b a ss 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
T O O U R S H A R E H O L D E R S
2016 was another year of successful execution of the strategic
methodically assess each new store opportunity to secure the
template that our team has been refining for the past several
best real estate possible. Unfortunately, this process takes
years. We began new initiatives and invested in every aspect
time and can be frustratingly slow; but we understand the
of our business; our retail stores, technology, manufacturing,
responsibility that comes with long term leases and we will
and logistics. In the process, we grew operating income by
not compromise our standards to haphazardly bring on new
8% to $28.2 million, generated $39.1 million of cash flow
storefronts.
from operations, and produced a 6% increase in net income
after non-recurring items to $15.7 million. Consolidated
In 2016 we opened new stores in Sterling, Virginia and Hunt
revenue grew slightly to $432 million. Although our
Valley, Maryland. Both stores are well staffed and off to strong
total annual revenue has grown for seven consecutive
starts. We also repositioned our Newport News, Virginia
years, I would describe the general environment for home
location into better real estate and closed three older stores
furnishings in 2016 as inconsistent. We are proud of our track
that we acquired from former licensees years ago. Coupled
record of generating positive comparable same store sales
with the closure of two licensee operated stores, these moves
for six straight years. Only a very strong last few months
resulted in our year end 2016 store count of 90 locations. In
of the year allowed us to keep that record intact, however.
2017, we will open at least five new stores – four corporate
Nevertheless, consumers across the country continue to
and one licensed. We will also reposition our Scottsdale,
respond positively to our store experience and product
Arizona store. One additional corporate store will close and
assortment. In that regard, we believe that our ongoing focus
another licensee location will as well, meaning we should end
on new merchandising programs and a considerable amount
the year with at least 93 locations.
of potential new markets for our stores provide us a runway
to grow Bassett for many years to come.
We have evolved beyond regarding the stores as a sales
channel for our wholesale segment to the realization of
2017 will mark our 20th year in the retail furniture business,
retail being a profit center in its own right. Although store
still a relatively short amount of time for a company that
closing inventory reductions, additional pre-opening costs,
will celebrate its 115th birthday this year. Today we own
and a sub-par year in the energy related market of Houston
59 corporate stores and license our concept to another 20
reduced our overall retail income this year, we did record
individuals that operate 31 stores across the country – a total
our second best year ever in retail with an operating profit
of 90 Bassett Home Furnishings stores today.
of $4.3 million. While we face a challenge in 2017 with an
additional $2 million of pre-opening costs and post-opening
Originally, our concept was a strategy to create a market for
losses, we are committed to continuing our comparable store
our manufactured products that were facing an onslaught
sales improvement record to maintain profitability. New
of imports that were hitting the market with unfair cost
initiatives such as our three phased new product rollout
advantages and severely damaging our business. To combat
taking place in January, March, and August are designed to
this trend, we developed the Bassett store strategy and
keep the sales pace going. We are also optimistic about other
opened our first location in 1997. Last year, 67% of the
new programs including a more robust lighting and mirror
wholesale goods that we shipped were sold through our retail
assortment to integrate with our in home design strategy and
channel. Since inception, our stores have been and remain
an image building direct mail campaign that will coincide
our primary growth vehicle. Although we believe that a
with key selling periods throughout the year.
market exists for many more Bassett stores, we continue to
Sterling, VA
T O O U R S H A R E H O L D E R S
2016 was another year of successful execution of the strategic
methodically assess each new store opportunity to secure the
template that our team has been refining for the past several
best real estate possible. Unfortunately, this process takes
years. We began new initiatives and invested in every aspect
time and can be frustratingly slow; but we understand the
of our business; our retail stores, technology, manufacturing,
responsibility that comes with long term leases and we will
and logistics. In the process, we grew operating income by
not compromise our standards to haphazardly bring on new
8% to $28.2 million, generated $39.1 million of cash flow
storefronts.
from operations, and produced a 6% increase in net income
after non-recurring items to $15.7 million. Consolidated
In 2016 we opened new stores in Sterling, Virginia and Hunt
revenue grew slightly to $432 million. Although our
Valley, Maryland. Both stores are well staffed and off to strong
total annual revenue has grown for seven consecutive
starts. We also repositioned our Newport News, Virginia
years, I would describe the general environment for home
location into better real estate and closed three older stores
furnishings in 2016 as inconsistent. We are proud of our track
that we acquired from former licensees years ago. Coupled
record of generating positive comparable same store sales
with the closure of two licensee operated stores, these moves
for six straight years. Only a very strong last few months
resulted in our year end 2016 store count of 90 locations. In
of the year allowed us to keep that record intact, however.
2017, we will open at least five new stores – four corporate
Nevertheless, consumers across the country continue to
and one licensed. We will also reposition our Scottsdale,
respond positively to our store experience and product
Arizona store. One additional corporate store will close and
assortment. In that regard, we believe that our ongoing focus
another licensee location will as well, meaning we should end
on new merchandising programs and a considerable amount
the year with at least 93 locations.
of potential new markets for our stores provide us a runway
to grow Bassett for many years to come.
We have evolved beyond regarding the stores as a sales
channel for our wholesale segment to the realization of
2017 will mark our 20th year in the retail furniture business,
retail being a profit center in its own right. Although store
still a relatively short amount of time for a company that
closing inventory reductions, additional pre-opening costs,
will celebrate its 115th birthday this year. Today we own
and a sub-par year in the energy related market of Houston
59 corporate stores and license our concept to another 20
reduced our overall retail income this year, we did record
individuals that operate 31 stores across the country – a total
our second best year ever in retail with an operating profit
of 90 Bassett Home Furnishings stores today.
of $4.3 million. While we face a challenge in 2017 with an
additional $2 million of pre-opening costs and post-opening
Originally, our concept was a strategy to create a market for
losses, we are committed to continuing our comparable store
our manufactured products that were facing an onslaught
sales improvement record to maintain profitability. New
of imports that were hitting the market with unfair cost
initiatives such as our three phased new product rollout
advantages and severely damaging our business. To combat
taking place in January, March, and August are designed to
this trend, we developed the Bassett store strategy and
keep the sales pace going. We are also optimistic about other
opened our first location in 1997. Last year, 67% of the
new programs including a more robust lighting and mirror
wholesale goods that we shipped were sold through our retail
assortment to integrate with our in home design strategy and
channel. Since inception, our stores have been and remain
an image building direct mail campaign that will coincide
our primary growth vehicle. Although we believe that a
with key selling periods throughout the year.
market exists for many more Bassett stores, we continue to
Sterling, VA
Our wholesale segment suffered a sales decline in 2016
after several years of strong growth. All of the loss in
volume came from customers outside the Bassett store
network. Interestingly, this channel has driven much
of the aforementioned recent wholesale growth but the
discontinuation of business with a major wholesale customer
and a weaker sales environment slowed our sales momentum.
We remain committed to selling strong
independent
furniture retailers in areas of the country that do not conflict
with our stores.
Bench-Made
HGTV HOME™ Design Studio by Bassett
The primary vehicle to accomplish this goal is our HGTV
HOME™ Design Studio by Bassett galleries that are featured
in 82 retail operations across the United States. Our five
year relationship with the HGTV network has been fruitful
in differentiating our store concept from competition and in
communicating our design capabilities. HGTV at Bassett is
now proving to be a sales driver in the general furniture store
marketplace as well. The attraction to the association with
the #1 cable television network for upscale women helped
us plant the HGTV/Bassett flag in 20 new retail locations in
2016. To further support the sales effort in the open market,
we remodeled our wholesale showroom in High Point, North
Carolina and renewed our lease at the World Market Center
in Las Vegas in 2016.
On the operations side of the wholesale segment, we
continued to improve and grow our domestic footprint. In
fact, over 70% of our total wholesale shipments last year
were produced or assembled domestically. To plan for future
growth, we opened a new upholstery manufacturing cell in
Texas last February. We attained profitability within 90 days
in our new facility and we plan to expand the operation in
early 2017. Speed to market with our custom upholstery
product line has been a catalyst for our growth and the
new Texas effort will allow us to scale this core competency
to new heights. Meanwhile, our Bench Made product
assortment recently turned two years old and continues to
behind the wheel time on the road. In the historically Mom
gain importance in our overall sales effort. In fact, we doubled
‘n Pop driven furniture freight trucking world, the cost
the capacity of the Bench Made facility last year to keep up
associated with these federal mandates can be crippling. The
with the sales growth. The “Made in America” solid wood
early investment that Zenith made in compliant technology
dining, occasional, and bedroom furniture story coupled
is now being realized and we are very enthused about the
with innovative product designs and wood finishes has
market share leverage that this foresight affords us. Building
allowed Bench Made to carve a unique niche in a crowded
on this vision, the national distribution center platform that
marketplace. Our merchandising teams are buoyed by this
Zenith has architected gives us the ability to shorten the
success and are hard at work on the next generation of this
trip time for our drivers and reduces the lead time for our
exciting product range.
customers. And at the end of the line, Zenith’s burgeoning
final mile capabilities enable Bassett to provide an internally
The long term potential of the 2015 acquisition of Zenith
controlled end to end best of class service proposition to our
Freight Lines becomes more apparent each year. The stakes
customers. The consumer’s doorstep is often referred to in
have been rising in the long haul U. S. furniture industry
furniture parlance as “the one yard line”. With Zenith’s home
freight business as government mandated electronic record
delivery capabilities, Bassett now scores by satisfying our
keeping limits rolling stock asset deployment and driver
customers on every step of the furniture transaction.
Our wholesale segment suffered a sales decline in 2016
after several years of strong growth. All of the loss in
volume came from customers outside the Bassett store
network. Interestingly, this channel has driven much
of the aforementioned recent wholesale growth but the
discontinuation of business with a major wholesale customer
and a weaker sales environment slowed our sales momentum.
We remain committed to selling strong
independent
furniture retailers in areas of the country that do not conflict
with our stores.
