Bassett Furniture Industries Annual Report 2021

Plain-text annual report

A N N U A L R E P O R T 2 0 2 1 N A S D A Q : B S E T 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 In 2021, Bassett continued to expand In 2021, Bassett continued to expand the BenchMade Collection, which the BenchMade Collection, which has resonated with customers for its has resonated with customers for its solid American lumber and artisan- solid American lumber and artisan- crafted story. crafted story. The new BenchMade Leather is a The new BenchMade Leather is a curated line of leather upholstery curated line of leather upholstery with a palette of luxury, boutique- with a palette of luxury, boutique- tannery leathers from Italy. tannery leathers from Italy. Financial Summary Financial Summary INCOME STATEMENT DATA INCOME STATEMENT DATA Net Sales Net Sales Income (loss) From Operations Income (loss) From Operations Adjusted Income From Operations Adjusted Income From Operations Net Income (loss) Net Income (loss) Adjusted Net Income Adjusted Net Income PER SHARE DATA PER SHARE DATA Diluted Income (loss) Diluted Income (loss) Adjusted Diluted Income Adjusted Diluted Income Cash Dividends Cash Dividends Book Value Book Value BALANCE SHEET DATA BALANCE SHEET DATA Cash & Cash Equivalents Cash & Cash Equivalents Investments Investments Total Assets Total Assets Long-Term Debt Long-Term Debt Stockholders’ Equity Stockholders’ Equity Fiscal years ended November Fiscal years ended November 2021 2021 2020 2020 2019 2019 2018 2018 2017 2017 $486,534 $486,534 25,999 25,999 25,999 25,999 18,042 18,042 18,042 18,042 $385,863 $385,863 $452,087 $452,087 $456,855 $456,855 $452,503 $452,503 (16,223) (16,223) (1,018) (1,018) (10,421) (10,421) 1,235 1,235 (595) (595) 7,446 7,446 (1,928) (1,928) 4,560 4,560 14,084 14,084 14,854 14,854 8,218 8,218 10,119 10,119 27,018 27,018 26,297 26,297 18,256 18,256 15,826 15,826 $ 1.83 $ 1.83 1.83 1.83 0.78 0.78 16.67 16.67 $ (1.05) $ (1.05) $ (0.19) $ (0.19) $ 0. 77 $ 0. 77 $ 1.70 $ 1.70 0.12 0.12 0.455 0.455 15.89 15.89 0. 44 0. 44 0.50 0.50 17.66 17.66 0.95 0.95 0.47 0.47 18.08 18.08 1.47 1.47 0.77 0.77 17.83 17.83 $ 34,374 $ 34,374 17,715 17,715 421,660 421,660 — — 162,732 162,732 $ 45,799 $ 45,799 $ 19,687 $ 19,687 $ 33,468 $ 33,468 $ 53,949 $ 53,949 17,715 17,715 402,548 402,548 — — 17,436 17,436 275,766 275,766 — — 22,643 22,643 291,641 291,641 — — 23,125 23,125 293,748 293,748 329 329 158,030 158,030 178,670 178,670 190,309 190,309 191,460 191,460 Dollars in thousands except per share amounts Dollars in thousands except per share amounts TO O U R S H A R E H O L D E R S TO O U R S H A R E H O L D E R S As I said in last year’s letter to shareholders, I remain very proud of As I said in last year’s letter to shareholders, I remain very proud of the perseverance of our associates in their willingness to “do what the perseverance of our associates in their willingness to “do what it takes” to market, sell, and craft our products while operating it takes” to market, sell, and craft our products while operating amidst the COVID-related frustration that characterized both amidst the COVID-related frustration that characterized both ﬁscal 2021 and 2020 for Bassett. Their collective efforts generated ﬁscal 2021 and 2020 for Bassett. Their collective efforts generated almost $487 million in consolidated revenue in 2021, a 26% almost $487 million in consolidated revenue in 2021, a 26% increase over 2020 and the highest level since the mid 1990’s increase over 2020 and the highest level since the mid 1990’s (when Bassett was a much different company), and operating (when Bassett was a much different company), and operating proﬁt of $26 million, our best showing since 2017. As I write this proﬁt of $26 million, our best showing since 2017. As I write this letter on January 25, 2022, the evening news in my kitchen reports letter on January 25, 2022, the evening news in my kitchen reports “ofﬁcials warn that supply chain woes could be worsening.” Are we “ofﬁcials warn that supply chain woes could be worsening.” Are we really dealing with this disturbance two years after the outbreak really dealing with this disturbance two years after the outbreak of the pandemic? Yes. Has the supply chain situation gotten of the pandemic? Yes. Has the supply chain situation gotten better? Somewhat. Are rampant inflation and the corresponding better? Somewhat. Are rampant inflation and the corresponding price increases to our customers affecting business? Not yet. price increases to our customers affecting business? Not yet. Is all of this worrisome? Absolutely. While acknowledging that Is all of this worrisome? Absolutely. While acknowledging that challenges will exist for the foreseeable future, it is time to change challenges will exist for the foreseeable future, it is time to change the narrative. There will certainly be life after COVID, but what will the narrative. There will certainly be life after COVID, but what will it look like? That’s the question we are all trying to ﬁgure out! With it look like? That’s the question we are all trying to ﬁgure out! With our strong balance sheet and conservative approach to business, our strong balance sheet and conservative approach to business, we are well-equipped to thrive after the pandemic and related we are well-equipped to thrive after the pandemic and related disruptions are fully behind us. disruptions are fully behind us. The mark of a strong company is its ability to generate cash to The mark of a strong company is its ability to generate cash to fund the business. During 2020 and 2021, we generated over fund the business. During 2020 and 2021, we generated over $51 million of operating cash flow which has allowed us to build $51 million of operating cash flow which has allowed us to build inventory some $26 million in 2021 to cope with supply chain inventory some $26 million in 2021 to cope with supply chain woes. Bolstered by our strong balance sheet, the ﬁve primary woes. Bolstered by our strong balance sheet, the ﬁve primary components of our future growth strategies are: components of our future growth strategies are: • • • • • • • • • • Digital transformation Digital transformation Store redesign and refurbishment Store redesign and refurbishment Open market sales: Bassett Design Centers Open market sales: Bassett Design Centers and Club Level and Club Level Outdoor product growth Outdoor product growth New logistics strategy New logistics strategy Our work to transform our corporate data platform began in Our work to transform our corporate data platform began in earnest a year ago and currently involves cross functional teams earnest a year ago and currently involves cross functional teams and resources throughout the Company. The major components and resources throughout the Company. The major components of our data architecture were created over two decades ago of our data architecture were created over two decades ago and were largely designed to digitally allow us to conﬁgure our and were largely designed to digitally allow us to conﬁgure our custom furniture products for our manufacturing processes. In custom furniture products for our manufacturing processes. In short, they are too inconsistent and cumbersome to serve today’s short, they are too inconsistent and cumbersome to serve today’s world of consumer digital engagement and e-commerce. With world of consumer digital engagement and e-commerce. With the construction of our new product information management the construction of our new product information management (PIM) system, we are creating the means by which we will manage (PIM) system, we are creating the means by which we will manage our multichannel marketing strategy. Although e-commerce our multichannel marketing strategy. Although e-commerce represents slightly less than 3% of our total wholesale revenue represents slightly less than 3% of our total wholesale revenue today, our pursuit of higher levels of sales starts with the today, our pursuit of higher levels of sales starts with the implementation of the new PIM system this spring. From there, implementation of the new PIM system this spring. From there, we will begin the integration of our new web platform that is we will begin the integration of our new web platform that is scheduled to stand up this fall. This work is essential to creating scheduled to stand up this fall. This work is essential to creating the a seamless consumer experience between our web trafﬁc and a seamless consumer experience between our web trafﬁc and our stores. In concert with the creation of the new data model is our stores. In concert with the creation of the new data model is the work being done to simplify our custom furniture programs, the work being done to simplify our custom furniture programs, which have been, frankly, too complicated to provide a frictionless which have been, frankly, too complicated to provide a web experience. Still extremely important, the modernization of important, the frictionless web experience. Still extremely our custom programs is well underway and is essential to our modernization of our custom programs is well underway and complete digital transformation. is essential to our complete digital transformation. We began work on making our stores more inspirational in late We began work on making our stores more inspirational in late 2020. The work continues and will culminate with the opening of 2020. The work continues and will culminate with the opening of a reimagined retail space in Dallas this summer. There are many a reimagined retail space in Dallas this summer. There are many new elements that will be part of the new experience, including new elements that will be part of the new experience, including the use of natural materials that evoke imagery of the local market, the use of natural materials that evoke imagery of the local market, a new ﬁxture package designed to drive accessory sales and a a new ﬁxture package designed to drive accessory sales and a “take with” selling capability, and a hospitality section designed to “take with” selling capability, and a hospitality section designed to serve our design-based clients while they collaborate with our in- serve our design-based clients while they collaborate with our in- store designers. We plan to retroﬁt our two other Dallas stores with store designers. We plan to retroﬁt our two other Dallas stores with the distinguishing elements of the new concept and grand open the distinguishing elements of the new concept and grand open all three simultaneously when the work is complete. Also, we plan all three simultaneously when the work is complete. Also, we plan a major remodel of our Austin, Texas, store this year and open in a a major remodel of our Austin, Texas, store this year and open in a new market late in the year. Our Corporate retail group produced new market late in the year. Our Corporate retail group produced its most proﬁtable year ever in 2021, thanks largely to 200bp its most proﬁtable year ever in 2021, thanks largely to 200bp year over year gross margin improvement and the signiﬁcant year over year gross margin improvement and the signiﬁcant cost reductions that were made at the onset of the pandemic. cost reductions that were made at the onset of the pandemic. Embellishing our new operating model with brand extension and Embellishing our new operating model with brand extension and our new vision for customer experience should allow this higher our new vision for customer experience should allow this higher level of performance to carry on. level of performance to carry on. 2021 was a banner year for wholesale sales generated outside 2021 was a banner year for wholesale sales generated outside of our store network – the “open market” – which grew at a 49% of our store network – the “open market” – which grew at a 49% clip. Shipments were almost evenly divided between our Bassett clip. Shipments were almost evenly divided between our Bassett Design Centers (BDC) and general furniture stores. Our BDCs Design Centers (BDC) and general furniture stores. Our BDCs are intended to mirror our store experience as much as possible are intended to mirror our store experience as much as possible in terms of merchandising, selling strategy, and marketing. in terms of merchandising, selling strategy, and marketing. (continued) (continued) (continued) (continued) Most of the products are Made in America and are featured in Most of the products are Made in America and are featured in settings that are often suggested by our in-house design team. settings that are often suggested by our in-house design team. Following up on this year’s success, we plan to further strengthen Following up on this year’s success, we plan to further strengthen the BDC program by integrating new brand imagery depicting the BDC program by integrating new brand imagery depicting Bassett’s rich history and the skill that our local craftsmen exhibit Bassett’s rich history and the skill that our local craftsmen exhibit every day in building our beautiful BenchMade furniture. On the every day in building our beautiful BenchMade furniture. On the other end of the product spectrum, our imported Club Level by other end of the product spectrum, our imported Club Level by Bassett motion product was a big hit this year as category sales Bassett motion product was a big hit this year as category sales grew by 78%! Part of the previously mentioned strategic build in grew by 78%! Part of the previously mentioned strategic build in inventory was designed to support this higher rate of Club Level inventory was designed to support this higher rate of Club Level sales. Many of the customers are U.S. furniture “Top 100” stores, sales. Many of the customers are U.S. furniture “Top 100” stores, a noteworthy departure from the proﬁle of our BDCs, which are a noteworthy departure from the proﬁle of our BDCs, which are typically smaller upscale, design-oriented operations located in typically smaller upscale, design-oriented operations located in secondary markets across the U.S. Navigating the skyrocketing secondary markets across the U.S. Navigating the skyrocketing prices of ocean freight was a challenge in 2021 and will be in 2022 prices of ocean freight was a challenge in 2021 and will be in 2022 as well. Partly for that reason, we introduced our ﬁrst domestically as well. Partly for that reason, we introduced our ﬁrst domestically made Club Level motion product this past fall. We expect to see made Club Level motion product this past fall. We expect to see strong retail sell-through from this product as floor placements strong retail sell-through from this product as floor placements were strong. were strong. As casual As casual lifestyles proliferated over the past few years, lifestyles proliferated over the past few years, accelerated by COVID lockdowns, sales of outdoor furniture have accelerated by COVID lockdowns, sales of outdoor furniture have risen disproportionally to general furniture sales. Recognizing this risen disproportionally to general furniture sales. Recognizing this trend, we acquired Lane Venture in 2017 and followed up with trend, we acquired Lane Venture in 2017 and followed up with the purchase of the assets of Crimson Casual, a small aluminum the purchase of the assets of Crimson Casual, a small aluminum outdoor manufacturer located in northwest Alabama in October outdoor manufacturer located in northwest Alabama in October 2019. Both entities hit their stride in 2021 as combined orders 2019. Both entities hit their stride in 2021 as combined orders grew by 61%. Shipments grew at a more subdued 28%, with the grew by 61%. Shipments grew at a more subdued 28%, with the difference ending up in our year-end wholesale backlog as our difference ending up in our year-end wholesale backlog as our fabric suppliers could not provide yardage to keep up with our sales. fabric suppliers could not provide yardage to keep up with our sales. Our seating comfort (an oxymoron in most outdoor products), and Our seating comfort (an oxymoron in most outdoor products), and our domestic capabilities in upholstery and aluminum allowed us our domestic capabilities in upholstery and aluminum allowed us to fare better than most in terms of providing decent service in to fare better than most in terms of providing decent service in light of all the disruption. This year, we plan on purchasing the light of all the disruption. This year, we plan on purchasing the Alabama