N E W 2 0 1 7
PITTSB URGH , PA
WESTB URY, NY
OKL AH OM A CI T Y, OK
KI NG OF PRUSSIA , PA
C HAND LER , A Z
COVER : WIC HI TA , K S
BOARD OF DIRECTORS
ROBERT H. SPILMAN, JR.
Chairman of the Board and Chief Executive Officer
Bassett Furniture Industries, Inc.
J. WALTER MCDOWELL
Former Chief Executive Officer
Carolinas/Virginia Banking
Wachovia Corporation
Former President and Chief Operating Officer
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.
JOHN R. BELK
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.
JAY R. HERVEY
Chairman of the Board and Chief Executive Officer
Vice President, Secretary, General Counsel
DAVID C. BAKER
Senior Vice President, Corporate Retail
MATTHEW S. JOHNSON
Vice President, Sales
JOHN E. BASSETT, III
Senior Vice President, Wood
KARA KELCHNER-STRONG
Vice President, Strategic Transformation Officer
BRUCE R. COHENOUR
MIKE R. KREIDLER
Senior Vice President, Sales and Merchandising
Vice President, Upholstery Operations
J. MICHAEL DANIEL
JAY S. MOORE
Senior Vice President and Chief Financial Officer
Vice President, Digital Marketing
JACK L. HAWN, JR.
Senior Vice President, Bassett
President, Zenith
MARK S. JORDAN
Senior Vice President, Upholstery
EDWIN C. AVERY, JR.
Vice President, Upholstery Product Development
WILLIAM A. BENDALL
Vice President, Sales, Juvenile
KENA A. COHENOUR
Vice President, Upholstery Merchandising
NICHOLAS C. GEE
Vice President, Corporate Retail Sales
STEPHEN D. HARMON
Vice President, Information Technology
PETER D. MORRISON
Vice President, Chief Creative Officer
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast Region
THOMAS E. PRATO
Vice President, Sales, East Region
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
To Our Shareholders
Consolidated revenue for 2017 grew by 4.7%
home furnishings competencies through a
to $453 million. All three of our operating
technology laden fixturing package designed
segments – wholesale, retail, and logistics
to easily navigate the many options that we
contributed to the increase in revenue. Adjusted
offer to create personalized space for our
net income of $15.8 million was about the same
clients. We have engaged a group of experts
as recorded in the prior year. Over the course of
to work with our internal team to architect the
2017, we embarked upon a series of initiatives
Generation 3 store and to unify the Bassett
designed to embrace new marketing programs
experience from our website through our
to better compete in today’s fluid environment
store to the ultimate delivery of our products
and
to drive
future growth, primarily
to the home. Also important is the continuous
expanding our Bassett Home Furnishings
process of upgrading our store real estate
store network. The fusion of our brick and
as time goes on. As has been the case with
mortar experience, our custom manufacturing
almost all of our relocations, the move to a new
platform, and our digital marketing strategy
location in Scottsdale, Arizona in early 2017 has
will definitely sharpen in fiscal 2018. Although
been very successful – with improved sales and
we acknowledge that there are accompanying
profitability in the new store versus the old one.
operational costs with this vision and with our
We plan to move two of our Houston locations
store expansion, we believe that charting this
to better sites in 2018.
course now is prudent, exciting, and indeed
necessary to provide Bassett its own space
Outside of shipments to our stores,
amidst the much discussed disruptive forces
sales in the open market grew 4%
that in part define the U. S. retail sector today.
in 2017. Our HGTV HOME Design
This letter will discuss these plans and also
Studio by Bassett account total
highlight additional aspects of our current
grew by 20 to a total of 192 by year end. The
relationship that we formed with HGTV in 2011
continues to pay dividends inside and outside of
our retail store network. Independent furniture
store accounts view the ability to leverage the
HGTV HOME brand in their local markets as a
tremendous asset which has helped us form
stronger relationships with these retailers.
Another key development in open market sales
in 2017 was the expansion of our Club Level
business strategy.
BUILDING ON OUR BASE
2017 marked the 20th year of our retail strategy,
still a relatively short amount of time in the
context of our 115 year history. Over those
20 years we have worked hard to develop the
capabilities to offer the consumer a uniquely
personal experience to furnish their home.
Building on this ability, we plan to open our new
“Generation 3” store prototype in Frisco, Texas
during the third quarter of 2018. Two years
in the making, the new store will showcase
Bassett’s
interior design and customizable
CLUB LE VEL M OTI ON FU RNI T U R E
GR AN D PR AIR IE , T X - WARE HOUSE AND UPHOL STE RY PL A NT
by Bassett motion furniture division. Fueled
more productive new stores and increasing our
by a broader assortment and larger showroom
comparable store sales. We are very excited
presentation, Club Level sales doubled in 2017.
by our intentions to open at least 10 new stores
And we have opened 82 Club Level Pavilion
over the next 18 months and to finally begin to
dedicated space concepts inside independent
grow our fleet. Several of the new stores are
furniture stores since the debut last April.
in markets where we currently do very little
wholesale volume so much of the business will
Fueling our wholesale manufacturing and
be entirely incremental. The downside of this
importing engine
is the obvious
intent of
level of activity is the burden of pre-opening
all of these sales efforts. The anticipation
and startup costs that accompany new stores.
of current and future growth was behind
We began to experience a greater level of these
several investments made in 2017 to augment
costs in 2017 and even more are in store in
production. In February, we opened a new
2018. Nevertheless, the long term benefits of
350,000 square foot upholstery manufacturing
a larger retail footprint gives us the confidence
and Zenith logistics distribution center
in
to look past these temporary losses and press
Grand Prairie, Texas. The primary objectives
on to the future.
of the new facility are to serve the western
U. S. more cost effectively and more quickly.
Hand-in-hand with our store plans are
We tripled the square footage allocated to
upcoming investments in digital technologies
our Bench Made manufacturing footprint in
across multiple fronts. The corresponding
Bassett, Virginia as consumers continued to
foundational
investments
in systems and
buy more of the customizable solid wood
customer experience enhancements that we
dining, bedroom, and occasional furniture
began in 2017 will accelerate in 2018 and will
product line. Finally, we added 12 state-of-the-
result in higher levels of SG&A spending for
art, fuel efficient tractors to our Zenith “middle
the next several quarters. The end result of
mile” fleet. Many challenges persist in the
these investments will:
line haul furniture trucking space but Zenith
provides a competitive service advantage that
is becoming increasingly vital to Bassett and
other Zenith customers.
NEW GROWTH
With our store expansion plans as a backdrop,
it is noteworthy that over the past three years
we have opened 11 new stores, only to close
another 12 over the same time period. We also
purchased another store from a previously
existing licensee so that our corporate store
count has been stuck at 60 since the end of
2014. Despite this, we have grown our retail
volume over that three year period by opening
•
•
Elevate digital brand awareness through
heightened social media outreach,
Educate and inspire more consumers to
experience the Bassett brand digitally or
through our brick and mortar stores,
•
Enhance in-store collaboration through
the introduction of an upholstery sectional
sofa configurator and 3-D room planning
capabilities, and
•
Deliver smarter, faster customer service
that allows transactions to be tracked
via mobile devices from purchase, to
manufacture of the goods, to delivery to
the home.
NEW TON, NC - R ECYC LI NG DAY
SOUTH EASTE RN O HI O - B ENC H MAD E TRE E PL ANT ING
BEN CH M ADE OAK D IN IN G
By adding
this
level of
technological
500,000 gallons of water and 200 barrels of
enhancements to our ability to quickly produce
oil in 2017 alone. To encourage an awareness
a custom home furnishings solution for our
of sustainability two years ago, we began
customers will provide a highly experiential
planting two maple seedlings for each piece of
store equation that we believe will make our
Bench Made product that we produce. In 2017,
brick and mortar relevant for many years to
we planted 13,600 trees in Appalachia and
come and provide a customer experience that
have plans to plant another 21,000 this year.
online-only retailers cannot match.
Although we are proud of our progress in giving
Subsequent to year end we acquired the Lane
additional avenues to make our impact more
back to the environment, we are exploring
Venture outdoor furniture business for $15.6
compelling.
million. We are excited about our entry into
this category and believe that Lane Venture
The environmental movement
rightfully
will provide us a foundation to become a
continues to gather steam across our industry
significant player in the field. We will operate
and our country and we want Bassett to truly
Lane Venture as a stand-alone business and do
become a leader in this regard.
not plan to market the product in the Bassett
stores. We have our hands full at the moment
Bassett has come a long way since the dark
in getting Lane Venture up and running with
days of uncertainty 10 years ago. Hopefully,
a new technology platform, a new custom
this letter has communicated our belief that a
manufacturing model, and in a newly leased
lot of opportunity remains for us to grow and
facility. Once we begin to realize the fruits
improve, and that we are in full pursuit of those
of these efforts, we plan to have a separately
outcomes. I remain thankful for the support of
marketed
and merchandised
outdoor
our associates, our Board of Directors, and our
assortment for our stores under the Bassett
shareholders as we lead into 2018.
Outdoor name. This will occur only after we
are satisfied that we have begun to tap the full
potential of the Lane Venture opportunity.
ENVIRONMENTAL STEWARDSHIP
Robert H. Spilman, Jr.
Chairman & CEO
Corporate environmental stewardship
is a
culture that has evolved at Bassett over the
years since our program began back in 2010.
Working with our industry trade association,
we have become EFEC (Enhancing Furniture’s
Environmental Culture) certified and, through
education and implementation, we were able
to recycle over 800 tons of paper, cardboard,
fabric, wood dust, plastic, and other materials
last year. Our conservation program saved
Financial Summary
INCOME STATEMENT DATA
Net Sales
Income From Operations
Net Income
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
Fiscal years ended November
2017
2016
2015
2014
2013
$452,503
27,018
18,256
$432,038
28,193
15,829
$430,927
25,989
20,433
$340,738
15,131
9,299
$321,286
10,005
5,096
$ 1.70
1.47
0.77
17.83
$ 1.46
1.44
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
$ 53,949
23,125
293,748
329
191,460
$ 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
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 115-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 25, 2017, 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 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 70% of the products we currently sell are manufactured in the United
States.
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, 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 has since operated as a wholly-owned subsidiary of Bassett. Our acquisition of Zenith brought 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. Zenith now operates seven regional freight hubs and 14 home delivery centers in 13 states. We believe that our
ownership of Zenith will not only enhance our own wholesale and retail distribution capabilities, but will provide additional
growth opportunities as Zenith continues to expand its service to other customers.