Bench-Made
HGTV HOME™ Design Studio by Bassett
The primary vehicle to accomplish this goal is our HGTV
HOME™ Design Studio by Bassett galleries that are featured
in 82 retail operations across the United States. Our five
year relationship with the HGTV network has been fruitful
in differentiating our store concept from competition and in
communicating our design capabilities. HGTV at Bassett is
now proving to be a sales driver in the general furniture store
marketplace as well. The attraction to the association with
the #1 cable television network for upscale women helped
us plant the HGTV/Bassett flag in 20 new retail locations in
2016. To further support the sales effort in the open market,
we remodeled our wholesale showroom in High Point, North
Carolina and renewed our lease at the World Market Center
in Las Vegas in 2016.
On the operations side of the wholesale segment, we
continued to improve and grow our domestic footprint. In
fact, over 70% of our total wholesale shipments last year
were produced or assembled domestically. To plan for future
growth, we opened a new upholstery manufacturing cell in
Texas last February. We attained profitability within 90 days
in our new facility and we plan to expand the operation in
early 2017. Speed to market with our custom upholstery
product line has been a catalyst for our growth and the
new Texas effort will allow us to scale this core competency
to new heights. Meanwhile, our Bench Made product
assortment recently turned two years old and continues to
behind the wheel time on the road. In the historically Mom
gain importance in our overall sales effort. In fact, we doubled
‘n Pop driven furniture freight trucking world, the cost
the capacity of the Bench Made facility last year to keep up
associated with these federal mandates can be crippling. The
with the sales growth. The “Made in America” solid wood
early investment that Zenith made in compliant technology
dining, occasional, and bedroom furniture story coupled
is now being realized and we are very enthused about the
with innovative product designs and wood finishes has
market share leverage that this foresight affords us. Building
allowed Bench Made to carve a unique niche in a crowded
on this vision, the national distribution center platform that
marketplace. Our merchandising teams are buoyed by this
Zenith has architected gives us the ability to shorten the
success and are hard at work on the next generation of this
exciting product range.
trip time for our drivers and reduces the lead time for our
customers. And at the end of the line, Zenith’s burgeoning
final mile capabilities enable Bassett to provide an internally
The long term potential of the 2015 acquisition of Zenith
controlled end to end best of class service proposition to our
Freight Lines becomes more apparent each year. The stakes
customers. The consumer’s doorstep is often referred to in
have been rising in the long haul U. S. furniture industry
furniture parlance as “the one yard line”. With Zenith’s home
freight business as government mandated electronic record
delivery capabilities, Bassett now scores by satisfying our
keeping limits rolling stock asset deployment and driver
customers on every step of the furniture transaction.
Peninsula
American Casual
Custom Upholstered Sofa
Custom Upholstered Bed
The components of our model have been created and
the home improvement consumer and its parallels to our
perfected through trial and error over the past 20 years. Very
business model. His formative contributions to our forays
often, there were difficulties that arose that required either
into the realm of consumer research were transformational.
persistence or an abrupt change of course. Fundamentally,
And, like Peter and Howard, Dale’s support through very
however, a belief in our long term vision was required to carry
tough times will never be forgotten. On a happier note,
the day. I can unequivocally say that Bassett could not have
we welcomed Mr. John Belk to the Bassett board this fall.
made it through the valley that claimed so many of our former
Johnny spent his entire career at Belk Stores, Inc. retiring as
competitors had it not been for the wisdom and confidence
President in early 2016. His vast knowledge of all aspects of
displayed by our Board of Directors. 2016 cast a pall on the
retailing and his extensive public company board experience
Bassett Furniture family with the deaths of two of our beloved
will be invaluable in the years ahead.
Directors; Dr. Peter Brown and Mr. Howard Haworth. These
gentlemen loyally served the Bassett shareholders for 23 and
I close the book on 2016 with gratitude for the contributions
20 years respectively. Their unbending belief in the virtue
and support of our associates, our Board of Directors, and
of our strategy was a matter of corporate life and death
our shareholders.
during the darkest days of the import invasion and The Great
Recession. For them, I am forever grateful. In the very same
light, I salute Mr. Dale Pond, a 13 year Bassett board member
who is not standing for election this year due to a debilitating
illness. Dale’s high powered career leading the marketing
effort at Lowe’s Corporation gave us “big time” insight into
Robert H. Spilman, Jr.
Chairman & CEO
Peninsula
American Casual
Custom Upholstered Sofa
Custom Upholstered Bed
The components of our model have been created and
the home improvement consumer and its parallels to our
perfected through trial and error over the past 20 years. Very
business model. His formative contributions to our forays
often, there were difficulties that arose that required either
into the realm of consumer research were transformational.
persistence or an abrupt change of course. Fundamentally,
And, like Peter and Howard, Dale’s support through very
however, a belief in our long term vision was required to carry
tough times will never be forgotten. On a happier note,
the day. I can unequivocally say that Bassett could not have
we welcomed Mr. John Belk to the Bassett board this fall.
made it through the valley that claimed so many of our former
Johnny spent his entire career at Belk Stores, Inc. retiring as
competitors had it not been for the wisdom and confidence
President in early 2016. His vast knowledge of all aspects of
displayed by our Board of Directors. 2016 cast a pall on the
retailing and his extensive public company board experience
Bassett Furniture family with the deaths of two of our beloved
will be invaluable in the years ahead.
Directors; Dr. Peter Brown and Mr. Howard Haworth. These
gentlemen loyally served the Bassett shareholders for 23 and
I close the book on 2016 with gratitude for the contributions
20 years respectively. Their unbending belief in the virtue
and support of our associates, our Board of Directors, and
of our strategy was a matter of corporate life and death
our shareholders.
during the darkest days of the import invasion and The Great
Recession. For them, I am forever grateful. In the very same
light, I salute Mr. Dale Pond, a 13 year Bassett board member
who is not standing for election this year due to a debilitating
illness. Dale’s high powered career leading the marketing
effort at Lowe’s Corporation gave us “big time” insight into
Robert H. Spilman, Jr.
Chairman & CEO
FINANCIAL
SUMMARY
Fiscal Years Ended November
2016
2015
2014
2013
2012
INCOME STATEMENT DATA
Net Sales
Income From Operations
Net Income
$432,038
28,193
15,829
$430,927
25,989
20,433
$340,738
15,131
9,299
$321,286
10,005
5,096
$269,672
5,080
26,713
PER SHARE DATA
Diluted Income
Adjusted Diluted Income
Cash Dividends
Book Value
BALANCE SHEET DATA
Cash & Cash Equivalents
Investments
Total Assets
Long-Term Debt
Stockholders’ Equity
$ 1.46
1.46
0.68
16.85
$ 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
$ 35,144
23,125
278,267
3,821
180,705
$ 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
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. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 114-year
history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us
with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.
With 90 BHF stores at November 26, 2016, we have leveraged our strong brand name in furniture into a network of Company-
owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and
accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique
combination of stylish, quality furniture and accessories with a high level of customer service. In order to reach markets that
cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels
including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 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.
The BHF stores feature custom order furniture ready for delivery in less than 30 days, free in-home design visits (“home
makeovers”), and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships
with each customer. Sales people are referred to as “Design Consultants” and are each trained to evaluate customer needs
and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is
completed, Design Consultants are not authorized to perform in-home design services for our customers.
We have factories in Newton, North Carolina and Grand Prairie, Texas that manufacture upholstered furniture, a factory in
Martinsville, Virginia that primarily assembles and finishes our custom casual dining offerings and a factory in Bassett,
Virginia that assembles and finishes our recently introduced “Bench Made” line of furniture. Our manufacturing team takes
great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its process, with custom pieces
often manufactured within two weeks of taking the order in our stores. Our logistics team then promptly ships the product to
one of our home delivery hubs or to a location specified by our licensees in a timeframe to meet the 30 day promise. In
addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture
and certain upholstery offerings from several foreign plants, primarily in Vietnam and China. Over 65% of the products we
currently sell are manufactured in the United States.
“Bench Made” is a selection of American dining furniture that first 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 facility in Bassett, Virginia. Due to its strong reception,
we have expanded “Bench Made” offerings to include bedroom and occasional furniture starting in May of 2016. Also in
2016 we began moving to a great room centric floor plan for our retail locations that will focus more on our domestic
upholstery products that have lead our sales increases in recent years 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.
For several 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
terminals, warehouse and distribution facilities in eleven states, and the management of various home delivery facilities that
service BHF 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.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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 driving sales at our stores. 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 BHF stores, we have now expanded the
concept to select independent dealers. We believe this will provide additional growth outside our BHF store network.
At November 26, 2016, our BHF store network included 59 Company-owned stores and 31 licensee-owned stores. During
fiscal 2016, we closed three underperforming stores in Tucson, Arizona; Egg Harbor, New Jersey and Fountain Valley,
California. We opened a new store in Sterling, Virginia during the second quarter of 2016 and opened another new store in
Hunt Valley, Maryland during the third quarter of 2016.
Due to the improved operating performance of our retail network over the last few years, we are expanding our retail presence
in various parts of the country. We currently have signed leases for four new stores that we expect to open during fiscal 2017.
In addition, we have signed leases for the repositioning of two of our legacy stores to improved locations which we expect
to occur in 2017. We are also in various stages of negotiation on several leases for both new store locations and the relocation
of existing stores. Our plans for 2017 include at least two additional new store openings bringing the total to six for the year.
Four of these openings would be in existing markets with the other two in new markets. Because we only opened two new
stores in 2016, we expect to incur an additional $2,000 of new store preopening costs and post-opening losses as compared
to 2016. There can be no assurance that any of these leases will be completed in 2017 or beyond.
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 $200 to $400 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 $400 to
$600 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 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 2017, we will continue
to make improvements to our website to improve brand interaction and drive more qualified prospects to our stores. We are
leveraging our Company-owned and licensed store network to handle delivery and customer service for orders placed online.
