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
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