 % 5,341 6,202 11,543 16.4 % 698 6.0 %
Bassett Casegoods 2,909 3,359 6,268 7.5 % 3,477 4,309 7,786 11.1 % (1,518 ) -19.5 %
Total $ 53,757 $ 29,728 $ 83,485 100.0 % $ 41,260 $ 29,004 $ 70,264 100.0 % $ 13,221 18.8 %
Analysis of results – Wholesale trade
Net sales for the three months endedFebruary 26, 2022 increased$13,221 from the prior year period due primarily to a 28% increase in shipments to the open market along with a 6.9% increase in shipments to the BHF store network. As previously discussed,Bassett and most of the home furnishings industry have been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. During the first quarter of fiscal 2022, we made progress in decreasing these backlogs and expect them to continue decreasing as our ability to manufacture and ship product has improved. AtFebruary 26, 2022 , wholesale backlog totaled$78,135 as compared to$90,057 atNovember 27, 2021 ,$67,469 atFebruary 27, 2021 and$14,617 atFebruary 29, 2020 . Gross margins for the three months endedFebruary 26, 2022 declined 420 basis points compared to the prior year period as we have experienced significant increases in material costs primarily in the upholstery operation, partially offset by greater leverage on fixed costs due to higher sales volumes. 26 of 33
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Retail – Company Owned Stores Segment
Retail segment results for the periods ended
Quarter Ended Change
February 26, 2022 February 27, 2021 Dollars Percent
Net sales $ 64,107 100.0 % $ 60,395 100.0 % $ 3,712 6.1 %
Gross profit (1) 34,156 53.3 % 31,086 51.5 % 3,070 9.9 %
SG&A expenses 30,806 48.1 % 29,992 49.7 % 814 2.7 %
Income (loss) from
operations $ 3,350 5.2 % $ 1,094 1.8 % $ 2,256 N/M
(1) Segment-level gross margin is considered a non-GAAP financial measure
due to the included effects of intercompany transactions. Refer to
reconciliation of gross margin by segment to consolidated gross margin
presented under Reconciliation of segment results to consolidated results
Results of Operations above.
Retail sales by major product category are as follows:
Quarter Ended Change
February 26, 2022 February 27, 2021 Dollars Percent
Bassett Custom Upholstery$ 37,818 59.0 %$ 34,461 57.1 %$ 3,357 9.7 % Bassett Leather 240 0.4 % 252 0.4 % (12 ) -4.8 % Bassett Custom Wood 9,407 14.7 % 5,458 9.0 % 3,949 72.4 % Bassett Casegoods 8,292 12.9 % 11,077 18.3 % (2,785 ) -25.1 % Accessories, mattresses and other (1) 8,350 13.0 % 9,147 15.1 % (797 ) -8.7 % Total$ 64,107 100.0 %$ 60,395 100.0 %$ 3,712 6.1 %
(1) Includes the sale of goods other than
accessories and bedding, and also includes the sale of furniture protection
plans. Analysis of Results - Retail Net sales for the three months endedFebruary 26, 2022 increased$3,712 from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 2.4% from the first quarter of 2021. Retail backlog atFebruary 26, 2022 was$84,685 as compared to$82,894 atNovember 27, 2021 , 64,806 atFebruary 27, 2021 and$29,775 atFebruary 29, 2020 . As previously discussed,Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. Gross margins for the three months endedFebruary 26, 2022 increased by 180 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity. Selling, general and administrative expenses for the three months endedFebruary 26, 2022 as a percentage of sales decreased as compared to the first quarter of 2021 primarily due to greater leverage on fixed costs from higher sales volumes. 27 of 33
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Discontinued Operations – Logistics Services
Results of operations of Zenith, which was sold to JB Hunt subsequent to the end of the first quarter, for the periods ended
Quarter Ended Change
February 26, 2022 February 27, 2021 Dollars Percent
Logistical services revenue$ 16,776 100.0 %$ 12,018 100.0 %$ 4,758 39.6 % Cost of logistical services 15,001 89.4 % 11,558 96.2 % 3,443 29.8 % Other loss, net (63 ) -0.4 % (38 ) -0.3 % (25 ) 65.8 % Income from discontinued operations before tax$ 1,712 10.2 %$ 422 3.5 %$ 1,290 305.7 % The amounts shown above represent the results of Zenith's business transactions with third parties. The increase in income from discontinued operations for the three months endedFebruary 26, 2022 as compared to the prior year period is primarily due to freight and warehousing rate increases which Zenith primarily implemented during the fourth quarter of fiscal 2021. During the three months endedFebruary 26, 2022 andFebruary 27, 2021 , Zenith also chargedBassett $9,121 and$8,063 , respectively, for logistical services provided to our wholesale segment. These shipping and handling costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. We have entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith.