In September of 2011, we announced the formation of a strategic partnership with HGTV (Home and Garden Television), a
division of Scripps Networks, LLC, which combines our heritage in the furniture industry with the penetration of 96 million
households in the United States that HGTV enjoys today. As part of this alliance, the in-store design centers have been co-
branded with HGTV to more forcefully market the concept of a “home makeover”, an important point of differentiation for
our stores that also mirrors much of the programming content on the HGTV network. We believe the new co-branded design
centers coupled with the targeted national advertising on HGTV have played a key role in 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.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
At November 25, 2017, our BHF store network included 60 Company-owned stores and 30 licensee-owned stores. During
fiscal 2017, we opened new stores in Garden City, New York; Culver City, California; King of Prussia, Pennsylvania;
Wichita, Kansas; and Pittsburgh, Pennsylvania and completed the repositioning of our store in Scottsdale, Arizona. In
addition, we acquired a store in Columbus, Ohio from a former licensee. We closed underperforming stores in Danbury,
Connecticut and Catonsville, Maryland. We also closed our Las Vegas, Nevada store in preparation for repositioning that
store to another location in the Las Vegas market in early 2018, and closed our Dallas, Texas and Cincinnati, Ohio stores at
the completion of the lease terms. The Dallas, Texas store will be replaced by the Frisco, Texas store that is planned to open
late in 2018. We are in active negotiations to secure a site at which we can replace the Cincinnati, Ohio store at an improved
location. A new licensee store was opened in Kansas City, Missouri, and another licensee closed a store in Toronto, Canada.
We continue to execute our strategy of growing the Company through opening new stores, repositioning stores to improved
locations within a market and closing underperforming stores. The following table shows planned store openings where leases
have been executed:
Location
New Stores:
Chandler, AZ
Oklahoma City, OK
Summerlin, NV
El Paso, TX
La Jolla, CA
Daly City, CA
Coral Gables, FL
Frisco, TX
Type
Corporate
Corporate
Corporate
Corporate
Licensed
Licensed
Corporate
Corporate
Size
Sq. Ft.
Planned
Opening
8,800
9,700
15,500
8,400
10,000
9,000
10,000
15,000
Q1 2018
Q1 2018
Q1 2018
Q2 2018
Q3 2018
Q3 2018
Q3 2018
Q4 2018
In addition, lease negotiations are underway for new store locations that could result in additional openings during 2018.
With a track record of six consecutive years of positive same store sales growth and our focus on store productivity, we
believe that we can take our concept to new markets and consistently grow overall store count in the years to come.
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.
In 2018, Bassett will focus on its digital effort to improve the customers’ journey from the time they begin on our website to
the final step of delivering the goods to their homes. Today’s customers expect their digital experiences and communications
to be personalized and highly-relevant, and catered to match their specific needs and preferences. Bassett is laying the
foundation to becoming more connected to its customers and to use the data and insights collected during the customer
journey to create a more compelling customized customer experience. This year, the Company plans to invest in technology,
including an order management system, and digital talent who can direct the strategy, planning and daily business direction
and critical decision making required for building a competitive omnichannel retail business.
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 25, 2017,
November 26, 2016 and November 28, 2015:
2017
2016
2015
Change from Prior Year
2017 vs 2016
Dollars Percent Dollars Percent
2016 vs 2015
Sales Revenue:
Furniture and
accessories
Logistics
Total net sales
$ 398,097 88.0% $ 377,196 87.3 % $387,405 89.9% $20,901
(436 )
54,406 12.0% 54,842 12.7 % 43,522 10.1%
5.5% $ (10,209)
-0.8% 11,320
-2.6%
26.0%
revenue
452,503 100.0% 432,038 100.0 % 430,927 100.0% 20,465
4.7% 1,111
0.3%
Cost of furniture
and accessories
sold
SG&A
New store pre-
opening costs
Other charges
Income from
operations
177,579 39.2% 167,519 38.8 % 179,291 41.6% 10,060
245,493 54.3% 235,178 54.4 % 224,050 52.0% 10,315
6.0% (11,772)
4.4% 11,128
-6.6%
5.0%
2,413
-
0.5%
0.0%
1,148
-
0.3 %
0.0 %
623
974
0.2% 1,265 110.2%
- NM
0.2%
525
84.3%
(974) -100.0%
$ 27,018
6.0% $ 28,193
6.5 % $ 25,989
6.0% $ (1,175 )
-4.2% $ 2,204
8.5%
Our consolidated net sales by segment were as follows:
2017
2016
2015
Change from Prior Year
2017 vs 2016
Dollars Percent Dollars Percent
2016 vs 2015
Net Sales
Wholesale
Retail
Logistical services
Inter-company eliminations:
Furniture and accessories
Logistical services
Consolidated
$ 249,193 $ 240,346 $ 252,180 $ 8,847
268,264 254,667 249,379 13,597
77,250 1,871
97,578
95,707
(119,360) (117,817) (114,154) (1,543)
(33,728) (2,307)
$ 452,503 $ 432,038 $ 430,927 $ 20,465
(40,865)
(43,172)
3.7% $ (11,834)
5,288
5.3%
18,457
2.0%
1.3%
5.6%
4.7% $
(3,663)
(7,137)
1,111
-4.7%
2.1%
23.9%
3.2%
21.2%
0.3%
Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of
operations for fiscal 2017 and 2016 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:
Wholesale
Retail
Logistics
Eliminations
Consolidated
Year Ended November 25, 2017
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
$
249,193 $
-
249,193
164,028
66,044
-
19,121 $
268,264 $
-
268,264
132,463
129,898
2,413
3,490 $
- $
97,578
97,578
-
94,616
-
2,962 $
(119,360) (1) $
(43,172) (2)
(162,532)
(118,912) (3)
(45,065) (4)
-
1,445
$
398,097
54,406
452,503
177,579
245,493
2,413
27,018
Wholesale
Retail
Logistics
Eliminations
Consolidated
Year Ended November 26, 2016
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
$
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
Wholesale
Retail
Logistics
Eliminations
Consolidated
Year Ended November 28, 2015
Sales revenue:
Furniture & accessories
Logistics
Total sales revenue
$
Cost of furniture and accessories sold
SG&A expense
New store pre-opening costs
Income from operations (5)
$
252,180 $
-
252,180
168,842
67,770
-
15,568 $
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)
(113,927) (3)
(35,652) (4)
-
1,697
$
387,405
43,522
430,927
179,291
224,050
623
26,963
(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 logistical services expense
incurred from Zenith by our retail and wholesale segments.
Year Ended
November 25, November 26, November 28,
2016
2015
2017
Intercompany logistical services
Intercompany rents
Total SG&A expense elimination
$
$
(43,172) $
(1,893)
(45,065) $
(40,865) $
(1,911)
(42,776) $
(33,728)
(1,924)
(35,652)
(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, SG&A expense and operating income from operations for our Wholesale Segment were as follows
for the years ended November 25, 2017, November 26, 2016 and November 28, 2015:
2017
2016
2015
Change from Prior Year
2017 vs 2016
Dollars Percent Dollars Percent
2016 vs 2015
Net sales
Gross profit
SG&A
Income from operations $ 19,121
$ 249,193 100.0% $ 240,346 100.0% $ 252,180 100.0% $ 8,847
85,165 34.2% 83,452 34.7% 83,338 33.0% 1,713
66,044 26.5% 64,780 27.0% 67,770 26.9% 1,264
449
7.7% $ 18,672
7.8% $ 15,568
6.2% $
3.7% $ (11,834 )
114
2.1%
2.0%
(2,990 )
2.4% $ 3,104
-4.7%
0.1%
-4.4%
19.9%
Wholesale shipments by category for the last three fiscal years are summarized below:
2017
2016
2015
Change from Prior Year
2017 vs 2016
Dollars Percent Dollars Percent
2016 vs 2015
Wood
Upholstery
Other
Total
$ 86,667 34.8% $ 88,763 36.9% $ 93,073 36.9% $ (2,096)
158,894 63.8% 149,027 62.0% 156,768 62.2% 9,867
0.9% 1,076
$ 249,193 100.0% $ 240,346 100.0% $ 252,180 100.0% $ 8,847
3,632
2,556
2,339
1.5%
1.1%
-2.4% $ (4,310)
(7,741)
6.6%
217
42.1%
3.7% $ (11,834)
-4.6%
-4.9%
9.3%
-4.7%
Fiscal 2017 as Compared to Fiscal 2016
The sales increase in 2017 was driven by a 2.7% increase in furniture shipments to the BHF store network along with a 3.9%
increase in furniture shipments to the open market (outside the BHF store network) as compared to the prior year period. A
much smaller component of our wholesale revenues, shipments of wholesale accessories, increased 42% over the prior year
period. The decrease in gross margins from fiscal 2016 was primarily due to the $1,428 settlement of the Polyurethane Foam
Antitrust Litigation in 2016. Excluding the benefit of the settlement, the gross margin for fiscal 2016 would have been 34.1%.
This increase was primarily due to improved margins in the domestic upholstery operations from favorable pricing strategies
and improved manufacturing efficiencies. The decrease in SG&A as a percentage of sales compared with 2016 was primarily
due to greater leverage of fixed costs from higher sales volumes, partially offset by increased spending on the website and
digital strategy development.
Fiscal 2016 as Compared to Fiscal 2015
The sales decrease in 2016 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 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. SG&A for 2016 decreased in both dollars and as a percentage of sales primarily due to decreases in incentive
compensation expenses and bad debt costs. The prior year period also included costs associated with the acquisition of Zenith.
Wholesale Backlog
The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores
as of November 25, 2017, November 26, 2016, and November 28, 2015 was as follows:
Year end wholesale backlog
$22,239
$22,130
$17,131
2017
2016
2015
6
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
Retail Segment – Company Owned Stores
Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income for our Retail Segment were as
follows for the years ended November 25, 2017, November 26, 2016 and November 28, 2015:
2017 vs 2016
2016 vs 2015
2017 vs 2016
2016 vs 2015
2017
2016
2016
2015
Dollars Percent Dollars Percent
Change from Prior Year
Net sales
Gross profit
SG&A expense
New store pre-
opening costs
Income from
operations
$ 268,264 100.0% $ 254,667 100.0% $ 254,667 100.0% $ 249,379 100.0% $ 13,597
135,801 50.6% 126,459 49.7% 126,459 49.7% 125,003 50.1% 9,342
129,898 48.4% 120,978 47.5% 120,978 47.5% 118,210 47.4% 8,920
5.3% $ 5,288
7.4% 1,456
7.4% 2,768
2.1 %
1.2 %
2.3 %
2,413
0.9%
1,148
0.5%
1,148
0.5%
623
0.2% 1,265
110.2%
525
84.3 %
$
3,490
1.3% $
4,333
1.7% $
4,333
1.7% $
6,170
2.5% $
(843)
-19.5% $ (1,837)
NM
The following tables present operating results on a comparable store basis for each comparative set of periods. Table A
compares the results of the 52 stores that were open and operating for all of 2017 and 2016. Table B compares the results of
the 56 stores that were open and operating for all of 2016 and 2015.
