A N N U A L R E P O R T
2 0 1 9
Biscayne Bay by Lane Venture
Cover: Bassett Outdoor Lakeview Collection
To Our Shareholders
We are seeing several disruptive trends in the marketplace
today that threaten the traditional furniture industry and
retail in general. Ongoing deflation in key categories, the
seismic shift to digital marketing and online commerce,
tariffs on Chinese-made goods, evolving generational
consumption behavior, and the tight labor market and the
aging of the core baby boomer workforce are factors that
must be dealt with – both for today and for the future.
In fiscal 2019, across all three of our business segments –
wholesale, retail, and logistics, we proactively executed our
plan and developed new strategies to address the changing
environment in which we operate. Generating growth is
difficult and requires both operational excellence and
capital investment. We remain vigilant of our strong balance
sheet, which featured $37 million in cash and investments
at year end with no long-term debt. We generated $18.8
million of operating cash flow in the final six months of
2019. For the year, we purchased approximately 6% of
the outstanding shares of the Company and paid out $5.1
million of dividends to our shareholders. As we forge
ahead, we will continue to incorporate these principles
of conservative financial stewardship to provide a solid
foundation for Bassett in the years to come.
Achieving wholesale growth remains the heart of our
strategy as we seek to leverage our manufacturing and
sourcing assets. We need to improve upon the 2.0%
increase for the year (53 weeks in 2019 vs. 52 weeks
in 2018). Reviewing our 2019 divisional performance,
overall upholstery sales grew by 5% for the year (53 vs.
52). Going further down, our domestic upholstery sales
also grew by 5% for the year. Impeded by tariff-based
service disruptions, our imported upholstery shipments
were down 10% for the year. Given that, we were happy
to more than hold our own with overall shipments. For
the year, upholstery profitability grew by 11%, led by our
Newton, N. C., facility and the Lane Venture division.
Our core custom upholstery program, formerly marketed
as HGTV HOME Design Studio, was re-invented and
debuted in January 2019. The results were pleasing as the
new version grew by 7% over the previous year’s number.
Also contributing to this year’s upholstery growth was our
burgeoning outdoor furniture footprint. We began the
year with the new and improved Lane Venture division
on firm footing with a new operational platform featuring
imported woven wicker, teak, and aluminum frames being
supplemented with domestically produced cushions and fully
upholstered products. Retailers embraced the assortment
and the service levels and the division grew by 42%.
In October, we completed the purchase of Crimson Casual, a
metal outdoor furniture manufacturer located in Haleyville,
Alabama. We can now provide the marketplace with tariff
free, quick response aluminum outdoor furniture in a
variety of finishes. We plan to use this product and others to
enter the outdoor hospitality and contract business under
the Bassett Outdoor Contract name in the next few weeks.
Our third leg of the outdoor strategy launches in February
with the Bassett Outdoor line that will be sold exclusively
in Bassett Home Furnishings retail stores. We believe that
we have the brand, the domestic manufacturing assets,
and the service model to become a significant player in the
growing outdoor furniture category.
Also worth mentioning on the upholstery front is our
new “Magnificent Motion” domestically manufactured
custom motion furniture program that was introduced
at the October High Point Furniture Market. Magnificent
Motion offers choices of arm, base, and back treatments in
an array of fabrics and leathers and is engineered to look
like upscale stationary furniture. We began shipping this
product in December and have been excited by the retail
sell through that we have seen since its introduction. Similar
to outdoor, the custom motion product represents our foray
into a largely untapped part of the market for us and will
provide incremental growth. Motion in general has been a
winning category industry-wide for the past several years
and we plan to utilize the combination of capabilities that
we now have at our disposal to offer our outside retailers
and Bassett stores a quality alternative to the crowded
commercial market of imported motion upholstery.
Our imported Club Level line, offered primarily to our open
market retailers, is still an important part of our wholesale
business despite the disruption from tariffs. Offered only
in leather with limited customization, it offers the dealer
a less-expensive motion option designed to be a higher
turning product on their floors. Recently, we successfully
shifted the production of this product from China to
Thailand to alleviate the added cost of tariffs.
Wood shipments declined 2.7% for the year, with 100% of
the decline occurring in the fourth quarter. The exit from the
juvenile products business comprised 100% of the yearly
shortfall. Domestic shipments from Martinsville Table
Plant and Bench Made facilities were flat with last year’s
record pace (53 vs. 52) but declined as the year progressed.
Product highlights for the year include the BenchMade
Midtown Collection which offers a contemporary styling
alternative to the rustic feel for which Bench Made has
become known.
Unfortunately, the growth in our domestic wood programs
over the past few years has been offset by declines in our
imported casegoods sales, exacerbated this year by the
juvenile exit. Exclusive of juvenile, imported casegoods
sales were flat for the year (53 vs. 52) and profits increased
by 3%. Imported wood product styling offers sensibilities
Biscayne Bay by Lane Venture
Cover: Bassett Outdoor Lakeview Collection
Bassett’s new Magnificent Motion Collection
that we are not capable of producing domestically and
is viewed as an important component of our corporate
merchandising mix. In March, we will begin to test a
new logistics and warehousing model for 250 SKUs, or
approximately 30% of our imported casegoods lineup.
By bringing containers directly to the population centers,
we will reduce transportation costs on those items and
maintain our existing margins while reducing retail prices
by an average of 15%. We will also be able to deliver these
products to our customers much more quickly. We believe
that we will become more competitive on these products
and can improve our fortunes in our imported casegoods
business as a result.
Our blended distribution strategy resulted in approximately
60% of our wholesale volume coming from our corporate
and licensed stores and 40% from all other channels in
2019. Wholesale shipments to stores grew by 1% for the year.
Foot traffic to our stores has declined for three consecutive
years and is an area of concern for our management team.
We have mitigated the effects of this trend by converting
more of the traffic that does come in and by increasing
the average value of a sale – now around $3,500. We view
traffic to our website as being fundamental to improving
store footsteps and we were pleased to generate double
digit increases in web visits in the back half of 2019. In
concert, we significantly improved the operating results
of our corporate stores over the final six months of 2019
compared to the start of the year. Converting growing
web traffic to transactions both in-store and online is our
primary objective for 2020.
We have embarked upon a re-branding effort that will
appear online and in-store beginning in early March. This
effort will come to fruition in stages over the course of 2020.
After a successful eight-year run, we will no longer use the
HGTV HOME Design Studio mark on our custom upholstery
products in 2020. We will, however, continue to advertise
on the network and will remain the furniture sponsor for the
HGTV Smart Home 2020, which has provided tremendous
consumer engagement with our brand over the years. We
plan on using the savings from redefining the relationship
with HGTV to fund greater investments in digital marketing
and the new Bassett re-branding strategy. We have added
and will continue to add staff with digital marketing expertise
to our team as we re-allocate marketing dollars to digital
strategies and away from traditional television media.
Business generated through independent furniture stores
by our sales reps increased by 3% for the year. We sell 1,000
open market accounts across the country and have worked
to add reps and improve penetration in underperforming
areas over the past few years. We are particularly pleased
to see the growth in our dedicated Bassett Design Centers’
volume as our accounts commit to a footprint of our
bestselling custom products and receive training, sales
support, and marketing assistance from our reps and
from corporate. This program mirrors our Bassett retail
merchandising and marketing strategy closely including
the annual promotional calendar and the emphasis on
custom products and interior design. The new branding
strategy that we will unveil in 2020 has been embraced by
our key open market retail base and we look forward to the
efficiencies that this will provide as we go to market with a
consistent message across all channels.
Our Zenith Freight Lines division is a key asset of the
Company and is becoming increasingly fundamental to
our desire to warehouse products in more locations and
improve the speed-to-market proposition that we offer.
Zenith revenue actually declined in 2019 due to our exit
from the “final mile” home delivery business. Instead, we
focused on a new “middle mile” model that features point-
to-point deliveries from our large distribution centers to
smaller, strategically located warehouses with our fleet of
over the road vehicles. Upon receipt of the goods, we break
down the loads and nimbly deliver to our customers with a
fleet of smaller trucks. This has greatly improved our ability
to deliver fast in our key markets on the Eastern Seaboard,
Mid-South, and Southwest U. S. markets. The merits of this
model are being recognized by other furniture providers and
we have signed on several new logistics customers over the
past few months as a result. Our teams are working closely
to further refine the new model to reduce costs for our
customers and improve our own efficiencies. Along the way,
Zenith was able to increase operating profit by 33% in 2019.
We firmly believe that the Bassett brand and our capabilities
have something unique to offer – something which
consumers, including younger ones, will react to positively
today and in the future. Our wholesale partners and our
retail customers believe this as well. What is it? Authenticity,
heritage, Made in America, quality, customization, value,
high levels of service … these are not concepts that were
concocted by an ad firm to provide fodder for social media.
These are the foundational elements of our Company that
we have painstakingly developed over decades. Few, if any,
can claim these attributes, especially spanning 118 years
of the American experience. One of our primary missions
in 2020 is to artfully “package” these brand pillars and
communicate them in the ephemeral parlance of today’s
digital age. We are fully engaged in this pursuit.
In closing, I want to thank all of our constituencies –
shareholders, customers, and associates; for their thinking
and their support of our enterprise over the course of 2019.
Rob Spilman
Chairman/CEO
Financial Summary
Fiscal years ended November
2019
2018
2017
2016
2015
INCOME STATEMENT DATA
Net Sales
Income (loss) From Operations
Adjusted Income From Operations
Net Income (loss)
Adjusted Net Income
$452,087
(595)
7,446
(1,928)
4,560
$456,855
14,084
14,854
8,218
10,119
$452,503
27,018
26,297
18,256
15,826
$432,038
28,193
28,193
15,829
15,680
$430,927
25,989
26,963
20,433
14,830
PER SHARE DATA
Diluted Income (loss)
Adjusted Diluted Income
Cash Dividends
Book Value
BALANCE SHEET DATA
Cash & Cash Equivalents
Investments
Total Assets
Long-Term Debt
Stockholders’ Equity
$ (0.19)
0.44
0. 50
17.66
$ 0.77
0.95
0.47
18.08
$ 1.70
1.47
0.77
17.83
$ 1.46
1.44
0.68
16.85
$ 1.88
1.37
0.54
16.25
$ 19,687
17,436
275,766
—
178,670
$ 33,468
22,643
291,641
—
190,309
$ 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
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)
Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal
52 weeks. The current fiscal year ending November 30, 2019 is a 53-week year, with the additional week being included in
our first fiscal quarter. Accordingly, the information presented below includes 53 weeks of operations for the year ended
November 30, 2019 as compared to 52 weeks included in the years ended November 24, 2018 and November 25, 2017.
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. We were founded in 1902 and
incorporated under the laws of Virginia in 1930. Our rich 117-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 103 BHF stores at November 30, 2019, 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 30
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, 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 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 custom 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 “Bench Made” line of custom, solid hardwood furniture. In late 2019, we
also began operating a facility in Haleyville, Alabama that will provide Bassett with the capability to manufacture custom
aluminum outdoor furniture primarily under the Lane Venture brand. 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 (casegoods) and certain leather upholstery offerings from several
foreign plants, primarily in Vietnam, Thailand and China. Over 75% of the products we currently sell are manufactured in
the United States.
We also own Zenith Freight Lines, LLC (“Zenith”) which provides logistical services to Bassett along with other furniture
manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored
to the needs of Bassett and the furniture industry. Approximately 60% of Zenith’s revenue is generated from services
provided to non-Bassett customers.
On December 21, 2017, we purchased certain 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 is now
being operated as a component of our wholesale segment. This acquisition marked our entry into the market for outdoor
furniture and we believe that Lane Venture has provided a foundation for us to become a significant participant in this
category. Our strategy is to distribute this brand outside of our BHF store network only. See Note 3 to our consolidated
financial statements for additional details regarding this acquisition.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
With the knowledge we have gained through operating Lane Venture, we have developed a new separate brand that will only
be marketed through the BHF store network. This will allow Bassett branded product to move from inside the home to outside
the home to capitalize the growing trend of outdoor living. Bassett Outdoor is currently marketed in a limited number of
stores with a broader distribution planned late in the first quarter of 2020.
At November 30, 2019, our BHF store network included 70 Company-owned stores and 33 licensee-owned stores. During
fiscal 2019, we opened new stores in Coral Gables, Florida, Columbus, Ohio, Tucson, Arizona, Estero, Florida, Sarasota,
Florida and Princeton, New Jersey. During fiscal 2019 we closed one underperforming store in Gulfport, Mississippi and
repositioned our store in Friendswood, Texas and another store in Palm Beach, Florida. In addition, a new licensee store was
opened in Boise, Idaho. A new 23,000 square foot licensee store was opened in December of 2019 in Thornton, Colorado.
We have completed a three-year store expansion program that has seen us grow to more than 100 stores throughout the
country. We currently have no Company-owned or licensee-owned store openings planned. Our strategy is to assess the
current fleet of stores and improve the overall operations and profitability of the Corporate Retail segment. We will continue
to assess the economic and competitive environment in various markets and may consider future expansion should attractive
opportunities arise.
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.
Today’s customers expect their digital experiences and communications to be personalized, highly-relevant and catered to
match their specific needs and preferences. We have established a centralized customer care center that is using customer
relationship management (CRM) software to track each customer’s path from initial engagement through point of sale and
ultimately to their post-delivery experience. We will continue to invest in our digital effort to improve our customers’ journey
from the time they begin on our website to the final step of delivering the goods to their homes. We view the combination of
website traffic and store traffic in a holistic fashion where our customer generally experiences our brand on our website
before visiting a store. While store traffic has been decreasing over the last few years, traffic to our website increased this
year with web visits up 15% for the year ended November 30, 2019 as compared to the prior year period. We plan to invest
more in new digital outreach strategies on a store market by market basis to drive more traffic to the website.
