2 10 4A n n u Al R e p oRt
“Our model has been painstakingly and purposefully crafted over 15 years and
has matured into a proposition that is being increasingly embraced by consumers
and has the potential to generate attractive financial returns in the years to come.”
Rob Spilman,
President and CEO, Bassett Furniture
To Our Shareholders,
I am particularly pleased to write our annual letter to
shareholders this year. Many people have worked very
hard over a number of years to remake Bassett Furniture
into the vibrant home furnishings enterprise that it is today.
Although our mission to grow the company’s value is by no
means complete, it is gratifying to report the progress that
was made in 2014 and explain why we look to the future
with optimism. Despite having one less week on the fiscal
calendar than in 2013, consolidated net sales for 2014 grew
by 6.0% to $341 million, thanks in large part to particularly
strong revenue growth during the final six months of the
year. Net income grew by 82% to $9.3 million. If nothing
else, the past several years have taught us that neither Bassett
nor any other company in our sector can thrive during
severe downturns in the world economy. Coming out of
the Great Recession our industry has undoubtedly benefited
from improving economic conditions. But we believe that
Bassett’s recent success is attributable to more than increasing
favorability in the macro environment. Our model has been
painstakingly and purposefully crafted over 15 years and
has matured into a proposition that is being increasingly
embraced by consumers and has the potential to generate
attractive financial returns in the years to come.
For a small public company, our primary business platform
is relatively complex. Within the sum of the parts of this
complexity, however, lies the unique selling proposition that
powers our business. Although various industry competitors
claim to offer free in-home design services in their stores,
very few embrace the strategy to drive their sales day in and
day out. This requires a constant commitment to recruiting,
training, and accountability that has become ingrained
in our culture over many years. Without this discipline, a
design culture will not thrive. Supporting our designers
is technology that communicates the infinite custom
options that are available in our product line and allows
the consumer to visualize our furniture in their homes. In
2013 we finished a two year project to install a new network
wide corporate retail operating system that is giving our
management better insight into the key metrics of our
operation. Currently, we are arming our design staffs with
digital tablets to assist the sales process both in-store and
in-home. Coupled with our bassettfurniture.com website,
our technology assets seamlessly and efficiently navigate the
consumer through their personalized Bassett design solution.
Once the customer’s order is placed with our factories, our
manufacturing facilities efficiently produce custom products
that are specifically made for each client. In short, we do
not build furniture to reside in a warehouse, we build it for
our customers’ homes and we get it there in 30 days or less.
Our partnership with Zenith Transportation is the final piece
of the puzzle that enables us to make this happen every day.
Zenith operates regional warehouses in eight states and a
network of local home delivery centers that provide white
glove delivery service and the high level of professionalism
that our customers deserve.
Custom Leather
Newton, NC
Custom Dining
Martinsville, VA
Consolidated Sales
These capabilities come to life in our network of 60
corporately owned and 34 licensed Bassett Home Furnishings
stores located in 28 states across the U.S. Six new corporate
stores were opened in 2014. Building on last year, our 51
comparable corporate stores (those open at least 12 months)
generated a best ever operating profit of $2.2 million. We
plan to open two new stores in the Los Angeles market and
another in the Washington, D.C. area in 2015. Also, we
will relocate two Texas stores early in the year and we are
in negotiations for several additional locations which may or
may not come to pass depending on the ultimate terms of
the leases. Meanwhile, our wholesale volume outside of our
stores has doubled in the past four years as we have leveraged
our selling strategy to grow our 75 Bassett Design Centers
(BDC). Located within independently owned general
furniture stores, our BDCs typically appeal to upscale retailers
that utilize our merchandising programs to differentiate their
stores in their
local markets.
$350,000
2011
2010
$200,000
$225,000
$250,000
$275,000
$300,000
$325,000
$235mm
$253mm
Looking ahead,
our focus will
largely
center
on wholesale
revenue growth
that we plan
to achieve on
several
fronts.
Accompanying
recent
the
the
debut of
i m p r o v e d
Bassettfurniture.com website was the late December launch of
Bassett Baby and Kids. This effort is intended to leverage our
70 year history in the juvenile and youth furniture category
and will initially be solely available on our website and in
certain Bassett Home Furnishings retail stores. Another
important new program for 2015 will be the birth of “Bench
Made”, an American handmade dining program that will
begin to grace retail showrooms in early spring. Partnering
with nearby hardwood component manufacturers, we will
prepare, distress, finish and assemble an assortment of solid
maple tables and chairs in a newly renovated Bassett-owned
facility located in Bassett, Virginia - a true startup. Finally,
we are about to embark upon the largest makeover of our
imported wood product assortment in recent memory.
Months in the making, these new products have been
carefully architected by our merchants, designers, engineers
and finishing technicians to achieve the upscale casual vibe
that we believe speaks to the Bassett consumer today. These
new products have been planned to hit our stores in waves
coinciding with key holiday selling periods throughout 2015.
In association with this aggressive level of activity there
are significant startup expenses that will be incurred over
the course of 2015 that must be absorbed. Given the 11%
compounded annual growth rate that we have posted over
the past four years, we believe that the operational and capital
investments required to support our retail expansion and the
extension of our product assortment are prudent strategies
for growth and will reward Bassett shareholders in the years
to come.
$340mm
$321mm
Finally, we plan to continue to allocate capital to grow
our business and to further reward our shareholders. In
addition to opening our new stores in 2014, we expanded
our Martinsville, Virginia table plant, made improvements
to our Newton,
N.C. upholstery
manufacturing
complex,
and
further upgraded
our website. In
all, we invested
about $18 million
in the business
in 2014 and we
plan to dedicate
a similar amount
We
in 2015.
those
balanced
by
investments
paying $5.2 million of dividends to our shareholders and
retiring $5.6 million of our common stock over the course of
the year. While doing so, our balance sheet remained strong
with $50 million of cash investments due in large part to the
generation of $30 million of operating cash.
2013
2014
$269mm
2012
As always, I want to thank our shareholders, associates,
and our Board of Directors for their support of Bassett this
past year.
Robert H. Spilman, Jr.
President & CEO
FINANCIAL
SUMMARY
Fiscal Years Ended November
INCOME STATEMENT DATA
2014
2013
2012
2011
2010
Net Sales
Income (loss) From Operations
Net Income (loss)
$340,738
15,131
9,299
$321,286
10,005
5,096
$269,672
5,080
26,713
$253,208
(19,857)
55,342
$235,254
(4,199)
(2,002)
PER SHARE DATA
Diluted Income
Cash Dividends Per Share
Book Value Per Share
BALANCE SHEET DATA
Cash & Cash Equivalents
Investments
Total Assets
Long-Term Debt
Stockholders’ Equity
$ 0.87
0.48
14.95
$ 0.47
0.42
14.50
$ 2.41
1.45
14.51
$ 4.79
0.60
13.44
$ (0.17)
-
9.20
$ 26,673
23,125
240,746
1,902
156,832
$ 12,733
28,125
225,849
2,467
157,409
$ 45,566
-
227,180
3,053
157,280
$ 69,601
2,939
223,174
3,662
152,435
$ 11,071
-
197,317
4,295
106,305
Dollars in thousands except per share amounts
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 112-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 94 BHF stores at November 29, 2014, we have leveraged our strong brand name in furniture into a network of
corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and
accessories. We created our store program in 1997 to provide a single source home furnishings retail store that provides a
unique combination of stylish, quality furniture and accessories with a high level of customer service. The store features
custom order furniture ready for delivery in less than 30 days, more than 1,000 upholstery fabrics, free in-home design
visits, and coordinated decorating accessories. We believe that our capabilities in custom upholstery have become
unmatched in recent years. Our manufacturing team takes great pride in the breadth of its options, the precision of its
craftsmanship, and the speed of its delivery. The selling philosophy in the stores is based on building strong long-term
relationships with each customer. Sales people are referred to as Design Consultants and are each trained to evaluate
customer needs and provide comprehensive solutions for their home decor. We continue to strengthen the sales and design
talent within our Company-owned retail stores. Our Design Consultants undergo extensive Design Certification training.
This training has strengthened their skills related to our house call and design business, and is intended to increase business
with our most valuable customers.
In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products
through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design
centers, specialty stores and mass merchants. We use a network of over 25 independent sales representatives who have
stated geographical territories. These sales representatives are compensated based on a standard commission rate. We
believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United
States and ultimately gain market share.
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 112 year heritage in the furniture industry with the penetration of
96 million households in the United States that HGTV enjoys today. As part of this alliance, the in-store design centers
have been co-branded with HGTV to more forcefully market the concept of a “home makeover”, an important point of
differentiation for our stores that also mirrors much of the programming content on the HGTV network. We believe the
new co-branded design centers coupled with the targeted national advertising on HGTV have played a key role in our
improved comparable store sales since their introduction following the third quarter of 2012.
The following table summarizes the changes in store count during fiscal 2014:
Company-owned stores
Licensee-owned stores
Total
November 30,
2013
55
34
89
Openings*
6
-
6
Closed
(1)
-
(1)
Transfers
-
-
-
November 30,
2014
60
34
94
*Does not include openings and closures due to relocation of existing stores within a market.