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
Analysis of Operations
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 26, 2016, November
28, 2015 and November 29, 2014:
Sales Revenue:
Furniture and accessories
Logistics
Total net sales revenue
2016
2015
2014
$ 377,196 87.3% $ 387,405 89.9% $ 340,738 100.0%
0.0%
54,842 12.7% 43,522 10.1%
432,038 100.0% 430,927 100.0% 340,738 100.0%
-
Cost of furniture and accessories sold 167,519 38.8% 179,291 41.6% 158,317 46.5%
235,178 54.4% 224,050 52.0% 166,073 48.7%
SG&A
0.4%
623
New store pre-opening costs
0.0%
974
Other charges
0.2%
0.2%
0.3%
0.0%
1,217
-
1,148
-
Income from operations
$ 28,193
6.5% $ 25,989
6.0% $ 15,131
4.4%
Our consolidated net sales by segment were as follows:
2016
2015
2014
Wholesale
Retail
Logistical services
Inter-company eliminations:
$ 240,346 $ 252,180 $ 223,993
254,667 249,379 216,631
-
77,250
95,707
Furniture and accessories (117,817) (114,154)
Logistical services
(33,728)
Consolidated net sales
(99,886)
-
$ 432,038 $ 430,927 $ 340,738
(40,865)
Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of
operations for fiscal 2016 and 2015 as compared with the prior year periods.
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 -Continued
(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. Our
wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as
licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our consolidated
statements of income.
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, the revenue from which is eliminated upon consolidation, 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.
4
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(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:
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
Wholesale Retail
Logistics
Eliminations
Consolidated
Year Ended November 26, 2016
$
$
240,346 $
-
240,346
156,894
64,780
-
18,672 $
254,667 $
-
254,667
128,208
120,978
1,148
4,333 $
- $
95,707
95,707
-
92,196
-
3,511 $
(117,817) (1) $
(40,865) (2)
(158,682)
(117,583) (3)
(42,776) (4)
-
1,677
$
377,196
54,842
432,038
167,519
235,178
1,148
28,193
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)
Wholesale Retail
Logistics
Eliminations
Consolidated
Year Ended November 28, 2015
$
$
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
-
73,722
-
3,528 $
(114,154) (1) $
(33,728) (2)
(147,882)
(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
(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 fiscal years
2016 and 2015, logistical services expense incurred from Zenith by our retail and wholesale segments.
Year Ended
November 26, November 28, November 29,
2015
2016
2014
Intercompany logistical services
Intercompany rents
$
Total SG&A expense elimination
$
(40,865) $
(1,911)
(42,776) $
(33,728) $
(1,924)
(35,652) $
-
(1,922)
(1,922)
(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 -Continued
(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 26, 2016, November 28, 2015 and November 29,
2014:
Net sales
Gross profit
SG&A
Income from operations $ 18,672
2016
$ 240,346 100.0%
83,452 34.7%
64,780 27.0%
7.8%
2015
$ 252,180 100.0%
83,388 33.1%
67,770 26.9%
6.2%
$ 15,618
2014
$ 223,993 100.0%
74,347 33.2%
60,227 26.9%
6.3%
$ 14,120
Wholesale shipments by category for the last three fiscal years are summarized below:
Wood
Upholstery
Other
Total
2016
$ 88,763 36.9%
149,027 62.0%
1.1%
$ 240,346 100.0%
2,556
Fiscal 2016 as Compared to Fiscal 2015
2015
2014
$ 93,073 36.9% $ 86,577 38.7%
156,768 62.2% 135,831 60.6%
0.7%
$ 252,180 100.0% $ 223,993 100.0%
0.9%
2,339
1,585
Net sales for the wholesale segment were $240,346 for 2016 as compared to $252,180 for 2015, a decrease of $11,834 or
4.7%. This sales decrease was driven by a 13% decrease in open market shipments (outside the BHF network) while
shipments to the BHF store network were essentially flat compared to the prior year. The decrease in sales to the open market
was primarily due to lower sales of imported product primarily from the discontinuation of our relationship with a significant
customer and loss of sales from the HGTV Home Collection brand, exited late in 2015. Gross margins for the wholesale
segment increased to 34.7% for 2016 as compared to 33.1% for 2015. This increase is due in part to the $1,428 million
settlement of the Polyurethane Foam Antitrust Litigation in 2016. Excluding the effects of the legal settlement, the gross
margin would have been 34.1%. This increase over 2015 was driven largely by higher margins in the imported wood operation
from favorable ocean freight and lower impact from discounting, as we were exiting the open market HGTV Home Collection
brand in 2015. Wholesale SG&A decreased $2,990 to $64,780 for 2016 as compared to $67,770 for 2015. SG&A as a
percentage of sales was 27.0% and 26.9% for fiscal 2016 and 2015, respectively. SG&A for 2016 included decreases in
incentive compensation expenses of $877 and bad debt costs of $652. The prior year period also included $209 of costs
associated with the acquisition of Zenith. Operating income was $18,672 or 7.8% of sales for 2016 as compared to $15,618
or 6.2% of sales in 2015.
Fiscal 2015 as Compared to Fiscal 2014
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.
6
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
Wholesale Backlog
The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores
as of November 26, 2016, November 28, 2015, and November 29, 2014 was as follows:
2016
2015
2014
Year end wholesale backlog $ 22,130 $ 17,131 $ 13,644
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 26, 2016, November 28, 2015 and
November 29, 2014:
2016 vs 2015
2015 vs 2014
2016
2015
2015
2014
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Income (loss) from operations
$254,667 100.0% $ 249,379 100.0%
126,459 49.7% 125,003 50.1%
120,978 47.5% 118,210 47.4%
623 0.2%
1,148 0.5%
4,333 1.7% $ 6,170 2.5%
$
$ 249,379 100.0%
125,003 50.1%
118,210 47.4%
623 0.2%
$ 6,170 2.5%
$216,631 100.0%
108,457 50.1%
107,768 49.7%
1,217 0.6%
(528 ) -0.2%
$
The following tables present operating results on a comparable store basis for each comparative set of periods. Table A
compares the results of the 56 stores that were open and operating for all of 2016 and 2015. Table B compares the results of
the 53 stores that were open and operating for all of 2015 and 2014.
Comparable Store Results:
Table A: 2016 vs 2015 (56 Stores)
Table B: 2015 vs 2014 (53 Stores)
2016
2015
2015
2014
Net sales
Gross profit
SG&A expense
Income (loss) from operations
$ 243,062 100.0%
121,327 49.9%
114,097 46.9%
$ 7,230 3.0%
$ 239,713 100.0%
120,535 50.3%
112,484 46.9%
$ 8,051 3.4%
$225,444 100.0%
112,815 50.0%
105,347 46.7%
7,468 3.3%
$
$199,048 100.0%
99,591 50.0%
97,325 48.9%
2,266 1.1%
$
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
The following tables present operating results for all other stores which were not comparable year-over-year. Each table
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:
2016 vs 2015 All Other Stores
2015 vs 2014 All Other Stores
2016
2015
2015
2014
Net sales
Gross profit
SG&A expense
New store pre-opening costs
Loss from operations
$ 11,605 100.0 %
5,132 44.2 %
6,881 59.3 %
1,148 9.9 %
$ (2,897) -25.0 %
$ 9,666 100.0%
4,468 46.2%
5,726 59.2%
623 6.4%
$ (1,881) -19.5%
$ 23,935 100.0 %
12,188 50.9 %
12,863 53.7 %
623 2.6 %
$ (1,298 ) -5.4 %
$ 17,583 100.0%
8,866 50.4%
10,443 59.4%
1,217 6.9%
$ (2,794) -15.9%
Fiscal 2016 as Compared to Fiscal 2015
Net sales for the 59 Company-owned BHF stores were $254,667 for the fiscal 2016 as compared to $249,379 for fiscal 2015,
an increase of $5,288 or 2.1%. The increase was due to a $3,349 or 1.4% increase in comparable store sales coupled with a
$1,939 increase in non-comparable store sales.
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 1.4% for fiscal 2016 as compared to 2015.
The consolidated retail operating income for fiscal 2016 was $4,333 as compared to $6,170 for the 2015. The 56 comparable
stores generated operating income of $7,230 for fiscal 2016, or 3.0% of sales, as compared to $8,051, or 3.4% of sales, for
2015. Gross margins for comparable stores were 49.9% for fiscal 2016 compared to 50.3% for 2015. Lower gross margins
were due primarily to increased discounting of clearance items in preparation for a significant product rollout for the
Memorial Day holiday promotion. Also, Company-owned stores experienced increased clearance activity in reducing
imported wood furniture placements to make room for more upholstery on the retail floors. SG&A expenses for comparable
stores increased $1,613 to $114,097 or 46.9% of sales, unchanged from the 2015 percentage.
Losses from the non-comparable stores in fiscal 2016 were $2,897 compared with $1,881 for fiscal 2015, an increase of
$1,016. The loss for fiscal 2016 included $1,148 of pre-opening costs primarily associated with the Sterling, Virginia and
Hunt Valley, Maryland stores which opened at the end of the second and third quarters of 2016, respectively, along with
three other stores expected to open during the first half of 2017. 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 opening and generally range between
$200 to $400 per store based on the overall rent costs for the location and the period between the time when the Company
takes possession of the physical store space and the time of the store opening. Also included in the non-comparable store loss
for 2016 are losses arising from the closure of our stores in Tucson, Arizona; Egg Harbor, New Jersey and Fountain Valley,
California and the post-opening losses of the Woodland Hills, California store which opened during the fourth quarter of
2015.
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 30 days after the furniture is ordered by the
customer. Coupled with the pre-opening costs, total start-up losses typically amount to $400 to $600 per store. During fiscal
2016, we had post-opening losses of $482 which were primarily associated with the Sterling, Virginia and Hunt Valley,
Maryland stores, compared with post-opening losses of $112 during fiscal 2015 associated with the Woodland Hills,
California 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.
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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.
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 $200 to $400 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 $400 to $600 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.
Retail Comparable Store Sales Increases
The following table provides year-over-year comparable store sales increases for the last three fiscal years:
2016
2015
2014
Delivered
Written
1.4%
1.4%
13.3%
11.0%
3.7%
4.3%
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 26,
2016, November 28, 2015, and November 29, 2014, was as follows:
2016
2015
2014
Year end retail backlog
Retail backlog per open store
$ 32,788 $ 31,871 $ 30,206
503
$
556 $
531 $
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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
2016
$ 95,707 100.0%
92,196 96.3%
2015 (1)
$ 77,250 100.0%
73,722 95.4%
Income from operations $ 3,511
3.7%
$ 3,528
4.6%
(1) Results of operations for logistical services for fiscal 2015 include approximately 10 months of operations
from the date of acquisition, February 2, 2015.