manufacturing facility (now leased), invest in precision Alabama manufacturing facility (now leased), invest in precision metal fabricating machinery and re-engineer the production metal fabricating machinery and re-engineer the production work flow to produce at higher levels more efﬁciently. Outdoor work flow to produce at higher levels more efﬁciently. Outdoor is coming into its own to be a signiﬁcant part of the Bassett story. is coming into its own to be a signiﬁcant part of the Bassett story. On January 31, 2022, we made a joint announcement with J.B. Hunt On January 31, 2022, we made a joint announcement with J.B. Hunt Transport Services, Inc. (J.B. Hunt) to sell Zenith Freight Lines to a Transport Services, Inc. (J.B. Hunt) to sell Zenith Freight Lines to a subsidiary of J.B. Hunt for $87 million, subject to customary closing subsidiary of J.B. Hunt for $87 million, subject to customary closing conditions. We expect to close the deal by the end of February. conditions. We expect to close the deal by the end of February. This transaction will open an exciting new chapter in our quest to This transaction will open an exciting new chapter in our quest to (continued) (continued) provide the highest level of service to our customers. Disruption provide the highest level of service to our customers. Disruption caused by the pandemic aside, we believe that the consolidation caused by the pandemic aside, we believe that the consolidation of the traditional “middle mile” segment of specialized furniture of the traditional “middle mile” segment of specialized furniture carriers is inevitable. There are already signiﬁcantly fewer of carriers is inevitable. There are already signiﬁcantly fewer of these providers today than were in existence a few years ago. these providers today than were in existence a few years ago. Accordingly, this reality led us to seriously consider selling Zenith Accordingly, this reality led us to seriously consider selling Zenith to J. B. Hunt when the initial overtures were made last year. As to J. B. Hunt when the initial overtures were made last year. As due diligence progressed, we came to understand the beneﬁts due diligence progressed, we came to understand the beneﬁts that the scale of J.B. Hunt could provide in terms of equipment, that the scale of J.B. Hunt could provide in terms of equipment, technology, driver recruitment, intermodal transportation, and technology, driver recruitment, intermodal transportation, and warehousing density. As we became more familiar with their warehousing density. As we became more familiar with their management team and developed respect for them, we became management team and developed respect for them, we became convinced that they were the right partners for our vision to convinced that they were the right partners for our vision to build out a nationwide network of Regional Fulﬁllment Centers build out a nationwide network of Regional Fulﬁllment Centers that could serve as local warehouses for our “Make, Then Sell” that could serve as local warehouses for our “Make, Then Sell” stocking assortment while serving as cross docks for our “Sell, stocking assortment while serving as cross docks for our “Sell, Then Make” custom programs that have been so successful for Then Make” custom programs that have been so successful for us for so long. The idea is to reduce costs to our customers and us for so long. The idea is to reduce costs to our customers and get them their goods faster, while providing more visibility to the get them their goods faster, while providing more visibility to the status of their shipment in the process. We plan to open the ﬁrst status of their shipment in the process. We plan to open the ﬁrst of these new facilities in Florida this spring and we are working of these new facilities in Florida this spring and we are working on every aspect of the model that will be required to allow our on every aspect of the model that will be required to allow our new logistics strategy to serve as a linchpin for future wholesale new logistics strategy to serve as a linchpin for future wholesale and retail growth for Bassett. We are extremely enthusiastic about and retail growth for Bassett. We are extremely enthusiastic about the potential to better serve our customers with the 50-year the potential to better serve our customers with the 50-year accumulated furniture know-how of Zenith in combination with accumulated furniture know-how of Zenith in combination with the power of the J.B. Hunt platform. the power of the J.B. Hunt platform. Hopefully, we are emerging from the day to day turmoil that the Hopefully, we are emerging from the day to day turmoil that the pandemic has created for the past two years. We are still dealing pandemic has created for the past two years. We are still dealing with inflationary pressure and an undependable supply chain. But with inflationary pressure and an undependable supply chain. But we also have a solid strategy to generate growth, a large backlog we also have a solid strategy to generate growth, a large backlog of orders that give us a tailwind in 2022, and a very strong ﬁnancial of orders that give us a tailwind in 2022, and a very strong ﬁnancial foundation on which to build. With all of that in mind, I once again foundation on which to build. With all of that in mind, I once again commend and thank our associates for their stellar work in 2021, commend and thank our associates for their stellar work in 2021, our Board of Directors for their support, and our shareholders for our Board of Directors for their support, and our shareholders for their investment in Bassett. their investment in Bassett. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (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 fiscal year ending November 30, 2019 was a 53-week year, with the additional week being included in the 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 27, 2021 and November 28, 2020. Impact of COVID-19 For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading "Ongoing Impact of the COVID-19 Pandemic and Related Supply Chain and Labor Issues Upon Our Business " in Part I, Item 1 of this report. Overview Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 119-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 97 BHF stores at November 27, 2021, 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 or virtual 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 or virtual design services for our customers. We have factories in Newton, North Carolina that manufacture Bench Made custom upholstered and outdoor furniture. We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom dining offerings, including our Bench Made line of solid hardwood furniture. We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. Our logistics team then 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. During fiscal 2018, we acquired Lane Venture, a manufacturer and distributor of premium outdoor furniture which is 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. With the knowledge we have gained through operating Lane Venture, we have developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living. We also own 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. We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website and our online orders over the last two years. While the growth in website traffic and orders moderated somewhat in late fiscal 2021 compared to 2020, both have nearly doubled since 2019. The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While our Custom Upholstery, Custom Dining, and Bench Made product lines continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on- line, we will not compromise on our in-store experience or the quality of our in-home makeover capabilities. Analysis of Operations The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2021 as compared to fiscal year 2020 and 2019. Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the revenue and profitability growth that has resulted from our product and marketing initiatives as well as the cost reductions implemented in fiscal 2020 is obtained by comparing our current year results to the pre-pandemic results of fiscal 2019. Therefore, 2019 results are presented below for the purpose of showing a comparison with 2021. For an analysis of the fiscal year 2020 results as compared to fiscal year 2019, see “Analysis of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2020 Annual Report on Form 10-K, filed with the SEC on January 21, 2021 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 27, 2021, November 28, 2020 and November 30, 2019: 2021 2020 2019* Dollars Percent Dollars Percent Comparative Change 2021 vs 2020 2021 vs 2019 Sales Revenue: Furniture and accessories Logistics Total net sales revenue Cost of furniture and accessories sold SG&A New store pre-opening costs Cost of logistical services Other charges Income (loss) from $ 430,886 88.6% $ 337,672 87.5% $ 403,865 89.3% $ 93,214 7,457 55,648 11.4% 48,191 12.5% 48,222 10.7% 27.6% $ 27,021 7,426 15.5% 6.7% 15.4% 486,534 100.0% 385,863 100.0% 452,087 100.0% 100,671 26.1% 34,447 7.6% 209,799 43.1% 163,567 42.4% 179,244 39.6% 46,232 196,831 40.5% 176,368 45.7% 217,913 48.2% 20,463 28.3% 30,555 11.6% (21,082) 17.0% -9.7% - 0.0% - 0.0% 1,117 0.2% - NM (1,117) -100.0% 53,905 11.1% 46,946 12.2% 46,367 10.3% - 0.0% 15,205 3.9% 8,041 14.8% 6,959 1.8% (15,205) -100.0% 7,538 16.3% (8,041) -100.0% operations $ 25,999 5.3% $ (16,223) -4.2% $ (595) -0.1% $ 42,222 N/M $ 26,594 N/M *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020. 1 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Our consolidated net sales by segment were as follows: 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. See “Recent Development Regarding Zenith” under Part I, Item 1 of the Annual Report regarding our entry into an agreement to sell substantially all of the assets of Zenith. Sales Revenue Wholesale sales of furniture and accessories Less: Sales to retail segment Wholesale sales to external customers Retail sales of furniture and accessories Consolidated net sales of furniture and 2021 2020 2019* Dollars Percent Dollars Percent Comparative Change 2021 vs 2020 2021 vs 2019 $ 295,329 $ 221,075 $ 261,105 $ 74,254 (112,270 ) (95,347) (125,933) (16,923) 183,059 125,728 135,172 57,331 247,827 211,944 268,693 35,883 33.6% $ 34,224 17.7% 13,663 45.6% 47,887 16.9% (20,866) 13.1% -10.8% 35.4% -7.8% accessories 430,886 337,672 403,865 93,214 27.6% 27,021 6.7% Logistical services revenue Less: Services to wholesale segment Logistical services to external customers Total sales revenue 86,977 75,158 80,074 11,819 (4,362) (31,329 ) (26,967) (31,852) 55,648 48,191 48,222 7,457 $ 486,534 $ 385,863 $ 452,087 $ 100,671 15.7% 6,903 16.2% 523 15.5% 7,426 26.1% $ 34,447 8.6% -1.6% 15.4% 7.6% *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020. Total sales revenue for fiscal 2021 increased $100,671, or 26.1%, from prior year due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a near total shut-down of our manufacturing and retail operations from late March through early May of 2020, followed by an exceptionally strong recovery in demand for home furnishings that has continued into fiscal 2021. Sales of furniture and accessories for fiscal 2021 increased $34,447 or 7.6%, over fiscal 2019. This growth as compared to fiscal 2019 is attributable not only to the exceptionally strong demand for home furnishings that has benefited our industry over the past eighteen months, but also due to increases in our wholesale business through growth in our Lane Venture line of outdoor furniture, the introduction of our Bassett Outdoor line of outdoor furniture sold through our BHF store network, and the expansion of our wholesale customer base of independent dealers partially offset by lower retail sales from the closure of seven Company-owned stores since the end of 2019. Cost of furniture and accessories sold as a percentage of total revenue for the fiscal 2021 increased over fiscal 2020 and 2019 primarily due to rising raw material and inbound freight costs, partially offset by improved leverage on fixed costs during fiscal 2021 versus 2020 when our operations were temporarily shut down due to the pandemic. SG&A expenses as a percentage of sales for fiscal 2021 decreased significantly from fiscal 2020 and 2019 due to increased leverage of fixed costs due to higher sales volume coupled with the fact that we have been able to maintain various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic. This was partially offset by increased operating costs in the logistical services segment. Other charges of $15,205 incurred during fiscal 2020 included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non- cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas in May of 2020, a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment, and $1,050 of litigation costs relating to certain wage and hour violation claims that had been asserted against the Company. These claims have since been settled at no additional cost. Certain other items affecting comparability between fiscal 2021 and 2020 are discussed below in “Other Items Affecting Net Income”. 3 4 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) 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 for the full fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019: Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense Cost of logistical services Income from operations Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense Cost of logistical services Income (loss) from operations (6) Wholesale Retail Logistics Eliminations Consolidated Year Ended November 27, 2021 $ $ 295,329 $ - 295,329 202,026 75,813 - 17,490 $ 247,827 $ - 247,827 118,455 122,328 - 7,044 $ - $ 86,977 86,977 (112,270) (1) $ (31,329) (2) (143,599) - - 85,234 1,743 $ (110,682) (3) (1,310) (4) (31,329) (5) $ (278) 430,886 55,648 486,534 209,799 196,831 53,905 25,999 Wholesale Retail Logistics Eliminations Consolidated Year Ended November 28, 2020 $ 221,075 $ - 221,075 211,944 $ - 211,944 - $ 75,158 75,158 (95,347) (1) $ (26,967) (2) (122,314) 152,982 63,506 - 107,233 114,208 - - - 73,913 (96,648) (3) (1,346) (4) (26,967) (5) 337,672 48,191 385,863 163,567 176,368 46,946 $ 4,587 $ (9,497) $ 1,245 $ 2,647 $ (1,018) Sales revenue: Furniture & accessories Logistics Total sales revenue Cost of furniture and accessories sold SG&A expense New store pre-opening costs Cost of logistical services Income (loss) from operations (6) Wholesale Retail Logistics Eliminations Consolidated Year Ended November 30, 2019 $ 261,105 $ - 261,105 268,693 $ - 268,693 - $ 80,074 80,074 (125,933) (1) $ (31,852) (2) (157,785) 173,350 76,299 - - 131,528 143,057 1,117 - - - - 78,219 (125,634) (3) (1,443) (4) - (31,852) (5) 403,865 48,222 452,087 179,244 217,913 1,117 46,367 $ 11,456 $ (7,009) $ 1,855 $ 1,144 $ 7,446 (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. (4) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate. (5) Represents the elimination of the cost of logistical services provided by Zenith to our wholesale segment. (6) 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. Non-GAAP Financial Information To supplement the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including income (loss) from operations before other charges and gross profit on wholesale sales of furniture and accessories by segment inclusive of intercompany sales. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below. Income (Loss) from Operations before Other Charges The following table reconciles income (loss) from operations as shown above for our consolidated segment results with income (loss) from operations as reported in accordance with GAAP for fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019: Consolidated segment income (loss) from operations excluding special charges Less: Asset impairment charges Goodwill impairment charge Early retirement program Litigation expense Lease exit costs 2021 2020 2019 $ 25,999 $ (1,018) $ 7,446 - - - - - 12,184 1,971 - 1,050 - 4,431 1,926 835 700 149 Income (loss) from operations as reported $ 25,999 $ (16,223) $ (595) Asset Impairment Charges During fiscal 2020 the loss from operations included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas. During fiscal 2019 the loss from operations included $4,431 of non-cash impairment charges recognized on the assets of six underperforming retail stores. Goodwill Impairment Charges Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our goodwill as of May 30, 2020. As a result, we recognized a non-cash charge of $1,971 during fiscal 2020 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment (see Note 6 to our Consolidated Financial Statements). 