Bassett Furniture Industries
Annual Report 2015

Plain-text annual report

b a s s e t t f u r n i t u r e . c o m B a s s e t t , V i r g i n i a N A S D A Q : B S E T A N N U A L R E P O R T 2 0 1 5 “Primarily through organic growth and partially due to the Zenith acquisition, Bassett’s revenues have increased almost $200 million over the past five years.” San Antonio, TX T O O U R S H A R E H O L D E R S 2015 will be remembered by those of us that follow Bassett designers continue to build solid client relationships, one closely as a year of achievement. In this letter, I will outline transaction at a time. In many ways, this dynamic drives the a series of accomplishments that drove significant revenue day-to-day business aspirations at Bassett. and earnings growth and discuss the implications of these operational milestones for the future. Net income, excluding • How can our assortment improve to better serve what non-recurring items, grew by 59% to $14.8 million. our clients are telling us? Comparable consolidated revenue increased by 14% and • How can our marketing and technology better total revenue grew by 27% to $431 million when results from communicate our design, product, and service the acquisition of Zenith Freight Lines, LLC are taken into capabilities? account. Primarily through organic growth and partially due to the Zenith acquisition, Bassett’s revenues have increased • How can our training modules elevate the performance of all of our designers and continue to drive comparable almost $200 million over the past five years. Accompanying store sales increases? this growth has been a five-fold increase in annual operating profit. In the attainment of this level of performance, we look Relentless focus on these details crystalizes what Bassett is all ahead not only in the context of the next 12 months but also about. One transaction at a time. with the long-term performance and growth of the Bassett brand in mind. Consolidated Sales $431mm $340mm $321mm $269mm 2012 2013 2014 2015 400 375 350 325 300 275 250 We successfully relocated two stores in Texas at the outset of 2015. Our new San Antonio location has become one of our most profitable and our new Southlake, Texas store is consistently generating double digit comparable sales increases compared to our former location. Similarly, the extensive remodel of our Buford, Georgia store in 2015 The highlight of 2015 was the performance of our corporate drove a 17% year-over-year sales increase and our West Palm retail division. In posting the first ever divisional operating Beach, Florida store produced positive results. Woodland profit, our corporate team recorded $6.2 million of operating Hills, California was our only new market opened in 2015. income and grew comparable same store sales for the fifth Looking ahead, we will relocate our Newport News, Virginia consecutive year, this time by an impressive 13%. Very few store in early 2016 and open new stores in Sterling, Virginia, companies in our space have performed at that level over Hunt Valley, Maryland, and nearby the King of Prussia mall the same period of time. Our 400 corporately employed in the greater Philadelphia market. We will also close three Woodland Hills, CA underperforming locations in 2016. We hired an experienced VP of Real Estate and New Store Development in 2015 and we are actively engaged in evaluating a number of new sites across the country. New store growth is our primary growth mechanism, driven by disciplined site selection and economic modeling. Ultimately, though, the strong performance of our corporate retail team in 2015 and over the past five years gives us the confidence that we can staff and operate our new stores profitably in the future. The acquisition of Zenith Freight Lines, LLC in the first quarter of 2015 marked the culmination of a strategic business partnership that dates back to 1998. Bassett and Zenith have grown together as more of our stores have opened and the standards of what great service means have risen. Zenith management has embraced technology and innovation to build the most modern and compliant trucking fleet that services the furniture industry in America. Expanding into population centers with distribution warehouses, entering the “white glove” home delivery arena, and the early adoption of now federally mandated electronic logging are forward thinking examples of what made the final integration into Bassett so compelling. Zenith contributed $3.5 million of operating profit to Bassett’s results in the final ten months of the fiscal year. As the consumer continually demands faster service, the internet becomes a bigger channel of furniture sales, and Bassett opens more stores, Zenith will play a crucial role in Bassett’s revenue and profit growth in the future. “Zenith management has embraced technology and innovation to build the most modern and compliant trucking fleet that services the furniture industry in America.” In addition to generating growth in our corporate retail segment, our 33 licensed Bassett stores and our network of 600 independent furniture stores were key contributors to the 13% wholesale sales increase posted in 2015. Domestic wood production grew by 31% thanks to strong performance from our casual dining line produced in Martinsville, Virginia and the successful launch of our new Bench Made assortment that began shipping last January. The Bench Made dining product immediately resonated with the core Zenith Freight Lines Bench-Made Dining Bassett consumer and was embraced by our designers as a revenue gain in 2015. Our retail stores performance made unique iteration of our 113 year heritage of producing quality our domestic upholstery operation the primary beneficiary furniture in the town of Bassett, Virginia. Bench Made was of increased sales as our clients continued to gravitate to a true startup in which we conceived a market segment, the wide range of frame and fabric options that we offer. designed the product range, partnered with key suppliers, We expanded into custom leather in early 2015, offering retro-fitted an existing facility, hired and trained a new work an array of 35 articles tanned in Europe, South America, force, and began production - all accomplished in less than and the United States. Building momentum through the nine months! And, even better, we became profitable 90 year, our custom leather program finished the year as the days after the first piece was produced. The ethos of Bench Made meshes with the larger spirit of Bassett perfectly – best-selling leather upholstery product that we offer. Also noteworthy was the expansion of our Asian cut and sew domestic innovation, high quality products, and the ability offerings, leveraging this capability with the introduction of to customize. Building on this impressive launch, we plan to the Essex and Harlan frames. Both of these items quickly extend the line into other product categories in 2016. became strong sellers. Given all of this, we plan to integrate “The ethos of Bench Made meshes with the larger spirit of Bassett perfectly – domestic innovation, high quality products, and the ability to customize.” Bassett Upholstery continued its five year tear with a 15% a broader mix of upholstery into our retail floor plan to coincide with our Memorial Day promotion this May. After years of strong growth and due diligence, we plan to open a new upholstery manufacturing facility in Grand Prairie, Texas in February. The new plant will begin by producing a portion of the upholstery assortment for our stores and open market customers in the Texas area and west and should provide the additional capacity needs that we have for the foreseeable future. Essex Sofa Harlan Sectional As always, the desire to maintain a strong balance sheet in a highly cyclical business is fundamental to our thinking. That said, we balance this premise against capital needs to maintain and grow Bassett’s business and the obligation to return capital to our shareholders. Over the course of 2015, we invested almost $9 million in cash toward the Zenith acquisition and spent another $14 million to expand and improve our operations. In addition, the Company returned $7.9 million of capital to our shareholders in the form of dividends and share repurchases. Thanks to the generation of over $32 million of operational cash flow, we were able to make these investments and distributions and end the year with over $59 million of cash and investments on the balance sheet. These capital allocation discussions will continue to be at the forefront of our planning in the future. At the time of this writing, the world equity markets have begun 2016 in turmoil and recent U.S. retail sales have been tepid. We firmly believe in our strategic direction but will monitor these unsettling trends with vigilance. In any event, I thank our shareholders, associates, customers, and our Board of Directors for their support in making 2015 a year of achievement for Bassett. Robert H. Spilman, Jr. President & CEO In October, we renewed our partnership with HGTV through calendar year 2019. We believe that our four year relationship with HGTV has made the communication of our retail design capabilities to the consumer more overt and intuitive. In short, the consumer “gets” the word “makeover” and what it implies in residential home furnishings parlance. With this, we have seen makeovers substantially grow as a percentage of our overall business. As a result, our average ticket has grown and our comparable store sales increase speaks for itself. Moving forward, we plan to further utilize the marketing power of HGTV by increasing our exposure on the network during key retail promotional periods. As part of our agreement, HGTV will professionally produce a number of :15 and :30 television commercials with our creative guidance each year. We have also agreed to continue our sponsorship of the HGTV Smart Home program in 2016, which last year generated 40 million entries in the accompanying sweepstakes, creating huge exposure for the Bassett brand. This year’s Smart Home is located in Raleigh, North Carolina, an important corporate store market for us. FINANCIAL SUMMARY Fiscal Years Ended November INCOME STATEMENT DATA 2015 2014 2013 2012 2011 Net Sales Income (loss) From Operations Net Income $430,927 25,989 20,433 $340,738 15,131 9,299 $321,286 10,005 5,096 $269,672 5,080 26,713 $253,208 (20,622) 55,342 PER SHARE DATA Diluted Income Adjusted Diluted Income (loss) Cash Dividends Book Value $ 1.88 1.36 0.54 16.25 $ 0.87 0.87 0.48 14.95 $ 0.47 0.47 0.42 14.50 $ 2.41 0.27 1.45 14.51 $ 4.79 (0.74) 0.60 13.44 BALANCE SHEET DATA Cash & Cash Equivalents Investments Total Assets Long-Term Debt Stockholders’ Equity $ 36,268 23,125 282,543 8,500 177,366 $ 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 Dollars in thousands except per share amounts Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts 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 113-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 93 BHF stores at November 28, 2015, we have leveraged our strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. We created our store program in 1997 to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. The store features custom order furniture ready for delivery in less than 30 days, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. We believe that our capabilities in custom upholstery have become unmatched in recent years. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its delivery. The selling philosophy in the stores is based on building strong long-term relationships with each customer. Sales people are referred to as Design Consultants and are each trained to evaluate customer needs and provide comprehensive solutions for their home decor. We continue to strengthen the sales and design talent within our Company-owned retail stores. Our Design Consultants undergo extensive Design Certification training. This training has strengthened their skills related to our house call and design business, and is intended to increase business with our most valuable customers. In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers, specialty stores and mass merchants. We use a network of over 25 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share. For many years we owned 49% of Zenith Freight Lines, LLC (“Zenith”). During that time the strategic significance of our partnership with Zenith had risen to include the over-the-road transportation of furniture, the operation of regional freight terminal, warehouse and distribution facilities in eleven states, and the management of various home delivery facilities that service Bassett Home Furnishings stores and other clients in local markets around the United States. On February 2, 2015, we acquired the remaining 51% of Zenith, which now operates as a wholly-owned subsidiary of Bassett. Our acquisition of Zenith brings to our Company the ability to deliver best-of-class shipping and logistical support services that are uniquely tailored to the needs of the furniture industry, as well as the ability to provide the expedited delivery service which is increasingly demanded by our industry. We believe that our ownership of Zenith will not only enhance our own wholesale and retail distribution capabilities, but will provide additional growth opportunities as Zenith continues to expand its service to other customers. In September of 2011, we announced the formation of a strategic partnership with HGTV (Home and Garden Television), a division of Scripps Networks, LLC, which combines our heritage in the furniture industry with the penetration of 96 million households in the United States that HGTV enjoys today. As part of this alliance, the in-store design centers have been co- branded with HGTV to more forcefully market the concept of a “home makeover”, an important point of differentiation for our stores that also mirrors much of the programming content on the HGTV network. We believe the new co-branded design centers coupled with the targeted national advertising on HGTV have played a key role in our improved comparable store sales since their introduction. In October of 2015, we announced the extension of our partnership with HGTV through 2019. While continuing to feature HGTV branded custom upholstery products in our HGTV HOME Design Studios in Bassett Home Furnishings stores, we will now expand the concept to select independent dealers. We believe this will provide additional growth outside our BHF store network. At November 28, 2015, our BFH store network included 60 Company-owned stores and 33 licensee-owned stores. Due to the improved operating performance of our retail network along with continued improvement in underlying economic factors such as the housing market and consumer confidence, we have been expanding our retail presence