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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 27, 1999 Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
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(Exact name of registrant as specified in its charter)
VIRGINIA 54-0135270
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3525 FAIRYSTONE PARK HIGHWAY
BASSETT, VIRGINIA 24055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540/629-6000
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Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class: on which registered
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Common Stock ($5.00 par value) NASDAQ
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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.
[X] 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. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of February 22, 2000 was $144,179,431.
The number of shares of the Registrant's common stock outstanding on February
22, 2000 was 11,906,732.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Bassett Furniture Industries, Incorporated Annual Report
to Stockholders for the year ended November 27, 1999 (the "Annual
Report") are incorporated by reference into Parts I and II of this Form
10-K.
(2) Portions of the Bassett Furniture Industries, Incorporated definitive
Proxy Statement for its 2000 Annual Meeting of Stockholders to be held
March 28, 2000, 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.
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PART I
ITEM 1. BUSINESS
(dollar amounts in thousands except per share data)
GENERAL DEVELOPMENT OF BUSINESS
Bassett Furniture Industries, Incorporated (the "Company") was
incorporated under the laws of the Commonwealth of Virginia in 1930.
The executive offices are located in Bassett, Virginia.
Material Changes in the Development of Business in the last five years
are as follows:
During 1999 the Company expanded its Bassett Furniture Direct ("BFD")
retail store concept by adding five corporate owned stores to its
existing network of licensee operated stores. Additionally, the Company
took over operations of two financially troubled BFD stores operated by
licensees. Subsequent to year end, the Company merged all of its eight
Company-owned BFD stores with a licensee's five BFD stores to form a
joint venture known as the Ladin Retail Group ("LRG"). Management feels
that this restructuring of the Company's corporate owned retail store
operation will lead to greater success due principally to greater
economies of scale and more experienced management. Refer to Note R of
the Consolidated Financial Statements included in the Annual Report for
more information about the joint venture.
During 1999, the Company sold substantially all of the assets of its
Bedding Division to Premier Bedding Group LLC ("PBG"). The net assets
sold, which totaled $8,400, were exchanged for $6,500 in cash and a
$1,900 convertible note receivable. Refer to Note B of the Consolidated
Financial Statements included in the Annual Report for more information
about the bedding sale.
During 1997, the Company commenced the restructuring of certain of its
operations and recorded restructuring and impaired asset charges of
$20,646. The restructuring plan is the result of management's decision
to focus on its core Bassett product line and efforts to improve
operating efficiencies. The principal actions of the plan include the
closure or sale of fourteen manufacturing facilities, elimination of
three product lines (National/Mt. Airy, Impact and veneer production)
and the severance of approximately 1,000 employees. Refer to Note M of
the Consolidated Financial Statements included in the Annual Report for
a detail of restructuring activity for 1997, 1998 and 1999 and refer to
the Management's Discussion and Analysis section of the Annual Report
for additional discussion on this topic.
OPERATING SEGMENTS
The Company's operations are classified into two primary businesses:
wholesale and retail home furnishings. The wholesale home furnishings
business is involved principally in the manufacture, sale and
distribution of furniture products to a network of independently owned
and Company-owned stores. The wholesale business consists primarily of
two operating segments, wood and upholstery. The retail home
furnishings segment sells home furnishings products through a network
of Company-owned retail stores known as Bassett Furniture Direct
("BFD").
Refer to Note Q of the Consolidated Financial Statements included in
the Annual Report for more information about segment information for
1997, 1998 and 1999 and refer to the Management's Discussion and
Analysis section of the Annual Report for additional discussion on this
topic.
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DESCRIPTION OF BUSINESS
The Company is a manufacturer and retailer of quality home furnishings
and sells a full range of furniture products and accessories through
department and furniture stores and an exclusive network of retail
stores, which are both Company-owned and independently-owned. Retail
stores are located throughout the United States. The Company has
fourteen manufacturing facilities throughout the United States.
The wood segment is engaged in the manufacture and sale of wood
furniture, including bedroom and dining suites and accent pieces, to
independent and Company-owned retailers. The wood segment accounted for
67%, 59%, and 44% of wholesale sales during 1999, 1998, and 1997,
respectively. The Company currently has eight wood manufacturing
facilities. The upholstery segment is involved in the manufacture and
sale of upholstered frames and cut upholstery items having a variety of
frame and fabric options, including sofas, chairs, and love seats. The
Company currently has five upholstery manufacturing facilities. The
upholstery segment accounted for 27%, 28%, and 29% of wholesale sales
during 1999, 1998, and 1997, respectively.