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 6 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. These employees received 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. 5 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Litigation Expense Wholesale Segment During fiscal 2020 and 2019 we accrued $1,050 and $700, respectively for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company. Net sales, gross profit, SG&A expense and operating income for our Wholesale Segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019: 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. Gross Profit by Segment In the following analysis of results for our wholesale and retail segments, we present a measure of gross profit on sales which is inclusive of intercompany sales from our wholesale segment to our retail segment. We believe that this is a key metric by which to evaluate the performance of each segment and is consistent with management’s view of our operating results. The following table reconciles the sales, cost of sales and gross profit presented for each of the wholesale and retail segments to the consolidated amounts for sales, cost of sales and the implied gross profit in accordance with GAAP. Year Ended November 27, 2021 Non-GAAP Presentation Retail Wholesale Eliminations GAAP Presentation Consolidated Sales revenue: furniture & accessories Cost of furniture and accessories sold Gross profit $ $ 295,329 $ 202,026 93,303 $ 247,827 $ 118,455 129,372 $ (112,270) (1) $ (110,682) (2) (1,588) (3) $ 430,886 209,799 221,087 Year Ended November 28, 2020 Sales revenue: furniture & accessories Cost of furniture and accessories sold Gross profit Non-GAAP Presentation Retail Wholesale $ 221,075 $ 152,982 68,093 $ 211,944 $ 107,233 104,711 $ $ Eliminations GAAP Presentation Consolidated 337,672 163,567 174,105 (95,347) (1) $ (96,648) (2) 1,301 (3) $ Year Ended November 30, 2019 Non-GAAP Presentation Retail Wholesale Eliminations GAAP Presentation Consolidated 2021 2020 2019* Comparative Change 2021 vs 2020 Dollars Percent Dollars Percent 2021 vs 2019 Net sales Gross profit (1) SG&A Income from operations $ 17,490 5.9% $ 4,587 $ 295,329 100.0% $221,075 100.0% $261,105 100.0% $74,254 93,303 31.6% 68,093 30.8% 87,755 33.6% 25,210 75,813 25.7% 63,506 28.7% 76,299 29.2% 12,307 33.6% $ 34,224 37.0% 5,548 (486) 19.4% 2.1% $ 11,456 4.4% $12,903 281.3% $ 6,034 13.1% 6.3% -0.6% 52.7% (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under Non-GAAP Financial Information above. *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020. Wholesale shipments by category for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019 are summarized below: External Intercompany Total External Intercompany Total External Intercompany Total 2021 2020 2019* Bassett Custom Upholstery $ 105,445 $ Bassett 69,533 $ 174,978 59.2 % $ 71,840 $ 56,360 $ 128,200 58.0 % $ 78,856 $ 73,559 $ 152,415 58.4 % Leather 36,157 61 36,218 12.3 % 20,487 949 21,436 9.7 % 17,083 2,137 19,220 7.4 % Bassett Custom Wood Bassett 24,079 24,066 48,145 16.3 % 19,682 19,629 39,311 17.8 % 21,264 24,818 46,082 17.6 % Casegoods 17,378 18,610 35,988 12.2 % 13,719 18,409 32,128 14.5 % 17,221 23,699 40,920 15.7 % Accessories (1) - - - 0.0 % - - - 0.0 % 748 1,720 2,468 0.9 % Total $ 183,059 $ 112,270 $ 295,329 100.0 % $ 125,728 $ 95,347 $ 221,075 100.0 % $ 135,172 $ 125,933 $ 261,105 100.0 % (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. Sales revenue: furniture & accessories Cost of furniture and accessories sold Gross profit $ $ 261,105 $ 173,350 87,755 $ 268,693 $ 131,528 137,165 $ (125,933) (1) $ (125,634) (2) (299) (3) $ 403,865 179,244 224,621 *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020. Fiscal 2021 as Compared to Fiscal 2020 (1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores. (2) 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. (3) Represents the change for the period in the elimination of intercompany profit in ending retail inventory. Net sales for the fiscal year ended November 27, 2021 increased $74,254, or 33.6%, from the prior year due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of 2020, followed by an exceptionally strong recovery in demand for home furnishings that has continued through fiscal 2021. The increase in orders resulting from this surge in demand, coupled with continuing supply chain disruptions in the wake of the pandemic, has resulted in a wholesale backlog of $90,057 at November 27, 2021 as compared to $54,874 at November 28, 2020. As previously discussed, Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increased backlogs. For fiscal 2021, gross margins improved primarily due to improved leverage on fixed costs versus the prior year period when our operations were temporarily shut down due to the pandemic partially offset by various cost increases including foam, plywood and various other commodity costs and container freight and other logistics costs. As a result of the aforementioned cost increases, we 7 8 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) have instituted multiple price increases during the year, some of which have not been fully realized in the operations as those price increases have generally not been implemented against the existing backlog at the time those increases were given. SG&A expenses as a percentage of sales for fiscal 2021 decreased significantly from fiscal 2020 due to increased leverage of fixed costs due to higher sales volume partially offset by higher spending in the marketing and information technology areas. Fiscal 2021 as Compared to Fiscal 2019 Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the revenue growth that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019. Wholesale sales for fiscal 2021 increased $34,224 or 13.1% over fiscal 2019. On an average weekly basis normalizing for fiscal 2019 being a 53- week year, sales increased 15.3% over 2019. Shipments to the BHF store network declined 3.6% for fiscal 2021 as compared to fiscal 2019. Growth in shipments to the BHF store network of the Bassett Outdoor line of outdoor furniture, introduced in fiscal 2020, was offset by lower retail sales from the closure of seven Company-owned stores since the end of 2019 and the fact that fiscal 2021 included one less week of sales as compared to 2019. Shipments to the open market (independent dealers outside of the BHF store network) increased 41% for fiscal 2021 over fiscal 2019 primarily due to increases from existing dealers along with an expansion of the dealer base. Shipments of our Lane Venture line of outdoor furniture increased 35% for fiscal 2021, respectively, over the comparable fiscal 2019 periods. In addition, wholesale orders for fiscal 2021, increased 28% over fiscal 2019. Wholesale orders from independent dealers increased 67% for fiscal 2021 over fiscal 2019 driven by increases from existing dealers along with an expansion of the dealer base. Also, orders from the Bassett Home Furnishings store network for fiscal 2021 increased 4.7% over fiscal 2019 in spite of having seven fewer stores in the fleet during 2021 as well as one less week in 2021 as compared to 2019. Lane Venture orders increased by 83% for fiscal 2021 over fiscal 2019. Retail Segment – Company Owned Stores Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income (loss) for our retail segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019: 2021 2020 2019* Comparative Change 2021 vs 2020 Dollars Percent Dollars Percent 2021 vs 2019 Net sales Gross profit (1) SG&A New store pre-opening $247,827 100.0% $211,944 100.0% $268,693 100.0% $35,883 129,372 52.2% 104,711 49.4% 137,165 51.0% 24,661 122,328 49.4% 114,208 53.9% 143,057 53.2% 8,120 16.9% $ (20,866) 23.6% (7,793) 7.1% (20,729) -7.8% -5.7% -14.5% costs Loss from operations - $ 7,044 0.0% - 2.8% $ (9,497) 0.0% 1,117 -4.5% $ (7,009) 0.4% 0.0% (1,117) -100.0% -2.6% $16,541 NM $ 14,053 NM - (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under Non- GAAP Financial Information above. Retail sales by major product category for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019 were as follows: 2021 2020 2019* Bassett Custom Upholstery Bassett Leather Bassett Custom Wood Bassett Casegoods Accessories, mattresses & other (1) Total 53.2 % $ 139,527 1.4 % 226 13.1 % 30,931 16.7 % 42,658 34,485 15.7 % $ 247,827 100.0 % $ 211,944 100.0 % $ 268,693 100.0 % 53.3 % $ 142,865 1.1 % 3,782 13.7 % 35,092 16.9 % 44,827 15.1 % 42,127 56.3 % $ 112,888 0.1 % 2,326 12.5 % 28,942 17.2 % 35,728 13.9 % 32,060 (1) Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans. *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2021 and 2020. Fiscal 2021 as Compared to Fiscal 2020 Net sales for fiscal 2021 increased $35,886 or 16.9% from the prior year due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a nearly total shut-down of our retail operations from late March through early May of that year, followed by an exceptionally strong recovery in demand for home furnishings that has continued through fiscal 2021. The increase in written sales (the value of sales orders taken but not delivered) resulting from this surge in demand has resulted in a retail backlog of $82,894 at November 27, 2021 as compared to $57,041 at November 28, 2020. As previously discussed, Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increased backlogs. Gross margins for fiscal 2021 increased by 280 basis points, primarily driven by lower levels of promotional activity coupled with improved margins on clearance activity. SG&A expenses for fiscal 2021 as a percentage of sales decreased significantly as compared to fiscal 2020. This was driven by workforce and other overhead reductions and greater leverage on fixed costs from higher sales volumes. In addition, over the course of fiscal 2020 we closed seven unprofitable store locations. Fiscal 2021 as Compared to Fiscal 2019 Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the retail revenue trend that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019. Compared to fiscal 2019, net sales for fiscal 2021 decreased $20,866 or 7.8%, as sales increases from the introduction of the Bassett Outdoor product line were offset by sales decreases from having seven fewer stores in operation. On an average weekly basis normalizing for fiscal 2019 being a 53-week year, sales decreased 6.0% as compared to 2019. Written sales increased 3.0% for fiscal 2021, respectively over fiscal 2019 in spite of having seven fewer stores in operation and one less week on fiscal 2021. 9 10 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Logistical Services Segment Provision for Income taxes Revenues, operating expenses and income from operations for our logistical services segment were as follows for the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019: Comparative Change Logistics revenue Operating expenses $ 86,977 100.0% $75,158 100.0% $80,074 100.0% $11,819 85,234 98.0% 73,913 98.3% 78,219 97.7% 11,321 2021 2020 2019* 2021 vs 2019 2021 vs 2020 Dollars Percent Dollars Percent 8.6% 9.0% 15.7% $ 6,903 15.3% 7,015 Income from operations $ 1,743 2.0% $ 1,245 1.7% $ 1,855 2.3% $ 498 40.0% $ (112) -6.0% *53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020. Analysis of Operations – Logistical Services Net revenues for fiscal 2021 increased $11,819 over the prior year due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a near total shut-down of furniture retail operations throughout the country from late March through early May of 2020. Zenith’s operating expenses as a percentage of revenue for 2021 improved as compared to fiscal 2020 due to better operating efficiency in our middle mile service compared to fiscal 2020 when we were forced during the second quarter of 2020 to run some of our trucks at substantially lower than optimal load levels resulting in inefficiencies. These improvements were partially offset by significantly higher warehouse labor costs as Zenith has been challenged to find and retain freight-handling personnel in the warehousing operation since reopening from the COVID shutdown. Operating expense as a percent of revenue for 2021 increased as compared to 2019 primarily due to the previously mentioned increased labor costs. Other Items Affecting Net Income (Loss) Other items affecting net income (loss) for fiscal 2021 and 2020 are as follows: 2021 2020 Interest income (1) Interest expense (2) Net periodic pension costs (3) Net gains (cost) of company-owned life insurance (4) Other $ 54 $ (322) (422) (364) (705) Total other loss, net $ (1,759) $ 236 (49) (499) 647 (898) (563) (1) Consists of interest income arising from our short-term investments and interest- bearing cash equivalents. The decline in interest income for fiscal 2021 as compared with fiscal 2020 was due primarily to lower interest rates. See Note 3 to the Consolidated Financial Statements for additional information regarding our investments in certificates of deposit. (2) The increase in interest expense in fiscal 2021 over fiscal 2020 is due to the increase in finance leases for tractor, trailer and office equipment. See Note 14 to the Consolidated Financial Statements for additional information regarding our leases. (3) Represents the portion of net periodic pension costs not included in income from operations. See Note 9 to the Consolidated Financial Statements for additional information related to our defined benefit pension plans. (4) Includes a gain arising from death benefits from Company-owned life insurance of $914 in fiscal 2020. On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. A major provision of the CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years. As a result, for the year ended November 28, 2020, we were able to recognize tax benefits substantially in excess of the current federal statutory rate of 21% due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35%. We recorded an income tax provision (benefit) of $6,198, $(6,365) and $188 in fiscal 2021, 2020 and 2019, respectively. Our effective tax rate for 2021 of 25.6% differs from the federal statutory rate of 21.0% due to the effects of state income taxes and various permanent differences. Our effective tax rate of 37.9% for 2020 differs from the federal statutory rate of 21.0% primarily due to the benefit of the CARES Act and to the effects of state income taxes and various permanent differences, including those related to the non-deductible goodwill impairment charge. Our effective tax rate of (10.8%) for 2019 differs from the federal statutory rate of 21.0% primarily due to the non-deductible goodwill impairment charge along with the effects of state income taxes and certain other non-deductible expense. See Note 12 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 $3,189 as of November 27, 2021, which, upon utilization, are expected to reduce our cash outlays for income taxes in future years. It will require approximately $12,000 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 2021 was $14,563 compared to $36,675 for fiscal 2020, representing a decrease of $22,112. This decrease in operating cash flow is primarily due to significantly increased investment in inventory as we work to fulfill our order backlog and cope with ongoing supply chain disruptions partially offset by increased customer deposits associated with the increase in retail backlogs. Our overall cash position decreased by $11,425 during fiscal 2021, compared to an overall increase of $26,112 during fiscal 2020, a decline of $37,537 from the prior year. In addition to the decline in cash flows from operations, net cash used in investing activities during fiscal 2021 increased $7,824 to a net use of $11,571 compared to net cash used in investing activities of $3,747 for the prior year. This increase was primarily due to increased capital expenditures in the current year while the prior year period also included proceeds from the sale of our closed Gulfport store location. Net cash used in financing activities during fiscal 2021 increased $7,601 to a net use of $14,417 as compared to a net use of $6,816 for the prior year, primarily due to increased share repurchases of $5,566 during fiscal 2021 as compared to $2,208 repurchased during fiscal 2020 along with a special dividend of $2,479 declared and paid during fiscal 2021. As of November 27, 2021, $19,348 remains authorized under our existing share repurchase plan. With cash and cash equivalents and short-term investments totaling $52,089 on hand at November 27, 2021, expected future operating cash flows 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 bank credit facility provides for a line of credit of up to $25,000. At November 27, 2021, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we have outstanding standby letters of credit with another bank totaling $325. The line bears interest at the rate of LIBOR plus 1.9%, with a fee of 0.25% charged for the unused portion of the line and is secured by a general lien on our accounts receivable and inventory. We were in compliance with all covenants under the agreement as of November 27, 2021. The credit facility matures on January 31, 2022. 