Edgar Filing: BASSETT FURNITURE INDUSTRIES INC

bset20190112_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 24, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-00209

BASSETT FURNITURE INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)

VIRGINIA

54-0135270

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3525 FAIRYSTONE PARK HIGHWAY

BASSETT, VIRGINIA

24055

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code 276/629-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered
Common Stock ($5.00 par value)		NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for at least the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). ☐ Yes ☒ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of May 25, 2018 was $285,374,778.

The number of shares of the Registrant’s common stock outstanding on January 10, 2019 was 10,499,956.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Bassett Furniture Industries, Incorporated definitive Proxy Statement for its 2019 Annual Meeting of Stockholders to be held March 6, 2019, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS		1

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	10
Item 4.	Mine Safety Disclosures	10
	Executive Officers of the Registrant	10

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A.	Controls and Procedures	63
Item 9B.	Other Information	65

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	65
Item 11.	Executive Compensation	65
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13.	Certain Relationships and Related Transactions, and Director Independence	65
Item 14.	Principal Accountant Fees and Services	65

PART IV
Item 15.	Exhibits	66
Item 16.	Form 10-K Summary	67

SIGNATURES		68

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 2018, 2017, 2016, 2015 and 2014 mean the fiscal years ended November 24, 2018, November 25, 2017, November 26, 2016, November 28, 2015 and November 29, 2014.

Safe-harbor, forward-looking statements

This discussion contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Bassett Furniture Industries, Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as “anticipates”, “believes”, “plans”, “estimates”, “expects”, “aimed” and “intends” or words or phrases of similar expression. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors, which should be read in conjunction with Item 1A “Risk Factors”, that could cause actual results to differ materially from those contemplated by such forward-looking statements include:

	●	competitive conditions in the home furnishings industry

	●	general economic conditions, including the strength of the housing market in the United States

	●	overall retail traffic levels and consumer demand for home furnishings

	●	ability of our customers and consumers to obtain credit

	●	Bassett store openings and store closings and the profitability of the stores (independent licensees and Company-owned retail stores)

	●	ability to implement our Company-owned retail strategies, including our initiatives to expand and improve our digital marketing capabilities, and realize the benefits from such strategies as they are implemented

	●	fluctuations in the cost and availability of raw materials, fuel, labor and sourced products, including those which may result from the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products

	●	results of marketing and advertising campaigns

	●	effectiveness and security of our information technology systems

	●	future tax legislation, or regulatory or judicial positions

	●	ability to efficiently manage the import supply chain to minimize business interruption

	●	concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to business interruption from accidents, weather and other events and circumstances beyond our control

	●	general risks associated with providing freight transportation and other logistical services due to our acquisition of Zenith Freight Lines, LLC

PART I

ITEM 1.

BUSINESS

(dollar amounts in thousands except per share data)

General

Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 116-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 24, 2018 we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.

The BHF stores feature custom order furniture, free in-home design visits (“home makeovers”), and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home design services for our customers.

We have factories in Newton, North Carolina and Grand Prairie, Texas that manufacture custom upholstered furniture, a factory in Martinsville, Virginia that primarily assembles and finishes our custom casual dining offerings and a factory in Bassett, Virginia that assembles and finishes our “Bench Made” line of custom, solid hardwood furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its process, with custom pieces often manufactured within two weeks of taking the order in our stores. Our logistics team then promptly ships the product to one of our home delivery hubs or to a location specified by our licensees. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam and China. However, over 70% of the products we currently sell are manufactured in the United States.

We also own Zenith Freight Lines, LLC (“Zenith”) which provides logistical services to Bassett along with other furniture manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored to the needs of Bassett and the furniture industry. Approximately 65% of Zenith’s revenue is generated from services provided to non-Bassett customers.

On December 21, 2017, we purchased certain assets and assumed certain liabilities of Lane Venture from Heritage Home Group, LLC for $15,556 in cash. Lane Venture is a manufacturer and distributor of premium outdoor furniture, and is now being operated as a component of our wholesale segment. This acquisition marks our entry into the market for outdoor furniture and we believe that Lane Venture will provide a foundation for us to become a significant participant in this category. We distribute this brand outside of our BHF store network with plans to introduce a Bassett-branded line in the BHF stores in 2020. See Note 3 to our consolidated financial statements for additional details regarding this acquisition.

Operating Segments

We have strategically aligned our business into three reportable segments: Wholesale, Retail – Company-owned stores, and Logistical Services.

The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of BHF stores (Company-owned retail stores and licensee-owned stores) and independent furniture retailers. Our retail segment consists of 65 Company-owned and operated BHF stores. The following table shows the number of Company-owned stores by state as of November 24, 2018:

	Number of			Number of
State	Stores		State	Stores
Alabama		1	Missouri		1
Arizona		2	Nevada		1
Arkansas		1	New Jersey		1
California		5	New York		6
Connecticut		3	North Carolina		5
Delaware		1	Ohio		1
Florida		3	Oklahoma		1
Georgia		3	Pennsylvania		2
Kansas		1	South Carolina		1
Kentucky		1	Tennessee		1
Maryland		3	Texas		12
Massachusetts		3	Virginia		5
Mississippi		1	Total		65

Our six locations in the state of New York include a 16,000 square foot clearance center in Middletown, New York which we opened during the third quarter of fiscal 2018. Unlike our other 64 BHF locations, the clearance center offers only clearance merchandise at reduced price points and without design consulting 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.

Wholesale Segment Overview

The wholesale furniture industry is very competitive and there are a large number of manufacturers both within and outside the United States who compete in the market on the basis of product quality, price, style, delivery and service. Additionally, many retailers source imported product directly, thus bypassing domestic furniture manufacturers and wholesale importers. We believe that we can be successful in the current competitive environment because our products represent excellent value combining attractive prices, quality and styling, prompt delivery, and superior service.

Wholesale shipments by category for the last three fiscal years are summarized below:

	2018				2017				2016

Bassett Custom Upholstery	$	141,321	55.2	%	$	136,366	54.7	%	$	127,989	53.3	%
Bassett Leather		21,589	8.4	%		22,528	9.0	%		21,038	8.8	%
Bassett Custom Wood		46,074	18.0	%		43,793	17.6	%		36,517	15.2	%
Bassett Casegoods		42,875	16.8	%		42,874	17.2	%		52,246	21.7	%
Accessories		4,099	1.6	%		3,632	1.5	%		2,556	1.1	%
Total	$	255,958	100.0	%	$	249,193	100.0	%	$	240,346	100.0	%

Approximately 27% of our 2018 wholesale sales were of imported product compared to 27% and 31% in 2017 and 2016, respectively. We define imported product as fully finished product that is sourced. Our domestic product includes certain products that contain components which were also sourced. We continue to believe that a blended strategy including domestically produced products primarily of a custom-order nature combined with sourcing of major collections provides the best value and quality of products to our customers. The decline in imported goods share of our wholesale sales over the last three years has been driven primarily by increasing sales of our domestic custom wood and upholstery product offerings.

The dollar value of our wholesale backlog, representing orders received but not yet shipped to the BHF store network or independent dealers, was $25,810 at November 24, 2018 and $22,239 at November 25, 2017. We expect that the November 24, 2018 backlog will be filled within fiscal 2019, with the majority of the backlog being filled during the first quarter.

We use lumber, fabric, leather, foam and other materials in the production of wood and upholstered furniture. These components are purchased from a variety of domestic and international suppliers and are widely available. The price and availability of foam, which is highly dependent on the cost of oil and available capacity of oil refineries, can be subject to significant volatility from time to time. We currently assemble and finish these components in our four plants in the United States.

Other Investments and Real Estate

Our balance sheet at November 24, 2018 and November 25, 2017 included short-term investments in certificates of deposit and certain retail real estate related to former licensee-owned stores. The impact upon earnings arising from these assets is included in other loss, net, in our consolidated statements of income. Our investment balances at each of the last three fiscal year-ends are as follows:

	November 24,		November 25,		November 26,
	2018		2017		2016

Investments in certificates of deposit	$	22,643	$	23,125	$	23,125
Certain retail real estate		1,655		2,969		3,120

Our short-term investments at November 24, 2018 consist of certificates of deposit (“CDs”) with original terms generally ranging from six to twelve months, bearing interest at rates ranging from 0.85% to 2.70% with a weighted average yield of approximately 2.3%. At November 24, 2018, the weighted average remaining time to maturity of the CDs was approximately six months. Each CD is placed with a federally insured financial institution and all deposits are within Federal deposit insurance limits.

