ANNUAL
REPORT
2013
BASSETT, VIRGINIA
NASDAQ: BSET
To Our Shareholders,
2013 was a good year for Bassett Furniture Industries, Inc.
Normalizing results for the 53 weeks of the year’s fiscal
calendar, consolidated net sales rose by 17% to $321
million. This marks our first time over the $300 million
mark since the pre-great recession year of 2006. Bolstered
by this growth, operating profit rose 97% to $10.0 million,
or 3.1% of sales. Excluding two significant non-recurring
items that took place in 2012, net income grew 173% to
$5.1 million. We were pleased with this performance but
acknowledge that many challenges remain as we strive to
remain relevant and prosper in a consumer environment
that continues to evolve at a rapid pace.
We manage our business around two major segments –
wholesale and retail. Wholesale revenue is derived from
the sale of domestically manufactured and internationally
sourced products. In 2013, 64% of our wholesale
volume went to our Bassett Home Furnishings (BHF)
store network and the remainder went to an array of
independent retailers in the United States and abroad.
Normalized wholesale revenue grew by 14% for the year
including a 6% increase to our stores and an exciting 38%
gain to other customers. As a result, wholesale operating
profit improved to $10.9 million, a 45% increase. Driving
wholesale sales is fundamental to our approach. Our
retail stores, our warehouses, our factories, our wholesale
showrooms, and our independent sales representatives
are ultimately dedicated to generating as much wholesale
sales as we can muster. We believe that our dual strategy
of retail and open market sales are now working in concert
to achieve market share gains and that 2013 represented
a significant step forward.
Further, our wholesale segment is divided into two
operating divisions; wood and upholstery. Our wood
division consists of a domestic manufacturing and assembly
facility located in Martinsville, Virginia and an extensive
line of imported casegoods, accent furniture, and juvenile
products that are warehoused in four locations around
the continental U.S. and in vendor operated warehouses
in Asia. Shipments from our Martinsville facility grew 14%
in 2013 as customers of both BHF stores and independent
retailers reacted favorably to our custom casual dining
product assortment. In fact, with financial assistance
from the Commonwealth of Virginia, in December we
announced an expansion of the factory to meet demand.
Sales of imported products grew at a more modest
clip of 4.0%. For a variety of reasons, casegoods have
rebounded more slowly than other industry categories
since the recession. However, bedroom and formal dining
room remain an integral part of our lineup and we have
excellent vendor partners in Asia and a superb supply
chain for these products all the way through our system.
We are currently evaluating a refinement of our wood
footprint, primarily around our stores, with the goal of
growing sales with a streamlined amount of SKUs.
Upholstery, on the other hand, experienced strong
momentum in 2013 as segment wide shipments grew by
18%. Our upholstery division also consists of an important
domestic manufacturing facility located in Newton, NC
complemented by a range of imported leather goods.
The hallmark of Bassett upholstery is our ability to sell and
produce highly customizable products in a two to three
week window. This ability was largely responsible for the
24% sales gain that we enjoyed in our domestic operation
last year. Also, in October, we introduced a new line of
value priced upholstery designed to cater to younger and
more budget conscious consumers. Initial response to
Bassett Express 2U has been outstanding and we believe
that the availability of the Bassett brand at sharper prices
will enable us to continue the growth of our upholstery
division in 2014.
Last year was the first complete fiscal year of our licensing
agreement with the Home and Garden Television Network
(HGTV). As you may recall, our objective in this partnership
is to market the concept of the home “makeover” that
is one of the key points of differentiation in our stores.
We are extremely pleased with consumer reaction to
our national TV campaign on HGTV and believe that we
have found the vehicle with which we can effectively
communicate our in-home design capability. Bassett
custom product that has been rebranded as “HGTV HOME
Design Studio at Bassett” enjoyed a 32% sales increase
in 2013. Additionally, we developed a completely new
assortment of casegoods and upholstery products under
the brand umbrella of HGTV HOME. We view this as
an opportunity to leverage our existing manufacturing
and sourcing infrastructure to drive additional sales
with independent furniture retailers. After some initial
setbacks with the startup of this new venture, we began
FINANCIAL
SUMMARY
Fiscal Years Ended November
2013
2012
2011
$321,286
5,096
$269,672
26,713
$253,208
55,342
$ 0.47
0.42
14.50
$ 2.41
1.45
14.51
$ 4.79
0.60
13.44
$ 12,733
28,125
225,849
2,467
157,409
$ 45,566
-
227,180
3,053
157,280
$ 69,601
3,745
223,174
3,662
152,435
Dollars in thousands except per share amounts
INCOME STATEMENT DATA
Net Sales
Net Income (Loss)
PER SHARE DATA
Diluted Income (Loss)
Cash Dividends Per Share
Book Value Per Share
BALANCE SHEET DATA
Cash & Cash Equivalents
Investments
Total Assets
Long-Term Debt
Stockholders’ Equity
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(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, specialty stores and mass merchants. We were founded in 1902 and incorporated under the laws of
Virginia in 1930. Our rich 111-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 89 BHF stores at November 30, 2013, 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 furniture 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.
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 111 year heritage in the furniture industry with the penetration of 99
million households in the United States that HGTV enjoys today. This alliance encompasses strategies for both the BHF
store network and other open market sales channels. For the store network, 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 following the third quarter of 2012. In addition, we have developed, in conjunction with HGTV, a new line
of furniture that contains only the HGTV® HOME Collection brand and is primarily marketed through select furniture
retailers. The HGTV® HOME Collection furniture line currently consists of several wood collections with complementary
upholstered furniture offerings. Currently, over 30 retailers with over 90 floors have the new furniture line. During late 2013,
we began offering this line of furniture on Wayfair.com, the leading e-commerce site for home furnishings. During fiscal
2013, approximately 3.1% of our wholesale shipments were HGTV® HOME Collection branded furniture. This line of
furniture is not available in the BHF store network.
The following table summarizes the changes in store count during fiscal 2013:
November 24,
2012
Openings*
Closed
Company-owned stores
Licensee-owned stores
Total
53
33
86
3
2
5
Transfers
-
-
-
(1)
(1)
(2)
November 30,
2013
55
34
89
*Does not include openings and closures due to relocation of existing stores within a market.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
In fiscal 2013, we began a program to increase the Company-owned retail store count and relocate a number of first
generation stores to better locations. This program includes opening nine new stores and relocating six existing stores in
2013 and 2014. As a result, we spent $8,059 in capital expenditures for new and relocated stores in 2013 and expect to spend
a comparable amount in 2014. During 2013, stores in the following locations were opened or relocated:
New Stores
Store Relocations
Dallas, Texas
Raleigh, North Carolina
Birmingham, Alabama
Newington, Connecticut
Irvine, California
During 2014, we expect to open or relocate stores in the following locations:
New Stores
Store Relocations
Forth Worth, Texas (opened 12/13)
Westport, Connecticut (opened 12/13)
Annapolis, Maryland (opened 12/13)
Burlington, Massachusetts
Hartsdale, New York
Rockville, Maryland
Boston, Massachusetts
Little Rock, Arkansas
San Antonio, Texas
Southlake, Texas
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 $200 per store depending on the overall rent costs for the location
and the period between the time when we take possession of the physical store space and the time of the store opening.
Generally, rent payments between time of possession and opening of a new store are deferred and therefore rent costs
recognized during that time do not require cash. Inherent in our retail business model, we also incur significant losses in the
first two to three months of operation following a new store opening. Similar to other furniture retailers, we do not recognize
a sale in the income statement 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 our
furniture offerings, delivery to our customers usually does not occur until 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 recorded in the income statement. Coupled with the previously discussed store pre-opening costs, total start-up losses can
range from $300 to $400 per store. While this expansion is initially costly to our operating results, 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
12 months of their opening. Even as these stores ramp up to break-even, we are realizing additional wholesale sales volume
that will leverage the fixed costs in our wholesale business. We expect to continue opening and relocating stores at a slower
pace after 2014.
Our wholesale operations include an upholstery plant in Newton, North Carolina that produces a wide range of upholstered
furniture. 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, Va. 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 fiscal 2013, approximately 46% of our wholesale sales were of imported
product compared to 50% for fiscal 2012.
Traffic to our website, www.bassettfurniture.com, continues to grow. The ultimate goal of our digital strategy is to drive
traffic to our retailers while deepening interactions with our consumers. Understanding that more and more consumers are
using the web to research before making a purchase, we have worked diligently to enhance our online presence by making it
easier for consumers to browse our wide array of goods and build custom furniture. In 2014, we will continue to make
improvements to our website and increase our social media presence to drive more visitors to our website and more qualified
prospects to our stores. While sales through our website are currently not material, they have increased significantly in the
last several years. We are leveraging our Company-owned and licensed store network to handle delivery and customer
service for orders placed online.
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Prior to 2012, we incurred significant bad debt and notes receivable valuation charges resulting from the difficult economic
conditions then facing our industry. Beginning during the second half of 2011 this trend in bad debt and notes receivable
valuation charges improved significantly, and we have only incurred bad debt charges of $361 and $376 for fiscal 2013 and
2012, respectively, compared with $13,490 for fiscal 2011, reflecting improved credit positions with our current fleet of
licensees. We believe that the current level of bad debt and notes receivable valuation charges is more indicative of the
expected trend of future charges.
Analysis of Operations
Our fiscal year ends on the last Saturday of November, which periodically results in a 53-week year. Fiscal 2013 contained
53 weeks, while fiscal 2012 and 2011 each contained 52 weeks. Net sales, gross profit, selling, general and administrative
(SG&A) expense, bad debt and notes receivable valuation charges, new store pre-opening costs, other charges, and income
(loss) from operations were as follows for the years ended November 30, 2013, November 24, 2012 and November 26, 2011:
Net sales
Gross profit
SG&A
Bad debt and notes receivable
valuation charges
New store pre-opening costs
Other charges
2013
2012
2011
$
321,286
165,994
154,957
100.0%
51.7%
48.2%
$
269,672
141,322
134,425
100.0%
52.4%
49.8%
$
253,208
127,566
121,933
361
671
-
0.1%
0.2%
0.0%
376
371
1,070
0.1%
0.1%
0.4%
13,490
90
12,675
100.0%
50.4%
48.2%
5.3%
0.0%
5.0%
Income (loss) from operations
$
10,005
3.1%
$
5,080
2.0%
$
(20,622)
-8.1%
Sales for fiscal 2013 were $321,286 as compared to $269,672 for 2012 and $253,208 for 2011, representing increases of 19%
and 6.5%, respectively. As noted above, fiscal 2013 contained 53 weeks while fiscal 2012 contained 52 weeks. On an
average weekly basis, sales for 2013 increased 17% over 2012. This trend primarily reflects the increase in the number of
stores owned and operated by us, as well as growth in our wholesale shipments outside of our licensee network. Our
consolidated net sales by segment were as follows:
2013
2012
2011
Wholesale
Retail
Inter-company elimination
Consolidated net sales
$
$
215,451
199,380
(93,545)
321,286
$
$
185,187
171,633
(87,148)
269,672
$
$
177,372
147,961
(72,125)
253,208
Gross margins for fiscal 2013, 2012, and 2011 were 51.7%, 52.4%, and 50.4%, respectively. Gross margins for fiscal 2013
were lower than for 2012 primarily due to the increased share of sales to the open market relative to sales through the
Company-owned store network. Sales through our Company-owned stores capture both the wholesale gross margin (32.9%
for the 2013) as well as an additional retail gross margin (48.4% for 2013) upon final sale to the customer, resulting in a
considerably higher gross margin on a consolidated basis for sales through our Company-owned stores as compared with the
wholesale margin realized from sales to the open market. The margin increase for 2012 over 2011 is primarily attributable to
additional retail markup realized as the result of the continued expansion of our Company-owned store network in our retail
segment. Selling, general and administrative expenses, excluding bad debt and notes receivable valuation charges and new
store pre-opening costs, increased $20,532 in 2013 as compared to 2012 due primarily to the increased number of Company-
owned stores and planned higher marketing and advertising costs to drive continued sales growth. SG&A increased $12,492
in 2012 as compared to 2011 primarily due to the increase in the number of Company-owned retail stores as each additional
store opening or acquisition results in. The incremental SG&A expenses associated with each new store, which include
incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing
expenses, will be ongoing. In addition, wholesale SG&A increased in 2012 over 2011 primarily due to spending associated
with the development of our HGTV initiative. Bad debt and notes receivable valuation charges for fiscal 2013 were
3
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
comparable to those of 2012, averaging approximately 0.1% of net sales each year. Bad debt and notes receivable valuation
charges for 2012 decreased from the prior year by $13,114, reflecting the improved credit positions of our current fleet of
licensees. During fiscal 2011 we acquired nine stores from four licensees and closed six stores with three other licensees.
Following the takeover or closure of these troubled licensee-owned stores, our bad debt and notes receivable valuation
charges have averaged approximately $120 per quarter since the third quarter of 2011. We believe that this average level of
bad debt and notes receivable valuation charges is more indicative of the expected trend of future charges.
The following table presents certain significant items that have negatively impacted our results of operations. We believe
these items should be considered separately in order to understand and evaluate our results and trends. See note 15 of our
Consolidated Financial Statements for additional information regarding these charges:
Restructuring and impaired asset charges:
Impairment of leasehold improvements
Asset impairment charge associated
with closed plants
Severance & other restructuring
Lease exit costs
Licensee debt cancellation charges
Total charges and costs
2013
2012
2011
$
-
$
123
$
1,156
-
-
-
-
-
$
588
-
359
-
1,070
$
1,312
32
3,728
6,447
12,675
$
Certain other items affecting comparability between periods are discussed below in “Investments and Real Estate Segment
and Other Items Affecting Net Income.
Segment Information
We have strategically aligned our business into three reportable segments as described below:
(cid:120) 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.
(cid:120) 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.
(cid:120)
Investments and Real Estate. Our investments and real estate segment consists of our short-term investments, our
holdings of real estate leased or previously leased to licensees, and our equity investment in Zenith. We also hold an
investment in Fortress, which we fully reserved during the first quarter of 2012. Although this segment does not
have operating earnings, income or loss from the segment is included in other income (loss), net, in our consolidated
statements of income. During fiscal 2011 we sold our equity interest in IHFC; therefore other income included the
gain on the sale of our interest as well as our equity in the income of IHFC for fiscal 2011 through the date of the
sale.
4
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(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:
Net sales
Gross profit
SG&A expense
Bad debt and notes receivable
valuation charges
New store pre-opening costs
Income (loss) from operations (4)
Net sales
Gross profit
SG&A expense
Bad debt and notes receivable
valuation charges
New store pre-opening costs
Income (loss) from operations (4)
Net sales
Gross profit
SG&A expense
Bad debt and notes receivable
valuation charges
New store pre-opening costs
Income (loss) from operations (4)
Year Ended November 30, 2013*
Wholesale
Retail
Eliminations
Consolidated
$
215,451
70,812
59,568
$
199,380
96,469
97,250
$
(93,545)
(1,287)
(1,861)
(1)
(2)
(3)
361
-
10,883
$
-
671
(1,452)
$
-
-
574
$
$
$
321,286
165,994
154,957
361
671
10,005
Year Ended November 24, 2012*
Wholesale
Retail
Eliminations
Consolidated
$
185,187
59,817
51,941
$
171,633
82,361
84,057
$
(87,148)
(856)
(1,573)
(1)
(2)
(3)
376
-
7,500
-
371
(2,067)
$
$
-
-
717
$
$
$
269,672
141,322
134,425
376
371
6,150
Year Ended November 26, 2011*
Wholesale
Retail
Eliminations
Consolidated
$
177,372
57,804
48,708
$
147,961
69,862
74,267
$
(72,125)
(100)
(1,042)
(1)
(2)
(3)
13,490
-
(4,394)
$
-
90
(4,495)
$
-
-
942
$
$
$
253,208
127,566
121,933
13,490
90
(7,947)
(1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.
(2) Represents the change for the period in the elimination of intercompany profit in ending retail inventory.
(3) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate.
(4) Excludes the effects of restructuring and impairment charges, lease exit costs, and, with respect to the
2011 period, licensee debt cancellation charges. These charges are not allocated to our segments.
* 53 weeks for fiscal 2013 as compared with 52 weeks for fiscal 2012 and 2011.