Operating expenses include depreciation and amortization of $4,204 for the year ended November 26, 2016 and $2,634 from
the date of acquisition through November 28, 2015. Operating expenses as a percentage of sales increased primarily due to
increases in fixed costs in anticipation of planned higher revenue.
Other Items Affecting Net Income
Other items affecting net income for fiscal 2016, 2015 and 2014 are as follows:
2016
2015
2014
Remeasurement gain on acquisition of affiliate (1)
Income from unconsolidated affiliated company (2)
Income from Continued Dumping & Subsidy Offset Act (3)
Interest expense (4)
Loan and lease guarantee recovery (5)
Investment income (6)
Other (7)
$
- $
-
240
(552)
59
296
(2,459)
7,212 $
220
1,156
(607)
73
228
(2,403)
-
661
-
(188)
66
352
(1,415)
Total other income (loss), net
$
(2,416) $
5,879 $
(524)
(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. In the fourth quarter of fiscal 2016,
we repaid all of the outstanding debt which had been secured by certain of Zenith’s real estate and transportation
equipment. See Note 10 to the Consolidated Financial Statements for additional information regarding our
outstanding debt at November 26, 2016.
(5) Loan and lease guarantee recovery consists of adjustments to reduce 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 recognized
for fiscal 2016, 2015 and 2014 reflects the changes in our estimates of the risk that we may have to assume the
underlying obligations with respect to our guarantees.
(6) Investment income for fiscal 2016, 2015 and 2014 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 2016, 2015 and 2014 also includes gains of $176, $136 and
$280, respectively, 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.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
(7) Fiscal 2014 includes $827 in death benefits received from life insurance policies covering former executives. No
such benefits were received in fiscal 2016 or 2015.
Provision for Income taxes
We recorded an income tax provision of $9,948, $11,629 and $5,308 in fiscal 2016, 2015 and 2014, respectively. For fiscal
2016, our effective tax rate of 38.6% differs from the statutory rate of 35.0% primarily due to the effects of state income taxes
and various permanent differences including the favorable impact of the Section 199 manufacturing deduction. 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. 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 $8,071 as of November 26, 2016, which, upon utilization, are expected to reduce our cash
outlays for income taxes in future years. It will require approximately $23,000 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 2016 was $39,062 compared to $34,396 for fiscal 2015, an increase of $4,666. The
improvement is primarily the result of higher operating income coupled with improved working capital management. Cash
provided by operations for fiscal 2016 includes cash flows arising from excess tax benefits related to stock based
compensation in the amount of $87 compared to $1,998 associated with such excess tax benefits during the comparable prior
year period. This amount was previously reported as a cash flow from financing activities and has been reclassified due to
our adoption of Accounting Standards Update No. 2016-09 (see Note 2 to our consolidated financial statements).
Our overall cash position decreased by $1,124 during 2016. Offsetting the cash provided by operations, we used $20,834 of
cash in investing activities, primarily consisting of capital expenditures which included the purchase of freight transportation
equipment, retail store relocations, retail store remodels, and in-process spending on new stores and expanding and upgrading
our manufacturing capabilities. Net cash used in financing activities was $19,352, including dividend payments of $6,311
and stock repurchases of $6,393 under our existing share repurchase plan, of which $11,536 remains authorized at November
26, 2016. In addition, we had net repayments of long-term debt totaling $6,867, which included the full repayment of all debt
previously secured by certain of Zenith’s transportation equipment and real estate. With cash and cash equivalents and short-
term investments totaling $58,269 on hand at November 26, 2016, we believe we have sufficient liquidity to fund operations
for the foreseeable future.
Debt and Other Obligations
Effective December 5, 2015, we entered into a new credit facility with our bank which provides for a line of credit of up to
$15,000. This credit facility, which matures in December of 2018, is unsecured and 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. At November 26, 2016, we had $1,972 outstanding under standby letters of credit
against our line, leaving availability under our credit line of $13,028. In addition, we have outstanding standby letters of
credit with another bank totaling $456.
At November 26, 2016 we have outstanding principal totaling $7,219, excluding discounts, under notes payable of which
$3,385 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.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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. We had obligations of $149,259 at November 26, 2016 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 three years. We were contingently liable under licensee lease obligation guarantees in the amount of
$1,868 at November 26, 2016. See Note 17 to our condensed consolidated financial statements for additional details regarding
our leases and lease guarantees.
Dividends and Share Repurchases
During fiscal 2016, we declared four quarterly dividends totaling $4,127, or $0.38 per share, and one special dividend of
$3,218, or $0.30 per share. Cash dividend payments to our shareholders during fiscal 2016 totaled $6,311. During fiscal 2016,
we also repurchased 254,450 shares of our stock for $6,393 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 2016 by approximately $0.01.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2017 will be approximately $20 million which will be used
primarily for the build out of new and relocated stores in our retail segment, build out of our permanent upholstery
manufacturing space in Grand Prairie, Texas, various equipment upgrades in our wholesale manufacturing plants 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 -Continued
(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 (3)
Purchase obligations (4)
Total
2017
2018
2019
2020
2021
Thereafter Total
$
1,072 $
3,385
1,034 $
3,412
974 $
422
928 $
-
920 $
-
10,948 $ 15,876
7,219
-
890
3,190
138
2,428
28,132
860
-
790
3,375
120
-
23,584
728
-
790
3,560
15
-
20,520
280
-
150
-
-
150
-
-
18,459
-
15,560
-
$ 40,095 $ 33,043 $ 26,561 $ 19,537 $ 16,630 $
350
-
-
-
3,120
10,125
273
2,428
43,004 149,259
1,868
-
54,302 $ 190,168
-
-
(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 $3,022 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) Lease guarantees relate to payments we would only be required to make in the event of default on the part of the
(4)
guaranteed parties.
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 2016, we had approximately $14,413 in open purchase orders, primarily for imported
inventories, which are in the ordinary course of business.
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 -Continued
(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 2016, 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 $799 and $1,175 at November
26, 2016 and November 28, 2015, respectively, representing 4.2% and 5.3% 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 $1,350 and $1,397
at November 26, 2016 and November 28, 2015, respectively, representing 2.5% and 2.3%, 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.
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
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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 26, 2016.
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 26, 2016, 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 26,
2016 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 $3,282.
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 2016.
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 $2,969 and $3,120 at November 26, 2016 and November 28, 2015, respectively, for stores formerly operated by
licensees as well as our holdings of $26,454 and $27,175 at November 26, 2016 and November 28, 2015, 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 $1,868 and $2,537 which we have guaranteed on behalf of licensees
as of November 26, 2016 and November 28, 2015, respectively, we may not be able to secure sufficient sub-lease income in
the current market to offset the payments required under the guarantees.
Number of Square
Locations Footage
Aggregate Net Book
Value (in
thousands)
Real estate occupied by Company-owned and operated stores, included in
property and equipment, net (1)
11
276,887 $
26,454
Investment real estate leased to others
2
41,021
2,969
Total Company investment in retail real estate
13
317,908 $
29,423
(1) Includes two properties encumbered under mortgages totaling $1,219 at November 26, 2016.