Raw materials used by the Company are generally available from numerous
sources and are obtained principally from domestic sources. The Company
has not experienced significant raw materials cost pressures in 1999.
The Company's trademarks , including "Bassett" and the names of its
marketing divisions, products and collections are significant to the
conduct of its business. This importance is due to consumer recognition
of the names and identification with the Company's broad range of
products. Certain of the Company's trademarks are licensed to
independent retailers for use in full store presentations and in store
gallery presentations of the Company's products. The Company also owns
certain patents and licenses that are important in the conduct of the
Company's business.
The furniture industry in which the Company competes is not considered
to be a seasonal industry. There are no special practices in the
furniture industry, or applicable to the Company, that would have a
significant effect on working capital items.
Sales to one customer (J. C. Penney Company) amounted to approximately
16% of net sales in 1999 and 15% of net sales in 1998 and 1997,
respectively. The Company's backlog of orders believed to be firm was
$32,000 at November 29,1999 and $35,000 at November 28, 1998. It is
expected that the November 27, 1999 backlog will be filled within the
2000 fiscal year.
The furniture industry is very competitive and there are a large number
of manufacturers both within the United States and offshore who compete
in the market on the basis of product quality, price, style, delivery
and service. Based on annual sales revenue, the Company is one of the
largest furniture manufacturers located in the United States. The
Company has been successful in this competitive environment because its
products represent excellent value combining attractive prices and
superior quality and styling; prompt delivery; and courteous service.
Competition from foreign manufacturers is not any more significant in
the marketplace today than competition from domestic manufacturers.
The furniture industry is considered to be a "fashion" industry subject
to constant fluctuations to meet changing consumer preferences and
tastes. As such, the Company is continuously involved in the
development of new designs and products. Due to the nature of these
efforts and the close relationship to the manufacturing operations,
these costs are considered normal operating costs and are not
segregated. The Company is not otherwise involved in "traditional"
research and development activities nor does the Company sponsor
research and development activities of any of its customers.
In management's view, the Company has complied in all material respects
with all federal, state and local standards in the area of safety,
health and pollution and environmental controls. Compliance
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with these standards did result in a charge to earnings in 1997 and
capital spending in 1998 and 1999, but otherwise, has not had a
material adverse effect on past earnings or competitive position. The
Company is involved in environmental matters at certain of its plant
facilities, which arise in the normal course of business. Although the
final outcome of these environmental matters cannot be determined,
based on the facts presently known, it is management's opinion that the
final resolution of these matters will not have a material adverse
effect on the Company's financial position or future results of
operations.
The Company had approximately 4,700 employees at November 27, 1999.
The Company has several investments in affiliated companies, including
a minority interest in International Home Furnishings Center, Inc.
which is a lessor of permanent exhibition space to furniture and
accessory manufacturers. The financial statements are included on pages
F-1 to F-13. The Company owns a majority interest in The Bassett
Industries Alternative Asset Fund, LP, which invests in a variety of
other private partnerships, employing a combination of investment
strategies. The Bassett Industries Alternative Asset Fund's year ended
on December 31, 1999, as such the financial statements have not been
included in this Form 10-K. Form 10-K will be amended to include such
statements when available.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company has no foreign operations, and its export sales were
approximately $10.6 million, $14.3 million, and $12.5 million in 1999,
1998 and 1997 respectively.
This discussion contains 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 the Company. These foward-looking statements involve certain risks
and uncertainties and no assurance can be given that any such matters
will be realized. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements
include competitive conditions in the industry in which the Company
operates and general economic conditions. Those and other risks are
more fully discussed in the Company's 1999 Annual Report to
Shareholders under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is incorporated by
reference in Part II, Item 7 of this Form 10-K.
ITEM 2. PROPERTIES
At November 27, 1999 the Company owned the following manufacturing
facilities, by segment:
Wholesale Business
[ ]
Wood Segment:
J. D. Bassett Manufacturing Company
Bassett, VA
Bassett Superior Lines
Bassett, VA
Bassett Chair Company
Bassett, VA
Bassett Table Company
Bassett, VA
Bassett Furniture Industries
Macon, GA
Bassett Dining Table Top
Martinsville, VA
Bassett Furniture Industries
Dublin, GA
Bassett Furniture Industries
Mt. Airy, NC
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Upholstery Segment:
Bassett Upholstery
Claremont, NC
Bassett Upholstery Division
Newton, NC (2 plants)
Bassett Upholstery Division
Hiddenite, NC
Bassett Upholstery Division**
Dumas, AR
Bassett Upholstery
Los Angeles, CA
Other:
Weiman Upholstery
Christiansburg, VA
The Company owned Bassett Furniture Direct retail stores approximating 25,000
square feet each in the following cities:
Retail Business:
Greenville, SC
Concord, NC
Greensboro, NC
Fredericksburg, VA
Knoxville, TN
Gulfport, MS
In addition to the properties listed above, the Company operates five
additional store locations under operating leases with lease terms
expiring in various years through 2014.