Due to the improved operating performance of our retail network along with continued improvement in underlying
economic factors such as the housing market and consumer confidence, we have begun expanding our retail presence in
various parts of the country. As part of this expansion we opened six new stores during fiscal 2014 as well as relocating
two others. As a result, we spent $13,836 in capital expenditures for new and relocated stores in 2014. We expect to spend
slightly less in 2015.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
We expect to continue opening new stores in the future, primarily in underpenetrated markets where we currently have
stores. We and certain licensees are actively engaged in site selection and lease negotiations for several locations and
expect to open three to five new stores in 2015. While we currently expect to renew or extend three leases for Company-
owned stores that expire in 2015, we will continue to evaluate whether it is more appropriate to reposition the stores to a
more favorable location within the market as we do with any leases that come up for renewal. Specific plans for 2015
currently include opening new stores in Los Angeles (Woodland Hills), California and Dulles, Virginia, and the relocation
of stores in San Antonio, Texas and Southlake, Texas where the lease expired in late 2014. During 2014, stores in the
following locations were opened or relocated:
New Stores
Store Relocations
Fort Worth, Texas
Westport, Connecticut
Annapolis, Maryland
Burlington, Massachusetts
Hartsdale, New York
Rockville, Maryland
Little Rock, Arkansas
Boston (Chestnut Hill), Massachusetts
As with any retail operation, prior to opening a new store we incur such expenses as rent, training costs and other payroll
related costs. These costs generally range between $100 to $300 per store depending on the overall rent costs for the
location and the period between the time when we take 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 $500 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 in 2015.
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, Virginia. Most of our wood furniture and certain of our upholstery
offerings are sourced through several foreign plants, primarily in Vietnam, Indonesia and China. We define imported
product as fully finished product that is sourced internationally. For fiscal 2014, approximately 42% of our wholesale sales
were of imported product compared to 46% for fiscal 2013. Our plans for 2015 include the launch of several significant
new product categories. Beginning in the first quarter of 2015 we have introduced Bassett Baby and Kids in an effort to
leverage our 70 year history in the juvenile and youth furniture products category. These products will initially be solely
available on our website and in BHF retail stores. Another important new product program for 2015 will be “Bench Made”,
a selection of American handmade dining furniture that will begin to appear in retail showrooms during the second quarter
of 2015. Partnering with nearby hardwood component manufacturers, we will prepare, distress, finish, and assemble an
assortment of solid maple tables and chairs in our newly renovated Bassett-owned facility in Bassett, Virginia. Finally, we
plan to undertake a major makeover of our imported wood product assortment in 2015. All of these new products have
been carefully designed in coordination with our merchants, designers, engineers and finishing technicians to achieve the
upscale casual decor that we believe speaks to the Bassett consumer today. These new products are planned to appear in
our stores in phases coinciding with key holiday selling periods throughout 2015. Our operating results for 2015 are
expected to reflect the start-up costs associated with this increased level of product development activity.
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
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
it easier for consumers to browse our wide array of goods and build custom furniture. In 2015, 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.
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 2014 and 2012 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 29, 2014, November 30, 2013 and November 24,
2012:
2014
2013
2012
Net sales
Gross profit
SG&A
New store pre-opening
costs
Other charges
$
340,738
182,421
166,073
100.0% $
53.5%
48.7%
321,286
165,994
155,318
100.0% $
51.7%
48.3%
269,672
141,322
134,801
1,217
-
0.4%
0.0%
671
-
0.2%
0.0%
371
1,070
Income from operations
$
15,131
4.4% $
10,005
3.2% $
5,080
100.0%
52.4%
50.0%
0.1%
0.4%
1.9%
Sales for fiscal 2014 were $340,738 as compared to $321,286 for 2013 and $269,672 for 2012, representing increases of
6.1% and 19%, respectively. As noted above, fiscal 2013 contained 53 weeks while fiscal 2014 and 2012 contained 52
weeks. On an average weekly basis, sales for 2014 increased 8.1% over 2013. 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:
2014
2013
2012
Wholesale
Retail
Inter-company elimination
Consolidated net sales
$
$
223,993 $
216,631
(99,886)
340,738 $
215,451 $
199,380
(93,545)
321,286 $
185,187
171,633
(87,148)
269,672
Operating income was $15,131 for 2014 as compared to $10,005 for 2013 and $5,080 for 2012. These increases have been
primarily attributable to improved wholesale margins along with improved pricing strategies at retail, partially offset by
higher new store related costs (both pre- and post-opening), as we opened six new stores during 2014 as compared with two
in 2013 and two in 2012.
During fiscal 2012 our results of operations were negatively impacted by restructuring charges and lease exit costs totaling
$1,070. Restructuring charges included a leasehold improvement impairment charge of $123 and closed plant asset
impairment charges totaling $588. Lease exit costs totaled $359. See Note 15 of our Consolidated Financial Statements for
additional information regarding these charges.
Certain other items affecting comparability between periods are discussed below in “Investments and Real Estate Segment
and Other Items Affecting Net Income (Loss)”.
3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Segment Information
We have strategically aligned our business into three reportable segments as described below:
● Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing,
sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail
stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as
well as all corporate selling, general and administrative expenses, including those corporate expenses related to both
Company- and licensee-owned stores. We eliminate the sales between our wholesale and retail segments as well as
the imbedded profit in the retail inventory for the consolidated presentation in our financial statements.
● 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.
● 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.
The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the
consolidation of our segment results:
Year Ended November 29, 2014*
Wholesale
Retail
Eliminations
Consolidated
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Income (loss) from operations
$
$
223,993 $
74,347
60,227
-
14,120 $
216,631 $
108,457
107,768
1,217
(528) $
(99,886) (1) $
(383) (2)
(1,922) (3)
-
1,539
$
340,738
182,421
166,073
1,217
15,131
Year Ended November 30, 2013*
Wholesale
Retail
Eliminations
Consolidated
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Income (loss) from operations
$
$
215,451 $
70,812
59,929
-
10,883 $
199,380 $
96,469
97,250
671
(1,452) $
(93,545) (1) $
(1,287) (2)
(1,861) (3)
-
574
$
321,286
165,994
155,318
671
10,005
Year Ended November 24, 2012*
Wholesale
Retail
Eliminations
Consolidated
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Income (loss) from operations (4)
$
$
185,187 $
59,817
52,317
-
7,500 $
171,633 $
82,361
84,057
371
(2,067) $
(87,148) (1) $
(856) (2)
(1,573) (3)
-
717
$
269,672
141,322
134,801
371
6,150
(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 and lease exit costs. These charges are not allocated to our segments.
* 53 weeks for fiscal 2013 as compared with 52 weeks for fiscal 2014 and 2012.
4
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Wholesale Segment
Net sales, gross profit, selling, general and administrative (SG&A) expense and operating income (loss) from operations for
our Wholesale Segment were as follows for the years ended November 29, 2014, November 30, 2013 and November 24,
2012:
2014
2013
2012
Net sales
Gross profit
SG&A
Income from operations
$
$
223,993
74,347
60,227
14,120
100.0% $
33.2%
26.9%
6.3% $
215,451
70,812
59,929
10,883
100.0% $
32.9%
27.8%
5.1% $
185,187
59,817
52,317
7,500
100.0%
32.3%
28.3%
4.0%
Wholesale shipments by category for the last three fiscal years are summarized below:
2014
2013
2012
Wood
Upholstery
Other
Total
$
$
86,577
135,831
1,585
223,993
38.7% $
60.6%
0.7%
100.0% $
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%
Fiscal 2014 as Compared to Fiscal 2013
Net sales for the wholesale segment were $223,993 for 2014 as compared to $215,451 for 2013, an increase of $8,542, or
4.0%. On an average weekly basis (normalizing for the extra week in fiscal 2013), wholesale net sales increased 6.0%.
Average weekly wholesale shipments to the open market (outside the Bassett Home Furnishings store network) for 2014
increased 10%, while average weekly shipments to the Bassett Home Furnishings store network increased by 4.2%
compared to 2013. We have gained market share in the traditional furniture store channel as recent product offerings have
been well received. Sales to our BHF store network were negatively impacted by slower business due to inclement weather
during the winter months in early 2014 along with overall softness in the demand for wood furniture. Gross margins for the
wholesale segment increased 30 basis points to 33.2% for 2014 as compared to 32.9% for 2013. This increase was
primarily due to improved margins in the wood operations over the course of 2014 after discounting of discontinued
product earlier in the year, and also due to the increased leveraging of fixed costs from higher sales volume in our
upholstery operations. Wholesale SG&A increased $298 to $60,227 for 2014 as compared to $59,929 for 2013. SG&A
costs as a percentage of sales decreased to 26.9% as compared to 27.6% for 2013 primarily due to tighter expense control.
Income from operations was $14,120, or 6.3% of sales, for fiscal 2014 as compared to $10,883, or 5.1% of sales, for the
prior year.
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. 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.