Other items affecting net income
Other Loss, Net Other loss, net, for the three months endedFebruary 26, 2022 was$629 compared to$299 for the three months endedFebruary 27, 2021 , a net increase of$330 . The net change was primarily due to higher net costs of Company-owned life insurance. Income Taxes We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter. Our effective tax rates for the three months endedFebruary 26, 2022 andFebruary 27, 2021 of 26.3% and 29.4%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including charges of$135 during the three months endedFebruary 27, 2021 related to the vesting of stock awards.
Cash and capital resources
Cash Flows Cash provided by operations for the first three months of fiscal 2022 was$2,866 compared to$4,984 for the first three months of fiscal 2021, representing a decrease of$2,118 . Cash provided by the operating activities of our discontinued operations was$1,681 for the first three months of fiscal 2022 compared to$2,841 for the prior year period, a decline of$1,160 . Excluding the decline in operating cash flow from discontinued operations, cash provided by continuing operations declined$958 from the prior year period. This decrease in operating cash flow is primarily due to changes in working capital as we settled accounts payable in the first quarter of 2022 arising from increases in inventory during fiscal 2021 as well as increases in accounts receivable arising from strong sales in our wholesale segment. Our overall cash position decreased by$2,494 during the first three months of fiscal 2022, compared to a decline of$766 during the first three months of fiscal 2021, a decline of$1,728 from the prior year period. Excluding the decline in cash flow from discontinued operations, overall cash flow from continuing operations declined$409 from the prior year period. In addition to the decline in cash flows from operations, net cash used in investing activities during the first three months of 2022 increased$1,691 to a net use of$2,880 compared to net cash used in investing activities of$1,189 for the prior year period. This increase was primarily due to increased capital expenditures in the current year. Net cash used in financing activities during the first three months of 2022 decreased$2,081 to a net use of$2,480 as compared to a net use of$4,561 for the prior year period, primarily due to a special dividend of$2,479 declared and paid during the first quarter of 2021 partially offset by increased share repurchases of$765 during the first three months of fiscal 2022 as compared to$534 repurchased during the quarter of fiscal 2021. OnMarch 9, 2022 our Board of Directors increased the amount authorized under our existing share repurchase plan to$40,000 . With cash and cash equivalents and short-term investments totaling$49,595 on hand atFebruary 26, 2022 , expected future operating cash flows, pre-tax cash proceeds of approximately$85,500 subsequently received from the sale of Zenith before a special dividend of$1.50 per share, and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future. 28 of 33 --------------------------------------------------------------------------------
PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
Debt and Other Obligations
Our bank credit facility provides for a line of credit of up to $25,000 . At
February 26, 2022 , 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 had outstanding standby letters of credit with another bank
totaling $325 . 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 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 of $140,000 .
We were in compliance with these covenants at February 26, 2022 and expect to
remain in compliance for the foreseeable future. The credit facility will mature
on January 27, 2025 , at which time any amounts outstanding under the facility
will be due.
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 used in our wholesale manufacturing
operations. We also lease local delivery trucks used in our retail segment. The
present value of our obligations for leases with terms in excess of one year at
February 26, 2022 is $115,861 and is included in our accompanying condensed
consolidated balance sheet at February 26, 2022 . Lease obligations associated
with discontinued obligations totaled $22,834 at February 26, 2022 . These leases
were subsequently transferred to J.B. Hunt in connection with the sale of
Zenith. We were contingently liable under licensee lease obligation guarantees
in the amount of $1,854 at February 26, 2022 . Remaining terms under these lease
guarantees range from approximately one to three years. See Note 10 to our
condensed consolidated financial statements for additional details regarding our
lease guarantees.
Investment in
We have a substantial investment in real estate acquired for use as retail locations and occupied by Company-owned retail stores. These properties are included in property, plant and equipment, net, in the accompanying condensed consolidated balance sheets and consist of eight properties with a total area of 201,096 square feet and a net book value of
Significant Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates from the information provided in Section 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our annual report on Form 10-K for the fiscal year ended
Off-balance sheet arrangements
We utilize stand-by letters of credit in the procurement of certain goods in the
normal course of business. In addition, we have guaranteed certain lease
obligations of licensee operators for some of their store locations. See Note 10
to our condensed consolidated financial statements for further discussion of
lease guarantees, including descriptions of the terms of such commitments and
methods used to mitigate risks associated with these arrangements.
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES , INCORPORATED AND SUBSIDIARIES
FEBRUARY 26, 2022
(Dollars in thousands except share and per share data)
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, 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. See Note 9 to our condensed
consolidated financial statements for further information regarding certain
contingencies as of February 26, 2022 .
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