The Company also owns its general corporate office building, three
warehouses , and an outlet store all located in Bassett, Virginia and a
showroom in High Point, North Carolina.
In general, these facilities are suitable and are considered to be
adequate for the continuing operations involved. All facilities, except
those held for sale, are in regular use.
** Denotes facilities that were held for sale at November 27, 1999.
The following facilities were sold or disposed of during 1999:
Bassett Veneer
Burkeville, VA
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Bassett Furniture Industries of North Carolina, Inc.
Statesville, NC
E. B. Malone Corporation (Bedding Division)
Lake Wales, FL
(5 plants located in FL, PA,WI, and MO)
ITEM 3. LEGAL PROCEEDINGS
A suit was filed in June, 1997, in the Superior Court of the State of
California for the County of Los Angeles (the "Superior Court") against
the Company, two major retailers and certain current and former
employees of the Company. The suit sought certification of a class
consisting of all consumers who purchased certain mattresses and box
springs from the major retailers which were manufactured by a
subsidiary of the Company, E.B. Malone Corporation, with allegedly
different specifications than those originally manufactured for sale by
these retailers. The suit alleged various causes of action, including
negligent misrepresentation, breach of warranty, violations of
deceptive practices laws and fraud. Plaintiffs sought compensatory
damages of $100 million and punitive damages. In 1997, the Superior
Court twice sustained the Company's demurrers to several of plaintiffs'
causes of action, but granted the plaintiffs leave to amend. In 1998,
the Superior Court dismissed the class action allegations in the
plaintiff's complaint and transferred the entire class action out of
the class action department. The Court also dismissed many of the
individual claims. Plaintiffs then filed a notice of appeal from the
class action ruling. Plaintiffs also filed a petition for a writ of
mandamus or other extraordinary relief, which was denied. The suit was
subsequently transferred from the Superior Court for the County of Los
Angeles to the Superior Court for Orange County. After the case was
transferred to Orange County, the plaintiffs stipulated to a dismissal
with prejudice of all individual defendants. Additionally, all
remaining claims against the Company were stayed by the Orange County
Court pending Plaintiffs' appeal of the dismissal of their class action
allegations. The parties have recently briefed the issues on appeal,
but no hearing date has been set by the appellate court. Although it is
impossible to predict the ultimate outcome of this litigation, the
Company intends to vigorously defend this suit, because it believes
that the damages sought are unjustified and because this case is
inappropriate for class action treatment. Because the Company believes
that the two major retailers were unaware of the alleged changes in
specifications, the Company has agreed to indemnify the two major
retailers with respect to the above.
Legislation has phased out interest deductions on certain policy loans
related to Company owned life insurance (COLI) as of January 1, 1999.
The Company has recorded cumulative reduction to income tax expense of
approximately $8 million as the result of COLI interest deductions
through 1998. The Internal Revenue Service (IRS), on a national level,
has pursued an adverse position regarding the deductibility of COLI
policy loan interest for years prior to January 1, 1999. In 1999, the
IRS received a favorable Tax Court ruling on one taxpayer regarding the
non-deductibility of COLI loan interest. Management understands that
this ruling and the adverse position taken by the IRS will be subjected
to extensive challenges in court. In the event that the IRS prevails,
the outcome could result in potential income tax and interest payments
which could be material to the Company's future results of operations.
The Company is also involved in various other claims and actions,
including environmental matters at certain of its plant facilities,
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 management's opinion that the
final resolution of these matters will not have a material adverse
effect on the Company's financial position or future results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
ITEM 4b. EXECUTIVE OFFICERS OF THE REGISTRANT
John E. Bassett III, 41, has been with the Company since before 1993 as
the Vice President and General Manager of Bassett Table and the Vice
President of Wood Manufacturing.
Grover S. Elliott, 59, was the Chief Financial Officer for Cochrane
Furniture from 1993 until 1996 and has been with the Company as Vice
President of Finance and Investor Relations since 1996.
Paul Fulton, 65, was the President of the Sara Lee Corporation (package
food & consumer products division) until 1993, from 1994 until 1997 he
was Dean of the Kenan-Flagler Business School at the University of
North Carolina at Chapel Hill, and has been Chairman and Chief
Executive Officer of the Company since 1997.