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Wholesale Backlog
The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company
stores as of November 29, 2014, November 30, 2013, and November 24, 2012, was as follows:
Year end wholesale backlog
$
13,644 $
11,916 $
11,988
2014
2013
2012
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 29, 2014, November 30, 2013 and November 24,
2012:
2014 vs 2013
2013 vs 2012
2014
2013
2013
2012
Net sales
Gross profit
SG&A expense
New store pre-opening
costs
Loss from operations
$
$ 216,631
108,457
107,768
100.0% $ 199,380
50.1% 96,469
49.7% 97,250
100.0% $ 199,380
48.4% 96,469
48.8% 97,250
100.0 % $ 171,633
48.4 % 82,361
48.8 % 84,057
100.0%
48.0%
49.0%
1,217
(528)
0.6%
671
-0.2% $ (1,452)
0.3%
671
-0.7% $ (1,452)
0.3 %
371
-0.7 % $ (2,067)
0.2%
-1.2%
The following tables present operating results on a comparable store basis for each comparative set of periods. Table A
compares the results of the 51 stores that were open and operating for all of 2014 and 2013. Table B compares the results of
the 47 stores that were open and operating for all of 2013 and 2012.
Comparable Store Results:
Table A: 2014 vs 2013 (51 Stores)
Table B: 2013 vs 2012 (47 Stores)
2014
2013
2013
2012
Net sales
Gross profit
SG&A expense
Income (loss) from
operations
$ 194,092
96,905
94,726
100.0% $ 187,146
49.9% 90,626
48.8% 90,389
100.0% $ 168,968
48.4% 82,072
48.3% 81,265
100.0 % $ 157,006
48.6 % 75,650
48.1 % 76,500
100.0%
48.2%
48.7%
$ 2,179
1.1% $
237
0.1% $
807
0.5 % $
(850)
-0.5%
The following tables present operating results for all other stores which were not comparable year-over-year. Each table
includes 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:
2014 vs 2013 All Other Stores
2013
2014
2013 vs 2012 All Other Stores
2012
2013
Net sales
Gross profit
SG&A expense
New store pre-opening
$ 22,539
11,552
13,042
100.0% $ 12,234
5,843
51.3%
6,861
57.9%
100.0% $ 30,412
47.8% 14,397
56.1% 15,985
100.0 % $ 14,627
6,711
47.3 %
7,557
52.6 %
100.0%
45.9%
51.7%
costs
Loss from operations
1,217
$ (2,707)
5.4%
671
-12.0% $ (1,689)
5.5%
671
-13.8% $ (2,259)
2.2 %
371
-7.4 % $ (1,217)
2.5%
-8.3%
6
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Fiscal 2014 as Compared to Fiscal 2013
Net sales for the 60 Company-owned stores were $216,631 for fiscal 2014 as compared to $199,380 for 2013, an increase
of $17,251 or 8.7%. The increase was comprised of a $6,946 or 3.7% increase in comparable store sales and a $10,305
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 5.7%.
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 4.3% for fiscal 2014 as compared to 2013. On an average weekly basis, written sales increased 6.4% over the
prior year.
The operating loss for the 60 Company-owned stores for fiscal 2014 was $528 as compared to an operating loss of $1,452
for 2013. This decline in the consolidated retail operating loss was primarily due to improved margins, partially offset by
increased new store related opening costs, overlapping rent costs during the transition period for store relocations, and
initial operating losses at newly opened locations.
The 51 comparable stores generated operating income of $2,179 for 2014 as compared to $237 for the prior year. Gross
margins at our comparable stores improved to 49.9% compared to 48.4% in the prior year due primarily to improved
pricing strategies. SG&A expenses for comparable stores increased $4,337 to $94,726 or 48.8% of sales as compared to
48.3% for 2013. This increase is primarily due to planned increases in advertising spending, higher health care benefit
costs, increased other overhead costs as the store network continues to grow and the effects of having one less week to
leverage fixed costs. In addition, we incurred $222 of overlapping rent while two stores were in the process of being
relocated. As with new store openings as described below, we begin to recognize rent expense at the date we take
possession of the new store location. We will recognize rent expense on both locations until the date that the previously
existing store closes. We completed relocations in Little Rock, Arkansas and Boston, Massachusetts during fiscal 2014,
with two additional relocations in Texas expected to be completed during the first quarter of fiscal 2015. We define a store
relocation as the closing of one store and opening of another store in the same market. Since there is no change in the store
count for a specific market, we continue to include relocation costs as part of the comparable store operations.
Losses from the non-comparable stores during fiscal 2014 were $2,707 which includes $1,217 of costs incurred prior to the
opening of six stores during the year. 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 $300 per store
based on the overall rent costs for the location and the period between the time when we take physical possession of the
store space and the time when the store opens. Also included in the non-comparable store loss is $983 in post-opening
losses from these six 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 $500 per store. The remaining non-comparable stores incurred an operating loss of $507 during
2014.
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.
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
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
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 $300 per store based on the overall rent costs for the location and the period
between the time when the Company takes possession of the physical store space and the time of the store opening. Also
included in the non-comparable store loss 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 $500 per store. Also included in the
2013 non-comparable stores are the operations of stores opened or acquired during 2012.
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
2014
2013
2012
3.7%
4.3%
5.7%
6.4%
7.6%
9.0%
9.1%
10.6%
5.6%
7.0%
9.1%
10.6%
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 29,
2014, November 30, 2013, and November 24, 2012, was as follows:
2014
2013
2012
Year end retail backlog
Retail backlog per open store
$ 30,206
503
$
$ 22,483
409
$
$ 18,180
343
$
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Investments and Real Estate Segment and Other Items Affecting Net Income (Loss)
At November 29, 2014, our investments and real estate segment consists of our short-term investments, our holdings of
retail real estate previously leased as licensee stores and our equity investment in Zenith. Previously, this segment also
included our investments in marketable securities (which were liquidated during the fourth quarter of fiscal 2012), and our
investment in the Fortress Value Recovery Fund I, LLC (“Fortress”), which was fully impaired during the first quarter of
fiscal 2012. 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.
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 almost half of our Company-owned
retail stores. Zenith offers their 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 29, 2014
and November 30, 2013, our investment in Zenith was $7,915 and $7,254, respectively.
Investments and real estate income (loss) and other items affecting net income for fiscal 2014, 2013 and 2012 are as
follows:
2014
2013
2012
Income from unconsolidated affiliated company (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)
Loan and lease guarantee (expense) recovery (6)
Investment income (7)
Other (8)
661
-
-
(188)
-
66
352
(1,415)
770
-
-
(255)
(416)
(40)
99
(1,976)
347
9,010
(806)
(295)
-
41
453
(1,816)
Total other income (loss), net
$
(524) $ (1,818) $ 6,934
(1) See note 10 to the Consolidated Financial Statements for information related to our income from Zenith, an
unconsolidated affiliated company.
(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. See also table footnote 7 below.
(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 2012 reflects the changes in our estimates of the risk that we may have to
assume the underlying obligations with respect to our guarantees.
(7) Investment income for fiscal 2014 includes both interest income and the gain from the partial liquidation of our
previously impaired investment in Fortress (see note 7 to the Consolidated Financial Statements for additional
information. See also table footnote 3 above). Fiscal 2013 includes only interest income from cash equivalents and
short term investments. Fiscal 2012 includes both interest income and net realized gains from the sale of
marketable securities.
(8) Fiscal 2014 includes $827 in death benefits received from life insurance policies covering former executives,
compared with $304 of similar proceeds in fiscal 2013 and none in fiscal 2012.
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Provision for Income taxes
We recorded an income tax provision (benefit) of $5,308, $3,091 and $(14,699) in fiscal 2014, 2013 and 2012,
respectively. For fiscal 2014, our effective tax rate of approximately 36.3% differs from the statutory rate of 35.0%
primarily due to the effects of state income taxes, adjustments to state net operating loss carryforwards, a reduction in the
valuation allowance on deferred tax assets and permanent differences arising from non-taxable income. 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. 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 $14,969 as of November 29, 2014, 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.
The Company’s fiscal 2013 and 2012 income tax returns are currently under examination by the IRS.
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.
Our return to operating profitability over the last three years has enabled us to generate significantly improved operating
cash flow over that time period. In addition, we have benefited from significant additional liquidity provided by the sale of
our interest in IHFC in fiscal 2011 and the final distribution of funds from the CDSOA in fiscal 2012.
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.
On May 2, 2011 we completed the sale of our investment in IHFC, receiving cash proceeds of $69,152 upon closing.
Additional proceeds which were placed in escrow at closing have since been released to us, with $2,348 received in each of
fiscal 2014 and 2013 and $1,410 received in fiscal 2012. These receipts represent the full amount of the funds originally
escrowed and we have no further contingent obligations in connection with the sale of IHFC.
Cash Flows
Cash provided by operations for fiscal 2014 was $29,961 compared to cash provided by operations of $10,640 for 2013, an
increase of $19,321. This improvement is primarily the result of our improved operating performance along with better
overall working capital management. In addition, we received $3,060 in tenant improvement funds during 2014 associated
with leasing new stores and store relocations. Cash provided by operations during 2014 was partially reduced by the
placement of a $1,150 collateral deposit with one of our insurance carriers during the third quarter.