Our pure e-commerce sales (ordering directly from the website) have historically been immaterial. We plan to invest in our
website in 2020 to improve the navigation and the ordering capabilities to increase web sales. Much of our current product
offerings highlight the breadth and depth of our custom furniture capabilities which are difficult to show and sell online. We
plan to expand our merchandising strategies to include more product that can be more easily purchased online with or without
a store visit. While we work to increase web sales, we will not compromise on our in-store experience or the quality of our
in-home makeover capabilities.
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 30, 2019,
November 24, 2018 and November 25, 2017:
2019*
2018
2017
Change from Prior Year
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
Sales Revenue:
Furniture and
accessories
Logistics
Total net sales
revenue
Cost of furniture
and accessories
sold
SG&A
New store pre-
opening costs
Other charges
Income
(loss) from
operations
$ 403,865 89.3 % $ 402,469 88.1 % $ 398,097 88.0 % $ 1,396
(6,164)
48,222 10.7 % 54,386 11.9 % 54,406 12.0 %
0.3 % $ 4,372
(20)
-11.3 %
1.1 %
0.0 %
452,087 100.0 % 456,855 100.0 % 452,503 100.0 %
(4,768)
-1.0 % 4,352
1.0 %
179,244 39.6 % 179,581 39.3 % 177,579 39.2 %
264,280 58.5 % 260,339 57.0 % 245,493 54.3 %
(337)
3,941
-0.2 % 2,002
1.5 % 14,846
1.1 %
6.0 %
1,117 0.2 %
8,041 1.8 %
2,081 0.5 %
770 0.2 %
2,413 0.6 %
- 0.0 %
-46.3 %
(964)
7,271 994.3 %
(332)
770
-13.8 %
NM
$
(595) -0.1 % $ 14,084 3.1 % $ 27,018 6.0 % $ (14,679) -104.2 % $ (12,934)
-47.9 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Our consolidated net sales by segment were as follows:
2019
2018
2017
Dollars
Percent
Dollars
Percent
Change from Prior Year
2019 vs 2018
2018 vs 2017
Net Sales
Wholesale
Retail
Logistical services
Inter-company eliminations:
Furniture and accessories
Logistical services
Consolidated
$ 261,105 $ 255,958 $ 249,193 $
268,264
83,030
268,693
80,074
268,883
82,866
(125,933)
(31,852)
(119,360)
(28,624)
$ 452,087 $ 456,855 $ 452,503 $
(122,372)
(28,480)
5,147
(190)
(2,792)
(3,561)
(3,372)
(4,768)
2.0 % $
-0.1 %
-3.4 %
6,765
619
(164 )
2.9 %
11.8 %
-1.0 % $
(3,012 )
144
4,352
2.7 %
0.2 %
-0.2 %
2.5 %
-0.5 %
1.0 %
Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of
operations for fiscal 2019 and 2018 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 operations.
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 and the
Company-owned distribution network utilized to deliver products to our retail customers.
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 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 operations. Zenith’s operating costs are included in
selling, general and administrative expenses.
During the fourth quarter of fiscal 2018, we substantially completed transferring operational control of home delivery
services for BHF stores from Zenith to our retail segment, including the transfer of the assets and many of the employees
used in providing that service. Accordingly, the revenues for the logistical services segment for all periods presented have
been restated to no longer include the intercompany revenues and related costs for those services. Concurrently with the
transfer of home delivery operations to retail, Zenith also ceased providing such services to third party customers. Revenues
from Zenith’s home delivery services formerly provided to third party customers and the associated costs thereof continue
to be reported in the logistical services segment. The impact upon segment operating income (loss) from the restatement was
not material. Zenith continues to provide other intercompany shipping and warehousing services to Bassett which are
eliminated in consolidation.
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 30, 2019
Sales revenue:
Furniture & accessories
Logistics
Total sales revenue
$
Cost of furniture and accessories sold
SG&A expense
New store pre-opening costs
Income (loss) from operations (5)
$
261,105 $
-
261,105
173,350
76,299
-
11,456 $
268,693 $
-
268,693
131,528
143,057
1,117
(7,009) $
- $
80,074
80,074
-
78,219
-
1,855 $
(125,933 ) (1) $
(31,852 ) (2)
(157,785 )
(125,634 ) (3)
(33,295 ) (4)
-
1,144
$
403,865
48,222
452,087
179,244
264,280
1,117
7,446
Wholesale Retail
Logistics
Eliminations
Consolidated
Year Ended November 24, 2018
Sales revenue:
Furniture & accessories
Logistics
Total sales revenue
$
Cost of furniture and accessories sold
SG&A expense
New store pre-opening costs
Income (loss) from operations (5)
$
255,958 $
-
255,958
171,272
72,412
-
12,274 $
268,883 $
-
268,883
130,591
136,523
2,081
(312) $
- $
82,866
82,866
-
81,468
-
1,398 $
(122,372 ) (1) $
(28,480 ) (2)
(150,852 )
(122,282 ) (3)
(30,064 ) (4)
-
1,494
$
402,469
54,386
456,855
179,581
260,339
2,081
14,854
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 $
- $
83,030
83,030
-
80,068
-
2,962 $
(119,360 ) (1) $
(28,624 ) (2)
(147,984 )
(118,912 ) (3)
(30,517 ) (4)
-
1,445
$
398,097
54,406
452,503
177,579
245,493
2,413
27,018
(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 segment.
(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 wholesale segment.
Year Ended
November 30, November 24, November 25,
2018
2019
2017
Intercompany logistical services
Intercompany rents
$
Total SG&A expense elimination
$
(31,852 ) $
(1,443 )
(33,295 ) $
(28,480) $
(1,584)
(30,064) $
(28,624 )
(1,893 )
(30,517 )
(5) Excludes the effects of goodwill and asset impairment charges, cost of early retirement program, litigation costs
and lease exit 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)
The following table reconciles income from operations as shown above for our consolidated segment results with income
(loss) from operations as reported in accordance with GAAP:
Consolidated segment income from
operations excluding special charges
$
7,446 $
14,854 $
27,018
2019
2018
2017
Less:
Asset impairment charges
Goodwill impairment charge
Early retirement program
Litigation expense
Lease exit costs
4,431
1,926
835
700
149
469
-
-
-
301
-
-
-
-
-
Income (loss) from operations as reported
$
(595) $
14,084 $
27,018
Asset Impairment Charges
During fiscal 2019 the loss from operations included $4,431 of non-cash impairment charges recognized on the assets of six
underperforming retail stores.
During fiscal 2018 income from operations included $469 of non-cash asset impairment charges recognized on the assets of
one underperforming retail store.
With regard to these seven locations, we are evaluating their ongoing viability which may result in the decision to close
certain of these stores in the future.
Goodwill Impairment Charge
During fiscal 2019 our annual evaluation of the carrying value of our recorded goodwill resulted in the recognition of a
$1,926 non-cash charge for the impairment of goodwill associated with our retail reporting unit (see Note 8 to our
Consolidated Financial Statements).
Early Retirement Program
During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the
Company. Twenty-three employees accepted the offer, which expired on February 28, 2019. These employees are to receive
pay equal to one-half their current salary plus benefits over a period of one year from the final day of each individual’s active
employment. Accordingly, we recognized a charge of $835 during the year ended November 30, 2019.
Litigation Expense
During fiscal 2019 we accrued $700 for the estimated costs to resolve certain wage and hour violation claims that have been
asserted against the Company. While the ultimate cost of resolving these claims may be substantially higher, the amount
accrued represents our estimate of the most likely outcome of a mediated settlement.
Lease Exit Costs
During fiscal 2019 we recognized a $149 charge for lease exit costs incurred in connection with the repositioning of a
Company-owned retail store in Palm Beach, Florida to a new location within the same market.
During fiscal 2018 we recognized a $301 charge for lease exit costs incurred in connection with the closing of a Company-
owned retail store location in San Antonio, Texas.
6
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 for our Wholesale Segment were as follows for the years ended
November 30, 2019, November 24, 2018 and November 25, 2017:
2019*
2018
2017
Change from Prior Year
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
Net sales
Gross profit
SG&A
Income from
operations
$ 261,105 100.0 % $ 255,958 100.0 % $ 249,193 100.0 % $ 5,147
87,755 33.6 % 84,686 33.1 % 85,165 34.2 % 3,069
76,299 29.2 % 72,412 28.3 % 66,044 26.5 % 3,887
2.0 % $ 6,765
3.6 %
(479)
5.4 % 6,368
2.7 %
-0.6 %
9.6 %
$ 11,456 4.4 % $ 12,274 4.8 % $ 19,121 7.7 % $
(818)
-6.7 % $ (6,847)
-35.8 %
Wholesale shipments by category for the last three fiscal years are summarized below:
2019*
2018
2017
Change from Prior Year
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
Bassett Custom
Upholstery
Bassett Leather
Bassett Custom
Wood
$ 152,415 58.4 % $ 141,321 55.2 % $ 136,366 54.7 % $ 11,094
19,220 7.4 % 21,589 8.4 % 22,528 9.0 % (2,369)
7.9 % $ 4,955
(939)
-11.0 %
3.6 %
-4.2 %
46,082 17.6 % 46,074 18.0 % 43,793 17.6 %
8
Bassett Casegoods 40,920 15.7 % 42,875 16.8 % 42,874 17.2 % (1,955)
3,632 1.5 % (1,631)
Accessories
$ 261,105 100.0 % $ 255,958 100.0 % $ 249,193 100.0 % $ 5,147
Total
4,099 1.6 %
2,468 0.9 %
0.0 % 2,281
-4.6 %
1
467
-39.8 %
2.0 % $ 6,765
5.2 %
0.0 %
12.9 %
2.7 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Fiscal 2019 as Compared to Fiscal 2018
On an average weekly basis (normalizing for 53 weeks compared to 52 weeks), net sales for 2019 were essentially flat at
$256,178. A $3,206 increase in outdoor furniture shipments was primarily offset by a $2,707 decrease in juvenile furniture
shipments as we exited this furniture line during 2019. In addition, the wholesale segment ceased selling accessories to the
BHF network beginning at the start of the third quarter of 2019. Both the corporate- and licensee-owned stores now purchase
accessories directly from third-party accessory providers. This resulted in a $1,678 decrease in the sale of accessories. Gross
margin for the wholesale segment was 33.6% for fiscal 2019 as compared to 33.1% for the prior year. This increase was
primarily driven by higher margins in domestic custom upholstery operations as price increases implemented during the third
quarter of 2018 offset the increased raw material costs experienced late in 2017 and early 2018. Margins in the imported
wood operations increased due to lower realized container freight costs and improved margins on the sales of discontinued
product, partially offset by the $390 inventory valuation charge associated with our exit from the juvenile line of business.
The increase in SG&A as a percentage of sales was primarily driven by higher marketing and other brand development costs
and increased over-the-road freight and warehousing costs.
Fiscal 2018 as Compared to Fiscal 2017
The increase in net sales was driven by the addition of $9,546 of revenue for Lane Venture, acquired during the first quarter
of 2018, along with a 1.8% increase in furniture shipments to the open market (outside the BHF network and excluding
shipments from Lane Venture), partially offset by a 2.8% decrease in furniture shipments to the BHF network as compared
to the prior year period. A much smaller component of our wholesale revenues, shipments of wholesale accessories, increased
12.9% over the prior year period. Gross margins for the wholesale segment were 33.1% for fiscal 2018 compared to 34.2%
for the prior year. This decrease was primarily driven by lower margins in the Bassett Custom Upholstery operations,
excluding Lane Venture, due to higher materials costs coupled with lower absorption of fixed costs due to lower volumes.
In June 2018, we implemented targeted price increases to our Custom Upholstery line to mitigate the effects of the cost
increases and began seeing the benefit on margins in July 2018. Wholesale SG&A increased as a percentage of sales over
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
the prior year period primarily driven by planned higher digital marketing and other brand development costs, partially offset
by decreased incentive compensation. In addition, we incurred $256 of one-time acquisition costs along with other startup
costs associated with the Lane Venture operation.
Wholesale Backlog
The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores
as of November 30, 2019, November 24, 2018, and November 25, 2017 was as follows:
2019
2018
2017
Year end wholesale backlog $
19,952 $
25,810 $
22,239
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 30, 2019, November 24, 2018 and November 25, 2017:
2019 vs 2018
2018 vs 2017
2019*
2018
2018
2017
Change from Prior Year
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
Net sales
Gross profit
SG&A expense
New store pre-
opening costs
Income (loss) from
(190)
$ 268,693 100.0 % $ 268,883 100.0 % $ 268,883 100.0 % $ 268,264 100.0 % $
137,165 51.0 % 138,292 51.4 % 138,292 51.4 % 135,801 50.6 % (1,127)
143,057 53.2 % 136,523 50.8 % 136,523 50.8 % 129,898 48.4 % 6,534
619
-0.1 % $
-0.8 % 2,491
4.8 % 6,625
0.2 %
1.8 %
5.1 %
1,117
0.4 %
2,081
0.8 %
2,081
0.8 %
2,413
0.9 %
(964)
-46.3 %
(332)
-13.8 %
operations
$
(7,009)
-2.6 % $
(312)
-0.1 % $
(312)
-0.1 % $
3,490
1.3 % $ (6,697) 2146.5 % $ (3,802) -108.9 %
The following tables present operating results on a comparable store basis for each comparative set of periods. Table A
compares the results of the 56 stores that were open and operating for all of 2019 and 2018. Table B compares the results of
the 53 stores that were open and operating for all of 2018 and 2017.