Comparable Store Results:
Table A: 2017 vs 2016 (52 Stores) Table B: 2016 vs 2015 (56 Stores) 2017 vs 2016
2016 vs 2015
2017
2016
2016
2015
Dollars Percent Dollars Percent
Change from Prior Year
$ 233,823 100.0% $229,530 100.0% $243,062 100.0% $239,713 100.0% $ 4,293
Net sales
Gross profit
119,546 51.1% 115,103 50.1% 121,327 49.9% 120,535 50.3% 4,443
SG&A expense 112,428 48.1% 108,328 47.2% 114,097 46.9% 112,484 46.9% 4,100
Income from
operations
8,051 3.4% $ 343
7,118 3.0% $
6,775 3.0% $
7,230 3.0% $
$
1.9 % $ 3,349
3.9 %
792
3.8 % 1,613
1.4%
0.7%
1.4%
5.1 % $ (821)
-10.2%
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:
2017 vs 2016 All Other Stores
2016 vs 2015 All Other Stores 2017 vs 2016
2016 vs 2015
2017
2016
2016
2015
Dollars Percent Dollars Percent
Change from Prior Year
$ 34,441 100.0% $ 25,137 100.0% $ 11,605 100.0% $ 9,666 100.0% $ 9,304
Net sales
Gross profit
16,255 47.2% 11,356 45.2% 5,132 44.2% 4,468 46.2% 4,899
SG&A expense 17,470 50.7% 12,650 50.3% 6,881 59.3% 5,726 59.2% 4,820
New store pre-
37.0% $ 1,939
43.1%
664
38.1% 1,155
20.1%
14.9%
20.2%
opening costs
2,413
7.0% 1,148 4.6% 1,148 9.9%
623 6.4% 1,265 110.2%
525
84.3%
Loss from
operations
$ (3,628) -10.5% $ (2,442) -9.7% $ (2,897) -25.0% $ (1,881) -19.5% $ (1,186)
48.6% $ (1,016)
54.0%
Fiscal 2017 as Compared to Fiscal 2016
The 2017 increase in net sales for the 60 Company-owned BHF stores was comprised of a 1.9% increase in comparable store
sales along with a $9,304 increase in non-comparable store sales.
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar
value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores
increased by 1.8% in fiscal 2017 over 2016.
The increase in comparable store gross margins over 2016 is primarily due to improved pricing strategies and product mix.
The increase in comparable store SG&A as a percentage of sales was primarily due to a $500 legal settlement along with
higher advertising expenses of $687 and occupancy costs of $481.
Increased losses from the non-comparable stores in fiscal 2017 included additional pre-opening costs associated with the
Garden City, New York; Culver City, California; King of Prussia, Pennsylvania; Wichita, Kansas; and Pittsburgh,
Pennsylvania stores which opened during fiscal 2017, and the new stores in Chandler, Arizona; Oklahoma City, Oklahoma;
and Summerlin, Nevada which are expected to open during the first quarter of 2018. 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.
We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the
income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales
volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom
nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered
by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $400 to $600 per store. During
fiscal 2017 we incurred $969 of post-opening losses associated with the five new stores which opened during the year. There
were post-opening losses of $482 primarily associated with two new stores during fiscal 2016.
Pre- and post-opening losses for fiscal 2017 were partially offset by a gain of $1,220 from the sale of our retail store location
in Las Vegas, Nevada. The repositioning of that store to a new location in Summerlin, Nevada is expected to be completed
in early 2018.
Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with
local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each
new store will be ongoing.
Fiscal 2016 as Compared to Fiscal 2015
The 2016 increase in net sales for the 59 Company-owned BHF stores was comprised of 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 slight decline in gross margins from 2015 was 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 as a percentage of net sales were unchanged from 2015.
Losses from the non-comparable stores in fiscal 2016 included 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 that were 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.
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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.
Retail Comparable Store Sales Increases
The following table provides year-over-year comparable store sales increases for the last three fiscal years:
2017
2016
2015
Delivered
Written
1.9%
1.8%
1.4%
1.4%
13.3%
11.0%
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 25,
2017, November 26, 2016, and November 28, 2015, was as follows:
2017
2016
2015
$
Year end retail backlog
Retail backlog per open store $
35,684 $
595 $
32,788 $
556 $
31,871
531
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:
Change from Prior Year
Logistics revenue
Operating expenses
$ 97,578 100.0% $ 95,707 100.0% $ 77,250 79.2% $ 1,871
94,616 97.0% 92,196 96.3% 73,722 75.6% 2,420
2017
2016
2015 (1)
2016 vs 2015 (1)
2017 vs 2016
Dollars Percent Dollars Percent
23.9%
25.1%
2.0 % $ 18,457
2.6 % 18,474
Income from operations $ 2,962
3.0% $ 3,511
3.7% $ 3,528 3.6% $ (549)
-15.6 % $
(17)
-0.5%
(1) Results of operations for logistical services for fiscal 2015 include approximately 10 months of operations from the date
of acquisition, February 2, 2015.
Fiscal 2017 as Compared to Fiscal 2016
Zenith’s revenue growth over 2016 was driven by increases in revenue from both Bassett and other non-Bassett customers
which were partially offset by decreases from one significant non-Bassett customer. Increased operating costs as a percentage
of revenue were partially attributable to increased costs in the home delivery operations primarily from the start-up of several
new local distribution hubs. Operating costs for fiscal 2017 and 2016 include non-cash depreciation and amortization charges
of $4,653 and $4,204, respectively.
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
Fiscal 2016 as Compared to Fiscal 2015
Zenith’s results for fiscal 2016 and fiscal 2015 are not comparable as the 2015 period only includes ten months of operations
following the date of acquisition. Operating costs for fiscal 2016 and 2015 include non-cash depreciation and amortization
charges of $4,204 and $2,634, respectively.
Other Items Affecting Net Income
Other items affecting net income for fiscal 2017, 2016 and 2015 are as follows:
2017
2016
2015
Gain on sales of investments (1)
Investment income (2)
Income from Continued Dumping & Subsidy Offset Act (3)
Remeasurement gain on acquisition of affiliate (4)
Income from unconsolidated affiliated company (5)
Retail real estate impairment charge (6)
Net periodic pension costs (7)
Cost of company-owned life insurance
Interest expense (8)
Other
$
4,221 $
318
94
-
-
(1,084)
(1,049)
(517)
(234)
(891)
- $
296
240
-
-
-
(910)
(706)
(552)
(784)
-
228
1,156
7,212
220
(182)
(716)
(629)
(607)
(803)
Total other income (loss), net
$
858 $
(2,416) $
5,879
(1) See Note 9 to the Consolidated Financial Statements for information related gains realized from the sale of two
investments during fiscal 2017.
(2) Investment income for fiscal 2017, 2016 and 2015 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 2017, 2016 and 2015 also includes gains of $29, $176 and $136,
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.
(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) 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.
(5) 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.
(6) See Note 2 to the Consolidated Financial Statements for information related to impairments of retail real estate
during fiscal 2017 and 2015.
(7) Represents the portion of net periodic pension costs not included in income from operations. See Note 11 to the
Consolidated Financial Statements for additional information related to our defined benefit pension plans.
(8) Our interest expense in fiscal 2017 has declined significantly from the previous two years as debt incurred or assumed
with the 2015 acquisition of Zenith has largely been repaid. See Note 10 to the Consolidated Financial Statements
for additional information regarding our outstanding debt at November 26, 2016.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
Provision for Income taxes
We recorded an income tax provision of $9,620, $9,948 and $11,435 in fiscal 2017, 2016 and 2015, respectively. For fiscal
2017 and 2016, our effective tax rates of 34.5% and 38.6%, respectively, differ 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. The
reduction in the effective tax rate in fiscal 2017 from 2016 was primarily due to higher excess tax benefits from stock
compensation recognized during fiscal 2017. The increase in the effective tax rate in fiscal 2016 from 2015 was primarily
due to the benefit of deductible goodwill recognized in 2015 arising from the acquisition of Zenith. 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 $8,393 as of November 25, 2017, which, upon utilization, are expected to reduce our cash
outlays for income taxes in future years. On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law.
Among other provisions, the Act reduces the Federal statutory corporate income tax rate from 35% to 21%. This rate reduction
is expected to have a significant impact on our provisions for income taxes for periods beginning after November 25, 2017,
including a one-time impact resulting from the revaluation of our deferred tax assets and liabilities to reflect the new lower
rate. While we have not yet determined the net amount of the revaluation, we expect that it will be a significant component
of our income tax provision for the first quarter of fiscal 2018.
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 2017 was $36,384 compared to $39,062 for fiscal 2016, a decrease of $2,678. This
decrease is primarily due to changes in working capital.
Our overall cash position increased by $18,805 during 2017. Offsetting the cash provided by operations, we used $6,135 of
cash in investing activities, primarily consisting of $15,500 in capital expenditures associated with retail store relocations,
retail store remodels, and in-process spending on new stores and expanding and upgrading our manufacturing capabilities,
partially offset by proceeds from the sale of property and equipment of $4,474, primarily arising from the sale of our Las
Vegas, Nevada retail store, and $5,546 in proceeds from the sale of other investments. Net cash used in financing activities
was $11,444, including dividend payments of $7,725 and the annual $3,000 installment payment on our Zenith acquisition
note payable. With cash and cash equivalents and short-term investments totaling $77,074 on hand at November 25, 2017,
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 facility and expect to remain in
compliance for the foreseeable future. At November 25, 2017, we had $2,249 outstanding under standby letters of credit
against our line, leaving availability under our credit line of $12,751. In addition, we have outstanding standby letters of
credit with another bank totaling $511.
At November 25, 2017 we have outstanding principal totaling $3,747, excluding discounts, under notes payable of which
$3,418 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 $173,937 at November 25, 2017 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
$2,743 at November 25, 2017. See Note 17 to our condensed consolidated financial statements for additional details regarding
our leases and lease guarantees.
Dividends and Share Repurchases
During fiscal 2017, we declared four quarterly dividends totaling $4,508, or $0.42 per share, and one special dividend of
$3,758, or $0.35 per share. Cash dividend payments to our shareholders during fiscal 2017 totaled $7,725. During fiscal 2017,
repurchases of our stock under our share repurchase program were not significant. The approximate dollar value that may yet
be purchased pursuant to our stock repurchase program as of November 25, 2017 was $11,453.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2018 will be approximately $25 to $30 million which will be
used primarily for new stores and store remodeling in our retail segment and the purchase of transportation equipment for
our logistical services segment. Our capital expenditure and working capital requirements in the foreseeable future may
change depending on many factors, including but not limited to the overall performance of the new stores, our rate of growth,
our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or
unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital
expenditure and working capital requirements for the foreseeable future.
Fair Value Measurements
We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies
these inputs into the following hierarchy:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term
nature of these items. The recurring estimate of the fair value of our mortgages and notes payable for disclosure purposes
(see Note 10 to the Consolidated Financial Statements) involves Level 3 inputs. Our primary non-recurring fair value
estimates, typically involving the valuation of business acquisitions (see Note 3 to the Consolidated Financial Statements)
and asset impairments (see Note 15 to the Consolidated Financial Statements) have utilized Level 3 inputs.