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Wholesale Segment
Net sales, gross profit, selling, general and administrative (SG&A) expense, bad debt and notes receivable, and operating
income (loss) from operations for our Wholesale Segment were as follows for the years ended November 30, 2013,
November 24, 2012 and November 26, 2011:
Net sales
Gross profit
SG&A
Bad debt and notes receivable
valuation charges
Income (loss) from operations
2013
2012
2011
$
215,451
70,812
59,568
100.0%
32.9%
27.6%
$
185,187
59,817
51,941
100.0%
32.3%
28.0%
$
177,372
57,804
48,708
361
10,883
$
0.2%
5.1%
376
7,500
$
0.2%
4.0%
13,490
(4,394)
$
Wholesale shipments by category for the last three fiscal years are summarized below:
2013
2012
2011
Wood
Upholstery
Other
Total
$
87,935
125,403
2,113
215,451
$
40.8%
58.2%
1.0%
100.0%
$
78,194
105,377
1,616
185,187
$
42.2%
56.9%
0.9%
100.0%
$
77,410
98,577
1,385
177,372
$
100.0%
32.6%
27.5%
7.6%
-2.5%
43.6%
55.6%
0.8%
100.0%
Fiscal 2013 as Compared to Fiscal 2012
Net sales for the wholesale segment were $215,451 for 2013 as compared to $185,187 for 2012, an increase of $30,264, or
16%. On an average weekly basis (normalizing for the extra week in fiscal 2013), wholesale net sales increased 14%.
Wholesale shipments to the open market (outside the Bassett Home Furnishings store network) for 2013 increased 38% and
shipments to the Bassett Home Furnishings store network increased by 6.3% compared to 2012. This increase in open market
shipments was driven by growth in the juvenile and traditional distribution channels along with increases from the HGTV
open market business. Gross margins for the wholesale segment were 32.9% for 2013 as compared to 32.3% for 2012.
Margin improvement in the upholstery operations resulting from greater leverage of fixed costs due to increased sales
volumes were partially offset by lower margins in the wood business from increased discounting of discontinued product.
Wholesale SG&A increased $7,627 to $59,568 for 2013 as compared to $51,941 for 2013. SG&A costs as a percentage of
sales decreased to 27.6% as compared to 28.0% for 2012. Profit improvement from leveraging fixed SG&A costs through
higher sales volumes was partially offset by planned increased marketing and advertising costs of $1,072 to drive continued
sales growth.
Fiscal 2012 as Compared to Fiscal 2011
Net sales for the wholesale segment were $185,187 for 2012 as compared to $177,372 for 2011, an increase of 4.4%.
Wholesale shipments to the BHF store network increased 0.7% while shipments outside of the network increased 15.4%. The
slight increase in sales to the store network came in spite of a decline in the total number of BHF stores. The increase in the
wholesale shipments outside the network was primarily due to an 18% increase in the traditional channel partially offset by
lower shipments to a significant national account customer. Gross margins for the wholesale segment were 32.3% for 2012,
down slightly from the gross margin of 32.6% for 2011. Wholesale SG&A, excluding bad debt and notes receivable
valuation charges, increased $3,233 to $51,941 for 2012 as compared to $48,708 for 2011. As a percentage of net sales,
SG&A increased 0.5 percentage points to 28.0% for 2012 as compared to 27.5% for 2011. This increase was primarily due
`to incremental marketing spend of $1,478 associated with the development of the HGTV initiative and a temporary
showroom in High Point to display the new HGTV furniture. This increase was partially offset by improved leverage of
fixed costs associated with higher sales. We recorded $376 of bad debt and notes receivable valuation charges during 2012
as compared with $13,490 for 2011, which reflected the improved credit positions with our fleet of licensees following a
period during which we had taken over or closed a number of troubled licensee stores through the first half of fiscal 2011.
6
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
The bad debt and notes receivable valuation charges which we have experienced since the third quarter of 2011 have
averaged approximately $120 per quarter. We believe that this average level of bad debt and notes receivable valuation
charges is more indicative of the expected trend of future charges.
Wholesale Backlog
The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores
as of November 30, 2013, November 24, 2012, and November 26, 2011, was as follows:
Year end wholesale backlog
$
11,916
$
11,988
$
10,325
2013
2012
2011
Retail Segment – Company Owned Stores
Net sales, gross profit, selling, general and administrative (SG&A) expense, new store pre-opening costs and operating loss
for our Retail Segment were as follows for the years ended November 30, 2013, November 24, 2012 and November 26,
2011:
2013
2012
2011
Net sales
Gross profit
SG&A
New store pre-opening costs
Loss from operations
$
199,380
96,469
97,250
671
(1,452)
$
100.0%
48.4%
48.8%
0.3%
-0.7%
$
171,633
82,361
84,057
371
(2,067)
$
100.0%
48.0%
49.0%
0.2%
-1.2%
$
147,961
69,862
74,267
90
(4,495)
$
100.0%
47.2%
50.2%
0.1%
-3.0%
The following tables present operating results on a comparable store basis for each comparative set of periods. Table A
compares the results of the 47 stores that were open and operating for all of 2013 and 2012. Table B compares the results of
the 40 stores that were open and operating for all of 2012 and 2011.
Comparable Store Results:
Net sales
Gross profit
SG&A expense
Income (loss) from operations
Table A: 2013 vs 2012 (47 Stores)
Table B: 2012 vs 2011 (40 Stores)
2013
2012
2012
2011
$
140,345
67,875
67,835
40
$
100.0%
48.4%
48.3%
0.0%
$
128,580
62,180
64,191
(2,011)
$
100.0%
48.4%
49.9%
-1.6%
$
168,968
82,072
81,265
807
$
100.0%
48.6%
48.1%
0.5%
$
157,006
75,650
76,500
(850)
$
100.0%
48.2%
48.7%
-0.5%
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
The following tables present operating results for all other stores which were not comparable year-over-year, each table
including the results of stores that either opened or closed at some point during the 24 months of each comparative set of
periods.
All Other (Non-Comparable) Store Results:
2013 vs 2012 All Other Stores
2012
2013
2012 vs 2011 All Other Stores
2012
2011
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Loss from operations
$
30,412
14,397
15,985
671
(2,259)
$
100.0%
47.3%
52.6%
2.2%
-7.4%
$
14,627
6,711
7,557
371
(1,217)
$
100.0%
45.9%
51.7%
2.5%
-8.3%
$
$
31,288
14,486
16,222
371
(2,107)
100.0%
46.3%
51.8%
1.2%
-6.7%
$
19,381
7,682
10,076
90
(2,484)
$
100.0%
39.6%
52.0%
0.5%
-12.8%
Fiscal 2013 as Compared to Fiscal 2012
Net sales for the 55 Company-owned stores were $199,380 for fiscal 2013 as compared to $171,633 for 2012, an increase of
$27,747 or 16.2%. The increase was comprised of an $11,962 or 7.6% increase in comparable store sales and a $15,785
increase in non-comparable store sales. On an average weekly basis (normalizing for the extra week in the first quarter of
2013), comparable store sales increased 5.6%. While we do not recognize sales until goods are delivered to the consumer, we
track written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator.
Written sales for comparable stores increased by 9.0% for fiscal 2013 as compared to 2012. On an average weekly basis,
written sales increased 7.0% over the prior year.
The operating loss for the 55 Company-owned stores for fiscal 2013 was $1,452 million as compared to an operating loss of
$2,067 for 2012. The 47 comparable stores generated operating income of $807 for 2013 as compared to a loss of $850 for
the prior year. Gross margins at our comparable stores improved to 48.6% compared to 48.2% in the prior year due primarily
to improved pricing strategies, partially offset by a concerted effort during the first half of 2013 to reduce clearance inventory
levels. SG&A expenses for comparable stores increased $4,765 to $81,265 or 48.1% of sales as compared to 48.7% for
2012. This decrease as a percent of sales is due to increased sales volumes leveraging fixed costs partially offset by planned
increased retail overhead investments as we manage growth in store count.
Losses from the non-comparable stores in 2013 were $2,259 which includes $671 of costs prior to the opening of three stores
during the year and four other stores that will be opening in the first quarter of 2014. 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 open and generally
range between $100 to $200 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 are post-opening losses from the store openings. 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 $400 per store. Also included in the 2013 non-comparable stores are
the operations of stores opened or acquired during 2012.
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.
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Fiscal 2012 as Compared to Fiscal 2011
Our Company-owned stores had sales of $171,633 in fiscal 2012 as compared to $147,961 in fiscal 2011, an increase of
16.0%. The increase was comprised of an $11,765, or 9.1%, increase in comparable store sales, along with an $11,907
increase in non-comparable store sales. Contributing to the improvement in comparable store sales were the successful
introduction of new products during the second half of 2012, improved merchandising in our stores and improvements in the
quality and training of the design associates who sell our products. In addition, a general improvement in the retail
environment in combination with targeted advertising also produced increased traffic through our stores. While we do not
recognize sales until goods are delivered to the customer, we track written sales (the dollar value of sales orders taken, rather
than delivered) as a key store performance indicator. Written sales for comparable stores increased by 10.6% for fiscal 2012
as compared to fiscal 2011.
The operating loss for the 53 Company-owned stores for fiscal 2012 was $2,067 million as compared to an operating loss of
$4,495 for 2011. The 40 comparable stores generated operating income of $40 for 2012 as compared to a loss of $2,011 for
the prior year. Gross margins at our comparable stores for 2012 were unchanged from the prior year at 48.4%. SG&A
expenses for comparable stores increased $3,644 to $67,835 or 48.3% of sales as compared to 49.9% for 2011. This decrease
as a percent of sales is due to increased sales volumes leveraging fixed costs.
Losses from the non-comparable stores in 2012 were $2,107 which includes $371 of costs prior to the opening of three stores
during the year and one other store that opened in the first quarter of 2013. 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 open and generally range
between $100 to $200 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 are post-opening losses from the store openings. We incur significant 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 $400 per store. Also included in the 2012 non-comparable
stores are the operations of stores acquired during 2011.
Retail Comparable Store Sales Increases
The following table provides year-over-year comparable store sales increases for the last three fiscal years. Due to fiscal
2013 containing 53 weeks, we have also provided such changes on an average weekly basis for comparability purposes.
As reported:
Delivered
Written
Average weekly basis:
Delivered
Written
2013
7.6%
9.0%
5.6%
7.0%
2012
9.1%
10.6%
9.1%
10.6%
2011
4.8%
2.9%
4.8%
2.9%
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 30,
2013, November 24, 2012, and November 26, 2011, was as follows:
Year end retail backlog
Retail backlog per open store
2013
2012
2011
$
$
22,483
409
$
$
18,180
343
$
$
14,101
288
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Investments and Real Estate Segment and Other Items Affecting Net Income
At November 30, 2013, our investments and real estate segment consists of our short-term investments, our holdings of retail
real estate leased or previously leased as licensee stores and our equity investment in Zenith. Previously, this segment had
also included our investments in marketable securities (which were liquidated during the fourth quarter of fiscal 2012), our
investment in the Fortress Value Recovery Fund I, LLC (“Fortress”, which was fully impaired during the first quarter of
fiscal 2012), and our equity investment in IHFC (sold during the second quarter of fiscal 2011). Although this segment does
not have operating earnings, income or loss from the segment is included in other income in our consolidated statements of
income. As more fully discussed under “Liquidity and Capital Resources” below, our entire investment in IHFC was sold
during the second quarter of 2011 resulting in a gain of $85,542.
We own 49% of Zenith Freight Lines, LLC (“Zenith”), which provides domestic transportation and warehousing services
primarily to furniture manufacturers and distributors and also provides home delivery services to furniture retailers. We have
contracted with Zenith to provide for substantially all of our domestic freight, transportation and warehousing needs for the
wholesale business. In addition, Zenith provides home delivery services for several of our Company-owned retail stores. We
believe our partnership with Zenith allows us to focus on our core competencies of manufacturing and marketing home
furnishings. Zenith focuses on offering Bassett customers best-of-class service and handling. We consider the expertise that
Zenith exhibits in logistics to be a significant competitive advantage for us. In addition, we believe that Zenith is well
positioned to take advantage of current growth opportunities for providing logistical services to the furniture industry. At
November 30, 2013 and November 24, 2012, our investment in Zenith was $7,254 and $6,484, respectively.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Investments and real estate income (loss) and other items affecting net income for fiscal 2013, 2012 and 2011 are as follows:
Gain on sale of IHFC (1)
Income from unconsolidated affiliated
companies, net (1)
Income from Continued Dumping
& Subsidy Offset Act (2)
Other than temporary impairment of investments (3)
Interest expense (4)
Retail real estate impairment charges (5)
Lease exit costs (5)
Loan and lease guarantee (expense) recovery (6)
Gain on mortgage settlements (7)
Investment income (8)
Other
2013
2012
2011
$
-
$
-
$
85,542
770
-
-
(255)
(416)
-
(40)
-
99
(1,976)
347
9,010
(806)
(295)
-
-
41
-
453
(1,816)
1,840
765
-
(912)
(3,953)
(837)
(1,282)
1,305
163
(2,258)
Total other income (loss), net
$
(1,818)
$
6,934
$
80,373
(1) See note 10 to the Consolidated Financial Statements for information related to our gain on the sale of IHFC as well
as information related to our income from unconsolidated affiliated companies.
(2) See note 8 to the Consolidated Financial Statements for information related to our income from the Continued
Dumping and Subsidy Offset Act (“CDSOA”).
(3) Represents the full impairment of our investment in Fortress. See note 7 to the Consolidated Financial Statements
for additional information.
(4) Our interest expense consists primarily of interest on our retail real estate mortgage obligations. This expense has
been declining steadily as those obligations have been repaid.
(5) See note 15 to the Consolidated Financial Statements for additional information related to impairment charges and
lease exit costs related to our retail real estate.
(6) Loan and lease guarantee expense consists of adjustments to our reserves for the net amount of our estimated losses
on loan and lease guarantees that we have entered into on behalf of our licensees. The recovery (expense)
recognized for fiscal 2013, 2012 and 2011 reflects the changes in our estimates of the risk that we may have to
assume the underlying obligations with respect to our guarantees.
(7) See note 12 to the Consolidated Financial Statements for information related to the gain on mortgage settlements
during fiscal 2011.
(8) Investment income for fiscal 2013 includes only interest income from cash equivalents and short term investments.
Fiscal 2012 and 2011 include both interest income and net realized gains from the sale of marketable securities.
Provision for Income taxes
We recorded an income tax provision (benefit) of $3,091, $(14,699) and $4,409 in fiscal 2013, 2012 and 2011, respectively.
For fiscal 2013, our effective tax rate of approximately 37.8% differs from the statutory rate of 34.0% primarily due to the
effects of state income taxes and permanent differences arising from non-deductible expenses. For fiscal 2012, our effective
tax rate of approximately (122.3)% differs from the statutory rate of 35.0% primarily due to the reversal of the majority of the
valuation allowance on existing deferred tax assets, resulting in a credit to income of $18,704. For fiscal 2011, our effective
tax rate of 7.3% differed from the statutory rate of 35.0% primarily due to our utilization of net operating loss carryforwards
and credits to significantly offset the taxable gain on the sale of our investment in IHFC, resulting in a benefit of $6,341
against our tax provision. See note 11 to the Consolidated Financial Statements for additional information regarding our
income tax provision (benefit), as well as our net deferred tax assets and other matters.
We have net deferred tax assets of $15,152 as of November 30, 2013, which, upon utilization, are expected to reduce our
cash outlays for income taxes in future years. It will require approximately $43,000 of future taxable income to utilize our net
deferred tax assets.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take
advantage of opportunities as market conditions improve, and to execute our long-term retail strategies.
With significant additional liquidity provided by the sale of our interest in IHFC in fiscal 2011, the final distribution of funds
from the CDSOA in fiscal 2012, and the continued growth of our sales from the low point reached during the recession, we
have strengthened our balance sheet and have seen a return to operating profitability.
Sale of IHFC & Final Distribution of CDSOA Funds
During the second quarter of fiscal 2012, we received $9,010 representing our share of the final distribution of duties that had
been withheld by U.S. Customs and Border Protection under the Continued Dumping and Subsidy Offset Act. See note 8 to
the Consolidated Financial Statements for additional information regarding the CDSOA final distribution and claims that
could possibly result in the return of some or all of this distribution.
On May 2, 2011, we completed the sale of our investment in IHFC, receiving cash proceeds of $69,152 upon closing and
recording a gain of $85,542. We received $1,410 during the first quarter of 2012 representing the release of proceeds held in
escrow related to a tax audit of IHFC which has since been closed. During the first quarter of 2013, we received $2,348
representing the release of proceeds held in escrow to indemnify the purchaser with respect to various contingencies; an
additional amount of $2,348 remains in escrow which, provided it is not used for contingencies, will be due for release to us
during 2014. Currently, we have no reason to believe that any obligations will arise out of such contingencies and therefore
expect that the escrowed funds, along with earnings thereon, will be released to us in their entirety as scheduled. See note 10
to the Consolidated Financial Statements for additional information regarding the sale of IHFC.