Our overall cash position increased by $13,940 during fiscal 2014. Cash provided by operations was partially offset by net
cash used in investing activities of $5,155, primarily consisting of capital expenditures for retail store expansion,
remodeling and relocations substantially offset by proceeds from the maturity of short-term investments in certificates of
deposit, the release of the remaining escrowed funds from the 2011 sale of our interest in IHFC, and proceeds from the
disposition of real estate investment properties. Cash used in financing activities totaled $10,866, consisting primarily of
dividend payments and stock repurchases under our existing share repurchase plan, of which $20,000 remains authorized as
of November 29, 2014. With cash and cash equivalents and short-term investments totaling $49,798 on hand at November
29, 2014, we believe we have sufficient liquidity to fund operations for the foreseeable future.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Debt and Other Obligations
On December 18, 2012, we entered into a credit facility with our bank extending us a line of credit of up to $15,000. This
line is secured by our accounts receivable and inventory. This 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. This line will mature in December of 2015, at which time we expect to obtain a new
line under substantially similar terms. At November 29, 2014, we had $216 outstanding under standby letters of credit,
leaving availability under our credit line of $14,784.
We have two mortgages totaling $2,218 outstanding as of November 29, 2014. 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 $92,558 at November 29, 2014 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 one to five
years. We were contingently liable under licensee lease obligation guarantees in the amount of $3,164 at November 29,
2014.
Dividends and Share Repurchases
During fiscal 2014, we declared four quarterly dividends totaling $2,983, or $0.28 per share, and one special dividend of
$2,102, or $0.20 per share. Cash dividend payments to our shareholders during fiscal 2014 totaled $5,155. We also
repurchased 404,300 shares of our stock for $5,601 under our share repurchase program. The weighted-average effect of
these share repurchases was to increase both our basic and diluted earnings per share in 2014 by approximately $0.01.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2015 will be approximately $18 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.
Subsequent Announcement of Intention to Acquire Zenith
On January 21, 2015 we announced our intention to acquire the remaining 51% of Zenith Freight Lines, LLC in a
transaction that is expected to close during the first quarter of fiscal 2015. The purchase price is valued at $20,000 to be
paid in increments of cash and Bassett common stock over a three year period.
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.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
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.
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.
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)
316
900
2015 2016 2017 2018 2019 Thereafter Total
$ 1,052 $ 1,015 $
338
900
2,500 2,500
118
-
935 $
386
100
-
69
-
963 $
361
200
-
94
-
884 $
413
100
-
42
140
216
18,243 15,713 13,194 10,778 8,984
1,396
-
-
424
-
739
-
737
-
404
300
-
14
-
10,187 $ 15,036
2,218
2,500
5,000
477
216
25,646 92,558
3,296
-
36,551 $121,301
-
-
Total
$ 24,763 $ 21,321 $ 15,551 $ 12,692 $ 10,423 $
(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 $3,148 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 2014, we had approximately $19,694 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)
This table does not reflect our estimated liability for uncertain tax positions, including accrued interest and penalties
thereon, of $1,370 at November 29, 2014. See Note 11 to the Consolidated Financial Statements for a further discussion of
this reserve.
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.
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
Contingencies
We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of
business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts
presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our
financial position or future results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) which requires that certain estimates and assumptions be made that affect the
amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could
differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted,
solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions
believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by
judgments, assumptions and estimates, affect our consolidated financial statements.
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 2014 and 2013, there were no dealers for which these criteria were not
met. During fiscal 2012 there were two dealers for which these criteria were not met and therefore revenue was being
recognized on a cost recovery basis. As of November 29, 2014, November 30, 2013 and November 24, 2012 there were no
dealers that remained on a 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 $1,249 and $1,607 at
November 29, 2014 and November 30, 2013, respectively, representing 7.6% and 9.1% 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 $1,412 and
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
$1,293 at November 29, 2014 and November 30, 2013, respectively, each representing 2.4% 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 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 allowance. 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 subsequent years, 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.
Additional reductions in the reserve related to changes in laws which impact our ability to recover certain state net
operating loss carryforwards resulted in a credit to income of $974, which is included in our net income tax expense for
2014. The remaining valuation allowance at November 29, 2014 is $70.
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 29, 2014.
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.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except share and per share data)
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.
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 2015.
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. An increase in the rate of 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 conditions in the commercial real estate market. Our retail real estate
holdings of $6,302 and $10,435 at November 29, 2014 and November 30, 2013, respectively, for stores formerly operated
by licensees as well as our holdings of $27,843 and $28,531 at November 29, 2014 and November 30, 2013, 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 during periods of weakness in certain markets. Additionally, if we are required to assume
responsibility for payment under the lease obligations of $3,296 and $3,698 which we have guaranteed on behalf of
licensees as of November 29, 2014 and November 30, 2013, respectively, we may not be able to secure sufficient sub-lease
income in the current market to offset the payments required under the guarantees.
Number of
Locations
Aggregate
Square Footage
Net Book
Value
(in thousands)
Real estate occupied by Company-owned and operated
stores, included in property and equipment, net (1)
11
276,887 $
27,843
Investment real estate:
Leased
Other (2)
Total included in retail real estate
3
-
3
67,521
-
67,521
6,287
15
6,302
Total Company investment in retail real estate
14
344,408 $
34,145
(1) Includes two properties encumbered under mortgages totaling $2,218 at November 29, 2014.
(2) Consists of leasehold improvements in locations leased by the Company and subleased to licensees.
15
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 2014, 2013, 2012, 2011 and 2010 mean the fiscal
years ended November 29, 2014, November 30, 2013, November 24, 2012, November 26, 2011 and November 27, 2010.
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:
●
competitive conditions in the home furnishings industry
● general economic conditions, including the strength of the housing market in the United States
● 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
●
concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to
business interruption from accidents, weather and other events and circumstances beyond our control
16
Consolidated Balance Sheets
Bassett Furniture Industries, Incorporated and Subsidiaries
November 29, 2014 and November 30, 2013
(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 $1,249 and $1,607
$
as of November 29, 2014 and November 29, 2013, 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
$
$
2014
2013
26,673 $
23,125
15,228
57,272
5,268
7,796
135,362
12,733
28,125
16,080
53,069
4,418
11,949
126,374
74,812
64,271
6,302
9,701
14,569
30,572
240,746 $
10,435
10,734
14,035
35,204
225,849
22,251 $
8,931
22,202
2,102
11,287
66,773
11,498
1,902
3,741
17,141
19,892
6,503
16,214
2,172
6,660
51,441
11,146
2,467
3,386
16,999
Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding
10,493,393 at November 29, 2014 and 10,859,318 at November 30, 2013
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
52,467
106,339
(1,974 )
156,832
240,746 $
54,297
104,526
(1,414)
157,409
225,849
$
The accompanying notes to consolidated financial statements are an integral part of these statements.
17
Consolidated Statements of Income
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 29, 2014, November 30, 2013, and November 24, 2012
(In thousands, except per share data)
2014
2013
2012
Net sales
Cost of sales
Gross profit
$
340,738 $
158,317
182,421
321,286 $
155,292
165,994
Selling, general and administrative expenses excluding new store
pre-opening costs
New store pre-opening costs
Restructuring and impairment charges
Lease exit costs
166,073
1,217
-
-
155,318
671
-
-
269,672
128,350
141,322
134,801
371
711
359
Income from operations
15,131
10,005
5,080
Income from Continued Dumping & Subsidy Offset Act
Other than temporary impairment of investments
Income from unconsolidated affiliated company
Interest expense
Retail real estate impairment charges
Other loss, net
Income before income taxes
Income tax expense (benefit)
-
-
661
(188)
-
(997)
-
-
770
(255 )
(416 )
(1,917 )
9,010
(806)
347
(295)
-
(1,322)
14,607
8,187
12,014
5,308
3,091
(14,699)
Net income
$
9,299 $
5,096 $
26,713
Net income per share
Basic income per share
Diluted income per share
Dividends per share
Regular dividends
Special dividend
$
$
$
$
0.88 $
0.48 $
0.87 $
0.47 $
0.28 $
0.20 $
0.22 $
0.20 $
2.43
2.41
0.20
1.25
The accompanying notes to consolidated financial statements are an integral part of these statements.
18
Consolidated Statements of Comprehensive Income
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 29, 2014, November 30, 2013, and November 24, 2012
(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
2014
2013
2012
$
9,299 $
5,096 $
26,713
(918)
358
-
-
(560)
(310 )
119
-
-
(191 )
(656)
277
(211)
(25)
(615)
Total comprehensive income
$
8,739 $
4,905 $
26,098
The accompanying notes to consolidated financial statements are an integral part of these statements.
19
Consolidated Statements of Cash Flows
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 29, 2014, November 30, 2013, and November 24, 2012
(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
Lease exit costs
Other than temporary impairment of investments
Tenant improvement allowances received from lessors
Collateral deposited with insurance carrier
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
Customer deposits
Accounts payable and accrued liabilities
Net cash provided by 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
Proceeds from maturities and sales of investments
Purchases of investments
Cash received on notes receivable and other
Net cash used in investing activities
Financing activities:
Repayments of real estate notes payable
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
Cash and cash equivalents - end of year
$
2014
2013
2012
9,299 $
5,096 $
26,713
7,316
6,198
5,473
(661)
-
-
-
3,060
(1,150)
-
544
264
775
(4,203)
1,548
5,912
7,257
29,961
(17,980)
5,157
-
2,348
5,000
-
320
(5,155)
(528)
608
(5,602)
(489)
300
(5,155)
(10,866)
13,940
12,733
26,673 $
(770 )
-
-
-
-
-
416
2,282
677
(686 )
4,847
(4,819 )
3,961
(6,562 )
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
12,733 $
(347)
711
359
806
-
-
-
(15,822)
977
(2,967)
(11,307)
(276)
3,015
621
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
45,566
The accompanying notes to consolidated financial statements are an integral part of these statements.