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations -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.
2018
2019
2020
2021
2022
Thereafter Total
Post employment benefit
obligations (1)
$
Notes payable
Contractual advertising
Interest payable
Letters of credit
Operating leases (2)
Lease guarantees (3)
Other obligations &
commitments
Purchase obligations (4)
1,074 $
3,418
3,375
89
2,760
29,552
1,075
1,009 $
329
3,560
9
-
27,643
627
957 $
-
-
-
-
25,136
347
945 $
-
-
-
-
20,926
347
1,301 $
-
-
-
-
17,907
347
790
-
790
-
150
-
150
150
Total
$ 42,133 $ 33,967 $ 26,590 $ 22,368 $ 19,705 $
-
-
-
-
10,892 $ 16,178
3,747
6,935
98
2,760
52,773 173,937
2,743
-
200
-
2,230
-
63,865 $ 208,628
(1)
(2)
(3)
(4)
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 $17,827 to provide funding for these obligations. See Note 11 to the Consolidated Financial Statements for more
information.
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.
Lease guarantees relate to payments we would only be required to make in the event of default on the part of the 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 2017, we had approximately $11,818 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
reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions
and estimates, affect our consolidated financial statements.
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
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 2017, 2016 and 2015, 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 $617 and $799 at November
25, 2017 and November 26, 2016, respectively, representing 3.0% and 4.2% of our gross accounts receivable balances at
those dates, respectively. The allowance for doubtful accounts is based on a review of specifically identified customer
accounts in addition to an overall aging analysis. We evaluate the collectibility of our receivables from our licensees and
other customers on a quarterly basis based on factors such as their financial condition, our collateral position, potential future
plans with licensees and other similar factors. Our allowance for doubtful accounts represents our best estimate of potential
losses on our accounts and notes receivable and is adjusted accordingly based on historical experience, current developments
and present economic conditions and trends. Although actual losses have not differed materially from our previous estimates,
future losses could differ from our current estimates. Unforeseen events such as a licensee or customer bankruptcy filing
could have a material impact on our results of operations.
Inventories - Inventories are stated at the lower of cost or market. Cost is determined for domestic furniture inventories using
the last-in, first-out method. The cost of imported inventories is determined on a first-in, first-out basis. We estimate an
inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking
into account future demand and market conditions. Our reserves for excess and obsolete inventory were $1,895 and $1,350
at November 25, 2017 and November 26, 2016, respectively, representing 3.4% and 2.5%, 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.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations -Continued
(Amounts in thousands except share and per share data)
In accordance with ASC Topic 350, Intangibles – Goodwill & Other, the goodwill impairment test consists of a two-step
process, if necessary. However, we first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-
step goodwill impairment test described in ASC Topic 350. The more likely than not threshold is defined as having a
likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment
test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we
conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed
with performing the two-step process. Based on our qualitative assessment as described above, we have concluded that our
goodwill in the amount of $11,900 is not impaired as of November 25, 2017.
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 25, 2017, 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 25,
2017 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 $2,961.
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.
Recent Developments – Acquisition of Lane Venture
On December 21, 2017, we purchased certain operating assets and assumed certain liabilities of Lane Venture from Heritage
Home Group, LLC for $15,556 in cash. Lane Venture is a manufacturer and distributor of premium outdoor furniture, and
will be operated as a component of our wholesale segment. See Note 22 to the Consolidated Financial Statements.
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 $1,758 and $2,969 at November 25, 2017 and November 26, 2016, respectively, for stores formerly operated by
licensees as well as our holdings of $22,817 and $26,454 at November 25, 2017 and November 26, 2016, respectively, for
Company-owned stores could suffer significant impairment in value if we are forced to close additional stores and sell or
lease the related properties during periods of weakness in certain markets. Additionally, if we are required to assume
responsibility for payment under the lease obligations of $2,743 and $1,868 which we have guaranteed on behalf of licensees
as of November 25, 2017 and November 26, 2016, respectively, we may not be able to secure sufficient sub-lease income in
the current market to offset the payments required under the guarantees.
Aggregate
Number of
Locations
Square
Footage
Net Book
Value
(in thousands)
Real estate occupied by Company-owned and operated stores,
included in property and equipment, net (1)
10
250,070 $
22,817
Investment real estate leased to others
2
41,021
1,758
Total Company investment in retail real estate
12
291,091 $
24,575
(1) Includes two properties encumbered under mortgages totaling $747 at November 25, 2017.
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 2017, 2016, 2015, 2014 and 2013 mean the fiscal years
ended November 25, 2017, November 26, 2016, November 28, 2015, November 29, 2014 and November 30, 2013. 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 25, 2017 and November 26, 2016
(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 $617 and $799 as of
$
November 25, 2017 and November 26, 2016, 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
$
$
2017
2016
53,949 $
23,125
19,640
54,476
8,192
159,382
35,144
23,125
18,358
53,215
10,727
140,569
103,244
104,655
8,393
17,351
5,378
31,122
293,748 $
8,071
17,360
7,612
33,043
278,267
21,760 $
14,670
27,107
3,759
3,405
12,655
83,356
13,326
329
5,277
18,932
21,281
13,602
25,181
3,218
3,290
10,441
77,013
12,760
3,821
3,968
20,549
Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding
10,737,952 at November 25, 2017 and 10,722,947 at November 26, 2016
Retained earnings
Additional paid-in-capital
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders’ equity
53,690
139,378
962
(2,570 )
191,460
293,748 $
53,615
129,388
255
(2,553)
180,705
278,267
$
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 25, 2017, November 26, 2016, and November 28, 2015
(In thousands, except per share data)
Sales revenue:
Furniture and accessories
Logistics
Total sales revenue
2017
2016
2015
$
398,097 $
54,406
452,503
377,196 $
54,842
432,038
387,405
43,522
430,927
Cost of furniture and accessories sold
177,579
167,519
179,291
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
245,493
2,413
-
-
-
235,178
1,148
-
-
-
224,050
623
419
106
449
Income from operations
27,018
28,193
25,989
Gain on sale of investments
Remeasurement gain on acquisition of affiliate
Income from Continued Dumping & Subsidy Offset Act
Income from unconsolidated affiliated company
Interest expense
Impairment of investment in real estate
Other loss, net
4,221
-
94
-
(234)
(1,084)
(2,139)
-
-
240
-
(552 )
-
(2,104 )
-
7,212
1,156
220
(607 )
(182 )
(1,920 )
Income before income taxes
27,876
25,777
31,868
Income tax expense
Net income
Net income per share
Basic income per share
Diluted income per share
Dividends per share
Regular dividends
Special dividend
9,620
9,948
11,435
$
18,256 $
15,829 $
20,433
$
$
$
$
1.71 $
1.47 $
1.70 $
1.46 $
0.42 $
0.35 $
0.38 $
0.30 $
1.91
1.88
0.34
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 25, 2017, November 26, 2016, and November 28, 2015
(In thousands)
Net income
Other comprehensive income (loss):
Recognize prior service cost associated with Long Term Cash
Awards (LTCA)
Amortization associated with LTCA
Income taxes related to LTCA
Actuarial adjustment to supplemental executive retirement
defined benefit plan (SERP)
Amortization associated with SERP
Income taxes related to SERP
2017
2016
2015
$
18,256 $
15,829 $
20,433
(932)
73
331
448
374
(311)
-
-
-
(165 )
366
(76 )
-
-
-
(1,372 )
237
431
Other comprehensive income (loss), net of tax
(17)
125
(704 )
Total comprehensive income
$
18,239 $
15,954 $
19,729
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 25, 2017, November 26, 2016, and November 28, 2015
(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
Gain on sale of investments
Remeasurement gain on acquisition of affiliate
Net (gain) loss on sales of property and equipment
Tenant improvement allowances received from lessors
Collateral deposited with insurance carrier
Impairment charges on retail real estate
Deferred income taxes
Other, net
Changes in operating assets and liabilities
Accounts receivable
Inventories
Other current and long-term assets
Customer deposits
Accounts payable and accrued liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sales of property and equipment
Cash paid for business acquisitions, net of cash acquired
Capital contribution to affiliate
Proceeds from sales of investments
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
2017
2016
2015
$
18,256 $
15,829 $
20,433
13,312
12,249
10,137
-
-
-
(4,221)
-
(1,190)
1,643
-
1,084
(302)
1,345
(1,225)
(918)
2,536
1,926
4,138
36,384
(15,500)
4,474
(655)
-
5,546
(6,135)
(7,725)
310
168
(83)
(641)
-
(3,473)
(11,444)
18,805
35,144
.
53,949 $
-
-
-
-
-
(128 )
914
(300 )
-
5,324
1,183
3,228
6,681
(3,629 )
1,182
(3,471 )
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 )
334
1,283
-
182
1,930
1,566
(2,354 )
(2,624 )
1,494
1,796
7,126
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
Cash and cash equivalents - end of year
$
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 25, 2017, November 26, 2016, and November 28, 2015
(In thousands, except share and per share data)
Common Stock
Shares
Amount
Additional
paid-in
capital
Retained comprehensive
earnings
income (loss)
Total
Accumulated
other
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
-
-
-
503,814
(81,186)
-
-
-
-
20,433
-
20,433
-
-
-
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
Comprehensive income
Net income
Prior service cost of LTCA, net
of tax
Actuarial adjustment to SERP,
net of tax
Regular dividends ($0.42 per share)
Special dividend ($0.35 per share)
Issuance of common stock
Purchase and retirement of common
stock
Stock-based compensation
-
-
-
-
-
39,313
(24,310)
-
-
-
-
-
-
197
-
18,256
-
18,256
-
-
(528)
(528)
-
-
-
281
-
(4,508)
(3,758)
-
(122)
-
(602)
1,028
-
-
511
-
-
-
-
-
511
(4,508)
(3,758)
478
(724)
1,028
Balance, November 25, 2017
10,737,950
$
53,690 $
962 $
139,378 $
(2,570) $
191,460
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 60 stores (“Company-owned retail stores”) with the other 30 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 27% 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 13 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 2017, 2016 and
2015 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 2017, 2016 and 2015 are to Bassett's fiscal year ended November
25, 2017, November 26, 2016 and November 28, 2015, 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.
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.
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.
23
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 2017, 2016 and 2015, there were no sales for which these criteria were not met.