in various parts of the 1 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) country. As part of this expansion we opened one new store and relocated two stores during fiscal 2015 while opening six new stores and relocating two stores in fiscal 2014. We plan to continue opening new stores, primarily in underpenetrated markets where we currently have stores. In this regard we are currently considering several locations for new store expansion over the next three years, with at least three of these planned to open in fiscal 2016. We continue to evaluate all stores in our fleet and plan to close three underperforming stores this year as well. As with any retail operation, prior to opening a new store we incur such expenses as rent, training costs and other payroll related costs. These costs generally range between $100 to $300 per store depending on the overall rent costs for the location and the period between the time when we take physical possession of the store space and the time of the store opening. Generally, rent payments during a buildout period between delivery of possession and opening of a new store are deferred and therefore straight line rent expense recognized during that time does not require cash. Inherent in our retail business model, we also incur losses in the two to three months of operation following a new store opening. Like other furniture retailers, we do not recognize a sale until the furniture is delivered to our customer. Because our retail business model does not involve maintaining a stock of retail inventory that would result in quick delivery and because of the custom nature of many of our furniture offerings, delivery to our customers usually occurs about 30 days after an order is placed. We generally require a deposit at the time of order and collect the remaining balance when the furniture is delivered, at which time the sale is recognized. Coupled with the previously discussed store pre-opening costs, total start-up losses can range from $300 to $500 per store. While our retail expansion is initially costly, we believe our site selection and new store presentation will generally result in locations that operate at or above a retail break-even level within a reasonable period of time following store opening. Factors affecting the length of time required to achieve this goal on a store-by-store basis may include the level of brand recognition, the degree of local competition and the depth of penetration in a particular market. Even as new stores ramp up to break-even, we do realize additional wholesale sales volume that leverages the fixed costs in our wholesale business. Our wholesale operations include an upholstery plant in Newton, North Carolina that produces a wide range of upholstered furniture. 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 2015, approximately 37% of our wholesale sales were of imported product compared to 42% for fiscal 2014. In fiscal 2015 we launched several significant new product categories. An important new product introduction in 2015 has been “Bench Made”, a selection of American dining furniture that appeared in retail showrooms during the second quarter of 2015. Partnering with nearby hardwood component manufacturers, we are preparing, distressing, finishing, and assembling an assortment of solid maple tables and chairs in our newly renovated Company-owned facility in Bassett, Virginia. Sales of “Bench Made” product during 2015 were ahead of our expectations. Also extremely significant is the second phase of our store assortment makeover that began with the introduction of new wood items and finishes last spring. We are planning to move to a living area centric floor plan that will focus more on the upholstery products that are driving our sales today complemented by both imported and domestically produced entertainment and occasional furnishings. All of these new products have been carefully designed in coordination with our merchants, designers, engineers and finishing technicians to achieve the upscale casual decor that we believe speaks to today’s consumer. We will begin production in a new manufacturing facility in Grand Prairie, Texas in early March. The new plant will begin by producing a portion of the upholstery assortment for customers and stores in the Texas area and west. Our website, www.bassettfurniture.com, provides our consumers with the ability to research and purchase our merchandise online. The ultimate goal of our digital strategy is to drive traffic to our stores while deepening interactions with our consumers. We have worked diligently to enhance our online presence by making it easier for consumers to browse our wide array of goods and to design custom furniture. Late in 2015, we launched a new responsive platform allowing smartphone and tablet users to browse and purchase our product assortment on their mobile devices. Our e-commerce platform is simple, easy to use and amplifies the experience of the Bassett brand reflected in our stores, direct mail and television commercials. We constantly update our website to reflect current product availability, pricing and special offers. In 2016, we will continue to make improvements to our website to improve brand interaction and drive more qualified prospects to our stores. While sales through our website are currently not material, they have increased significantly in the last several years. We are leveraging our Company-owned and licensed store network to handle delivery and customer service for orders placed online. 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) 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 2015 and 2014 each contained 52 weeks. Net sales revenue, cost of furniture and accessories sold, selling, general and administrative (SG&A) expense, new store pre-opening costs, other charges, and income from operations were as follows for the years ended November 28, 2015, November 29, 2014 and November 30, 2013: 2015 2014 2013 Sales Revenue: Furniture and accessories Logistics Total net sales revenue Cost of furniture and accessories sold SG&A New store pre-opening costs Other charges $387,405 89.9% $340,738 100.0% $321,286 100.0% 43,522 10.1% 0.0% 430,927 100.0% 340,738 100.0% 321,286 100.0% - 0.0% - 179,291 41.6% 158,317 46.5% 155,292 48.3% 224,050 52.0% 166,073 48.7% 155,318 48.3% 0.2% 0.0% 623 0.1% 1,217 0.4% - 0.0% 974 0.2% 671 - Income from operations $ 25,989 6.0% $ 15,131 4.4% $ 10,005 3.1% Sales for fiscal 2015 include the logistical services revenue of Zenith from customers outside of the Company since the date of acquisition on February 2, 2015. Sales of furniture and accessories, net of estimates for returns and allowances, were $387,405 for fiscal 2015 as compared to $340,738 for 2014 and $321,286 for 2013, representing increases of 13% and 6.1%, respectively. As noted above, fiscal 2013 contained 53 weeks while fiscal 2015 and 2014 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: 2015 2014 2013 Wholesale Retail Logistical services Inter-company eliminations: Furniture and accessories Logistical services Consolidated net sales $ $ 252,180 $ 249,379 77,250 223,993 $ 216,631 - 215,451 199,380 - (114,154) (33,728) 430,927 $ (99,886 ) - 340,738 $ (93,545) - 321,286 Operating income was $25,989 for 2015 as compared to $15,131 for 2014 and $10,005 for 2013. These increases have been primarily attributable to increased retail volume, the addition of Zenith, which contributed an additional $3,528 of operating income for fiscal 2015, and increased wholesale volume. Other charges of $974 during fiscal 2015 include lease exit costs of $419, asset impairment charges of $106, and a management restructuring charge of $449. 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 “Other Items Affecting Net Income”. 3 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts 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 (licensee-owned stores and Company-owned stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. Retail – Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores. Logistical services. With our acquisition of Zenith on February 2, 2015, we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping, delivery and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistics revenue in our consolidated statement of income. Zenith’s operating costs are included in selling, general and administrative expenses. Amounts charged by Zenith to the Company for transportation and logistical services prior to February 2, 2015 are included in selling, general and administrative expenses, and our equity in the earnings of Zenith prior to the date of acquisition is included in other loss, net, in the consolidated statements of income. Prior to the beginning of fiscal 2015, our former investments and real estate segment included our short-term investments, our holdings of retail real estate previously leased as licensee stores, and our former equity investment in Zenith prior to acquisition. This segment has been eliminated and the assets formerly reported therein are now considered to be part of our wholesale segment. The earnings and costs associated with these assets, including our equity in the income of Zenith prior to the date of acquisition, will continue to be included in other loss, net, in our condensed consolidated statements of income. 4 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results: Wholesale Retail Logistics Eliminations Consolidated Year Ended November 28, 2015 Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense New store pre-opening costs Income from operations (5) $ $ 252,180 $ - 252,180 168,792 67,770 - 15,618 $ 249,379 $ - 249,379 124,376 118,210 623 6,170 $ - $ 77,250 77,250 (114,154)(1) $ (33,728)(2) (147,882) - 73,722 - 3,528 $ (113,877)(3) (35,652)(4) - 1,647 $ 387,405 43,522 430,927 179,291 224,050 623 26,963 Wholesale Retail Logistics Eliminations Consolidated Year Ended November 29, 2014 Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense New store pre-opening costs Income (loss) from operations $ $ 223,993 $ - 223,993 149,646 60,227 - 14,120 $ 216,631 $ - 216,631 108,174 107,768 1,217 (528) $ - $ - - - - - - $ (99,886)(1) $ -(2) (99,886) (99,503)(3) (1,922)(4) - 1,539 $ 340,738 - 340,738 158,317 166,073 1,217 15,131 Wholesale Retail Logistics Eliminations Consolidated Year Ended November 30, 2013 Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense New store pre-opening costs Income (loss) from operations $ $ 215,451 $ - 215,451 144,639 59,929 - 10,883 $ 199,380 $ - 199,380 102,911 97,250 671 (1,452) $ - $ - - - - - - $ (93,545)(1) $ -(2) (93,545) (92,258)(3) (1,861)(4) - 574 $ 321,286 - 321,286 155,292 155,318 671 10,005 (1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores. (2) Represents the elimination of logistical services billed to our wholesale and retail segments. (3) Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory. (4) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate, and for the year ended November 28, 2015, logisitcal services expense incurred from Zenith by our retail and wholesale segments. (5) Excludes the effects of asset impairment charges, lease exit costs and management restructuring costs which are not allocated to our segments. 5 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts 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 28, 2015, November 29, 2014 and November 30, 2013: 2015 Net sales Gross profit SG&A Income from operations $ 15,618 2014 $252,180 100.0% $223,993 100.0% $215,451 100.0 % 83,388 33.1% 74,347 33.2% 70,812 32.9 % 67,770 26.9% 60,227 26.9% 59,929 27.8 % 5.1 % 6.2% $ 14,120 6.3% $ 10,883 2013 Wholesale shipments by category for the last three fiscal years are summarized below: Wood Upholstery Other Total Fiscal 2015 as Compared to Fiscal 2014 2015 2014 $ 93,073 36.9% $ 86,577 38.7% $ 87,935 40.8 % 156,768 62.2% 135,831 60.6% 125,403 58.2 % 2,339 1.0 % $252,180 100.0% $223,993 100.0% $215,451 100.0 % 0.9% 1,585 0.7% 2,113 2013 Net sales for the wholesale segment were $252,180 for 2015 as compared to $223,993 for 2014, an increase of $28,187 or 13%. This sales increase was driven by a 13% increase in shipments to the BHF store network and a 7.4% increase in open market shipments (outside the BHF store network). Gross margins for the wholesale segment decreased slightly to 33.1% for 2015 as compared to 33.2% for 2014. Wholesale SG&A increased $7,543 to $67,770 for 2015 as compared to $60,227 for 2014. SG&A as a percentage of sales was 26.9% for both fiscal 2015 and 2014. Included in SG&A for 2015 is an additional $850 in increased legal and environmental costs, an additional $541 of incentive compensation, and a $289 increase in bad debt costs largely associated with one remaining long-term note from a prior licensee. Also included in SG&A during 2015 are $209 of costs associated with the acquisition of Zenith. Operating income was $15,618 or 6.2% of sales for 2015 as compared to $14,120 or 6.3% of sales in 2014. 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%. On an average weekly basis (normalizing for the extra week in fiscal 2013), wholesale net sales increased 6%. 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 gained market share in the traditional furniture store channel as recent product offerings were well received in 2014. 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. Wholesale Backlog The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores as of November 28, 2015, November 29, 2014, and November 30, 2013 was as follows: Year end wholesale backlog $ 17,131 $ 13,644 $ 11,916 2015 2014 2013 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) Retail Segment – Company Owned Stores Net sales, gross profit, selling, general and administrative (SG&A) expense, new store pre-opening costs and operating income (loss) for our Retail Segment were as follows for the years ended November 28, 2015, November 29, 2014 and November 30, 2013: Net sales Gross profit SG&A expense New store pre-opening costs Income (loss) from operations 2015 vs 2014 2014 vs 2013 2015 $ 249,379 125,003 118,210 2014 100.0% $ 216,631 50.1% 108,457 47.4% 107,768 2014 100.0% $ 216,631 50.1% 108,457 49.7% 107,768 2013 100.0% $ 199,380 50.1% 96,469 49.7% 97,250 100.0% 48.4% 48.8% 623 0.2% 1,217 0.6% 1,217 0.6% 671 0.3% $ 6,170 2.5% $ (528) -0.2% $ (528) -0.2% $ (1,452) -0.7% The following tables present operating results on a comparable store basis for each comparative set of periods. Table A compares the results of the 53 stores that were open and operating for all of 2015 and 2014. Table B compares the results of the 51 stores that were open and operating for all of 2014 and 2013. Comparable Store Results Net sales Gross profit SG&A expense Income (loss) from operations Table A: 2015 vs 2014 (53 Stores) Table B: 2014 vs 2013 (51 Stores) 2015 $ 225,444 112,815 105,347 2014 100.0% $ 199,048 50.0% 99,591 46.7% 97,325 2014 100.0% $ 194,092 50.0% 96,905 48.9% 94,726 2013 100.0% $ 187,146 49.9% 90,626 48.8% 90,389 100.0% 48.4% 48.3% $ 7,468 3.3% $ 2,266 1.1% $ 2,179 1.1% $ 237 0.1% 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 Net sales Gross profit SG&A expense New store pre-opening costs Loss from operations 2015 vs 2014 All Other Stores 2014 2015 100.0% $ 17,583 $ 23,935 50.9% 12,188 8,866 53.7% 10,443 12,863 2014 vs 2013 All Other Stores 2013 2014 100.0% $ 12,234 100.0% $ 22,539 5,843 51.3% 50.4% 11,552 6,861 57.9% 59.4% 13,042 100.0% 47.8% 56.1% 623 $ (1,298) 2.6% 1,217 -5.4% $ (2,794) 6.9% 1,217 -15.9% $ (2,707) 5.4% 671 -12.0% $ (1,689) 5.5% -13.8% Fiscal 2015 as Compared to Fiscal 2014 Net sales for the 60 Company-owned Bassett Home Furnishings stores were $249,379 for fiscal 2015 as compared to $216,631 for fiscal 2014, an increase of $32,748 or 15%. The increase was primarily due to a $26,396 or 13% increase in comparable store sales coupled with a $6,352 increase in non-comparable store sales from 7 new stores opened in the last 24 months. 