With the additional liquidity provided by these events, we have retired certain debt and other long-term obligations, settled
various closed stores and idle facilities obligations, resumed paying a quarterly dividend, began buying back stock and paid
additional special dividends totaling $1.95 per share. We have also invested $27,853 million in property and equipment
during the three years ended November 30, 2013, including investments in new store locations, store repositioning and store
remodeling, as well as the purchase and implementation of a new retail data processing system. We will continue to evaluate
appropriate uses of available cash which may include more of such items previously listed along with future working capital
needs and investments in new or repositioned Company-owned stores.
Cash Flows
Cash provided by operations for fiscal 2013 was $10,640 compared to cash provided by operations of $7,956 for 2012, an
increase of $2,684. Excluding the final distribution of CDSOA funds which we received from Customs during April of 2012,
our cash provided by operations for 2013 would have increased over the comparable prior year period by $11,694, primarily
the result of improved income from operations, partially offset by the payment of a litigation settlement in the amount of
$1,700 during the third quarter of fiscal 2013 arising from the Colonial Trading, Inc. breach of contract case.
Our overall cash position declined by $32,833 during fiscal 2013 primarily as a result of investing activities. Cash used by
investing activities during 2013 was $39,032, primarily for the purchase of short-term investments consisting of certificates
of deposit with maturities averaging less than one year, capital expenditures for new retail stores, store repositioning and
store remodeling, and the purchase and implementation of a new retail data processing system. These expenditures were
partially offset by the collection of escrowed funds from the 2011 sale of IHFC and proceeds from the disposition of
properties no longer used in operations. Cash used in financing activities totaled $4,441, consisting primarily of dividend
payments and repurchases of our common stock. With cash and cash equivalents and short-term investments totaling $40,858
on hand at November 30, 2013, we believe we have sufficient liquidity to fund operations for the foreseeable future.
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Debt and Other Obligations
On December 18, 2012, we entered into a new credit facility with our bank extending us a line of credit of up to $15,000.
This new line is secured by our accounts receivable and inventory. The new facility contains certain 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. At November 30, 2013, we had $1,366 outstanding under standby letters of credit.
We have two mortgages totaling $2,746 outstanding as of November 30, 2013. We expect to satisfy the remaining mortgage
obligations using cash flow from operations or our available cash on hand.
We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of
licensee-owned stores. We had obligations of $96,421 at November 30, 2013 for future minimum lease payments under non-
cancelable operating leases having remaining terms in excess of one year. We also have guaranteed certain lease obligations
of licensee operators. Remaining terms under these lease guarantees range from approximately two to six years. We were
contingently liable under licensee lease obligation guarantees in the amount of $3,698 at November 30, 2013.
Dividends and Share Repurchases
During fiscal 2013, we declared four quarterly dividends totaling $2,393, or $0.22 per share, and one special dividend of
$2,172, or $0.20 per share. Cash dividend payments to our shareholders during fiscal 2013 totaled $2,935. We also
repurchased 126,100 shares of our stock for $1,750 under our share repurchase program. The weighted-average effect of
these share repurchases upon our basic and diluted earnings per share in 2013 was not material.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2014, net of expected landlord reimbursements for new store
build-out costs, will be approximately $13 million which will be used primarily for the build out of new stores and the
remodeling of existing Company-owned stores. Our capital expenditure and working capital requirements in the foreseeable
future may change depending on many factors, including but not limited to the overall performance of the new stores, our
rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions,
competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to
meet our capital expenditure and working capital requirements for the foreseeable future.
Fair Value Measurements
We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies
these inputs into the following hierarchy:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term
nature of these items. The recurring estimate of the fair value of our mortgages payable for disclosure purposes (see Note 12
to the Consolidated Financial Statements) involves Level 3 inputs. Our primary non-recurring fair value estimates, typically
involving the valuation of business acquisitions (see Note 9 to the Consolidated Financial Statements) and asset impairments
(see Note 15 to the Consolidated Financial Statements) have utilized Level 3 inputs.
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Contractual Obligations and Commitments
We enter into contractual obligations and commercial commitments in the ordinary course of business (See Note 17 to the
Consolidated Financial Statements for a further discussion of these obligations). The following table summarizes our
contractual payment obligations and other commercial commitments and the fiscal year in which they are expected to be
paid.
2014
2015
2016
2017
$
$
$
$
Post employment benefit obligations (1)
Real estate notes payable
Other obligations & commitments
Contractual advertising
Interest payable
Letters of credit
Operating leases (2)
Lease guarantees (4)
Purchase obligations (3)
Total
1,183
279
850
2,500
176
1,366
18,053
1,451
-
25,858
1,120
299
900
2,500
157
-
16,077
792
-
21,845
1,070
319
900
2,500
137
-
13,089
737
-
18,752
2018
$
963
365
100
-
91
8,823
423
$
10,765
Thereafter
$
9,866
1,143
400
-
110
-
29,671
-
-
41,190
$
$
Total
15,205
2,746
3,350
7,500
786
1,366
96,421
3,838
-
131,212
1,003
341
200
-
115
-
10,708
435
-
12,802
$
$
$
$
$
(1) Does not reflect a reduction for the impact of any company owned life insurance proceeds to be received. Currently,
we have life insurance policies with net death benefits of $3,316 to provide funding for these obligations. See Note 13
to the Consolidated Financial Statements for more information.
(2) Does not reflect a reduction for the impact of sublease income to be received. See Note 17 to the Consolidated
Financial Statements for more information.
(3) The Company is not a party to any long-term supply contracts with respect to the purchase of raw materials or finished
goods. At the end of fiscal year 2013, we had approximately $12,632 in open purchase orders, primarily for imported
inventories, which are in the ordinary course of business.
Lease guarantees relate to payments we would only be required to make in the event of default on the part of the
guaranteed parties.
(4)
Off-Balance Sheet Arrangements
We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and
buildings that are primarily used in the operation of BHF stores. We have guaranteed certain lease obligations of licensee
operators as part of our retail strategy. See Contractual Obligations and Commitments table above and Note 17 to the
Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of
operating leases, lease guarantees and loan guarantees, including descriptions of the terms of such commitments and methods
used to mitigate risks associated with these arrangements.
Contingencies
We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of
business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts
presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our
financial position or future results of operations.
See Note 8 to our Consolidated Financial Statements regarding claims which could possibly result in the return of all or a
portion of the CDSOA final distribution.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) which requires that certain estimates and assumptions be made that affect the amounts
and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from
these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external
advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be
reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions
and estimates, affect our consolidated financial statements.
Consolidation – The consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated and
its majority-owned subsidiaries for whom we have operating control. In accordance with ASC Topic 810, Consolidation, 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 Recognition - Revenue is recognized when the risks and rewards of ownership and title to the product have
transferred to the buyer. This generally occurs upon the shipment of goods to independent dealers or, in the case of
Company-owned retail stores, upon delivery to the customer. Our wholesale payment terms generally vary from 30 to 60
days. For retail sales, we typically receive a significant portion of the purchase price as a customer deposit upon order, with
the balance typically collected upon delivery. An estimate for returns and allowances has been provided in recorded sales.
The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us.
Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”) outlines the four basic criteria for recognizing revenue
as follows: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the
seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. SAB 104 further asserts that if
collectibility of all or a portion of the revenue is not reasonably assured, revenue recognition should be deferred until
payment is received. During fiscal 2013, there were no dealers for which these criteria were not met. During fiscal 2012 and
2011, there were two and four dealers, respectively, for which these criteria were not met and therefore revenue was being
recognized on a cost recovery basis. As of November 30, 2013 and November 24, 2012 there were no dealers that remained
on a cost recovery basis, and as of November 26, 2011 there were two dealers that remained on the cost recovery basis.
Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Our accounts receivable reserves were $1,607 and $1,789 at
November 30, 2013 and November 24, 2012, respectively, representing 9.1% and 10.2% of our gross accounts receivable
balances at those dates, respectively. The allowance for doubtful accounts is based on a review of specifically identified
customer accounts in addition to an overall aging analysis. We evaluate the collectibility of our receivables from our
licensees and other customers on a quarterly basis based on factors such as their financial condition, our collateral position,
potential future plans with licensees and other similar factors. Our allowance for doubtful accounts represents our best
estimate of potential losses on our accounts and notes receivable and is adjusted accordingly based on historical experience,
current developments and present economic conditions and trends. Although actual losses have not differed materially from
our previous estimates, future losses could differ from our current estimates. Unforeseen events such as a licensee or
customer bankruptcy filing could have a material impact on our results of operations.
Inventories - Inventories are stated at the lower of cost or market. Cost is determined for domestic furniture inventories using
the last-in, first-out method. The cost of imported inventories is determined on a first-in, first-out basis. We estimate an
inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking
into account future demand and market conditions. Our reserves for excess and obsolete inventory were $1,293 and $1,089 at
November 30, 2013 and November 24, 2012, respectively, representing 2.4% and 1.8%, respectively, of our inventories on a
last-in, first-out basis. If actual demand or market conditions in the future are less favorable than those estimated, additional
inventory write-downs may be required.
Valuation Allowance on Deferred Tax Assets – We evaluate our deferred income tax assets to determine if valuation
allowances are required or should be adjusted. A valuation allowance is established against our deferred tax assets based on
consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment
considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the
duration of statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives.
In making such judgments, significant weight is given to evidence that can be objectively verified. Due to the losses incurred
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
prior to fiscal 2011, we were in a cumulative loss position for the preceding three years which is considered significant
negative evidence that is difficult to overcome on a “more likely than not” standard through objectively verifiable data.
While our long-term financial outlook remained positive, we concluded that our ability to rely on our long-term outlook and
forecasts as to future taxable income was limited due to uncertainty created by the weight of the negative evidence. As a
result, we previously recorded a valuation allowance on certain of the deferred tax assets. In fiscal 2011, due to the gain
recognized on the sale of our interest in IHFC, we were able to utilize net operating loss carryforwards and credits to
significantly offset the taxable gain, resulting in a significant reduction of the valuation allowances. However, as the gain on
the sale of IHFC did not represent a source of recurring future taxable income, we continued to record a valuation allowance
against substantially all of our deferred tax assets as of November 26, 2011. Due to our positive earnings during fiscal 2012,
and the absence of any significant negative evidence to the contrary, we have concluded that we can rely on our positive
long-term outlook and forecasts as to future taxable income in evaluating our ability to realize our deferred tax assets.
Accordingly, the reserve against the majority of our deferred tax assets was removed in fiscal 2012, resulting in a credit to
income of $18,704, which is included in our net income tax benefit for 2012. The remaining valuation allowance of $1,044 at
November 30, 2013 is primarily related to state net operating loss carryforwards for which it is currently considered to be
more likely than not that they will not be utilized prior to their expiration.
Goodwill – Goodwill represents the excess of the purchase price over the value assigned to tangible assets and liabilities and
identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and any resulting goodwill is
allocated to the respective reporting unit; Wholesale, Retail or Investments and Real Estate. We review goodwill at the
reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be
impaired.
In accordance with ASC Topic 350, Intangibles – Goodwill & Other, the goodwill impairment test consists of a two-step
process, if necessary. However, we first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-
step goodwill impairment test described in ASC Topic 350. The more likely than not threshold is defined as having a
likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment
test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we
conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed
with performing the two-step process. Based on our qualitative assessment as described above, we have concluded that this
goodwill is not impaired as of November 30, 2013.
The first step compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the
respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that
reporting unit, the second step is performed whereby we must calculate the implied fair value of goodwill by deducting the
fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. This second
step represents a hypothetical purchase price allocation as if we had acquired the reporting unit on that date. Our impairment
methodology uses a discounted cash flow analysis requiring certain assumptions and estimates to be made regarding future
profitability of the reporting unit and industry economic factors. While we believe such assumptions and estimates are
reasonable, the actual results may differ materially from the projected amounts.
Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate
long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or
circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be
recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the
expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of
the asset’s carrying value over its fair value is recorded. When analyzing our real estate properties for potential impairment,
we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and
local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant
improvements which are only suitable for use in such a store.
16
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(In thousands, except share and per share data)
Recent Accounting Pronouncements
See note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting
pronouncements upon our financial position and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our imports purchased
outside of North America are denominated in U.S. dollars. Therefore, we believe that gains or losses resulting from changes
in the value of foreign currencies relating to foreign purchases not denominated in U.S. dollars would not be material to our
results from operations in fiscal 2014.
We are exposed to market risk from changes in the cost of raw materials used in our manufacturing processes, principally
wood, woven fabric, and foam products. A recovery in home construction could result in increases in wood and fabric costs
from current levels, and the cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil.
We have potential exposure to market risk related to the current weakness in the commercial real estate market. Our retail
real estate holdings of $10,435 and $12,736 at November 30, 2013 and November 24, 2012, respectively, for stores currently
or formerly operated by licensees as well as our holdings of $28,531and $29,043 at November 30, 2013 and November 24,
2012, respectively, for Company-owned stores could suffer significant impairment in value if we are forced to close
additional stores and sell or lease the related properties in certain markets. Additionally, if we are required to assume
responsibility for payment under the lease obligations of $3,698 and $2,007 which we have guaranteed on behalf of licensees
as of November 30, 2013 and November 24, 2012, respectively, we may not be able to secure sufficient sub-lease income in
the current market to offset the payments required under the guarantees.
Real estate occupied by Company-owned
and operated stores, included in property
and equipment, net (1)
Investment real estate:
Leased to operating licensee
Leased to others
Other (2)
Total included in retail real estate
Held for sale
Total Company investment in
retail real estate
Number of
Locations
Aggregate
Square Footage
Net Book
Value
(in thousands)
11
276,887
$
28,531
-
1
3
4
1
18,000
67,521
-
85,521
26,500
3,769
6,507
159
10,435
1,401
15
362,408
$
38,966
(1) Includes two properties encumbered under mortgages totaling $2,746 at November 30, 2013.
(2) Consists of leasehold improvements in locations leased by the Company and subleased to licensees.
17
As used herein, unless the context otherwise requires, “Bassett,” the “Company,” “we,” “us” and “our” refer to Bassett
Furniture Industries, Incorporated and its subsidiaries. References to 2013, 2012, 2011, 2010 and 2009 mean the fiscal years
ended November 30, 2013, November 24, 2012, November 26, 2011, November 27, 2010, and November 28, 2009. Please
note that fiscal 2013 contained 53 weeks.
SAFE-HARBOR, FORWARD-LOOKING STATEMENTS
This discussion 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 of Bassett Furniture Industries,
Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as
“anticipates”, “believes”, “plans”, “estimates”, “expects”, “aimed” 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, which should be read in conjunction with Item 1A “Risk Factors”, that could cause actual
results to differ materially from those contemplated by such forward-looking statements include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
competitive conditions in the home furnishings industry
general economic conditions
overall retail traffic levels and consumer demand for home furnishings
ability of our customers and consumers to obtain credit
Bassett store openings
store closings and the profitability of the stores (independent licensees and Company-owned retail
stores)
ability to implement our Company-owned retail strategies and realize the benefits from such strategies
as they are implemented
fluctuations in the cost and availability of raw materials, labor and sourced products
results of marketing and advertising campaigns
information and technology advances
future tax legislation, or regulatory or judicial positions
ability to efficiently manage the import supply chain to minimize business interruption
18
Consolidated Balance Sheets
Bassett Furniture Industries, Incorporated and Subsidiaries
November 30, 2013 and November 24, 2012
(In thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,607 and $1,789
as of November 30, 2013 and November 24, 2012, respectively
Inventories
Deferred income taxes, net
Other current assets
Total current assets
Property and equipment, net
Other long-term assets
Retail real estate
Deferred income taxes, net
Other
Total other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Accrued compensation and benefits
Customer deposits
Dividends payable
Other accrued liabilities
Total current liabilities
Long-term liabilities
Post employment benefit obligations
Real estate notes payable
Other long-term liabilities
Total long-term liabilities
Commitments and Contingencies
Stockholders’ equity
Common stock, $5 par value; 50,000,000 shares authorized;
issued and outstanding 10,859,318 at November 30, 2013
and 10,836,840 at November 24, 2012
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders’ equity
2013
2012
$
12,733
28,125
$
45,566
-
16,080
53,069
4,418
11,949
126,374
64,271
15,755
57,916
6,832
6,439
132,508
56,624
10,435
10,734
14,035
35,204
225,849
$
12,736
10,485
14,827
38,048
227,180
$
$
19,892
6,503
16,214
2,172
6,660
51,441
$
22,405
6,926
12,253
542
10,454
52,580
11,146
2,467
3,386
16,999
11,577
3,053
2,690
17,320
54,297
104,526
(1,414)
157,409
225,849
$
54,184
104,319
(1,223)
157,280
227,180
$
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
19
Consolidated Statements of Income
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2013, November 24, 2012, and November 26, 2011
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses excluding bad
debt and notes receivable valuation charges and new store
pre-opening costs
Bad debt and notes receivable valuation charges
New store pre-opening costs
Licensee debt cancellation charges
Restructuring and impairment charges
Lease exit costs
Income (loss) from operations
Gain on sale of affiliate
Income from Continued Dumping & Subsidy Offset Act
Other than temporary impairment of investments
Income from unconsolidated affiliated companies, net
Interest expense
Retail real estate impairment charges
Other loss, net
Income before income taxes
Income tax benefit (provision)
Net income
Net income per share
Basic income per share
Diluted income per share
2013
2012
2011
$
321,286
155,292
165,994
$
269,672
128,350
141,322
$
253,208
125,642
127,566
154,957
361
671
-
-
-
10,005
-
-
-
770
(255)
(416)
(1,917)
8,187
(3,091)
134,425
376
371
-
711
359
5,080
-
9,010
(806)
347
(295)
-
(1,322)
12,014
14,699
121,933
13,490
90
6,447
2,500
3,728
(20,622)
85,542
765
-
1,840
(912)
(3,953)
(2,909)
59,751
(4,409)
$
5,096
$
26,713
$
55,342
$
0.48
$
2.43
$
4.84
$
0.47
$
2.41
$
4.79
The accompanying notes to consolidated financial statements are an integral part of these statements.