Cash Equivalents and Short-Term Investments
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 consist of certificates of deposit that have
original maturities of twelve months or less but 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 25, 2017 and November 26, 2016, our aggregate exposure from
receivables and guarantees related to customers consisted of the following:
Accounts receivable, net of allowances (Note 5)
Contingent obligations under lease and loan guarantees, less amounts recognized (Note 17)
Total credit risk exposure related to customers
2017
2016
$
$
19,640 $
2,717
22,357 $
18,358
1,865
20,223
At November 25, 2017, approximately 29% of the aggregate risk exposure, net of reserves, shown above was attributable to
five customers. At November 26, 2015, approximately 30% of the aggregate risk exposure, net of reserves, shown above was
attributable to four customers. In fiscal 2017, 2016 and 2015, no customer accounted for more than 10% of total consolidated
net sales. However, one customer accounted for approximately 33%, 36% and 26% of our consolidated revenue from
logistical services during 2017, 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 $2,288, $3,607, and $4,516 in fiscal
2017, 2016, and 2015, 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 54% and 53% of total
inventory before reserves at November 25, 2017 and November 26, 2016, 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 in the past been utilized by licensee operated BHF
stores and are now leased or subleased to non-licensee tenants. The net book value of our retail real estate at November 25,
2017 and November 26, 2016 was $1,758 and $2,969, respectively, and is included in other long-term assets in our
consolidated balance sheets. 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. Depreciation expense was $127, $152, and $184 in fiscal 2017, 2016, and 2015, respectively,
and is included in other loss, net, in our consolidated statements of income.
25
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The net book value of our retail real estate at November 25, 2017 consisted of one property located near Charleston, South
Carolina which is fully occupied by a tenant under a long term lease. We also own a building in Chesterfield County, Virginia
that was formerly leased to a licensee for the operation of a BHF store. The building is subject to a ground lease that expires
in 2020, but which has additional renewal options. Since 2012, we have leased the building to another party who is, as of
recently, paying less than the full amount of the lease obligation, resulting in rental income insufficient to cover our ground
lease obligation. Efforts to sell our interest in the building have been unsuccessful so far. We have also concluded that absent
a significant cash investment in the building the likelihood of locating another tenant for the building at a rent that would
provide positive cash flow in excess of the ground lease expense is remote. In addition, we obtained an appraisal during the
second quarter of fiscal 2017 which indicated that the value of the building had significantly decreased and was now minimal.
Given these circumstances, we concluded in the second quarter that we are unlikely to renew the ground lease in 2020 and
would therefore likely vacate the property at that time. Consequently, we recorded a non-cash impairment charge of $1,084
during fiscal 2017 to write off the value of the building.
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.
The fiscal 2015 sales proceeds described above are included in proceeds from sales of property and equipment in the
accompanying consolidated statements of cash flows. The fiscal 2017 and 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 25, 2017.
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. See Note 22.
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 14.
New Store Pre-Opening Costs
Income from operations for fiscal 2017, 2016 and 2015 includes new store pre-opening costs of $2,413, $1,148 and $623,
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 $18,514, $18,451, and $18,624 for fiscal 2017, 2016 and 2015, respectively. Costs incurred to deliver retail
merchandise to customers are also recorded in selling, general and administrative expense and totaled $17,451, $15,946, and
$15,383 for fiscal 2017, 2016 and 2015, 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 $18,834, $16,688, and $16,228 in fiscal
2017, 2016, and 2015, 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 2017 or 2016.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
In March 2017, the FASB issued Accounting Standards Update No. 2017-07 (ASU 2017-07), Compensation – Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
Under existing GAAP, an entity is required to present all components of net periodic pension cost and net periodic
postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as
part of an asset where appropriate. The amendments in ASU 2017-07 require that an employer report the service cost
component in the same line item or items as other compensation costs arising from services rendered by the pertinent
employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement
benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of
income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when
applicable. The amendments in ASU 2017-07 shall be applied retrospectively for the presentation of the service cost
component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income
statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic
pension cost and net periodic postretirement benefit in assets. Early adoption is permitted, and we have elected to adopt the
amendments in ASU 2017-07 effective as of the beginning of our 2017 fiscal year. The adoption of this guidance did not
have a material impact upon our financial condition or results of operations.
28
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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. In order to evaluate the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements,
we have initiated a comprehensive review of the significant revenue streams across our wholesale, retail and logistical
services reportable segments. The focus of this review includes, among other things, the identification of the significant
contracts and other arrangements we have with our customers to identify significant performance obligations, factors
affecting the determination of transaction price, such as variable consideration, and factors affecting the classification of
receipts as revenue, such as principal versus agent considerations. We are also reviewing our current accounting policies,
procedures and controls with respect to these contracts and arrangements to determine what changes, if any, may be required
by the adoption of ASU 2014-09. We have not yet made a determination as to the impact that adoption will have on our
consolidated financial statements, nor have we 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 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.
29
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business. ASU 2017-01 provides a screen to determine when an integrated set of assets and
activities (collectively referred to as a “set”) does not constitute a business. The screen requires that when substantially all of
the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated.
If the screen is not met, the amendments in ASU 2017-01 (1) require that to be considered a business, a set must include, at
a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2)
remove the evaluation of whether a market participant could replace missing elements. The amendments in ASU 2017-01
shall apply prospectively and will become effective for as at 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 January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment test.
Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and
liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the
fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU 2017-
04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit
with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated
to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the
carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the
option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
The amendments in ASU 2017-04 will become effective for us as of the beginning of our 2021 fiscal year. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of
this guidance is not expected to have a material impact upon our financial condition or results of operations.
30
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation – Stock Compensation (Topic
718): Scope of Modification Accounting. ASU 2017-09 was issued to provide clarity and reduce both (1) diversity in practice
and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to
the terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which
changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in
Topic 718. Essentially, an entity will not have to account for the effects of a modification if: (1) The fair value of the modified
award is the same immediately before and after the modification; (2) the vesting conditions of the modified award are the
same immediately before and after the modification; and (3) the classification of the modified award as either an equity
instrument or liability instrument is the same immediately before and after the modification. The amendments in ASU 2017-
09 will become effective for us as of the beginning of our 2019 fiscal year. Early adoption is permitted, including adoption
in any interim period. The adoption of this guidance is not expected to have a material impact upon our financial condition
or results of operations.
3. Business Combinations
Licensee Store Acquisition
During the first quarter of fiscal 2017, we acquired the operations of the Bassett Home Furnishings (“BHF”) store located in
Columbus, Ohio for a purchase price of $655. The store had been owned and operated by a licensee that had determined that
continued ownership of a BHF store was no longer consistent with its future business objectives. We believe that Columbus,
Ohio represents a viable market for a BHF store.
The purchase price was allocated as follows:
Inventory
Goodwill
$
343
312
Purchase price
$
655
The inputs into our valuation of the acquired assets reflect our market assumptions and are not observable. Consequently, the
inputs are considered to be Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and
Disclosures. See Note 4.
The pro forma impact of the acquisition and the results of operations for the Columbus store since acquisition are not material
to our consolidated results of operations for the year ended November 25, 2017.
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
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.
31
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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.
A portion of the fair value of consideration transferred has been assigned to identifiable intangible assets as follows:
Description:
Useful Life
In Years Fair Value
Customer relationships
Trade names
Technology - customized applications
$
15
Indefinite
7
3,038
2,490
834
Total acquired intangible assets
$
6,362
32
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 25, 2017, November 26, 2016 and November 28, 2015 is as follows:
2017
2016
2015 (1)
Zenith revenue (2)
Zenith pre-tax income
$54,406
$2,972
$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 25, 2017 and November 26, 2016 consisted of certificates of deposit
(CDs) with original terms of six to twelve months, bearing interest at rates ranging from 0.10% to 1.50%. At November 25,
2017, the weighted average remaining time to maturity of the CDs was approximately five months and the weighted average
yield of the CDs was approximately 1.18%. 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 25, 2017 and November 26, 2016 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.
33
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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:
Gross accounts receivable
Allowance for doubtful accounts
Net accounts receivable
Activity in the allowance for doubtful accounts was as follows:
Balance, beginning of the year
Reductions to allowance, net
Balance, end of the year
November 25,
2017
November 26,
2016
$
$
$
$
20,257 $
(617)
19,640 $
19,157
(799)
18,358
2017
2016
799 $
(182)
617 $
1,175
(376)
799
We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value
estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as
specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.
6. Inventories
Inventories consist of the following:
Wholesale finished goods
Work in process
Raw materials and supplies
Retail merchandise
Total inventories on first-in, first-out method
LIFO adjustment
Reserve for excess and obsolete inventory
November 25,
2017
November 26,
2016
$
$
26,145 $
388
11,808
26,173
64,514
(8,143)
(1,895)
54,476 $
24,392
369
11,343
26,265
62,369
(7,804)
(1,350)
53,215
We source a significant amount of our wholesale product from other countries. During 2017, 2016 and 2015, purchases from
our two largest vendors located in Vietnam and China were $21,977, $19,128 and $25,190 respectively.
34
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 28, 2015
Additions charged to expense
Write-offs
Balance at November 26, 2016
Additions charged to expense
Write-offs
Balance at November 25, 2017
$
$
1,087 $
1,994
(2,020)
1,061
1,757
(1,200)
1,618 $
310 $
475
(496)
289
475
(487)
277 $
1,397
2,469
(2,516)
1,350
2,232
(1,687)
1,895
7. Property and Equipment
Property and equipment consist of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Property and equipment at cost
Less accumulated depreciation
Property and equipment, net
November 25,
2017
November 26,
2016
$
$
10,908 $
117,185
102,619
230,712
(127,468)
103,244 $
12,311
109,728
99,067
221,106
(116,451)
104,655
The net book value of our property and equipment by reportable segment is a follows:
Wholesale
Retail - Company-owned stores
Logistical Services
Total property and equipment, net
November 25,
2017
November 26,
2016
$
$
25,277 $
57,539
20,428
103,244 $
22,984
59,347
22,324
104,655
35
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Depreciation expense associated with the property and equipment shown above was included in income from operations in
our consolidated statements of income as follows:
Cost of goods sold (wholesale segment)
Selling, general and adminstrative expenses:
2017
2016
2015
$
989 $
748 $
599
Wholesale segment
Retail segment
Logistical services segment
Total included in selling, general and adminstrative expenses
Total depreciation expense included in income from operations
$
1,531
6,736
4,331
12,598
13,587 $
1,154
6,612
3,882
11,648
12,396 $
1,291
5,970
2,366
9,627
10,226
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 25, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
$
3,038 $
834
(574) $
(337)
2,464
497
Total intangible assets subject to amortization
3,872
(911)
2,961
Intangibles not subject to amortization:
Trade names
Goodwill
2,490
11,900
-
-
2,490
11,900
Total goodwill and other intangible assets
$
18,262 $
(911) $
17,351
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
36
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Changes in the carrying amounts of goodwill by reportable segment were as follows:
Wholesale Retail
Logistics
Total
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
Goodwill arising from store acquisition (Note 3)
4,839
206
1,820
106
4,929
-
11,588
312
Balance as of November 25, 2017
$
5,045 $
1,926 $
4,929 $
11,900
There were no accumulated impairment losses on goodwill as of November 25, 2017, November 26, 2016 or November 28,
2015.