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores increased by 11% for 2015 over 2014. The consolidated retail operating income for 2015 was $6,170 as compared to a loss of $528 for 2014, a $6,698 improvement. The 53 comparable stores generated operating income of $7,468 for the year, or 3.3% of sales, as compared to $2,266, or 1.1% of sales, for the prior year. Gross margins were 50.0% for 2015, unchanged from the prior year. SG&A expenses for comparable stores increased $8,022 to $105,347 or 46.7% of sales as compared to 48.9% of sales for 2014. This decrease is primarily due to greater leverage of fixed costs due to higher sales volumes. Losses from the non-comparable stores in 2015 were $1,298 compared to $2,794 for 2014. This decrease is due in part to a decline in new store pre-opening costs from $1,217 recognized in 2014 due to the six new store openings during that year as compared with $623 in 2015 primarily associated with the Woodland Hills, California store which opened in early October of 2015. These costs included rent, training costs and other payroll-related costs specific to a new store location incurred during the period leading up to its opening and generally range between $100 to $300 per store based on the overall rent costs for the location and the period between the time when we take possession of the physical store space and the time of the store opening. Also included in the non-comparable store loss for 2014 was $983 in post-opening losses from six stores opened during 2014. We incur losses in the two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $300 to $500 per store. Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each new store will be ongoing. 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 recognized rent expense on both locations until the date that the previously existing store closed. We completed relocations in Little Rock, Arkansas and Boston, Massachusetts during fiscal 2014, with two additional relocations in Texas expected which were 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. 8 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) 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. Retail Comparable Store Sales Increases The following table provides year-over-year comparable store sales increases for the last three fiscal years: 2015 2014 2013(1) Delivered Written 13.3% 3.7% 11.0% 4.3% 7.6% 9.0% (1) The reported amounts for fiscal 2013 reflect the fact that 2013 contained 53 weeks versus 52 weeks for the preceding year. Adjusting for the additional week of sales on an average weekly basis, 2013 delivered and written sales would have increased 5.6% and 7.0%, respectively, over 2012. Retail Backlog The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 28, 2015, November 29, 2014, and November 30, 2013, was as follows: 2015 2014 2013 Year end retail backlog Retail backlog per open store $ $ 31,871 $ 531 $ 30,206 $ 22,483 409 503 $ Logistical Services Segment Our logistical services segment was created with the acquisition of Zenith on February 2, 2015. Results for that segment since the date of acquisition during fiscal 2015 are as follows: Logistics revenue Operating expenses $ 77,250 73,722 100.0% 95.4% Income from operations $ 3,528 4.6% Operating expenses since the date of acquisition during fiscal 2015 include depreciation and amortization of $2,634. 9 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) Other Items Affecting Net Income Other items affecting net income for fiscal 2015, 2014 and 2013 are as follows: Remeasurement gain on acquisition of affiliate (1) Income from unconsolidated affiliated company (2) Income from Continued Dumping & Subsidy Offset Act (3) Interest expense (4) Retail real estate impairment charges (5) Loan and lease guarantee (expense) recovery (6) Investment income (7) Other (8) 2015 2014 2013 $ 7,212 $ 220 1,156 (607) (182) 73 228 (2,221) - $ 661 - (188) - 66 352 (1,415) - 770 - (255) (416) (40) 99 (1,976) Total other income (loss), net $ 5,879 $ (524) $ (1,818) (1) See Note 3 to the Consolidated Financial Statements for information related to our acquisition of Zenith and the recognition of a remeasurement gain on our pre-acquisition equity method investment in Zenith. (2) See Note 9 to the Consolidated Financial Statements for information related to our equity in the income of Zenith as an unconsolidated affiliate prior to our acquisition of Zenith. (3) See Note 16 to the Consolidated Financial Statements for information related to our income from the Continued Dumping and Subsidy Offset Act (“CDSOA”). (4) Our interest expense prior to fiscal 2015 consisted primarily of interest on our retail real estate mortgage obligations and has been declining steadily as those obligations are being repaid. During fiscal 2015 our interest expense increased significantly due to debt arising from our acquisition of Zenith. See Note 3 to the Consolidated Financial Statements regarding debt incurred and assumed at the date of the acquisition. See also Note 10 to the Consolidated Financial Statements for additional information regarding our outstanding debt at November 28, 2015. (5) See Note 2 to the Consolidated Financial Statements for additional information regarding impairment charges 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 2015, 2014 and 2013 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 2015, 2014 and 2013 includes interest income arising from our short-term investments. See Note 4 to the Consolidated Financial Statements for additional information regarding our investments in certificates of deposit. Investment income for Fiscal 2015 and 2014 also includes gains of $136 and $280 arising from the partial liquidation of our previously impaired investment in the Fortress Value Recovery Fund I, LLC, which was fully impaired during fiscal 2012. (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 2015. 10 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) Provision for Income taxes We recorded an income tax provision of $11,629, $5,308 and $3,091 in fiscal 2015, 2014 and 2013, respectively. For fiscal 2015, our effective tax rate of approximately 35.9% differs from the statutory rate of 35.0% primarily due to the effects of state income taxes, partially offset by a lower effective tax rate on the gain associated with our acquisition of Zenith arising from the remeasurement of our previous 49% equity method investment in Zenith. 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. See Note 14 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 $13,470 as of November 28, 2015, which, upon utilization, are expected to reduce our cash outlays for income taxes in future years. It will require approximately $35,000 of future taxable income to utilize our net deferred tax assets. Liquidity and Capital Resources We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take advantage of opportunities as market conditions improve, and to execute our long-term retail strategies. Cash Flows Cash provided by operations for fiscal 2015 was $32,398 compared to $29,961 for fiscal 2014, an increase of $2,437. The improvement is primarily the result of higher operating income, partially offset by increases in inventory levels due to the introduction of new products and increased purchase activity to support higher order volume. Our overall cash position increased by $9,595 during 2015. Offsetting the cash provided by operations, we used $19,661 of cash in investing activities, primarily consisting of: cash paid for the acquisition of Zenith (net of cash acquired); a capital contribution made to Zenith prior to the acquisition; capital expenditures which included retail store relocations, retail store remodels, and in-process spending on new stores, expanding and upgrading our manufacturing capabilities, and the purchase of freight transportation equipment. Net cash used in financing activities was $3,132, including dividend payments of $5,786 and stock repurchases of $2,071 under our existing share repurchase plan, of which $17,929 remains authorized at November 28, 2015. These uses were partially offset by net proceeds and excess tax benefits associated with the exercise of stock options. With cash and cash equivalents and short-term investments totaling $59,393 on hand at November 28, 2015, we believe we have sufficient liquidity to fund operations for the foreseeable future. Debt and Other Obligations Our credit facility with our bank provides for a line of credit of up to $15,000 and is secured by our accounts receivable and inventory. The facility contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement and expect to remain in compliance for the foreseeable future. The line matured in December 2015 but has been temporarily extended while we are in negotiations with our bank for a new line, which we expect to obtain during the first quarter of fiscal 2016 under substantially similar terms, except that the line is expected to be unsecured. We have $1,970 outstanding under standby letters of credit against our line, leaving availability under our credit line of $13,030. In addition, we have outstanding standby letters of credit with another bank totaling $356. At November 28, 2015 we have outstanding principal totaling $14,085, excluding discounts, under notes payable of which $5,477 matures within one year of the balance sheet date. See Note 10 to our consolidated financial statements for additional details regarding these notes, including collateral and future maturities. We expect to satisfy these obligations as they mature 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 certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United 11 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services segment. We had obligations of $124,897 at November 28, 2015 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 $2,494 at November 28, 2015. See Note 17 to our condensed consolidated financial statements for additional details regarding our leases and lease guarantees. Dividends and Share Repurchases During fiscal 2015, we declared four quarterly dividends totaling $3,684, or $0.34 per share, and one special dividend of $2,184, or $0.20 per share. Cash dividend payments to our shareholders during fiscal 2014 totaled $5,786. During fiscal 2015, we also repurchased 76,350 shares of our stock for $2,071 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 2015 by approximately $0.01. Capital Expenditures We currently anticipate that total capital expenditures for fiscal 2016 will be approximately $20 million which will be used primarily for the build out of new stores and remodeling existing Company-owned stores in our retail segment, and the purchase of transportation equipment for our logistical services segment. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the new stores, our rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital expenditure and working capital requirements for the foreseeable future. Fair Value Measurements We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy: Level 1 Inputs– Quoted prices for identical instruments in active markets. Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs– Instruments with primarily unobservable value drivers. We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. The recurring estimate of the fair value of our mortgages and notes payable for disclosure purposes (see Note 10 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 3 to the Consolidated Financial Statements) and asset impairments (see Note 15 to the Consolidated Financial Statements) have utilized Level 3 inputs. 12 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) Contractual Obligations and Commitments We enter into contractual obligations and commercial commitments in the ordinary course of business (See Note 17 to the Consolidated Financial Statements for a further discussion of these obligations). The following table summarizes our contractual payment obligations and other commercial commitments and the fiscal year in which they are expected to be paid. Post employment benefit obligations (1) Notes payable Other obligations & commitments Contractual advertising Interest payable Letters of credit Operating leases (2) Lease guarantees (4) Purchase obligations (3) Total 2016 2017 2018 2019 2020 Thereafter Total $ 1,069 $ 5,477 1,013 $ 4,112 980 $ 3,803 926 $ 543 885 $ 150 11,137 $ 16,010 14,085 - 840 3,010 264 2,326 25,356 1,070 - 100 - 14 - 12,817 - - $ 39,412 $ 32,642 $ 27,381 $ 20,533 $ 13,966 $ 740 3,375 113 - 17,642 728 - 740 3,560 27 - 14,737 - - 840 3,190 172 - 22,576 739 - 200 - - - 3,460 13,135 590 2,326 31,769 124,897 2,537 - 43,106 $ 177,040 - - (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 $3,087 to provide funding for these obligations. See Note 11 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 2015, we had approximately $15,076 in open purchase orders, primarily for imported inventories, which are in the ordinary course of business. We also have a firm commitment to purchase transportation equipment in fiscal 2016 totaling approximately $4,670. (4) Lease guarantees relate to payments we would only be required to make in the event of default on the part of the guaranteed parties. Off-Balance Sheet Arrangements We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of BHF stores and Zenith distribution facilities. We have guaranteed certain lease obligations of licensee operators as part of our retail strategy. See 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 and lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements. Contingencies We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which requires that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be 13 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) 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. For our logistical services segment, line-haul freight revenue and home delivery revenue are recognized upon delivery to the destination. Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided. 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 2015 and 2014, there were no dealers for which these criteria were not met. 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 $1,175 and $1,249 at November 28, 2015 and November 29, 2014, respectively, representing 5.3% and 7.6% 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 $1,397 and $1,412 at November 28, 2015 and November 29, 2014, respectively, representing 2.3% and 2.4%, respectively, of our inventories on a last-in, first-out basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. Valuation Allowance on Deferred Tax Assets – We evaluate our deferred income tax assets to determine if valuation allowances are required or should be adjusted. A valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified. During fiscal 2014, 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 28, 2015 is $0. 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) 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; Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired. In accordance with ASC Topic 350, Intangibles – Goodwill & Other, 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 in the amount of $11,588 is not impaired as of November 28, 2015. 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. Other Intangible Assets – Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. At November 28, 2015, our indefinite-lived intangible assets other than goodwill consist of trade names acquired in the acquisition of Zenith and have a carrying value of $2,490. Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time. At November 28, 2015 our definite-lived intangible assets consist of customer relationships and customized technology applications acquired in the acquisition of Zenith with a total carrying value of $3,604. 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. 15 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 are also exposed to commodity price risk related to diesel fuel prices for fuel used in our logistical services segment. We manage our exposure to that risk primarily through the application of fuel surcharges to our customers. We have potential exposure to market risk related to conditions in the commercial real estate market. Our retail real estate holdings of $3,120 and $6,302 at November 28, 2015 and November 29, 2014, respectively, for stores formerly operated by licensees as well as our holdings of $27,175 and $27,843 at November 28, 2015 and November 29, 2014, 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 $2,537 and $3,296 which we have guaranteed on behalf of licensees as of November 28, 2015 and November 29, 2014, respectively, we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees. Aggregate Net Book Number of Locations Square Footage Value (in thousands) Real estate occupied by Company-owned and operated stores, included in property and equipment, net (1) 11 276,887 $ 27,175 Investment real estate leased to others 2 41,021 3,120 Total Company investment in retail real estate 13 317,908 $ 30,295 (1) Includes two properties encumbered under mortgages totaling $1,709 at November 28, 2015. 16 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 2015, 2014, 2013, 2012 and 2011 mean the fiscal years ended November 28, 2015, November 29, 2014, November 30, 2013, November 24, 2012 and November 26, 2011. 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 general risks associated with providing freight transportation and other logistical services due to our acquisition of Zenith Freight Lines, LLC 17 Consolidated Balance Sheets Bassett Furniture Industries, Incorporated and Subsidiaries November 28, 2015 and November 29, 2014 (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 $1,175 and $1,249 $ as of November 28, 2015 and November 29, 2014, respectively Inventories Other current assets Total current assets Property and equipment, net Other long-term assets Deferred income taxes, net Goodwill and other intangible assets Other Total other long-term assets Total assets Liabilities and Stockholders’ Equity Current liabilities Accounts payable Accrued compensation and benefits Customer deposits Dividends payable Current portion of long-term debt Other accrued liabilities Total current liabilities Long-term liabilities Post employment benefit obligations Notes payable Other long-term liabilities Total long-term liabilities Commitments and Contingencies Stockholders’ equity $ $ 2015 2014 36,268 $ 23,125 21,197 59,896 6,798 147,284 26,673 23,125 15,228 57,272 7,796 130,094 96,104 74,812 13,471 17,682 8,002 39,155 282,543 $ 14,969 1,730 19,141 35,840 240,746 20,916 $ 14,345 23,999 2,184 5,273 13,133 79,850 12,694 8,500 4,133 25,327 22,251 8,931 22,202 2,102 316 10,971 66,773 11,498 1,902 3,741 17,141 Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding 10,916,021 at November 28, 2015 and 10,493,393 at November 29, 2014 Retained earnings Additional paid-in-capital Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders’ equity 54,580 120,904 4,560 (2,678 ) 177,366 282,543 $ 52,467 106,339 - (1,974) 156,832 240,746 $ The accompanying notes to consolidated financial statements are an integral part of these statements. 18 Consolidated Statements of Income Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 28, 2015, November 29, 2014, and November 30, 2013 (In thousands, except per share data) Sales revenue: Furniture and accessories Logistics Total sales revenue 2015 2014 2013 $ 387,405 $ 43,522 430,927 340,738 $ - 340,738 321,286 - 321,286 Cost of furniture and accessories sold 179,291 158,317 155,292 Selling, general and administrative expenses excluding new store pre-opening costs New store pre-opening costs Lease exit costs Asset impairment charges Management restructuring costs 224,050 623 419 106 449 166,073 1,217 - - - 155,318 671 - - - Income from operations 25,989 15,131 10,005 Remeasurement gain on acquisition of affiliate Income from Continued Dumping & Subsidy Offset Act Income from unconsolidated affiliated company Interest expense Other loss, net Income before income taxes Income tax expense Net income Net income per share Basic income per share Diluted income per share Dividends per share Regular dividends Special dividend 7,212 1,156 220 (607) (2,102) - - 661 (188 ) (997 ) 31,868 14,607 11,435 5,308 - - 770 (255) (2,333) 8,187 3,091 $ 20,433 $ 9,299 $ 5,096 $ $ $ $ 1.91 $ 0.88 $ 1.88 $ 0.87 $ 0.34 $ 0.20 $ 0.28 $ 0.20 $ 0.48 0.47 0.22 0.20 The accompanying notes to consolidated financial statements are an integral part of these statements. 19 Consolidated Statements of Comprehensive Income Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 28, 2015, November 29, 2014, and November 30, 2013 (In thousands) Net income Other comprehensive loss: Actuarial adjustment to supplemental executive retirement defined benefit plan (SERP) Income taxes related to SERP 2015 2014 2013 $ 20,433 $ 9,299 $ 5,096 (1,135) 431 (918 ) 358 (310) 119 (191) Other comprehensive loss, net of tax (704) (560 ) Total comprehensive income $ 19,729 $ 8,739 $ 4,905 The accompanying notes to consolidated financial statements are an integral part of these statements. 20 Consolidated Statements of Cash Flows Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 28, 2015, November 29, 2014, and November 30, 2013 (In thousands) Operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity in undistributed income of investments and unconsolidated affiliated companies Non-cash asset impairment charges Non-cash portion of lease exit costs Remeasurement gain on acquisition of affiliate 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 Cash paid for business acquisition, net of cash acquired Capital contribution to affiliate 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: Cash dividends Proceeds from exercise of stock options 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 Proceeds from equipment loan Payments on notes Other, net 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 2015 2014 2013 $ 20,433 $ 9,299 $ 5,096 10,137 7,316 6,198 (220 ) 106 419 (7,212 ) 1,283 - - 1,930 2,082 (2,354 ) (2,624 ) 1,494 1,796 5,128 32,398 (13,974 ) 2,981 (7,323 ) (1,345 ) - - - - (19,661 ) (5,786 ) 4,031 325 (2,071 ) (178 ) 1,998 1,307 (2,768 ) - (3,142 ) 9,595 26,673 36,268 $ (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 ) (5,155 ) 297 311 (5,602 ) (489 ) 300 - (528 ) - (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) (2,935) 313 393 (1,750) (226) 313 - (549) - (4,441) (32,833) 45,566 12,733 $ The accompanying notes to consolidated financial statements are an integral part of these statements. 21 Consolidated Statements of Stockholders’ Equity Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 28, 2015, November 29, 2014, and November 30, 2013 (In thousands, except share and per share data) Common Stock Shares Amount Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Balance, November 24, 2012 10,836,840 $ 54,184 $ - $ 104,319 $ (1,223) $ 157,280 Comprehensive income Net income Actuarial adjustment to SERP 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) - - - - - (104) (937) 728 5,096 - (2,393) (2,172) - (324) - - - 313 - - (191) - - - - - - 5,096 (191) (2,393) (2,172) 697 (1,949) 728 313 Balance, November 30, 2013 10,859,318 54,297 - 104,526 (1,414) 157,409 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 - - - 9,299 - 9,299 - - - 69,619 - - - 348 - - - 260 - (2,983) (2,102) - (435,544) - (2,178) - (1,511) 951 (2,401) - - - 300 - (560) - - - - - - (560) (2,983) (2,102) 608 (6,090) 951 300 Balance, November 29, 2014 10,493,393 52,467 - 106,339 (1,974) 156,832 Comprehensive income Net income Actuarial adjustment to SERP, net of tax Regular dividends ($0.34 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 - - - 20,433 - 20,433 - - - 503,814 (81,186) - - - - 2,519 - - - 3,511 - (3,684) (2,184) - (406) - (1,843) 894 - - 1,998 - - (704) - - - - - - (704) (3,684) (2,184) 6,030 (2,249) 894 1,998 Balance, November 28, 2015 10,916,021 $ 54,580 $ 4,560 $ 120,904 $ (2,678) $ 177,366 The accompanying notes to consolidated financial statements are an integral part of these statements. 22 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 93 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 93 stores, the Company owns and operates 60 stores (“Company-owned retail stores”) with the other 33 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. We sourced approximately 37% of our wholesale products from various countries, with the remaining volume produced at our three domestic manufacturing facilities. Zenith Acquisition Prior to February 2, 2015 we held a 49% interest in Zenith Freight Lines, LLC (“Zenith”) for which we used the equity method of accounting. On February 2, 2015 we acquired the remaining 51% ownership interest (see Note 3, Business Combinations). Zenith provides over-the-road transportation of furniture, operates regional freight terminal, warehouse and distribution facilities in eleven states, and manages various home delivery facilities that service Bassett Home Furnishings stores and other clients in local markets around the United States. With the acquisition of Zenith, we established our logistical services operating segment. 2. Significant Accounting Policies Basis of Presentation and Principles of Consolidation Our fiscal year ends on the last Saturday in November, which periodically results in a 53-week year. Fiscal 2015 and 2014 each contained 52 weeks, whereas Fiscal 2013 contained 53 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. Accordingly, the results of Zenith have been consolidated with our results since the date of the acquisition. Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated, and Zenith’s operating costs and expenses since the date of acquisition are included in selling, general and administrative expenses in our condensed consolidated statements of net income. 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 2015, 2014 and 2013 are to Bassett's fiscal year ended November 28, 2015, November 29, 2014 and November 30, 2013, 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 2014 and 2013 financial statements have been reclassified to conform to the 2015 presentation. See “Recent Accounting Pronouncements” below regarding the impact of our adoption of Accounting Standards Update 2015-17 upon the classification of deferred tax assets in our consolidated balance sheets. The equity method of accounting was used for our investment in Zenith prior to the date of acquisition because we exercised significant influence but did not maintain a controlling interest. Consolidated net income includes our proportionate share of the net income or net loss of Zenith prior to the date of the acquisition. 23 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) We analyzed our licensees under the requirements for variable interest entities (“VIEs”). All of these licensees operate as BHF stores and are furniture retailers. We sell furniture to these licensees, and in some cases have extended credit beyond normal terms, made lease guarantees, guaranteed loans, or loaned directly to the licensees. We have recorded reserves for potential exposures related to these licensees. See Note 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. 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. For our logistical services segment, line-haul freight revenue and home delivery revenue are recognized upon the completion of delivery to the destination. Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided. 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 2015, 2014 and 2013, there were no dealers for which these criteria were not met. As of and subsequent to November 30, 2013 there have been no dealers that remained on a cost recovery basis. 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. A significant portion of our trade accounts receivable and allowance for doubtful accounts are attributable to amounts owed to us by our licensees, with the remaining 24 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) receivables due primarily from national account customers, traditional distribution channel customers and logistical services 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 28, 2015 and November 29, 2014: 2015 Portion of trade accounts receivable owed by licensees 34% Portion of allowance for doubtful accounts attributable to licensees 32% 2014 46% 58% 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 28, 2015 and November 29, 2014, our aggregate exposure from receivables and guarantees related to customers consisted of the following: Accounts receivable, net of allowances (Note 5) Notes receivable, net of allowances Contingent obligations under lease and loan guarantees, less amounts recognized (Note 17) Total credit risk exposure related to customers 2015 2014 $ $ 21,197 $ 10 2,441 23,648 $ 15,228 592 3,046 18,866 At November 28, 2015, approximately 26% of the aggregate risk exposure, net of reserves, shown above was attributable to three customers. At November 29, 2014, approximately 24% of the aggregate risk exposure, net of reserves, shown above was attributable to two customers. In fiscal 2015, 2014 and 2013, 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 $4,516, $4,774, and $4,603 in fiscal 2015, 2014, and 2013, respectively. All of our export sales are invoiced and settled in U.S. dollars. 