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 2016, 2015, 2014, 2013 and 2012 mean the fiscal years
ended November 26, 2016, November 28, 2015, November 29, 2014, November 30, 2013 and November 24, 2012. 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 and 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
effectiveness and security of our information technology systems
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 26, 2016 and November 28, 2015
(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 $799 and $1,175 as
$
of November 26, 2016 and November 28, 2015, 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
$
$
2016
2015
35,144 $
23,125
18,358
53,215
10,727
140,569
36,268
23,125
21,197
59,896
6,798
147,284
104,655
96,104
8,071
17,360
7,612
33,043
278,267 $
13,471
17,682
8,002
39,155
282,543
21,281 $
13,602
25,181
3,218
3,290
10,441
77,013
12,760
3,821
3,968
20,549
20,916
14,345
23,999
2,184
5,273
13,133
79,850
12,694
8,500
4,133
25,327
Common stock, $5 par value; 50,000,000 shares authorized; issued and
outstanding 10,722,947 at November 26, 2016 and 10,916,021 at November
28, 2015
Retained earnings
Additional paid-in-capital
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders’ equity
53,615
129,388
255
(2,553 )
180,705
278,267 $
54,580
120,904
4,560
(2,678)
177,366
282,543
$
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 26, 2016, November 28, 2015, and November 29, 2014
(In thousands, except per share data)
Sales revenue:
Furniture and accessories
Logistics
Total sales revenue
2016
2015
2014
$
377,196 $
54,842
432,038
387,405 $
43,522
430,927
340,738
-
340,738
Cost of furniture and accessories sold
167,519
179,291
158,317
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
235,178
1,148
-
-
-
224,050
623
419
106
449
166,073
1,217
-
-
-
Income from operations
28,193
25,989
15,131
Remeasurement gain on acquisition of affiliate
Income from Continued Dumping & Subsidy Offset Act
Income from unconsolidated affiliated company
Interest expense
Other loss, net
-
240
-
(552)
(2,104)
7,212
1,156
220
(607 )
(2,102 )
-
-
661
(188 )
(997 )
Income before income taxes
25,777
31,868
14,607
Income tax expense
Net income
Net income per share
Basic income per share
Diluted income per share
Dividends per share
Regular dividends
Special dividend
9,948
11,435
5,308
$
15,829 $
20,433 $
9,299
$
$
$
$
1.47 $
1.91 $
1.46 $
1.88 $
0.38 $
0.30 $
0.34 $
0.20 $
0.88
0.87
0.28
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 26, 2016, November 28, 2015, and November 29, 2014
(In thousands)
Net income
Other comprehensive income (loss):
2016
2015
2014
$
15,829 $
20,433 $
9,299
Actuarial adjustment to supplemental executive retirement defined benefit
plan (SERP)
Income taxes related to SERP
201
(76)
(1,135)
431
(918)
358
Other comprehensive income (loss), net of tax
125
(704)
(560)
Total comprehensive income
$
15,954 $
19,729 $
8,739
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 26, 2016, November 28, 2015, and November 29, 2014
(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
Deferred income taxes
Excess tax benefits from stock-based compensation
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
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
Proceeds from equipment loan
Payments on notes and equipment loans
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
2016
2015
2014
$
15,829 $
20,433 $
9,299
12,249
10,137
7,316
-
-
-
-
914
(300)
5,324
87
1,055
3,228
6,681
(3,629)
1,182
(3,558)
39,062
(21,501)
667
-
-
-
-
-
(20,834)
(6,311)
114
182
(6,393)
(77)
7,384
(14,251)
(19,352)
(1,124)
36,268
35,144 $
(220 )
106
419
(7,212 )
1,283
-
1,930
1,998
2,082
(2,354 )
(2,624 )
1,494
1,796
5,128
34,396
(13,974 )
2,981
(7,323 )
(1,345 )
-
-
-
(19,661 )
(5,786 )
4,031
325
(2,071 )
(178 )
1,307
(2,768 )
(5,140 )
9,595
26,673
36,268 $
(661 )
-
-
-
3,060
(1,150 )
544
300
264
775
(4,203 )
1,548
5,912
7,257
30,261
(17,980 )
5,157
-
-
2,348
5,000
320
(5,155 )
(5,155 )
297
311
(5,602 )
(489 )
-
(528 )
(11,166 )
13,940
12,733
26,673
$
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 26, 2016, November 28, 2015, and November 29, 2014
(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 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
Comprehensive income
Net income
Actuarial adjustment to SERP, net
of tax
Regular dividends ($0.38 per share)
Special dividend ($0.30 per share)
Issuance of common stock
Purchase and retirement of common
stock
Stock-based compensation
-
-
-
15,829
-
15,829
-
-
-
64,316
-
-
-
322
-
-
-
(25 )
-
(4,127)
(3,218)
-
(257,390)
-
(1,287)
-
(5,183 )
903
-
125
-
-
-
-
-
125
(4,127)
(3,218)
297
(6,470)
903
Balance, November 26, 2016
10,722,947 $
53,615 $
255 $
129,388 $
(2,553) $
180,705
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, Virginia, 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 90 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 90
stores, the Company owns and operates 59 stores (“Company-owned retail stores”) with the other 31 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 31% of our wholesale products from various countries, with the remaining volume produced at
our four 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 terminals, warehouse and
distribution facilities in twelve states, and manages various home delivery facilities that service BHF 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 2016, 2015 and
2014 each contained 52 weeks. The Consolidated Financial Statements include the accounts of Bassett Furniture Industries,
Incorporated and our majority-owned subsidiaries in which we have a controlling interest. All significant intercompany
balances and transactions are eliminated in consolidation. 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 2016, 2015 and 2014 are to Bassett's fiscal year ended November
26, 2016, November 28, 2015 and November 29, 2014, 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 2015 and 2014 financial statements have been reclassified to conform to
the 2016 presentation. See “Recent Accounting Pronouncements” below regarding the impact of our adoption of Accounting
Standards Update 2016-09 upon the classification of excess tax benefits from stock-based compensation in our consolidated
statements of cash flows.
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 2016, 2015 and 2014, there were no dealers for which these criteria were not met.
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.
24
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Concentrations of Credit Risk and Major Customers
Financial instruments that subject us to credit risk consist primarily of investments, accounts and notes receivable and
financial guarantees. Investments are managed within established guidelines to mitigate risks. Accounts and notes receivable
and financial guarantees subject us to credit risk partially due to the concentration of amounts due from and guaranteed on
behalf of independent licensee customers. At November 26, 2016 and November 28, 2015, 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
$
2016
2015
18,358 $
10
1,865
20,233 $
21,197
10
2,441
23,648
At November 26, 2016, approximately 30% of the aggregate risk exposure, net of reserves, shown above was attributable to
four customers. At November 28, 2015, approximately 26% of the aggregate risk exposure, net of reserves, shown above was
attributable to three customers. In fiscal 2016, 2015 and 2014, no customer accounted for more than 10% of total consolidated
net sales. However, one customer accounted for approximately 36% and 26% of our consolidated revenue from logistical
services during 2016 and 2015, respectively.
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 $3,607, $4,516, and $4,774 in fiscal
2016, 2015, and 2014, 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 53% and 43% of total
inventory before reserves at November 26, 2016 and November 28, 2015, 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.
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 both November 26, 2016
and November 28, 2015, the cost of retail real estate included land totaling $990 and building and leasehold improvements
of $6,178. As of November 26, 2016 and November 28, 2015, accumulated depreciation of retail real estate was $4,311 and
25
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
$4,160, 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 $152, $184, and $400 in fiscal 2016, 2015, and 2014, 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
Sugarland, 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.
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 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 26, 2016.
The first step compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the
respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting
unit, the second step is performed whereby we must calculate the implied fair value of goodwill by deducting the fair value
of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. This second step
represents a hypothetical application of the acquisition method of accounting as if we had acquired the reporting unit on that
date. Our impairment methodology uses a discounted cash flow analysis requiring certain assumptions and estimates to be
made regarding future profitability of the reporting unit and industry economic factors. While we believe such assumptions
and estimates are reasonable, the actual results may differ materially from the projected amounts.
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.
26
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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.
New Store Pre-Opening Costs
Income (loss) from operations for fiscal 2016, 2015 and 2014 includes new store pre-opening costs of $1,148, $623 and
$1,217, 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.
27
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Shipping and Handling Costs
Costs incurred to deliver wholesale merchandise to customers are recorded in selling, general and administrative expense and
totaled $18,451, $18,624, and $16,162 for fiscal 2016, 2015 and 2014, respectively. Costs incurred to deliver retail
merchandise to customers are also recorded in selling, general and administrative expense and totaled $15,946, $15,383, and
$12,844 for fiscal 2016, 2015 and 2014, 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 $16,688, $16,228, and $15,614 in fiscal
2016, 2015, and 2014, 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 during fiscal 2015 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 2016 or 2014.
Recent Accounting Pronouncements
Adoption of Accounting Standards Update 2016-09
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). While the effective date of ASU 2016-
09 is for fiscal years beginning after December 15, 2016, earlier adoption is permitted and we adopted the amendments in
ASU 2016-09 during the second quarter of fiscal 2016. This standard simplifies or clarifies several aspects of the accounting
for equity-based payment awards, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. Certain of these changes are required to be applied
retrospectively, while other changes are required to be applied prospectively.
The impact of early adoption resulted in the following:
● We recorded $87 of tax benefits within income tax expense for the year ended November 26, 2016 related to the
excess tax benefit on stock based compensation. Prior to adoption this amount would have been recorded as
additional paid-in capital. This change could create future volatility in our effective tax rate depending upon the
amount of exercise or vesting activity from our stock based awards.
● We elected to recognize forfeitures as they occur. There was no cumulative effect adjustment as a result of the
adoption of this amendment on a modified retrospective basis.
● We elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a
retrospective basis. Accordingly, $1,998 and $300 of excess tax benefits previously reported as a cash flow provided
by financing activities during the years ended November 28, 2015 and November 29, 2014, respectively, has been
reclassified to be included in cash flows provided by operating activities.
28
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
● We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation
of our diluted earnings per share for the year ended November 26, 2016. The effect of this change on our diluted
earnings per share was not significant.
● ASU 2016-09 also requires the presentation of employee taxes paid by the Company through the withholding of
shares as a financing activity on the statement of cash flows, which is where we had previously reclassified these
items.
There were no other material impacts to our consolidated financial statements as a result of adopting this updated standard.
Recent Pronouncements Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates ASC Topic 606,
Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue
Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the
Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition—
Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs—
Contracts with Customers. In summary, the core principle of Topic 606 is to recognize revenue when promised goods or
services are transferred to customers in an amount that reflects the consideration that is expected to be received for those
goods or services. 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. In
addition, during 2016 the FASB has issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, all of which clarify certain
implementation guidance within ASU 2014-09, and ASU 2016-11, which rescinds certain SEC guidance within the ASC
effective upon an entity’s adoption of ASU 2014-09. 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 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.
29
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that equity
investments (except those accounted for under the equity method of accounting or those that result in consolidation of the
investee) are to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose
to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or
minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the
same issuer. Furthermore, equity investments without readily determinable fair values are to be assessed for impairment using
a quantitative approach. The amendments in ASU 2016-01 should be applied by means of a cumulative-effect adjustment to
the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity
securities without readily determinable fair values applied prospectively. The amendments in ASU 2016-01 will become
effective for us as of the beginning of our 2019 fiscal year. The adoption of this guidance is not expected to have a material
impact upon our financial condition or results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The guidance in ASU
2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term
of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases
and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over
time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both
finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting
for leases by lessors largely unchanged from previous GAAP. The transitional guidance for adopting the requirements of
ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities
may elect to apply. The guidance in ASU 2016-02 will become effective for us as of the beginning of our 2020 fiscal year.
We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements,
which we expect will have a material effect on our statement of financial position, and have not made any decision on the
method of adoption with respect to the optional practical expedients.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash
payments are presented and classified in the statement of cash flows with the objective of reducing existing diversity in
practice with respect to these items. Among the types of cash flows addressed are payments for costs related to debt
prepayments or extinguishments, payments representing accreted interest on discounted debt, payments of contingent
consideration after a business combination, proceeds from insurance claims and company-owned life insurance, and
distributions from equity method investees, among others. The amendments in ASU 2016-15 are to be adopted retrospectively
and will become effective for as at the beginning of our 2019 fiscal year. Early adoption, including adoption in an interim
period, is permitted. The adoption of this guidance is not expected to have a material impact upon our presentation of cash
flows.
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 expired
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 which began 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
30
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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
The 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.
31
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
A portion of the fair value of consideration transferred has been assigned to identifiable intangible assets as follows:
Description:
Useful
Life
Fair
In Years 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.
The revenue and pre-tax profit of Zenith that is included in our consolidated statements of income for the years ended
November 26, 2016 and November 28, 2015 is as follows:
Net sales and operating losses generated by acquired stores subsequent to acquisition:
2016
2015 (1)
Zenith revenue (2)
Zenith pre-tax income
$54,842
$3,313
$43,522
$3,379
(1) From date of acquisition, February 2, 2015.