We hold investments in retail store properties that we had previously leased to licensees. These holdings, which also include closed store real estate currently leased to non-licensees, are included in other long-term assets in our consolidated balance sheets. These real estate holdings are typically in urban, high-traffic retail locations. See Item 2, Properties, for additional information about our retail real estate holdings.

Retail Segment Overview – Company-Owned Retail Stores

The retail furniture industry remains very competitive and includes local furniture stores, regional furniture retailers, national department and chain stores and single-vendor branded retailers. As a whole, our store network with 65 Company-owned stores and 32 licensee-owned stores, ranks in the top 30 in retail furniture sales in the United States. We plan to open six additional Company-owned stores in fiscal 2019, after which we expect to significantly reduce the pace of the BHF network expansion and focus on maximizing profitable sales volume through the existing stores.

Net sales for our Company-owned retail stores for the last three fiscal years are summarized below:

	2018		2017		2016

Net sales	$	268,883	$	268,264	$	254,667

Our stores incorporate a stylish, residential feel while highlighting our unmatched custom manufacturing capabilities. We leverage our customization capabilities by dedicating space in the stores to design solutions for dining, upholstery, home entertainment and storage.

Logistical Services Segment Overview

Zenith is a specialized supply chain solutions provider, offering the home furnishings industry the benefit of an asset-based network to move product with greater efficiency, enhanced speed to market, less damage and a single source of shipment visibility. We provide fully integrated solutions with the highest commitment to customer care and service as we seek to go beyond our customers’ transactional expectations to create collaborative partnerships that provide a single source network to:

●

Better manage inventory across multiple locations and provide total audit-ready accountability

●

Reduce line haul and delivery costs

●

Ensure availability of high-volume items in stores

●

Integrate the omnichannel nature of today’s retail supply chain

●

Management and predictability of the total landed cost of goods

Our customer solutions are provided through the following services:

●

Network line haul freight (middle mile)

●

Warehousing, distribution and inventory management

At November 24, 2018, our shipping and delivery fleet consisted of the following:

	Owned		Leased		Total
Tractors		154		88		242
Trailers		239		271		510
Local delivery trucks		20		-		20

We own a central warehousing and national distribution hub located in Conover, North Carolina, and we lease nine facilities in seven states across the continental United States from which we operate regional freight terminals and provide warehouse and distribution services.

Trademarks

Our trademarks, including “Bassett” and the names of some of our marketing divisions, products and collections, are significant to the conduct of our business. This is important due to consumer recognition of the names and identification with our broad range of products. Certain of our trademarks are licensed to independent retailers for use in full store and store gallery presentations of our products. We also own copyrights that are important in the conduct of our business.

Government Regulations

We believe that we have materially complied with all federal, state and local standards regarding safety, health and pollution and environmental controls.

Our logistical services segment is also subject to regulation by several federal governmental agencies, including the Department of Transportation (“DOT”). Specifically the Federal Motor Carrier Safety Administration and the Surface Transportation Board, which are agencies within the DOT. We are also subject to rules and regulations of various state agencies. These regulatory authorities have broad powers, generally governing matters such as authority to engage in motor carrier operations, motor carrier registration, driver hours of service, safety and fitness of transportation equipment and drivers and other matters.

We may also be affected by laws and regulations of countries from which we source goods. Labor, environmental and other laws and regulations change over time, especially in the developing countries from which we source. Changes in these areas of regulation could negatively impact the cost and availability of sourced goods. The timing and extent to which these regulations could have an adverse effect on our financial position or results of operations is difficult to predict. In addition, the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products could negatively impact the cost of such goods. Based on the present facts, we do not believe that they will have a material adverse effect on our financial position or future results of operations.

People

We employed 2,574 people as of November 24, 2018, of which 934 were employed in our retail segment, 1,034 were employed in our wholesale segment and 606 were employed in our logistical services segment, which also utilized another 161 temporary workers provided through staffing agencies. None of our employees are subject to collective bargaining arrangements and we have not experienced any recent work stoppages. We consider our relationship with our employees to be good.

Major Customers

Our risk exposure related to our customers, consisting primarily of trade accounts receivable along with certain guarantees, net of recognized reserves, totaled approximately $21,050 and $22,357 at November 24, 2018 and November 25, 2017, respectively. At November 24, 2018 and November 25, 2017, approximately 33% and 29%, respectively, of the aggregate risk exposure, net of reserves, was attributable to five customers. In fiscal 2018, 2017 and 2016, no customer accounted for more than 10% of total consolidated net sales. However, two customers accounted for approximately 40%, 47% and 46% of our consolidated revenue from logistical services during 2018, 2017 and 2016, respectively.

Available Information

Through our website, www.bassettfurniture.com, we make available free of charge as soon as reasonably practicable after electronically filing or furnishing with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments thereto.

ITEM 1A.

RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. The risk factors below represent what we believe are the known material risk factors with respect to us and our business. Any of the following risks could materially adversely affect our business, operations, industry, financial position or future financial results.

We face a volatile retail environment and changing economic conditions that may further adversely affect consumer demand and spending.

Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Should the current economic recovery falter or the current recovery in housing starts stall, consumer confidence and demand for home furnishings could deteriorate which could adversely affect our business through its impact on the performance of our Company-owned stores, as well as our licensees and the ability of a number of them to meet their obligations to us.

Our retail stores face significant competition from national, regional and local retailers of home furnishings, including increasing on-line competition via the internet.

The retail market for home furnishings is highly fragmented and intensely competitive. We currently compete against a diverse group of retailers, including national department stores, regional or independent specialty stores, and dedicated franchises of furniture manufacturers. National mass merchants such as Costco also have limited product offerings. We also compete with retailers that market products through store catalogs and the internet. In addition, there are few barriers to entry into our current and contemplated markets, and new competitors may enter our current or future markets at any time. We have also seen increasing competition from retailers offering consumers the ability to purchase home furnishings via the internet for home delivery, and this trend is expected to continue. Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including aggressive advertising, pricing and marketing, extension of credit to customers on terms more favorable than we offer, and expansion into markets where we currently operate.

Competition from any of these sources could cause us to lose market share, revenues and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations.

Our licensee-owned stores may not be able to meet their obligations to us.

We have a significant amount of accounts receivable attributable to our network of licensee-owned stores. We also guarantee some of the leases of some of our licensees. If these stores do not generate the necessary level of sales and profits, the licensees may not be able to fulfill their obligations to us resulting in additional bad debt expenses and real estate related losses.

Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could adversely impact our business, operating results and financial condition.

Sales of our furniture are dependent upon consumer acceptance of our designs, styles, quality and price. As with all retailers, our business is susceptible to changes in consumer tastes and trends. We attempt to monitor changes in consumer tastes and home design trends through attendance at international industry events and fashion shows, internal marketing research, and communication with our retailers and design consultants who provide valuable input on consumer tendencies. However, such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and trends in a timely manner could adversely impact our business, operating results and financial condition.

In addition, certain suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will be offered for sale, thereby exposing us to risks relating to shifts in consumer demand and trends, and any downturn in the U.S. economy.

Our success depends upon our brand, marketing and advertising efforts and pricing strategies, and if we are not able to maintain and enhance our brand, or if we are not successful in these efforts and strategies, our business and operating results could be adversely affected.

Maintaining and enhancing our brand is critical to our ability to expand our base of customers and drive increased traffic at both Company-owned and licensee-owned stores. Our advertising and marketing campaign utilizes television, direct mail, catalogs, newspapers, magazines, radio, the internet and social and other digital media in an effort to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be adversely affected.

Our use of foreign sources of production for a portion of our products exposes us to certain additional risks associated with international operations.