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 43% and 40% of total inventory before reserves at November 28, 2015 and November 29, 2014, respectively. We estimate inventory reserves for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. Property and Equipment Property and equipment is comprised of all land, buildings and leasehold improvements and machinery and equipment used in the manufacturing and warehousing of furniture, our Company-owned retail operations, our logistical services operations, and corporate administration. This property and equipment is stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets utilizing the straight-line method. Buildings and improvements are generally depreciated over a period of 10 to 39 years. Machinery and equipment are generally depreciated over a period of 5 to 10 years. Leasehold improvements are amortized based on the underlying lease term, or the asset’s estimated useful life, whichever is shorter. 25 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 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 28, 2015 and November 29, 2014, the cost of retail real estate included land totaling $990 and $1,990, respectively, and building and leasehold improvements of $6,178 and $8,831, respectively. As of November 28, 2015 and November 29, 2014, accumulated depreciation of retail real estate was $4,160 and $4,631, respectively. The net book value of our retail real estate is included in other long-term assets in our consolidated balance sheets. Depreciation expense was $184, $400, and $484 in fiscal 2015, 2014, and 2013, respectively, and is included in other loss, net, in our consolidated statements of income. During the year ended November 28, 2015 we closed on the sale of our retail real estate investment property located in Sugerland, Texas and received cash in the amount of $2,835. During fiscal 2015 we recognized a non-cash charge of $182 to write down the carrying value of the Sugarland real estate to the selling price. 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. 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. There were no material gains or losses associated with these dispositions during fiscal 2014, however an impairment charge in the amount of $416 was recognized during fiscal 2013 to write down the carrying value of the Henderson real estate to the selling price for which it was under contract. The fiscal 2015 and 2014 sales proceeds described above are included in proceeds from sales of property and equipment in the accompanying consolidated statements of cash flows. The fiscal 2015 and 2013 impairment charges described above are included in other loss, net, in our consolidated statements of income. Goodwill Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is allocated to the respective reporting unit: Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired. In accordance with ASC Topic 350, Intangibles – Goodwill & Other, 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 28, 2015. 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 26 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 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. Other Intangible Assets Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time. Impairment of Long Lived Assets We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use and eventual disposition of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on discounted cash flows or appraised values depending on the nature of the assets. The long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future. When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store. 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. 27 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) New Store Pre-Opening Costs Income (loss) from operations for fiscal 2015, 2014 and 2013 includes new store pre-opening costs of $623, $1,217 and $671, 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 $18,624, $16,162, and $15,685 for fiscal 2015, 2014 and 2013, respectively. Costs incurred to deliver retail merchandise to customers are also recorded in selling, general and administrative expense and totaled $15,383, $12,844, and $10,855 for fiscal 2015, 2014 and 2013, 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 $16,228, $15,614, and $14,750 in fiscal 2015, 2014, and 2013, respectively. Insurance Reserves We have self-funded insurance programs in place to cover workers’ compensation and health insurance. These insurance programs are subject to various stop-loss limitations. We accrue estimated losses using historical loss experience. Although we believe that the insurance reserves are adequate, the reserve estimates are based on historical experience, which may not be indicative of current and future losses. We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns. Supplemental Cash Flow Information In connection with our acquisition of Zenith, non-cash financing activities included the issuance of 89,485 shares of our common stock valued at $1,675, and the issuance of a note payable with a discounted fair value of $8,436. See Note 3 for additional information regarding the fair value of the consideration given for the acquisition of Zenith. There were no material non-cash investing or financing activities during fiscal 2014 or 2013. Recent Accounting Pronouncements 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— 28 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Contracts with Customers. In summary, the core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Companies are allowed to select between two transition methods: (1) a full retrospective transition method with the application of the new guidance to each prior reporting period presented, or (2) a retrospective transition method that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is not permitted. Therefore the amendments in ASU 2014-09 will become effective for us as of the beginning of our 2019 fiscal year. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and have not made any decision on the method of adoption. In January 2015, the FASB issued Accounting Standards Update No. 2015-01, Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the concept of reporting extraordinary items, but retains current presentation and disclosure requirements for an event or transaction that is of an unusual nature or of a type that indicates infrequency of occurrence. Transactions that meet both criteria would now also follow such presentation and disclosure requirements. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after 15 December 2015. Early adoption is permitted; however, adoption must occur at the beginning of an annual period. Therefore the amendments in ASU 2015-01 will become effective for us as of the beginning of our 2017 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations. In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventory within the scope of this Update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. Therefore the amendments in ASU 2015-11 will become effective for us as of the beginning of our 2018 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations. In July 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Any current period adjustments to provisional amounts that would have impacted a prior period’s earnings had they been recognized at the acquisition date are required to be presented separately on the face of the income statement or disclosed in the notes. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. Therefore the amendments in ASU 2015-16 will become effective for us as of the beginning of our 2017 fiscal year. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations. In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. We have elected to adopt this update as of the fourth quarter of fiscal 2015. Accordingly, deferred tax assets in the 29 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) amount of $5,268 which were formerly classified as current assets at November 29, 2014 have been reclassified as non- current assets in our consolidated balance sheet. 3. Business Combination – Acquisition of Zenith Prior to February 2, 2015 we held a 49% interest in Zenith for which we used the equity method of accounting. Zenith provides domestic transportation and warehousing services primarily to furniture manufacturers and distributors and also provides home delivery services to furniture retailers. We historically have contracted with Zenith to provide substantially all of our domestic freight, transportation and warehousing needs for the wholesale business. In addition, Zenith provides home delivery services for many of our Company-owned retail stores. On February 2, 2015, we acquired the remaining 51% of Zenith in exchange for cash, Bassett common stock and a note payable with a total fair value of $19,111. The value of the Bassett common stock was based on the closing market price of our shares on the acquisition date, discounted for lack of marketability due to restrictions on the seller’s ability to transfer the shares. The restrictions on one half of the shares expire on the first anniversary of the acquisition, with the remainder expiring on the second anniversary. The note is payable in three annual installments of $3,000 each beginning February 2, 2016, and has been discounted to its fair value as of the date of the acquisition based on our estimated borrowing rate. The carrying value of our 49% interest in Zenith prior to the acquisition was $9,480 (see Note 9, Unconsolidated Affiliated Company). In connection with the acquisition, this investment was remeasured to a fair value of $16,692 resulting in the recognition of a gain of $7,212 during the year ended November 28, 2015. The impact of this gain upon our basic and diluted earnings per share for the year ended November 28, 2015 is approximately $0.41 net of the related tax expense. The remeasured fair value of our prior interest in Zenith was estimated based on the fair value of the consideration transferred to acquire the remaining 51% of Zenith less an estimated control premium. Under the acquisition method of accounting, the fair value of the consideration transferred along with the fair value of our previous 49% interest in Zenith was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date with the remaining unallocated amount recorded as goodwill. The total fair value of the acquired business was determined as follows: Fair value of consideration transferred in exchange for 51% of Zenith: Cash Bassett common stock, 89,485 shares, par value $5.00 per share, fair value at closing $18.72 per share Note payable $ Total fair value of consideration transferred to seller Less effective settlement of previous amounts payable to Zenith at acquisition Total fair value of consideration net of effective settlement Fair value of Bassett's previous 49% interest in Zenith 9,000 1,675 8,436 19,111 (3,622) 15,489 16,692 Total fair value of acquired business $ 32,181 30 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) The preliminary allocation of the fair value of the acquired business was based upon a preliminary valuation. Our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of the fair value of consideration transferred that are not yet finalized relate to the fair values of certain tangible and intangible assets acquired and the residual goodwill. The preliminary allocation of the fair value of the acquired business is as follows: Identifiable assets acquired: Acquired cash and cash equivalents Accounts receivable, net Prepaid expenses and other current assets Property and equipment Other long-term assets Intangible assets Total identifiable assets acquired Liabilities assumed: Accounts payable and accrued liabilities Notes payable Total liabilities assumed Net identifiable assets acquired Goodwill Total net assets acquired $ 1,677 3,399 496 18,110 646 6,362 30,690 (4,038 ) (4,329 ) (8,367 ) 22,323 9,858 $ 32,181 Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the value assigned to tangible and intangible assets and liabilities. Approximately $6,982 of the acquired goodwill is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill were Zenith’s reputation for best-in-class, fully integrated logistical services which are uniquely tailored to the needs of the furniture industry, as well as their ability to provide expedited delivery service which is increasingly in demand in the furniture industry. A portion of the fair value of consideration transferred has been provisionally assigned to identifiable intangible assets as follows: Description: Useful Life In Years Fair Value Customer relationships Trade names Technology - customized applications $ 15 Indefinite 7 3,038 2,490 834 Total acquired intangible assets $ 6,362 The finite-lived intangible assets are being amortized on a straight-line basis over their useful lives. The indefinite-lived intangible asset and goodwill are not amortized but will be tested for impairment annually or between annual tests if an indicator of impairment exists. The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and Disclosures. See Note 4. Acquisition costs related to the Zenith acquisition totaled $209 during the year ended November 28, 2015 and are included in selling, general and administrative expenses in the consolidated statements of income. The acquisition costs are primarily related to legal, accounting and valuation services. Zenith’s revenue since February 2, 2015 included in our consolidated statement of income for the year ended November 28, 2015 is $43,522 after the elimination of intercompany transactions. Net income of Zenith included in our consolidated statement of income for the year ended November 28, 2015 is $2,078. The pro forma results of operations for the acquisition of Zenith have not been presented because they are not material to our consolidated results of operations. 31 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 4. 