20
Consolidated Statements of Stockholders’ Equity
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 29, 2014, November 30, 2013, and November 24, 2012
(In thousands, except share and per share data)
Common Stock
Additional
paid-in Retained comprehensive
Accumulated
other
Shares
Amount
capital
earnings income (loss) Total
Balance, November 26, 2011
11,342,332 $
56,712 $
- $
96,331 $
(608) $ 152,435
Comprehensive income
Net income
Actuarial adjustment to SERP
Net change in unrealized holding gains
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)
-
-
-
-
-
-
352
(988)
636
26,713
-
-
(2,214 )
(13,706 )
-
(2,805 )
-
-
(379)
(236)
-
-
-
-
-
26,713
(379)
(236)
(2,214)
(13,706)
1,046
(7,015)
636
Balance, November 24, 2012
10,836,840
54,184
- 104,319
(1,223)
157,280
Comprehensive income
Net income
Actuarial adjustment to SERP, net of tax
Net change in unrealized holding gains,
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)
-
-
-
5,096
-
-
(191)
5,096
(191)
-
-
-
(104)
(937)
728
(2,393 )
(2,172 )
-
(324 )
-
-
-
-
-
-
-
-
-
(2,393)
(2,172)
697
(1,949)
728
313
-
-
313
-
Balance, November 30, 2013
10,859,318
54,297
- 104,526
(1,414)
157,409
Comprehensive income
Net income
Actuarial adjustment to SERP, net of tax
Regular dividends ($0.28 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
-
-
-
-
69,619
(435,544)
-
-
-
-
-
348
(2,178)
-
-
-
-
-
260
(1,511)
951
9,299
-
(2,983 )
(2,102 )
-
(2,401 )
-
-
(560)
-
-
-
-
-
9,299
(560)
(2,983)
(2,102)
608
(6,090)
951
-
-
300
-
-
300
Balance, November 29, 2014
10,493,393 $
52,467 $
- $ 106,339 $
(1,974) $ 156,832
The accompanying notes to consolidated financial statements are an integral part of these statements.
21
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
1. Description of Business
Bassett Furniture Industries, Incorporated (together with its consolidated subsidiaries, “Bassett”, “we”, “our”, the
“Company”) based in Bassett, 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 94 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 94 stores, the
Company owns and operates 60 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 42% of its wholesale products 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 2014 and 2012 each contained 52 weeks. The Consolidated Financial Statements
include the accounts of Bassett Furniture Industries, Incorporated and our majority-owned subsidiaries in which we have a
controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. 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 2014, 2013 and 2012 are to
Bassett's fiscal year ended November 29, 2014, November 30, 2013 and November 24, 2012, 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 2013 and 2012 financial statements have been reclassified to conform to
the 2014 presentation.
The equity method of accounting is used for our investment in an affiliated company in which we exercise significant
influence but do not maintain a controlling interest. Consolidated net income includes our proportionate share of the net
income or net loss of this company.
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, insurance reserves, and assumptions related to our post-
employment benefit obligations. Actual results could differ from those estimates.
22
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and 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 2014 and 2013, there were no dealers for which these criteria were not
met. During fiscal 2012 there were two dealers for which these criteria were not met and therefore revenue was being
recognized on a cost recovery basis. As of and subsequent to November 24, 2012 there have been no dealers that remained
on a cost recovery basis. As of 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 2012, no revenue or cost was deferred
during the year under the cost recovery method.
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 29, 2014 and November 30, 2013:
Portion of trade accounts receivable owed by licensees
Portion of allowance for doubtful accounts attributable to licensees
2014
46%
58%
2013
50%
64%
23
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and 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 29, 2014 and November 30, 2013, 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
Contingent obligations under lease and loan guarantees, less amounts recognized (Note 17)
Total credit risk exposure related to customers
2014
2013
$
$
15,228 $
592
3,046
18,866 $
16,080
632
3,523
20,235
At November 29, 2014 approximately 24% of the aggregate risk exposure, net of reserves, shown above was attributable to
two licensees. At November 30, 2013, approximately 27% of the aggregate risk exposure, net of reserves, shown above
was attributable to two licensees. In fiscal 2014, 2013 and 2012, 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 $4,774, $4,603, and $4,596 in
fiscal 2014, 2013, and 2012, 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 40% of
total inventory before reserves at both November 29, 2014 and November 30, 2013. 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. 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 29,
2014 and November 30, 2013, the cost of retail real estate included land totaling $1,990 and $3,502, respectively, and
building and leasehold improvements of $8,831 and $11,635, respectively. As of November 29, 2014 and November 30,
24
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
2013, accumulated depreciation of retail real estate was $4,631 and $4,834, respectively. Depreciation expense was $400,
$484, and $501 in fiscal 2014, 2013, and 2012, respectively, and is included in other loss, net, in our consolidated
statements of income.
During the year ended November 29, 2014 we received proceeds from the disposition of retail real estate totaling $5,157.
During the first quarter of fiscal 2014 we received $1,407 from the sale of our retail real estate investment property in
Henderson, Nevada. This property had been classified as held for sale and included in other current assets in our
consolidated balance sheet at November 30, 2013. During the third quarter of fiscal 2014 we received net proceeds in the
amount of $3,750 from the sale of our retail real estate investment property located in Denver, Colorado. This asset had
been included in retail real estate in our consolidated balance sheet at November 30, 2013. There were no material gains or
losses associated with these dispositions during the year ended November 29, 2014. Impairment charges related to retail
real estate totaled $416 for 2013 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
2014.
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 29, 2014.
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.
25
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 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.
The Company’s fiscal 2013 and 2012 income tax returns are currently under examination by the IRS.
New Store Pre-Opening Costs
Income (loss) from operations for fiscal 2014, 2013 and 2012 includes new store pre-opening costs of $1,217, $671 and
$371, 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 $16,162, $15,685, and $13,548 for fiscal 2014, 2013 and 2012, respectively. Costs incurred to deliver retail
merchandise to customers are also recorded in selling, general and administrative expense and totaled $12,844, $10,855,
and $9,957 for fiscal 2014, 2013 and 2012, respectively.
Advertising
Costs incurred for producing and distributing advertising and advertising materials are expensed when incurred and are
included in selling, general and administrative expenses. Advertising costs totaled $15,614, $14,750, and $13,296 in fiscal
2014, 2013, and 2012, respectively.
26
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 2014 and 2013, and the value of the non-cash portion of such transactions was $1,592 for 2012.
Recent Accounting Pronouncements
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.
In April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08), which updated the guidance in
ASC Topic 205, Presentation of Financial Statements, and ASC Topic 360, Property, Plant and Equipment. The
amendments in ASU 2014-08 change the criteria for reporting discontinued operations for all public and nonpublic entities.
The amendments also require new disclosures about discontinued operations and disposals of components of an entity that
do not qualify for discontinued operations reporting. This guidance will become effective for all disposals (or
classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December
15, 2014, and interim periods within those years, and therefore will become effective for us as of the beginning of our 2016
fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results
of operations.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates ASC Topic 606,
Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue
Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the
Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition—
Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs—
Contracts with Customers. In summary, the core principle of Topic 606 is to recognize revenue when promised goods or
services are transferred to customers in an amount that reflects the consideration that is expected to be received for those
goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December
15, 2016, including interim periods within that reporting period, and early application is not permitted. Therefore the
amendments in ASU 2014-09 will become effective for us as of the beginning of our 2018 fiscal year. The Company is
currently assessing the impact of implementing the new guidance.
27
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
3. Accumulated Other Comprehensive Loss
The activity in accumulated other comprehensive loss for the fiscal years ended November 29, 2014 and November 30,
2013, which is comprised solely of post-retirement benefit costs related to our SERP, is as follows:
Balance at November 24, 2012
Actuarial losses
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 30, 2013
Actuarial losses
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 29, 2014
$
$
(1,223)
(434)
124
119
(1,414)
(1,084)
166
358
(1,974)
4. Accounts Receivable
Accounts receivable consists of the following:
November 29,
2014
November 30,
2013
Gross accounts receivable
Allowance for doubtful accounts
Net accounts receivable
$
$
16,477 $
(1,249)
15,228 $
17,687
(1,607)
16,080
Activity in the allowance for doubtful accounts was as follows:
2014
2013
Balance, beginning of the year
Additions charged to expense
Write-offs
Balance, end of the year
$
$
1,607 $
77
(435)
1,249 $
1,789
361
(543)
1,607
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.
28
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 29,
2014
November 30,
2013
$
$
31,399 $
298
8,109
26,428
66,234
(7,550)
(1,412)
57,272 $
28,450
277
8,029
25,167
61,923
(7,561)
(1,293)
53,069
We source a significant amount of our wholesale product from other countries. During 2014, 2013 and 2012, purchases
from our two largest vendors located in China and Vietnam were $26,707, $24,217 and $23,416 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.