Our use of foreign sources for the supply of certain of our products exposes us to risks associated with overseas sourcing. These risks are related to government regulation, volatile ocean freight costs, delays in shipments, and extended lead time in ordering. Governments in the foreign countries where we source our products may change their laws, regulations and policies, including those related to tariffs and trade barriers, investments, taxation and exchange controls which could make it more difficult to service our customers resulting in an adverse effect on our earnings. We could also experience increases in the cost of ocean freight shipping which could have an adverse effect on our earnings. Shipping delays and extended order lead times may adversely affect our ability to respond to sudden changes in demand, resulting in the purchase of excess inventory in the face of declining demand, or lost sales due to insufficient inventory in the face of increasing demand, either of which would also have an adverse effect on our earnings or liquidity.

Fluctuations in the price, availability and quality of raw materials could result in increased costs or cause production delays which might result in a decline in sales, either of which could adversely impact our earnings.

We use various types of wood, foam, fibers, fabrics, leathers, and other raw materials in manufacturing our furniture. Certain of our raw materials, including fabrics, are purchased both abroad and domestically. Fluctuations in the price, availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. For example, lumber prices fluctuate over time based on factors such as weather and demand, which in turn impact availability. Production delays or upward trends in raw material prices could result in lower sales or margins, thereby adversely impacting our earnings.

We rely extensively on computer systems to process transactions, summarize results and manage our business. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.

Our primary and back-up computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, natural disasters and errors by employees. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business computer systems or failure of our back-up systems could reduce our sales or result in longer production times. If our critical business computer systems or back-up systems are damaged or cease to function properly, we may have to make a significant investment to repair or replace them.

We may incur costs and reputational harm resulting from security risks we face in connection with our electronic processing, storage and transmission of confidential information.

We accept electronic payment cards in our stores and also gather certain personal identifiable information in the processing of our retail sales transactions. We also store and process confidential information pertaining to our employees and other third parties on our networks. We may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information. In addition, if there were a disclosure of confidential information provided by, or concerning, our employees, customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.

We may suffer adverse impacts from additional risks associated with the operations of Zenith, a freight transportation and logistics business.

Zenith exposes us to certain risks common to that business, including, but not limited to: difficulties attracting and retaining qualified drivers which could result in increases in driver compensation and could adversely affect our profitability and our ability to maintain or grow our fleet; adverse impacts from unfavorable fluctuations in the availability and price of diesel fuel; increased costs of compliance with, or liability for violation of, existing or future regulations in the highly regulated freight transportation industry; adverse impacts upon Zenith’s results of operations which may result from seasonal factors and harsh weather conditions; and the increased liability inherent with the operation of heavy over-the-road vehicles.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

General

We own our corporate office building, which includes an annex, located in Bassett, Va.

We own the following facilities, by segment:

Wholesale Segment:

Facility	Location

Bassett Wood Division	Martinsville, Va.
Bassett Wood Division	Bassett, Va.
Bassett Upholstery Division	Newton, N.C.
3 Warehouses	Bassett, Va.

In general, these facilities are suitable and are considered to be adequate for the continuing operations involved. All facilities are in regular use and provide adequate capacity for our manufacturing and warehousing needs. In addition to the owned properties shown above, we have an upholstery division manufacturing facility which occupies part of a regional distribution center in Grand Prairie, Texas that is leased by our logistical services segment, and we lease property in Newton, North Carolina for the manufacturing and warehousing operations of Lane Venture.

Retail Segment:

Real estate associated with our retail segment consists of nine owned locations with an aggregate square footage of 223,570 and a net book value of $19,997. These stores are located as follows:

Concord, North Carolina	Greensboro, North Carolina
Greenville, South Carolina	Fredericksburg, Virginia
Houston, Texas (2 locations)	Gulfport, Mississippi
Knoxville, Tennessee	Louisville, Kentucky

Of these locations, two are subject to land leases and two are subject to mortgages. Our remaining 56 store locations are leased from third-parties. In addition to retail stores, we also lease nineteen locations for use as regional warehouses and home delivery distribution centers.

Logistical Services Segment:

Owned real estate associated with our logistical services segment is located in Conover, North Carolina and includes the following facilities:

Facility	Square Footage
Distribution center and corporate office		242,000
2 Maintenance facilities		15,142
2 Transit warehouses		86,135

In addition to the owned facilities listed above, we also lease warehouse space in nine locations across the United States with an aggregate square footage of 896,429.

Other Real Estate Owned:

We hold investments in retail store property that we previously leased to licensees and now lease to others. Such properties consist of two locations with aggregate square footage of 41,021 and net book value of $1,655 at November 24, 2018.

See Note 16 to the Consolidated Financial Statements included under Item 8 of this Annual Report for more information with respect to our operating lease obligations.

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

David C. Baker, 58, joined the Company in 2005 as Director, Store Operations. From 2006 to 2015 he served as Vice President – Corporate Retail, and currently serves as Senior Vice President, Corporate Retail. Prior to joining Bassett, Mr. Baker managed Bassett stores for licensees from 1999 to 2005 after having previously managed stores for other furniture retail chains including Haverty’s and Rhodes Furniture.

John E. Bassett III, 60, has been with the Company since 1981 and served in various wood manufacturing and product sourcing capacities, including Vice President, Wood Manufacturing; Vice-President, Global Sourcing from 2001 to 2007 and Vice President, Wood in 2008. He was appointed Senior Vice President, Wood in 2009.

Bruce R. Cohenour, 60, has been with the Company since 2011, starting as Senior Vice President of Upholstery Merchandising and serving as Senior Vice President of Sales and Merchandising since January 2013. Prior to joining Bassett, Mr. Cohenour was with Hooker Furniture Corp. from 2007 through 2010, last serving as President of the Case Goods Division.

J. Michael Daniel, 57, joined the Company in 2007 as Corporate Controller. From April 2009 through December 2009, he served as Corporate Controller and Interim Chief Financial Officer. In January 2010, he was appointed Vice President and Chief Accounting Officer. In January 2013, he was promoted to Senior Vice President and Chief Financial Officer.

Jack L. Hawn, 65, has been with the Company since 2015 as Senior Vice President, Bassett and President, Zenith. His company, Zenith Transportation, Inc., was majority owner of Zenith (Zenith Freight Lines, LLC) from 1999 until its interest in Zenith was acquired by the Company in 2015. He has served as President of Zenith since its formation in 1999.

Jay R. Hervey, Esq., 59, has served as the General Counsel, Vice President and Secretary for the Company since 1997.

Mark S. Jordan, 65, joined the Company in 1999 as Plant Manager. In 2001, he was promoted to Vice President of Upholstery Manufacturing and in 2002 he was promoted to Vice President and General Manager-Upholstery. He has served as Senior Vice President of Upholstery since 2009.

Robert H. Spilman, Jr., 62, has been with the Company since 1984. Since 2000, he has served as Chief Executive Officer and President, and in 2016 also became the Chairman of the Board of Directors.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information:

Bassett’s common stock trades on the NASDAQ global select market system under the symbol “BSET.” We had approximately 3,200 beneficial stockholders at January 10, 2019.

Issuer Purchases of Equity Securities:

We are authorized to repurchase Company stock under a plan which was originally announced in 1998. On October 3, 2018, the Board of Directors increased the remaining limit of the repurchase plan to $20 million. The repurchase program does not include a specific time table or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of prevailing market conditions and other factors. The following table summarizes the stock repurchase activity for the three months ended November 24, 2018 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:

Issuer Purchases of Equity Securities
(dollar amounts in thousands, except share and per share data)

	Total Shares Purchased		Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

August 26 - September 29, 2018		38,000	$	21.90		38,000	$	7,773
September 30 - October 27, 2018		86,000	$	21.16		86,000	$	18,430
October 28 - November 24, 2018		22,400	$	19.90		22,400	$	17,984

ITEM 6.

SELECTED FINANCIAL DATA

The selected financial data set forth below for the fiscal years indicated were derived from our audited consolidated financial statements. The information should be read in conjunction with our consolidated financial statements (including the notes thereto) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in, or incorporated by reference into, this report.