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 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 method investments generally involve entities for which it is not practical to determine fair values. Investments Our short-term investments of $23,125 at both November 28, 2015 and November 29, 2014 consisted of certificates of deposit (CDs) with original terms of twelve months, bearing interest at rates ranging from 0.28% to 1.00%. At November 28, 2015, the weighted average remaining time to maturity of the CDs was approximately seven months and the weighted average yield of the CDs was approximately 0.42%. Each CD is placed with a Federally insured financial institution and all deposits are within Federal deposit insurance limits. As the CDs mature, we expect to reinvest them in CDs of similar maturities of up to one year. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at November 28, 2015 and November 29, 2014 approximates their fair value. Fair Value Measurement The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy: Level 1 Inputs– Quoted prices for identical instruments in active markets. Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs– Instruments with primarily unobservable value drivers. We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. The recurring estimate of the fair value of our notes payable for disclosure purposes (see Note 10) involves Level 3 inputs. Our primary non-recurring fair value estimates typically involve business acquisitions (Note 3) which involve a combination of Level 2 and Level 3 inputs, and asset impairments (Note 15) which utilize Level 3 inputs. 32 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 5. Accounts Receivable Accounts receivable consists of the following: November 28, 2015 November 29, 2014 Gross accounts receivable Allowance for doubtful accounts Net accounts receivable $ $ 22,372 $ (1,175) 21,197 $ 16,477 (1,249) 15,228 Activity in the allowance for doubtful accounts was as follows: 2015 2014 Balance, beginning of the year $ Acquired allowance on accounts receivable (Note 3) Reductions to allowance, net Balance, end of the year $ 1,249 $ 209 (283) 1,175 $ 1,607 - (358) 1,249 We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4. 6. Inventories Inventories 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 28, 2015 November 29, 2014 $ $ 31,253 $ 318 9,793 27,680 69,044 (7,751) (1,397) 59,896 $ 31,399 298 8,109 26,428 66,234 (7,550) (1,412) 57,272 We source a significant amount of our wholesale product from other countries. During 2015, 2014 and 2013, purchases from our two largest vendors located in China and Vietnam were $25,190, $26,707 and $24,217 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. 33 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Activity in the reserves for excess quantities and obsolete inventory by segment are as follows: Wholesale Segment Retail Segment Total Balance at November 30, 2013 Additions charged to expense Write-offs Balance at November 29, 2014 Additions charged to expense Write-offs Balance at November 28, 2015 $ $ 1,001 $ 1,666 (1,607) 1,060 2,442 (2,415) 1,087 $ 292 $ 331 (271) 352 430 (472) 310 $ 1,293 1,997 (1,878) 1,412 2,872 (2,887) 1,397 7. Property and Equipment Property and equipment consist of the following: November 28, 2015 November 29, 2014 Land Buildings and leasehold improvements Machinery and equipment $ Property and equipment at cost Less accumulated depreciation Property and equipment, net $ 12,311 $ 104,265 85,490 202,066 (105,962) 96,104 $ 11,371 90,204 70,184 171,759 (96,947) 74,812 The net book value of our property and equipment by reportable segment is a follows: November 28, 2015 November 29, 2014 Wholesale Retail - Company-owned stores Logistical Services $ Total property and equipment, net $ 17,763 $ 60,810 17,531 96,104 $ 14,933 59,879 - 74,812 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 $ $ 599 $ 9,627 10,226 $ 542 $ 6,814 7,356 $ 595 5,279 5,874 2015 2014 2013 (1) All associated with our wholesale segment for fiscal 2015, 2014 and 2013. (2) Includes depreciation associated with our retail segment of $5,970, $5,782 and $4,531 for fiscal 2015, 2014 and 2013, respectively. Fiscal 2015 includes depreciation associated with our logistical services segment of $2,366. 34 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 8. Goodwill and Other Intangible Assets At November 28, 2015 goodwill and other intangible assets consisted of the following: Intangibles subject to amortization: Customer relationships Technology - customized applications Gross Carrying Amount Accumulated Amortization Intangible Assets, Net $ 3,038 $ 834 (169) $ (99) 2,869 735 Total intangible assets subject to amortization 3,872 (268) 3,604 Intangibles not subject to amortization: Trade names Goodwill 2,490 11,588 - - 2,490 11,588 Total goodwill and other intangible assets $ 17,950 $ (268) $ 17,682 At November 29, 2014 our only intangible asset was goodwill with a carrying value of $1,730. Changes in the carrying amounts of goodwill by reportable segment were as follows: Wholesale Retail Logistics Total Balance as of November 29, 2014 Goodwill arising from acquisition of Zenith $ 1,128 $ 3,711 602 $ 1,218 - $ 4,929 1,730 9,858 Balance as of November 28, 2015 $ 4,839 $ 1,820 $ 4,929 $ 11,588 The goodwill recognized in connection with our acquisition of Zenith remains subject to future adjustments before the close of the measurement period in the first quarter of fiscal 2016. Refer to Note 3, Business Combinations, for additional information regarding the Zenith acquisition. There were no changes in the carrying value of our goodwill during fiscal 2014, and there were no accumulated impairment losses on goodwill as of November 28, 2015 or November 29, 2014. Amortization expense associated with intangible assets during the year ended November 28, 2015 was $268 and is included in selling, general and administrative expense in our consolidated statement of income. All expense arising from the amortization of intangible assets is associated with our logistical services segment. There was no amortization expense recognized during fiscal 2014 or 2013. Estimated future amortization expense for intangible assets that exist at November 28, 2015 is as follows: Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter $ 322 322 322 322 322 1,994 Total $ 3,604 35 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 9. Unconsolidated Affiliated Companies Zenith Freight Lines, LLC Prior to February 2, 2015 we owned 49% of Zenith and accounted for our investment under the equity method. Our investment in Zenith at November 29, 2014 was $7,915 and is included in other assets in our condensed consolidated balance sheet. The balance of our investment in Zenith was adjusted for our equity in the earnings of Zenith through February 2, 2015 of $220, and increased by $1,345 representing our 49% share of a $2,745 capital contribution made to Zenith, a portion of which was used for retirement of certain of Zenith’s debt prior to the acquisition. This activity resulted in a carrying value for our investment in Zenith of $9,480 on the date of acquisition. See Note 3 regarding the remeasurement of this carrying value to fair value in connection with the acquisition and the resulting gain. Prior to the acquisition on February 2, 2015, we recorded the following income from Zenith in our consolidated statements of income: Earnings recognized 2015 $220 2014 $661 2013 $770 At November 29, 2014, we owed Zenith $2,628 for services rendered to us. Prior to the acquisition, we paid Zenith approximately $6,863, $31,308 and $29,313, for freight expense and logistical services in fiscal 2015, 2014, and 2013, respectively. We believe the transactions with Zenith were recorded at current market rates. 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. During fiscal 2014 and 2013 we received the final two payments of sales proceeds in the amount of $2,348 each which are included in cash flows from investing activities in our consolidated statements of cash flows. 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. 36 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 10. Notes Payable and Bank Credit Facility Our notes payable consist of the following: November 28, 2015 Principal Balance Unamortized Discount Net Carrying Amount Zenith acquisition note payable $ Transportation equipment notes payable Real estate notes payable Total debt Less current portion 9,000 $ 2,152 2,933 14,085 (5,477) (312) $ - - (312) 204 8,688 2,152 2,933 13,773 (5,273) Total long-term debt $ 8,608 $ (108) $ 8,500 Principal Balance November 29, 2014 Unamortized Discount Net Carrying Amount Real estate notes payable Less current portion $ 2,218 $ (316) Total long-term debt $ 1,902 $ - $ - - $ 2,218 (316) 1,902 The future maturities of our notes payable are as follows: Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter $ $ 5,477 4,112 3,803 543 150 - 14,085 Zenith Acquisition Note Payable As part of the consideration given for our acquisition of Zenith on February 2, 2015, we issued an unsecured note payable to the former owner in the amount of $9,000. The note is payable in three annual installments $3,000 beginning February 2, 2016. Interest is payable annually at the one year LIBOR rate, which was established at 0.62% on February 2, 2015 and resets on each anniversary of the note. The note was recorded at its fair value in connection with the acquisition resulting in a debt discount that is amortized to the principal amount through the recognition of non-cash interest expense over the term of the note. Interest expense resulting from the amortization of the discount for the year ended November 28, 2015 was $252. The current portion of the note due within one year, net of the current portion of the unamortized discount, is $2,796 at November 28, 2015. Transportation Equipment Notes Payable Certain of the transportation equipment operated in our logistical services segment is financed by notes payable in the amount of $2,152. These notes are payable in fixed monthly payments of principal and interest at the fixed rate of 3.75%, with remaining terms of nineteen to forty months. The current portion of these notes due within one year at November 28, 2015 is 37 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) $901. The notes are secured by tractors, trailers and local delivery trucks with a total net book value of $3,796 at November 28, 2015. Real Estate Notes Payable Two of our retail real estate properties have been financed through commercial mortgages with interest rates of 6.73%. These mortgages are collateralized by the respective properties with net book values totaling approximately $5,993 and $6,127 at November 28, 2015 and November 29, 2014, respectively. The total balance outstanding under these mortgages was $1,709 and $2,218 at November 28, 2015 and November 29, 2014, respectively. The current portion of these mortgages due within one year was $351 and $316 as of November 28, 2015 and November 29, 2014, respectively. Certain of the real estate located in Conover, NC and operated in our logistical services segment is subject to a note payable in the amount of $1,224. The note is payable in monthly installments of principal and interest at the fixed rate of 3.75% through October 2016, at which time the remaining balance on the note of approximately $1,004 will be due. Therefore, the entire balance due on this note is included in the current portion of our long-term debt at November 28, 2015. The note is secured by land and buildings with a total net book value of $6,226 at November 28, 2015. Fair Value We believe that the carrying amount of our notes payable approximates fair value at both November 28, 2015 and November 29, 2014. In estimating the fair value, we utilize current market interest rates for similar instruments. The inputs into these fair value calculations reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4. Bank Credit Facility Our credit facility with our bank provides for a line of credit of up to $15,000. This credit facility is secured by our accounts receivable and inventory. The facility contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement and expect to remain in compliance for the foreseeable future. The line matured in December 2015 but has been temporarily extended while we are in negotiations with our bank for a new line, which we expect to obtain during the first quarter of fiscal 2016 under substantially similar terms, except that the line is expected to be unsecured. We have $1,970 outstanding under standby letters of credit against our line, leaving availability under our credit line of $13,030. In addition, we have outstanding standby letters of credit with another bank totaling $356. Total interest paid during fiscal 2015, 2014 and 2013 was $277, $176 and $244, respectively. 11. 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 $3,087 at November 28, 2015 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. 38 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 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 Discount rate used to value the ending benefit obligations: Amounts recognized in the consolidated balance sheet: Current liabilities Noncurrent liabilities Total amounts recognized 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: 2015 2014 10,376 $ 105 374 1,372 (549) 11,678 $ 9,775 78 373 1,084 (934) 10,376 10,967 $ 9,748 3.75% 3.75% 749 $ 10,929 11,678 $ 127 $ 4,223 4,350 $ 724 9,652 10,376 170 3,046 3,216 1,851 $ 1,535 $ $ $ $ $ $ $ $ 2015 2014 2013 Components of Net Periodic Pension Cost: Service cost Interest cost Amortization of transition obligation Amortization of other loss $ 105 $ 374 42 195 78 $ 373 42 123 71 350 42 81 Net periodic pension cost $ 716 $ 616 $ 544 Assumptions used to determine net periodic pension cost: Discount rate Increase in future compensation levels 3.75% 3.00% 3.75% 3.00% 4.25% 3.00% Estimated Future Benefit Payments (with mortality): Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 through 2024 749 717 684 652 619 4,442 Of the $4,350 recognized in accumulated other comprehensive income at November 28, 2015, $42 of net transition obligation and $323 of net loss are expected to be recognized as components of net periodic pension cost during fiscal 2016. 39 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Deferred Compensation Plan We have an unfunded Deferred Compensation Plan that covers one current and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or benefits permitted. We recognized expense of $248, $134, and $288 in fiscal 2015, 2014, and 2013, 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 $2,085 and $2,174 as of November 28, 2015 and November 29, 2014, 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 20% of up to 8% of gross pay, regardless of years of service. Expense for employer matching contributions was $662, $397 and $340 during fiscal 2015, 2014 and 2013, respectively. The increase in contribution expense for fiscal 2015 over prior years was largely due to an increase in the matching rate from 15% in 2014 to 20% in 2015, as well as the acquisition of Zenith. 