Amortization expense associated with intangible assets during fiscal 2017, 2016 and 2015 was $322, $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. Estimated future
amortization expense for intangible assets that exist at November 25, 2017 is as follows:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Thereafter
Total
$
322
322
322
322
223
1,450
$
2,961
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. The balance
of our investment in Zenith was $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. During fiscal 2015 we recorded income
representing our equity in the earnings of Zenith prior to acquisition in the amount of $220. Prior to the acquisition, we paid
Zenith approximately $6,863 for freight expense and logistical services in fiscal 2015.
International Market Centers, L.P.
In connection with the sale of our interest in International Home Furnishings Center, Inc. on May 2, 2011, we acquired a
minority interest in International Market Centers, L.P. (“IMC”) in exchange for $1,000. Our investment in IMC was included
in other long-term assets in our consolidated balance sheet as of November 26, 2016 and was accounted for using the cost
method as we did not have significant influence over IMC. During fiscal 2017 IMC was sold resulting in the redemption of
our entire interest for total proceeds of $1,954 resulting in a gain of $954 which is included in gain on sale of investments in
our consolidated statement of income.
Other
In 1985, we acquired a minority interest in a privately-held, start-up provider of property and casualty insurance for $325.
We have accounted for this investment on the cost method and it was included in other long-term assets in our consolidated
balance sheet as of November 26, 2016. During fiscal 2017 we sold our entire interest for $3,592 in cash, resulting in a gain
of $3,267 which is included in gain on sale of investments in our consolidated statement of income.
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 25, 2017
Principal
Balance
Unamortized
Discount
Net
Carrying
Amount
Zenith acquisition note payable
Real estate notes payable
$
3,000 $
747
Total debt
Less current portion
3,747
(3,418)
(13) $
-
(13)
13
2,987
747
3,734
(3,405)
Total long-term debt
$
329 $
- $
329
November 26, 2016
Principal
Balance
Unamortized
Discount
Net
Carrying
Amount
Zenith acquisition note 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
The future maturities of our notes payable are as follows:
Fiscal 2018
Fiscal 2019
$
$
3,418
329
3,747
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. 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 $95, $204 and $252 for fiscal 2017, 2016 and 2015, respectively. The current
portion of the note due within one year, including unamortized discount, was $2,987 and $2,904 at November 25, 2017 and
November 26, 2016, respectively.
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 $5,727 and $5,858 at
November 25, 2017 and November 26, 2016, respectively. The total balance outstanding under these mortgages was $747
and $1,219 at November 25, 2017 and November 26, 2016, respectively. The current portion of these mortgages due within
one year was $418 and $385 as of November 25, 2017 and November 26, 2016, respectively.
38
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Fair Value
We believe that the carrying amount of our notes payable approximates fair value at both November 25, 2017 and November
26, 2016. 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 facility and expect to remain in
compliance for the foreseeable future.
We have $2,249 outstanding under standby letters of credit against our line, leaving availability under our credit line of
$12,751. In addition, we have outstanding standby letters of credit with another bank totaling $511.
Total interest paid during fiscal 2017, 2016 and 2015 was $139, $353 and $277, respectively.
11. Post-Employment Benefit Obligations
Management Savings Plan
On May 1, 2017, our Board of Directors, upon the recommendation of the Organization, Compensation and Nominating
Committee (the “Committee”), adopted the Bassett Furniture Industries, Incorporated Management Savings Plan (the
“Plan”).The Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly
compensated or management level employees.
The Plan is an account-based plan under which (i) participants may defer voluntarily the payment of current compensation
to future years (“participant deferrals”) and (ii) the Company may make annual awards to participants payable in future years
(“Company contributions”). The Plan permits each participant to defer up to 75% of base salary and up to 100% of any
incentive compensation or other bonus, which amounts would be credited to a deferral account established for the participant.
Such deferrals will be fully vested at the time of the deferral. Participant deferrals will be indexed to one or more deemed
investment alternatives chosen by the participant from a range of alternatives made available under the Plan. Each
participant’s account will be adjusted to reflect gains and losses based on the performance of the selected investment
alternatives. A participant may receive distributions from the Plan: (1) upon separation from service, in either a lump sum or
annual installment payments over up to a 15 year period, as elected by the participant, (2) upon death or disability, in a lump
sum, or (3) on a date or dates specified by the participant (“scheduled distributions”) with such scheduled payments made in
either a lump sum or substantially equal annual installments over a period of up to five years, as elected by the participant.
Participant contributions commenced during the third quarter of fiscal 2017. Company contributions will vest in full (1) on
the third anniversary of the date such amounts are credited to the participant’s account, (2) the date that the participant reaches
age 63 or (3) upon death or disability. Company contributions are subject to the same rules described above regarding the
crediting of gains or losses from deemed investments and the timing of distributions. The Company plans to make a
contribution to the Plan effective February 1, 2018. Expense associated with the planned Company contribution was $55 for
the year ended November 25, 2017.
On May 2, 2017, we made Long Term Cash Awards (“LTC Awards”) totaling $2,000 under the Plan to certain management
employees in the amount of $400 each. The LTC Awards vest in full on the first anniversary of the date of the award if the
participant has reached age 63 by that time, or, if later, on the date the participant reaches age 63, provided in either instance
that the participant is still employed by the Company at that time. If not previously vested, the awards will also vest
immediately upon the death or disability of the participant prior to the participant’s separation from service. The awards will
be payable in 10 equal annual installments following the participant’s death, disability or separation from service. We are
accounting for the LTC Awards as a defined benefit pension plan.
39
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
During fiscal 2017, we invested $431 in life insurance policies covering all participants in the Plan. At November 25, 2017,
these policies have a net death benefit of $14,998 for which the Company is the sole beneficiary. These policies are intended
to provide a source of funds to meet the obligations arising from the deferred compensation and LTC Awards under the Plan,
and serve as an economic hedge of the financial impact of changes in the liabilities. They are held in an irrevocable trust but
are subject to claims of creditors in the event of the Company’s insolvency.
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 $2,829 at November
25, 2017 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.
Aggregated summarized information for the Supplemental Plan and the LTC Awards, 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 (gains) losses
Benefits paid
Projected benefit obligation at end of year
Accumulated Benefit Obligation
Discount rate used to value the ending benefit obligations:
Amounts recognized in the consolidated balance sheet:
Current liabilities
Noncurrent liabilities
Total amounts recognized
Amounts recognized in accumulated other comprehensive income:
Transition obligation
Prior service cost
Actuarial loss
Net amount recognized
Total recognized in net periodic benefit cost and accumulated other
comprehensive income:
2017
2016
11,863 $
1,117
449
(447)
(660)
12,322 $
11,678
146
423
165
(549)
11,863
11,531 $
11,138
3.50%
3.75%
778 $
11,544
12,322 $
42 $
858
3,286
4,186 $
776
11,087
11,863
85
-
4,065
4,150
1,119 $
734
$
$
$
$
$
$
$
$
40
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
2017
2016
2015
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Amortization of transition obligation
Amortization of prior service cost
Amortization of other loss
$
186 $
449
42
73
332
146 $
423
42
-
323
Net periodic pension cost
$
1,082 $
934 $
Assumptions used to determine net periodic pension cost:
Discount rate
Increase in future compensation levels
3.75%
3.00%
Estimated Future Benefit Payments (with mortality):
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023 through 2027
3.75%
3.00%
778
735
691
649
999
4,248
105
374
42
-
195
716
3.75%
3.00%
Of the $4,186 recognized in accumulated other comprehensive income at November 25, 2017, amounts expected to be
recognized as components of net periodic pension cost during fiscal 2018 are as follows:
Transition obligation
Prior service cost
Other loss
$
Total expected to be amortized to net periodic pension cost in 2018
$
42
126
261
429
The components of net periodic pension cost other than the service cost component are included in other loss, net in our
consolidated statements of income.
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 $216, $228, and $248 in fiscal 2017, 2016, and 2015, respectively, associated with the plan. Our
liability under this plan was $1,916 and $1,969 as of November 25, 2017 and November 26, 2016, 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
$1,068, $865 and $662 during fiscal 2017, 2016 and 2015, respectively. The increase in contribution expense for fiscal 2017
over fiscal 2016 was largely due to a larger contribution base due to increased incentive compensation. 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.
41
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
12. Accumulated Other Comprehensive Loss
The activity in accumulated other comprehensive loss for the fiscal years ended November 26, 2017 and November 26, 2016,
which is comprised solely of post-retirement benefit costs related to our SERP and LTC Awards, is as follows:
Balance at November 28, 2015
Actuarial losses
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 26, 2016
Recognition of prior service cost
Actuarial gains
Net pension amortization reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 25, 2017
$
$
(2,678)
(165)
366
(76)
(2,553)
(932)
448
447
20
(2,570)
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 2017, 2016 and 2015 was as follows:
Stock based compensation expense
$1,028
2017
2016
$903
2015
$894
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
25, 2017, and as of that date all previously outstanding awards under the 1997 Plan have been either exercised or have expired.
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.
42
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 2017, 2016 or 2015.
Changes in the outstanding options under our plans during the year ended November 25, 2017 were as follows:
Outstanding at November 26, 2016
Granted
Exercised
Forfeited/Expired
Outstanding at November 25, 2017
Exercisable at November 25, 2017
Weighted
Average
Exercise Price
Per Share
Number of
Shares
66,250
-
(26,500)
(28,000)
11,750
11,750
$10.57
-
11.68
10.60
8.02
$8.02
All remaining options outstanding at November 25, 2017 are exercisable at $8.02 per share with a remaining contractual life
of 3.6 years and an aggregate intrinsic value of $366. There were no non-vested options outstanding under our plans during
the year ended November 25, 2017.
Additional information regarding activity in our stock options during fiscal 2017, 2016 and 2015 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)
Excess tax benefits recognized in income tax expense upon the exercise of
options
2017
$564
-
310
-
188
2016
$124
-
114
-
41
2015
$5,934
87
4,031
1,899
-
(1) Prior to the adoption of ASU 2016-09 in fiscal 2016. Subsequent to adoption, all excess tax benefits are included as a
component of the provision for income taxes.
43
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Restricted Shares
Changes in the outstanding non-vested restricted shares during the year ended November 25, 2017 were as follows:
Non-vested restricted shares outstanding at November 26, 2016
Granted
Vested
Forfeited
Non-vested restricted shares outstanding at November 25, 2017
Number of
Shares
Weighted
Average Grant
Date Fair
Value Per Share
123,014
42,538
(66,414)
-
99,138
$17.99
28.70
16.07
-
$23.87
Restricted share awards granted in fiscal 2017 included the grant of 36,000 shares on January 10, 2017 which were subject
to a performance condition as well as a service condition. The performance condition was based on a measure of the
Company’s operating cash flow for 2017 and has now been satisfied. The awards will remain subject to an additional two-
year service requirement and will vest on the third anniversary of the grant. The remaining grants for 2017 consisted of 6,538
restricted shares granted to our non-employee directors on March 8, 2017 which will vest on the first anniversary of the grant.