(In thousands)	2018			2017			2016			2015			2014


Net sales	$	456,855	(1)	$	452,503	(1)	$	432,038	(1)	$	430,927	(1)	$	340,738
Operating income	$	14,084	(2)	$	27,018	(2)	$	28,193	(2)	$	25,989	(2)	$	15,131
Other income (loss), net	$	(1,878	)	$	858	(3)	$	(2,416	)(4)	$	5,879	(4)	$	(524	)
Income before income taxes	$	12,206		$	27,876		$	25,777		$	31,868		$	14,607
Income tax expense	$	3,988	(5)	$	9,620		$	9,948		$	11,435		$	5,308
Net income	$	8,218		$	18,256		$	15,829		$	20,433		$	9,299
Diluted earnings per share	$	0.77		$	1.70		$	1.46		$	1.88		$	0.87
Cash dividends declared	$	5,041		$	8,266		$	7,345		$	5,868		$	5,085
Cash dividends per share	$	0.47		$	0.77		$	0.68		$	0.54		$	0.48
Total assets	$	291,641		$	293,748		$	278,267		$	282,543		$	240,746
Long-term debt	$	-		$	329		$	3,821		$	8,500		$	1,902
Current ratio		1.82 to 1			1.91 to 1			1.83 to 1			1.84 to 1			1.95 to 1
Book value per share	$	18.08		$	17.83		$	16.85		$	16.25		$	14.95

(1)

Fiscal 2018, 2017, 2016 and 2015 included logistical services revenue from Zenith in the amount of $54,386, $54,406, $54,842 and $43,522, respectively, since the acquisition of Zenith on February 2, 2015.

(2)

Fiscal 2018 operating income includes restructuring and asset impairment charges and lease exit costs totaling $770. Fiscal 2017 operating income includes a gain of $1,220 resulting from the sale of our retail store in Las Vegas, Nevada. Fiscal 2016 operating income includes the benefit of a $1,428 award received from the settlement of class action litigation. Fiscal 2015 included restructuring and asset impairment charges and lease exit costs totaling $974. See Note 15 to the Consolidated Financial Statements for additional information related to each of these items.

(3)

Fiscal 2017 includes $4,221 of gains resulting from the sale of investments (see Note 9 to the Consolidated Financial Statements), an impairment charge of $1,084 retail real estate held for investment (see Note 2 to the Consolidated Financial Statements).

(4)

Fiscal 2015 includes a remeasurement gain of $7,212 arising from our acquisition of Zenith. Fiscal 2015 and 2014 include $240 and $1,156 of income received from the Continued Dumping and Subsidy Offset Act (“CDSOA”), respectively.

(5)

Fiscal 2018 income tax expense includes a charge of $1,331 resulting from the remeasurement of our deferred tax assets following the reduction of federal income tax rates with the enactment of the Tax Cuts and Jobs Act (see Note 14 to the Consolidated Financial Statements).

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Amounts in thousands except share and per share data)

Overview

We have factories in Newton, North Carolina and Grand Prairie, Texas that manufacture custom upholstered furniture, a factory in Martinsville, Virginia that primarily assembles and finishes our custom casual dining offerings and a factory in Bassett, Virginia that assembles and finishes our “Bench Made” line of custom, solid hardwood furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its process, with custom pieces often manufactured within two weeks of taking the order in our stores. Our logistics team then promptly ships the product to one of our home delivery hubs or to a location specified by our licensees. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam and China. Over 70% of the products we currently sell are manufactured in the United States.

On December 21, 2017, we purchased certain assets and assumed certain liabilities of Lane Venture from Heritage Home Group, LLC for $15,556 in cash. Lane Venture is a manufacturer and distributor of premium outdoor furniture, and is now being operated as a component of our wholesale segment. This acquisition marks our entry into the market for outdoor furniture and we believe that Lane Venture will provide a foundation for us to become a significant participant in this category. We plan to distribute this brand outside of our Bassett store network with plans to introduce a Bassett-branded line in the stores in the near future. See Note 3 to our consolidated financial statements for additional details regarding this acquisition.

At November 24, 2018, our BHF store network included 65 Company-owned stores and 32 licensee-owned stores. During fiscal 2018, we opened new stores in Chandler, Arizona; Summerlin, Nevada; Oklahoma City, Oklahoma; El Paso, Texas; and Frisco, Texas and completed the repositioning of one store in the Houston, Texas market. In addition, licensees opened new stores in La Jolla, California and Daly City, California. We also opened a new 16,000 square foot clearance center in Middletown, New York in the third quarter of 2018. Because the nature of this store will differ significantly from the other stores in the BHF network, offering only clearance merchandise at reduced price points and without design consulting services, we will not include this location in our reporting of comparable store results in the future. During fiscal 2018 we closed one underperforming store in San Antonio, Texas.

We continue to execute our strategy of growing the Company through opening new stores, repositioning stores to improved locations within a market and closing underperforming stores. The following table shows planned store openings where leases have been executed:

		Size		Planned
Location	Type	Sq. Ft.		Opening
New Stores:
Coral Gables, FL	Corporate		10,000	Q1 2019
Boise, ID	Licensed		11,000	Q1 2019
Columbus, OH	Corporate		11,000	Q1 2019
Tucson, AZ	Corporate		9,000	Q1 2019
Estero, FL	Corporate		15,000	Q1 2019
Sarasota, FL	Corporate		8,000	Q2 2019
Princeton, NJ	Corporate		13,000	Q3 2019

Repositionings:
Friendswood, TX to Baybrook Mall area in Friendswood, TX	Corporate		16,000	Q1 2019

Following the planned openings shown above, we expect to significantly reduce the pace of the BHF network expansion and focus on maximizing profitable sales volume through the existing stores.

As with any retail operation, prior to opening a new store we incur such expenses as rent, training costs and other payroll related costs. These costs generally range between $200 to $400 per store depending on the overall rent costs for the location and the period between the time when we take physical possession of the store space and the time of the store opening. Generally, rent payments during a buildout period between delivery of possession and opening of a new store are deferred and therefore straight line rent expense recognized during that time does not require cash. Inherent in our retail business model, we also incur losses in the two to three months of operation following a new store opening. Like other furniture retailers, we do not recognize a sale until the furniture is delivered to our customer. Because our retail business model does not involve maintaining a stock of retail inventory that would result in quick delivery and because of the custom nature of many of our furniture offerings, delivery to our customers usually occurs about 30 days after an order is placed. We generally require a deposit at the time of order and collect the remaining balance when the furniture is delivered, at which time the sale is recognized. Coupled with the previously discussed store pre-opening costs, total start-up losses can range from $400 to $600 per store. While our retail expansion is initially costly, we believe our site selection and new store presentation will generally result in locations that operate at or above a retail break-even level within a reasonable period of time following store opening. Factors affecting the length of time required to achieve this goal on a store-by-store basis may include the level of brand recognition, the degree of local competition and the depth of penetration in a particular market. Even as new stores ramp up to break-even, we do realize additional wholesale sales volume that leverages the fixed costs in our wholesale business.

During 2018, we invested in our digital effort to improve the customers’ journey from the time they begin on our website to the final step of delivering the goods to their homes. Today’s customers expect their digital experiences and communications to be personalized and highly-relevant, and catered to match their specific needs and preferences. We have laid the foundation to becoming more connected to our customers and to use the data and insights collected during the customer journey to create a more compelling customized customer experience beginning in 2019.

In 2018, we also invested significantly in developing data driven marketing processes to fuel our future growth. In collaboration with external specialists, we are developing an enterprise data reporting tool to support fully integrated media optimization across broadcast, print and digital media. We also invested in implementing several new digital marketing channels, using a methodical test, measure, optimize approach to ensure maximum return on investment. These included social media advertising, product information optimization and syndication for shopping marketplaces, and home furniture/décor influential partnerships.