12. Accumulated Other Comprehensive Loss The activity in accumulated other comprehensive loss for the fiscal years ended November 28, 2015 and November 29, 2014, which is comprised solely of post-retirement benefit costs related to our SERP, is as follows: Balance at November 30, 2013 Actuarial losses Net pension amortization reclassified from accumulated other comprehensive loss Tax effects Balance at November 29, 2014 Actuarial losses Net pension amortization reclassified from accumulated other comprehensive loss Tax effects Balance at November 28, 2015 $ $ (1,414) (1,084) 166 358 (1,974) (1,372) 237 431 (2,678) 40 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 13. 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 2015, 2014 and 2013 was as follows: 2015 Stock based compensation expense $ 894 2014 $ 951 2013 $ 728 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 28, 2015, however up to 500,000 shares associated with outstanding grants under the 1997 Plan may become available for grant under the 2010 Plan (see below). On April 14, 2010, our shareholders approved the Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan (the “2010 Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are eligible to receive incentive awards under the 2010 Plan. Our Organization, Compensation and Nominating Committee (the “Compensation Committee”) selects eligible key employees and outside consultants to receive awards under the 2010 Plan in its discretion. Our Board of Directors or any committee designated by the Board of Directors selects eligible non-employee directors to receive awards under the 2010 Plan in its discretion. Five hundred thousand (500,000) shares of common stock are reserved for issuance under the 2010 Plan. In addition, up to 500,000 shares that are represented by outstanding awards under the 1997 Employee Stock Plan which are forfeited, expire or are canceled after the effective date of the 2010 Plan will be added to the reserve and may be used for new awards under the 2010 Plan. Participants may receive the following types of incentive awards under the 2010 Plan: stock options, stock appreciation rights, payment shares, restricted stock, restricted stock units and performance shares. Stock options may be incentive stock options or non-qualified stock options. Stock appreciation rights may be granted in tandem with stock options or as a freestanding award. Non-employee directors and 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. 41 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Stock Options There were no new grants of options made in 2015, 2014 or 2013. Changes in the outstanding options under our plans during the year ended November 28, 2015 were as follows: Outstanding at November 29, 2014 Granted Exercised Forfeited/Expired Outstanding at November 28, 2015 Exercisable at November 28, 2015 Weighted Average Exercise Price Per Share Number of Shares 437,250 - (351,000 ) (2,000 ) 84,250 84,250 $11.94 - 12.09 8.02 11.42 $11.42 Changes in the non-vested options under our plans during the year ended November 28, 2015 were as follows: Weighted Average Grant Date Fair Value Per Share Number of Shares Non-vested options outstanding at November 29, 2014 Granted Vested Forfeited/Expired Non-vested options outstanding at November 28, 2015 22,750 - (20,750 ) (2,000 ) $8.04 - 8.05 8.02 - - Additional information regarding our outstanding stock options at November 28, 2015 is as follows: Range of Exercise Prices $3.23 - $6.45 $6.45 - $9.67 $9.68 - $12.90 $12.91 - $16.13 Shares 1,000 22,750 28,000 32,500 84,250 Aggregate intrinsic value $ 1,714 Options Outstanding Weighted Average Remaining Contractual Life (Years) 4.6 5.6 1.9 1.4 Weighted Average Exercise Price $4.38 8.02 10.60 14.73 Options Exercisable Weighted Average Exercise Price $4.38 8.02 10.60 14.73 Shares 1,000 22,750 28,000 32,500 84,250 $ 1,714 42 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Additional information regarding activity in our stock options during fiscal 2015, 2014 and 2013 is as follows: 2015 2014 2013 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 $ 5,934 $ 87 4,031 236 200 382 $ options Restricted Shares 1,899 72 387 363 413 106 Changes in the outstanding non-vested restricted shares during the year ended November 28, 2015 were as follows: Non-vested restricted shares outstanding at November 29, 2014 Granted Vested Forfeited Non-vested restricted shares outstanding at November 28, 2015 Weighted Average Grant Date Fair Value Per Share Number of Shares 123,737 $ 54,354 (26,337) (17,600) 134,154 $ 15.28 21.81 15.42 17.00 17.68 Restricted share awards granted in fiscal 2015 included the grant of 46,000 shares on January 14, 2015 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. 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 2015 consisted of 6,354 restricted shares granted to our non-employee directors on April 1, 2015 which will vest on the first anniversary of the grant, and 2,000 shares granted to an employee on July 14, 2015 which will vest on the third anniversary of the grant. During fiscal 2015, 26,337 restricted shares were vested and released, of which 13,998 shares had been granted to employees and 12,339 shares to directors. Of the shares released to employees, 4,836 shares were withheld by the Company to cover withholding taxes of $154. During fiscal 2014 and 2013, 31,234 shares and 11,550 shares, respectively, were withheld to cover withholding taxes of $489 and $202, respectively, arising from the vesting of restricted shares. Excess tax benefits of $99, $228 and $207 were recognized during fiscal 2015, 2014 and 2013, respectively, as additional paid-in capital upon the release of vested shares. Additional information regarding our outstanding non-vested restricted shares at November 28, 2015 is as follows: Grant Date Restricted Shares Outstanding Share Value at Grant Date Per Share July 17, 2013 January 15, 2014 January 14, 2015 April 1, 2015 July 14, 2015 16.64 14.12 20.21 28.33 38.02 37,800 $ 48,000 40,000 6,354 2,000 134,154 43 Remaining Restriction Period (Years) 2.6 1.1 2.1 0.3 2.6 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) Unrecognized compensation cost related to these non-vested restricted shares at November 28, 2015 is $636, expected to be recognized over approximately a two 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 19,053, 25,677 and 38,206 shares to employees in fiscal 2015, 2014 and 2013, respectively, which resulted in an immaterial amount of compensation expense. 14. Income Taxes The components of the income tax provision (benefit) are as follows: Current: Federal State 2015 2014 2013 $ 7,972 $ 1,533 4,168 $ 596 759 50 Deferred: Increase (decrease) in valuation allowance Federal State Total $ (70) 1,520 480 11,435 $ (974) 221 1,297 5,308 $ 136 1,970 176 3,091 Excess tax benefits in the amount of $1,998, $300 and $313 were recognized as additional paid-in capital during fiscal 2015, 2014 and 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 Benefit of goodwill basis difference Other Effective income tax rate 2015 2014 2013 35.0 % - (0.1) 0.1 4.4 (3.2) (0.3) 35.9 % 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 % 44 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 28, 2015 November 29, 2014 $ Deferred income tax assets: Trade accounts receivable Inventories 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: Property and equipment Intangible assets Unrealized gains from affiliates Prepaid expenses and other 506 $ 2,420 1,795 6,992 927 356 219 2,674 1,946 17,835 - 17,835 3,093 860 8 403 483 2,384 1,599 6,093 1,141 595 167 2,251 1,699 16,412 (70) 16,342 282 - 963 128 Total deferred income tax liabilities 4,364 1,373 Net deferred income tax assets $ 13,471 $ 14,969 At the beginning of fiscal 2014 we carried a valuation allowance of $1,044 which 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 28, 2015 and November 29, 2014 was $0 and $70, respectively. The following table represents a summary of the valuation allowances against deferred tax assets: 2015 2014 2013 Balance, beginning of the year Additions charged to expense Deductions reducing expense Balance, end of the year $ $ 70 $ - (70) - $ 1,044 $ - (974) 70 $ 908 136 - 1,044 We have state net operating loss carryforwards available to offset future taxable state income of $12,715, 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 2015, 2014 and 2014 were $5,906, $2,367, and $2,723, respectively. As of November 29, 2014, the gross amount of unrecognized tax benefits was approximately $1,236, exclusive of interest and penalties. Substantially all of this balance, along with additional amounts recognized during fiscal 2015, has been effectively settled as of November 28, 2015. 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. 45 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 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 Balance, end of the year 2015 2014 2013 1,236 $ 12 (1,236 ) - 1,497 $ - (221 ) (40 ) 1,228 401 - (132 ) 12 $ 1,236 $ 1,497 $ $ We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2015, 2014, and 2013, we recognized $(144), $7, and $23 of interest expense recovery and $3, $10, and $31 of penalty recovery (expense), respectively, related to the unrecognized benefits noted above in our consolidated statements of income. At November 28, 2015 and November 29, 2014, the balance of accrued interest and penalties associated with unrecognized tax benefits was not material. At November 29, 2014, $1,370 was included in other accrued liabilities in our consolidated balance sheet representing the entire amount of our gross unrecognized tax benefits along with the accrued interest and penalties thereon. The balance at November 28, 2015 was not material. Significant judgment is required in evaluating the Company's federal and state tax positions and in the determination of its tax provision. Despite our belief that the liability for unrecognized tax benefits is adequate, it is often difficult to predict the final outcome or the timing of the resolution of any particular tax matter. We may adjust these liabilities as relevant circumstances evolve, such as guidance from the relevant tax authority, or resolution of issues in the courts. These adjustments are recognized as a component of income tax expense in the period in which they are identified. The Company also cannot predict when or if any other future tax payments related to these tax positions may occur. We remain subject to examination for tax years 2012 through 2014 for all of our major tax jurisdictions. The examination of our 2012 and 2013 federal tax returns was completed in 2015 and did not result in a significant adjustment to income tax expense. The IRS released the final and re-proposed tangible property regulations in September of 2013. While the regulations are now final, they were effective for tax years beginning on or after January 1, 2014, which for the Company was fiscal 2015. We comply with the regulations and the related administrative procedures. The regulations did not have a significant impact on our financial statements. 46 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 15. Restructuring, asset impairment, and other charges Asset Impairment Charges and Lease Exit Costs During fiscal 2015 income from operations included $106 of non-cash asset impairment charges and a $419 charge for the accrual of lease exit costs, both incurred in connection with the closing of our Company-owned retail store location in Memphis, Tennessee. There were no asset impairment charges or lease exit costs incurred against income from operations during fiscal 2014 or 2013. See Note 2 regarding non-operating impairment charges incurred in connection with our investments in retail real estate. Management Restructuring Costs During the year ended November 28, 2015, we recognized $449 of expense related to severance payable to a former executive, who left the Company in April, 2015. As of November 28, 2015, all required payments of severance have been disbursed. These management restructuring costs were incurred within our wholesale segment. There were no restructuring charges incurred in fiscal 2014 or 2013. The following table summarizes the activity related to our accrued lease exit costs: Balance, beginning of the year Provisions associated with Company-owned retail stores Provisions made to adjust previous estimates Payments on unexpired leases, net of sublease rent received 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 2015 2014 $ $ $ $ 433 $ 419 111 (410 ) 13 907 - 14 (510) 22 566 $ 433 351 $ 215 566 $ 117 316 433 16. Income from the Continued Dumping and Subsidy Offset Act During the year ended November 28, 2015, we recognized income of $1,156 arising from distributions received from U.S. Customs and Border Protection (“Customs”) under the Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”). These distributions primarily represent amounts previously withheld by Customs pending the resolution of claims filed by certain manufacturers who did not support the antidumping petition (“Non-Supporting Producers”) challenging certain provisions of the CDSOA and seeking to share in the distributions. The Non-Supporting Producers’ claims were dismissed by the courts and all appeals were exhausted in 2014. While it is possible that we may receive additional distributions from Customs, we cannot estimate the likelihood or amount of any future distributions. 47 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 17. Leases and Lease Guarantees Leases We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services segment. Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years. Some store leases contain contingent rental provisions based upon sales volume. Our transportation equipment leases have terms ranging from two to seven years with fixed monthly rental payments plus variable charges based upon mileage. The following schedule shows future minimum lease payments under non- cancellable operating leases with terms in excess of one year as of November 25, 2015: Retail Stores Distribution Centers Transportation Equipment Total Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter $ Total future minimum lease payments $ 18,490 $ 16,651 14,140 12,251 10,916 27,461 99,909 $ 4,087 $ 3,946 2,696 1,731 1,230 4,278 17,968 $ 2,779 $ 1,979 806 755 671 30 7,020 $ 25,356 22,576 17,642 14,737 12,817 31,769 124,897 Lease expense was $26,382, $19,903 and $18,403 for 2015, 2014, and 2013, 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 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter $ Total minimum future rental income $ 2,132 2,119 1,589 1,247 1,194 359 8,640 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 $(181), $(248) and $(594) in 2015, 2014 and 2013, 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 $2,494 and $3,164 at November 28, 2015 and November 29, 2014, 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 28, 2015 and November 29, 2014, were not material. 