20
Consolidated Statements of Comprehensive Income
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2013, November 24, 2012, and November 26, 2011
(In thousands)
Net income
Other comprehensive loss:
Actuarial adjustment to supplemental executive
retirement defined benefit plan (SERP)
Income taxes related to SERP
Net change in unrealized holding gains
Income taxes related to unrealized holding gains
Other comprehensive loss, net of tax
2013
2012
2011
$
5,096
$
26,713
$
55,342
(310)
119
-
-
(191)
(656)
277
(211)
(25)
(615)
(619)
486
(73)
25
(181)
Total comprehensive income
$
4,905
$
26,098
$
55,161
The accompanying notes to consolidated financial statements are an integral part of these statements.
21
Consolidated Statements of Cash Flows
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2013, November 24, 2012, and November 26, 2011
(In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
Equity in undistributed income of investments and unconsolidated
affiliated companies
Provision for restructuring and asset impairment charges
Licensee debt cancellation charges
Lease exit costs
Provision for lease and loan guarantees
Provision for losses on accounts and notes receivable
Other than temporary impairment of investments
Gain on mortgage settlement
Gain on sale of affiliate
Impairment and lease exit charges on retail real estate
Deferred income taxes
Other, net
Changes in operating assets and liabilities
Accounts receivable
Inventories
Other current and long-term assets
Accounts payable and accrued liabilities
Net cash provided by (used in) operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sales of property and equipment
Acquisition of retail licensee stores
Proceeds from sale of affiliate
Release of collateral restrictions on cash equivalents
Proceeds from sales of investments
Purchases of investments
Dividends from affiliates
Equity contribution to affiliate
Cash received on notes receivable
Net cash provided by (used in) investing activities
Financing activities:
Repayments of real estate notes payable
Repayments of other notes
Issuance of common stock
Repurchases of common stock
Taxes paid related to net share settlement of equity awards
Excess tax benefits from stock-based compensation
Cash dividends
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents - beginning of year
2013
2012
2011
$
5,096
$
26,713
$
55,342
6,198
5,473
5,514
(770)
-
-
-
40
361
-
-
-
416
2,282
(347)
711
-
359
(41)
376
806
-
-
-
(15,822)
(1,840)
2,500
6,447
2,228
1,283
13,490
-
(1,305)
(85,542)
4,790
236
276
642
214
(686)
4,847
(4,819)
(2,601)
10,640
(14,302)
958
-
2,348
-
-
(28,125)
-
-
89
(39,032)
(549)
-
706
(1,750)
(226)
313
(2,935)
(4,441)
(32,833)
45,566
.
(2,967)
(11,307)
(276)
3,636
7,956
(9,000)
19
(549)
1,410
-
4,854
(1,781)
-
-
1,240
(3,807)
(570)
-
858
(7,015)
(16)
-
(21,441)
(28,184)
(24,035)
69,601
.
1,034
299
2,300
(12,421)
(5,431)
(4,168)
211
-
69,152
11,240
3,297
(3,132)
3,756
(980)
127
79,503
(8,647)
(3,406)
172
(2,964)
(2)
-
(695)
(15,542)
58,530
11,071
.
Cash and cash equivalents - end of year
$
12,733
$
45,566
$
69,601
The accompanying notes to consolidated financial statements are an integral part of these statements.
22
Consolidated Statements of Stockholders’ Equity
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2013, November 24, 2012, and November 26, 2011
(In thousands, except share and per share data)
Common Stock
Shares
Amount
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
Balance, November 27, 2010
11,558,974
$
57,795
$
478
$
48,459
$
(427)
$
106,305
Comprehensive income
Net income
Actuarial adjustment to SERP
Net change in unrealized holding gains
Regular dividends ($0.10 per share)
Special dividend ($0.50 per share)
Issuance of common stock
Purchase and retirement of common stock
Stock-based compensation
-
-
-
-
-
154,158
(370,800)
-
-
-
-
-
-
771
(1,854)
-
Balance, November 26, 2011
11,342,332
56,712
Comprehensive income
Net income
Actuarial adjustment to SERP, net of tax
Net change in unrealized holding gains, net of tax
Regular dividends ($0.20 per share)
Special dividend ($1.25 per share)
Issuance of common stock
Purchase and retirement of common stock
Stock-based compensation
-
-
-
-
-
138,903
(644,395)
-
-
-
-
-
-
694
(3,222)
-
Balance, November 24, 2012
10,836,840
54,184
Comprehensive income
Net income
Actuarial adjustment to SERP, net of tax
Regular dividends ($0.22 per share)
Special dividend ($0.20 per share)
Issuance of common stock
Purchase and retirement of common stock
Stock-based compensation
Excess tax benefits from stock-based compensation
-
-
-
-
160,128
(137,650)
-
-
-
-
-
-
801
(688)
-
-
-
-
-
-
-
(506)
(398)
426
-
-
-
-
-
-
352
(988)
636
-
-
-
-
-
(104)
(937)
728
313
55,342
-
-
(1,092)
(5,665)
-
(713)
-
96,331
26,713
-
-
(2,214)
(13,706)
-
(2,805)
-
-
(133)
(48)
-
-
-
-
-
(608)
-
(379)
(236)
-
-
-
-
-
55,342
(133)
(48)
(1,092)
(5,665)
265
(2,965)
426
152,435
26,713
(379)
(236)
(2,214)
(13,706)
1,046
(7,015)
636
104,319
(1,223)
157,280
5,096
-
(2,393)
(2,172)
-
(324)
-
-
-
(191)
-
-
-
-
-
-
5,096
(191)
(2,393)
(2,172)
697
(1,949)
728
313
Balance, November 30, 2013
10,859,318
$
54,297
$
-
$
104,526
$
(1,414)
$
157,409
The accompanying notes to consolidated financial statements are an integral part of these statements.
23
Notes to Consolidated Financial Statements
(In thousands, except per share data)
1. Description of Business
Bassett Furniture Industries, Incorporated (together with its consolidated subsidiaries, “Bassett”, “we”, “our”, the
“Company”) based in Bassett, Va., is a leading manufacturer, marketer and retailer of branded home furnishings. Bassett’s
full range of furniture products and accessories, designed to provide quality, style and value, are sold through an exclusive
nation-wide network of 89 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 89 stores, the
Company owns and operates 55 stores (“Company-owned retail stores”) with the other 34 being independently owned
(“licensee operated”). We also distribute our products through other multi-line furniture stores, many of which feature
Bassett galleries or design centers, specialty stores and mass merchants.
The Company sourced approximately 46% of its wholesale products to be distributed through the store network from various
countries, with the remaining volume produced at its two domestic manufacturing facilities.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s fiscal year ends on the last Saturday in November, which periodically results in a 53-week year. Fiscal 2013
contained 53 weeks, whereas fiscal 2012 and 2011 each contained 52 weeks. The Consolidated Financial Statements include
the accounts of Bassett Furniture Industries, Incorporated and our majority-owned subsidiaries for whom we have operating
control. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements
have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Unless
otherwise indicated, references in the Consolidated Financial Statements to fiscal 2013, 2012 and 2011 are to Bassett's fiscal
year ended November 30, 2013, November 24, 2012 and November 26, 2011, respectively. References to the “ASC”
included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board
as the source of authoritative GAAP.
For comparative purposes, certain amounts in the 2012 and 2011 financial statements have been reclassified to conform to
the 2013 presentation.
The equity method of accounting is used for our investments in affiliated companies in which we exercise significant
influence but do not maintain operating control. Consolidated net income includes our proportionate share of the net income
or net loss of these companies.
We analyzed our licensees under the requirements for variable interest entities (“VIEs”). All of these licensees operate as
BHF stores and are furniture retailers. We sell furniture to these licensees, and in some cases have extended credit beyond
normal terms, made lease guarantees, guaranteed loans, or loaned directly to the licensees. We have recorded reserves for
potential exposures related to these licensees. See Note 17 for disclosure of leases and lease guarantees. Based on financial
projections and best available information, all licensees have sufficient equity to carry out their principal operating activities
without subordinated financial support. Furthermore, we believe that the power to direct the activities that most significantly
impact the licensees’ operating performance continues to lie with the ownership of the licensee dealers. Our rights to assume
control over or otherwise influence the licensees’ significant activities only exist pursuant to our license and security
agreements and are in the nature of protective rights as contemplated under ASC Topic 810. We completed our assessment
for other potential VIEs, and concluded that there were none. We will continue to reassess the status of potential VIEs
including when facts and circumstances surrounding each potential VIE change.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Some of the more significant estimates include allowances for doubtful accounts, calculation of inventory
reserves, valuation of income tax reserves, lease guarantees and insurance reserves. Actual results could differ from those
estimates.
24
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Revenue Recognition
Revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. This
occurs upon the shipment of goods to independent dealers or, in the case of Company-owned retail stores, upon delivery to
the customer. We offer terms varying from 30 to 60 days for wholesale customers. For retail sales, we typically collect a
significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery.
These deposits are carried on our balance sheet as a current liability until delivery is fulfilled. Estimates for returns and
allowances have been recorded as a reduction to revenue. The contracts with our licensee store owners do not provide for
any royalty or license fee to be paid to us. Revenue is reported net of any taxes collected.
Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”) outlines the four basic criteria for recognizing revenue
as follows: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the
seller’s price to the buyer is fixed or determinable, and (4) collectability is reasonably assured. SAB 104 further asserts that if
collectability of all or a portion of the revenue is not reasonably assured, revenue recognition should be deferred until
payment is received. During fiscal 2013, there were no dealers for which these criteria were not met. During fiscal 2012 and
2011, there were two and four dealers, respectively, for which these criteria were not met and therefore revenue was being
recognized on a cost recovery basis. As of November 30, 2013 and November 24, 2012 there were no dealers that remained
on a cost recovery basis, and as of November 26, 2011 there were two dealers that remained on the cost recovery basis. As of
November 30, 2013 and November 24, 2012 there was no deferred gross profit resulting from the cost recovery method
carried on our balance sheet as a reduction of accounts receivable. For fiscal 2013 and 2012, no revenue or cost was deferred
during the year under the cost recovery method. During fiscal 2011, revenue of $1,678 and cost of $1,175 was deferred prior
to any subsequent recognition due to the transaction meeting the revenue recognition requirements.
Cash Equivalents
The Company considers cash on hand, demand deposits in banks and all highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents. Our short-term investments, which consist of certificates of deposit,
are not considered cash equivalents since they have original maturities of greater than three months.
Accounts Receivable
Substantially all of our trade accounts receivable is due from customers located within the United States. We maintain an
allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.
The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging
analysis. Judgments are made with respect to the collectibility of accounts receivable based on historical experience and
current economic trends. Actual losses could differ from those estimates. The majority of our trade accounts receivable and
allowance for doubtful accounts are attributable to amounts owed to us by our licensees, with the remaining receivables due
primarily from national account customers and traditional distribution channel customers. The percentages of our trade
accounts receivable and related allowance for doubtful accounts owed to us by our licensees were as follows at November 30,
2013 and November 24, 2012:
Portion of trade accounts receivable
owed by licensees
Portion of allowance for doubtful
accounts attributable to licensees
2013
50%
64%
2012
52%
84%
25
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Concentrations of Credit Risk and Major Customers
Financial instruments that subject us to credit risk consist primarily of investments, accounts and notes receivable and
financial guarantees. Investments are managed within established guidelines to mitigate risks. Accounts and notes receivable
and financial guarantees subject us to credit risk partially due to the concentration of amounts due from and guaranteed on
behalf of independent licensee customers. At November 30, 2013 and November 24, 2012, our aggregate exposure from
receivables and guarantees related to customers consisted of the following:
Accounts receivable, net of allowances (Note 4)
Notes receivable, net of allowances (Note 2)
Contingent obligations under lease and loan guarantees,
less amounts recognized (Note 17)
Total credit risk exposure related to customers
2013
$
16,080
632
3,523
20,235
$
2012
15,755
636
1,684
18,075
$
$
At November 30, 2013 approximately 27% of the aggregate risk exposure, net of reserves, shown above was attributable to
two licensees. At November 24, 2012, approximately 12% of the aggregate risk exposure, net of reserves, shown above was
attributable to one licensee. In fiscal 2013, 2012 and 2011, no customer accounted for more than 10% of total net sales.
We have no foreign manufacturing or retail operations. We define export sales as sales to any country or territory other than
the United States or its territories or possessions. Our export sales were approximately $4,603, $4,956, and $5,481 in fiscal
2013, 2012, and 2011, respectively.
Inventories
Inventories (retail merchandise, finished goods, work in process and raw materials) are stated at the lower of cost or market.
Cost is determined for domestic manufactured furniture inventories using the last-in, first-out (“LIFO”) method because we
believe this methodology provides better matching of revenue and expenses. The cost of imported inventories is determined
on a first-in, first-out (“FIFO”) basis. Inventories accounted for under the LIFO method represented 17% and 18% of total
inventory before reserves at November 30, 2013 and November 24, 2012, respectively. We estimate inventory reserves for
excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future
demand and market conditions. If actual demand or market conditions in the future are less favorable than those estimated,
additional inventory write-downs may be required.
Property and Equipment
Property and equipment is comprised of all land, buildings and leasehold improvements and machinery and equipment used
in the manufacturing and warehousing of furniture, our Company-owned retail operations and the administration of the
wholesale and Company-owned retail operations. This property and equipment is stated at cost less accumulated
depreciation. Depreciation is computed over the estimated useful lives of the respective assets utilizing the straight-line
method. Buildings and improvements are generally depreciated over a period of 10 to 39 years. Machinery and equipment are
generally depreciated over a period of 5 to 10 years. Leasehold improvements are amortized based on the underlying lease
term, or the asset’s estimated useful life, whichever is shorter.
Retail Real Estate
Retail real estate is comprised of owned and leased properties which have been utilized by licensee operated BHF stores,
including properties which are now leased or subleased to non-licensee tenants or are currently vacant. These properties are
located in high traffic, upscale locations that are normally occupied by large successful national retailers. This real estate is
stated at cost less accumulated depreciation and is depreciated over the useful lives of the respective assets utilizing the
straight line method. Buildings and improvements are generally depreciated over a period of 10 to 39 years. Leasehold
improvements are amortized based on the underlying lease term, or the asset’s estimated useful life, whichever is shorter. As
of November 30, 2013 and November 24, 2012, the cost of retail real estate included land totaling $3,502 and $4,602,
respectively, and building and leasehold improvements of $11,635 and $12,680, respectively. As of November 30, 2013 and
November 24, 2012, accumulated depreciation of retail real estate was $4,834 and $4,547, respectively. Depreciation
expense was $484, $501, and $876 in fiscal 2013, 2012, and 2011, respectively. As of November 30, 2013, the cost and
26
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
accumulated depreciation of our property in Henderson, Nevada has been removed from retail real estate and the net carrying
value of $1,401 is classified as held for sale and included in other current assets in the accompanying balance sheet. The
carrying value reflects the net selling price for which the property was under contract for sale as of November 30, 2013. The
sale of the Henderson property was closed on December 26, 2013. Impairment charges related to retail real estate totaled
$416 for 2013 and $3,953 for 2011 and are included in retail real estate impairment charges in other income, a component of
non-operating expense in our Consolidated Statements of Income. There were no retail real estate impairment charges in
2012.