Comparable Store Results:
Table A: 2019 vs 2018 (56 Stores)
Table B: 2018 vs 2017 (53 Stores)
2019 vs 2018
2019*
2018
2018
2017
Dollars
Percent
2018 vs 2017
Dollars Percent
Change from Prior Year
Net sales
Gross profit
SG&A expense
Income (loss) from
$ 234,401 100.0 % $ 252,353 100.0 % $ 235,868 100.0 % $ 239,633 100.0 % $ (17,952 )
(10,316 )
119,786 51.1 % 130,102 51.6 % 121,399 51.5 % 122,710 51.2 %
(3,641 )
120,755 51.5 % 124,396 49.3 % 115,094 48.8 % 115,161 48.1 %
-7.1 % $ (3,765)
-7.9 % (1,311)
(67)
-2.9 %
-1.6 %
-1.1 %
-0.1 %
operations
$
(969)
-0.4 % $
5,706
2.3 % $
6,305
2.7 % $
7,549
3.2 % $
(6,675 ) -117.0 % $ (1,244)
-16.5 %
The following tables present operating results for all other stores which were not comparable year-over-year. Each table
includes the results of stores that either opened or closed at some point during the 24 months of each comparative set of
periods.
All Other (Non-Comparable) Store Results:
2019 vs 2018 All Other Stores
2018
2019*
2018 vs 2017 All Other Stores
2017
2018
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
Change from Prior Year
$ 34,292 100.0 % $ 16,530 100.0 % $ 33,015 100.0 % $ 28,631 100.0 % $ 17,762 107.5 % $ 4,384
9,189 112.2 % 3,802
17,379 50.7 %
83.9 % 6,692
22,302 65.0 % 12,127 73.4 % 21,429 64.9 % 14,737 51.5 % 10,175
8,190 49.5 % 16,893 51.2 % 13,091 45.7 %
15.3 %
29.0 %
45.4 %
1,117
3.3 %
$ (6,040 ) -17.6 % $
2,081 12.6 %
(6,018) -36.4 % $
2,081
8.4 %
(6,617) -20.0 % $ (4,059 ) -14.2 % $
2,413
6.3 %
(964)
(22)
-46.3 %
(332)
0.4 % $ (2,558)
-13.8 %
63.0 %
Net sales
Gross profit
SG&A expense
New store pre-opening
costs
Loss from operations
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
Fiscal 2019 as Compared to Fiscal 2018
The decrease in net sales for the 70 Company-owned BHF stores was driven by a 7.1% decrease for the 56 comparable stores
from fiscal 2018, offset by a $17,762 increase in non-comparable store sales as we have opened 13 stores over the last 24
months. On an average weekly basis (normalizing for the extra week in fiscal 2019), comparable store sales decreased 8.9%.
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
decreased by 7.5% for fiscal 2019 as compared to fiscal 2018. On an average weekly basis, comparable store written sales
decreased 9.3%.
The decrease in comparable store gross margins was primarily due to increased wholesale costs as a result of tariffs on
Chinese products instituted in late 2018 along with higher costs of freight, both of which were passed on in a wholesale price
increase in January 2019. Although most of our goods are domestically made, and most of our other goods are imported from
countries outside of China, the tariffs have had a significant impact on the cost of a portion of the fabric that we use in our
upholstered furniture manufactured in the United States. We implemented a price increase late in the second quarter to
mitigate these cost increases. Gross margins were also impacted by increased clearance activity primarily in the first quarter
of 2019 due to the launch of the new custom upholstery program and the selloff of existing floor samples and other clearance
product as a result of the repositioning of two stores in the Houston market late in 2018.
The increase in SG&A expenses for comparable stores as a percentage of sales to 51.5% was primarily due to a de-leveraging
of fixed costs from lower sales volumes, inefficiencies in the warehouse and home delivery operation and higher financing
costs as more of our retail customers chose to finance their purchases through our third-party credit provider. These increases
were partially offset by various fixed cost decreases primarily implemented in the second half of the year that resulted from
changes to our cost structure.
The $22 increase in the operating loss from non-comparable stores for fiscal 2019 includes new store pre-opening costs of
$1,117 compared to $2,081 for the prior year. 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 2019 we incurred $1,392 of post-opening losses associated with
six new stores opened during fiscal 2019 compared to $1,601 of post-opening losses incurred during fiscal 2018 associated
with other locations.
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 2018 as Compared to Fiscal 2017
The increase in net sales for the 65 Company-owned stores over the prior year was comprised of a $4,384 increase in non-
comparable store sales partially offset by a 1.6% decrease in 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
decreased by 3.6% for fiscal 2018 as compared to prior year.
The increase in comparable store gross margins to 51.5% for fiscal 2018 from 51.2% in the prior year period is primarily due
to improved pricing strategies and product mix. SG&A expenses as a percentage of sales for comparable stores increased
slightly from 2017 due to decreased leverage of fixed costs on lower sales volume and increased advertising expenses.
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
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $400 to $600 per store. During
fiscal 2018 we incurred $1,601 of post-opening losses associated with the seven new stores and clearance center opened
during 2018 and late 2017 compared with $969 of post-opening losses during fiscal 2017. Included in the 2017 Non-
Comparable store loss was a $1,220 gain on the sale of our retail store location in Las Vegas, Nevada.
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 Trends
The following table provides year-over-year comparable store sales trends for the last three fiscal years:
As reported:
Delivered
Written
Average weekly basis:
Delivered
Written
2019
2018
2017
-7.1 %
-7.5 %
-1.6 %
-3.6 %
-8.9 %
-9.3 %
-1.6 %
-3.6 %
1.9 %
1.8 %
1.9 %
1.8 %
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 30,
2019, November 24, 2018, and November 25, 2017, was as follows:
2019
2018
2017
$
Year end retail backlog
Retail backlog per open store $
Logistical Services Segment
31,146 $ 35,493 $ 35,684
595
546 $
445 $
Revenues, operating expenses and income from operations for our logistical services segment were as follows for the years
ended November 30, 2019, November 24, 2018 and November 25, 2017:
2019*
2018
2017
Change from Prior Year
2019 vs 2018
Dollars Percent
2018 vs 2017
Dollars Percent
$ 80,074 100.0 % $ 82,866 100.0 % $ 83,030 100.0 % $ (2,792)
78,219 97.7 % 81,468 98.3 % 80,068 96.4 % (3,249)
-3.4 % $
(164)
-4.0 % 1,400
-0.2 %
1.7 %
$ 1,855 2.3 % $ 1,398 1.7 % $ 2,962 3.6 % $
457
32.7 % $ (1,564)
-52.8 %
Logistics revenue
Operating expenses
Income from
operations
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Fiscal 2019 as Compared to Fiscal 2018
On an average weekly basis (normalizing for the extra week fiscal 2019), revenues for Zenith decreased $4,303 or 5.2%.
This decrease was primarily due to the discontinuation of home delivery services to third-party customers, partially offset by
revenue increases in third-party warehousing operations. The decrease in Zenith’s operating expenses as a percent of sales
was primarily due to reduced expenses due to the elimination of the home delivery operation, partially offset by increased
employee health care and workers compensation costs due to unfavorable claims experience. Operating costs for fiscal 2019
and 2018 include non-cash depreciation and amortization charges of $4,019 and $4,068, respectively.
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
Fiscal 2018 as Compared to Fiscal 2017
Zenith’s revenues were comparable year over year. Increased operating costs as a percentage of revenue were primarily due
to significantly higher fuel costs coupled with the increasing cost of hiring and retaining over-the-road drivers. Operating
costs for fiscal 2018 and 2017 include non-cash depreciation and amortization charges of $4,068 and $4,309, respectively.
Other Items Affecting Net Income (Loss)
Other items affecting net income (loss) for fiscal 2019, 2018 and 2017 are as follows:
2019
2018
2017
$
Gain on sales of investments (1)
Interest income (2)
Interest expense (3)
Retail real estate impairment charge (4)
Net periodic pension costs (5)
Cost of company-owned life insurance (6)
Income from the Continued Dumping & Subsidy Offset Act (7)
Other investment income (8)
Other
- $
568
(6 )
-
(883 )
(39 )
-
57
(842 )
- $
431
(57 )
-
(986 )
(598 )
7
52
(727 )
4,221
230
(234)
(1,084)
(1,049)
(517)
94
88
(891)
Total other income (loss), net
$
(1,145 ) $
(1,878 ) $
858
(1) See Note 9 to the Consolidated Financial Statements for information related to gains realized from the sale of two
investments during fiscal 2017.
(2) Consists of 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.
(3) Our interest expense in fiscal 2019 and 2018 declined significantly from fiscal 2017 as all remaining debt incurred
with the 2015 acquisition of Zenith was repaid during fiscal 2018 and the remaining balances on the mortgages of
two retail store locations were repaid in fiscal 2019. See Note 10 to the Consolidated Financial Statements for
additional information regarding our debt.
(4) See Note 2 to the Consolidated Financial Statements for information related to impairment of retail real estate during
fiscal 2017.
(5) 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.
(6) Cost for fiscal 2019 and 2018 is net of life insurance proceeds of $629 and $266, respectively, arising from the
deaths of former executives.
(7) These amounts represent distributions received from U.S. Customs and Boarder 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 certain claims filed by other manufactures which were
dismissed in 2014. The distributions received from Customs have gradually diminished in the years subsequent to
the dismissal and are no longer expected to be significant beyond 2018.
(8) Primarily reflects gains 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.
Provision for Income taxes
On December 22, 2017, The Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduced the federal statutory
corporate income tax rate from 35% to 21% effective January 1, 2018 for all corporate taxpayers, while most other provisions
of the Act took effect for fiscal years beginning on or after January 1, 2018. Therefore, we computed our income tax expense
for fiscal 2018 using a blended federal statutory rate of 22.2%. The 21% federal statutory rate, as well as certain other
provisions of the Act including the elimination of the domestic manufacturing deduction and new limitations on certain
business deductions, were applied to our 2019 fiscal year.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
We recorded an income tax provision of $188, $3,988 and $9,948 in fiscal 2019, 2018 and 2017, respectively. Our effective
tax rate of (10.8%) for 2019 differs from the federal statutory rate of 21.0% primarily due to the $1,926 Goodwill impairment
charge which is not deductible for tax purposes. Other items affecting the rate include the effects of state income taxes and
certain other non-deductible expense. For fiscal 2018, our effective tax rate of 32.7% differs from the federal blended
statutory rate of 22.2% primarily due to a discrete charge of $1,331 arising from the re-measurement of our deferred tax
assets. Other items impacting our effective tax rate for fiscal 2018 include the effects of state income taxes and various
permanent differences including the favorable impacts of excess tax benefits on stock-based compensation of $223 and the
Section 199: Domestic Production Activities Deduction of $866. For fiscal 2017, our effective tax rate was 34.5% and differs
from the statutory rate of 35.0% primarily due to the effects of state income taxes and various permanent differences including
the favorable impact of the Section 199 manufacturing deduction. 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 $5,744 as of November 30, 2019, which, upon utilization, are expected to reduce our cash
outlays for income taxes in future years. It will require approximately $22,000 of future taxable income to utilize our net
deferred tax assets.
Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take
advantage of opportunities as market conditions improve, and to execute our long-term retail strategies.
Cash Flows
Cash provided by operations for fiscal 2019 was $9,809 compared to $29,907 for fiscal 2018, a decrease of $20,098. This
decrease is primarily due to increased investment in inventory due to opening new stores, other changes in working capital
due in part to the timing impact of the additional week in the current fiscal year and lower comparable store sales on an
average weekly basis resulting in reduced cash flows.
Our overall cash position decreased by $13,781 during fiscal 2019. In addition to the cash provided by operations, we had a
net use of $11,173 of cash in investing activities, primarily consisting of capital expenditures associated with retail store
expansion and relocations partially offset by the maturity of $5,207 of our investment in CDs. Net cash used in financing
activities was $12,417, including dividend payments of $5,133 and stock repurchases of $7,345 under our existing share
repurchase plan, of which $10,639 remains authorized at November 30, 2019. With cash and cash equivalents and short-term
investments totaling $37,123 on hand at November 30, 2019, expected future operating cash flows, expected reduced capital
expenditures from fewer store openings and the availability under our credit line noted below, we believe we have sufficient
liquidity to fund operations for the foreseeable future.
Debt and Other Obligations
Our credit facility with our bank provides for a line of credit of up to $25,000. This credit facility is unsecured and contains
covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement
and expect to remain in compliance for the foreseeable future. The credit facility will mature in December 2021. At November
30, 2019, we had $2,673 outstanding under standby letters of credit against our line, leaving availability under our credit line
of $22,327. In addition, we have outstanding standby letters of credit with another bank totaling $325.
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 $184,704 at November 30, 2019 for future
minimum lease payments under non-cancelable operating leases having remaining terms in excess of one year. We also have
guaranteed certain lease obligations of licensee operators. Remaining terms under these lease guarantees range from
approximately one to three years. We were contingently liable under licensee lease obligation guarantees in the amount of
$1,776 at November 30, 2019. See Note 16 to our consolidated financial statements for additional details regarding our leases
and lease guarantees.