(2) Net of eliminated inter-company transactions, See Note 20.
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.
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 26, 2016 and November 28, 2015 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 26, 2016,
the weighted average remaining time to maturity of the CDs was approximately seven months and the weighted average yield
32
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
of the CDs was approximately 0.65%. 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 26, 2016 and November 28, 2015 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.
5. Accounts Receivable
Accounts receivable consists of the following:
November 26,
2016
November 28,
2015
Gross accounts receivable
Allowance for doubtful accounts
Net accounts receivable
$
$
19,157 $
(799)
18,358 $
22,372
(1,175)
21,197
Activity in the allowance for doubtful accounts was as follows:
2016
2015
Balance, beginning of the year
Acquired allowance on accounts receivable (Note 3)
Reductions to allowance, net
Balance, end of the year
$
$
1,175 $
-
(376)
799 $
1,249
209
(283 )
1,175
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.
33
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 26,
2016
November 28,
2015
$
$
24,392 $
369
11,343
26,265
62,369
(7,804)
(1,350)
53,215 $
31,253
318
9,793
27,680
69,044
(7,751)
(1,397)
59,896
We source a significant amount of our wholesale product from other countries. During 2016, 2015 and 2014, purchases from
our two largest vendors located in Vietnam and China were $19,128, $25,190 and $26,707 respectively.
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-
offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves
is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product
offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future
are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we
calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of
the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves
primarily represent design and style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer
has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently,
floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail
reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated
with a specific customer order in our retail warehouses.
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Wholesale
Segment
Retail
Segment
Total
Balance at November 29, 2014
Additions charged to expense
Write-offs
Balance at November 28, 2015
Additions charged to expense
Write-offs
Balance at November 26, 2016
$
$
1,060 $
2,442
(2,415)
1,087
1,994
(2,020)
1,061 $
352 $
430
(472)
310
475
(496)
289 $
1,412
2,872
(2,887)
1,397
2,469
(2,516)
1,350
34
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
7. Property and Equipment
Property and equipment consist of the following:
Properting and equipment were comprised of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Property and equipment at cost
Less accumulated depreciation
Property and equipment, net
November 26,
2016
November 28,
2015
$
$
12,311 $
109,728
99,067
221,106
(116,451 )
104,655 $
12,311
104,265
85,490
202,066
(105,962)
96,104
The net book value of our property and equipment by reportable segment is a follows:
Net book value of PP&E by segment:
Wholesale
Retail - Company-owned stores
Logistical Services
Total property and equipment, net
November 26,
2016
November 28,
2015
$
$
22,984 $
59,347
22,324
104,655 $
17,763
60,810
17,531
96,104
Depreciation expense associated with the property and equipment shown above was included in income from operations in
our consolidated statements of income as follows:
Location of Depreciation Expense:
2016
2015
2014
Cost of goods sold (1)
Selling, general and adminstrative expenses (2)
599 $
9,627
Total depreciation expense included in income from operations $ 12,396 $ 10,226 $
748 $
$
11,648
542
6,814
7,356
(1) All associated with our wholesale segment for fiscal 2016, 2015 and 2014.
(2) Includes depreciation associated with our retail segment of $6,612, $5,970 and $5,782 for fiscal 2016, 2015 and 2014,
respectively. Fiscal 2016 and 2015 includes depreciation associated with our logistical services segment of $3,882
and $2,366, respectively.
35
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
8. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
Intangibles subject to amortization:
Customer relationships
Technology - customized applications
November 26, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets,
Net
$
3,038 $
834
(371) $
(219)
2,667
615
Total intangible assets subject to amortization
3,872
(590)
3,282
Intangibles not subject to amortization:
Trade names
Goodwill
2,490
11,588
-
-
2,490
11,588
Total goodwill and other intangible assets
$ 17,950 $
(590) $
17,360
Intangibles subject to amortization:
Customer relationships
Technology - customized applications
November 28, 2015
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
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
Changes during fiscal 2016 (none)
4,839
-
1,820
-
4,929
-
11,588
-
Balance as of November 26, 2016
$
4,839 $
1,820 $
4,929 $
11,588
There were no changes in the carrying value of our goodwill during fiscal 2016, and there were no accumulated impairment
losses on goodwill as of November 26, 2016, November 28, 2015 or November 29, 2014.
36
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Amortization expense associated with intangible assets during fiscal 2016 and 2015 was $322 and $268, respectively 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. Estimated future amortization expense for intangible assets that exist at November 26, 2016
is as follows:
Future amortization of intangible assets:
$
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Thereafter
322
322
322
322
322
1,672
Total
$
3,282
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
Prior to the acquisition, we paid Zenith approximately $6,863 and $31,308 for freight expense and logistical services in fiscal
2015 and 2014, respectively.
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 we received the final payment of sales proceeds
in the amount of $2,348 which is 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.
37
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 26, 2016
Principal
Balance
Unamortized
Discount
Net
Carrying
Amount
Zenith acquisition note payable
$
Transportation equipment notes payable
Real estate notes payable
6,000 $
-
1,219
(108) $
-
-
5,892
-
1,219
Total debt
Less current portion
7,219
(3,385)
(108)
95
7,111
(3,290)
Total long-term debt
$
3,834 $
(13) $
3,821
November 28, 2015
Principal
Balance
Unamortized
Discount
Net
Carrying
Amount
Zenith acquisition note payable
$
Transportation equipment notes payable
Real estate notes payable
9,000 $
2,152
2,933
(312) $
-
-
8,688
2,152
2,933
Total debt
Less current portion
14,085
(5,477)
(312) 13,773
(5,273)
204
Total long-term debt
$
8,608 $
(108) $
8,500
The future maturities of our notes payable are as follows:
Fiscal 2017
Fiscal 2018
Fiscal 2019
$
$
3,385
3,412
422
7,219
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, payable in three annual installments of $3,000 due on each anniversary of the
note, the first installment having been paid on 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, having reset to the current
rate of 1.14% on February 2, 2016. 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 was $204 and $252 for fiscal 2016 and 2015,
respectively. The current portion of the note due within one year, including unamortized discount, was $2,904 and $2,796 at
November 26, 2016 and November 28, 2015, respectively.
38
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Transportation Equipment Notes Payable
Certain of the transportation equipment operated in our logistical services segment was financed by notes payable in the
amount of $2,152 at November 28, 2015. The current portion of these notes due within one year at November 28, 2015 was
$901, and the notes were secured by tractors, trailers and local delivery trucks with a total net book value of $3,796 at
November 28, 2015. Over the course of fiscal 2016, all of the outstanding transportation equipment notes were paid in full.
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 $5,858 and $5,993 at
November 26, 2016 and November 28, 2015, respectively. The total balance outstanding under these mortgages was $1,219
and $1,709 at November 26, 2016 and November 28, 2015, respectively. The current portion of these mortgages due within
one year was $385 and $351 as of November 26, 2016 and November 28, 2015, respectively.
Certain of the real estate located in Conover, NC and operated in our logistical services segment had been subject to a note
payable in the amount of $1,224 at November 28, 2015, all of which had been included in the current portion of notes payable.
The note was secured by land and buildings with a total net book value of $6,226 at November 28, 2015. The entire
outstanding balance due under this note was paid in full during fiscal 2016.
Fair Value
We believe that the carrying amount of our notes payable approximates fair value at both November 26, 2016 and November
28, 2015. 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
Effective December 5, 2015, we entered into a new credit facility with our bank which provides for a line of credit of up to
$15,000. This credit facility, which matures in December of 2018, is unsecured and 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.
We have $1,972 outstanding under standby letters of credit against our line, leaving availability under our credit line of
$13,028. In addition, we have outstanding standby letters of credit with another bank totaling $456.
Total interest paid during fiscal 2016, 2015 and 2014 was $353, 277 and $176, 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 $3,022 at November
26, 2016 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.
39
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
2016
2015
$
$
11,678 $
146
423
165
(549)
11,863 $
10,376
105
374
1,372
(549)
11,678
Accumulated Benefit Obligation
$
11,138 $
10,967
Discount rate used to value the ending benefit obligations:
3.75%
3.75%
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
$
776 $
11,087
11,863 $
749
10,929
11,678
85 $
4,065
4,150 $
127
4,223
4,350
Total recognized in net periodic benefit cost and accumulated
other comprehensive income:
$
734
$
1,851
2016
2015
2014
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Amortization of transition obligation
Amortization of other loss
$
146 $
423
42
323
105 $
374
42
195
78
373
42
123
Net periodic pension cost
$
934 $
716 $
616
Assumptions used to determine net periodic
pension cost:
Discount rate
Increase in future compensation levels
3.75%
3.00%
3.75%
3.00%
3.75%
3.00%
Estimated Future Benefit Payments (with mortality):
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022 through 2026
40
776
738
700
662
624
4,606
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Of the $4,150 recognized in accumulated other comprehensive income at November 26, 2016, $42 of net transition obligation
and $332 of net loss are expected to be recognized as components of net periodic pension cost during fiscal 2017.
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 $228, $248, and $134 in fiscal 2016, 2015, and 2014, 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 $1,969 and $2,085 as of November 26, 2016 and November 28, 2015,
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 25% of up to 8% of gross pay, regardless of years of service. Expense for employer matching contributions was
$865, $662 and $397 during fiscal 2016, 2015 and 2014, respectively. The increase in contribution expense for fiscal 2016
over fiscal 2015 was largely due to an increase in the matching rate from 20% in 2015 to 25% in 2016. The increase in
contribution expense for fiscal 2015 over fiscal 2014 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 26, 2016 and November 28, 2015,
which is comprised solely of post-retirement benefit costs related to our SERP, is as follows:
Balance at November 29, 2014
Actuarial losses
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 28, 2015
Actuarial losses
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 26, 2016
$
$
(1,974)
(1,372)
237
431
(2,678)
(165)
366
(76)
(2,553)
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 2016, 2015 and 2014 was as follows:
Stock based compensation expense
$903
$894
$951
2016
2015
2014
41
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Incentive Stock Compensation 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. There are no shares available for grant under the 1997 Plan at November
26, 2016.