Goodwill
Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities
and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is
allocated to the respective reporting unit: Wholesale, Retail or Investments and Real Estate. We review goodwill at the
reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be
impaired.
In accordance with ASC Topic 350, Intangibles – Goodwill & Other, the goodwill impairment test consists of a two-step
process, if necessary. However, we first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-
step goodwill impairment test described in ASC Topic 350. The more likely than not threshold is defined as having a
likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment
test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we
conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed
with performing the two-step process. Based on our qualitative assessment as described above, we have concluded that our
goodwill is not impaired as of November 30, 2013.
The first step compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the
respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that
reporting unit, the second step is performed whereby we must calculate the implied fair value of goodwill by deducting the
fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. This second
step represents a hypothetical application of the acquisition method of accounting as if we had acquired the reporting unit on
that date. Our impairment methodology uses a discounted cash flow analysis requiring certain assumptions and estimates to
be made regarding future profitability of the reporting unit and industry economic factors. While we believe such
assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts.
Impairment of Long Lived Assets
We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be
recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess
the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected
undiscounted future cash flows resulting from the use and eventual disposition of the asset. In the event the sum of the
expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of
the asset’s carrying value over its fair value is recorded. Fair value is determined based on discounted cash flows or
appraised values depending on the nature of the assets. The long-term nature of these assets requires the estimation of cash
inflows and outflows several years into the future.
When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in
leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett
Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store.
Income Taxes
We account for income taxes under the liability method which requires that we recognize deferred tax assets and liabilities
for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
27
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. Despite our belief that our
liability for unrecognized tax benefits is adequate, it is often difficult to predict the final outcome or the timing of the
resolution of any particular tax matters. We may adjust these liabilities as relevant circumstances evolve, such as guidance
from the relevant tax authority or our tax advisors, or resolution of issues in the courts. These adjustments are recognized as a
component of income tax expense in the period in which they are identified.
We evaluate our deferred income tax assets to determine if valuation allowances are required or should be adjusted. A
valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both
positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature,
frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our
experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is
given to evidence that can be objectively verified. See Note 11.
New Store Pre-Opening Costs
Income (loss) from operations for fiscal 2013, 2012 and 2011 includes new store pre-opening costs of $671, $371 and $90,
respectively. Such costs consist of expenses incurred at the new store location during the period prior to its opening and
include, among other things, facility occupancy costs such as rent and utilities and local store personnel costs related to pre-
opening activities including training. New store pre-opening costs do not include costs which are capitalized in accordance
with our property and equipment capitalization policies, such as leasehold improvements and store fixtures and equipment.
Such capitalized costs associated with new stores are depreciated commencing with the opening of the store. There are no
pre-opening costs associated with stores acquired from licensees, as such locations were already in operation at the time of
their acquisition.
Shipping and Handling Costs
Costs incurred to deliver wholesale merchandise to customers are recorded in selling, general and administrative expense and
totaled $15,685, $13,548, and $13,680 for fiscal 2013, 2012 and 2011, respectively. Costs incurred to deliver retail
merchandise to customers are also recorded in selling, general and administrative expense and totaled $10,855, $9,957, and
$7,452 for fiscal 2013, 2012 and 2011, respectively.
Advertising
Costs incurred for producing and distributing advertising and advertising materials are expensed when incurred and are
included in selling, general and administrative expenses. Advertising costs totaled $14,750, $13,296, and $10,399 in fiscal
2013, 2012, and 2011, respectively.
Insurance Reserves
We have self-funded insurance programs in place to cover workers’ compensation and health insurance. For the period from
July 2011 through June 2012, workers’ compensation was covered under a guaranteed cost program. These insurance
programs are subject to various stop-loss limitations and are partially re-insured through a captive insurance program. We
accrue estimated losses using historical loss experience. Although we believe that the insurance reserves are adequate, the
reserve estimates are based on historical experience, which may not be indicative of current and future losses. We adjust
insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.
Supplemental Cash Flow Information
In addition to the amounts paid, net of cash acquired, for the acquisition of licensee stores reported under investing activities
in our consolidated statements of cash flows, the majority of such acquisitions were funded primarily through non-cash
transactions in which receivables due from the licensees were settled in exchange for certain inventory and property and
equipment of the licensees as well as the assumption of certain liabilities. There were no such acquisitions during fiscal
2013, and the value of the non-cash portion of such transactions was $1,592 and $2,298 for 2012 and 2011, respectively.
28
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update No. 2013-02 (ASU 2013-02), which updates the guidance
in ASC Topic 220, Comprehensive Income. The objective of ASU 2013-02 is to improve the reporting of reclassifications out
of accumulated other comprehensive income. The amendments in ASU 2013-02 seek to attain that objective by requiring an
entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective
line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net
income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same
reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail
about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other
comprehensive income is reclassified to a balance sheet account (for example, inventory) instead of directly to income or
expense in the same reporting period. This guidance became effective for us prospectively beginning with our second quarter
for fiscal 2013. The adoption of this guidance did not have a material impact upon our financial position or results of
operations.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11 (ASU 2013-11), which updated the guidance in
ASC Topic 740, Income Taxes. The amendments in ASU 2013-11 generally provide guidance for the presentation of
unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the
reporting date. The guidance requires an unrecognized tax benefit to be presented as a decrease in a deferred tax asset where
a net operating loss, a similar tax loss, or a tax credit carryforward exists and certain criteria are met. This guidance will
become effective for us as of the beginning of our 2015 fiscal year and is consistent with our present practice.
3. Accumulated Other Comprehensive Loss
The activity in accumulated other comprehensive loss for the fiscal year ended November 30, 2013 is as follows:
Net pension
amortization
and net actuarial
loss
Balance at November 24, 2012
Changes before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Tax effect
Balance at November 30, 2013
$
$
(1,223)
(434)
124
119
(1,414)
4. Accounts Receivable
Accounts receivable consists of the following:
Gross accounts receivable
Allowance for doubtful accounts
Net accounts receivable
November 30,
2013
November 24,
2012
$
17,687
(1,607)
16,080
$
$
17,544
(1,789)
15,755
$
29
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Activity in the allowance for doubtful accounts was as follows:
2013
2012
Balance, beginning of the year
Additions charged to expense
Write-offs
Balance, end of the year
$
$
1,789
361
(543)
1,607
$
$
2,092
376
(679)
1,789
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 7.
5. Inventories
Inventories consist of the following:
Wholesale finished goods
Work in process
Raw materials and supplies
Retail merchandise
Total inventories on first-in, first-out method
LIFO adjustment
Reserve for excess and obsolete inventory
November 30, 2013
$
28,450
277
8,029
25,167
61,923
(7,561)
(1,293)
53,069
$
November 24, 2012
$
33,110
273
8,586
23,938
65,907
(6,902)
(1,089)
57,916
$
We source a significant amount of our wholesale product from other countries. During 2013, 2012 and 2011, purchases from
our two largest vendors located in China and Vietnam were $24,217, $23,416 and $24,996 respectively.
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical
write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these
reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize
our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions
in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining
reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the
majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These
wholesale reserves primarily represent design and style obsolescence. Typically, product is not shipped to our retail
warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for
stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our
inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any
inventory that is not associated with a specific customer order in our retail warehouses.
30
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Balance at November 26, 2011
Additions charged to expense
Write-offs
Balance at November 24, 2012
Additions charged to expense
Write-offs
Balance at November 30, 2013
Wholesale Segment
987
$
1,334
(1,606)
715
2,309
(2,023)
1,001
$
Retail Segment
Total
$
$
188
443
(257)
374
383
(465)
292
1,175
1,777
(1,863)
1,089
2,692
(2,488)
1,293
$
$
6. Property and Equipment
Property and equipment consist of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Less accumulated depreciation
November 30,
2013
November 24,
2012
$
11,371
75,965
67,183
154,519
(90,248)
64,271
$
$
11,926
71,207
65,024
148,157
(91,533)
56,624
$
Depreciation expense for property and equipment was $5,874, $5,127, and $4,837, in fiscal 2013, 2012, and 2011,
respectively, and is primarily included in our selling, general and administrative expenses related to our retail segment. The
net book value of property and equipment utilized by Company-owned stores at November 30, 2013 and November 24, 2012
was $51,748 and $45,982, respectively.
7. Financial Instruments, Investments and Fair Value Measurements
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit, accounts
receivable, cost and equity method investments, accounts payable and long-term debt. Because of their short maturities, the
carrying amounts of cash and cash equivalents, short-term investments in certificates of deposit, accounts receivable, and
accounts payable approximate fair value. Our cost and equity method investments generally involve entities for which it is
not practical to determine fair values.
Investments
Our short-term investments at November 30, 2013 consist of certificates of deposit (CDs) with terms generally ranging from
six to twelve months, bearing interest at rates ranging from 0.12% to 1.00% with a weighted average yield of approximately
0.224%. At November 30, 2013, the weighted average remaining time to maturity of the CDs was approximately five
months. Each CD is placed with a Federally insured financial institution and all deposits are within Federal deposit insurance
31
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
limits. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term
investments at November 30, 2013 approximates their fair value.
Prior to November 24, 2012, our investments consisted of a portfolio of marketable securities and our investment in the
Fortress Value Recovery Fund I, LLC (“Fortress”), During the fourth quarter of fiscal 2012 we liquidated our entire portfolio
of marketable securities, resulting in a net gain of $313 which is included in income from investments in our accompanying
consolidated statement of income for the year ended November 24, 2012. Our marketable securities had been classified as
available-for-sale and were marked to market and recorded at their fair value. We measured the fair value of our marketable
securities in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
Prior to the liquidation of our available for sale securities, unrealized holding gains and losses, net of the related income tax
effect, had been excluded from income and were reported as other comprehensive income in stockholders’ equity. The
realized earnings from our marketable securities portfolio include realized gains and losses, based upon specific
identification, and dividend and interest income. Realized earnings were $453 and $163 for fiscal 2012 and 2011,
respectively. Realized earnings for the year ended November 24, 2012 include $208 of gains previously recorded in other
comprehensive income. These amounts are recorded other loss, net in our consolidated statements of income.
Our investment in Fortress has been valued at fair value primarily based on the net asset values which are determined by the
fund manager, less a discount for illiquidity. Consequently, the inputs are considered to be Level 3 as specified in the fair
value hierarchy in ASC 820, Fair Value Measurements and Disclosures. Due to significant declines in net asset values during
the first quarter of fiscal 2012, the highly illiquid nature of the investment, and the high degree of uncertainty regarding our
ability to recover our investment in the foreseeable future, we fully impaired the carrying amount of this investment resulting
in a charge of $806 during the year ended November 24, 2012, which is reported as other than temporary impairment of
investments in the consolidated statement of income.
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 mortgages payable for disclosure purposes (see Note 12)
involves Level 3 inputs. Our primary non-recurring fair value estimates, typically involving the valuation of business
acquisitions (Note 9 to the Consolidated Financial Statements) and asset impairments (see Note 15) have utilized Level 3
inputs.
8. Income from the Continued Dumping and Subsidy Offset Act
During the year ended November 24, 2012, U.S. Customs and Border Protection (“Customs”) made a distribution to us of
$9,010 representing our share of the final distribution of duties that have been withheld by Customs under the Continued
Dumping and Subsidy Offset Act of 2000 (“CDSOA”). We have received annual distributions in past years under the
CDSOA as a result of our support of an antidumping petition on imports of wooden bedroom furniture from China, such
distributions having been recognized in income during the fourth quarter of each fiscal year when our annual share was
determined. Income from such distributions recognized during fiscal 2011 was $765. Certain manufacturers who did not
support the antidumping petition (“Non-Supporting Producers”) filed actions in the United States Court of International
32
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Trade challenging the CDSOA's “support requirement” and seeking to share in the distributions. As a result, Customs held
back a portion of those distributions (“the Holdback”) pending resolution of the Non-Supporting Producers' claims. The
Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States
Court of Appeals for the Federal Circuit (“the Court of Appeals”). The Court of Appeals denied the Non-Supporting
Producers’ request for an injunction to block the final distribution of the Holdback and allowed Customs to distribute the
funds in April of 2012. The Court of Appeals held oral arguments on March 8, 2013 concerning the appeals, and on August
19, 2013 a three-judge panel ruled against the appellants in a two-to-one decision. The Non-Supporting Producers’ request
for an en banc rehearing by the full Court of Appeals has been denied and now they may appeal to the United States Supreme
Court. Should the Supreme Court agree to hear the appeal and then reverse the decisions of the United States Court of
International Trade which ordered the release of the final distribution, it is possible that Customs may seek to have us return
all or a portion of our share of the distribution. However, we believe that the chance Customs will seek and be entitled to
obtain a return is remote.
9. Licensee Acquisitions and Goodwill
As we continually monitor business relationships with our licensees, we may determine from time to time that it is in our best
interest to acquire a licensee’s operations in order to mitigate certain risks associated with the poor performance or potential
failure of a licensee. Such risks include loss of receivables or underlying collateral, potential impairment of the value of our
investments in real estate used by a licensee or exposure to contingent liabilities under lease guarantees, and potential harm to
our market share and brand integrity within a licensee’s market. In addition, we are sometimes approached by our licensees to
acquire all or certain stores operated by the licensee. We evaluate such opportunities considering, among other things, the
viability of the market and our participation in the store real estate.
There were no acquisitions of licensee operations during fiscal 2013. During fiscal 2012, we acquired one store located in
Knoxville, Tennessee and two stores in the Orange County, California market. In both cases our licensees desired to exit
those markets but continue operating in other markets. The acquisition price for the Knoxville store was $673, funded
through the exchange of $485 in cash and $188 in existing accounts receivable for the net assets acquired from the licensee
plus recognized goodwill of $375. The acquisition price for the two Orange County stores was $1,468, funded through the
exchange of $64 in cash and $1,404 in existing accounts receivable for the net assets acquired plus recognized goodwill of
$921.
During fiscal 2011, we acquired nine retail stores, operated by 4 licensees, in Nevada, Virginia, Ohio, Kentucky and
Connecticut. These stores were acquired pursuant to strict foreclosure and settlement agreements on the underlying assets
subject to the terms of our security agreements with the licensees. These acquisitions were funded through the exchange of
existing accounts receivable for the net assets acquired from the licensee.
33
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Our acquisitions were accounted for in accordance with ASC Topic 805, Business Combinations. The following table
summarizes the net assets acquired and consideration given in the store acquisitions:
Net assets acquired:
Inventory
Property and equipment/other
Goodwill
Customer deposits and other
accrued expenses
2013
2012
2011
-
$
-
-
$
1,480
592
1,296
$
3,618
1,293
-
-
(1,227)
(2,613)
Total net assets acquired
$
-
$
2,141
$
2,298
Consideration given:
Accounts receivable
Cash
-
$
-
$
1,592
549
$
2,298
-
Total consideration
$
-
$
2,141
$
2,298
The assets acquired and liabilities assumed were measured at fair value in accordance with ASC 805. Acquired inventory is
valued at expected retail sales price less an allowance for direct selling costs and profit thereon. Acquired property and
equipment are valued based upon our estimate of replacement cost less an allowance for age and condition at the time of
acquisition. Customer deposits and accrued expenses are expected to be settled at face value within a short period following
acquisition; therefore face value is assumed to approximate fair value. 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 820, Fair Value Measurements and Disclosures. See Note 7.
The pro forma impact of the acquisitions on current and prior periods is not presented as we believe it is impractical to do so.
We were not able to compile what we believed to be complete, accurate and reliable accounting information to use as a basis
for pro forma presentations without an unreasonable effort. Net sales and operating losses generated by these stores
subsequent to their acquisition for the year in which they were acquired were as follows:
Net sales
Operating losses
2013
$
-
-
2012
$
1,646
(62)
2011
$
11,264
(874)
In connection with both the Knoxville and Orange County market store acquisitions, we recognized $1,296 of goodwill,
primarily associated with the strength of the local market and the general health of the stores at the time of acquisition. The
carrying value of our goodwill, which is included in other long-term assets in the accompanying consolidated balance sheets,
by segment and the activity for fiscal 2013 and 2012 is as follows:
Wholesale
Retail
Total
Balance as of November 26, 2011
Goodwill from store acquisitions
Impairment charge
Balance as of November 24, 2012
Goodwill from store acquisitions
Impairment charge
$
276
853
-
$
159
443
-
1,129
-
-
602
-
-
$
435
1,296
-
$
1,731
-
-
Balance as of November 30, 2013
$
1,129
$
602
$
1,731
34
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
We perform our annual goodwill impairment review as of the beginning of our fiscal fourth quarter. No impairment charges
have been required since fiscal 2009.