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
Dividends and Share Repurchases
During fiscal 2019, we declared and paid four quarterly dividends totaling $5,133, or $0.50 per share. During fiscal 2019,
we repurchased 513,649 shares of our stock for $7,345 under our share repurchase program. The weighted-average effect of
these share repurchases on both our basic and diluted earnings (loss) per share was not significant. The approximate dollar
value that may yet be purchased pursuant to our stock repurchase program as of November 30, 2019 was $10,639.
Capital Expenditures
We currently anticipate that total capital expenditures for fiscal 2020 will be approximately $10 to $12 million which will be
used primarily for additional tractors for our logistical services segment, additional investments in technology and various
remodels or updates to the existing store fleet. 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),
goodwill impairments (see Note 8 to the Consolidated Financial Statements) and asset impairments (see Note 15 to the
Consolidated Financial Statements) have utilized Level 3 inputs.
13
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 16 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.
2020
2021
2022
2023
2024
Thereafter Total
Post employment benefit
obligations (1)
Contractual advertising
Letters of credit
Operating leases (2)
Lease guarantees (3)
Other obligations &
commitments
Purchase obligations (4)
Total
$
921 $
810
2,998
918 $ 1,123 $ 1,052 $ 1,007 $
-
-
37,031 32,478 27,929 22,913 16,835
382
-
-
-
-
-
-
353
347
347
347
-
-
7,730 $ 12,751
810
2,998
47,518 184,704
1,776
-
200
-
200
-
100
-
100
100
$ 42,307 $ 33,943 $ 29,499 $ 24,418 $ 18,324 $
150
-
850
-
55,398 $ 203,889
(1) Does not reflect a reduction for the impact of any company owned life insurance proceeds to be received. Currently,
we have life insurance policies with net death benefits of $17,271 to provide funding for these obligations. See Note
11 to the Consolidated Financial Statements for more information.
(2) Does not reflect a reduction for the impact of sublease income to be received. See Note 16 to the Consolidated
(3)
(4)
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 2018, we had approximately $18,732 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 16 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.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
Revenue Recognition - We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606")
effective as of November 25, 2018, the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue
when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects
to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the
risks and rewards of ownership and title to the product have transferred to the buyer.
At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-
owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and
allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our
licensee store owners do not provide for any royalty or license fee to be paid to us.
At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. 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 and amounted to $25,341 and $27,157
as of November 30, 2019 and November 24, 2018, respectively. Substantially all of the customer deposits held at November
24, 2018 related to performance obligations satisfied during fiscal 2019 and have therefore been recognized in revenue for
the year ended November 30, 2019. Estimates for returns and allowances have been recorded as a reduction of revenue based
on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party
which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized
upon delivery of the goods net of amounts payable to the third party service provider.
For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the
customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as
the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method
based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate
of the total required time for the deliveries. We recognize an asset for the amount of line-haul revenue earned but not yet
billed which is included in other current assets. The balance of this asset was $441 at November 30, 2019 and $512 at the
beginning of fiscal 2019 upon adoption of ASC 606. 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
and billed to the customer concurrently in the same period. All invoices for logistical services are due 30 days from invoice
date.
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 $815 and $754 at November
30, 2019 and November 24, 2018, respectively, representing 3.7% and 3.8% 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,
excluding outdoor furniture products, using the last-in, first-out method. The cost of imported inventories and domestic
outdoor furniture products 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 $2,362 and $1,766 at November 30, 2019 and November
24, 2018, respectively, representing 3.4% and 2.7%, 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.
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
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, 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 quantitative goodwill impairment test described in ASC Topic 350 (as amended by
Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which we adopted for our annual evaluation of goodwill performed as of September 1, 2019). 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 quantitative 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 quantitative evaluation process. Based on our
qualitative assessment as described above, we concluded that, given declines in our income from operations, primarily
resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis
in fiscal 2018, it was necessary to perform the quantitative evaluation in the current year.
The quantitative evaluation 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, a goodwill impairment charge will be recognized in the amount by which the reporting unit’s carrying amount
exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value
of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples,
an income approach, that utilizes discounted cash flows for each reporting unit and other Level 3 inputs, and, in the case of
our retail reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value
are dependent on a number of significant management assumptions such as our expectations of future performance and the
expected future economic environment, which are partly based upon our historical experience. Our estimates are subject to
change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth
rate are based on our judgment of the rates that would be utilized by a hypothetical market participant. As part of the goodwill
impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values
estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may
differ materially from the projected amounts. As a result of our annual goodwill impairment test performed as of September
1, 2019, we recognized an impairment of $1,926 on the goodwill assigned to our retail reporting unit, and concluded that the
remaining $14,117 of goodwill assigned to our other reporting units was not impaired. The fair values of the other reporting
units with material amounts of goodwill substantially exceeded their carrying values as of September 1, 2019.
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 30, 2019, our indefinite-lived intangible assets other than goodwill
consist of trade names acquired in the acquisitions of Zenith and Lane Venture and have a carrying value of $9,338.
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 30,
2019 our definite-lived intangible assets consist of customer relationships and customized technology applications acquired
in the acquisition of Zenith and customer relationships acquired in the acquisition of Lane Venture with a total carrying value
of $2,721.
16
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
(Amounts in thousands except share and per share data)
Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate
long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or
circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will
be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum
of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the
excess of the asset’s carrying value over its fair value is recorded. When analyzing our real estate properties for potential
impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as
specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off
all tenant improvements which are only suitable for use in such a store.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting
pronouncements upon our financial position and results of operations.
17
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 2018.
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 $17,845 and $19,997 at November 30, 2019 and November 24, 2018, respectively, for Company-owned stores
could suffer significant impairment in value if we are forced to close additional stores and sell or lease the related properties
during periods of weakness in certain markets. Additionally, if we are required to assume responsibility for payment under
the lease obligations of $1,776 and $2,021 which we have guaranteed on behalf of licensees as of November 30, 2019 and
November 24, 2018, respectively, we may not be able to secure sufficient sub-lease income in the current market to offset
the payments required under the guarantees.
Number of
Locations
Aggregate
Square
Footage
Net Book
Value
(in thousands)
Real estate occupied by Company-owned and operated stores,
included in property and equipment, net
8
201,096 $
17,845
Investment real estate leased to others
1
24,675
- *
Total Company investment in retail real estate
9
225,771 $
17,845
* The carrying value of a building in Chesterfield, Virginia that is subject to a ground lease was fully impaired during fiscal
2017.
18
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 2019, 2018, 2017, 2016 and 2015 mean the fiscal years
ended November 30, 2019, November 24, 2018, November 25, 2017, November 26, 2016 and November 28, 2015. Please
note that fiscal 2019 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 in stores and on the web 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 retail strategies, including our initiatives to expand and improve our digital marketing
capabilities, and realize the benefits from such strategies as they are implemented
fluctuations in the cost and availability of raw materials, fuel, labor and sourced products, including those which
may result from the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with
respect to foreign-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 by our wholly-owned
subsidiary Zenith Freight Lines, LLC
19
Consolidated Balance Sheets
Bassett Furniture Industries, Incorporated and Subsidiaries
November 30, 2019 and November 24, 2018
(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 $815 and $754 as of
$
November 30, 2019 and November 24, 2018, 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
Other accrued liabilities
Total current liabilities
Long-term liabilities
Post employment benefit obligations
Other long-term liabilities
Total long-term liabilities
Commitments and Contingencies
Stockholders’ equity
$
$
2019
2018
19,687 $
17,436
21,378
66,302
11,983
136,786
33,468
22,643
19,055
64,192
9,189
148,547
101,724
104,863
5,744
26,176
5,336
37,256
275,766 $
3,266
28,480
6,485
38,231
291,641
23,677 $
11,308
25,341
11,945
72,271
11,830
12,995
24,825
27,407
12,994
27,157
14,261
81,819
13,173
6,340
19,513
Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding
10,116,290 at November 30, 2019 and 10,527,636 at November 24, 2018
Retained earnings
Additional paid-in-capital
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders’ equity
50,581
129,130
195
(1,236)
178,670
275,766 $
52,638
140,009
-
(2,338 )
190,309
291,641
$
The accompanying notes to consolidated financial statements are an integral part of these statements.
20
Consolidated Statements of Operations
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2019, November 24, 2018, and November 25, 2017
(In thousands, except per share data)
Sales revenue:
Furniture and accessories
Logistics
Total sales revenue
2019
2018
2017
$
403,865 $
48,222
452,087
402,469 $
54,386
456,855
398,097
54,406
452,503
Cost of furniture and accessories sold
179,244
179,581
177,579
Selling, general and administrative expenses excluding new store
pre-opening costs
New store pre-opening costs
Asset impairment charges
Goodwill impairment charge
Early retirement program
Litigation expense
Lease exit costs
264,280
1,117
4,431
1,926
835
700
149
260,339
2,081
469
-
-
-
301
245,493
2,413
-
-
-
-
-
Income (loss) from operations
(595)
14,084
27,018
Gain on sale of investments
Interest income
Interest expense
Impairment of investment in real estate
Other loss, net
-
568
(6)
-
(1,707)
-
431
(57)
-
(2,252)
4,221
230
(234 )
(1,084 )
(2,275 )
Income (loss) before income taxes
(1,740)
12,206
27,876
Income tax expense
Net income (loss)
Net income per share
Basic income (loss) per share
Diluted income (loss) per share
Dividends per share
Regular dividends
Special dividend
188
3,988
9,620
$
(1,928) $
8,218 $
18,256
$
$
$
$
(0.19) $
0.77 $
(0.19) $
0.77 $
0.50 $
- $
0.47 $
- $
1.71
1.70
0.42
0.35
The accompanying notes to consolidated financial statements are an integral part of these statements.
21
Consolidated Statements of Comprehensive Income (Loss)
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2019, November 24, 2018, and November 25, 2017
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Recognize prior service cost associated with Long Term Cash
Awards (LTCA)
Actuarial adjustment to 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
2019
2018
2017
$
(1,928) $
8,218 $
18,256
-
(141)
124
4
1,313
184
(382)
-
126
(32)
616
304
(237)
(932)
73
331
448
374
(311)
(17)
Other comprehensive income (loss), net of tax
1,102
777
Total comprehensive income (loss)
$
(826) $
8,995 $
18,239
The accompanying notes to consolidated financial statements are an integral part of these statements.
22
Consolidated Statements of Cash Flows
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2019, November 24, 2018, and November 25, 2017
(In thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
2019
2018
2017
$
(1,928) $
8,218 $
18,256
Depreciation and amortization
Non-cash goodwill impairment charge
Non-cash asset impairment charges
Non-cash portion of lease exit costs
Gain on sale of investments
Net (gain) loss on disposals of property and equipment
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
Proceeds from sales and maturities of investments
Other
Net cash used in investing activities
Financing activities:
Cash dividends
Proceeds from exercise of stock options
Issuance of common stock
Repurchases of common stock
Taxes paid related to net share settlement of equity awards
Payments on notes and equipment loans
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
$
13,500
1,926
4,431
149
-
515
-
(2,890)
1,497
(2,555)
(2,942)
1,017
(1,816)
(1,095)
9,809
(17,375)
1,643
-
5,207
(648)
(11,173)
(5,133)
25
328
(7,345)
-
(292)
(12,417)
(13,781)
33,468
19,687 $
13,203
-
469
301
-
(234)
-
4,663
2,607
1,732
(5,998)
(961)
50
5,857
29,907
(18,301)
2,689
(15,556)
482
(1,287)
(31,973)
(8,800)
27
355
(5,946)
(674)
(3,377)
(18,415)
(20,481)
53,949
33,468 $
13,312
-
-
-
(4,221 )
(1,190 )
1,084
(302 )
2,018
(1,225 )
(918 )
2,477
1,926
5,840
37,057
(15,500 )
4,474
(655 )
5,546
(857 )
(6,992 )
(7,725 )
310
168
(83 )
(641 )
(3,289 )
(11,260 )
18,805
35,144
53,949
The accompanying notes to consolidated financial statements are an integral part of these statements.
23
Consolidated Statements of Stockholders’ Equity
Bassett Furniture Industries, Incorporated and Subsidiaries
For the years ended November 30, 2019, November 24, 2018, and November 25, 2017
(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 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
(122 )
-
-
-
-
-
-
281
(602 )
1,028
18,256
-
-
(4,508 )
(3,758 )
-
-
-
-
(528 )
511
-
-
-
-
-
18,256
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
Comprehensive income
Net income
Prior service cost of LTCA, net of tax
Actuarial adjustment to SERP, net of tax
Reclassification of certain tax effects
Regular dividends ($0.47 per share)
Issuance of common stock
Purchase and retirement of common stock
Stock-based compensation
-
-
-
-
-
63,403
(273,717 )
-
-
-
-
-
-
317
(1,369 )
-
-
-
-
-
-
65
(2,160 )
1,133
8,218
-
-
545
(5,041 )
-
(3,091 )
-
-
94
683
(545 )
-
-
-
-
8,218
94
683
(5,041 )
382
(6,620 )
1,133
Balance, November 24, 2018
10,527,636
52,638
- 140,009
(2,338 ) 190,309
Comprehensive income (loss)
Net loss
Prior service cost of LTCA, net of tax
Actuarial adjustment to LTCA, net of tax
Actuarial adjustment to SERP, net of tax
Cumulative effect of a change in accounting
principle
Regular dividends ($0.50 per share)
Issuance of common stock
Purchase and retirement of common stock
Stock-based compensation
-
-
-
-
-
-
-
-
-
-
102,303
(513,649 )
-
-
-
511
(2,568 )
-
-
-
-
-
-
-
217
(980 )
958
(1,928 )
-
-
-
(21 )
(5,133 )
-
(3,797 )
-
-
94
(105 )
1,113
-
-
-
-
-
(1,928 )
94
(105 )
1,113
(21 )
(5,133 )
728
(7,345 )
958
Balance, November 30, 2019
10,116,290 $
50,581 $
195 $ 129,130 $
(1,236 ) $ 178,670
The accompanying notes to consolidated financial statements are an integral part of these statements.