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Wholesale
Segment
Retail
Segment
Total
Balance at November 26, 2012
Additions charged to expense
Write-offs
Balance at November 24, 2013
Additions charged to expense
Write-offs
Balance at November 30, 2014
$
$
715 $
2,309
(2,023)
1,001
1,666
(1,607)
1,060 $
374 $
383
(465)
292
331
(271)
352 $
1,089
2,692
(2,488)
1,293
1,997
(1,878)
1,412
29
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
6. Property and Equipment
Property and equipment consist of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Less accumulated depreciation
November 29,
2014
November 30,
2013
$
$
11,371 $
90,204
70,184
171,759
(96,947)
74,812 $
11,371
75,965
67,183
154,519
(90,248)
64,271
Depreciation expense associated with the property and equipment shown above was included in income from operations in
our consolidated statements of income as follows:
Cost of goods sold (1)
Selling, general and adminstrative expenses (2)
Total depreciation expense included in income from operations
$
$
542 $
6,814
7,356 $
595 $
5,279
5,874 $
619
4,508
5,127
2014
2013
2012
(1) All associated with our wholesale segment for fiscal 2014, 2013 and 2012.
(2) Includes depreciation associated with our retail segment of $5,782, $4,531 and $3,955 for fiscal 2014, 2013 and 2012,
respectively.
The net book value of property and equipment utilized by Company-owned stores at November 29, 2014 and November
30, 2013 was $59,879 and $51,748 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 29, 2014 consist of certificates of deposit (CDs) with terms generally ranging
from six to twelve months, bearing interest at rates ranging from 0.10% to 0.91% with a weighted average yield of
approximately 0.21%. At November 29, 2014, 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 limits. Due to the nature of these investments and their relatively short maturities, the carrying
amount of the short-term investments at November 29, 2014 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.
30
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 for fiscal 2012. 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.
We hold an investment in the Fortress Value Recovery Fund I, LLC (“Fortress”). 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 during the year ended November 24, 2012. During the year ended November 29, 2014, we recognized gains of
$280 resulting from the partial liquidation of Fortress which is included in other loss, net in our consolidated statement of
income. The timing and amount of future receipts, if any, from the liquidation of Fortress, remain uncertain, and will be
recognized as gains in other income if and when notification of a distribution is received.
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”). Certain manufacturers who did not support the antidumping
petition (“Non-Supporting Producers”) filed actions in the United States Court of International 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,
including the Company’s share of $9,010. The Court of Appeals ruled against the Non-Supporting Producers, who then
each filed petitions for a writ of certiorari with the U.S. Supreme Court to obtain a hearing of their appeal. These petitions
have since been denied, effectively ending the appeals process and the possibility that Customs would seek a return of the
final distribution.
31
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 2014 and 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.
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 which occurred in fiscal 2012:
Net assets acquired:
Inventory
Property and equipment/other
Goodwill
Customer deposits and other accrued expenses
$
1,480
592
1,296
(1,227)
2012
Total net assets acquired
$
2,141
Consideration given:
Accounts receivable
Cash
Total consideration
$
1,592
549
$
2,141
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 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 during fiscal 2012 were $1,646 and $62, respectively.
The carrying value of our goodwill, which is included in other long-term assets in the accompanying consolidated balance
sheets, was $1,731 at both November 29, 2014 and November 30, 2013. Of this balance, $1,129 is allocated to our
wholesale segment and $602 is allocated to our retail segment. There have been no changes in the carrying value of our
goodwill subsequent to the 2012 acquisitions. 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.
32
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 $7,915 at November 29, 2014 and $7,254 at November 30, 2013 and is recorded in
other long-term assets. We paid Zenith approximately $31,308, $29,313 and $25,317, for freight expense and logistical
services in fiscal 2014, 2013, and 2012, respectively. At November 29, 2014 and November 30, 2013, we owed Zenith
$2,628 and $2,580, 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
2014
$
661 $
2013
2012
770 $
347
See Note 21 regarding the announcement of our intention to acquire the remaining 51% of Zenith in 2015.
International Home Furnishings Center
In connection with the sale of our interest in International Home Furnishings Center, Inc. (“IHFC”) on May 2, 2011, to
International Market Centers, L.P. (“IMC”), $6,106 of the sales proceeds were placed in escrow at the time of the sale to
cover various contingencies. At various times during fiscal 2012, 2013 and 2014, the contingencies were satisfied without
loss to the Company and the funds were released to us. The amounts collected in each year were as follows:
Balance at November 26, 2011
Received in fiscal 2012
Balance at November 24, 2012
Received in fiscal 2013
Balance at November 30, 2013
Received in fiscal 2014
Balance at November 29, 2014
Total Escrow
Receivable
$
$
6,106
(1,410)
4,696
(2,348)
2,348
(2,348)
-
The balance of $2,348 receivable at November 30, 2013 was included in other current assets in our consolidated balance
sheet.
In addition to the proceeds described above, at the time of the sale we acquired a minority interest 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 included in other long-term assets in the
accompanying consolidated balance sheets and is accounted for using the cost method as we do not have significant
influence over IMC.
33
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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
2014
2013
2012
$
4,168 $
596
759 $
50
1,611
(487)
(974)
221
1,297
5,308 $
136
1,970
176
3,091 $
(18,704)
2,458
423
(14,699)
$
Excess tax benefits in the amount of $300 and $313 were recognized as additional paid-in capital during fiscal 2014 and
fiscal 2013, respectively, resulting from the exercise of stock options and the release of restricted shares.
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
Adjustments to state net operating loss carryforwards
Change in income tax valuation allowance
Change in income tax reserves
State income tax, net of federal benefit
Other
Effective income tax rate
2014
2013
2012
35.0 %
3.3
(3.7)
(1.7)
4.9
(1.5)
36.3 %
34.0 %
-
1.7
0.1
3.7
(1.7 )
37.8 %
35.0 %
-
(155.6)
(3.3)
1.5
0.1
(122.3)%
34
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The income tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred
income tax assets and deferred income tax liabilities, are as follows:
November 29,
2014
November 30,
2013
$
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
Net deferred rents
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Unrealized gains from affiliates
Property and equipment
Prepaid expenses and other
Total deferred income tax liabilities
483 $
2,384
-
1,599
6,093
1,141
595
167
2,251
1,699
16,412
(70)
16,342
963
282
128
1,373
618
2,277
756
1,592
5,626
2,482
988
349
1,256
1,142
17,086
(1,044)
16,042
755
-
135
890
Net deferred income tax assets
$
14,969 $
15,152
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 $17,464 reduction of the valuation
allowance. 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 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 valuation allowance of $1,044 at November
30, 2013 was primarily related to state net operating loss carryforwards for which it was considered to be more likely than
not that they would not be utilized prior to their expiration. During fiscal 2014 we reduced our valuation allowance related
to adjustments to state net operating loss carryforwards primarily due to state tax law changes resulting in a credit to
income of $974, or $0.09 per basic and diluted share. The remaining balance in the valuation allowance at November 29,
2014 was $70.
35
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The following table represents a summary of the valuation allowances against deferred tax assets:
2014
2013
2012
Balance, beginning of the year
Additions charged to expense
Deductions reducing expense
Balance, end of the year
$
$
1,044 $
-
(974)
70 $
908 $
136
-
1,044 $
19,612
-
(18,704 )
908
We have state net operating loss carryforwards available to offset future taxable state income of $22,439, which expire in
varying amounts between 2015 and 2030. Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards.
Income taxes paid, net of refunds received, during 2014, 2013 and 2012 were $2,367, $2,723, and $2,010, respectively.
As of November 29, 2014, the gross amount of unrecognized tax benefits was approximately $1,236 exclusive of interest
and penalties. Of this balance, none would benefit the effective tax rate if we were to prevail on all unrecognized tax
benefits recorded. 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. 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 due to settlements
Gross decreases primarily due to the expiration of statutes
2014
2013
2012
1,497 $
-
(221)
(40)
1,228 $
401
-
(132)
1,502
10
-
(284)
Balance, end of the year
$
1,236 $
1,497 $
1,228
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2014, 2013,
and 2012, we recognized $7, $23, and $63 of interest expense recovery and $10, $31, and $57 of penalty expense recovery,
respectively, related to the unrecognized benefits noted above in our consolidated statements of income. At November 29,
2014 and November 30, 2013, the consolidated balance sheets include accrued interest of $134 and $140, and penalties of
$0 and $10, respectively, due to unrecognized tax benefits. At November 29, 2014,$1,370 representing the entire amount of
our gross unrecognized tax benefits along with the accrued interest and penalties thereon is included in other accrued
liabilities in our consolidated balance sheet as we believe it is likely these uncertain positions will be resolved in 2015. The
corresponding balance as November 30, 2013 of $1,647 was included in other long-term liabilities.
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 2011 through 2013 for all of our major tax jurisdictions. The Company’s
fiscal 2012 and 2013 income tax returns are currently under examination by the IRS.
36
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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. We have begun to evaluate the changes necessary to comply with the regulations and the related administrative
procedures and the new regulations are not expected to have a significant impact on our financial statements.