11 12 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) On January 27, 2022, we entered into a new credit facility with our bank which also provides for a credit line of up to $25,000. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the new facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis: ● ● Consolidated fixed charge coverage ratio of not less than 1.4 times, Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and ● Minimum tangible net worth ratio of $140,000, which will change to $120,000 if we do not complete the sale of Zenith (see “Recent Development Regarding Zenith” under Part I, Item 1 of this Annual Report regarding our entry into an agreement to sell substantially all of the assets of Zenith). We were in compliance with these covenants at November 27, 2021 and expect to remain in compliance for the foreseeable future. The new credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due. 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 and retail segments. The total future minimum lease payments for leases with terms in excess of one year at November 27, 2021 is $164,855, the present value of which is $141,674 and is included in our accompanying consolidated balance sheet at November 27, 2021. We were contingently liable under licensee lease obligation guarantees in the amount of $1,845 at November 27, 2021. Remaining terms under these lease guarantees range from approximately one to five years. See Note 14 to our consolidated financial statements for a schedule of future cash payments on our lease obligations and additional details regarding our leases and lease guarantees. We provide post-employment benefits to certain current and former executives and management level employees of the Company. Included among these benefits are two defined-benefit plans with a combined projected benefit obligation of $10,740 at November 27, 2021. See Note 9 to our consolidated financial statements for a projection of future benefit payments under these plans from 2022 through 2031. We also have deferred compensation plans with a total liability of $3,437 at November 27, 2021, the current portion of which is $296. See Note 9 to our consolidated financial statements for additional information regarding these plans. 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. Our primary non-recurring fair value estimates, typically involving the valuation of business acquisitions, goodwill impairments (see Note 7 to the Consolidated Financial Statements) and asset impairments (see Note 13 to the Consolidated Financial Statements) have utilized Level 3 inputs. 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 Note 14 to the Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of 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. Dividends and Share Repurchases Critical Accounting Policies and Estimates During fiscal 2021, we declared and paid four quarterly dividends totaling $5,210, or $0.53 per share, as well as one special dividend totaling $2,479, or $0.25 per share. During fiscal 2021, we repurchased 204,714 shares of our stock for $5,566 under our share repurchase program. The weighted-average effect of these share repurchases on both our basic and diluted earnings per share was approximately $0.02 per share. On July 15, 2021, our Board of Directors increased the remaining limit of the repurchase plan to $20,000. The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as of November 27, 2021 was $19,348. Capital Expenditures We currently anticipate that total capital expenditures for fiscal 2022 will be approximately $25 to $30 million, approximately half of which will be used for the purchase and renovation of a site for a new retail store in a new market as well as repositions of two other retail locations, with the remainder used for the expansion and upgrade of our outdoor furniture manufacturing facilities in Haleyville, Alabama along with additional investments in technology and various other manufacturing upgrades within our wholesale segment. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the store program, 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. 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. 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. 13 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) 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 $51,492 and $25,341 as of November 27, 2021 and November 28, 2020, respectively. Substantially all of the customer deposits held at November 28, 2020 related to performance obligations satisfied during fiscal 2021 and have therefore been recognized in revenue for the year ended November 27, 2021. 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 $1,240 and $783 at November 27, 2021 and November 28, 2020, respectively. 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 credit losses - We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were $796 and $1,211 at November 27, 2021 and November 28, 2020, respectively, representing 2.7% and 5.1% of our gross accounts receivable balances at those dates, respectively. The allowance for credit losses is based on a review of specifically identified customer accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. 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 accounted for under the first-in, first out (“FIFO”) method are stated at the lower of cost or net realizable value, and inventory accounted for under the last-in, first out method (“LIFO”) is stated at the lower of cost or market. Cost is determined for domestic furniture inventories, excluding outdoor furniture products, using the LIFO method. The cost of imported inventories and domestic outdoor furniture products is determined on a FIFO 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 $4,816 and $4,522 at November 27, 2021 and November 28, 2020, respectively, representing 5.8% and 7.6%, respectively, of our inventories on a LIFO basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. Goodwill – Goodwill represents the excess of the 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 for the annual test during fiscal 2019, 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. As a result of this test, we recorded an impairment charge of $1,926 during the year ended November 30, 2019. In addition, we performed an interim test of goodwill as of May 30, 2020 due to the severe impact of the COVID-19 pandemic and resulting business interruption during the second fiscal quarter of 2020. This interim test resulted in an impairment charge of $1,971 for the year ended November 28, 2020. For the annual tests of goodwill performed as of the beginning of the fourth fiscal quarters of 2020 and 2021, we performed the qualitative assessment as described above and concluded that there has been no additional impairment of our goodwill as of November 27, 2021. 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, 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. 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 27, 2021, 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 27, 2021 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 $1,964. 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. Right of use assets under operating leases are written down to their estimated fair value. Our estimates of the fair value of the impaired right of use assets include estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure. 15 16 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued (Amounts in thousands except share and per share data) 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. 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 2021. 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. 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 and retail segments. 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 $16,971 and $17,338 at November 27, 2021 and November 28, 2020, respectively, for Company-owned stores, consisting of eight locations with a total of 201,096 square feet of space, 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 $1,845 and $1,811 which we have guaranteed on behalf of licensees as of November 27, 2021 and November 28, 2020, respectively, we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased retail store locations and warehouse and distribution facilities. At November 27, 2021, the unamortized balance of such right-of-use assets totaled $104,799. Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value. 17 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 2021, 2020 and 2019 mean the fiscal years ended November 27, 2021, November 28, 2020 and November 30, 2019. Please note that fiscal 2019 contained 53 weeks. SAFE-HARBOR, FORWARD-LOOKING STATEMENTS This report 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: ● ● ● ● ● ● ● ● ● ● ● ● ● the impact of the ongoing coronavirus (“COVID-19”) outbreak upon our ability to maintain normal operations at our retail stores, manufacturing facilities and in our logistical services operations, and the resulting effects any future interruption of those operations may have upon our financial condition, results of operations and liquidity, as well as the impact of the outbreak upon general economic conditions, including consumer spending and the strength of the housing market in the United States competitive conditions in the home furnishings industry 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 the profitability of the stores (independent licensees and Company-owned retail stores) which may result in future store closings ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing and advertising capabilities, as they are implemented fluctuations in the cost and availability of raw materials, fuel, labor and sourced products, including those which may result from supply chain disruptions and 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 and possible disruptions due to cybersecurity threats, including any impacts from a network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance 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 You should keep in mind that any forward-looking statement made by us in this report speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report, might not occur. Consolidated Balance Sheets Bassett Furniture Industries, Incorporated and Subsidiaries November 27, 2021 and November 28, 2020 (In thousands, except share and per share data) Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, net of allowance for credit losses of $796 and $1,211 as of $ November 27, 2021 and November 28, 2020, respectively Inventories Recoverable income taxes Other current assets Total current assets Property and equipment, net Other long-term assets Deferred income taxes, net Goodwill and other intangible assets Right of use assets under operating leases Other Total other long-term assets Total assets Liabilities and Stockholders’ Equity Current liabilities Accounts payable Accrued compensation and benefits Customer deposits Current portion of operating lease obligations Other accrued liabilities Total current liabilities Long-term liabilities Post employment benefit obligations Long-term portion of operating lease obligations Other long-term liabilities Total long-term liabilities Commitments and Contingencies Stockholders’ equity $ $ 2021 2020 34,374 $ 17,715 28,168 78,004 8,379 13,644 180,284 45,799 17,715 22,340 54,886 9,666 10,272 160,678 94,066 90,917 3,189 23,448 114,148 6,525 147,310 421,660 $ 28,324 $ 15,934 51,492 27,693 10,776 134,219 12,968 105,841 5,900 124,709 4,587 23,827 116,903 5,637 150,954 402,549 23,426 16,964 39,762 27,078 11,141 118,371 12,089 111,972 2,087 126,148 Common stock, $5 par value; 50,000,000 shares authorized; issued and outstanding 9,762,125 at November 27, 2021 and 9,942,787 at November 28, 2020 Retained earnings Additional paid-in-capital Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders’ equity 48,811 115,631 113 (1,823) 162,732 421,660 $ 49,714 109,710 - (1,394 ) 158,030 402,549 $ The accompanying notes to consolidated financial statements are an integral part of these statements. 19 20 Consolidated Statements of Operations Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 27, 2021, November 28, 2020, and November 30, 2019 (In thousands, except per share data) Consolidated Statements of Comprehensive Income (Loss) Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 27, 2021, November 28, 2020, and November 30, 2019 (In thousands) Net income (loss) Other comprehensive income (loss): Recognize prior service cost associated Actuarial adjustment to Long Term Cash Awards (LTCA) Amortization associated with LTCA Income taxes related to LTCA Actuarial adjustment to supplemental executive retirement defined benefit plan (SERP) Amortization associated with SERP Income taxes related to SERP 2021 2020 2019 $ 18,042 $ (10,421 ) $ (1,928) 26 144 (44) (788) 44 190 (86 ) 125 (10 ) (259 ) 8 64 (141) 124 4 1,313 184 (382) Other comprehensive income (loss), net of tax (428) (158 ) 1,102 Total comprehensive income (loss) $ 17,614 $ (10,579 ) $ (826) The accompanying notes to consolidated financial statements are an integral part of these statements. Sales revenue: Furniture and accessories Logistics Total sales revenue 2021 2020 2019 $ 430,886 $ 55,648 486,534 337,672 $ 48,191 385,863 403,865 48,222 452,087 Cost of furniture and accessories sold 209,799 163,567 179,244 Selling, general and administrative expenses excluding new store pre-opening costs New store pre-opening costs Cost of logistical services Asset impairment charges Goodwill impairment charge Litigation expense Lease exit costs Early retirement program 196,831 - 53,905 - - - - - 176,368 - 46,946 12,184 1,971 1,050 - - 217,913 1,117 46,367 4,431 1,926 700 149 835 Income (loss) from operations 25,999 (16,223 ) (595) Interest income Interest expense Other loss, net 54 (322) (1,491) 236 (49 ) (750 ) 568 (6) (1,707) Income (loss) before income taxes 24,240 (16,786 ) (1,740) Income tax expense (benefit) Net income (loss) Net income per share Basic income (loss) per share Diluted income (loss) per share Dividends per share Regular dividends Special dividend $ $ $ $ $ 6,198 18,042 $ (6,365 ) (10,421 ) $ 188 (1,928) 1.83 $ 1.83 $ 0.53 $ 0.25 $ (1.05 ) $ (1.05 ) $ 0.46 $ - $ (0.19) (0.19) 0.50 - The accompanying notes to consolidated financial statements are an integral part of these statements. 