10. Unconsolidated Affiliated Companies
Zenith Freight Lines, LLC
We own 49% of Zenith Freight Lines, LLC, (“Zenith”) which provides domestic transportation and warehousing services
primarily to furniture manufacturers and distributors and also provides home delivery services to furniture retailers. We have
contracted with Zenith to provide for substantially all of our domestic freight, transportation and warehousing needs for the
wholesale business. In addition, Zenith provides home delivery services for several of our Company-owned retail stores. Our
investment in Zenith was $7,254 at November 30, 2013 and $6,484 at November 24, 2012 and is recorded in other long-term
assets. We paid Zenith approximately $29,313, $25,317 and $23,665, for freight expense and logistical services in fiscal
2013, 2012, and 2011, respectively. At November 30, 2013 and November 24, 2012, we owed Zenith $2,580 and $2,547,
respectively, for services rendered to us. We believe the transactions with Zenith are at current market rates. We recorded the
following earnings (losses) in income from unconsolidated affiliated companies, net in our consolidated statements of
income:
Earnings recognized
2013
$
770
2012
$
347
2011
$
8
International Home Furnishings Center
On May 2, 2011 we sold our 46.9% interest in International Home Furnishings Center, Inc. (“IHFC”) to International Market
Centers, L.P. (“IMC”). Consideration received, the balance of our investment in IHFC at the time of sale, and the resulting
gain from the sale are as follows:
Gain on sale of affiliate:
Consideration received:
Cash
Tax escrow (1)
Indemnification escrow (2)
Investment in IMC (3)
Total consideration received
Investment in IHFC:
Distributions in excess of affiliate earnings
Gain on sale of affiliate
$
69,152
1,413
4,695
1,000
$
76,260
9,282
$
85,542
(1) These funds were released to us during the first quarter of fiscal 2012.
(2) $2,348 of this escrow was released to us during the first quarter of fiscal 2013.
The remaining balance is included in other current assets in the accompanying
consolidated balance sheet at November 30, 2013.
(3) Included in other assets in the accompanying consolidated balance sheets at
November 30, 2013 and November 24, 2012.
$4,695 of proceeds was placed in escrow to indemnify the purchaser with respect to various contingencies. On December 19,
2012, we received $2,348 for the release of half of this escrow, with the remainder, provided it is not used for contingencies,
35
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
being due for release to us during the third quarter of fiscal 2014. Currently, we have no reason to believe that any obligations
will arise out of such contingencies and therefore expect that the escrowed funds, along with earnings thereon, will be
released to us in their entirety as scheduled. Also in connection with the sale, we acquired a minority equity stake in IMC in
exchange for $1,000. IMC is majority owned by funds managed by Bain Capital Partners and a subsidiary of certain
investment funds managed by Oaktree Capital Management, L.P. Our investment in IMC is accounted for using the cost
method as we do not have significant influence over IMC.
IHFC owned and leased out floor space in a showroom facility in High Point, North Carolina. Prior to the sale of our
investment in IHFC, we accounted for the investment using the equity method since we did not maintain operating control of
IHFC. During fiscal 2011 we recorded income and received dividends from IHFC prior to divestiture of $1,832 and $3,756,
respectively.
Summarized financial information for IHFC for 2011 is as follows:
Revenues
Net income
2011*
19,955
3,470
* No balance sheet information is reported as of November 26, 2011 as we no longer have any
ownership interest in IHFC, and IHFC no longer exists as a stand-alone legal entity. Revenues
and net income are reported for the five month period ended May 2, 2011.
The complete financial statements of IHFC for the period from November 1, 2010 through May 2, 2011 are included in our
annual report on Form 10-K.
11. Income Taxes
The components of the income tax provision (benefit) are as follows:
Current:
Federal
State
Deferred:
Increase (decrease) in
valuation allowance
Federal
State
Total
2013
2012
2011
$
759
50
$
1,611
(487)
136
1,970
176
3,091
$
(18,704)
2,458
423
(14,699)
$
$
$
3,947
676
(17,464)
14,934
2,316
4,409
The income tax provision for fiscal 2011 includes a benefit of $6,341 resulting from the utilization of Federal net operating
loss carryforwards. Excess tax benefits in the amount of $313 were recognized as additional paid-in capital during fiscal 2013
resulting from the exercise of stock options and the release of restricted shares.
36
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
A reconciliation of the statutory federal income tax rate and the effective income tax rate, as a percentage of income before
income taxes, is as follows:
Statutory federal income tax rate
Dividends received deduction
Change in income tax valuation allowance
Change in income tax reserves
State income tax, net of federal benefit
Other
Effective income tax rate
2013
2012
2011
34.0
-
1.7
0.1
3.7
(1.7)
37.8
%
%
35.0
-
(155.6)
(3.3)
1.5
0.1
(122.3)
%
%
35.0
(1.8)
(29.2)
(0.1)
3.4
-
7.3
%
%
The income tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred
income tax assets and deferred income tax liabilities, are as follows:
Deferred income tax assets:
Trade accounts receivable
Inventories
Property and equipment
Notes receivable
Retirement benefits
State net operating loss carryforwards
Unrealized loss from affiliates
Lease termination accruals
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Unrealized gains from affiliates
Prepaid expenses and other
Total deferred income tax liabilities
November 30,
2013
November 24,
2012
$
618
2,277
756
1,592
5,626
2,482
988
349
2,398
17,086
(1,044)
16,042
$
688
1,946
1,688
1,592
5,547
2,309
1,069
1,005
2,580
18,424
(908)
17,516
755
135
890
78
121
199
Net deferred income tax assets
$
15,152
$
17,317
Due to the losses incurred prior to fiscal 2011, we were in a cumulative loss position for the three years preceding fiscal
2011which is considered significant negative evidence that is difficult to overcome on a “more likely than not” standard
through objectively verifiable data. While our long-term financial outlook remained positive, we concluded that our ability
to rely on our long-term outlook and forecasts as to future taxable income was limited due to uncertainty created by the
weight of the negative evidence. As a result, we previously recorded a valuation allowance on certain of the deferred tax
assets. In fiscal 2011, due to the gain recognized on the sale of our interest in IHFC, we were able to utilize net operating
loss carryforwards and credits to significantly offset the taxable gain, resulting in a significant reduction of the valuation
allowances. However, as the gain on the sale of IHFC did not represent a source of recurring future taxable income, we
continued to record a valuation allowance against substantially all of our deferred tax assets as of November 26, 2011. Due to
our positive earnings during fiscal 2012, and the absence of any significant negative evidence to the contrary, we concluded
that we could rely on our positive long-term outlook and forecasts as to future taxable income in evaluating our ability to
realize our deferred tax assets. Accordingly, the reserve against the majority of our deferred tax assets was removed in fiscal
37
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
2012, resulting in a credit to income of $18,704, or $1.70 and $1.69 per basic and diluted share, respectively, which is
included in our net income tax benefit for that year. The remaining valuation allowance of $1,044 and $908 as of November
30, 2013 and November 24, 2012, respectively, is primarily related to state net operating loss carryforwards for which it is
currently considered to be more likely than not that they will not be utilized prior to their expiration.
The following table represents a summary of the valuation allowances against deferred tax assets:
Balance, beginning of the year
Additions charged to expense
Deductions reducing expense
Additions recorded as a component
of other comprehensive income
Balance, end of the year
2013
2012
2011
$
908
136
-
$
19,612
-
(18,704)
-
1,044
$
$
-
908
$
$
36,806
-
(17,464)
270
19,612
We have state net operating loss carryforwards available to offset future taxable state income of $29,211, which expire in
varying amounts between 2014 and 2030. Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards.
Net income taxes paid during 2013, 2012 and 2011 were $2,723, $2,010, and $3,651, respectively.
As of November 30, 2013, the gross amount of unrecognized tax benefits was approximately $1,497 exclusive of interest and
penalties. Of this balance, if we were to prevail on all unrecognized tax benefits recorded, approximately $239 would benefit
the effective tax rate. As of November 24, 2012, the gross amount of unrecognized tax benefits was approximately $1,228,
exclusive of interest and penalties. Of this balance, if we were to prevail on all unrecognized tax benefits recorded,
approximately $175 would benefit the effective tax rate. We regularly evaluate, assess and adjust the related liabilities in light
of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period.
The following table summarizes the activity related to our gross unrecognized tax benefits:
Balance, beginning of the year
Gross increases
Gross decreases, primarily due to the expiration of statutes
Balance, end of the year
2013
$
1,228
401
(132)
$
1,497
2012
1,502
10
(284)
1,228
$
$
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2013, 2012,
and 2011, we recognized $(23), $(63), and $67 of interest expense (expense recovery) and $31, $57, and $46 of penalty
expense recovery, respectively, related to the unrecognized benefits noted above in our consolidated statements of income.
At November 30, 2013 and November 30, 2012, the consolidated balance sheets include accrued interest of $140 and $164,
and penalties of $10 and $40, respectively, due to unrecognized tax benefits.
Significant judgment is required in evaluating the Company's federal and state tax positions and in the determination of its
tax provision. Despite our belief that the liability for unrecognized tax benefits is adequate, it is often difficult to predict the
final outcome or the timing of the resolution of any particular tax matter. We may adjust these liabilities as relevant
circumstances evolve, such as guidance from the relevant tax authority, or resolution of issues in the courts. These
adjustments are recognized as a component of income tax expense in the period in which they are identified. The Company
also cannot predict when or if any other future tax payments related to these tax positions may occur.
We remain subject to examination for tax years 2010 through 2012 for all of our major tax jurisdictions.
The IRS released the final and re-proposed tangible property regulations in September of 2013. While the regulations are
now final, they are effective for tax years beginning on or after January 1, 2014, which for the Company will be fiscal 2015.
38
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
12. Real Estate Notes Payable and Bank Credit Facility
The real estate notes payable and bank debt are summarized as follows:
Real estate notes payable
Current portion of real estate notes payable
Real Estate Notes Payable
November 30,
2013
$
2,746
(279)
2,467
$
November 24,
2012
$
$
3,294
(241)
3,053
Certain of our retail real estate properties have been financed through commercial mortgages with an interest rate of 6.73%.
These mortgages are collateralized by the respective properties with net book values totaling approximately $6,262 and
$6,397 at November 30, 2013 and November 24, 2012, respectively. The current portion of these mortgages, $279 and $241
as of November 30, 2013 and November 24, 2012, respectively, has been included in other accrued liabilities in the
accompanying consolidated balance sheets. The long-term portion, $2,467 and $3,053 as of November 30, 2013 and
November 24, 2012, respectively, is presented as real estate notes payable in the consolidated balance sheets. During fiscal
2011, we entered into Discounted Payoff Agreements (“DPOs”) with the lenders on three mortgages which were
subsequently paid off during the year. Under the terms of these DPOs the remaining balance owed was reduced, resulting in a
$1,305 gain on the settlement of these mortgages. This gain is included in other loss, net, in our consolidated statements of
income.
The fair value of these mortgages was $2,684 and $3,309 at November 30, 2013 and November 24, 2012, respectively. In
determining the fair value we utilized 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 7.
Maturities of real estate notes payable are as follows:
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Thereafter
$
279
299
319
341
365
1,143
2,746
Bank Credit Facility
$
On December 18, 2012, we entered into a new credit facility with our bank extending us a line of credit of up to $15,000.
This credit facility is secured by our accounts receivable and inventory and contains certain covenants requiring us to
maintain certain key financial ratios. We were in compliance with all covenants under the facility at November 30, 2013 and
expect to remain in compliance for the foreseeable future.
At November 30, 2013 we had $1,366 outstanding under standby letters of credit, leaving availability under our credit line of
$13,634.
Total interest paid, including bank and mortgage debt, during fiscal 2013, 2012 and 2011 was $244, $294 and $895,
respectively.
39
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
13. Post-Employment Benefit Obligations
Supplemental Retirement Income Plan
We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain
former executives. Upon retirement, the Supplemental Plan provides for lifetime monthly payments in an amount equal to
65% of the participant’s final average compensation as defined in the Supplemental Plan, which is reduced by certain social
security benefits to be received and other benefits provided by us. The Supplemental Plan also provides a death benefit that
is calculated as (a) prior to retirement death, which pays the beneficiary 50% of final average annual compensation for a
period of 120 months, or (b) post-retirement death, which pays the beneficiary 200% of final average compensation in a
single payment. We own life insurance policies on these executives with a current net death benefit of $3,316 at November
30, 2013 and we expect to substantially fund this death benefit through the proceeds received upon the death of the executive.
Funding for the remaining cash flows is expected to be provided through operations. There are no benefits payable as a result
of a termination of employment for any reason other than death or retirement, other than a change of control provision which
provides for the immediate vesting and payment of the retirement benefit under the Supplemental Plan in the event of an
employment termination resulting from a change of control.
40
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Summarized information for the plan measured as of the end of each year presented, is as follows:
2013
2012
Change in Benefit Obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses
Benefits paid
Projected benefit obligation at end of year
$
$
9,805
71
350
434
(885)
9,775
Accumulated Benefit Obligation
$
9,215
Amounts recognized in the consolidated balance sheet:
Current liabilities
Noncurrent liabilities
Amounts recognized in accumulated other comprehensive income:
Transition obligation
Actuarial loss
Net amount recognized
$
$
$
$
810
8,965
9,775
212
2,085
2,297
Total recognized in net periodic benefit cost and accumulated
other comprehensive income:
$
854
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Amortization of transition obligation
Amortization of other loss
2013
2012
$
71
350
42
81
$
54
376
42
11
$
$
$
$
$
$
$
$
$
Net periodic pension cost
$
544
$
483
$
9,326
54
376
709
(660)
9,805
9,342
843
8,962
9,805
255
1,732
1,987
1,139
2011
47
420
42
-
509
Assumptions used to determine net periodic pension cost:
Discount rate
Increase in future compensation levels
3.75%
3.00%
4.25%
3.00%
5.00%
3.00%
Estimated Future Benefit Payments (with mortality):
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019 through 2023
$
810
769
727
685
645
3,233
Of the $2,297 recognized in accumulated other comprehensive income at November 30, 2013, $42 of net transition obligation
and $123 of net loss are expected to be recognized as components of net periodic pension cost during fiscal 2014.
41
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Deferred Compensation Plan
We have an unfunded Deferred Compensation Plan that covers one current and certain former executives and provides for
voluntary deferral of compensation. This plan has been frozen with no additional participants or benefits permitted. We
recognized expense of $288, $312, and $332 in fiscal 2013, 2012, and 2011, respectively, associated with the plan. Our
liability under this plan was $2,555 and $2,615 as of November 30, 2013 and November 24, 2012, respectively. The non-
current portion of this obligation is included in post employment benefit obligations in our consolidated balance sheets, with
the current portion included in accrued compensation and benefits.
Defined Contribution Plan
We have a qualified defined contribution plan (Employee Savings/Retirement Plan) that covers substantially all employees
who elect to participate and have fulfilled the necessary service requirements. Employee contributions to the Plan are
matched at the rate of 15% of up to 8% of gross pay, regardless of years of service. Expense for employer matching
contributions was $340 and $175 during fiscal 2013 and 2012, respectively. During fiscal 2011, employer matching
contributions remained suspended and no expense was incurred.
14. Capital Stock and Stock Compensation
We account for our stock-based employee and director compensation plans in accordance with ASC 718, Compensation –
Stock Compensation. ASC 718 requires recognition of the cost of employee services received in exchange for an award of
equity instruments in the financial statements over the period the employee is required to perform the services in exchange
for the award (presumptively the vesting period) which we recognize on a straight-line basis. Compensation expense related
to restricted stock and stock options included in selling, general and administrative expenses in our consolidated statements
of income for fiscal 2013, 2012 and 2011 was as follows:
2013
2012
2011
$
728
$
636
$
426
Stock Option Plans
In 1997, we adopted an Employee Stock Plan (the “1997 Plan”), and reserved for issuance 950,000 shares of common stock.