During fiscal 2017, 66,414 restricted shares were vested and released, of which 60,600 shares had been granted to employees
and 5,814 shares to directors. Of the shares released to employees, 21,210 shares were withheld by the Company to cover
withholding taxes of $641. During fiscal 2016 and 2015, 2,940 shares and 4,836 shares, respectively, were withheld to cover
withholding taxes of $77 and $154, respectively, arising from the vesting of restricted shares. During fiscal 2017 and 2016,
excess tax benefits of $366 and $46, respectively, were recognized within income tax expense upon the release of vested
shares. Prior to the adoption of ASU 2016-09, excess tax benefits of $99 were recognized during fiscal 2015 as additional
paid-in capital upon the release of vested shares.
44
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Additional information regarding our outstanding non-vested restricted shares at November 25, 2017 is as follows:
Grant
Date
July 17, 2013
January 14, 2015
July 14, 2015
July 12, 2016
January 10, 2017
March 8, 2017
Restricted
Shares
Remaining
Share Value Restriction
at Grant Date
Outstanding Per Share
Period
(Years)
12,600
40,000
2,000
2,000
36,000
6,538
99,138
$16.64
20.21
38.02
25.88
29.05
26.77
0.6
0.1
0.6
0.6
2.1
0.3
Unrecognized compensation cost related to these non-vested restricted shares at November 25, 2017 is $910, 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 (“2000 ESPP”) that allows eligible employees to
purchase a limited number of shares of our stock at 85% of market value. Under the 2000 ESPP we sold 8,502 and 19,053
shares to employees in fiscal 2016 and 2015, respectively, which resulted in an immaterial amount of compensation expense.
The 2000 ESPP reached the cumulative number of shares authorized for purchase under the plan during the third quarter of
fiscal 2016.
In March of 2017 we adopted and implemented the 2017 Employee Stock Purchase Plan (“2017 ESPP”) that allows eligible
employees to purchase a limited number of shares of our stock at 85% of market value. Under the 2017 ESPP we sold 6,275
shares to employees during fiscal 2017 which resulted in an immaterial amount of compensation expense. There are 243,725
shares remaining available for sale under the 2017 ESPP at November 25, 2017.
45
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
14. Income Taxes
The components of the income tax provision are as follows:
Current:
Federal
State
2017
2016
2015
$
7,887 $
2,035
3,728 $
896
7,972
1,533
Deferred:
Increase (decrease) in valuation allowance
Federal
State
Total
-
(200)
(102)
9,620 $
-
4,559
765
9,948 $
(70)
1,520
480
11,435
$
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
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
2017
2016
2015
35.0 %
-
-
3.9
-
(1.8 )
(2.6 )
34.5 %
35.0%
-
-
4.2
-
(0.3)
(0.3)
38.6%
35.0%
(0.1)
0.1
4.4
(3.2)
-
(0.3)
35.9%
Excess tax benefits in the amount of $554 and $87 were recognized as a component of income tax expense during fiscal 2017
and 2016, respectively, resulting from the exercise of stock options and the release of restricted shares. Prior to the adoption
of ASU 2016-09 in fiscal 2016, excess tax benefits of $1,998 were recognized as additional paid-in capital during fiscal 2015.
46
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The income tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred
income tax assets and deferred income tax liabilities, are as follows:
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
Total deferred income tax liabilities
November 25,
2017
November 26,
2016
$
239 $
2,606
550
5,555
583
69
3,906
1,878
15,386
-
15,386
5,426
1,185
382
6,993
307
2,407
562
5,338
731
217
3,112
2,005
14,679
-
14,679
5,179
1,012
417
6,608
Net deferred income tax assets
$
8,393 $
8,071
At the beginning of fiscal 2015 we carried a valuation allowance of $70 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 2015 we removed the remaining valuation allowance resulting in a credit to income of $70. There
was no valuation allowance at either November 25, 2017 or November 26, 2016.
We have state net operating loss carryforwards available to offset future taxable state income of $4,856, which expire in
varying amounts between 2021 and 2027. Realization is dependent on generating sufficient taxable income prior to expiration
of the loss carryforwards.
Income taxes paid, net of refunds received, during 2017, 2016 and 2015 were $7,516, $9,949, and $5,906, respectively.
We regularly evaluate, assess and adjust our accrued liabilities for unrecognized tax benefits 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
Balance, end of the year
2017
2016
2015
$
$
55 $
46
-
101 $
12 $
43
-
55 $
1,236
12
(1,236)
12
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2017, 2016,
and 2015, we recognized $10, $15, and $(144) of interest expense (recovery) and $11, $10, and $3 of penalty expense,
respectively, related to the unrecognized benefits noted above in our consolidated statements of income. At November 25,
2017 and November 26, 2016, the balance of accrued interest and penalties associated with unrecognized tax benefits was
not material.
47
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
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 2014 through 2016 for all of our major tax jurisdictions. See Note 22,
Subsequent Event, regarding the impact of newly enacted changes to Federal tax law.
15. Other Gains and Losses
Gain on Sale of Retail Store Location
Selling, general and administrative expenses for the year ended November 25, 2017 includes a gain of $1,220 resulting from
the sale of our retail store location in Las Vegas, Nevada for $4,335 in cash. The store was closed in August of 2017 in
preparation for its repositioning to a new location in the Las Vegas market.
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
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 2017 or
2016. 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 2017 or 2016.
48
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
16. Income from the Continued Dumping and Subsidy Offset Act
During the years ended November 25, 2017, November 26, 2016 and November 28, 2015, we recognized income of $94,
$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.
17. Leases and Lease Guarantees
Leases
We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of
certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United
States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local
delivery trucks used in our logistical services segment. Our real estate lease terms range from one to 15 years and generally
have renewal options of between five and 15 years. Some store leases contain contingent rental provisions based upon sales
volume. Our transportation equipment leases have terms ranging from two to seven years with fixed monthly rental payments
plus variable charges based upon mileage. The following schedule shows future minimum lease payments under non-
cancellable operating leases with terms in excess of one year as of November 25, 2017:
$
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Thereafter
Total future minimum lease payments $
Retail
Stores
Distribution
Centers
Transportation
Equipment
Total
22,426 $
22,541
21,072
18,212
15,424
50,743
150,418 $
4,127 $
2,735
1,960
1,545
1,520
1,776
13,663 $
2,999 $
2,367
2,104
1,169
963
254
9,856 $
29,552
27,643
25,136
20,926
17,907
52,773
173,937
Lease expense was $34,372, $31,867 and $26,382 for 2017, 2016, and 2015, respectively. Lease expense for leases with
escalating minimum payments over the lease term is recognized on a straight-line basis. Our liability for accrued straight-
line rent expense was $4,821 and $3,708 at November 25, 2017 and November 26, 2016, respectively, and is included in
other accrued liabilities in our consolidated balance sheets.
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 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Thereafter
$
Total minimum future rental income
$
49
1,653
1,669
1,616
781
422
106
6,247
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
Real estate rental net loss (rental income less lease costs, depreciation, insurance, and taxes), related to licensee stores and
other investment real estate, was $48, $59 and $181 in 2017, 2016 and 2015, respectively, and is reflected in other loss, 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 $2,743 and $1,868 at November 25, 2017 and November 26, 2016, respectively.
In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated
through a combination of options that include, but are not limited to, arranging for a replacement dealer, liquidating the
collateral, and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options
are estimated to cover the maximum amount of our future payments under the guarantee obligations, net of reserves. The fair
value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at November 25, 2017 and
November 26, 2016, were not material.
18. Contingencies
We are involved in various claims and actions 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 assumed
conversions
2017
2016
2015
$
18,256 $
15,829 $
20,433
10,649,225 10,732,217 10,701,829
141,198
130,204
82,850
10,732,075 10,862,421 10,843,027
Basic income per share:
Net income per share — basic
Diluted income per share:
Net income per share — diluted
$
$
1.71 $
1.47 $
1.91
1.70 $
1.46 $
1.88
For fiscal 2017, 2016 and 2015, the following potentially dilutive shares were excluded from the computations as there effect
was anti-dilutive:
Unvested restricted shares
2017
-
2016
7,814
2015
8,354
50
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 $94,616 and $92,196 for the years ended November 25, 2017 and November 26, 2016,
respectively, 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.
51
Notes to Consolidated Financial Statements -Continued
(In thousands, except share and per share data)
The following table presents segment information for each of the last three fiscal years:
Net Sales
Wholesale
Retail
Logistical services
Inter-company eliminations:
Furniture and accessories
Logistical services
Consolidated
Income (loss) from Operations
Wholesale
Retail
Logistical services
Inter-company elimination
Lease exit costs
Asset impairment charges
Management restructuring costs
Consolidated income from operations
Depreciation and Amortization
Wholesale
Retail
Logistical services
Consolidated
Capital Expenditures
Wholesale
Retail
Logistical services
Consolidated
Identifiable Assets
Wholesale
Retail
Logistical services
Consolidated
2017
2016
2015
$
$
$
$
$
$
$
$
$
$
$
249,193
268,264
97,578
240,346
254,667
95,707
$
(119,360)
(43,172)
452,503
19,121
3,490
2,962
1,445
-
-
-
27,018
2,648
6,011
4,653
13,312
4,875
8,086
2,539
15,500
152,181
89,271
52,296
293,748
$
$
$
$
$
$
$
$
$
(117,817)
(40,865)
432,038
18,672
4,333
3,511
1,677
-
-
-
28,193
2,053
5,992
4,204
12,249
7,232
5,115
9,154
21,501
139,477
88,855
49,935
278,267
$
$
$
$
$
$
$
$
$
252,180
249,379
77,250
(114,154)
(33,728)
430,927
15,618
6,170
3,528
1,647
(419)
(106)
(449)
25,989
2,075
5,428
2,634
10,137
4,898
7,077
1,999
13,974
146,878
88,878
46,787
282,543
A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below:
Wood
Upholstery
2017
2016
2015
35%
65%
100%
37%
63%
100%
37%
63%
100%
52
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
$
$
First
Quarter
Second
Third
Quarter (1)
Quarter (2)
Fourth
Quarter (3)
2017
93,698 $
12,194
105,892
41,898
4,664
2,861
0.27
0.27
100,294 $
13,831
114,125
44,981
7,600
5,842
0.55
0.54
2016
100,152 $
14,109
114,261
45,320
7,260
4,579
0.43
0.43
103,953
14,272
118,225
45,380
7,494
4,974
0.46
0.46
First
Quarter
Second
Quarter
Third
Quarter (4)
Fourth
Quarter (5)
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
All quarters shown above for fiscal 2017 and 2016 consist of 13 week fiscal periods.
(1) Net income includes a gain of $2,026 from the sale of an investment, net of related income tax effects of approximately $1,241
(see Note 9), and a loss of $672, net of related income tax effects of approximately $412, resulting from the impairment of retail
real estate (see Note 2).