24
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 103 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 103
stores, the Company owns and operates 70 stores (“Company-owned retail stores”) with the other 33 being independently
owned (“licensee operated”). We also distribute our products through other multi-line furniture stores, many of which feature
Bassett galleries or design centers, specialty stores and mass merchants.
We sourced approximately 23% of our wholesale products from various foreign countries, with the remaining volume
produced at our five domestic manufacturing facilities.
Lane Venture Acquisition
On December 21, 2017, we purchased certain assets and assumed certain liabilities of Lane Venture from Heritage Home
Group, LLC. Lane Venture is being operated as a component of our wholesale segment (see Note 3, Business Combinations).
Results of operations for the Lane Venture business are included in our consolidated statements of operations since the date
of acquisition.
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 2019 contained
53 weeks while fiscal 2018 and 2017 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 Lane
Venture 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 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 2019, 2018 and 2017
are to Bassett's fiscal year ended November 30, 2019, November 24, 2018 and November 25, 2017, 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.
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 16 for disclosure of leases and lease guarantees. Based on financial
projections and best available information, all licensees have sufficient equity to carry out their principal operating activities
without subordinated financial support. Furthermore, we believe that the power to direct the activities that most significantly
impact the licensees’ operating performance continues to lie with the ownership of the licensee dealers. Our rights to assume
control over or otherwise influence the licensees’ significant activities only exist pursuant to our license and security
agreements and are in the nature of protective rights as contemplated under ASC Topic 810. We completed our assessment
for other potential VIEs, and concluded that there were none. We will continue to reassess the status of potential VIEs
including when facts and circumstances surrounding each potential VIE change.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Some of the more significant estimates include allowances for doubtful accounts, calculation of inventory
reserves, the valuation of our reporting units for the purpose of testing the carrying value of goodwill, valuation of income
25
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
tax reserves, lease guarantees, insurance reserves and assumptions related to our post-employment benefit obligations. Actual
results could differ from those estimates.
Revenue Recognition
We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606") effective as of
November 25, 2018, the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive
in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and
rewards of ownership and title to the product have transferred to the buyer.
At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-
owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and
allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our
licensee store owners do not provide for any royalty or license fee to be paid to us.
At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. 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 and amounted to $25,341 and $27,157
as of November 30, 2019 and November 24, 2018, respectively. Substantially all of the customer deposits held at November
24, 2018 related to performance obligations satisfied during fiscal 2019 and have therefore been recognized in revenue for
the year ended November 30, 2019. Estimates for returns and allowances have been recorded as a reduction of revenue based
on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party
which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized
upon delivery of the goods net of amounts payable to the third party service provider.
For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the
customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as
the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method
based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate
of the total required time for the deliveries. We recognize an asset for the amount of line-haul revenue earned but not yet
billed which is included in other current assets. The balance of this asset was $441 at November 30, 2019 and $512 at the
beginning of fiscal 2019 upon adoption of ASC 606. 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
and billed to the customer concurrently in the same period. All invoices for logistical services are due 30 days from invoice
date.
Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized
because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the
shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is
placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized.
At November 30, 2019 and November 24, 2018, our balance of prepaid commissions included in other current assets was
$2,435 and $2,739, respectively. We do not incur sales commissions in our logistical services segment.
We adopted ASC 606 using the modified retrospective method and applied the standard only to contracts that were not
completed as of initial application. Results for reporting periods beginning after November 24, 2018 are presented under the
new standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic
accounting. Our adoption of ASC 606 did not have a material impact on our consolidated financial statements except for our
enhanced presentation and disclosures.
Upon adoption of ASC 606, we have adopted the following policy elections and practical expedients:
• We exclude from revenue amounts collected from customers for sales tax, which is consistent with our policy prior
to the adoption of ASC 606.
• We do not adjust the promised amount of consideration for the effects of a significant financing component since
the period of time between transfer of our goods or services and the collection of consideration from the customer
is less than one year.
26
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
• We do not disclose the value of unsatisfied performance obligations because the transfer of goods or services is
made within one year of the placement of customer orders.
See Note 19, Segment Information, for disaggregated revenue information.
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.
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 30, 2019 and November 24, 2018, 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 16)
Other
Total credit risk exposure related to customers
2019
2018
$ 21,378 $ 19,055
1,751 1,995
-
168
$ 23,297 $ 21,050
At November 30, 2019 and November 24, 2018, approximately 28% and 33%, respectively, of the aggregate risk exposure,
net of reserves, shown above was attributable to five customers. In fiscal 2019, 2018 and 2017, no customer accounted for
more than 10% of total consolidated net sales. However, two customers accounted for approximately 44%, 40% and 47% of
our consolidated revenue from logistical services during 2019, 2018 and 2017, 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 $1,846, $1,587, and $2,288 in fiscal
2019, 2018, and 2017, 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 and Lane
Venture product inventories are determined on a first-in, first-out (“FIFO”) basis. Inventories accounted for under the LIFO
method represented 52% of total inventory before reserves at both November 30, 2019 and November 24, 2018. 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
27
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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
Prior to November 30, 2019, retail real estate was 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 24, 2018 was $1,655, included in other long-term assets in our consolidated balance sheet, and
consisted of one property located near Charleston, South Carolina which was fully occupied by a tenant under a long term
lease. During fiscal 2019, this property was sold to the tenant for net proceeds in the amount of $1,475, resulting in a loss of
$98, included in other loss, net in our accompanying statement of operations for the year ended November 30, 2019.
Depreciation expense was $94, $103, and $127 in fiscal 2019, 2018, and 2017, respectively, and is included in other loss,
net, in our consolidated statements of operations.
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 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 of fiscal
2017 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.
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, 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 quantitiative goodwill impairment test described in ASC Topic 350 (as amended by
Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which we adopted for our annual evaluation of goodwill performed as of September 1, 2019). 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 quantitative 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 quantitative evaluation process. Based on our
qualitative assessment as described above, we concluded that, given declines in our income from operations, primarily
resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis
in fiscal 2018, it was necessary to perform the quantitative evaluation in the current year.
The quantitative evaluation 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, a goodwill impairment charge will be recognized in the amount by which the reporting unit’s carrying amount
exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value
of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples,
an income approach, that utilizes discounted cash flows for each reporting unit and other Level 3 inputs as specified in the
fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure (see Note 4), and, in the case of our retail
reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value are
28
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
dependent on a number of significant management assumptions such as our expectations of future performance and the
expected future economic environment, which are partly based upon our historical experience. Our estimates are subject to
change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth
rate are based on our judgment of the rates that would be utilized by a hypothetical market participant. As part of the goodwill
impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values
estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may
differ materially from the projected amounts. See Note 8 for additional information regarding the results of our annual
goodwill impairment test performed as of September 1, 2019.
Other Intangible Assets
Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but
are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of
indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we
determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would
be recorded.
Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the
useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the
estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if
an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time.
Impairment of Long Lived Assets
We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be
recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess
the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected
undiscounted future cash flows resulting from the use and eventual disposition of the asset. In the event the sum of the
expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess
of the asset’s carrying value over its fair value is recorded. Fair value is determined based on discounted cash flows or
appraised values depending on the nature of the assets. The long-term nature of these assets requires the estimation of cash
inflows and outflows several years into the future.
When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in
leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett
Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store.
Income Taxes
We account for income taxes under the liability method which requires that we recognize deferred tax assets and liabilities
for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. See Note 14.
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
29
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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 2019, 2018 and 2017 includes new store pre-opening costs of $1,117, $2,081 and $2,413,
respectively. Such costs consist of expenses incurred at the new store location during the period prior to its opening and
include, among other things, facility occupancy costs such as rent and utilities and local store personnel costs related to pre-
opening activities including training. New store pre-opening costs do not include costs which are capitalized in accordance
with our property and equipment capitalization policies, such as leasehold improvements and store fixtures and equipment.
Such capitalized costs associated with new stores are depreciated commencing with the opening of the store. There are no
pre-opening costs associated with stores acquired from licensees, as such locations were already in operation at the time of
their acquisition.
Shipping and Handling Costs
Costs incurred to deliver wholesale merchandise to customers are recorded in selling, general and administrative expense
and totaled $18,402, $17,511, and $18,514 for fiscal 2019, 2018 and 2017, respectively. Costs incurred to deliver retail
merchandise to customers, including the cost of operating regional distribution warehouses, are also recorded in selling,
general and administrative expense and totaled $23,710, $20,640, and $19,604 for fiscal 2019, 2018 and 2017, 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 $20,674, $20,922, and $18,834 in fiscal
2019, 2018, and 2017, 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
During the fourth quarter of fiscal 2019, we purchased certain fixed assets and inventory with a total purchase price of $2,225,
of which $375 was paid for with the issuance of 24,590 shares if our common stock. There were no material non-cash
investing or financing activities during fiscal 2018 or 2017.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
Effective as of the beginning of fiscal 2019, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
Refer to the preceding discussion under “Revenue Recognition” for more information regarding the impact of ASC 606 on
our financial statements.
Effective as of the beginning of fiscal 2019, we adopted 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 with comparative amounts in prior period cash flow statements reclassified to conform to the current period
presentation. Accordingly, for the years ended November 24, 2018 and November 25, 2017 we have reclassified investments
in Company-owned life insurance (net of death benefits received) of $1,287 and $857, respectively, from cash flows from
30
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
operating activities to cash flows from investing activities, and we have reclassified $78 and $184, respectively, representing
the portion of a debt payment attributable to discount accretion from cash flows from financing activities to cash flows from
operating activities.
Effective as of the beginning of fiscal 2019, we adopted 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 adoption of this
guidance did not have a material impact upon our financial condition or results of operations.
Effective as of the beginning of fiscal 2019, we adopted 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. During the
fourth quarter of fiscal 2019, we purchased a set of production equipment for $1,966 which, upon application of the screen,
did not constitute a business and was therefore accounted for as an asset purchase.
Effective as of the beginning of fiscal 2019, we adopted 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
adoption of this guidance did not have a material impact upon our financial condition or results of operations.
Effective for our annual test for impairment of goodwill as of the beginning of the fourth fiscal quarter of 2019, we have
adopted 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. Refer to the preceding
discussion under “Goodwill” for additional information regarding the results of our annual impairment test following the
adoption of ASU 2017-04.
31
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
Recent Pronouncements Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The guidance in ASU
2016-02 (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20) 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. In
addition, ASU 2018-11 provides for an additional (and optional) transition method by which entities may elect to initially
apply the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842
recognized as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and without
retrospective application to any comparative prior periods presented. Also, ASU 2018-20 provides certain narrow-scope
improvements to Topic 842 as it relates to lessors. We have substantially completed identifying the population of contracts
that meet the definition of a lease under ASU 2016-02. We are in the final stage of implementing a lease accounting system
and finalizing our control framework in preparation for the adoption of this standard in the first quarter of fiscal 2020. We
plan to elect certain practical expedients permitted under the transition guidance, including the package of practical
expedients, which allows the Company to not reassess whether existing contracts contain leases, the lease classification of
existing leases, or initial direct costs for existing leases. We also plan to elect not to separate lease and non-lease components
for certain classes of leased assets and not to recognize a right-of-use asset and a lease liability for leases with an initial term
of twelve months or less. We will adopt the guidance of ASU 2016-02 using the optional transition method as provided by
ASU 2018-11. On adoption, we will recognize additional operating liabilities, with corresponding right of use assets of the
same amount adjusted for prepaid/deferred rent, unamortized lease incentives and any impairment of right of use assets based
on the present value of the remaining minimum rental payments. We expect the adoption of this standard to have a material
effect on our statement of financial position (refer to Note 16 for information regarding our leases currently classified as
operating leases under ASC Topic 840).
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 – Intangibles - Goodwill and Other - Internal-
Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract, to help entities evaluate the accounting for fees paid by a customer in a cloud
computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a
software license. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in
a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The
accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in
ASU 2018-15. The amendments in ASU 2018-15 will become effective for us as of the beginning of our 2021 fiscal year.
Early adoption is permitted, including adoption in any interim period. We are currently evaluating the impact that this
guidance will have upon our financial position and results of operations, if any.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying
the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments
in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for
calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU
2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12
will become effective for us as of the beginning of our 2022 fiscal year. Early adoption is permitted, including adoption in
any interim period. We are currently evaluating the impact that this guidance will have upon our financial position and results
of operations, if any.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year
presentation with no effect on previously reported net income or Stockholders’ equity. See “Recently Adopted Accounting
32
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
Pronouncements” above regarding the impact of our adoption of ASU 2016-15 on the statements of cash flows for fiscal
2018 and 2017.
3. Business Combinations
Acquisition of Lane Venture
On December 21, 2017, we purchased certain 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 is now
being operated as a component of our wholesale segment.