Analysis of Operations

Net sales revenue, cost of furniture and accessories sold, selling, general and administrative (“SG&A”) expense, new store pre-opening costs, other charges, and income from operations were as follows for the years ended November 24, 2018, November 25, 2017 and November 26, 2016:

													Change from Prior Year
													2018 vs 2017						2017 vs 2016
	2018				2017				2016				Dollars			Percent			Dollars			Percent
Sales Revenue:
Furniture and accessories	$	402,469	88.1	%	$	398,097	88.0	%	$	377,196	87.3	%	$	4,372			1.1	%	$	20,901			5.5	%
Logistics		54,386	11.9	%		54,406	12.0	%		54,842	12.7	%		(20	)		0.0	%		(436	)		-0.8	%
Total net sales revenue		456,855	100.0	%		452,503	100.0	%		432,038	100.0	%		4,352			1.0	%		20,465			4.7	%

Cost of furniture and accessories sold		179,581	39.3	%		177,579	39.2	%		167,519	38.8	%		2,002			1.1	%		10,060			6.0	%
SG&A		260,339	57.0	%		245,493	54.3	%		235,178	54.4	%		14,846			6.0	%		10,315			4.4	%
New store pre-opening costs		2,081	0.5	%		2,413	0.5	%		1,148	0.4	%		(332	)		-13.8	%		1,265			110.2	%
Other charges		770	0.2	%		-	0.0	%		-	0.0	%		770			NM			-			NM

Income from operations	$	14,084	3.1	%	$	27,018	6.0	%	$	28,193	6.5	%	$	(12,934	)		-47.9	%	$	(1,175	)		-4.2	%

Our consolidated net sales by segment were as follows:

										Change from Prior Year
										2018 vs 2017						2017 vs 2016
	2018			2017			2016			Dollars			Percent			Dollars			Percent
Net Sales
Wholesale	$	255,958		$	249,193		$	240,346		$	6,765			2.7	%	$	8,847			3.7	%
Retail		268,883			268,264			254,667			619			0.2	%		13,597			5.3	%
Logistical services		82,866			83,030			83,236			(164	)		-0.2	%		(206	)		-0.2	%
Inter-company eliminations:
Furniture and accessories		(122,372	)		(119,360	)		(117,817	)		(3,012	)		2.5	%		(1,543	)		1.3	%
Logistical services		(28,480	)		(28,624	)		(28,394	)		144			-0.5	%		(230	)		0.8	%
Consolidated	$	456,855		$	452,503		$	432,038		$	4,352			1.0	%	$	20,465			4.7	%

Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of operations for fiscal 2018 and 2017 as compared with the prior year periods.

Certain other items affecting comparability between periods are discussed below in “Other Items Affecting Net Income”.

Segment Information

We have strategically aligned our business into three reportable segments as described below:

Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (licensee-owned stores and Company-owned stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our consolidated statements of income.

Retail – Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores 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 income. Zenith’s operating costs are included in selling, general and administrative expenses.

During the fourth quarter of fiscal 2018, we substantially completed transferring operational control of home delivery services for BHF stores from Zenith to our retail segment, including the transfer of the assets and many of the employees used in providing that service. Accordingly, the revenues for the logistical services segment for all periods presented have been restated to no longer include the intercompany revenues and related costs for those services. Concurrently with the transfer of home delivery operations to retail, Zenith also ceased providing such services to third party customers. Revenues from Zenith’s home delivery services formerly provided to third party customers and the associated costs thereof continue to be reported in the logistical services segment. The impact upon segment operating income (loss) from the restatement was not material. Zenith continues to provide other intercompany shipping and warehousing services to Bassett which are eliminated in consolidation.

The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results:

	Year Ended November 24, 2018
	Wholesale		Retail			Logistics		Eliminations				Consolidated
Sales revenue:
Furniture & accessories	$	255,958	$	268,883		$	-	$	(122,372	)	(1)	$	402,469
Logistics		-		-			82,866		(28,480	)	(2)		54,386
Total sales revenue		255,958		268,883			82,866		(150,852	)			456,855
Cost of furniture and accessories sold		171,272		130,591			-		(122,282	)	(3)		179,581
SG&A expense		72,412		136,523			81,468		(30,064	)	(4)		260,339
New store pre-opening costs		-		2,081			-		-				2,081
Income (loss) from operations (5)	$	12,274	$	(312	)	$	1,398	$	1,494			$	14,854

	Year Ended November 25, 2017
	Wholesale		Retail		Logistics		Eliminations				Consolidated
Sales revenue:
Furniture & accessories	$	249,193	$	268,264	$	-	$	(119,360	)	(1)	$	398,097
Logistics		-		-		83,030		(28,624	)	(2)		54,406
Total sales revenue		249,193		268,264		83,030		(147,984	)			452,503
Cost of furniture and accessories sold		164,028		132,463		-		(118,912	)	(3)		177,579
SG&A expense		66,044		129,898		80,068		(30,517	)	(4)		245,493
New store pre-opening costs		-		2,413		-		-				2,413
Income from operations	$	19,121	$	3,490	$	2,962	$	1,445			$	27,018

	Year Ended November 26, 2016
	Wholesale		Retail		Logistics		Eliminations				Consolidated
Sales revenue:
Furniture & accessories	$	240,346	$	254,667	$	-	$	(117,817	)	(1)	$	377,196
Logistics		-		-		83,236		(28,394	)	(2)		54,842
Total sales revenue		240,346		254,667		83,236		(146,211	)			432,038
Cost of furniture and accessories sold		156,894		128,208		-		(117,583	)	(3)		167,519
SG&A expense		64,780		120,978		79,725		(30,305	)	(4)		235,178
New store pre-opening costs		-		1,148		-		-				1,148
Income from operations	$	18,672	$	4,333	$	3,511	$	1,677			$	28,193

(1)	Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.
(2)	Represents the elimination of logistical services billed to our wholesale segment.
(3)	Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory.
(4)	Represents the elimination of rent paid by our retail stores occupying Company-owned real estate and logistical services expense incurred from Zenith by our wholesale segment.

	Year Ended
	November 24,			November 25,			November 26,
	2018			2017			2016

Intercompany logistical services	$	(28,480	)	$	(28,624	)	$	(28,394	)
Intercompany rents		(1,584	)		(1,893	)		(1,911	)
Total SG&A expense elimination	$	(30,064	)	$	(30,517	)	$	(30,305	)

(5)	Excludes the effects of asset impairment chargesand lease exit costs which are not allocated to our segments.

Wholesale Segment

Net sales, gross profit, SG&A expense and operating income from operations for our Wholesale Segment were as follows for the years ended November 24, 2018, November 25, 2017 and November 26, 2016:

													Change from Prior Year
													2018 vs 2017						2017 vs 2016
	2018				2017				2016				Dollars			Percent			Dollars		Percent

Net sales	$	255,958	100.0	%	$	249,193	100.0	%	$	240,346	100.0	%	$	6,765			2.7	%	$	8,847		3.7	%
Gross profit		84,686	33.1	%		85,165	34.2	%		83,452	34.7	%		(479	)		-0.6	%		1,713		2.1	%
SG&A		72,412	28.3	%		66,044	26.5	%		64,780	27.0	%		6,368			9.6	%		1,264		2.0	%
Income from operations	$	12,274	4.8	%	$	19,121	7.7	%	$	18,672	7.8	%	$	(6,847	)		-35.8	%	$	449		2.4	%

Wholesale shipments by category for the last three fiscal years are summarized below:

													Change from Prior Year
													2018 vs 2017						2017 vs 2016
	2018				2017				2016				Dollars			Percent			Dollars			Percent

Bassett Custom Upholstery	$	141,321	55.2	%	$	136,366	54.7	%	$	127,989	53.3	%	$	4,955			3.6	%	$	8,377			6.5	%
Bassett Leather		21,589	8.4	%		22,528	9.0	%		21,038	8.8	%		(939	)		-4.2	%		1,490			7.1	%
Bassett Custom Wood		46,074	18.0	%		43,793	17.6	%		36,517	15.2	%		2,281			5.2	%		7,276			19.9	%
Bassett Casegoods		42,875	16.8	%		42,874	17.2	%		52,246	21.7	%		1			0.0	%		(9,372	)		-17.9	%
Accessories		4,099	1.6	%		3,632	1.5	%		2,556	1.1	%		467			12.9	%		1,076			42.1	%
Total	$	255,958	100.0	%	$	249,193	100.0	%	$	240,346	100.0	%	$	6,765			2.7	%	$	8,847			3.7	%