An additional 500,000 shares of common stock were authorized for issuance in 2000. In addition, the terms of the 1997 Plan
allow for the re-issuance of any stock options which have been forfeited before being exercised. Options granted under the
1997 Plan may be for such terms and exercised at such times as determined by the Organization, Compensation, and
Nominating Committee of the Board of Directors. Vesting periods typically range from one to three years. There are no
shares available for grant under the 1997 Plan at November 30, 2013, however up to 500,000 shares associated with
outstanding grants under the 1997 may become available for grant under the 2010 Plan (see below).
On April 14, 2010, our shareholders approved the Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan (the
“2010 Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are
eligible to receive incentive awards under the 2010 Plan. Our Organization, Compensation and Nominating Committee (the
“Compensation Committee”) selects eligible key employees and outside consultants to receive awards under the 2010 Plan in
its discretion. Our Board of Directors or any committee designated by the Board of Directors selects eligible non-employee
directors to receive awards under the 2010 Plan in its discretion. Five hundred thousand (500,000) shares of common stock
are reserved for issuance under the 2010 Plan. In addition, up to 500,000 shares that are represented by outstanding awards
under the 1997 Employee Stock Plan which are forfeited, expire or are canceled after the effective date of the 2010 Plan will
be added to the reserve and may be used for new awards under the 2010 Plan. Participants may receive the following types of
incentive awards under the 2010 Plan: stock options, stock appreciation rights, payment shares, restricted stock, restricted
stock units and performance shares. Stock options may be incentive stock options or non-qualified stock options. Stock
appreciation rights may be granted in tandem with stock options or as a freestanding award. Non-employee directors and
42
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
outside consultants are eligible to receive restricted stock and restricted stock units only. We expect to issue new common
stock upon the exercise of options.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk
free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-
term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options using the
simplified method, and forfeitures are estimated on the date of grant based on certain historical data. We utilize the
simplified method to determine the expected life of our options due to insufficient exercise activity during recent years as a
basis from which to estimate future exercise patterns. During fiscal 2011, our Compensation Committee authorized the
issuance of 91,000 stock options from the 2010 Plan to certain of our key employees. The stock options vest ratably over a
four-year period and have 10-year contractual terms. The following table sets forth the weighted average fair value of
options granted during 2011 and the weighted average assumptions used for such grants (there were no grants made in 2013
or 2012):
Weighted average fair value of options on grant date
Expected life of options in years
Risk-free interest rate
Expected volatility
Dividend yield
2011
$ 4.19
6.25
2.19% - 2.49%
60.0%
0.0% - 1.5%
Changes in the outstanding options under our plans during the year ended November 30, 2013 were as follows:
Outstanding at November 24, 2012
Granted
Exercised
Forfeited/Expired
Outstanding at November 30, 2013
Exercisable at November 30, 2013
Weighted
Average
Exercise Price
Per Share
$14.55
-
7.10
4.38
15.08
$16.25
Number of Shares
785,100
-
(46,000)
(4,000)
735,100
648,600
Changes in the non-vested options under our plans during the year ended November 30, 2013 were as follows:
Weighted
Average Grant
Date Fair Value
Per Share
Number of Shares
154,250
-
(63,750)
(4,000)
86,500
$6.00
-
5.69
4.38
6.31
Non-vested options outstanding at November 24, 2012
Granted
Vested
Forfeited/Expired
Non-vested options outstanding at November 30, 2013
43
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Unrecognized compensation cost related to these non-vested options at November 30, 2013 is $218, expected to be
recognized over approximately a one and one-half year period.
Additional information regarding our outstanding stock options at November 30, 2013 is as follows:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual Life
(Years)
6.6
7.6
3.9
2.9
2.6
0.2
Weighted
Average
Exercise Price
4.38
$
8.04
10.60
14.89
16.96
21.12
Range of
Exercise Prices
$3.23 - $6.45
$6.45 - $9.67
$9.68 - $12.90
$12.91 - $16.13
$16.14 - $19.35
$19.36 - $22.58
Aggregate
intrinsic value
Shares
76,350
62,750
123,500
67,500
150,000
255,000
735,100
$2,053
Weighted
Average
Exercise Price
4.38
$
8.02
10.60
14.89
16.96
21.12
Shares
35,350
17,250
123,500
67,500
150,000
255,000
648,600
$1,235
Additional information regarding activity in our stock options during fiscal 2013, 2012 and 2011 is as follows:
Total intrinisic value of options exercised
Total fair value of options vested
Total cash received from the exercise of options
Excess tax benefits recognized as additional
paid-in capital upon exercise of options
2013
2012
2011
$
387
363
413
$
530
371
536
$
74
110
81
106
-
-
Changes in the outstanding non-vested restricted shares during the year ended November 30, 2013 were as follows:
Non-vested restricted shares outstanding at November 24, 2012
Granted
Vested and released
Forfeited
Non-vested restricted shares outstanding at November 30, 2013
Weighted
Average Grant
Date Fair
Value Per
Share
Number of Shares
138,782
81,295
(52,184)
(2,000)
165,893
$7.15
16.54
5.74
4.38
12.23
During fiscal 2013, 52,184 restricted shares were vested and released, of which 41,000 shares had been granted to employees
and 11,184 shares to directors. Of the shares released to employees, 11,550 shares were withheld by the Company to cover
withholding taxes of $202. Excess tax benefits of $207 were recognized as additional paid-in capital upon the release of the
vested shares. Activity related to the vesting and release of restricted shares prior to fiscal 2013 was not material.
44
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Additional information regarding our outstanding non-vested restricted shares at November 30, 2013 is as follows:
Grant
Date
Restricted
Shares
Granted
Share Value
at Grant Date
Per Share
March 7, 2011
July 13, 2011
July 13, 2012
April 1, 2013
July 17, 2013
4,000
79,200
1,398
11,295
70,000
165,893
$
$
$
$
$
8.15
8.02
11.69
15.94
16.64
Remaining
Restriction
Period
(Years)
0.3
0.6
1.6
0.3
4.6
Unrecognized compensation cost related to these non-vested restricted shares at November 30, 2013 is $1,243, expected to be
recognized over approximately a four and one-half year period.
Employee Stock Purchase Plan
In 2000, we adopted and implemented an Employee Stock Purchase Plan (“ESPP”) that allows eligible employees to
purchase a limited number of shares of our stock at 85% of market value. Under the ESPP we sold 38,206, 42,211 and 39,618
shares to employees in fiscal 2013, 2012 and 2011, respectively, which resulted in an immaterial amount of compensation
expense.
15. Restructuring, asset impairment, and other charges
The following table summarizes the restructuring, asset impairment charges and other unusual items by year:
2013
2012
2011
Restructuring and asset impairment charges:
Asset impairment charges related to Company-owned retail store closures
Asset impairment charges & demolition costs associated with closed plants
Other
Total restructuring and asset impairment charges
Lease exit costs
Lease exit costs related to Company-owned retail store closures
Charge for modification of existing Company-owned retail store lease
Changes in estimates related to previously closed Company-owned
retail stores
Total lease exit costs
Licensee debt cancellation charges
-
$
-
-
$
-
-
$
-
-
$
-
$
-
$
$
123
588
-
711
$
228
-
131
359
$
$
-
Total charges related to restructuring, asset impairment, lease exit costs
and debt cancellation included in loss from operations
$
-
$
1,070
45
$
$
$
$
$
$
1,156
1,312
32
2,500
1,221
1,500
1,007
3,728
6,447
12,675
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Total restructuring and asset impairment charges by segment are as follows:
Wholesale
Retail
2013
$
-
-
$
-
The following table summarizes the activity related to our accrued lease exit costs:
2012
$
719
351
1,070
$
2011
8,653
4,022
12,675
$
$
Balance, beginning of the year
Provisions associated with corporate store and
retail office closures
Provisions made to adjust previous estimates
Payments on unexpired leases
Accretion of interest on obligations
2013
2012
$
2,614
$
4,357
-
(176)
(1,610)
79
228
111
(2,232)
150
Balance, end of the year
$
907
Current portion included in other accrued liabilities
Long-term portion included in other long-term liabilities
Fiscal 2012
Restructuring and Asset Impairment Charges
$
$
474
433
907
$
$
$
2,614
1,609
1,005
2,614
During fiscal 2012, we incurred costs of $203 associated with the demolition of a previously closed manufacturing facility in
Bassett, Virginia; non-cash charges of $385 associated with the write-down of a previously closed manufacturing facility in
Mt. Airy, North Carolina; and $123 associated with the write off of abandoned leasehold improvements following the
relocation of a retail store near Richmond, Virginia.
Lease Exit Costs
During fiscal 2012, we incurred non-cash charges of $228 for lease exit costs associated with the relocation of a retail store
near Richmond, Virginia, as well as $131 of non-cash charges to reflect reduced estimates of recoverable lease costs at
several previously closed retail locations.
Fiscal 2011
Restructuring and Asset Impairment Charges
During fiscal 2011, we recorded asset impairment charges of $2,500. These charges included costs of $318 for the demolition
of a previously closed facility in Bassett, Virginia, and $32 associated with the relocation of our retail store in Manchester,
Missouri. We also incurred non-cash charges which included $966 for the write-off of leasehold improvements related to the
closure of six retail locations in Albuquerque, New Mexico; Bear, Delaware; Bel Air, Maryland; Carol Stream, Illinois;
Frederick, Maryland; and Spanish Fort, Alabama; $566 for the additional write-down of a previously closed manufacturing
facility in Mt. Airy, North Carolina; $428 for the additional write-down of the previously closed manufacturing facility in
Bassett, Virginia; and $190 for the write-off of leasehold improvements and other assets associated with the relocation of our
retail store in Manchester, Missouri. Total non-cash impairment charges described above for the year ended November 26,
46
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
2011 were $2,150. The write-downs of the previously closed manufacturing facilities are based on our estimates of their fair
values. 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 7.
Lease Exit Costs
During fiscal 2011, we recorded charges of $3,728 for lease exit costs and lease modifications which included: non-cash
charges of $1,221 for lease exit costs related to the closure of retail stores in Albuquerque, New Mexico, Bel Air and
Frederick, Maryland, and a previously closed location in Lewisville, Texas; non-cash charges of $1,007 to reflect reduced
estimates of recoverable lease costs at four previously closed retail locations; and a charge of $1,500 for a cash payment
made for the modification of an existing lease at one of our Company-owned retail store locations.
Licensee Debt Cancellation Charges
During fiscal 2011, we gained significant liquidity as a result of the sale of our investment in IHFC (see Note 10). This
liquidity event enabled us to become more opportunistic in managing our relationships with our licensees and therefore
accelerate certain licensees’ ability to rebuild their businesses after several years of extremely difficult industry conditions.
As such, during fiscal 2011, we cancelled certain debts of what we consider to be key licensees in select markets. While the
debts cancelled were considered to be collectible over time, we believe that, rather than requiring repayment of these
obligations, we will realize a greater long-term benefit by the cancellation of these debts. In exchange for relieving the debts
of these licensees and thus strengthening their respective financial positions, we believe these licensees will be in a much
better position to reinvest in all aspects of their store operations (new product offerings, personnel, advertising, building
appeal, etc.) which will ultimately lead to increased sales and profitability of the Bassett brand. As a result of this debt
cancellation, we incurred a charge for fiscal 2011 of $6,447.
In addition to the charges discussed above affecting loss from operations, during fiscal 2013 other income (loss), net includes
a non-cash charge of $416 for impairment of our real estate investment property in Henderson, Nevada which was held for
sale at November 30, 2013. The sale of this property was closed on December 26, 2013. During fiscal 2011, other income
(loss), net includes non-cash charges of $4,790 for asset impairments and lease termination costs associated with our retail
real estate investments, including: asset impairment charges of $2,106 to write down idle retail locations in Henderson,
Nevada and Chesterfield, Virginia to appraised values; $1,847 to write off certain tenant improvements deemed to be
unrecoverable; $661 related to lease termination costs for a closed licensee store; and $176 related to adjustments of previous
estimates. The write-downs of the retail assets are based on our estimates of their fair values. 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 7.
16. Contingencies
We are involved in various claims and actions, including 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 also Note 8 regarding claims which could possibly result in the return of all or a portion of our share of the CDSOA final
distribution.
47
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
17. Leases and Lease Guarantees
Leases
We lease land and buildings under operating leases that are used in the operation of our Company-owned retail stores as well
as in the operation of independent licensee BHF stores. Our decision to exercise renewal options is primarily dependent on
the level of business conducted at the location and the profitability thereof. Some store leases contain contingent rental
provisions based upon sales volume. Additionally, we lease showroom space from IMC (and from its predecessor, IHFC),
which is priced at what we believe to be a market rate. Lease terms range from one to 15 years and generally have renewal
options of between five and 15 years. The following schedule shows future minimum lease payments under non-cancelable
operating leases having remaining terms in excess of one year as of November 30, 2013:
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Thereafter
$
$
18,053
16,077
13,089
10,708
8,823
29,671
96,421
Lease expense was $18,403, $17,123 and $16,406 for 2013, 2012, and 2011, respectively.
In addition to subleasing certain of these properties, we own retail real estate which we in turn lease to licensee operators of
BHF stores. We also own real estate for closed stores which we lease to non-licensees. The following schedule shows
minimum future rental income related to pass-through rental expense on subleased property as well as rental income on real
estate owned by Bassett, excluding subleases based on a percentage of sales.
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Thereafter
$
$
3,034
2,465
1,341
960
726
81
8,607
Real estate rental income (loss), net of expense (including lease costs, depreciation, insurance, and taxes), related to licensee
stores and other investment real estate, was $(594), $(468) and $285 in 2013, 2012 and 2011, respectively, and is reflected in
other expense, net in the accompanying consolidated statements of income.
Guarantees
As part of the strategy for our store program, we have guaranteed certain lease obligations of licensee operators. Lease
guarantees range from one to ten years. We were contingently liable under licensee lease obligation guarantees in the amount
of $3,698 and $2,007 at November 30, 2013 and November 24, 2012, respectively.
In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated
through a combination of options that include, but are not limited to, arranging for a replacement dealer, liquidating the
collateral, and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options
are estimated to cover the maximum amount of our future payments under the guarantee obligations, net of reserves. The fair
value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at November 30, 2013 and
November 24, 2012, were not material.
48
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
18. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
2013
2012
2011
$
5,096
$
26,713
$
55,342
Denominator for basic income per share - weighted average shares
Effect of dilutive securities
Denominator for diluted income per share — weighted
10,721,652
150,897
10,992,017
103,394
11,437,291
106,879
average shares and assumed conversions
10,872,549
11,095,411
11,544,170
Basic income per share:
Net income per share — basic
Diluted income per share:
Net income per share — diluted
$
0.48
$
2.43
$
4.84
$
0.47
$
2.41
$
4.79
For fiscal 2013, 2012 and 2011, the following potentially dilutive shares were excluded from the computations as there effect
was anti-dilutive:
Stock options
Unvested restricted shares
Total anti-dilutive securities
19. Segment Information
2013
472,500
81,295
553,795
2012
622,500
12,582
635,082
2011
924,464
94,960
1,019,424
We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting, and as
described below:
(cid:120) Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing,
sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned
stores retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery
operations as well as all corporate selling, general and administrative expenses, including those corporate expenses
related to both Company- and licensee-owned stores.
(cid:120) 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.
(cid:120)
Investments and Real Estate. Our investments and real estate segment consists of our short-term investments, our
holdings of real estate leased or previously leased as licensee stores, and our equity investment in Zenith. We also
hold an investment in Fortress, which we fully reserved during the first quarter of 2012. Although this segment does
not have operating earnings, income or loss from the segment is included in other income (loss), net, in our
consolidated statements of income. During fiscal 2011, other income included the gain on the sale of our equity
interest in IHFC as well as our equity in the income of IHFC for fiscal 2011 through the date of the sale. See Note
10 for further discussion of IHFC.
49
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. 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.