21 22 Consolidated Statements of Cash Flows Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 27, 2021, November 28, 2020, and November 30, 2019 (In thousands) Operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: 2021 2020 2019 $ 18,042 $ (10,421 ) $ (1,928) Depreciation and amortization Non-cash goodwill impairment charge Non-cash asset impairment charges Non-cash portion of lease exit costs Bad debt valuation charges Net (gain) loss on disposals of property and equipment Gains on lease modifications Inventory valuation charges Deferred income taxes Other, net Changes in operating assets and liabilities Accounts receivable Inventories Other current and long-term assets Right of use assets under operating leases Customer deposits Accounts payable and accrued liabilities Obligations under operating leases 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 Puchases of investments Proceeds from 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 Repayment of finance lease obligations 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 $ 14,597 - - - (156) (367) (37) 2,969 1,545 765 (5,672) (26,087) (2,241) 26,243 11,730 2,153 (28,921) 14,563 (10,750) 382 - - - (1,203) (11,571) (7,689) 42 363 (5,566) (219) (1,348) - (14,417) (11,425) 45,799 34,374 $ 13,480 1,971 12,184 - 492 (81 ) (1,313 ) 4,922 2,513 (51 ) (1,454 ) 6,494 (9,325 ) 32,107 14,421 5,965 (35,229 ) 36,675 (6,029 ) 2,345 - (295 ) 16 216 (3,747 ) (4,544 ) - 285 (2,208 ) (228 ) (121 ) - (6,816 ) 26,112 19,687 45,799 $ 13,500 1,926 4,431 149 61 515 - 2,254 (2,890) 1,497 (2,616) (5,196) 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 The accompanying notes to consolidated financial statements are an integral part of these statements. Consolidated Statements of Stockholders’ Equity Bassett Furniture Industries, Incorporated and Subsidiaries For the years ended November 27, 2021, November 28, 2020, and November 30, 2019 (In thousands, except share and per share data) Common Stock Shares Amount Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Balance, November 24, 2018 10,527,636 $ 52,638 $ - $ 140,009 $ (2,338 ) $ 190,309 Comprehensive income (loss) Net loss Amortization of defined benefit plan costs, net of tax Actuarial adjustments to defined benefit plans, 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 Balance, November 30, 2019 - - - - - 102,303 - - - - - 511 (513,649) - 10,116,290 (2,568 ) - 50,581 - (1,928) - (1,928) - - - - 217 (980) 958 195 - - (21) (5,133) - (3,797) - 129,130 230 872 - - - 230 872 (21) (5,133) 728 - - (1,236 ) (7,345) 958 178,670 Comprehensive income (loss) Net loss Amortization of defined benefit plan costs, net of tax Actuarial adjustments to defined benefit plans, net of tax Cumulative effect of a change in accounting principle Regular dividends ($0.455 per share) Issuance of common stock Purchase and retirement of common - - - - - 43,218 - - - - - 216 - (10,421) - (10,421) - - - - 69 - - (3,785) (4,545) - 98 98 (256 ) (256) - - - (3,785) (4,545) 285 stock Stock-based compensation Balance, November 28, 2020 (216,721) - 9,942,787 (1,083 ) - 49,714 (684) 420 - (669) - 109,710 - - (1,394 ) (2,436) 420 158,030 Comprehensive income (loss) Net income Amortization of defined benefit plan costs, net of tax Actuarial adjustments to defined benefit plans, net of tax Regular dividends ($0.53 per share) Special dividend ($0.25 per share) Issuance of common stock Purchase and retirement of common stock Stock-based compensation Balance, November 27, 2021 - - - - - 34,902 - - - - - 175 - 18,042 - 18,042 - - 138 138 - - - 230 - (5,210) (2,479) - (567 ) - - - (567) (5,210) (2,479) 405 (215,564) - 9,762,125 $ (1,078 ) - 48,811 $ (275) 158 113 $ (4,432) - 115,631 $ - - (1,823 ) $ (5,785) 158 162,732 The accompanying notes to consolidated financial statements are an integral part of these statements. 23 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 97 retail stores known as Bassett Home Furnishings (referred to as “BHF”). Of the 97 stores, the Company owns and operates 63 stores (“Company-owned retail stores”) with the other 34 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. We sourced approximately 24% of our wholesale products from various foreign countries, with the remaining volume produced at our five domestic manufacturing facilities. Impact of the COVID-19 Pandemic Upon our Financial Condition and Results of Operations On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 2020. In response to the restrictive measures imposed by governmental authorities and for the protection of our employees and customers, we temporarily closed our dedicated stores, our manufacturing locations and many of our warehouses for much of the second fiscal quarter of 2020. This extended period of suspended operations had a material adverse impact upon our results of operations during the second fiscal quarter of 2020 and resulted in a significant net loss for 2020. In addition to operating losses resulting from severely reduced sales volumes, we also recorded charges for goodwill impairment (Note 7) as well as for the impairment of certain other long-lived assets (Note 13). However, since restarting our manufacturing operations and reopening stores, we have seen a significant improvement in business conditions which allowed us to return to overall profitability for the third and fourth fiscal quarters of 2020 continuing through fiscal 2021. Tempering these improvements are the continuing logistical challenges faced by the entire home furnishings industry resulting from COVID- related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. Whereas the progress in mass vaccination programs in the U.S. has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, the recent resurgence in COVID-19 cases due to the Delta and Omicron variants, as well as any future variants of the coronavirus entering the U.S., could prompt a return to tighter restrictions in certain areas of the country. Furthermore, pandemic-related labor shortages and supply chain disruptions are ongoing and order cancellations could result if the present delays in order fulfillment continue. Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 pandemic upon our financial condition and future results of operations, as well as upon the significant estimates and assumptions we utilize in reporting certain assets and liabilities. 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 2021 and 2020 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. Sales of logistical services from Zenith to our wholesale and retail segments have been eliminated, and Zenith’s operating costs and expenses are reported as cost of logistical services in our consolidated statements of operations. 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 2021, 2020 and 2019 are to Bassett's fiscal year ended November 27, 2021, November 28, 2020 and November 30, 2019, 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. Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) We analyzed our licensees under the requirements for variable interest entities (“VIEs”). All of these licensees operate as BHF stores and are furniture retailers. We sell furniture to these licensees, and in some cases have extended credit beyond normal terms, made lease guarantees, guaranteed loans, or loaned directly to the licensees. We have recorded reserves for potential exposures related to these licensees. See Note 14 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, and the valuation of our right of use assets. We also utilize estimates in determining the valuation of income tax reserves, lease guarantees, insurance reserves, and assumptions related to our post-employment benefit obligations. Actual results could differ from those estimates. Revenue Recognition ASC Topic 606, Revenue from Contracts with Customers, 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 $51,492 and $39,762 as of November 27, 2021 and November 28, 2020, respectively. Substantially all of the customer deposits held at November 28, 2020 related to performance obligations satisfied during fiscal 2021 and have therefore been recognized in revenue for the year ended November 27, 2021. 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 $1,240 and $783 at November 27, 2021 and November 28, 2020, respectively. 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. 25 26 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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 27, 2021 and November 28, 2020, our balance of prepaid commissions included in other current assets was $6,221 and $4,279, respectively. We do not incur sales commissions in our logistical services segment. For our accounting and reporting under ASC 606, we apply 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. • 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 18 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 credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit 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 27, 2021 and November 28, 2020, our aggregate exposure from receivables and guarantees related to customers consisted of the following: Accounts receivable, net of allowances (Note 4) Contingent obligations under lease and loan guarantees, less amounts $ recognized (Note 14) Other Total credit risk exposure related to customers $ 2021 2020 28,168 $ 22,340 1,794 86 30,048 $ 1,760 376 24,476 At November 27, 2021 and November 28, 2020, approximately 22% and 24%, respectively, of the aggregate risk exposure, net of reserves, shown above was attributable to five customers. In fiscal 2021, 2020 and 2019, no customer accounted for more than 10% of total consolidated net sales. However, two customers accounted for approximately 23%, 29% and 44% of our consolidated revenue from logistical services during 2021, 2020 and 2019, 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 $488, $789, and $1,846 in fiscal 2021, 2020, and 2019, 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) accounted for under the first-in, first out (“FIFO”) method are stated at the lower of cost or net realizable value or, in the case of inventory accounted for under the last-in, first out (“LIFO”) method, at the lower of cost or market. Cost is determined for domestic manufactured furniture inventories using the LIFO method because we believe this methodology provides better matching of revenue and expenses. The cost of imported inventories as well as Lane Venture and Bassett Outdoor product inventories are determined on a first- in, first-out (“FIFO”) basis. Inventories accounted for under the LIFO method represented 53% and 53% of total inventory before reserves at November 27, 2021 and November 28, 2020, respectively. We estimate inventory reserves for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. Property and Equipment Property and equipment is comprised of all land, buildings and leasehold improvements and machinery and equipment used in the manufacturing and warehousing of furniture, our Company-owned retail operations, our logistical services operations, and corporate administration. This property and equipment is stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets utilizing the straight-line method. Buildings and improvements are generally depreciated over a period of 10 to 39 years. Machinery and equipment are generally depreciated over a period of 5 to 10 years. Leasehold improvements are amortized based on the underlying lease term, or the asset’s estimated useful life, whichever is shorter. 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 for the annual test during fiscal 2019, 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. As a result of this test, we recorded an impairment charge of $1,926 during the year ended November 30, 2019. In addition, we performed an interim test of goodwill as of May 30, 2020 due to the severe impact of the COVID-19 pandemic and resulting business interruption during the second fiscal quarter of 2020. This interim test resulted in an impairment charge of $1,971 for the year ended November 28, 2020. For the annual tests of goodwill performed as of the beginning of the fourth fiscal quarters of 2021 and 2020, we performed the qualitative assessment as described above and concluded that there was no additional impairment of our goodwill as of November 27, 2021 or November 28, 2020. 27 28 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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 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 7 for additional information regarding the results of our annual goodwill impairment test performed as of September 1, 2019 and our interim test performed as of May 30, 2020. Leases Effective as of the beginning of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. The guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use (“ROU”) asset and a lease liability. 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 used in our retail segment. We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Our real estate lease terms range from one to 15 years and generally have renewal options of between five and 15 years. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet this criteria are included in the lease term at lease commencement. Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by applying a spread above the U.S. Treasury borrowing rates. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. Some of our leases contain variable rent payments based on a Consumer Price Index or percentage of sales. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability. We adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings. We elected the package of transition expedients available for expired or existing contracts, which allowed the carry-forward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, we have elected the practical expedient to not separate lease and non-lease components when determining the ROU asset and lease liability and have elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We have also elected the hindsight practical expedient to determine the lease term for existing leases. In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term. We have made an accounting policy election to not recognize ROU assets and lease liabilities on the balance sheet for those leases with initial terms of one year or less and instead such lease obligations will be expensed on a straight-line basis over the lease term. Adoption of the standard resulted in the recording of additional net lease-related assets and lease-related liabilities of $146,585 and $151,672, respectively, as of December 1, 2019. The difference between the additional lease assets and lease liabilities, net of the $1,302 deferred tax impact, was $3,785 and was recorded as an adjustment to retained earnings. This adjustment to retained earnings primarily represents the impairment of right-of-use assets associated with certain underperforming retail locations. Our estimates of the fair value of the impaired ROU assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure (see Note 3). Our adoption of this standard did not have a material impact on our consolidated statements of operations, comprehensive income or cash flows. Prior to fiscal 2020, our leases have been accounted for and reported in accordance with ASC Topic 840, Leases. Total lease payments over the non-cancellable term of a lease were recognized as rent expense on a straight-line basis over the lease term, with the excess of expense recognized over lease payments made carried as a deferred rent liability on the balance sheet. Any lease incentive payments received from lessors were recorded as a liability on the balance sheet and amortized as a reduction of rent expense over the term of the lease. See Note 14 for additional information regarding our leases. 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. ROU assets under operating leases are written down to their estimated fair value. Our estimates of the fair value of the impaired ROU assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure (see Note 3). 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 12. 29 30 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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 or carryback periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified. See Note 12. New Store Pre-Opening Costs Income from operations for fiscal 2021, 2020 and 2019 includes new store pre-opening costs of $0, $0 and $1,117, 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 $17,829, $14,779, and $18,402 for fiscal 2021, 2020 and 2019, 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 $22,494, $19,024, and $23,710 for fiscal 2021, 2020 and 2019, 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 $15,272, $12,671, and $20,674 in fiscal 2021, 2020, and 2019, 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 Refer to the supplemental lease disclosures in Note 14 for cash flow impacts of leasing transactions during fiscal 2020. Otherwise, there were no material non-cash investing or financing activities during fiscal 2021 or 2020. 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. Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Recent Accounting Pronouncements Recently Adopted Pronouncements Effective as of the beginning of fiscal 2021, we have adopted Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The guidance in ASU 2016-13 replaces the incurred loss impairment methodology under previous GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. We assessed the guidance under ASU 2016-13 as applied to our trade receivables and contract assets, and determined that there was no material impact to our financial condition or results of operations as a result of the adoption. Effective as of the beginning of fiscal 2021, we have adopted 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 (“ASU 2018-15”). ASU 2018-15 was issued 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. We adopted ASU 2018-15 on a prospective basis and the adoption did not have a material impact upon our financial condition or results of operations. Recent Pronouncements Not Yet Adopted 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. The cost of logistical services, previously included in our statements of operations within selling, general and administrative expenses excluding new store pre-opening costs, is now presented separately. 3. 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, 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 $17,715 at both November 27, 2021 and November 28, 2020 consisted of certificates of deposit (CDs) with original terms of six to twelve months, bearing interest at rates ranging from 0.01% to 0.85%. At November 27, 2021, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 0.04%. 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 31 32 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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 27, 2021 and November 28, 2020 approximates their fair value. 5. Inventories Inventories consist of the following: 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. 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 14) which utilize Level 3 inputs. 4. Accounts Receivable Accounts receivable consists of the following: Gross accounts receivable Allowance for credit losses Net accounts receivable Activity in the allowance for credit losses was as follows: November 27, 2021 November 28, 2020 $ $ 28,964 $ (796) 28,168 $ 23,551 (1,211) 22,340 2021 2020 Balance, beginning of the year Additions (recoveries) charged to expense Reductions to allowance, net Balance, end of the year $ $ 1,211 $ (156) (259) 796 $ 815 492 (96) 1,211 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. Wholesale finished goods Work in process Raw materials and supplies Retail merchandise Total inventories on first-in, first-out method LIFO adjustment Reserve for excess and obsolete inventory November 27, 2021 November 28, 2020 $ $ 40,254 $ 482 21,653 30,914 93,303 (10,483) (4,816) 78,004 $ 25,001 516 14,836 27,946 68,299 (8,891) (4,522) 54,886 We source a significant amount of our wholesale product from other countries. During 2021, 2020 and 2019, purchases from our two largest vendors located in Vietnam and China were $34,658, $15,378 and $15,221 respectively. We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write- offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses. Activity in the reserves for excess quantities and obsolete inventory by segment are as follows: Wholesale Segment Retail Segment Total Balance at November 30, 2019 Additions charged to expense Write-offs Balance at November 28, 2020 Additions charged to expense Write-offs Balance at November 27, 2021 $ $ 2,054 $ 3,745 (2,378) 3,421 2,057 (1,795) 3,683 $ 308 $ 1,177 (384) 1,101 912 (880) 1,133 $ 2,362 4,922 (2,762) 4,522 2,969 (2,675) 4,816 33 34 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 6. 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 27, 2021 November 28, 2020 $ $ 9,478 $ 117,297 130,534 257,309 (163,243) 94,066 $ 9,478 114,961 118,112 242,551 (151,634) 90,917 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 27, 2021 November 28, 2020 $ $ 30,020 $ 39,148 24,898 94,066 $ 26,999 44,820 19,098 90,917 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: 2021 2020 2019 $ 1,797 $ 1,552 $ 1,402 Wholesale segment Retail segment Logistical services segment Total included in selling, general and adminstrative expenses Total depreciation expense included in income from 1,532 6,580 4,308 12,420 1,516 6,578 3,454 11,548 1,672 7,479 3,697 12,848 operations $ 14,217 $ 13,100 $ 14,250 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 7. Goodwill and Other Intangible Assets Goodwill and other intangible assets consisted of the following: November 27, 2021 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Intangibles subject to amortization: Customer relationships Technology - customized applications Total intangible assets subject to amortization $ $ 3,550 $ 834 4,384 $ (1,606) $ (814) (2,420) Intangibles not subject to amortization: Trade names Goodwill 1,944 20 1,964 9,338 12,146 Total goodwill and other intangible assets $ 23,448 November 28, 2020 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Intangibles subject to amortization: Customer relationships Technology - customized applications Total intangible assets subject to amortization $ $ 3,550 $ 834 4,384 $ (1,346) $ (695) (2,041) Intangibles not subject to amortization: Trade names Goodwill 2,204 139 2,343 9,338 12,146 Total goodwill and other intangible assets $ 23,827 Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our remaining goodwill as of May 30, 2020, the end of our second fiscal quarter. As a result of this test, we concluded that the carrying value of our wood 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 $1,971 for year ended November 28, 2020. Our subsequent annual goodwill impairment tests, conducted as of the beginning of our fourth fiscal quarters of 2020 and 2021, resulted in no additional impairments. 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 3). 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 35 36 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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. Changes in the carrying amounts of goodwill by reportable segment were as follows: Wholesale Retail Logistics Total Balance as of November 30, 2019 $ Goodwill impairment Balance as of November 28, 2020 No changes in fiscal 2021 9,188 $ (1,971 ) 7,217 - - $ - - - 4,929 $ - 14,117 (1,971) 4,929 - 12,146 - Balance as of November 27, 2021 $ 7,217 $ - $ 4,929 $ 12,146 Accumulated impairment losses were $3,897, $3,897 and $1,926 at November 27, 2021, November 28, 2020 and November 30, 2019, respectively. The weighted average useful lives of our finite-lived intangible assets and remaining amortization periods as of November 27, 2021 are as follows: Remaining Amortization Period in Years Useful Life in Years Customer relationships Technology - customized applications 14 7 8 0 Amortization expense associated with intangible assets during fiscal 2021, 2020 and 2019 was $379, $379 and $379, 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, $57 and $57 in fiscal 2021, 2020 and 2019, respectively, associated with our wholesale segment. Estimated future amortization expense for intangible assets that exist at November 27, 2021 is as follows: Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Fiscal 2026 Thereafter Total $ 279 259 259 259 259 649 $ 1,964 8. Bank Credit Facility Bank Credit Facility Our bank credit facility provides for a line of credit of up to $25,000. At November 27, 2021, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we have outstanding standby letters of credit with another bank totaling $325. The line bears interest at the rate of LIBOR plus 1.9%, with a fee of 0.25% charged for the unused portion of the line and is secured by a general lien on our accounts receivable and inventory. We were in compliance with all covenants under the agreement as of November 27, 2021. The credit facility matures on January 31, 2022. On January 27, 2022, we entered into a new credit facility with our bank which also provides for a credit line of up to $25,000. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the new facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis: Consolidated fixed charge coverage ratio of not less than 1.4 times, Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and ● ● ● Minimum tangible net worth ratio of $140,000, which will change to $120,000 if we do not complete the sale of Zenith (see Note 20, Subsequent Event, regarding our entry into an agreement to sell substantially all of the assets of Zenith). We were in compliance with these covenants at November 27, 2021 and expect to remain in compliance for the foreseeable future. The new credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due. Total interest paid, including the interest component of financing lease payments, during fiscal 2021, 2020 and 2019 was $322, $49 and $7, respectively. 9. 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 deferred compensation under the Plan was $338, $264 and $196 for fiscal 2021, 2020 and 2019, respectively. Our liability for Company contributions and participant deferrals at November 27, 2021 and November 28, 2020 was $1,789 and $1,250, respectively, and is included in post-employment benefit obligations in our consolidated balance sheets. 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 2021, 2020 and 2019, we invested $647, $609 and $627 in life insurance policies covering all participants in the Plan. At November 27, 2021, these policies have a 37 38 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) net death benefit of $14,998 for which the Company is the sole beneficiary. These policies are intended to provide a potential 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 $2,054 at November 27, 2021 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: 2021 2020 2019 Components of Net Periodic Pension Cost: Service cost Interest cost Amortization of prior service cost Amortization of other loss $ 121 $ 196 126 59 172 $ 268 126 8 Net periodic pension cost $ 502 $ 574 $ Assumptions used to determine net periodic pension cost: Discount rate Increase in future compensation levels Estimated Future Benefit Payments (with mortality): Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Fiscal 2026 Fiscal 2027 through 2031 2.00% 3.00% 2.75% 3.00% $ 190 441 126 183 940 4.00% 3.00% 913 870 825 857 809 3,692 ` Change in Benefit Obligation: Projected benefit obligation at beginning of year Service cost Interest cost Actuarial (gains) and losses Benefits paid Projected benefit obligation at end of year Accumulated Benefit Obligation Discount rate used to value the ending benefit obligations: Amounts recognized in the consolidated balance sheet: Current liabilities Noncurrent liabilities Total amounts recognized Amounts recognized in accumulated other comprehensive income: Prior service cost Actuarial loss Net amount recognized Total recognized in net periodic benefit cost and accumulated other comprehensive income: $ $ $ $ $ $ $ $ 2021 2020 10,071 $ 120 196 762 (409) 10,740 $ 10,090 172 268 345 (804) 10,071 10,740 $ 10,034 Of the $2,448 recognized in accumulated other comprehensive income at November 27, 2021, amounts expected to be recognized as components of net periodic pension cost during fiscal 2022 are as follows: Prior service cost Other loss Total expected to be amortized to net periodic pension cost in 2022 $ $ 126 51 177 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. 2.25% 2.00% Deferred Compensation Plan 913 $ 9,827 10,740 $ 355 $ 2,093 2,448 $ 613 9,458 10,071 480 1,394 1,874 1,078 $ 785 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, $176, and $204 in fiscal 2021, 2020, and 2019, respectively, associated with the plan. Our liability under this plan was $1,648 and $1,676 as of November 27, 2021 and November 28, 2020, 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. During fiscal 2020, the Company’s matching contribution was temporarily suspended for approximately six months as part of the cash conservation measures put into place in response to the impact of the COVID-19 pandemic but was resumed during the fourth quarter. Expense for employer matching contributions was $1,103, $611 and $1,157 during fiscal 2021, 2020 and 2019, respectively. 39 40 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 10. Accumulated Other Comprehensive Loss The activity in accumulated other comprehensive loss for the fiscal years ended November 27, 2021 and November 28, 2020, which is comprised solely of post-retirement benefit costs related to our SERP and LTC Awards, is as follows: Balance at November 30, 2019 Actuarial losses Net pension amortization reclassified from accumulated other comprehensive loss Tax effects Balance at November 28, 2020 Actuarial losses Net pension amortization reclassified from accumulated other comprehensive loss Tax effects Balance at November 27, 2021 $ $ (1,236) (345) 133 54 (1,394) (762) 186 147 (1,823) 11. 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 2021, 2020 and 2019 was as follows: Stock based compensation expense $ 158 $ 420 $ 958 2021 2020 2019 Incentive Stock Compensation Plans 2021 Plan On March 10, 2021, our shareholders approved the Bassett Furniture Industries, Incorporated 2021 Stock Incentive Plan (the “2021 Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are eligible to receive incentive awards under the 2021 Plan. Our Organization, Compensation and Nominating Committee (the “OCN Committee”) selects eligible key employees and outside consultants to receive awards under the 2021 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 2021 Plan in its discretion. Five hundred thousand (500,000) shares of common stock are reserved for issuance under the 2021 Plan. Participants may receive the following types of incentive awards under the 2021 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. The full terms of the 2021 Plan have been filed as an exhibit to our Schedule 14A filed with the United States Securities and Exchange Commission on February 8, 2021. 2010 Plan 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 non-employee directors, key employees and outside consultants for the Company were eligible to receive incentive awards under the 2010 Plan. The 2010 Plan expired in April of 2020 and no additional grants can be awarded under the plan. The fair value of each option award was 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 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) using the simplified method. Forfeitures are recognized as they occur. We utilized the simplified method to determine the expected life of our options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. Stock Options There were no new grants of options made in 2021, 2020 or 2019. Changes in the outstanding options under our plans during the year ended November 27, 2021 were as follows: Outstanding at November 28, 2020 Granted Exercised Forfeited/Expired Outstanding at November 27, 2021 Exercisable at November 27, 2021 Weighted Average Exercise Price Per Share Number of Shares 5,250 $ - (5,250) - - - 8.02 - 8.02 - - - Additional information regarding activity in our stock options during fiscal 2021, 2020 and 2019 is as follows: 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 Restricted Shares 2021 2020 2019 93 $ 42 18 - $ - - 34 25 6 Changes in the outstanding non-vested restricted shares during the year ended November 27, 2021 were as follows: Number of Shares Weighted Average Grant Date Fair Value Per Share Non-vested restricted shares outstanding at November 28, 2020 Granted Vested Forfeited Non-vested restricted shares outstanding at November 27, 2021 34,500 $ 7,105 (31,000 ) - 10,605 $ 33.58 24.63 35.75 - 21.24 During fiscal 2021, 31,000 restricted shares were vested and released, all of which had been granted to employees. During fiscal 2021 and 2020, 10,850 shares and 14,010 shares, respectively, were withheld to cover withholding taxes of $219 and $228, respectively, arising from the vesting of restricted shares. During fiscal 2021, 2020 and 2019, excess tax (expense) benefits of $(133), $(114) and $0, respectively, were recognized within income tax expense upon the release of vested shares. 41 42 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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 27, 2021 is as follows: Grant Date Restricted Shares Outstanding Share Value at Grant Date Per Share Remaining Restriction Period (Years) October 9, 2019 March 10, 2021 3,500 $ 7,105 10,605 14.37 24.63 0.9 0.3 Unrecognized compensation cost related to these non-vested restricted shares at November 27, 2021 is $58, all of which is expected to be recognized within fiscal 2022. 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 22,547, 50,217 and 23,460 shares to employees during fiscal 2021, 2020 and 2019, respectively, which resulted in an immaterial amount of compensation expense. There are 132,534 shares remaining available for sale under the 2017 ESPP at November 27, 2021. 