On April 14, 2010, our shareholders approved the Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan which
was amended and restated effective January 13, 2016 (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. 1,250,000 shares of common stock are reserved for issuance under the 2010 Plan as amended. 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. Forfeitures are recognized as they occur. 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.
Stock Options
There were no new grants of options made in 2016, 2015 or 2014.
Changes in the outstanding options under our plans during the year ended November 26, 2016 were as follows:
Weighted
Average
Exercise
Price
Per Share
Number of
Shares
84,250
-
(8,000)
(10,000)
66,250
66,250
$11.42
-
14.31
14.73
10.57
$10.57
Outstanding at November 28, 2015
Granted
Exercised
Forfeited/Expired
Outstanding at November 26, 2016
Exercisable at November 26, 2016
There were no non-vested options outstanding under our plans during the year ended November 26, 2016.
42
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Additional information regarding our outstanding stock options at November 26, 2016 is as follows:
Options
Exercisable
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
3.6
4.6
0.9
0.4
1,000
22,250
28,000
15,000
66,250
Shares
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
$4.38
1,000 $4.38
8.02 22,250 8.02
10.60 28,000 10.60
14.73 15,000 14.73
66,250
Range of
Exercise Prices
$3.23 - $6.45
$6.45 - $9.67
$9.68 - $12.90
$12.91 - $16.13
Aggregate intrinsic value $
1,257
$
1,257
Additional information regarding activity in our stock options during fiscal 2016, 2015 and 2014 is as follows:
Total intrinsic value of options exercised
Total fair value of options vested
Total cash received from the exercise of options
Excess tax benefits recognized as additional paid-in capital upon the exercise of
$
options (1)
(1) Prior to the adoption of ASU 2016-09 in fiscal 2016. See Note 2.
Restricted Shares
2016
2015
2014
124 $
-
114
5,934 $
87
4,031
-
1,899
236
200
382
72
Changes in the outstanding non-vested restricted shares during the year ended November 26, 2016 were as follows:
Non-vested restricted shares outstanding at November 28, 2015
Granted
Vested
Forfeited
Non-vested restricted shares outstanding at November 26, 2016
Weighted
Average
Grant
Date Fair
Value Per
Share
Number of
Shares
134,154 $17.68
7,814 29.66
(18,954) 20.56
-
-
123,014 $17.99
The grants for 2016 consisted of 5,814 restricted shares granted to our non-employee directors on April 1, 2016 which will
vest on the first anniversary of the grant, and 2,000 shares granted to an employee on July 12, 2016 which will vest on the
second anniversary of the grant.
During fiscal 2016, 18,954 restricted shares were vested and released, of which 12,600 shares had been granted to employees
and 6,354 shares to directors. Of the shares released to employees, 2,940 shares were withheld by the Company to cover
withholding taxes of $77. During fiscal 2015 and 2014, 4,836 shares and 31,234 shares, respectively, were withheld to cover
withholding taxes of $154 and $489, respectively, arising from the vesting of restricted shares. During fiscal 2016, $87 of
43
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
excess tax benefits were recognized within income tax expense. Prior to the adoption of ASU 2016-09, excess tax benefits
of $99 and $228 were recognized during fiscal 2015 and 2014, respectively, as additional paid-in capital upon the release of
vested shares.
Additional information regarding our outstanding non-vested restricted shares at November 26, 2016 is as follows:
Restricted
Shares
Remaining
Share Value Restriction
at Grant Date
Outstanding Per Share
Period
(Years)
Grant
Date
July 17, 2013
January 15, 2014
January 14, 2015
July 14, 2015
April 1, 2016
July 12, 2016
25,200
48,000
40,000
2,000
5,814
2,000
123,014
$16.64
14.12
20.21
38.02
30.96
25.88
1.6
0.1
1.1
1.6
0.3
1.6
Unrecognized compensation cost related to these non-vested restricted shares at November 26, 2016 is $748, expected to be
recognized over approximately a two 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 8,502, 19,053 and 25,677 shares to
employees in fiscal 2016, 2015 and 2014, respectively, which resulted in an immaterial amount of compensation expense.
The ESPP reached the cumulative number of shares authorized for purchase under the plan during the third quarter of fiscal
2016.
14. Income Taxes
The components of the income tax provision are as follows:
Current:
Federal
State
2016
2015
2014
$ 3,728 $ 7,972 $ 4,168
596
896 1,533
(70 )
-
4,559 1,520
(974 )
221
480 1,297
$ 9,948 $ 11,435 $ 5,308
765
Deferred:
Increase (decrease) in valuation allowance
Federal
State
Total
44
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
A reconciliation of the statutory federal income tax rate and the effective income tax rate, as a percentage of income before
income taxes, is as follows:
Statutory federal income tax rate
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
Excess tax benefits from stock-based compensation
Other
Effective income tax rate
2016
2015
2014
35.0 %
-
-
-
4.2
-
(0.3)
(0.3)
38.6 %
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 %
Excess tax benefits in the amount of $1,998 and $300 were recognized as additional paid-in capital during fiscal 2015 and
2014, respectively, resulting from the exercise of stock options and the release of restricted shares. Subsequent to the adoption
of ASU 2016-09 in fiscal 2016 (see Note 2), excess tax benefits of $87 were recognized as a component of income tax
expense.
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 26,
2016
November 28,
2015
$
Deferred income tax assets:
Trade accounts receivable
Inventories
Notes receivable
Post employment benefit obligations
State net operating loss carryforwards
Unrealized loss from affiliates
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
Prepaid expenses and other
307 $
2,407
562
5,338
731
217
3,112
2,005
14,679
-
14,679
5,179
1,012
417
506
2,420
1,795
6,992
927
356
2,674
2,165
17,835
-
17,835
3,093
860
411
Total deferred income tax liabilities
6,608
4,364
Net deferred income tax assets
$
8,071 $
13,471
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 was $0 at both November 26, 2016 and November 28, 2015.
45
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The following table represents a summary of the valuation allowances against deferred tax assets:
2016
2015
2014
Balance, beginning of the year
Additions charged to expense
Deductions reducing expense
Balance, end of the year
$
$
- $
-
- $
70 $
-
(70)
- $
1,044
-
(974)
70
We have state net operating loss carryforwards available to offset future taxable state income of $9,057, which expire in
varying amounts between 2017 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 2016, 2015 and 2014 were $9,949, $5,906, and $2,367, 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, was 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.
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
12 $
43
-
-
1,236 $
12
(1,236)
-
1,497
-
(221)
(40)
2016
2015
2014
Balance, end of the year
$
55 $
12 $
1,236
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2016, 2015,
and 2014, we recognized $15, $(144), and $7 of interest expense (recovery) and $10, $3, and $10 of penalty expense,
respectively, related to the unrecognized benefits noted above in our consolidated statements of income. At November 26,
2016 and November 28, 2015, the balance of accrued interest and penalties associated with unrecognized tax benefits 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 2013 through 2015 for all of our major tax jurisdictions.
15. Litigation Gain, Asset Impairment, and Other Charges
Income from Antitrust Litigation Settlement
Cost of furniture and accessories sold for the year ended November 26, 2016 includes the benefit of $1,428 of income we
received from the settlement of class action litigation. This benefit is included in our wholesale segment. We were a member
of the certified class of consumers that were plaintiffs in the Polyurethane Foam Antitrust Litigation against various producers
of flexible polyurethane foam. The litigation alleged a price-fixing conspiracy in the flexible polyurethane foam industry that
caused indirect purchasers to pay higher prices for products that contain flexible polyurethane foam. In 2015 a settlement
46
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
was reached with several of the producers, though other producers named in the suit filed appeals blocking distribution of
the settlement. In June of 2016 the final producer appeal was dismissed and we received $1,428 in cash representing our
share of the settlement, which is included in cash provided by operating activities in our statement of cash flows for the year
ended November 26, 2016.
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 2016 or
2014. 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 had been
disbursed. These management restructuring costs were incurred within our wholesale segment. There were no restructuring
charges incurred in fiscal 2016 or 2014.
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
Total accrued lease exit costs at November 26, 2016
2016
2015
$
$
$
$
566 $
-
156
(517)
9
433
419
111
(410)
13
214 $
566
105 $
109
214 $
351
215
566
16. Income from the Continued Dumping and Subsidy Offset Act
During the years ended November 26, 2016 and November 28, 2015, we recognized income of $240 and $1,156, respectively,
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 26, 2016:
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Thereafter
Total future minimum lease payments
Retail
Stores
Distribution
Centers
Transportation
Equipment
Total
$ 20,587 $
18,559
16,710
15,415
13,137
38,765
$ 123,173 $
4,249 $
3,015
2,002
1,301
1,254
3,022
14,843 $
3,296 $ 28,132
23,584
2,010
20,520
1,808
18,459
1,743
15,560
1,169
1,217
43,004
11,243 $ 149,259
Lease expense was $31,867, $26,382 and $19,903 for 2016, 2015, and 2014, 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 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Thereafter
$
Total minimum future rental income
$
1,863
1,337
1,247
1,194
359
-
6,000
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 $(59), $(181) and $(248) in 2016, 2015 and 2014, 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 three years. We were contingently liable under licensee lease obligation guarantees in the
amount of $1,868 and $2,494 at November 26, 2016 and November 28, 2015, 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
48
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at November 26, 2016 and
November 28, 2015, were not material.
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:
Denominator for basic income per share - weighted average shares
Effect of dilutive securities
Denominator for diluted income per share — weighted average shares and
2016
2015
2014
$
15,829 $
20,433 $
9,299
10,732,217 10,701,829 10,552,462
140,569
141,198
130,204
assumed conversions
10,862,421 10,843,027 10,693,031
Basic income per share:
Net income per share — basic
Diluted income per share:
Net income per share — diluted
$
1.47 $
1.91 $
0.88
$
1.46 $
1.88 $
0.87
For fiscal 2016, 2015 and 2014, the following potentially dilutive shares were excluded from the computations as there effect
was anti-dilutive:
Stock options
Unvested restricted shares
2016
2015
-
7,814
-
8,354
2014
150,000
-
Total anti-dilutive securities
7,814
8,354
150,000
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. Our wholesale segment also includes our holdings of short-
term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with
these assets are included in other loss, net, in our consolidated statements of income.