The following table presents segment information for each of the last three fiscal years:
2013
2012
2011
Net Sales
Wholesale
Retail
Inter-company elimination
Consolidated
$
$
215,451
199,380
(93,545)
321,286
185,187
171,633
(87,148)
269,672
$
$
Income (loss) from Operations
Wholesale
Retail
Inter-company elimination
Restructuring and asset impairment charges
Wholesale
Retail
Licensee debt cancellation charges
Lease exit costs
Consolidated income (loss) from operations
$
10,883
(1,452)
574
$
7,500
(2,067)
717
-
-
-
-
10,005
$
(588)
(123)
-
(359)
5,080
$
Depreciation and Amortization
Wholesale
Retail
Investments and real estate
Consolidated
Capital Expenditures
Wholesale
Retail
Investments and real estate
Consolidated
Identifiable Assets
Wholesale
Retail
Investments and real estate
Consolidated
$
$
$
$
$
$
$
$
1,342
4,372
484
6,198
3,839
10,846
-
14,685
109,958
77,331
38,560
225,849
$
$
$
$
1,171
3,760
542
5,473
3,092
5,898
10
9,000
145,861
68,583
12,736
227,180
$
$
$
$
$
$
$
$
$
$
177,372
147,961
(72,125)
253,208
(4,394)
(4,495)
942
(1,311)
(1,189)
(6,447)
(3,728)
(20,622)
1,246
3,421
847
5,514
690
3,478
-
4,168
142,361
60,811
20,002
223,174
A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below:
Wood
Upholstery
2012
43%
57%
100%
2000
44%
56%
100%
2013
41%
59%
100%
50
Notes to Consolidated Financial Statements - Continued
(In thousands, except per share data)
20. Quarterly Results of Operations (unaudited)
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
Net sales
Gross profit
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
2013
First Quarter
(1)
Second
Quarter
Third Quarter
(2)
Fourth
Quarter (3)
$
79,849
41,360
980
0.09
0.09
$
81,223
41,826
1,953
0.18
0.18
$
77,152
38,723
556
0.05
0.05
$
83,062
44,085
1,607
0.15
0.15
2012
First Quarter
(4)
Second
Quarter (5)
Third Quarter
(6)
Fourth
Quarter (7)
$
60,968
31,671
(596)
(0.05)
(0.05)
$
67,454
35,661
8,042
0.72
0.71
$
64,438
33,818
2,371
0.22
0.21
$
76,812
40,172
16,896
1.57
1.55
(1) The first quarter of fiscal 2013 included 14 weeks as compared with 13 weeks for the first quarter of 2012. On an
average weekly basis, net sales for the first quarter of fiscal 2013 were $5,704 per week as compared with $4,690
per week for the first quarter of fiscal 2012.
(2) Includes $221 of tax benefit from the expiration of the statute of limitations on certain previously unrecognized tax
benefits – see Note 11 for further information.
(3) Includes $416 charge for impairment related to our investment property located in Henderson, Nevada. See Note 15
for further details
(4) Includes restructuring and asset impairment charges of $236 and lease exit costs of $228 – see Note 15 for further
details. Also includes $806 charge for other than temporary impairment to our investment in Fortress – see Note 7
for further details.
(5) Includes $9,010 of income from the final CDSOA distribution – see Note 8 for further details. Also includes
restructuring and asset impairment charges of $475 and lease exit costs of $131 – see Note 15 for further details.
Also includes $1,592 of tax benefit from partial release of deferred tax asset valuation reserves – see Note 11 for
further information.
(6) Includes $1,205 of tax benefit from partial release of deferred tax asset valuation reserves – see Note 11 for further
information.
(7) Includes $15,907 of tax benefit from release of deferred tax asset valuation reserves – see Note 11 for further
information.
51
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years indicated were derived from our audited consolidated financial
statements. The information should be read in conjunction with our consolidated financial statements (including the notes
thereto) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere
in, or incorporated by reference into, this report.
2013 (1)
2012
2011
2010
2009
Net sales
Gross profit
Operating income (loss)
Gain on sale of affiliate
Other income (loss), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Diluted earnings (loss) per share
Cash dividends declared
Cash dividends per share
Total assets
Long-term debt
Current ratio
Book value per share
Weighted average number of shares
321,286
$
165,994
$
$
10,005
$
-
$
(1,818)
$
8,187
$
3,091
$
5,096
$
0.47
$
4,565
$
0.42
$
225,849
2,467
$
2.46 to 1
14.50
10,872,549
$
(2)
(4)
(5)
$
269,672
$
141,322
$
5,080
$
-
$
6,934
$
12,014
$
(14,699)
$
26,713
$
2.41
$
15,920
$
1.45
$
227,180
3,053
$
2.52 to 1
14.51
11,095,411
$
$
$
$
$
$
$
$
$
$
$
$
$
$
253,208
127,566
(20,622)
85,542
(5,169)
59,751
4,409
55,342
4.79
6,757
0.60
223,174
3,662
2.71 to 1
13.44
11,544,170
$
(2)
(3)
(4)
(5)
(4)
235,254
$
112,688
$
$
(4,687)
$
-
$
2,479
$
(2,208)
$
(206)
$
(2,002)
$
(0.17)
$
-
$
-
$
197,317
$
4,295
1.48 to 1
9.20
11,459,257
$
(2)
(4)
232,722
$
102,840
$
$
(21,575)
$
-
$
(2,878)
$
(24,453)
$
(1,754)
$
(22,699)
(1.99)
$
$
-
$
-
$
216,229
31,953
$
2.42 to 1
9.63
11,395,789
$
(1) Fiscal 2013 contained 53 weeks, whereas all other fiscal years presented above contained 52 weeks.
(2) See note 15 to the Consolidated Financial Statements related to restructuring and asset impairment charges and lease exits
costs recorded in 2012 and 2011 totaling $1,070 and $6,228, respectively, as well as licensee debt cancellation charges
recorded in 2011 of $6,447. Operating loss for 2009 included restructuring and asset impairment charges and lease exits
costs totaling $5,421.
(3) See note 10 to the Consolidated Financial Statements related to the gain resulting from the sale of our interest in IHFC on
May 2, 2011.
(4) See note 8 to the Consolidated Financial Statements related to funds received from the Continued Dumping and Subsidy
Offset Act (“CDSOA”) in 2012 and 2011 of $9,010 and $765, respectively. During 2010 and 2009, other income (loss), net
included income from the CDSOA of $488 and $1,627, respectively.
(5) See note 11 to the Consolidated Financial Statements related to the effects of changes in our valuation allowance on deferred
tax assets during fiscal 2012 and 2011.
52
Bassett Furniture Industries, Incorporated
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 30, 2013, November 24, 2012 and November 26, 2011
(amounts in thousands)
Balance
Beginning of
Period
Additions
Charged to
Cost and
Expenses
Deductions
(1)
Other
Balance End
of Period
For the Year Ended November 26, 2011:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
$ 7,366 $ 8,778 $ (14,052) $ -
$ 2,092
Notes receivable valuation reserves
$ 6,748 $ 4,684 $ (7,292) $ -
$ 4,140
Lease/Loan guarantee reserves
$ 2,304 $ 1,282 $ (3,078) $ -
$ 508
Lease exit costs
$ 2,847 $ 5,058 $ (3,548) $ -
$ 4,357
Income tax valuation allowance
$ 36,806 $ - $ (17,464)
$ 270 (2)
$ 19,612
For the Year Ended November 24, 2012:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
$ 2,092 $ 377 $ (680) $ -
$ 1,789
Notes receivable valuation reserves
$ 4,140 $ (1) $ - $ -
$ 4,139
Lease/Loan guarantee reserves
$ 508 $ (41) $ (120) $ -
$ 347
Lease exit costs
$ 4,357 $ 489 $ (2,232) $ -
$ 2,614
Income tax valuation allowance
$ 19,612 $ - $ (18,704) $ - (3)
$ 908
For the Year Ended November 30, 2013:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
$ 1,789 $ 361 $ (543) $ -
$ 1,607
Notes receivable valuation reserves
$ 4,139 $ - $ - $ -
$ 4,139
Lease/Loan guarantee reserves
$ 347 $ 40 $ (212) $ -
$ 175
Lease exit costs
$ 2,614 $ (97) $ (1,610) $ -
$ 907
Income tax valuation allowance
$ 908 $ 136 $ - $ -
$ 1,044
(1) Deductions are for the purpose for which the reserve was created. Deductions from the income tax valuation allowance
for the year ended November 26, 2011 represent the reduction in income tax expense resulting from the utilization of
net operating loss carryforwards realized against the taxable gain on the sale of IHFC.
(2) Represents the change in reserve recorded as part of accumulated other comprehensive income (loss).
(3) Deduction for 2012 due to the reduction of the majority of our valuation allowance, resulting in a net tax benefit for the year.
53
STOCKHOLDER RETURN PERFORMANCE GRAPH
Presented below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the
Company’s Common Stock against the cumulative total return of the Standard & Poor’s 500 Index and the Company’s new
and old peer groups. The Company began using the new peer group as of December 1, 2013. The Company’s new and old
peer groups consist of the following:
New Peer Group
Old Peer Group
American Woodmark, Inc.
Culp, Inc.
The Dixie Group, Inc.
Ethan Allen Interiors, Inc.
Flexsteel Industries, Inc.
Haverty Furniture Companies, Inc.
Hooker Furniture Corporation
Kirkland's, Inc.
La-Z-Boy Incorporated
Stanley Furniture Company, Inc.
Chromcraft Revington Inc.
Ethan Allen Interiors, Inc.
Flexsteel Industries, Inc.
Furniture Brands International, Inc.
Haverty Furniture Companies, Inc.
Hooker Furniture Corporation
La-Z-Boy Incorporated
Stanley Furniture Company, Inc.
This graph assumes that $100 was invested on November 29, 2008 in the Company’s Common Stock, the S&P Index and the
two peer groups and that any dividends paid were invested.
Assumes $100 Invested on November 29, 2008
Assumes Dividends Reinvested
54
Management’s Report of Internal Control over Financial Reporting
As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and
principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated
and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective
at a reasonable assurance level.
We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance
with Exchange Act Rule 13a-15. With the participation of our CEO and CFO, our management conducted an
evaluation of the effectiveness of our internal control over financial reporting as of November 30, 2013 based on the
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal
control over financial reporting was effective as of November 30, 2013, based on those criteria. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected.
Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report
on the effectiveness of the Company’s internal control over financial reporting.
Bassett Furniture Industries, Inc.
Bassett, Virginia
January 22, 2014
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Bassett Furniture Industries, Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bassett Furniture Industries, Incorporated and
Subsidiaries as of November 30, 2013 and November 24, 2012, and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended
November 30, 2013. Our audits also included Financial Statement Schedule II - Analysis of Valuation and
Qualifying Accounts for each of the three years in the period ended November 30, 2013. These financial statements
and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Bassett Furniture Industries, Incorporated and Subsidiaries at November 30, 2013 and
November 24, 2012, and the consolidated results of their operations and their cash flows for each of the three years
in the period ended November 30, 2013, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Bassett Furniture Industries, Incorporated and Subsidiaries’ internal control over financial reporting as of
November 30, 2013, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework), and our report dated
January 22, 2014 expressed an unqualified opinion thereon.
Richmond, Virginia
January 22, 2014
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Bassett Furniture Industries, Incorporated and Subsidiaries
We have audited Bassett Furniture Industries, Incorporated and Subsidiaries’ internal control over financial
reporting as of November 30, 2013, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO
criteria). Bassett Furniture Industries, Incorporated and Subsidiaries’ management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Bassett Furniture Industries, Incorporated and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of November 30, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Bassett Furniture Industries, Incorporated and Subsidiaries as of
November 30, 2013 and November 24, 2012, and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for each of the three years in the period ended November 30, 2013 of
Bassett Furniture Industries, Incorporated and Subsidiaries and our report dated January 22, 2014 expressed an
unqualified opinion thereon.
Richmond, Virginia
January 22, 2014
INVESTOR INFORMATION
Internet Site
Our site on the Internet has been updated recently and is
filled with information about Bassett Furniture, including
this annual report, detailed financial information and
updates, information about our home furnishings
products, and a dealer locator of Bassett stores and other
stores that feature Bassett products. Visit us at
bassettfurniture.com.
Forward Looking Statements
This Annual Report contains forward-looking statements
as defined in the Private Securities Litigation and Reform
Act of 1995 and within the meaning of Sections 27A of
the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Annual Report the words
“hope,” “believe,” “expect,” “plan” or “planned,” “intend,”
“anticipate,” “potential” and similar expressions are
intended to identify forward-looking statements. Readers
are cautioned against placing undue reliance on these
statements. Such statements, including but not limited to
those regarding increases in sales, growth in the number
of Bassett stores, improving gross margins, growth in
earnings per share, changes in capital structure, the
operating performance of licensed Bassett stores, and other
Company-owned stores, are based upon management’s
beliefs, as well as assumptions made by and information
currently available to management, and involve various
risks and uncertainties, certain of which are beyond the
Company’s control. The Company’s actual results could
differ materially from those expressed in any forward-
looking statement made by or on behalf of the
Company.
If the Company does not attain its goals, its business and
results of operations might be adversely affected. For
a discussion of factors that may impair the Company’s
ability to achieve its goals, please see the cautionary
statements in the Management’s Discussion and Analysis
section of this Annual Report.
Corporate Information and Investor Inquiries
Our annual report and proxy statement together
contain much of the information presented in the
Form 10-K report filed with the Securities and Exchange
Commission. Individuals who wish to receive the
Form 10-K or other corporate literature should visit our
website at bassettfurniture.com or contact Investor Relations,
at 276.629.6000.
Transfer Agent - Stockholder Inquiries
Stockholders with inquiries relating to stockholder
records, stock transfers, change of ownership, change of
address or dividend payments should write to:
American Stock Transfer & Trust Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Toll free: (800) 937-5449
Local & International: (718) 921-8124
Email: info@amstock.com
Web site: www.amstock.com
Annual Meeting
The Bassett Annual Meeting of Shareholders will be
held Wednesday, March 12, 2014, at 10:00 a.m. EST at the
Company’s headquarters in Bassett, Va.
Market and Dividend Information
Bassett’s common stock trades on the NASDAQ national
market system under the symbol “BSET.” We had approximately
1300 registered stockholders on November 30, 2013. The
range of per share amounts for the high and low market
prices and dividends declared for the last two fiscal years
are listed below:
MARKET PRICES OF
COMMON STOCK
DIVIDENDS
DECLARED
Quarter
2013
2012
2013
2012
HIGH
LOW
HIGH
LOW
First
$14.60
$10.93
$ 8.17
$ 7.38
$0.05
$0.05
Second
Third
15.96
17.49
12.52
13.82
10.87
12.25
8.15
9.08
Fourth
16.19
13.18
13.00
10.60
0.05
0.06
0.26
0.05
0.05
1.30
BOARD OF DIRECTORS
PAUL FULTON
Chairman of the Board
Bassett Furniture Industries, Inc.
ROBERT H. SPILMAN, JR.
President and Chief Executive Officer
Bassett Furniture Industries, Inc.
PETER W. BROWN, M.D.
Partner
Virginia Surgical Associates
KRISTINA K. CASHMAN
President
Guy and Larry Restaurants, LLC
HOWARD H. HAWORTH
Retired Chairman and Chief Executive Officer
Drexel Heritage Home Furnishings
GEORGE W. HENDERSON, III
Former Chairman and Chief Executive Officer
Burlington Industries, Inc.
OFFICERS
J. WALTER MCDOWELL
Former Chief Executive Officer
Carolinas/Virginia Banking
Wachovia Corporation
DALE C. POND
Retired Senior Executive Vice President
Merchandising and Marketing
Lowe’s Companies, Inc.
WILLIAM C. WAMPLER, JR.
Executive Director, New College Institute
Former Member, Senate of Virginia
WILLIAM C. WARDEN, JR.
Former Executive Vice President
Lowe’s Companies, Inc.
ROBERT H. SPILMAN, JR.
President and Chief Executive Officer
JAY R. HERVEY
Vice President, Secretary, General Counsel and Real Estate
JOHN E. BASSETT, III
Senior Vice President, Wood
MATTHEW S. JOHNSON
Vice President, Sales & Merchandising, HGTV
JASON W. CAMP
Senior Vice President, Retail and Marketing
MIKE R. KREIDLER
Vice President, Upholstery Operations
BRUCE R. COHENOUR
Senior Vice President, Sales and Merchandising
KENA A. LENARD
Vice President, Upholstery Merchandising
J. MICHAEL DANIEL
Senior Vice President and Chief Financial Officer
RENEE C. LOPER
Vice President, Independent Retail Marketing
MARK S. JORDAN
Senior Vice President, Upholstery
PETER D. MORRISON
Vice President, Retail Marketing
EDWIN C. AVERY, JR.
Vice President, Upholstery Product Development
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast Region
DAVID C. BAKER
Vice President, Corporate Retail
THOMAS E. PRATO
Vice President, Sales, Bassett
WILLIAM A. BENDALL
Vice President, International Business Development
DAVID F. WALSH
Vice President, Licensed Retail
STEPHEN D. HARMON
Vice President, Information Technology
EDWARD H. WHITE
Vice President, Human Resources
ANNUAL
REPORT
2013
BASSETT, VIRGINIA
NASDAQ: BSET