Fiscal 2018 as Compared to Fiscal 2017

The increase in net sales was driven by the addition of $9,546 of revenue for Lane Venture, acquired during the first quarter of 2018, along with a 1.8% increase in furniture shipments to the open market (outside the BHF network and excluding shipments from Lane Venture), partially offset by a 2.8% decrease in furniture shipments to the BHF network as compared to the prior year period. A much smaller component of our wholesale revenues, shipments of wholesale accessories, increased 12.9% over the prior year period. Gross margins for the wholesale segment were 33.1% for fiscal 2018 compared to 34.2% for the prior year. This decrease was primarily driven by lower margins in the Bassett Custom Upholstery operations, excluding Lane Venture, due to higher materials costs coupled with lower absorption of fixed costs due to lower volumes. In June 2018, we implemented targeted price increases to our Custom Upholstery line to mitigate the effects of the cost increases and began seeing the benefit on margins in July 2018. Wholesale SG&A increased as a percentage of sales over the prior year period primarily driven by planned higher digital marketing and other brand development costs, partially offset by decreased incentive compensation. In addition, we incurred $256 of one-time acquisition costs along with other startup costs associated with the Lane Venture operation.

Fiscal 2017 as Compared to Fiscal 2016

The sales increase in 2017 was driven by a 2.7% increase in furniture shipments to the BHF store network along with a 3.9% increase in furniture shipments to the open market (outside the BHF store network) as compared to the prior year period. A much smaller component of our wholesale revenues, shipments of wholesale accessories, increased 42% over the prior year period. The decrease in gross margins from fiscal 2016 was primarily due to the $1,428 settlement of the Polyurethane Foam Antitrust Litigation in 2016. Excluding the benefit of the settlement, the gross margin for fiscal 2016 would have been 34.1%. This increase was primarily due to improved margins in the Bassett Custom Upholstery operations from favorable pricing strategies and improved manufacturing efficiencies. The decrease in SG&A as a percentage of sales compared with 2016 was primarily due to greater leverage of fixed costs from higher sales volumes, partially offset by increased spending on the website and digital strategy development.

Wholesale Backlog

The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores as of November 24, 2018, November 25, 2017, and November 26, 2016 was as follows:

	2018		2017		2016

Year end wholesale backlog	$	25,810	$	22,239	$	22,130

Retail Segment – Company Owned Stores

Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income for our Retail Segment were as follows for the years ended November 24, 2018, November 25, 2017 and November 26, 2016:

																		Change from Prior Year
	2018 vs 2017									2017 vs 2016								2018 vs 2017						2017 vs 2016
	2018					2017				2017				2016				Dollars			Percent			Dollars			Percent

Net sales	$	268,883		100.0	%	$	268,264	100.0	%	$	268,264	100.0	%	$	254,667	100.0	%	$	619			0.2	%	$	13,597			5.3	%
Gross profit		138,292		51.4	%		135,801	50.6	%		135,801	50.6	%		126,459	49.7	%		2,491			1.8	%		9,342			7.4	%
SG&A expense		136,523		50.8	%		129,898	48.4	%		129,898	48.4	%		120,978	47.5	%		6,625			5.1	%		8,920			7.4	%
New store pre-opening costs		2,081		0.8	%		2,413	0.9	%		2,413	0.9	%		1,148	0.5	%		(332	)		-13.8	%		1,265			110.2	%
Income from operations	$	(312	)	-0.1	%	$	3,490	1.3	%	$	3,490	1.3	%	$	4,333	1.7	%	$	(3,802	)		-108.9	%	$	(843	)		-19.5	%

The following tables present operating results on a comparable store basis for each comparative set of periods. Table A compares the results of the 53 stores that were open and operating for all of 2018 and 2017. Table B compares the results of the 52 stores that were open and operating for all of 2017 and 2016.

Comparable Store Results:

																	Change from Prior Year
	Table A: 2018 vs 2017 (53 Stores)								Table B: 2017 vs 2016 (52 Stores)								2018 vs 2017						2017 vs 2016
	2018				2017				2017				2016				Dollars			Percent			Dollars		Percent

Net sales	$	235,868	100.0	%	$	239,633	100.0	%	$	233,823	100.0	%	$	229,530	100.0	%	$	(3,765	)		-1.6	%	$	4,293		1.9	%
Gross profit		121,399	51.5	%		122,710	51.2	%		119,546	51.1	%		115,103	50.1	%		(1,311	)		-1.1	%		4,443		3.9	%
SG&A expense		115,094	48.8	%		115,161	48.1	%		112,428	48.1	%		108,328	47.2	%		(67	)		-0.1	%		4,100		3.8	%
Income from operations	$	6,305	2.7	%	$	7,549	3.2	%	$	7,118	3.0	%	$	6,775	3.0	%	$	(1,244	)		-16.5	%	$	343		5.1	%

The following tables present operating results for all other stores which were not comparable year-over-year. Each table includes the results of stores that either opened or closed at some point during the 24 months of each comparative set of periods.

All Other (Non-Comparable) Store Results:

																					Change from Prior Year
	2018 vs 2017 All Other Stores										2017 vs 2016 All Other Stores										2018 vs 2017						2017 vs 2016
	2018					2017					2017					2016					Dollars			Percent			Dollars			Percent

Net sales	$	33,015		100.0	%	$	28,631		100.0	%	$	34,441		100.0	%	$	25,137		100.0	%	$	4,384			15.3	%	$	9,304			37.0	%
Gross profit		16,893		51.2	%		13,091		45.7	%		16,255		47.2	%		11,356		45.2	%		3,802			29.0	%		4,899			43.1	%
SG&A expense		21,429		64.9	%		14,737		51.5	%		17,470		50.7	%		12,650		50.3	%		6,692			45.4	%		4,820			38.1	%
New store pre-opening costs		2,081		6.3	%		2,413		8.4	%		2,413		7.0	%		1,148		4.6	%		(332	)		-13.8	%		1,265			110.2	%
Loss from operations	$	(6,617	)	-20.0	%	$	(4,059	)	-14.2	%	$	(3,628	)	-10.5	%	$	(2,442	)	-9.7	%	$	(2,558	)		63.0	%	$	(1,186	)		48.6	%

Fiscal 2018 as Compared to Fiscal 2017

The increase in net sales for the 65 Company-owned stores over the prior year was comprised of a $4,384 increase in non-comparable store sales partially offset by a 1.6% decrease in comparable store sales.

While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores decreased by 3.6% for fiscal 2018 as compared to prior year.

The increase in comparable store gross margins to 51.5% for fiscal 2018 from 51.2% in the prior year period is primarily due to improved pricing strategies and product mix. SG&A expenses as a percentage of sales for comparable stores increased slightly from 2017 due to decreased leverage of fixed costs on lower sales volume and increased advertising expenses.

We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $400 to $600 per store. During fiscal 2018 we incurred $1,601 of post-opening losses associated with the seven new stores and clearance center opened during 2018 and late 2017 compared with $969 of post-opening losses during fiscal 2017. Included in the 2017 Non-Comparable store loss was a $1,220 gain on the sale of our retail store location in Las Vegas, Nevada.

Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each new store will be ongoing.

Fiscal 2017 as Compared to Fiscal 2016

The 2017 increase in net sales for the 60 Company-owned BHF stores was comprised of a 1.9% increase in comparable store sales along with a $9,304 increase in non-comparable store sales.

The increase in comparable store gross margins over 2016 is primarily due to improved pricing strategies and product mix. The increase in comparable store SG&A as a percentage of sales was primarily due to a $500 legal settlement along with higher advertising expenses of $687 and occupancy costs of $481.

Increased losses from the non-comparable stores in fiscal 2017 included additional pre-opening costs associated with the Garden City, New York; Culver City, California; King of Prussia, Pennsylvania; Wichita, Kansas; and Pittsburgh, Pennsylvania stores which opened during fiscal 2017, and the new stores in Chandler, Arizona; Oklahoma City, Oklahoma; and Summerlin, Nevada which are expected to open during the first quarter of 2018. These costs include rent, training costs and other payroll-related costs specific to a new store location incurred during the period leading up to its opening and generally range between $200 to $400 per store based on the overall rent costs for the location and the period between the time when the Company takes possession of the physical store space and the time of the store opening.