12. Income Taxes The components of the income tax provision are as follows: Current: Federal State Deferred: Federal State Total 2021 2020 2019 4,437 $ 178 (8,486) $ 155 2,150 892 435 1,148 6,198 $ 2,457 (491) (6,365) $ (2,191) (663) 188 $ $ On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. A major provision of the CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years. As a result, for the year ended November 28, 2020 we were able to recognize tax benefits substantially in excess of the current federal statutory rate of 21% due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35%. 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 CARES Act benefit State income tax, net of federal benefit Impairment of non-deductible goodwill Excess tax from stock-based compensation Other Effective income tax rate 2021 2020 2019 21.0% - 4.2 - 0.4 - 25.6% 21.0 % 21.1 1.7 (2.5 ) (0.6 ) (2.8 ) 37.9 % 21.0% - (14.0) (23.2) 0.3 5.1 (10.8)% Excess tax (expense) benefits in the amount of $(115), $(114), and $22 were recognized as a component of income tax expense during fiscal 2021, 2020 and 2019, respectively, resulting from the exercise of stock options and the release of restricted shares. The fiscal 2020 and 2019 adjustments for impairment of non-deductible goodwill reflect 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 Leases 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 27, 2021 November 28, 2020 $ 199 $ 3,121 44 3,562 153 5,055 1,180 13,314 - 13,314 7,013 1,712 1,400 303 3,086 44 3,260 1,321 5,850 1,856 15,720 - 15,720 8,746 1,404 983 Total deferred income tax liabilities 10,125 11,133 Net deferred income tax assets $ 3,189 $ 4,587 We have state net operating loss carryforwards available to offset future taxable state income of $3,010, which expire in varying amounts between 2030 and 2040. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Income taxes paid, net of refunds received, during fiscal 2021, 2020 and 2019 were $3,092, $539, and $1,228, 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 27, 2021 and November 28, 2020 were $324 and $68, respectfully. Our liabilities for uncertain tax positions prior to 2021 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 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 2018 through 2021 for all of our major tax jurisdictions. 43 44 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 13. Other Gains and Losses Gains on Dispositions of Retail Store Locations Selling, general and administrative expenses for the year ended November 28, 2020 include gains totaling $1,313 resulting from the settlement of lease obligations due to the early termination of leases at our retail store locations in Torrance, California and Culver City, California. Early Retirement Program During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company. These employees received 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. All compensation accrued under the package had been paid out prior to November 28, 2020. Asset Impairment Charges and Lease Exit Costs During fiscal 2020 we recorded $11,114 of non-cash impairment charges on the assets of five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets associated with the leased locations. We also incurred $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closing of our custom upholstery manufacturing facility in Grand Prairie, Texas, in May. 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. Litigation Expense During fiscal 2020 and 2019 we accrued $1,050 and $700, respectively for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company (see Note 15). Gains from Company-Owned Life Insurance Other loss, net for the fiscal 2020 and 2019 includes gains of $914 and $629, respectively, arising from death benefits from Company-owned life insurance. 14. Leases and Lease Guarantees Leases Fiscal 2021 and 2020 Effective as of the beginning of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. See “Leases” under Note 2 for a discussion of our accounting policies and elections under Topic 842 as well as the impact of the adoption upon our financial statements. Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Supplemental balance sheet information related to our leases as of November 27, 2021 and November 28, 2020 is as follows: Operating leases: Right of use assets Lease liabilties, short-term Lease liabilties, long-term Finance leases: Right of use assets (1) Lease liabilties, short-term (2) Lease liabilties, long-term (3) November 27, 2021 November 28, 2020 $ $ 114,148 $ 27,693 105,841 116,903 27,078 111,972 7,538 $ 1,759 5,801 2,623 534 1,862 (1) Included in property & equipment, net in our consolidated balance sheet. (2) Included in other current liabilites and accrued expenses in our consolidated balance sheet. (3) Included in other long-term liabilites and accrued expenses in our consolidated balance sheet. Our right-of-use assets under operating leases by segment as of November 27, 2021 and November 28, 2020 are as follows: Wholesale Retail Logistical services Total right of use assets November 27, 2021 November 28, 2020 $ $ 9,842 $ 86,114 18,192 114,148 $ 10,232 90,487 16,184 116,903 The components of our lease cost for the years ended November 27, 2021 and November 28, 2020 are as follows: Lease cost: Operating lease cost Financing lease cost: 2021 2020 $ 32,168 $ 33,207 Amortization of right-of-use assets Interest on lease liabilities Short-term lease cost Variable lease cost (net of abatements received) Sublease income 1,434 304 1,986 321 (1,670) 213 49 2,040 (605) (1,557) Total lease cost $ 34,543 $ 33,347 45 46 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) Supplemental lease disclosures as of November 27, 2021 and November 28, 2020 and for the fiscal years then ended are as follows: Operating Financing For the year ended November 28, 2020: Cash paid for amounts included in the measurements of lease liabilities Lease liabilities arising from new right-of-use assets $ 35,310 $ 10,804 For the year ended November 27, 2021: Cash paid for amounts included in the measurements of lease liabilities Lease liabilities arising from new right-of-use assets As of November 28, 2020: Weighted average remaining lease terms (years) Weighted average discount rates As of November 27, 2021: Weighted average remaining lease terms (years) Weighted average discount rates 35,432 24,518 6.2 4.98% 6.0 5.04% 260 2,623 1,668 6,511 4.3 4.43% 4.8 4.72% Future payments under our leases and the present value of the obligations as of November 27, 2021 are as follows: Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Fiscal 2026 Thereafter $ Total lease payments Less: interest Total lease obligations $ Operating Leases Financing Leases 33,493 $ 30,579 23,219 19,106 15,482 33,947 155,826 22,292 133,534 $ 2,076 1,949 1,669 1,171 818 766 8,449 889 7,560 As of November 27, 2021, we had a commitment to acquire twenty-three trucks under leases for use in our logistical services segment that are expected to commence at various times during fiscal 2022 and replace older units that will be coming off lease. Five of these leases are expected to have annual payments totaling approximately $267 per year over three years, and eighteen are expected to have annual payments totaling approximately $167 per year over five years. We also have a commitment to lease showroom space for use by our wholesale segment with payments averaging approximately $229 per year over eight years. This lease is expected to commence in the fourth quarter of fiscal 2022. We sublease a small number of our leased locations to certain of our licensees for operation as BHF network stores. The terms of these leases generally match those of the lease we have with the lessor. Minimum future lease payments due to us under these subleases are as follows: Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Fiscal 2026 Thereafter $ Total minimum future rental income $ 1,979 1,662 1,027 599 156 - 5,423 We negotiated with a number of our landlords to obtain relief in the form of rent deferrals or abatements of rent as a result of the effects of COVID-19 on our business. At November 28, 2020, the unpaid rent was $990 which primarily represented rent deferred to fiscal 2021 and is included in other current liabilities and accrued expenses in our accompanying condensed consolidated balance sheet. The remaining balance of deferred rent at November 27, 2021 was not material. In accordance with FASB Staff Q&A - Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID- 19 Pandemic ("FASB Staff Q&A") issued in April 2020, we have elected to account for any lease concessions resulting directly from COVID-19 as if the enforceable rights and obligations for the concessions existed in the respective contracts at lease inception and as such we will not account for any concession as a lease modification. Guidance from the FASB Staff Q&A provided methods to account for rent deferrals which include the option to treat the lease as if no changes to the lease contract were made or to treat deferred payments as variable lease payments. The FASB Staff Q&A allows entities to select the most practical approach and does not require the same approach be applied consistently to all leases. As a result, we account for the deferrals as if no changes to the lease contract were made and will continue to recognize lease expense, on a straight-line basis, during the deferral period. For any abatements received, we account for those as variable rent in the period in which the abatement is granted. For the year ended November 28, 2020, we were granted abatements against rent totaling $775. Fiscal 2019 Prior to the adoption of Topic 842, we accounted for and reported our leases in accordance with Topic 840, Leases. In accordance with Topic 840 leases classified as operating leases were not included in our balance sheet as right of use assets or lease obligations as of November 30, 2019. During fiscal 2019 we had no leases which were classified as capital leases. Lease expense was $41,809 for 2019. 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 in 2019 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 $1,845 and $1,811 at November 27, 2021 and November 28, 2020, 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 27, 2021 and November 28, 2020, were not material. 15. 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. We carried reserves for pending litigation claims in the amount of $100 and $1,050 as of November 27, 2021 and November 28, 2020, respectively, which are included in other current liabilities and accrued expenses in our accompanying balance sheets. 47 48 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 16. Earnings (Loss) Per Share The following table sets forth the computation of basic and diluted earnings (loss) per share: Numerator: Net income (loss) Denominator: 2021 2020 2019 $ 18,042 $ (10,421) $ (1,928) Denominator for basic income per share - weighted average shares Effect of dilutive securities* Denominator for diluted income per share — weighted 9,835,829 7,945 9,969,616 - 10,285,511 - average shares and assumed conversions 9,843,774 9,969,616 10,285,511 Basic income (loss) per share: Net income (loss) per share — basic Diluted income (loss) per share: Net income (loss) per share — diluted $ $ 1.83 $ (1.05) $ (0.19) 1.83 $ (1.05) $ (0.19) * Due to the net losses in 2020 and 2019, the potentially dilutive securities would have been anti-dilutive and are therefore excluded. For fiscal 2021, 2020 and 2019, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive: Unvested restricted shares Stock options 2021 2020 2019 - - 90,153 5,250 45,036 - 17. 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 in 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 statement of operations. See Note 20, Subsequent Event, regarding our entry into an agreement to sell substantially all of the assets of Zenith. Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 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: 2021 2020 2019 Sales Revenue Wholesale sales of furniture and accessories Less: Sales to retail segment Wholesale sales to external customers Retail sales of furniture and accessories Consolidated net sales of furniture and accessories Logistical services revenue Less: Services to wholesale segment Logistical services to external customers Total sales revenue 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 $ $ $ $ $ $ $ $ $ $ 295,329 $ (112,270) 183,059 247,827 430,886 86,977 (31,329) 55,648 486,534 $ 17,490 $ 7,044 1,743 (278) - - - - - 25,999 $ 3,386 $ 6,580 4,631 14,597 $ 5,943 $ 299 4,508 10,750 $ 221,075 $ (95,347) 125,728 211,944 337,672 75,158 (26,967) 48,191 385,863 $ 4,587 $ (9,497) 1,245 2,647 (12,184) (1,971) - (1,050) - (16,223) $ 3,125 $ 6,578 3,777 13,480 $ 2,434 $ 695 2,900 6,029 $ 261,105 (125,933) 135,172 268,693 403,865 80,074 (31,852) 48,222 452,087 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 17,750 197,543 $ 160,929 63,188 421,660 $ 176,243 $ 169,105 57,201 402,549 $ 144,392 91,997 39,377 275,766 See Note 18 for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments. 49 50 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) 18. Revenue Recognition Disaggregated revenue information for sales of furniture and accessories by product category for fiscal years 2021, 2020 and 2019, excluding intercompany transactions between our segments, is as follows: 2021 2020 2019 Wholesale Retail Total Wholesale Retail Total Wholesale Retail Total Bassett Custom Upholstery Bassett Leather Bassett Custom Wood Bassett Casegoods Accessories, $ 105,445 $139,527 $244,972 $ 71,840 $112,888 $184,728 $ 78,856 $142,865 $ 221,721 20,865 56,356 62,048 22,813 48,624 49,447 36,157 24,079 17,378 3,782 35,092 44,827 17,083 21,264 17,221 2,326 28,942 35,728 36,383 55,010 60,036 226 30,931 42,658 20,487 19,682 13,719 mattresses and other (1) (2) Consolidated - 34,485 34,485 - 32,060 32,060 748 42,127 42,875 Furniture and Accessories revenue $ 183,059 $247,827 $430,886 $ 125,728 $211,944 $337,672 $ 135,172 $268,693 $ 403,865 (1) Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans. (2) Beginning with the third quarter of fiscal 2019, our wholesale segment no longer purchases accessory items for resale to third party customers such as licensees or independent furniture dealers. These customers now source their accessory items from the accessory vendors. 19. Quarterly Results of Operations Sales revenue: Furniture and accessories Logistics Total sales revenue Cost of furniture and accessories sold Income from operations Net income Basic earnings per share Diluted earnings per share Sales revenue: Furniture and accessories Logistics Total sales revenue Cost of furniture and accessories sold Income (loss) from operations Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share 2021 First Quarter Second Quarter Third Quarter Fourth Quarter $ 101,655 $ 12,018 113,673 48,252 6,021 4,011 0.40 0.40 109,997 $ 14,062 124,059 52,911 8,379 5,974 0.60 0.60 104,870 $ 14,036 118,906 52,263 4,490 3,016 0.31 0.31 114,364 15,532 129,896 56,373 7,109 5,041 0.52 0.52 2020 First Quarter Second Quarter (1) Third Quarter (2) Fourth Quarter (3) 98,942 $ 13,178 112,120 45,270 2,210 1,210 0.12 0.12 53,000 $ 10,801 63,801 29,452 (31,229) (20,352) (2.04) (2.04) 80,341 $ 11,218 91,559 38,418 2,747 2,178 0.22 0.22 105,389 12,994 118,383 50,427 10,049 6,543 0.65 0.65 $ 51 Notes to Consolidated Financial Statements – Continued (In thousands, except share and per share data) All quarters shown above for fiscal 2021 and 2020 consisted of 13-week fiscal periods. (1) (2) (3) Loss from operations reflects the severe impact of the COVID-19 pandemic on our operations due to the temporary closure of substantially all of our operations during the quarter (see Note 1) and includes a goodwill impairment charge of $1,971 (see Note 7), asset impairment charges of $12,184 and a litigation expense accrual of $1,050 (see Note 13). Net loss includes the benefit of carrying back the loss to tax years with 35% federal statutory rate as provided for in the CARES Act (see Note 12). Net income includes a non-taxable gain of $914 arising from the recognition of a death benefit from Company- owned life insurance (see Note 13). Income from operations includes a gain of $1,161 arising from the settlement of a lease obligation (see Note 13). 20. Subsequent Event On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith Freight Lines, LLC to J.B. Hunt Transport Services, Inc. for approximately $87,000 in cash. We expect the transaction to close by February 28, 2022 subject to customary closing conditions. 