12. Real Estate Notes Payable and Bank Credit Facility
Real Estate Notes Payable
Real estate notes payable
$
Current portion of real estate notes payable
$
2,218 $
(316)
1,902 $
2,746
(279)
2,467
November 29,
2014
November 30,
2013
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 $6,127 and
$6,262 at November 29, 2014 and November 30, 2013, respectively. The current portion of these mortgages, $316 and
$279 as of November 29, 2014 and November 30, 2013, respectively, has been included in other accrued liabilities in the
accompanying consolidated balance sheets. The long-term portion, $1,902 and $2,467 as of November 29, 2014 and
November 30, 2013, respectively, is presented as real estate notes payable in the consolidated balance sheets.
The fair value of these mortgages was $2,196 and $2,684 at November 29, 2014 and November 30, 2013, 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 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Thereafter
$
$
316
338
361
386
413
404
2,218
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, which matures in December 2015, 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 29, 2014 and expect to remain in compliance for the foreseeable future.
At November 29, 2014 we had $216 outstanding under standby letters of credit, leaving availability under our credit line of
$14,784.
Total interest paid, including bank and mortgage debt, during fiscal 2014, 2013 and 2012 was $176, $244 and $294,
respectively.
37
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and 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 $3,148 at November
29, 2014 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.
Summarized information for the plan measured as of the end of each year presented, is as follows:
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
Accumulated Benefit Obligation
2014
2013
$
$
9,775 $
78
373
1,084
(934)
10,376 $
9,805
71
350
434
(885)
9,775
$
9,748 $
9,215
Discount rate used to value the ending benefit obligations:
3.75%
4.00%
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
Total recognized in net periodic benefit cost and accumulated other comprehensive
income:
$
$
$
$
724 $
9,652
10,376 $
170 $
3,046
3,216 $
810
8,965
9,775
212
2,085
2,297
$
1,535 $
855
2014
2013
2012
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Amortization of transition obligation
Amortization of other loss
$
78 $
373
42
123
71 $
350
42
81
54
376
42
11
Net periodic pension cost
$
616 $
544 $
483
38
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Assumptions used to determine net periodic pension cost:
Discount rate
Increase in future compensation levels
2014
2013
2012
4.00%
3.00%
3.75%
3.00%
4.25%
3.00%
Estimated Future Benefit Payments (with mortality):
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020 through 2024
$
724
695
667
639
610
3,432
Of the $3,216 recognized in accumulated other comprehensive income at November 29, 2014, $42 of net transition
obligation and $194 of net loss are expected to be recognized as components of net periodic pension cost during fiscal
2015.
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 $134, $288, and $312 in fiscal 2014, 2013, and 2012, respectively, associated with the plan. The
expense for fiscal 2014 is net of a credit to income of $124 due to a change in our estimate of the future obligation of a
former employee. Our liability under this plan was $2,174 and $2,555 as of November 29, 2014 and November 30, 2013,
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 $397, $340 and $175 during fiscal 2014, 2013 and 2012, respectively.
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 2014, 2013 and 2012 was as follows:
2014
2013
2012
$
951 $
728 $
636
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 29, 2014, however up to 500,000 shares associated with
outstanding grants under the 1997 may become available for grant under the 2010 Plan (see below).
39
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 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.
There were no new grants of options made in 2014, 2013 or 2012.
Changes in the outstanding options under our plans during the year ended November 29, 2014 were as follows:
Outstanding at November 30, 2013
Granted
Exercised
Forfeited/Expired
Outstanding at November 29, 2014
Exercisable at November 29, 2014
Number of
Shares
Weighted
Average Exercise
Price Per Share
735,100 $
-
(32,850)
(265,000)
437,250
414,500 $
15.08
-
9.65
20.92
11.94
12.16
Changes in the non-vested options under our plans during the year ended November 29, 2014 were as follows:
Non-vested options outstanding at November 30, 2013
Granted
Vested
Forfeited/Expired
Non-vested options outstanding at November 29, 2014
Number of
Shares
Weighted
Average Grant
Date Fair Value
Per Share
86,500 $
-
(63,750)
-
22,750 $
6.31
-
5.69
-
8.04
Unrecognized compensation cost related to these non-vested options at November 29, 2014 is $49, all of which is expected
to be recognized during fiscal 2015.
40
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Additional information regarding our outstanding stock options at November 29, 2014 is as follows:
Options Outstanding
Options Exercisable
Range of
Exercise Prices
$3.23 - $6.45
$6.45 - $9.67
$9.68 - $12.90
$12.91 - $16.13
$16.14 - $19.35
Shares
68,000
62,750
104,000
52,500
150,000
437,250
Weighted
Average
Remaining
Contractual
Life (Years)
5.6
6.5
2.9
2.4
1.6
$
Weighted
Average
Exercise
Price
4.38
8.03
10.60
14.73
16.96
Weighted
Average
Exercise
Price
$
4.38
8.03
10.60
14.89
16.96
Shares
68,000
40,000
104,000
52,500
150,000
414,500
Aggregate intrinsic value
$
3,349
$
3,084
Additional information regarding activity in our stock options during fiscal 2014, 2013 and 2012 is as follows:
Total intrinsic 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
$
the exercise of options
2014
2013
2012
236 $
200
382
72
387 $
363
413
106
530
371
536
-
Restricted Shares
Changes in the outstanding non-vested restricted shares during the year ended November 29, 2014 were as follows:
Non-vested restricted shares outstanding at November 30, 2013
Granted
Vested and released
Forfeited
Non-vested restricted shares outstanding at November 29, 2014
Number of Shares
Weighted Average
Grant Date Fair
Value Per Share
165,893 $
66,339
(108,495)
-
123,737 $
12.23
14.21
9.96
-
15.28
Restricted share awards granted in fiscal 2014 included the grant of 54,000 shares on January 15, 2014 which were subject
to a performance condition as well as a service condition. The performance condition was based on a measure of the
Company’s operating cash flow for 2014 and has now been satisfied. Shares will be issued on the first anniversary. They
will remain subject to an additional two-year service requirement and will vest on the third anniversary of the grant. The
remaining grants for 2014 consisted of 12,399 restricted shares granted to our non-employee directors on April 1, 2014
which will vest on the first anniversary of the grant.
41
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
During fiscal 2014, 108,495 restricted shares were vested and released, of which 97,200 shares had been granted to
employees and 11,295 shares to directors. Of the shares released to employees, 31,234 shares were withheld by the
Company to cover withholding taxes of $489. During fiscal 2013, 11,550 shares were withheld to cover withholding taxes
of $202 arising from the vesting of restricted shares. Excess tax benefits of $228 and $207 were recognized during fiscal
2014 and 2013, respectively, as additional paid-in capital upon the release of vested shares. Activity related to the vesting
and release of restricted shares prior to fiscal 2013 was not material.
Additional information regarding our outstanding non-vested restricted shares at November 29, 2014 is as follows:
Grant
Date
July 13, 2012
July 17, 2013
January 15, 2014
April 1, 2014
Restricted
Shares
Granted
Share Value
at Grant Date
Per Share
Remaining
Restriction
Period
(Years)
1,398 $
56,000
54,000
12,339
123,737
11.69
16.64
14.12
14.59
0.6
3.6
2.1
0.3
Unrecognized compensation cost related to these non-vested restricted shares at November 29, 2014 is $1,403, expected to
be recognized over approximately a three 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 25,677, 38,206
and 42,211 shares to employees in fiscal 2014, 2013 and 2012, respectively, which resulted in an immaterial amount of
compensation expense.
15. Restructuring, asset impairment, and other charges
During 2012, our income from operations included the following charges:
Restructuring and asset impairment charges:
Asset impairment charges related to Company-owned retail store closures
Asset impairment charges & demolition costs associated with closed plants
Total restructuring and asset impairment charges
Lease exit costs
Lease exit costs related to Company-owned retail store closures
Changes in estimates related to previously closed Company-owned retail stores
Total lease exit costs
Total charges related to restructuring, asset impairment, lease exit costs and debt cancellation included in
loss from operations
$
$
$
$
$
123
588
711
228
131
359
1,070
Of the total restructuring, asset impairment charges and lease exit costs incurred in 2012, $719 was incurred in our
wholesale segment while $351 was incurred in our retail segment.
42
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The following table summarizes the activity related to our accrued lease exit costs:
Balance, beginning of the year
Provisions made to adjust previous estimates
Payments on unexpired leases
Accretion of interest on obligations
Balance, end of the year
Current portion included in other accrued liabilities
Long-term portion included in other long-term liabilities
2014
2013
$
$
$
$
907 $
14
(510)
22
433 $
117 $
316
433 $
2,614
(176)
(1,610)
79
907
474
433
907
Restructuring and Asset Impairment Charges
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.
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.
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. 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 29, 2014:
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Thereafter
$
$
18,243
15,713
13,194
10,778
8,984
25,646
92,558
43
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Lease expense was $19,903, $18,403 and $17,123 for 2014, 2013, and 2012, 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.
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Thereafter
$
$
2,688
1,781
1,406
869
252
132
7,128
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 $(248), $(594) and $(468) in 2014, 2013 and 2012, 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 $3,164 and $3,698 at November 29, 2014 and November 30, 2013, 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 29, 2014 and November 30, 2013, were not material.
18. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
2014
2013
2012
$
9,299 $
5,096 $
26,713
Denominator for basic income per share - weighted average
shares
Effect of dilutive securities
Denominator for diluted income per share — weighted average
10,552,462
140,569
10,721,652
150,897
10,992,017
103,394
shares and assumed conversions
10,693,031
10,872,549
11,095,411
Basic income per share:
Net income per share — basic
Diluted income per share:
Net income per share — diluted
0.88 $
0.48 $
2.43
0.87 $
0.47 $
2.41
$
$
44
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
For fiscal 2014, 2013 and 2012, the following potentially dilutive shares were excluded from the computations as there
effect was anti-dilutive:
Stock options
Unvested restricted shares
2014
2013
2012
150,000
-
472,500
81,295
622,500
12,582
Total anti-dilutive securities
150,000
553,795
635,082
19. Segment Information
We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting, and
as described below:
● Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing,
sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned
stores retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery
operations as well as all corporate selling, general and administrative expenses, including those corporate expenses
related to both Company- and licensee-owned stores.
● 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.
●
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.
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.
45
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The following table presents segment information for each of the last three fiscal years:
Net Sales
Wholesale
Retail
Inter-company elimination
Consolidated
Income (loss) from Operations
Wholesale
Retail
Inter-company elimination
Restructuring and asset impairment charges
Wholesale
Retail
Lease exit costs
Consolidated income (loss) from operations
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
2014
2013
2012
223,993 $
216,631
(99,886)
340,738 $
215,451 $
199,380
(93,545)
321,286 $
185,187
171,633
(87,148)
269,672
14,120 $
(528)
1,539
-
-
-
15,131 $
1,572 $
5,344
400
7,316 $
4,527 $
13,836
-
18,363 $
10,883 $
(1,452)
574
-
-
-
10,005 $
1,342 $
4,372
484
6,198 $
3,839 $
10,846
-
14,685 $
7,500
(2,067)
717
(588)
(123)
(359)
5,080
1,171
3,760
542
5,473
3,092
5,898
10
9,000
124,848 $
86,471
29,427
240,746 $
109,958 $
77,331
38,560
225,849 $
145,861
68,583
12,736
227,180
$
$
$
$
$
$
$
$
$
$
A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below:
Wood
Upholstery
2014
39%
61%
100%
2013
41%
59%
100%
2012
43%
57%
100%
46
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
20. Quarterly Results of Operations (unaudited)
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
First
Quarter
(1)(2)
$
75,647 $
40,253
843
0.08
0.08
2014
Second
Quarter
Third
Quarter
Fourth
Quarter
85,186 $
45,018
2,256
0.22
0.21
94,720
51,837
3,649
0.35
0.35
85,185 $
45,313
2,551
0.24
0.24
2013
First
Quarter (1)
Second
Quarter
Third
Quarter (3)
Fourth
Quarter (4)
Net sales
Gross profit
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
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
The first quarter of fiscal 2013 includes 14 weeks. All other quarters presented above for fiscal 2013 and 2012 consist of 13
week fiscal periods.
(1) The first quarter of fiscal 2014 included 13 weeks as compared with 14 weeks for the first quarter of 2013. On an
average weekly basis, net sales for the first quarter of fiscal 2014 were $5,819 per week as compared with $5,704
per week for the first quarter of fiscal 2013.
(2) Includes $662 of income from death benefits from life insurance policies covering a former executive and a $140
gain from the partial liquidation of our investment in Fortress (see Note 7)
(3) 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.
(4) Includes $416 charge for impairment related to our investment property located in Henderson, Nevada. See Note
15 for further details
21. Subsequent Event
On January 21, 2015 we announced our intention to acquire the remaining 51% of Zenith Freight Lines, LLC in a
transaction that is expected to close during the first quarter of fiscal 2015. The purchase price is valued at $20,000 to be
paid in increments of cash and Bassett common stock over a three year period. See Note 10 regarding our current 49%
interest in Zenith.
47
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.
2014
2013 (1)
2012
2011
2010
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
340,738 $
182,421 $
15,131 $
- $
(524) $
14,607 $
5,308 $
9,299 $
0.87 $
5,085 $
0.48 $
240,746 $
1,902 $
2.03 to 1
14.95 $
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 $
269,672
141,322
$
$
5,080 (2) $
-
$
6,934 (4) $
$
12,014
(14,699) (5) $
$
26,713
$
2.41
$
15,920
$
1.45
$
227,180
3,053
$
2.52 to 1
14.51
$
253,208
$
$
127,566
(20,622) (2) $
85,542 (3) $
(5,169) (4) $
$
59,571
$
(4,409)
$
55,342
$
4.79
$
6,757
$
0.60
$
223,174
3,662
$
2.71 to 1
13.44
$
235,254
112,688
(4,687)
-
2,479 (4)
(2,208)
206
(2,002)
(0.17)
-
-
197,317
4,295
1.48 to 1
9.20
(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 of $1,070 recorded in 2012. Fiscal 2011 included restructuring and asset impairment charges of
$6,228 as well as licensee debt cancellation charges of $6,447.
(3) On May 2, 2011 we sold our 46.9% interest in International Home Furnishings Center, Inc. (“IHFC”) resulting in a
gain of $85,542.
(4) See note 8 to the Consolidated Financial Statements related to funds received from the Continued Dumping and
Subsidy Offset Act (“CDSOA”) in 2012 of $9,010. During 2011 and 2010, other income (loss), net included
income from the CDSOA of $765 and $488, 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.
48
Bassett Furniture Industries, Incorporated
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 29, 2014, November 30, 2013 and November 24, 2012
(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 24, 2012:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
Notes receivable valuation reserves
Income tax valuation allowance
$
$
$
For the Year Ended November 30, 2013:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
Notes receivable valuation reserves
Income tax valuation allowance
$
$
$
For the Year Ended November 29, 2014:
Reserve deducted from assets to which it applies
Allowance for doubtful accounts
Notes receivable valuation reserves
Income tax valuation allowance
$
$
$
2,092 $
377 $
(680) $
- $
1,789
4,140 $
(1) $
- $
- $
4,139
19,612 $
- $
(18,704) $
- $
908
1,789 $
361 $
(543) $
- $
1,607
4,139 $
- $
908 $
136 $
- $
- $
- $
4,139
- $
1,044
1,607 $
77 $
(435) $
- $
1,249
4,139 $
- $
- $
- $
4,139
1,044 $
- $
(974) $
- $
70
(1) Deductions are for the purpose for which the reserve was created. Deductions from the income tax valuation allowance
for the years ended November 24, 2012 and November 29, 2014 were due to the removal of the majority of our
valuation allowance, resulting in a net tax benefit for the year.
49
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 peer
group. The Company’s peer group consists of the following:
American Woodmark, Inc.
Culp, Inc.
The Dixie Group, Inc.
Ethan Allan Interiors, Inc.
Flexsteel Industries, Inc.
Haverty Furniture Companies, Inc.
Hooker Furniture Corporation
Kirkland’s, Inc.
La-Z-Boy Incorporated
Stanley Furniture Company, Inc.
This graph assumes that $100 was invested on November 28, 2009 in the Company’s Common Stock, the S&P Index and the
two peer groups and that any dividends paid were invested.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
November 2014
Assumes $100 Invested on November 28, 2009
Assumes Dividends Reinvested
50
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 29, 2014 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 29, 2014, 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
51
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 29, 2014 and November 30, 2013, 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 29,
2014. 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 29, 2014. 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 29, 2014 and November 30, 2013, and
the consolidated results of their operations and their cash flows for each of the three years in the period ended November
29, 2014, 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 29, 2014, 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, 2015
expressed an unqualified opinion thereon.
Richmond, Virginia
January 22, 2015
52
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 29, 2014, 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 29, 2014, 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 29,
2014 and November 30, 2013, 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 29, 2014 of Bassett Furniture Industries,
Incorporated and Subsidiaries and our report dated January 22, 2015 expressed an unqualified opinion thereon.
Richmond, Virginia
January 22, 2015
53
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This Page Intentionally Left Blank
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 11, 2015, 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 29, 2014. 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
2014
2013
2014
2013
HIGH
LOW
HIGH
LOW
First
$16.19
$13.32
$14.60
$10.93
$0.06
$0.05
Second
Third
16.02
15.73
13.13
12.07
15.96
17.49
12.52
13.82
Fourth
19.60
13.21
16.19
13.18
0.06
0.08
0.28
0.05
0.06
0.26
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.
Retired 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, Bassett and 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, Textile and Accessory Merchandising
J. MICHAEL DANIEL
Senior Vice President and Chief Financial Officer
PETER D. MORRISON
Vice President, Marketing
MARK S. JORDAN
Senior Vice President, Upholstery
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast Region
EDWIN C. AvERy, JR.
Vice President, Upholstery Product Development
THOMAS E. PRATO
Vice President, Sales, Bassett and HGTV
DAvID C. BAKER
Vice President, Corporate Retail
J. CARTER UNDERWOOD
Vice President, Wood Operations
WILLIAM A. BENDALL
Vice President, Sales, Export and Juvenile
DAvID F. WALSH
Vice President, Licensed Retail
STEPHEN D. HARMON
Vice President, Information Technology
EDWARD H. WHITE
Vice President, Human Resources
BASSETT, VIRGINIA
NASDAQ: BSET