Under the acquisition method of accounting, the fair value of the consideration transferred 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 allocation of the fair value of the acquired business was initially based on a preliminary valuation. Our estimates and
assumptions were revised during 2018 as we obtained additional information for our estimates during the measurement
period , which we consider to be closed as of November 24, 2018. During fiscal 2018, we recorded measurement period
adjustments resulting in a net increase to the opening value of various acquired assets and assumed liabilities with an
offsetting reduction of recognized goodwill of $76. The final allocation of the $15,556 all-cash purchase price to the acquired
assets and liabilities of the Lane Venture business, including measurement period adjustments, is as follows:
Allocation of the fair value of consideration transferred:
Identifiable assets acquired:
Accounts receivable, net of reserve (Note 5)
Inventory, net of reserve (Note 6)
Prepaid expenses and other current assets
Intangible assets
Total identifiable assets acquired
Liabilities assumed:
Accounts payable
Other accrued liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Total net assets acquired
$
$
1,507
3,718
37
7,360
12,622
(357)
(852)
(1,209)
11,413
4,143
15,556
Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the
value assigned to the tangible and intangible assets and liabilities recognized in connection with the acquisition and is
deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill
are the expected synergies arising from combining the Company’s manufacturing and distribution capabilities with Lane
Venture’s position in the outdoor furnishings market, a segment of the market not previously served by Bassett.
A portion of the fair value of the consideration transferred has been assigned to identifiable intangible assets as follows:
Description:
Useful Life
In Years
Fair Value
Trade name
Customer relationships
Indefinite $
9
6,848
512
Total acquired intangible assets
$
7,360
The finite-lived intangible asset is being amortized on a straight-line basis over its estimated useful life. 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.
33
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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 Lane Venture acquisition totaled $256 during the year ended November 24, 2018, and are
included in selling, general and administrative expenses in the consolidated statements of operations. The acquisition costs
are primarily related to legal, accounting and valuation services.
The pro forma impact of the acquisition and the results of operations attributable to Lane Venture since the acquisition have
not been presented because they are not material to our consolidated results of operations for the three fiscal years ended
November 24, 2018.
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 the acquisition was not
material to our consolidated results of operations for the year ended November 25, 2017.
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.
Investments
Our short-term investments of $17,436 and $22,643 at November 30, 2019 and November 24, 2018, respectively, consisted
of certificates of deposit (CDs) with original terms of six to twelve months, bearing interest at rates ranging from 0.85% to
2.55%. At November 30, 2019, the weighted average remaining time to maturity of the CDs was approximately three months
and the weighted average yield of the CDs was approximately 2.09%. 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 30, 2019 and November 24, 2018 approximates their fair value.
34
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
Fair Value Measurement
The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and
Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820
classifies these inputs into the following hierarchy:
Level 1 Inputs– Quoted prices for identical instruments in active markets.
Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 Inputs– Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term
nature of these items. The recurring estimate of the fair value of our notes payable for disclosure purposes (see Note 10)
involves Level 3 inputs. Our primary non-recurring fair value estimates typically involve business acquisitions (Note 3)
which involve a combination of Level 2 and Level 3 inputs, goodwill impairment testing (Note 8), which involves 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
November 30,
2019
November 24,
2018
$
$
22,193 $
(815)
21,378 $
19,809
(754)
19,055
Activity in the allowance for doubtful accounts was as follows:
2019
2018
Balance, beginning of the year
$
Acquired allowance on accounts receivable (Note 3)
Additions charged to expense
Reductions to allowance, net
Balance, end of the year
$
754 $
-
61
-
815 $
617
50
339
(252)
754
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.
35
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
6.
Inventories
Inventories consist of the following:
November 30,
2019
November 24,
2018
$
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
$
27,792 $
733
17,293
31,534
77,352
(8,688 )
(2,362 )
66,302 $
30,750
432
15,503
27,599
74,284
(8,326)
(1,766)
64,192
We source a significant amount of our wholesale product from other countries. During 2019, 2018 and 2017, purchases from
our two largest vendors located in Vietnam and China were $15,221, $24,073 and $21,977 respectively.
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical
write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these
reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize
our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions
in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining
reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the
majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These
wholesale reserves primarily represent design and style obsolescence. Typically, product is not shipped to our retail
warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for
stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of
our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any
inventory that is not associated with a specific customer order in our retail warehouses.
Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:
Balance at November 25, 2017
Acquired reserve on inventory (Note 3)
Additions charged to expense
Write-offs
Balance at November 24, 2018
Additions charged to expense
Write-offs
Balance at November 30, 2019
$
$
Wholesale
Segment
Retail
1,618 $
110
1,884
(2,112)
1,500
1,881
(1,327)
2,054 $
Segment Total
277 $
-
425
(436)
266
373
(331)
308 $
1,895
110
2,309
(2,548)
1,766
2,254
(1,658)
2,362
Additions charged to expense for our wholesale segment during the year ended November 30, 2019 includes a $390
inventory valuation charge arising from our decision to exit the juvenile furniture line of business.
36
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
7. Property and Equipment
Property and equipment consist of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Property and equipment at cost
Less accumulated depreciation
Property and equipment, net
November 30,
2019
November 24,
2018
$
$
9,478 $
126,085
115,131
250,694
(148,970 )
101,724 $
9,908
124,449
108,379
242,736
(137,873)
104,863
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 30,
2019
November 24,
2018
$
$
28,993 $
55,625
17,106
101,724 $
26,511
61,380
16,972
104,863
At November 30, 2019 we owned one retail store property located in Gulfport, Mississippi which was under contract to be
sold. The net book value of the property of $1,569 at November 30, 2019 is classified as held for sale and is included in other
current assets in the accompanying consolidated balance sheets at November 30, 2019. The sale of the property was
completed subsequent to November 30, 2019 for net proceeds of $1,639.
Depreciation expense associated with the property and equipment shown above was included in income from operations in
our consolidated statements of operations as follows:
Cost of goods sold (wholesale segment)
Selling, general and adminstrative expenses:
2019
2018
2017
$
1,402 $
1,264 $
989
Wholesale segment
Retail segment
Logistical services segment
Total included in selling, general and adminstrative expenses
Total depreciation expense included in income from operations $
1,672
7,479
3,697
12,848
14,250 $
1,666
7,060
3,747
12,473
13,737 $
1,531
7,080
3,987
12,598
13,587
37
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
8. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
Intangibles subject to amortization:
Customer relationships
Technology - customized applications
November 30, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
$
3,550 $
834
(1,088) $
(575)
2,462
259
Total intangible assets subject to amortization
$
4,384 $
(1,663)
2,721
Intangibles not subject to amortization:
Trade names
Goodwill
Total goodwill and other intangible assets
Intangibles subject to amortization:
Customer relationships
Technology - customized applications
9,338
14,117
$
26,176
November 24, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
$
3,550 $
834
(829) $
(456)
2,721
378
Total intangible assets subject to amortization
$
4,384 $
(1,285)
3,099
Intangibles not subject to amortization:
Trade names
Goodwill
Total goodwill and other intangible assets
9,338
16,043
$
28,480
We performed our annual goodwill impairment test as of September 1, 2019. As a result of this test, we concluded that the
carrying value of our retail reporting unit exceeded its fair value by an amount in excess of the goodwill previously allocated
to the reporting unit. Therefore, we recognized a goodwill impairment charge of $1,926. The fair values of the other reporting
units with material amounts of goodwill substantially exceeded their carrying values as of September 1, 2019.
The determination of the fair value of our reporting units is based on a combination of a market approach, that considers
benchmark company market multiples, and an income approach, that utilizes discounted cash flows for each reporting unit
and other Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure
(see Note 4). Under the income approach, we determine fair value based on the present value of the most recent cash flow
projections for each reporting unit as of the date of the analysis and calculate a terminal value utilizing a terminal growth
rate. The significant assumptions under this approach include, among others: income projections, which are dependent on
future sales, new product introductions, customer behavior, competitor pricing, operating expenses, the discount rate, and
the terminal growth rate. The cash flows used to determine fair value are dependent on a number of significant management
assumptions such as our expectations of future performance and the expected future economic environment, which are partly
based upon our historical experience. Our estimates are subject to change given the inherent uncertainty in predicting future
results. Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be
utilized by a hypothetical market participant. As part of the goodwill impairment testing, we also consider our market
capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units.
38
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 25, 2017
$
Goodwill arising from Lane Venture acquisition (Note 3)
5,045 $
4,143
1,926 $
-
4,929 $
-
11,900
4,143
Balance as of November 24, 2018
Goodwill impairment
9,188
-
1,926
(1,926 )
4,929
-
16,043
(1,926)
Balance as of November 30, 2019
$
9,188 $
- $
4,929 $
14,117
Accumulated impairment losses at November 30, 2019 were $1,926. There were no accumulated impairment losses on
goodwill as of November 24, 2018 or November 25, 2017.
The weighted average useful lives of our finite-lived intangible assets and remaining amortization periods as of November
30, 2019 are as follows:
Remaining
Amortization
Period in
Years
Useful Life
in Years
Customer relationships
Technology - customized applications
14
7
10
2
Amortization expense associated with intangible assets during fiscal 2019, 2018 and 2017 was $379, $374 and $322,
respectively and is included in selling, general and administrative expense in our consolidated statement of operations. All
expense arising from the amortization of intangible assets is associated with our logistical services segment except for $57
and $51 in fiscal 2019 and 2018, respectively, associated with our wholesale segment arising from Lane Venture (Note 3).
Estimated future amortization expense for intangible assets that exist at November 30, 2019 is as follows:
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
$
379
379
279
259
259
1,166
Total
$
2,721
9. Unconsolidated Affiliated Companies
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 operations.
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
39
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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 operations.
10. Notes Payable and Bank Credit Facility
Real Estate Notes Payable
Certain of our retail real estate properties were financed through commercial mortgages with outstanding principal totaling
$292 at November 24, 2018, which was included in other current liabilities and accrued expenses in the accompanying
condensed consolidated balance sheet. These obligations were paid in full during the third quarter of fiscal 2019.
Fair Value
We believe that the carrying amount of our notes payable approximated fair value at November 24, 2018. In estimating the
fair value, we utilize current market interest rates for similar instruments. The inputs into these fair value calculations reflect
our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair
value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.
Bank Credit Facility
Our credit facility with our bank provides for a line of credit of up to $25,000. This credit facility is unsecured and contains
covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement
and expect to remain in compliance for the foreseeable future. The credit facility will mature in December 2021.
We have $2,673 outstanding under standby letters of credit against our line, leaving availability under our credit line of
$22,327. In addition, we have outstanding standby letters of credit with another bank totaling $325.
Total interest paid during fiscal 2019, 2018 and 2017 was $7, $166 and $322, 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. Expense associated with the Company
contribution was $196, $102 and $55 for fiscal 2019, 2018 and 2017, respectively. Our liability for Company contributions
and participant deferrals at November 30, 2019 and November 24, 2018 was $894 and $749, respectively, and is included in
post-employment benefit obligations in our consolidated balance sheets.
40
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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.
During fiscal 2019, 2018 and 2017, we invested $627, $900 and $431 in life insurance policies covering all participants in
the Plan. At November 30, 2019, 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 $2,273 at November
30, 2019 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
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:
Prior service cost
Actuarial loss
Net amount recognized
Total recognized in net periodic benefit cost and accumulated other
comprehensive income:
41
2019
2018
$
11,652
190
441
(1,172)
(1,021)
$
10,090
12,322
196
418
(616)
(668)
11,652
9,998
$
11,559
2.75%
4.00%
655
9,435
10,090
$
$
606
1,055
1,661
$
$
798
10,854
11,652
806
2,408
3,214
(541) $
(2)
$
$
$
$
$
$
$
$
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
2019
2018
2017
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Amortization of transition obligation
Amortization of prior service cost
Amortization of other loss
$
190 $
441
-
126
183
196 $
418
42
126
262
Net periodic pension cost
$
940 $
1,044 $
146
423
42
-
323
934
Assumptions used to determine net periodic pension cost:
Discount rate
Increase in future compensation levels
Estimated Future Benefit Payments (with mortality):
4.00 %
3.00 %
3.50 %
3.00 %
3.75 %
3.00 %
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025 through 2029
655
622
821
779
734
2,961
Of the $1,661 recognized in accumulated other comprehensive income at November 30, 2019, amounts expected to be
recognized as components of net periodic pension cost during fiscal 2020 are as follows:
Prior service cost
Other loss
$
Total expected to be amortized to net periodic pension cost in 2020
$
126
7
133
The components of net periodic pension cost other than the service cost component are included in other loss, net in our
consolidated statements of operations.
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 $204, $216, and $216 in fiscal 2019, 2018, and 2017, respectively, associated with the plan. Our
liability under this plan was $1,767 and $1,837 as of November 30, 2019 and November 24, 2018, 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
$1,157, $1,128 and $1,068 during fiscal 2019, 2018 and 2017, respectively.
42
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 30, 2019 and November 24, 2018,
which is comprised solely of post-retirement benefit costs related to our SERP and LTC Awards, is as follows:
Balance at November 25, 2017
Reclassification of certain tax effects to retained earnings (1)
Actuarial gains
Net pension amortization
reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 24, 2018
Actuarial gains
Net pension amortization
reclassified from accumulated other comprehensive loss
Tax effects
Balance at November 30, 2019
$
$
(2,570)
(545)
616
430
(269)
(2,338)
1,172
308
(378)
(1,236)
(1) In 2018 we adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Comprehensive Income. ASU 2018-02 addressed the
impact of the remeasurement of deferred taxes on items in accumulated other comprehensive income due to the
reduction in federal statutory rates arising from the Tax Cuts and Jobs Act of December 2017 by allowing the transfer
of certain tax effects carried over from prior years to retained earnings as of the beginning of fiscal 2018.