52 Bassett Furniture Industries, Incorporated STOCKHOLDER PERFORMANCE GRAPH Schedule II Analysis of Valuation and Qualifying Accounts For the Years Ended November 27, 2021, November 28, 2020 and November 30, 2019 (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 30, 2019: Reserve deducted from assets to which it applies Allowance for doubtful accounts Notes receivable valuation reserves For the Year Ended November 28, 2020: Reserve deducted from assets to which it applies Allowance for doubtful accounts Notes receivable valuation reserves $ $ $ $ For the Year Ended November 27, 2021: Reserve deducted from assets to which it applies 754 $ 61 $ - $ 377 $ - $ (18 ) $ - - $ $ 815 359 815 $ 492 $ (96 ) $ 1,211 359 $ - $ - $ - $ 359 Allowance for doubtful accounts $ 1,211 $ (156 ) $ (259 ) $ Notes receivable valuation reserves $ 359 $ - $ - $ - - $ $ 796 359 (1) Deductions are for the purpose for which the reserve was created. Presented below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company’s Common Stock against the cumulative total return of the Standard & Poor’s 500 Index and the Company’s old and new peer groups. The Company’s peer groups consist of the following: Old American Woodmark, Inc. Culp, Inc. The Dixie Group, Inc. Ethan Allan Interiors, Inc. Flexsteel Industries, Inc. Haverty Furniture Companies, Inc. Hooker Furnishings Corporation Kimball International, Inc. Kirkland’s, Inc. La-Z-Boy Incorporated Nautilus, Inc. New American Woodmark, Inc. Armstrong Flooring Inc. The Dixie Group, Inc. Ethan Allan Interiors, Inc. Flexsteel Industries, Inc. Haverty Furniture Companies, Inc. Hooker Furnishings Corporation Kimball International, Inc. Kirkland’s, Inc. La-Z-Boy Incorporated The Lovesac Company Nautilus, Inc. Purple Innovation, LLC This graph assumes that $100 was invested on November 28, 2015 in the Company’s Common Stock, the S&P Index and the peer group and that any dividends paid were invested. Tile Shop Holdings, Inc. is no longer included in our peer group as its common stock is no longer publicly traded. 53 54 Management’s Report of Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm 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. 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 27, 2021 and November 28, 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended November 27, 2021, 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 27, 2021 and November 28, 2020, and the results of its operations and its cash flows for each of the three years in the period ended November 27, 2021, 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 27, 2021, 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 31, 2022 expressed an unqualified opinion thereon. Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level. Basis for Opinion 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 27, 2021 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 27, 2021, 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. Changes in internal control over financial reporting There have been no changes in our internal controls over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 55 56 Measurement of Reserves for Excess and Obsolete Inventories Report of Independent Registered Public Accounting Firm Description of the Matter At November 27, 2021, the Company’s inventories were $78.0 million. As discussed in Note 2 and Note 6 to the consolidated financial statements, cost for domestic manufactured furniture inventories is determined using the last-in, first-out (“LIFO”) method and are stated at the lower of cost or market. The cost of imported inventories and domestic outdoor furniture products is determined using the first-in, first- out (“FIFO”) method and stated at the lower of cost or net realizable value. Reserves for excess and obsolete inventories are determined based upon historical write-offs, forecasted future demand, market conditions and, for domestic manufactured furniture, the respective valuations at LIFO. Auditing management’s lower of cost or net realizable value or market determination for excess or obsolete inventories was complex due to the highly judgmental nature and estimation uncertainty in determining future demand and market conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s determination of the reserves for excess and obsolete inventories. For example, we tested controls over management’s review of the calculation of reserves for excess and obsolete inventories which included their review of the significant assumptions described above. Our audit procedures to test the reserves for excess and obsolete inventories included, among others, testing the completeness and accuracy of the underlying data used in management’s analyses. We evaluated the reasonableness of management’s assumptions by performing a retrospective review of the prior year assumptions to actual activity, including write-off history. We held discussions with senior financial and operational management to determine whether any strategic or operational changes in the business would impact expected demand for or related carrying value of inventory. We also performed sensitivity analyses of significant assumptions to evaluate the impact that changes would have on the inventory reserves. We searched for and evaluated information that corroborated or contradicted the Company’s assumptions. We have served as the Company’s auditor since 2002. Richmond, Virginia January 31, 2022 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 27, 2021, 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 27, 2021, 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 27, 2021 and November 28, 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended November 27, 2021, and the related notes and schedule and our report dated January 31, 2022 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. 57 58 Richmond, Virginia January 31, 2022 INVESTOR INFORMATION INVESTOR INFORMATION Internet Site Internet Site Corporate Information and Investor Inquiries Corporate Information and Investor Inquiries Our site on the Internet has been updated recently and is Our site on the Internet has been updated recently and is Our annual report and proxy statement together Our annual report and proxy statement together ﬁlled with information about Bassett Furniture, including ﬁlled with information about Bassett Furniture, including contain much of the information presented in the contain much of the information presented in the this annual report, detailed ﬁnancial information and this annual report, detailed ﬁnancial information and Form 10-K report ﬁled with the Securities and Exchange Form 10-K report ﬁled with the Securities and Exchange updates, information about our home furnishings updates, information about our home furnishings Commission. Individuals who wish to receive the Commission. Individuals who wish to receive the products, and a dealer locator of Bassett stores and other products, and a dealer locator of Bassett stores and other Form 10-K or other corporate literature should visit our Form 10-K or other corporate literature should visit our stores that feature Bassett products. Visit us at stores that feature Bassett products. Visit us at website at bassettfurniture.com or contact Investor Relations, website at bassettfurniture.com or contact Investor Relations, bassettfurniture.com. bassettfurniture.com. at 276.629.6000. at 276.629.6000. Forward Looking Statements Forward Looking Statements Transfer Agent - Stockholder Inquiries Transfer Agent - Stockholder Inquiries This Annual Report contains forward-looking statements This Annual Report contains forward-looking statements Stockholders with inquiries relating to stockholder Stockholders with inquiries relating to stockholder as deﬁned in the Private Securities Litigation and Reform as deﬁned in the Private Securities Litigation and Reform records, stock transfers, change of ownership, change of records, stock transfers, change of ownership, change of Act of 1995 and within the meaning of Sections 27A of Act of 1995 and within the meaning of Sections 27A of address or dividend payments should write to: address or dividend payments should write to: the Securities Exchange Act of 1933, as amended, and the Securities Exchange Act of 1933, as amended, and American Stock Transfer & Trust Company, LLC American Stock Transfer & Trust Company, LLC Section 21E of the Securities Exchange Act of 1934, as Section 21E of the Securities Exchange Act of 1934, as Operations Center https://www.google.com/ Operations Center https://www.google.com/ amended. When used in this Annual Report the words amended. When used in this Annual Report the words 6201 15th Avenue 6201 15th Avenue “hope,” “believe,” “expect,” “plan” or “planned,” “intend,” “hope,” “believe,” “expect,” “plan” or “planned,” “intend,” Brooklyn, NY 11219 Brooklyn, NY 11219 “anticipate,” “potential” and similar expressions are “anticipate,” “potential” and similar expressions are Toll free: (800) 937-5449 Toll free: (800) 937-5449 intended to identify forward-looking statements. Readers intended to identify forward-looking statements. Readers Local & International: (718) 921-8124 Local & International: (718) 921-8124 are cautioned against placing undue reliance on these are cautioned against placing undue reliance on these Email: info@astﬁnancial.com Email: info@astﬁnancial.com statements. Such statements, including but not limited to statements. Such statements, including but not limited to Web site: www.astﬁnancial.com Web site: www.astﬁnancial.com those regarding increases in sales, improving gross those regarding increases in sales, improving gross margins, growth in earnings per share, and the operating margins, growth in earnings per share, and the operating Annual Meeting Annual Meeting performance of licensed Bassett stores are based upon performance of licensed Bassett stores are based upon The Bassett Annual Meeting of Shareholders will be held The Bassett Annual Meeting of Shareholders will be held management’s beliefs, as well as assumptions made by and management’s beliefs, as well as assumptions made by and Wednesday, March 9, 2022 at 10 a.m. EST at the Company’s Wednesday, March 9, 2022 at 10 a.m. EST at the Company’s information currently available to management, and involve information currently available to management, and involve headquarters in Bassett, Virginia. headquarters in Bassett, Virginia. various risks and uncertainties, certain of which are beyond various risks and uncertainties, certain of which are beyond the Company’s control. The Company’s actual results could the Company’s control. The Company’s actual results could Market and Dividend Information Market and Dividend Information differ materially from those expressed in any forward- differ materially from those expressed in any forward- Bassett’s common stock trades on the NASDAQ national Bassett’s common stock trades on the NASDAQ national looking statement made by or on behalf of the Company. looking statement made by or on behalf of the Company. market system under the symbol “BSET.” We had 4,950 market system under the symbol “BSET.” We had 4,950 If the Company does not attain its goals, its business and If the Company does not attain its goals, its business and share amounts for the high and low market prices and dividends share amounts for the high and low market prices and dividends results of operations might be adversely affected. For results of operations might be adversely affected. For declared for the last two ﬁscal years are listed below: declared for the last two ﬁscal years are listed below: beneﬁcial stockholders as of January 20, 2022. The range of per beneﬁcial stockholders as of January 20, 2022. The range of per a discussion of factors that may impair the Company’s a discussion of factors that may impair the Company’s ability to achieve its goals, please see the cautionary ability to achieve its goals, please see the cautionary statements in the Management’s Discussion and Analysis statements in the Management’s Discussion and Analysis section of this Annual Report. section of this Annual Report. MARKET PRICES OF MARKET PRICES OF COMMON STOCK COMMON STOCK DIVIDENDS DIVIDENDS DECLARED DECLARED Quarter Quarter 2021 2021 2020 2020 2021 2021 2020 2020 HIGH HIGH LOW LOW HIGH HIGH LOW LOW First First $23.64 $23.64 $15.70 $15.70 $17.02 $17.02 $9.71 $9.71 $0.375 $0.375 Second Second 36.00 36.00 21.29 21.29 Third Third Fourth Fourth 31.46 31.46 19.61 19.61 21.63 21.63 16.79 16.79 9.93 9.93 12.72 12.72 17.42 17.42 4.35 4.35 6.13 6.13 12.07 12.07 0.125 0.125 0.14 0.14 0.14 0.14 $0.125 $0.125 $0.125 $0.125 0. 08 0. 08 0.125 0.125 BOARD OF DIRECTORS BOARD OF DIRECTORS ROBERT H. SPILMAN, JR. ROBERT H. SPILMAN, JR. Chairman of the Board and Chief Executive Ofﬁcer Chairman of the Board and Chief Executive Ofﬁcer Bassett Furniture Industries, Inc. Bassett Furniture Industries, Inc. VIRGINIA W. HAMLET VIRGINIA W. HAMLET Founder and Owner Founder and Owner Hamlet Vineyards, LLC Hamlet Vineyards, LLC EMMA S. BATTLE EMMA S. BATTLE Chief Executive Ofﬁcer Chief Executive Ofﬁcer Market Vigor, LLC Market Vigor, LLC JOHN R. BELK JOHN R. BELK Former President and Chief Operating Ofﬁcer Former President and Chief Operating Ofﬁcer Belk, Inc. Belk, Inc. Private Investor Private Investor KRISTINA K. CASHMAN KRISTINA K. CASHMAN Restaurant & Retail Consultant Restaurant & Retail Consultant J. WALTER MCDOWELL J. WALTER MCDOWELL Former Chief Executive Ofﬁcer Former Chief Executive Ofﬁcer Carolinas/Virginia Banking Carolinas/Virginia Banking Wachovia Corporation Wachovia Corporation WILLIAM C. WAMPLER, JR. WILLIAM C. WAMPLER, JR. Managing Member, WTX, LLC Managing Member, WTX, LLC Former Member, Senate of Virginia Former Member, Senate of Virginia WILLIAM C. WARDEN, JR. WILLIAM C. WARDEN, JR. Lead Independent Director of Bassett Furniture Industries, Inc. Lead Independent Director of Bassett Furniture Industries, Inc. Former Executive Vice President Former Executive Vice President Lowe’s Companies, Inc. Lowe’s Companies, Inc. OFFICERS OFFICERS ROBERT H. SPILMAN, JR. ROBERT H. SPILMAN, JR. Chairman of the Board and Chief Executive Ofﬁcer Chairman of the Board and Chief Executive Ofﬁcer BRIAN W. CLASPELL BRIAN W. CLASPELL Vice President, Chief Information Ofﬁcer Vice President, Chief Information Ofﬁcer DAVID C. BAKER DAVID C. BAKER Senior Vice President, Chief Retail Ofﬁcer Senior Vice President, Chief Retail Ofﬁcer ROBERT E. FLYNN ROBERT E. FLYNN Vice President, Club Level Vice President, Club Level JOHN E. BASSETT, III JOHN E. BASSETT, III Senior Vice President, Chief Operations Ofﬁcer Senior Vice President, Chief Operations Ofﬁcer NICHOLAS C. GEE NICHOLAS C. GEE Vice President, Corporate Retail Sales Vice President, Corporate Retail Sales BRUCE R. COHENOUR BRUCE R. COHENOUR Senior Vice President, Chief Sales Ofﬁcer Senior Vice President, Chief Sales Ofﬁcer DRURY E. INGRAM DRURY E. INGRAM Vice President, Corporate Controller Vice President, Corporate Controller J. MICHAEL DANIEL J. MICHAEL DANIEL Senior Vice President, Chief Financial & Administrative Senior Vice President, Chief Financial & Administrative Ofﬁcer Ofﬁcer JACK L. HAWN, JR. JACK L. HAWN, JR. Senior Vice President, Bassett Senior Vice President, Bassett President, Zenith President, Zenith KARA KELCHNER-STRONG KARA KELCHNER-STRONG Senior Vice President, Customer Experience Ofﬁcer Senior Vice President, Customer Experience Ofﬁcer JAY R. HERVEY JAY R. HERVEY Vice President, Secretary, General Counsel Vice President, Secretary, General Counsel EDWIN C. AVERY, JR. EDWIN C. AVERY, JR. Vice President, Upholstery Product Development Vice President, Upholstery Product Development MATTHEW S. JOHNSON MATTHEW S. JOHNSON Vice President, Sales Vice President, Sales MIKE R. KREIDLER MIKE R. KREIDLER Vice President, Upholstery Vice President, Upholstery BETH A. LARSON BETH A. LARSON Vice President, Upholstery Finance & Administration Vice President, Upholstery Finance & Administration PETER D. MORRISON PETER D. MORRISON Vice President, Chief Creative Ofﬁcer Vice President, Chief Creative Ofﬁcer J. CARTER UNDERWOOD J. CARTER UNDERWOOD Vice President, Wood Operations Vice President, Wood Operations EDWARD H. WHITE EDWARD H. WHITE Vice President, Human Resources Vice President, Human Resources A N N U A L R E P O R T 2 0 2 1 N A S D A Q : B S E T 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

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