48 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 18. 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. 19. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income Denominator: 2015 2014 2013 $ 20,433 $ 9,299 $ 5,096 Denominator for basic income per share - weighted average shares Effect of dilutive securities Denominator for diluted income per share — weighted average 10,701,829 141,198 10,552,462 140,569 10,721,652 150,897 shares and assumed conversions 10,843,027 10,693,031 10,872,549 Basic income per share: Net income per share — basic Diluted income per share: Net income per share — diluted $ $ 1.91 $ 0.88 $ 0.48 1.88 $ 0.87 $ 0.47 For fiscal 2015, 2014 and 2013, the following potentially dilutive shares were excluded from the computations as the effect was anti-dilutive: Stock options Unvested restricted shares 2015 2014 2013 - 8,354 150,000 - 472,500 81,295 Total anti-dilutive securities 8,354 150,000 553,795 49 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 20. 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 and capital expenditures directly related to these stores. ● Logistical services. With our acquisition of Zenith on February 2, 2015, we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping, delivery and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistics revenue in our condensed consolidated statement of income. Zenith’s operating costs are included in selling, general and administrative expenses and total $73,722 for the year ended November 28, 2015 since the date of acquisition. Amounts charged by Zenith to the Company for logistical services prior to the date of acquisition are included in selling, general and administrative expenses, and our equity in the earnings of Zenith prior to the date of acquisition is included in other loss, net, in the accompanying statements of income. Inter-company sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale and retail segments. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate, and the elimination of shipping and handling charges from Zenith for services provided to our wholesale and retail operations. Prior to the beginning of fiscal 2015, our former investments and real estate segment included our short-term investments, our holdings of retail real estate previously leased as licensee stores, and our former equity investment in Zenith prior to acquisition. This segment has been eliminated and the assets formerly reported therein are now considered to be part of our wholesale segment. The earnings and costs associated with these assets, including our equity in the income of Zenith prior to the date of acquisition, will continue to be included in other loss, net, in our condensed consolidated statements of income. 50 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 Logistical services Inter-company eliminations: Furniture and accessories Logistical services Consolidated Income (loss) from Operations Wholesale Retail Logistical services Inter-company elimination Lease exit costs Asset impairment charges Management restructuring costs Consolidated income from operations Depreciation and Amortization Wholesale Retail Logistical services Consolidated Capital Expenditures Wholesale Retail Logistical services Consolidated Identifiable Assets Wholesale Retail Logistical services Consolidated 2015 2014 2013 252,180 $ 249,379 77,250 (114,154) (33,728) 430,927 $ 223,993 $ 216,631 - (99,886) - 340,738 $ 215,451 199,380 - (93,545) - 321,286 15,618 $ 6,170 3,528 1,647 (419) (106) (449) 25,989 $ 2,075 $ 5,428 2,634 10,137 $ 4,898 $ 7,077 1,999 13,974 $ 14,120 $ (528) - 1,539 - - - 15,131 $ 1,972 $ 5,344 - 7,316 $ 4,527 $ 13,836 - 18,363 $ 10,883 (1,452) - 574 - - - 10,005 1,826 4,372 - 6,198 3,839 10,846 - 14,685 146,878 $ 88,878 46,787 282,543 $ 154,319 $ 86,471 - 240,746 $ 148,518 77,331 - 225,849 $ $ $ $ $ $ $ $ $ $ A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below: 2015 2014 2013 Wood Upholstery 37 % 63 % 100 % 39 % 61 % 100 % 41% 59% 100% 51 Notes to Consolidated Financial Statements - Continued (In thousands, except share and per share data) 21. Quarterly Results of Operations 2015 First Quarter (1) Second Quarter (2) Third Quarter Fourth Quarter (3) $ Sales revenue: Furniture and accessories Logistics Total sales revenue Cost of furniture and accessories sold Income from operations Net income Basic earnings per share Diluted earnings per share 89,548 $ 3,259 92,807 41,930 2,877 5,956 0.57 0.56 99,467 $ 12,086 111,553 46,921 6,714 4,529 0.42 0.42 97,107 $ 101,283 14,273 13,904 115,556 111,011 45,616 44,824 8,706 7,692 5,682 4,266 0.53 0.39 0.52 0.39 2014 First Quarter (4) Second Quarter Third Quarter Fourth Quarter $ Sales revenue: Furniture and accessories Logistics Total sales revenue Cost of furniture and accessories sold Income from operations Net income Basic earnings per share Diluted earnings per share 75,647 $ - 75,647 35,394 1,086 843 0.08 0.08 85,185 $ - 85,185 39,872 3,891 2,551 0.24 0.24 85,186 $ - 85,186 40,168 3,399 2,256 0.22 0.21 94,720 - 94,720 42,883 6,755 3,649 0.35 0.35 All quarters shown above for fiscal 2015 and 2014 consist of 13 week fiscal periods. Sales revenue from logistics is recognized from the date of our acquisition of Zenith, February 2, 2015. Prior to the acquisition of Zenith, net income included our 49% equity in the earnings of Zenith, which is included in other loss, net in our consolidated statements of income. (1) Income from operations includes asset impairment charges and lease exit costs totaling $525 (see Note 15). Net income includes a gain of $7,212, net of income tax effects of approximately $2,777, resulting from the remeasurement of our prior ownership interest in Zenith upon acquisition (see Note 3). (2) Income from operations includes management restructuring charges of $449 (see Note 15). Net income includes income of $1,066 from the CDSOA, net of related income tax effects of approximately $410 (see Note 16). (3) Net income includes the effect of a $1,111 tax benefit arising from purchase accounting adjustments relating to the gain recorded on the remeasurement of our prior ownership in Zenith. (4) Net income includes $662 of income from death benefits from life insurance policies covering a former executive. 52 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. 2015 2014 2013 (1) 2012 2011 Net sales Operating income (loss) Gain on sale of affiliate Other income (loss), net Income before income taxes Income tax expense (benefit) Net income Diluted earnings per share Cash dividends declared Cash dividends per share Total assets Long-term debt Current ratio (9) Book value per share $ $ $ $ $ $ $ $ $ $ $ $ $ 430,927(2) $ 25,989 $ $ - 5,879 (5) $ $ 31,868 $ 11,435 $ 20,433 $ 1.88 $ 5,868 $ 0.54 $ 282,543 8,500 (8) $ 340,738 $ 15,131 $ - $ (524) $ 14,607 $ 5,308 $ 9,299 $ 0.87 $ 5,805 $ 0.48 $ 240,746 $ 1,902 $ 321,286 $ 10,005 $ - $ (1,818) $ 8,187 $ 3,091 $ 5,096 $ 0.47 $ 4,565 $ 0.42 $ 225,849 $ 2,467 $ 1.84 to 1 16.25 1.95 to 1 2.37 to 1 $ 14.95 $ 14.50 $ 269,972 $ 5,080 (3) $ $ - 6,934 (6) $ $ 12,014 (14,699)(7) $ $ $ $ $ $ $ 26,713 2.41 15,920 1.45 227,180 3,053 2.39 to 1 14.51 $ 253,208 (20,622)(3) 85,542 (4) (5,169)(6) 59,571 (4,409) 55,342 4.79 6,757 0.60 223,174 3,662 2.70 to 1 13.44 (1) Fiscal 2013 contained 53 weeks, whereas all other fiscal years presented above contained 52 weeks. (2) Fiscal 2015 included logistical services revenue from Zenith in the amount of $43,522 since the acquisition of Zenith on February 2, 2015. (3) Fiscal 2012 included restructuring and asset impairment charges and lease exits costs totaling $1,070. Fiscal 2011 included restructuring and asset impairment charges of $6,228 as well as licensee debt cancellation charges of $6,447. (4) On May 2, 2011 we sold our 46.9% interest in International Home Furnishings Center, Inc. (“IHFC”) resulting in a gain of $85,542. (5) See Note 3 to the Consolidated Financial Statements related to a remeasurement gain of $7,212 arising from our acquisition of Zenith during fiscal 2015. Also see Note 16 to the Consolidated Financial Statements related to $1,156 of income from the Continued Dumping and Subsidy Offset Act (“CDSOA”) received in fiscal 2015. (6) During fiscal 2012 and 2011, other income (loss), net included income from the CDSOA of $9,010 and $765, respectively. (7) Fiscal 2012 included the effects of changes in our valuation allowance on deferred tax assets resulting in a credit to income of $18,704. (8) See Note 10 to the Consolidated Financial Statements related to notes payable in connection with our acquisition of Zenith during fiscal 2015, the long-term portion of which totaled $7,143 at November 28, 2015. (9) See Note 2 to the Consolidated Financial Statements regarding our fiscal 2015 adoption of Accounting Standards Update 2015-17, which requires the classification of all deferred tax assets and liabilities as non-current. The current ratio for all prior periods presented has been restated to reflect the reclassification of our current deferred tax assets to non-current. 53 STOCKHOLDER RETURN PERFORMANCE GRAPH Presented below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company’s Common Stock against the cumulative total return of the Standard & Poor’s 500 Index and the Company’s 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 27, 2010 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 2015 Assumes $100 Invested on November 27, 2010 Assumes Dividends Reinvested 54 Management’s Report of Internal Control over Financial Reporting As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level. We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our CEO and CFO, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of November 28, 2015 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The scope of our efforts to comply with Section 404 of the Sarbanes-Oxley Act with respect to fiscal 2015 included all of our operations other than those we acquired in fiscal 2015 related to the acquisition of Zenith Freight Lines, LLC (“Zenith”). In accordance with the SEC’s published guidance, because we acquired the operations of Zenith during the fiscal year, we excluded these operations from our efforts to comply with Section 404 Rules with respect to fiscal 2015. Total assets as of November 28, 2015 and total revenues for the year ending November 28, 2015 for Zenith were $30,836 and $43,522, respectively. SEC rules require that we complete our assessment of the internal control over financial reporting of the acquisition within one year after the date of the acquisition. Based on this evaluation, excluding the operations of Zenith discussed above, management concluded that our internal control over financial reporting was effective as of November 28, 2015, 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 21, 2016 55 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 28, 2015 and November 29, 2014, 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 28, 2015. 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 28, 2015. 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 28, 2015 and November 29, 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 28, 2015, 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 28, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated January 21, 2016 expressed an unqualified opinion thereon. Richmond, Virginia January 21, 2016 56 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 28, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). 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. As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Zenith Freight Lines, LLC, which is included in the 2015 consolidated financial statements of Bassett Furniture Industries, Incorporated and Subsidiaries and constituted $30.8 million of total assets as of November 28, 2015 and $43.5 million of revenues for the year then ended. Our audit of internal control over financial reporting of Bassett Furniture Industries, Incorporated and Subsidiaries also did not include an evaluation of the internal control over financial reporting of Zenith Freight Lines, LLC. In our opinion, Bassett Furniture Industries, Incorporated and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of November 28, 2015, 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 28, 2015 and November 29, 2014, 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 28, 2015 of Bassett Furniture Industries, Incorporated and Subsidiaries and our report dated January 21, 2016 expressed an unqualified opinion thereon. Richmond, Virginia January 21, 2016 57 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 and the operating performance of licensed Bassett 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 9, 2016, 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 28, 2015. 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 2015 2014 2015 2014 HIGH LOW HIGH LOW First Second $26.97 32.54 $18.22 24.59 $16.19 16.02 $13.32 13.13 Third 38.02 26.81 15.73 12.07 Fourth 33.30 27.85 19.60 13.21 $0.08 0.08 0.09 0.29 $0.06 0.06 0.08 0.28 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 ROBERT H. SPILMAN, JR. President and Chief Executive Officer DAVID C. BAKER Senior Vice President, Corporate Retail JOHN E. BASSETT, III Senior Vice President, Wood 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. Former Executive Director, New College Institute Former Member, Senate of Virginia WILLIAM C. WARDEN, JR. Former Executive Vice President Lowe’s Companies, Inc. MATTHEW S. JOHNSON Vice President, Sales, Bassett and Bassett Express KARA KELCHNER-STRONG Vice President, Strategy and Planning 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 JACK L. HAWN, JR. Senior Vice President, Bassett President, Zenith MARK S. JORDAN Senior Vice President, Upholstery EDWIN C. AVERY, JR. Vice President, Upholstery Product Development WILLIAM A. BENDALL Vice President, Sales, Export and Juvenile NICHOLAS C. GEE Vice President, Corporate Retail Sales STEPHEN D. HARMON Vice President, Information Technology JAY R. HERVEY Vice President, Secretary, General Counsel LOUIS C. MOSSOTTI, JR. Vice President, Corporate Retail – Southeast Region THOMAS E. PRATO Vice President, Sales, National Accounts J. CARTER UNDERWOOD Vice President, Wood Operations DAVID F. WALSH Vice President, Licensed Retail EDWARD H. WHITE Vice President, Human Resources ANN M. ZACCARIA Vice President, Real Estate and New Store Development b a s s e t t f u r n i t u r e . c o m B a s s e t t , V i r g i n i a N A S D A Q : B S E T A N N U A L R E P O R T 2 0 1 5 

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