● 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 $92,196 for the year ended November 26, 2016 and $73,722 from the date of acquisition through
November 28, 2015. 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.
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:
2016
2015
2014
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
$ 240,346 $ 252,180 $ 223,993
254,667 249,379 216,631
-
95,707
77,250
(117,817) (114,154)
(33,728)
(99,886)
-
$ 432,038 $ 430,927 $ 340,738
(40,865)
$
$
$
$
$
$
18,672 $
4,333
3,511
1,677
-
-
-
28,193 $
15,618 $
6,170
3,528
1,647
(419)
(106)
(449)
25,989 $
14,120
(528)
-
1,539
-
-
-
15,131
2,053 $
5,992
4,204
12,249 $
2,075 $
5,428
2,634
10,137 $
1,972
5,344
-
7,316
7,232 $
5,115
9,154
21,501 $
4,898 $
7,077
1,999
13,974 $
4,527
13,836
-
18,363
$ 139,477 $ 146,878 $ 154,275
86,471
-
$ 278,267 $ 282,543 $ 240,746
88,855
49,935
88,878
46,787
A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below:
2016
2015
2014
Wood
Upholstery
37%
63%
100%
37%
63%
100%
39%
61%
100%
51
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
21. Quarterly Results of Operations
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
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
2016
First
Quarter
Second
Quarter
Third
Quarter
(1)
Fourth
Quarter
(2)
$
92,402 $
14,471
106,873
41,986
5,791
3,234
0.30
0.30
92,990 $
13,677
106,667
42,419
5,853
3,385
0.31
0.31
91,465 $
13,247
104,712
40,091
7,540
4,165
0.39
0.38
100,339
13,447
113,786
43,023
9,009
5,045
0.47
0.47
2015
First
Quarter
(3)
Second
Quarter
(4)
Third
Quarter
Fourth
Quarter
(5)
$
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 $
13,904
111,011
44,824
7,692
4,266
0.39
0.39
101,283
14,273
115,556
45,616
8,706
5,682
0.53
0.52
All quarters shown above for fiscal 2016 and 2015 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 the benefit of a $1,428 award received from the settlement of class action litigation
(see Note 15).
(2) Net income includes income of $148 from the CDSOA, net of related income tax effects of approximately $92 (see
Note 16).
(3) 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).
(4) 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).
(5) 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.
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.
2016
2015
2014
2013 (1)
2012
Net sales
Operating income
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 (8)
Book value per share
269,972
5,080 (4)
6,934 (6)
430,927 (2) $
432,038 (2) $
$
25,989 (4) $
28,193 (3) $
$
5,879 (5) $
(2,416) (5) $
$
12,014
$
31,868
$
25,777
$
(14,699)(7)
$
11,435
$
9,948
$
26,713
$
20,433
$
15,829
$
2.41
$
1.88
$
1.46
$
15,920
$
5,805
$
7,345
$
1.45
$
0.54
$
0.68
$
227,180
$
282,543
$
278,267
$
$
$
$
3,053
8,500
3,821
1.95 to 1 2.37 to 1 2.39 to 1
1.84 to 1
1.83 to 1
14.51
$
16.25
$
16.85
$
321,286 $
10,005 $
(1,818) $
8,187 $
3,091 $
5,096 $
0.47 $
4,565 $
0.42 $
225,849 $
2,467 $
340,738 $
15,131 $
(524) $
14,607 $
5,308 $
9,299 $
0.87 $
5,085 $
0.48 $
240,746 $
1,902 $
14.50 $
14.95 $
(1) Fiscal 2013 contained 53 weeks, whereas all other fiscal years presented above contained 52 weeks.
(2) Fiscal 2016 and 2015 included logistical services revenue from Zenith in the amount of $54,842 and $43,522,
respectively, since the acquisition of Zenith on February 2, 2015.
(3) Fiscal 2016 operating income includes the benefit of a $1,428 award received from the settlement of class action
litigation (see Note 15 to the Consolidated Financial Statements related to the antitrust litigation settlement).
(4) Fiscal 2015 included restructuring and asset impairment charges and lease exit costs totaling $974. Fiscal 2012
included restructuring and asset impairment charges and lease exit costs totaling $1,070.
(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 $240
and $1,156 of income from the Continued Dumping and Subsidy Offset Act (“CDSOA”) received in fiscal 2016 and
2015, respectively.
(6) During fiscal 2012 other income (loss), net included income from the CDSOA of $9,010.
(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) In fiscal 2015 we adopted Accounting Standards Update 2015-17, which required the classification of all deferred
tax assets and liabilities as non-current. The current ratio presented for all periods prior to fiscal 2015 has been
restated to reflect the reclassification of our current deferred tax assets to non-current.
53
Bassett Furniture Industries, Incorporated
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 26, 2016, November 28, 2015 and November 29, 2014
(amounts in thousands)
Balance
Beginning
of
Period
Additions
Charged to
Cost and
Expenses
Deductions
(1)
Other
Balance
End
of Period
For the Year Ended November 29, 2014:
Reserve deducted from assets to which it
applies
Allowance for doubtful accounts
Notes receivable valuation reserves
Income tax valuation allowance
$
$
$
For the Year Ended November 28, 2015:
Reserve deducted from assets to which it
applies
1,607 $
77 $
(435) $
-
$
1,249
4,139 $
- $
- $
-
$
4,139
1,044 $
- $
(974) $
-
$
70
Allowance for doubtful accounts
$
1,249 $
(216) $
(67) $
209 (2) $
1,175
Notes receivable valuation reserves
Income tax valuation allowance
$
$
For the Year Ended November 26, 2016:
Reserve deducted from assets to which it
applies
4,139 $
582 $
(75) $
-
$
4,646
70 $
- $
(70) $
-
$
-
Allowance for doubtful accounts
$
1,175 $
(376) $
- $
-
$
799
Notes receivable valuation reserves
Income tax valuation allowance
$
$
4,646 $
- $
(3,192) $
- (3) $
1,454
- $
- $
- $
-
$
-
(1) Deductions are for the purpose for which the reserve was created. Deductions from the income tax valuation allowance
for the year ended November 29, 2014 were due to the removal of the majority of our valuation allowance.
(2) Represents reserves of acquired company at date of acquisition.
(3) During fiscal 2016, previously reserved notes were determined to be uncollectible and were written off against the
reserve.
54
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, 2011 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 2016
55
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 26, 2016 based on the criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective
as of November 26, 2016, 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 19, 2017
56
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 26, 2016 and November 28, 2015, 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 26, 2016. 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 26, 2016. 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 26, 2016 and November 28, 2015, and
the consolidated results of their operations and their cash flows for each of the three years in the period ended November 26,
2016, 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 26,
2016, 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 19, 2017 expressed an
unqualified opinion thereon.
Richmond, Virginia
January 19, 2017
57
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 26, 2016, 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.
In our opinion, Bassett Furniture Industries, Incorporated and Subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of November 26, 2016, 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 26, 2016 and
November 28, 2015, 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 26, 2016 of Bassett Furniture Industries, Incorporated
and Subsidiaries and our report dated January 19, 2017 expressed an unqualified opinion thereon.
Richmond, Virginia
January 19, 2017
58
T H I S P A G E I N T E N T I O N A L L Y L E F T B L A N K
T H I S P A G E I N T E N T I O N A L L Y L E F T B L A N K
T H I S P A G E I N T E N T I O N A L L Y L E F T B L A N K
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.
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.
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.
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 8, 2017, 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
2016
2015
2016
2015
HIGH
LOW
HIGH
LOW
First
$31.98
$23.65
$26.97
$18.22
$0.09
$0.08
Second
33.20
26.79
32.54
24.59
Third
29.60
23.94
38.02
26.81
Fourth
30.00
22.75
33.30
27.85
0.09
0.10
0.40
0.08
0.09
0.29
J. WALTER MCDOWELL
Former Chief Executive Officer
Carolinas/Virginia Banking
Wachovia Corporation
WILLIAM C. WAMPLER, JR.
Former Executive Director, New College Institute
Former Member, Senate of Virginia
WILLIAM C. WARDEN, JR.
Lead Independent Director of Bassett Furniture Industries, Inc.
Former Executive Vice President
Lowe’s Companies, Inc.
BOARD OF DIRECTORS
ROBERT H. SPILMAN, JR.
Chairman of the Board and Chief Executive Officer
Bassett Furniture Industries, Inc.
JOHN R. BELK
Former President and Chief Operating Officer
Belk, Inc.
Private Investor
KRISTINA K. CASHMAN
Chief Financial Officer
Hopdoddy Burger Bar, Inc.
PAUL FULTON
Chairman Emeritus
Bassett Furniture Industries, Inc.
GEORGE W. HENDERSON, III
Former Chairman and Chief Executive Officer
Burlington Industries, Inc.
OFFICERS
ROBERT H. SPILMAN, JR.
Chairman of the Board and Chief Executive Officer
STEPHEN D. HARMON
Vice President, Information Technology
DAVID C. BAKER
Senior Vice President, Corporate Retail
JAY R. HERVEY
Vice President, Secretary, General Counsel
JOHN E. BASSETT, III
Senior Vice President, Wood
MATTHEW S. JOHNSON
Vice President, Sales
BRUCE R. COHENOUR
Senior Vice President, Sales and Merchandising
KARA KELCHNER-STRONG
Vice President, Strategy and Planning
J. MICHAEL DANIEL
Senior Vice President and Chief Financial Officer
MIKE R. KREIDLER
Vice President, Upholstery Operations
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
KENA A. COHENOUR
Vice President, Upholstery Merchandising
NICHOLAS C. GEE
Vice President, Corporate Retail Sales
PETER D. MORRISON
Vice President, Marketing
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast Region
THOMAS E. PRATO
Vice President, Sales
J. CARTER UNDERWOOD
Vice President, Wood Operations
EDWARD H. WHITE
Vice President, Human Resources
ANN M. ZACCARIA
Vice President, Real Estate and New Store Development
b a ss 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