(2) Income from operations included a gain of $1,220 from the sale of our Las Vegas, Nevada retail store (see Note 15).
(3) Net income includes a gain of $591 from the disposition of our interest in IMC, net of related income tax effects of approximately
$363 (see Note 9), and income of $58 from the CDSOA, net of related income tax effects of approximately $36 (see Note 16).
(4) Income from operations includes the benefit of a $1,428 award received from the settlement of class action litigation (see Note
15).
(5) Net income includes income of $148 from the CDSOA, net of related income tax effects of approximately $92 (see Note 16).
22. Subsequent Events
Acquisition of Lane Venture
On December 21, 2017, we purchased certain operating assets and assumed certain liabilities of Lane Venture from Heritage
Home Group, LLC for $15,556 in cash. Lane Venture is a manufacturer and distributor of premium outdoor furniture and
will be operated as a component of our wholesale segment. A preliminary allocation of the purchase price to the net assets
acquired is expected to be made during the first quarter of fiscal 2018.
Tax Cuts and Jobs Act
On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces
the Federal statutory corporate income tax rate from 35% to 21%. This rate reduction is expected to have a significant impact
on our provisions for income taxes for periods beginning after November 25, 2017, including a one-time impact resulting
from the revaluation of our deferred tax assets and liabilities to reflect the new lower rate. While we have not yet determined
the net amount of the revaluation, we expect that it will be a significant component of our income tax provision for the first
quarter of fiscal 2018.
53
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.
(In thousands)
2017
2016
2015
2014
2013 (1)
Net sales
Operating income
Other income (loss), net
Income before income taxes
Income tax expense
Net income
Diluted earnings per share
Cash dividends declared
Cash dividends per share
Total assets
Long-term debt
Current ratio
Book value per share
$
$
$
$
$
$
$
$
$
$
$
$
452,503 (2) $
27,018 (3) $
858 (4) $
$
$
$
$
$
$
$
$
27,876
9,620
18,256
1.70
8,266
0.77
293,748
329
1.91 to 1
17.83
$
432,038 (2) $
28,193 (3) $
(2,416 ) (5) $
$
25,777
$
9,948
$
15,829
$
1.46
$
5,805
$
0.68
$
278,267
$
3,821
1.83 to 1
16.85
$
430,927 (2) $
25,989 (3) $
5,879 (5) $
$
31,868
$
11,435
$
20,433
$
1.88
$
5,868
$
0.54
$
240,746
$
1,902
1.84 to 1
16.25
$
340,738 $
15,131 $
(524) $
14,607 $
5,308 $
9,299 $
0.87 $
5,085 $
0.48 $
240,746 $
2,467 $
1.95 to 1
14.95 $
321,286
10,005
(1,818)
8,187
3,091
5,096
0.47
4,565
0.42
225,849
2,467
2.37 to 1
14.50
(1) Fiscal 2013 contained 53 weeks, whereas all other fiscal years presented above contained 52 weeks.
(2) Fiscal 2017, 2016 and 2015 included logistical services revenue from Zenith in the amount of $54,406, $54,842 and
$43,522, respectively, since the acquisition of Zenith on February 2, 2015.
(3) Fiscal 2017 operating income includes a gain of $1,220 resulting from the sale of our retail store in Las Vegas,
Nevada. Fiscal 2016 operating income includes the benefit of a $1,428 award received from the settlement of class
action litigation. Fiscal 2015 included restructuring and asset impairment charges and lease exit costs totaling $974.
See Note 15 to the Consolidated Financial Statements for additional information related to each of these items.
(4) Fiscal 2017 includes $4,221 of gains resulting from the sale of investments (see Note 9 to the Consolidated Financial
Statements), and an impairment charge of $1,084 retail real estate held for investment (see Note 2 to the Consolidated
Financial Statements). Also see Note 16 to the Consolidated Financial Statements related to $94 of income from the
Continued Dumping and Subsidy Offset Act (“CDSOA”) received in fiscal 2017.
(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 CDSOA received in fiscal 2016 and 2015, respectively.
54
Bassett Furniture Industries, Incorporated
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 25, 2017, November 26, 2016 and November 28, 2015
(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 28, 2015:
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 26, 2016:
Reserve deducted from assets to which it applies
1,249 $
(216) $
(67) $
209 (2) $
1,175
4,139 $
582 $
(75) $
-
$
4,646
70 $
- $
(70) $
-
$
-
Allowance for doubtful accounts
$
1,175 $
(376) $
- $
-
$
799
Notes receivable valuation reserves
Income tax valuation allowance
$
$
For the Year Ended November 25, 2017:
Reserve deducted from assets to which it applies
4,646 $
- $
(3,192) $
- (3) $
1,454
- $
- $
- $
-
$
-
Allowance for doubtful accounts
Notes receivable valuation reserves
Income tax valuation allowance
$
$
$
799 $
(182) $
1,454 $
- $
- $
- $
- $
- $
- $
-
$
617
-
$
1,454
-
$
-
(1) Deductions are for the purpose for which the reserve was created.
(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.
55
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 old
and new peer group. The Company’s old and new peer group consist of the following:
New Peer Group
American Woodmark, Inc.
Culp, Inc.
The Dixie Group, Inc.
Ethan Allan Interiors, Inc.
Flexsteel Industries, Inc.
Haverty Furniture Companies, Inc.
Hooker Furniture Corporation
Kimball International, Inc. (new)
Kirkland’s, Inc.
La-Z-Boy Incorporated
Nautilus, Inc. (new)
Tile Shop Holdings, Inc. (new)
Old Peer Group
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. (dropped from new peer group)
This graph assumes that $100 was invested on November 24, 2012 in the Company’s Common Stock, the S&P Index and
the two peer groups and that any dividends paid were invested.
56
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 25, 2017 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 25, 2017, 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 18, 2018
57
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 25, 2017 and November 26, 2016, 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 25, 2017. 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 25, 2017. 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 25, 2017 and November 26, 2016, and
the consolidated results of their operations and their cash flows for each of the three years in the period ended November 25,
2017, 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 25,
2017, 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 18, 2018 expressed an
unqualified opinion thereon.
Richmond, Virginia
January 18, 2018
58
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 25, 2017, 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 25, 2017, 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 25, 2017 and
November 26, 2016, 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 25, 2017 of Bassett Furniture Industries, Incorporated
and Subsidiaries and our report dated January 18, 2018 expressed an unqualified opinion thereon.
Richmond, Virginia
January 18, 2018
59
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
Corporate Information and Investor Inquiries
Our site on the Internet has been updated recently and is
Our annual report and proxy statement together
filled with information about Bassett Furniture, including
contain much of the information presented in the
this annual report, detailed financial information and
Form 10-K report filed with the Securities and Exchange
updates, information about our home furnishings
Commission. Individuals who wish to receive the
products, and a dealer locator of Bassett stores and other
Form 10-K or other corporate literature should visit our
stores that feature Bassett products. Visit us at
website at bassettfurniture.com or contact Investor Relations,
bassettfurniture.com.
at 276.629.6000.
Forward Looking Statements
Transfer Agent - Stockholder Inquiries
This Annual Report contains forward-looking statements
Stockholders with inquiries relating to stockholder
as defined in the Private Securities Litigation and Reform
records, stock transfers, change of ownership, change of
Act of 1995 and within the meaning of Sections 27A of
address or dividend payments should write to:
the Securities Exchange Act of 1933, as amended, and
American Stock Transfer & Trust Company, LLC
Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Annual Report the words
Operations Center
6201 15th Avenue
“hope,” “believe,” “expect,” “plan” or “planned,” “intend,”
Brooklyn, NY 11219
“anticipate,” “potential” and similar expressions are
Toll free: (800) 937-5449
intended to identify forward-looking statements. Readers
Local & International: (718) 921-8124
are cautioned against placing undue reliance on these
Email: info@astfinancial.com
statements. Such statements, including but not limited to
Web site: www.astfinancial.com
those regarding increases in sales, growth in the number
of Bassett stores, improving gross margins, growth in
Annual Meeting
earnings per share, and the operating performance of licensed
The Bassett Annual Meeting of Shareholders will be
Bassett stores are based upon management’s beliefs, as well
held Wednesday, March 7, 2018 at 10 a.m. EST at the
as assumptions made by and information currently available to
Company’s headquarters in Bassett, VA.
management, and involve various risks and uncertainties, certain
of which are beyond the Company’s control. The Company’s
Market and Dividend Information
actual results could differ materially from those expressed in any
Bassett’s common stock trades on the NASDAQ national
forward-looking statement made by or on behalf of the Company.
market system under the symbol “BSET.” We had approximately
If the Company does not attain its goals, its business and
range of per share amounts for the high and low market
results of operations might be adversely affected. For
prices and dividends declared for the last two fiscal years
a discussion of factors that may impair the Company’s
are listed below:
1300 registered stockholders as of January 10, 2018. The
ability to achieve its goals, please see the cautionary
statements in the Management’s Discussion and Analysis
section of this Annual Report.
MARKET PRICES OF
COMMON STOCK
DIVIDENDS
DECLARED
Quarter
2017
2016
2017
2016
HIGH
LOW
HIGH
LOW
First
$31.65
$25.75
$31.98
$23.65
Second
31.60
24.95
33.20
26.79
Third
39.85
29.50
29.60
23.94
Fourth
41.30
34.60
30.00
22.75
$0.10
$0.10
$0.1 1
$0.46
$0.09
$0.09
$0.1 0
$0.40
N E W 2 0 1 7
PITTSBU RGH , PA
WE STBURY, NY
OK L AHO MA CI T Y, OK
KI NG OF PRUSSIA , PA
C HAND LER , A Z
COVER : WIC HI TA , K S
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
JAY R. HERVEY
Vice President, Secretary, General Counsel
DAVID C. BAKER
Senior Vice President, Corporate Retail
MATTHEW S. JOHNSON
Vice President, Sales
JOHN E. BASSETT, III
Senior Vice President, Wood
KARA KELCHNER-STRONG
Vice President, Strategic Transformation Officer
BRUCE R. COHENOUR
Senior Vice President, Sales and Merchandising
MIKE R. KREIDLER
Vice President, Upholstery Operations
J. MICHAEL DANIEL
Senior Vice President and Chief Financial Officer
JAY S. MOORE
Vice President, Digital Marketing
JACK L. HAWN, JR.
Senior Vice President, Bassett
President, Zenith
MARK S. JORDAN
Senior Vice President, Upholstery
EDWIN C. AVERY, JR.
Vice President, Upholstery Product Development
WILLIAM A. BENDALL
Vice President, Sales, Juvenile
KENA A. COHENOUR
Vice President, Upholstery Merchandising
NICHOLAS C. GEE
Vice President, Corporate Retail Sales
STEPHEN D. HARMON
Vice President, Information Technology
PETER D. MORRISON
Vice President, Chief Creative Officer
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast Region
THOMAS E. PRATO
Vice President, Sales, East Region
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