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 operations for fiscal 2019, 2018 and 2017 was as follows:
Stock based compensation expense
$ 958
$ 1,133
$ 1,028
2019
2018
2017
Incentive Stock Compensation Plans
On April 14, 2010, our shareholders approved the Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan which
was amended and restated effective January 13, 2016 (the “2010 Plan”). All present and future non-employee directors, key
employees and outside consultants for the Company are eligible to receive incentive awards under the 2010 Plan. Our
Organization, Compensation and Nominating Committee (the “Compensation Committee”) selects eligible key employees
and outside consultants to receive awards under the 2010 Plan in its discretion. Our Board of Directors or any committee
designated by the Board of Directors selects eligible non-employee directors to receive awards under the 2010 Plan in its
discretion. 1,250,000 shares of common stock are reserved for issuance under the 2010 Plan as amended. Participants may
receive the following types of incentive awards under the 2010 Plan: stock options, stock appreciation rights, payment shares,
restricted stock, restricted stock units and performance shares. Stock options may be incentive stock options or non-qualified
stock options. Stock appreciation rights may be granted in tandem with stock options or as a freestanding award. Non-
employee directors and outside consultants are eligible to receive restricted stock and restricted stock units only. We expect
to issue new common stock upon the exercise of options.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk
free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-
term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options using
the simplified method. Forfeitures are recognized as they occur. We utilize the simplified method to determine the expected
life of our options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise
patterns.
43
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
Stock Options
There were no new grants of options made in 2019, 2018 or 2017.
Changes in the outstanding options under our plans during the year ended November 30, 2019 were as follows:
Weighted
Average
Exercise
Price
Per Share
Number of
Shares
8,350 $
-
(3,100)
-
5,250
5,250 $
8.02
-
8.02
-
8.02
8.02
Outstanding at November 24, 2018
Granted
Exercised
Forfeited/Expired
Outstanding at November 30, 2019
Exercisable at November 30, 2019
All remaining options outstanding at November 30, 2019 are exercisable at $8.02 per share with a remaining contractual life
of 1.6 years and an aggregate intrinsic value of $38. There were no non-vested options outstanding under our plans during
the year ended November 30, 2019.
Additional information regarding activity in our stock options during fiscal 2019, 2018 and 2017 is as follows:
2019
2018
2017
Total intrinsic value of options exercised
Total cash received from the exercise of options
Excess tax benefits recognized in income tax expense upon the exercise of options
$
34 $
25
6
75 $
27
16
564
310
188
Restricted Shares
Changes in the outstanding non-vested restricted shares during the year ended November 30, 2019 were as follows:
Non-vested restricted shares outstanding at November 24, 2018
Granted
Vested
Forfeited
Non-vested restricted shares outstanding at November 30, 2019
Weighted
Average Grant
Date Fair
Value Per
Share
Number of
Shares
81,036 $
18,153
(6,036)
(3,000)
90,153 $
32.03
15.81
33.07
20.97
32.03
Restricted share awards granted in fiscal 2019 consisted of 9,653 restricted shares granted to our non-employee directors on
March 6, 2019 which will vest on the first anniversary of the grant, and 5,000 and 3,500 restricted shares granted to employees
on July 23, 2019 and October 9, 2019, respectively, which will vest on the third anniversary of each grant.
During fiscal 2019, 6,036 restricted shares were vested and released, all of which had been granted to directors. During fiscal
2018 and 2017, 19,810 shares and 21,210 shares, respectively, were withheld to cover withholding taxes of $674 and $641,
respectively, arising from the vesting of restricted shares. During fiscal 2019, 2018 and 2017, excess tax benefits of $0, $207
and $366, respectively, were recognized within income tax expense 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 30, 2019 is as follows:
Grant
Date
Restricted
Shares
Share Value
at Grant Date
Outstanding
Per Share
Remaining
Restriction
Period
(Years)
January 10, 2017
January 11, 2018
March 6, 2019
July 23, 2019
October 9, 2019
36,000 $
36,000
9,653
5,000
3,500
90,153
29.05
35.75
18.13
12.34
14.37
0.1
1.1
0.3
2.6
2.9
Unrecognized compensation cost related to these non-vested restricted shares at November 30, 2019 is $594, of which $525
is expected to be recognized in fiscal 2020 with the remainder to be recognized over the following two fiscal years.
Employee Stock Purchase Plan
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 23,460,
14,967 and 6,275 shares to employees during fiscal 2019, 2018 and 2017, respectively, which resulted in an immaterial
amount of compensation expense. There are 205,298 shares remaining available for sale under the 2017 ESPP at November
30, 2019.
14. Income Taxes
The components of the income tax provision are as follows:
Current:
Federal
State
Deferred:
Increase (decrease) in
Federal
State
Total
2019
2018
2017
$
2,150 $
892
(1,137 ) $
462
7,887
2,035
(2,191)
(663)
188 $
4,747
(84 )
3,988 $
(200)
(102)
9,620
$
On December 22, 2017, The Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduced the federal statutory
corporate income tax rate from 35% to 21% effective January 1, 2018 for all corporate taxpayers, while most other provisions
of the Act became effective for fiscal years beginning on or after January 1, 2018. Therefore, we computed our income tax
expense for fiscal 2018 using a blended federal statutory rate of 22.2%. The 21% federal statutory rate, as well as certain
other provisions of the Act including the elimination of the domestic manufacturing deduction and new limitations on certain
business deductions, applies to our 2019 fiscal year and thereafter. The federal rate reduction had a significant impact on our
provision for income taxes for fiscal 2018 due to a discrete charge of $1,331 arising from the re-measurement of our deferred
tax assets. Our accounting for the income tax effects of the Act was complete as of November 24, 2018.
45
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
A reconciliation of the statutory federal income tax rate and the effective income tax rate, as a percentage of income before
income taxes, is as follows:
Statutory federal income tax rate
Revaluation of deferred tax assets resulting from new enacted rates
State income tax, net of federal benefit
Impairment of non-deductible goodwill
Excess tax benefits from stock-based compensation
Other
Effective income tax rate
2019
2018
2017
21.0%
-
(14.0)
(23.2)
0.3
5.1
(10.8)%
22.2%
10.9
4.6
-
(1.5)
(3.5)
32.7%
35.0%
-
3.9
-
(1.8)
(2.6)
34.5%
Excess tax benefits in the amount of $22, $223 and $554 were recognized as a component of income tax expense during
fiscal 2019, 2018 and 2017, respectively, resulting from the exercise of stock options and the release of restricted shares. The
fiscal 2019 adjustment for impairment of non-deductible goodwill reflects the fact that there was no tax basis related to the
impaired goodwill.
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
November 30,
2019
November 24,
2018
$
207 $
2,487
44
3,241
193
81
3,753
1,828
11,834
-
11,834
4,288
1,114
688
192
1,755
109
3,619
218
15
3,199
1,290
10,397
-
10,397
5,353
1,060
718
Total deferred income tax liabilities
6,090
7,131
Net deferred income tax assets
$
5,744 $
3,266
We have state net operating loss carryforwards available to offset future taxable state income of $4,095, 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 2019, 2018 and 2017 were $1,228, $1,431, and $7,516, 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. Our accrued liabilities for uncertain
tax benefits at November 30, 2019 and November 24, 2018 were not material.
Significant judgment is required in evaluating the Company's federal and state tax positions and in the determination of its
tax provision. Despite our belief that the liability for unrecognized tax benefits is adequate, it is often difficult to predict the
46
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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 2016 through 2019 for all of our major tax jurisdictions.
15. Other Gains and Losses
Gains on Sales of Retail Store Locations
Selling, general and administrative expenses for the year ended November 24, 2018 includes a gain of $165 resulting from
the sale of our retail store location in Spring, Texas for $2,463 in cash. The store was closed in October of 2018 and
repositioned to a new location serving the Houston market in The Woodlands, Texas, which opened in November of 2018.
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 serving the Las Vegas market, in Summerlin, Nevada, which opened in
January of 2018.
Early Retirement Program
During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the
Company. Twenty-three employees accepted the offer, which expired on February 28, 2019. These employees are to receive
pay equal to one-half their current salary plus benefits over a period of one year from the final day of each individual’s active
employment. Accordingly, we recognized a charge of $835 during the year ended November 30, 2019. The unpaid obligation
of $374 is included in other accrued liabilities in our consolidated balance sheet as of November 30, 2019.
Asset Impairment Charges and Lease Exit Costs
During fiscal 2019, the loss from operations included $4,431 of non-cash impairment charges recognized on the assets of six
underperforming retail stores. In addition, a $149 charge was accrued for lease exit costs incurred in connection with the
repositioning of a Company-owned retail store in Palm Beach, Florida to a new location within the same market.
During fiscal 2018 income from operations included $469 of non-cash asset impairment charges recognized on the assets of
one underperforming retail location, and a $301 charge for the accrual of lease exit costs incurred in connection with the
closing of a Company-owned retail store location in San Antonio, Texas.
There were no asset impairment charges or lease exit costs incurred against income from operations during fiscal 2017. See
Note 2 regarding non-operating impairment charges incurred in connection with our investments in retail real estate.
Litigation Expense
During fiscal 2019 we accrued $700 for the estimated costs to resolve certain wage and hour violation claims that have been
asserted against the Company. While the ultimate cost of resolving these claims may be substantially higher, the amount
accrued represents our estimate of the most likely outcome of a mediated settlement.
16. 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 retail and logistical services segments. We also lease tractors and
trailers used in our logistical services segment and local delivery trucks and service vans used in our retail 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
47
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
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 30, 2019:
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
Total future minimum lease payments
Warehousing
&
Distribution
Centers
Retail
Stores
Transportation
Equipment
All Other Total
$ 24,524 $
22,596
20,067
18,243
14,385
46,759
$ 146,574 $
5,745 $
5,012
4,742
3,302
1,396
368
20,565 $
4,938 $
3,761
2,618
1,311
1,049
391
14,068 $
1,824 $ 37,031
32,478
1,109
27,929
502
22,913
57
16,835
5
47,518
-
3,497 $ 184,704
Lease expense was $41,809, $38,970 and $34,372 for 2019, 2018, and 2017, respectively. Improvement allowances received
from lessors at the inception of a lease are deferred and amortized over the term of the lease. The unamortized balance of
such amounts was $8,050 and $6,716 at November 30, 2019 and November 24, 2018, respectively, with the non-current
portion of $6,799 and $5,715, respectively, included in other liabilities in our consolidated balance sheets and the remaining
current portion included in other accrued liabilities.
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 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
$
Total minimum future rental income
$
1,533
948
602
285
180
120
3,668
Real estate rental net loss (rental income less lease costs, depreciation, insurance, and taxes), related to licensee stores and
other investment real estate, was $156, $23 and $48 in 2019, 2018 and 2017, respectively, and is reflected in other loss, net
in the accompanying consolidated statements of operations.
Guarantees
As part of the strategy for our store program, we have guaranteed certain lease obligations of licensee operators. Lease
guarantees range from one to three years. We were contingently liable under licensee lease obligation guarantees in the
amount of $1,776 and $2,021 at November 30, 2019 and November 24, 2018, 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 30, 2019 and
November 24, 2018, were not material.
48
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
17. 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. See Note 15 regarding
litigation arising from certain wage and hour violations which have been asserted against the Company.
18. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)
Denominator:
Denominator for basic income per share - weighted average shares
Effect of dilutive securities
Denominator for diluted income per share — weighted average shares
2019
2018
2017
$
(1,928) $
8,218 $
18,256
10,285,511 10,651,351 10,649,225
82,850
40,424
-
and assumed conversions
10,285,511 10,691,775 10,732,075
Basic income (loss) per share:
Net income (loss) per share — basic
Diluted income (loss) per share:
Net income (loss) per share — diluted
$
(0.19) $
0.77 $
1.71
$
(0.19) $
0.77 $
1.70
For fiscal 2019, 2018 and 2017, the following potentially dilutive shares were excluded from the computations as there effect
was anti-dilutive:
Unvested restricted shares
Stock options
2019
2018
2017
90,153
5,250
45,036
-
-
-
19. Segment Information
We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting, and
as described below:
● Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing,
sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned
stores retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery
operations as well as all corporate selling, general and administrative expenses, including those corporate expenses
related to both Company- and licensee-owned stores. 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 operations.
● 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 and the Company-owned
distribution network utilized to deliver products to our retail customers.
● 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 and warehousing services for the
Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue
from the performance of these services to other customers is included in logistics revenue in our consolidated
49
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
statement of operations. Zenith’s operating costs are included in selling, general and administrative expenses and
total $78,220, $81,468 and $80,068 for fiscal 2019, 2018 and 2017, respectively.
During the fourth quarter of fiscal 2018, we substantially completed transferring operational control of home delivery
services for BHF stores from Zenith to our retail segment, including the transfer of the assets and many of the employees
used in providing that service. Accordingly, the results for the retail and logistical services segments for all periods prior to
fiscal 2019 have been restated to present the depreciation and amortization, capital expenditures and identifiable assets
associated with home delivery services formerly provided by Zenith to the Bassett retail segment as though they had been
incurred within the retail segment, and intercompany revenues for those services are no longer included in the logistical
services segment. The impact of the restatement upon the income (loss) from operations for both the logistical services and
retail segments was not material. Concurrently with the transfer of home delivery operations to retail, Zenith also ceased
providing such services to third party customers. Revenues from Zenith’s home delivery services formerly provided to third
party customers and the associated costs thereof continue to be reported in the logistical services segment. Zenith continues
to provide other intercompany shipping and warehousing services to Bassett which are eliminated in consolidation.