We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to $400 to $600 per store. During fiscal 2017 we incurred $969 of post-opening losses associated with the five new stores which opened during the year. There were post-opening losses of $482 primarily associated with two new stores during fiscal 2016.

Pre- and post-opening losses for fiscal 2017 were partially offset by a gain of $1,220 from the sale of our retail store location in Las Vegas, Nevada. The repositioning of that store to a new location in Summerlin, Nevada is expected to be completed in early 2018.

Retail Comparable Store Sales Trends

The following table provides year-over-year comparable store sales trends for the last three fiscal years:

	2018			2017			2016

Delivered		-1.6	%		1.9	%		1.4	%
Written		-3.6	%		1.8	%		1.4	%

Retail Backlog

The dollar value of our retail backlog, representing orders received but not yet delivered to customers as of November 24, 2018, November 25, 2017, and November 26, 2016, was as follows:

	2018		2017		2016

Year end retail backlog	$	35,493	$	35,684	$	32,788
Retail backlog per open store	$	546	$	595	$	556

Logistical Services Segment

Revenues, operating expenses and income from operations for our logistical services segment were as follows for the years ended November 24, 2018, November 25, 2017 and November 26, 2016:

													Change from Prior Year
													2018 vs 2017						2017 vs 2016
	2018				2017				2016				Dollars			Percent			Dollars			Percent
Logistics revenue	$	82,866	100.0	%	$	83,030	100.0	%	$	83,236	100.0	%	$	(164	)		-0.2	%	$	(206	)		-0.2	%
Operating expenses		81,468	98.3	%		80,068	96.4	%		79,725	95.8	%		1,400			1.7	%		343			0.4	%

Income from operations	$	1,398	1.7	%	$	2,962	3.6	%	$	3,511	4.2	%	$	(1,564	)		-52.8	%	$	(549	)		-15.6	%

Fiscal 2018 as Compared to Fiscal 2017

Zenith’s revenues were comparable year over year. Increased operating costs as a percentage of revenue were primarily due to significantly higher fuel costs coupled with the increasing cost of hiring and retaining over-the-road drivers. Operating costs for fiscal 2018 and 2017 include non-cash depreciation and amortization charges of $4,068 and $4,309, respectively.

Fiscal 2017 as Compared to Fiscal 2016

Zenith’s revenues were comparable year over year. Increased operating costs as a percentage of revenue were primarily due to higher fuel costs. Operating costs for fiscal 2017 and 2016 include non-cash depreciation and amortization charges of $4,309 and $3,936, respectively.

Other Items Affecting Net Income

Other items affecting net income for fiscal 2018, 2017 and 2016 are as follows:

	2018			2017			2016

Gain on sales of investments (1)	$	-		$	4,221		$	-
Interest income (2)		431			230			120
Interest expense (3)		(57	)		(234	)		(552	)
Retail real estate impairment charge (4)		-			(1,084	)		-
Net periodic pension costs (5)		(986	)		(1,049	)		(910	)
Cost of company-owned life insurance (6)		(598	)		(517	)		(706	)
Income from the Continued Dumping & Subsidy Offset Act (7)		7			94			240
Other investment income (8)		52			88			176
Other		(727	)		(891	)		(784	)

Total other income (loss), net	$	(1,878	)	$	858		$	(2,416	)

(1)

See Note 9 to the Consolidated Financial Statements for information related gains realized from the sale of two investments during fiscal 2017.

(2)

Consists of interest income arising from our short-term investments. See Note 4 to the Consolidated Financial Statements for additional information regarding our investments in certificates of deposit.

(3)

Our interest expense in fiscal 2018 has declined significantly from the previous two years as debt incurred or assumed with the 2015 acquisition of Zenith has been repaid, with all remaining amounts paid off during the first quarter of fiscal 2018. See Note 10 to the Consolidated Financial Statements for additional information regarding our outstanding debt at November 24, 2018.

(4)

See Note 2 to the Consolidated Financial Statements for information related to impairment of retail real estate during fiscal 2017.

(5)

Represents the portion of net periodic pension costs not included in income from operations. See Note 11 to the Consolidated Financial Statements for additional information related to our defined benefit pension plans.

(6)

Cost for fiscal 2018 is net of life insurance proceeds of $266 arising from the death of a former executive.

(7)

These amounts represent distributions received from U.S. Customs and Boarder Protection (“Customs”) under the Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”). These distributions primarily represent amounts previously withheld by Customs pending the resolution of certain claims filed by other manufactures which were dismissed in 2014. The distributions received from Customs have gradually diminished in the years subsequent to the dismissal and are no longer expected to be significant beyond 2018.

(8)

Primarily reflects gains arising from the partial liquidation of our previously impaired investment in the Fortress Value Recovery Fund I, LLC, which was fully impaired during fiscal 2012.

Provision for Income taxes

On December 22, 2017, The Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduced the federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018 for all corporate taxpayers, while most other provisions of the Act take effect for fiscal years beginning on or after January 1, 2018. Therefore, we computed our income tax expense for fiscal 2018 using a blended federal statutory rate of 22.2%. The 21% federal statutory rate, as well as certain other provisions of the Act including the elimination of the domestic manufacturing deduction and new limitations on certain business deductions, will apply to our 2019 fiscal year and thereafter.

We recorded an income tax provision of $3,988, $9,620 and $9,948 in fiscal 2018, 2017 and 2016, respectively. For fiscal 2018, our effective tax rate of 32.7% differs from the federal blended statutory rate of 22.2% primarily due to a discrete charge of $1,331 arising from the re-measurement of our deferred tax assets. Other items impacting our effective tax rates for fiscal 2018 include the effects of state income taxes and various permanent differences including the favorable impacts of excess tax benefits on stock-based compensation of $223, non-taxable life insurance proceeds of $266, and the Section 199: Domestic Production Activities Deduction of $866. For fiscal 2017 and 2016, our effective tax rates of 34.5% and 38.6%, respectively, differ from the statutory rate of 35.0% primarily due to the effects of state income taxes and various permanent differences including the favorable impact of the Section 199 manufacturing deduction. The reduction in the effective tax rate in fiscal 2017 from 2016 was primarily due to higher excess tax benefits from stock compensation recognized during fiscal 2017. See Note 14 to the Consolidated Financial Statements for additional information regarding our income tax provision (benefit), as well as our net deferred tax assets and other matters.

We have net deferred tax assets of $3,266 as of November 24, 2018, which, upon utilization, are expected to reduce our cash outlays for income taxes in future years. It will require approximately $13,000 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 2018 was $28,698 compared to $36,384 for fiscal 2017, a decrease of $7,686. This decrease is primarily due to lower operating margins and changes in working capital.

Our overall cash position decreased by $20,481 during 2018. Offsetting the cash provided by operations, we used $30,686 of cash in investing activities, primarily consisting of our $15,556 investment in Lane Venture and capital expenditures of $18,301 which included retail store relocations, retail store remodels, in-process spending on new stores, expanding and upgrading our manufacturing capabilities, various technology improvements and additional material handling equipment for our logistical services segment, partially offset by $2,463 of proceeds from the sale of our retail location in Spring, Texas and $482 from the maturity of a portion of our CDs which were not reinvested. Net cash used in financing activities was $18,493, including dividend payments of $8,800 and the final $3,000 installment payment on our Zenith acquisition note payable. With cash and cash equivalents and short-term investments totaling $56,111 on hand at November 24, 2018, we believe we have sufficient liquidity to fund operations for the foreseeable future.

Debt and Other Obligations

Effective November 15, 2018, we amended the credit facility with our bank, increasing our line of credit from $15,000 up to $25,000. This amended credit facility, which matures in December of 2021, is unsecured and contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the facility and expect to remain in compliance for the foreseeable future. At November 24, 2018, we had $2,798 outstanding under standby letters of credit against our line, leaving availability under our credit line of $22,202. In addition, we have outstanding standby letters of credit with another bank totaling $381.

At November 24, 2018 we have outstanding principal totaling $292 under notes payable, all of which matures during fiscal 2019. See Note 10 to our consolidated financial statements for additional details regarding these notes, including collateral. We expect to satisfy these obligations as they mature using cash flow from operations or our available cash on hand.

We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services segment. We had obligations of $185,427 at November 24, 2018 for future minimum lease payments under non-cancelable operating leases having remaining terms in excess of one year. We also have guaranteed certain lease obligations of licensee operators. Remaining terms under these lease guarantees range from approximately one to three years. We were contingently liable under licensee lease obligation guarantees in the amount of $2,021 at November 24, 2018. See Note 16 to our consolidated financial statements for additional details regarding our leases and lease guarantees.

Dividends and Share Repurchases

During fiscal 2018, we declared four quarterly dividends totaling $5,041, or $0.47 per share. Cash dividend payments to our shareholders during fiscal 2018 totaled $8,800. During fiscal 2018, we repurchased 253,907 shares of our stock for $5,945 under our share repurchase program. The weighted-average effect of these share repurchases on both our basic and diluted earnings per share was not significant. The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as of November 24, 2018 was $17,984.

Capital Expenditures

We currently anticipate that total capital expenditures for fiscal 2019 will be approximately $15 to $20 million which will be used primarily for new stores and store remodeling in our retail segment and additional investments in technology. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the new stores, our rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital expenditure and working capital requirements for the foreseeable future.

Fair Value Measurements

We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1 Inputs– Quoted prices for identical instruments in active markets.

Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs– Instruments with primarily unobservable value drivers.

We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. The recurring estimate of the fair value of our mortgages and notes payable for disclosure purposes (see Note 10 to the Consolidated Financial Statements) involves Level 3 inputs. Our primary non-recurring fair value estimates, typically involving the valuation of business acquisitions (see Note 3 to the Consolidated Financial Statements) and asset impairments (see Note 15 to the Consolidated Financial Statements) have utilized Level 3 inputs.

Contractual Obligations and Commitments

We enter into contractual obligations and commercial commitments in the ordinary course of business (See Note 16 to the Consolidated Financial Statements for a further discussion of these obligations). The following table summarizes our contractual payment obligations and other commercial commitments and the fiscal year in which they are expected to be paid.

	2019		2020		2021		2022		2023		Thereafter		Total
Post employment benefit obligations (1)	$	1,072	$	1,014	$	994	$	1,305	$	1,221	$	8,632	$	14,238
Notes payable		292		-		-		-		-		-		292
Contractual advertising		3,560		-		-		-		-		-		3,560
Interest payable		7		-		-		-		-		-		7
Letters of credit		3,179		-		-		-		-		-		3,179
Operating leases (2)		33,721		32,030		27,017		23,194		18,386		51,112		185,460
Lease guarantees (3)		627		347		347		347		353		-		2,021
Other obligations & commitments		960		200		200		100		100		250		1,810
Purchase obligations (4)		-		-		-						-		-
Total	$	43,418	$	33,591	$	28,558	$	24,946	$	20,060	$	59,994	$	210,567

(1)	Does not reflect a reduction for the impact of any company owned life insurance proceeds to be received. Currently, we have life insurance policies with net death benefits of $17,811 to provide funding for these obligations. See Note 11 to the Consolidated Financial Statements for more information.

(2)	Does not reflect a reduction for the impact of sublease income to be received. See Note 16 to the Consolidated Financial Statements for more information.

(3)	Lease guarantees relate to payments we would only be required to make in the event of default on the part of the guaranteed parties.

(4)	The Company is not a party to any long-term supply contracts with respect to the purchase of raw materials or finished goods. At the end of fiscal year 2018, we had approximately $15,507 in open purchase orders, primarily for imported inventories, which are in the ordinary course of business.

Off-Balance Sheet Arrangements

We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of BHF stores and Zenith distribution facilities. We have guaranteed certain lease obligations of licensee operators as part of our retail strategy. See Contractual Obligations and Commitments table above and Note 16 to the Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of operating leases and lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements.

Contingencies

We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which requires that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect our consolidated financial statements.

Revenue Recognition - Revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. This generally occurs upon the shipment of goods to independent dealers or, in the case of Company-owned retail stores, upon delivery to the customer. Our wholesale payment terms generally vary from 30 to 60 days. For retail sales, we typically receive a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. An estimate for returns and allowances has been provided in recorded sales. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us. For our logistical services segment, line-haul freight revenue and home delivery revenue are recognized upon delivery to the destination. Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided.

Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”) outlines the four basic criteria for recognizing revenue as follows: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. SAB 104 further asserts that if collectibility of all or a portion of the revenue is not reasonably assured, revenue recognition should be deferred until payment is received. During fiscal 2018, 2017 and 2016, there were no dealers for which these criteria were not met.

Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were $754 and $617 at November 24, 2018 and November 25, 2017, respectively, representing 3.8% and 3.0% of our gross accounts receivable balances at those dates, respectively. The allowance for doubtful accounts is based on a review of specifically identified customer accounts in addition to an overall aging analysis. We evaluate the collectibility of our receivables from our licensees and other customers on a quarterly basis based on factors such as their financial condition, our collateral position, potential future plans with licensees and other similar factors. Our allowance for doubtful accounts represents our best estimate of potential losses on our accounts and notes receivable and is adjusted accordingly based on historical experience, current developments and present economic conditions and trends. Although actual losses have not differed materially from our previous estimates, future losses could differ from our current estimates. Unforeseen events such as a licensee or customer bankruptcy filing could have a material impact on our results of operations.

Inventories - Inventories are stated at the lower of cost or market. Cost is determined for domestic furniture inventories using the last-in, first-out method. The cost of imported inventories is determined on a first-in, first-out basis. We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. Our reserves for excess and obsolete inventory were $1,766 and $1,895 at November 24, 2018 and November 25, 2017, respectively, representing 2.7% and 3.4%, respectively, of our inventories on a last-in, first-out basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required.

Goodwill – Goodwill represents the excess of the purchase price over the value assigned to tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and any resulting goodwill is allocated to the respective reporting unit; Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired.

In accordance with ASC Topic 350, Intangibles – Goodwill & Other, the goodwill impairment test consists of a two-step process, if necessary. However, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the two-step process. Based on our qualitative assessment as described above, we have concluded that our goodwill in the amount of $16,043 is not impaired as of November 24, 2018.

The first step compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, the second step is performed whereby we must calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. This second step represents a hypothetical purchase price allocation as if we had acquired the reporting unit on that date. Our impairment methodology uses a discounted cash flow analysis requiring certain assumptions and estimates to be made regarding future profitability of the reporting unit and industry economic factors. While we believe such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts.

Other Intangible Assets – Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. At November 24, 2018, 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 24, 2018 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 $3,099.

Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store.

Recent Accounting Pronouncements

See note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our imports purchased outside of North America are denominated in U.S. dollars. Therefore, we believe that gains or losses resulting from changes in the value of foreign currencies relating to foreign purchases not denominated in U.S. dollars would not be material to our results from operations in fiscal 2018.

We are exposed to market risk from changes in the cost of raw materials used in our manufacturing processes, principally wood, woven fabric, and foam products. An increase in the rate of in home construction could result in increases in wood and fabric costs from current levels, and the cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil.

We are also exposed to commodity price risk related to diesel fuel prices for fuel used in our logistical services segment. We manage our exposure to that risk primarily through the application of fuel surcharges to our customers.

We have potential exposure to market risk related to conditions in the commercial real estate market. Our retail real estate holdings of $1,655 and $1,758 at November 24, 2018 and November 25, 2017, respectively, for stores formerly operated by licensees as well as our holdings of $19,997 and $22,817 at November 24, 2018 and November 25, 2017, respectively, for Company-owned stores could suffer significant impairment in value if we are forced to close additional stores and sell or lease the related properties during periods of weakness in certain markets. Additionally, if we are required to assume responsibility for payment under the lease obligations of $2,021 and $2,743 which we have guaranteed on behalf of licensees as of November 24, 2018 and November 25, 2017, respectively, we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees.

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