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 segment. 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 operations.
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
Asset impairment charges
Goodwill impairment charge
Early retirement program
Litigation expense
Lease exit 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
$
$
$
$
$
$
2019
2018
2017
261,105 $
268,693
80,074
255,958 $
268,883
82,866
(125,933)
(31,852)
452,087 $
(122,372 )
(28,480 )
456,855 $
249,193
268,264
83,030
(119,360 )
(28,624 )
452,503
11,456 $
(7,009)
1,855
1,144
(4,431)
(1,926)
(835)
(700)
(149)
(595) $
3,178 $
6,303
4,019
13,500 $
5,650 $
8,473
3,627
17,750 $
12,274 $
(312 )
1,398
1,494
(469 )
-
-
-
(301 )
14,084 $
3,038 $
6,096
4,069
13,203 $
4,194 $
12,769
1,338
18,301 $
19,121
3,490
2,962
1,445
-
-
-
-
-
27,018
2,648
6,355
4,309
13,312
4,875
8,108
2,517
15,500
144,392 $
91,997
39,377
275,766 $
144,209 $
96,241
51,191
291,641 $
152,181
90,186
51,381
293,748
50
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
A breakdown of wholesale sales by product category for each of the last three fiscal years is provided below:
2019
2018
2017
Bassett Custom
Upholstery
Bassett Leather
Bassett Custom Wood
Bassett Casegoods
Accessories (1)
Total
$
$
152,415
19,220
46,082
40,920
2,468
261,105
58.4 % $
7.4 %
17.6 %
15.7 %
0.9 %
100.0 % $
141,321
21,589
46,074
42,875
4,099
255,958
55.2 % $
8.4 %
18.0 %
16.8 %
1.6 %
100.0 % $
136,366
22,528
43,793
42,874
3,632
249,193
54.7 %
9.0 %
17.6 %
17.2 %
1.5 %
100.0 %
(1) Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for
resale to our retail segment or to third party customers such as licensees or independent furniture retailers. Our
retail segment and third party customers now source their accessory items directly from the accessory vendors.
20. Quarterly Results of Operations
First
Quarter (1)
Second
Quarter
Third
Quarter
Fourth
Quarter (2)
2019
Sales revenue:
Furniture and accessories
Logistics
$
Total sales revenue
Cost of furniture and accessories sold
Income (loss) from operations
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
107,357 $
13,484
120,841
49,177
949
608
0.06
0.06
98,369 $
11,050
109,419
42,246
3,400
2,157
0.21
0.21
102,315
11,322
113,637
45,291
(5,645)
(5,138)
(0.50)
(0.50)
95,824 $
12,366
108,190
42,530
701
445
0.04
0.04
2018
First
Second
Quarter (3)
Quarter (4)
Third
Quarter
Fourth
Quarter (5)
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
96,123 $
14,149
110,272
43,269
2,050
(913 )
(0.09 )
(0.09 )
102,675 $
14,305
116,980
45,660
5,663
4,289
0.40
0.40
99,807 $
13,149
112,956
44,821
4,324
2,945
0.28
0.28
103,864
12,783
116,647
45,831
2,047
1,897
0.18
0.18
51
Notes to Consolidated Financial Statements – Continued
(In thousands, except share and per share data)
The first quarter of fiscal 2019 included 14 weeks. All other quarters shown above for fiscal 2019 and 2018 consist of 13
week fiscal periods.
(1) Income from operations includes a charge of $835 arising from certain eligible employees’ acceptance of voluntary
early retirement package (see Note 15).
(2) Loss from operations includes a charge for the impairment of goodwill of $1,926 (see Note 8) and charges of $4,431,
$700 and $149 for impairment of long-lived assets, litigation costs and lease termination costs, respectively (see
Note 15).
(3) Net loss includes a $2,157 charge to income tax expense arising from the remeasurement of our deferred tax assets
due to the reduction in the Federal statutory income tax rate included in the Tax Cuts and Jobs Act (see Note 14).
(4) Income from operations includes a gain of $165 from the sale of our Spring, Texas retail store (see Note 15). Net
income includes a benefit of $155 in income tax expense arising from additional adjustments to the remeasurement
of our deferred tax assets resulting from the Act (see Note 14).
(5) Income from operations includes a $469 asset impairment charge related to our Torrance, California retail store and
a $301 charge for lease exit costs related to the closing of a store in San Antonio, Texas (see Note 15). Net income
includes a $704 tax benefit arising from the final adjustment to our interim estimates of the impact of reduced federal
income tax rates on the valuation of our deferred tax assets (see Note 14).
52
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years indicated were derived from our audited consolidated financial
statements. The information should be read in conjunction with our consolidated financial statements (including the notes
thereto) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere
in, or incorporated by reference into, this report.
(In thousands)
2019
2018
2017
2016
2015
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
$
$
$
$
$
$
$
$
$
$
$
$
452,087 (1) $
(595) (2) $
$
$
$
$
$
$
$
$
$
(1,145)
(1,740)
188
(1,928)
(0.19)
5,133
0.50
275,766
-
1.89 to 1
17.66
$
456,855 (1) $ 452,503 (1) $
27,018 (2) $
858 (3) $
$
$
$
$
$
$
$
$
14,084 (2) $
$
(1,878)
27,876
12,206
$
9,620
3,988 (5) $
18,256
$
8,218
1.70
$
0.77
8,266
$
5,041
$
0.47
0.77
$ 293,748
291,641
329
$
-
1.91 to 1
1.82 to 1
17.83
$
18.08
$
432,038 (1) $ 430,927 (1)
25,989 (2)
28,193 (2) $
5,879 (4)
$
(2,416)
31,868
$
25,777
11,435
$
9,948
20,433
$
15,829
1.88
$
1.46
5,868
$
7,345
$
0.68
0.54
$ 282,543
278,267
8,500
$
3,821
1.84 to 1
1.83 to 1
16.25
$
16.85
(1) Fiscal 2019, 2018, 2017, 2016 and 2015 included logistical services revenue from Zenith in the amount of $48,222,
$54,386, $54,406, $54,842 and $43,522, respectively, since the acquisition of Zenith on February 2, 2015.
(2) Fiscal 2019 operating income includes asset impairment charges, a goodwill impairment charge, litigation costs,
early retirement program charges and lease exit costs totaling $8,041. Fiscal 2018 operating income includes
restructuring and asset impairment charges and lease exit costs totaling $770. 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.
(3) 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).
(4) Fiscal 2015 includes a remeasurement gain of $7,212 arising from our acquisition of Zenith and $240 of income
received from the Continued Dumping and Subsidy Offset Act (“CDSOA”).
(5) Fiscal 2018 income tax expense includes a charge of $1,331 resulting from the remeasurement of our deferred tax
assets following the reduction of federal income tax rates with the enactment of the Tax Cuts and Jobs Act (see Note
14 to the Consolidated Financial Statements).
53
Bassett Furniture Industries, Incorporated
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 30, 2019, November 24, 2018 and November 25, 2017
(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 25, 2017:
Reserve deducted from assets to which it
applies
Allowance for doubtful accounts
$
799 $
(59 ) $
(123 ) $
-
$
617
Notes receivable valuation reserves
$
1,454 $
- $
- $
-
$
1,454
For the Year Ended November 24, 2018:
Reserve deducted from assets to which it
applies
Allowance for doubtful accounts
$
617 $
339 $
(252 ) $
50 (2) $
754
Notes receivable valuation reserves
$
1,454 $
- $
(1,077 ) $
-
$
377
For the Year Ended November 30, 2019:
Reserve deducted from assets to which it
applies
Allowance for doubtful accounts
Notes receivable valuation reserves
$
$
754 $
61 $
- $
-
$
815
377 $
- $
(18 ) $
-
$
359
(1) Deductions are for the purpose for which the reserve was created.
(2) Represents reserves of acquired business at date of acquisition.
54
STOCKHOLDER PERFORMANCE GRAPH
Presented below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the
Company’s Common Stock against the cumulative total return of the Standard & Poor’s 500 Index and the Company’s peer
group. The Company’s peer group consists of the following:
American Woodmark, Inc.
Culp, Inc.
The Dixie Group, Inc.
Ethan Allan Interiors, Inc.
Flexsteel Industries, Inc.
Haverty Furniture Companies, Inc.
Hooker Furniture Corporation
Kimball International, Inc.
Kirkland’s, Inc.
La-Z-Boy Incorporated
Nautilus, Inc.
Tile Shop Holdings, Inc.
This graph assumes that $100 was invested on November 29, 2014 in the Company’s Common Stock, the S&P Index and the
peer group and that any dividends paid were invested.
Assumes $100 Invested on November 29, 2014
Assumes Dividends Reinvested
55
Management’s Report of Internal Control over Financial Reporting
As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal
financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”).
Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
are procedures that are designed to provide reasonable assurance 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 30, 2019 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 30, 2019, 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 23, 2020
56
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Bassett Furniture Industries, Incorporated and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bassett Furniture Industries, Incorporated and
Subsidiaries (the Company) as of November 30, 2019 and November 24, 2018, 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
30, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at November 30, 2019 and November 24, 2018, and the results of its
operations and its cash flows for each of the three years in the period ended November 30, 2019, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of November 30, 2019, 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 23, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2002.
Richmond, Virginia
January 23, 2020
57
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Bassett Furniture Industries, Incorporated and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Bassett Furniture Industries, Incorporated and Subsidiaries’ internal control over financial reporting as of
November 30, 2019, 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). In our opinion, Bassett
Furniture Industries, Incorporated and Subsidiaries (the Company) maintained, in all material respects, effective internal
control over financial reporting as of November 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of November 30, 2019 and November 24, 2018, 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 30, 2019, and the related notes and schedule and our report dated January 23, 2020 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Richmond, Virginia
January 23, 2020
58
THIS PAGE INTENTIONALLY LEFT BLANK
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
Operations Center https://www.google.com/
amended. When used in this Annual Report the words
“hope,” “believe,” “expect,” “plan” or “planned,” “intend,”
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“anticipate,” “potential” and similar expressions are
Toll free: (800) 937-5449
intended to identify forward-looking statements. Readers
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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 held
Bassett stores are based upon management’s beliefs, as well
Wednesday, March 11, 2020 at 10 a.m. ET at the
as assumptions made by and information currently available to
Bassett Train Station Event Center 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 3,700 beneficial
If the Company does not attain its goals, its business and
amounts for the high and low market prices and dividends
results of operations might be adversely affected. For
declared for the last two fiscal years are listed below:
stockholders as of January 17, 2020. The range of per share
a discussion of factors that may impair the Company’s
ability to achieve its goals, please see the cautionary
statements in the Management’s Discussion and Analysis
section of this Annual Report.
MARKET PRICES OF
COMMON STOCK
DIVIDENDS
DECLARED
Quarter
2019
2018
2019
2018
HIGH
LOW
HIGH
LOW
First
$21.95
$18.11
$40.30
$31.30
$0.125
Second
20.04
14.61
34.35
27.48
$0.125
Third
16.23
11.64
30.05
22.45
Fourth
18.24
11.76
23.40
18.86
0.125
0.125
$0.11
0.11
0.125
0.125
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
J. WALTER MCDOWELL
Former Chief Executive Officer
Carolinas/Virginia Banking
Wachovia Corporation
WILLIAM C. WAMPLER, JR.
Managing Member, WSWRS, LLC
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.
KRISTINA K. CASHMAN
Former Chief Financial Officer
Upward Projects, LLC
VIRGINIA W. HAMLET
Founder and Owner
Hamlet Vineyards, LLC
OFFICERS
ROBERT H. SPILMAN, JR.
Chairman of the Board and Chief Executive Officer
KENA A. COHENOUR
Vice President, Upholstery Merchandising
DAVID C. BAKER
Senior Vice President, Chief Retail Officer
NICHOLAS C. GEE
Vice President, Corporate Retail Sales
JOHN E. BASSETT, III
Senior Vice President, Chief Operations Officer
DRURY E. INGRAM
Vice President, Corporate Controller
BRUCE R. COHENOUR
Senior Vice President, Chief Sales Officer
MATTHEW S. JOHNSON
Vice President, Sales
J. MICHAEL DANIEL
Senior Vice President, Chief Financial & Administrative Officer
MIKE R. KREIDLER
Vice President, Upholstery
JACK L. HAWN, JR.
Senior Vice President, Bassett
President, Zenith
KARA KELCHNER-STRONG
Senior Vice President, Customer Experience Officer
STEFANIE J. LUCAS
Senior Vice President, Chief Merchandising Officer
JAY R. HERVEY
Vice President, Secretary, General Counsel
EDWIN C. AVERY, JR.
Vice President, Upholstery Product Development
ZACHARY H. BRYANT
President, Lane Venture
BRIAN W. CLASPELL
Vice President, Chief Information Officer
BETH A. LARSON
Vice President, Upholstery Finance & Administration
PETER D. MORRISON
Vice President, Chief Creative Officer
LOUIS C. MOSSOTTI, JR.
Vice President, Corporate Retail – Southeast 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
B A S S E T T F U R N I T U R E . C O M
B A S S E T T, V I R G I N I A
N A S D A Q : B S E T