Janice Hamlin, 46, was the Vice President of Retail Business and
Product Development with Warner Bros. Consumer Products (Time Warner)
from 1990 until 1996, the Vice President of Marketing for Viacom Retail
Group from 1996 until 1997, and has been with the Company as Vice
President of Marketing since 1997.
Jay R. Hervey, Esq., 40, was an Associate with the Richmond Office of
McGuire, Woods, Battle and Boothe from 1993 through 1997 and has been
the General Counsel, Corporate Vice President and Secretary for the
Company since 1997.
Dennis S. Hoy, 41, was a furniture buyer with Marlo Furniture from 1987
until 1996 and has been with the Company working in the Impact
Division, as Casegoods and Merchandise Manager and as Vice President of
Merchandising. In 1999, he was promoted to Vice President and General
Manager, Upholstery.
Thomas E. Prato, 44, has been with the Company since 1987 and is
currently the Vice President of Sales.
Steven P. Rindskopf, 44, was the Vice President of Human Resources for
The Bali Company (a division of the Sara Lee Corporation) from 1993
until 1997, the Owner and Operator of the Master's Loft (Bookstore &
Cafe) Company in 1997, and has been with the Company as Vice President,
Administration and Human Resources since 1997.
Barry C. Safrit, 37, was with CHF Industries from 1993 until 1998 as
Controller and as Chief Financial Officer and has been the Vice
President and Chief Accounting Officer for the Company since October of
1998.
Keith R. Sanders, 55, was with Ethan Allen from 1993 until 1998 as the
Vice President of Manufacturing and Vice President of Upholstery and
has been the Vice President of Upholstery and Manufacturing for the
Company since 1998. In 1999, he was promoted to Executive Vice
President, Operations.
Robert H. Spilman, Jr., 43, was the Company's Executive Vice President
of Marketing and Merchandising from 1993 until 1997 and has served as
President and Chief Operating Officer since 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information contained in the Annual Report under the caption
"Investor Information" with respect to number of stockholders, market
prices and dividends paid is incorporated herein by reference thereto.
ITEM 6. SELECTED FINANCIAL DATA
The information for the five years ended November 29, 1999, contained
in "Other Business Data" in the Annual Report is incorporated herein by
reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in "Management's Discussion and Analysis of
Financial Condition and Result of Operations" in the Annual Report is
incorporated herein by reference thereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The information contained in "Management's Discussion and Analysis of
Financial Condition and Result of Operations -- Market Risk" in the
Annual Report is incorporated herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, notes to consolidated
financial statements, and other business data of the Registrant and its
subsidiaries contained in the Annual Report are incorporated herein by
reference thereto. In addition, financial statements of the
registrant's 50% or less owned significant subsidiary are included in
this Form 10-K on pages F-1 to F-13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 3 through 5 and page 12 of the Proxy
Statement under the "Election of Directors" and "Section 16 (a)
Beneficial Ownership Reporting Compliance" is incorporated herein by
reference thereto. Please see section entitled "Executive Officers of
the Registrant" in Item 4b of Part I of this report for information
concerning executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 through 12 of the Proxy Statement
under the captions "Organization, Compensation and Nominating Committee
Report," "Stockholder Return Performance Graph," "Executive
Compensation," "Supplemental Retirement Income Plan," "Deferred
Compensation Agreement," "Severance Arrangements with Former
Executives," and "Director Compensation" is incorporated herein by
reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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[ ] PAGE [ ]9[ ]
The information contained on pages 2 through 5 of the Proxy Statement
under the headings "Principal Stockholders and Holdings of Management"
and "Election of Directors" is incorporated herein by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 5 of the Proxy Statement under the
heading "Certain Transactions" is incorporated herein by reference
thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of the
registrant and its subsidiaries, included in the Annual Report
are incorporated herein by reference thereto:
Consolidated Balance Sheets--November 27, 1999 and
November 28, 1998
Consolidated Statements of Operations--Years Ended
November 27, 1999, November 28, 1998 and November 30,
1997
Consolidated Statements of Comprehensive
Income--Years ended November 27, 1999, November 28,
1998, and November 30, 1997
Consolidated Statements of Stockholders' Equity--
Years Ended November 27, 1999, November 28, 1998 and
November 30, 1997
Consolidated Statements of Cash Flows-- Years Ended
November 27, 1999, November 28, 1998 and November 30,
1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
International Home Furnishings Center, Inc. Financial
Statements are included herein on pages F-1 to F-13.
(2) Financial Statement Schedule:
Schedule II - Analysis of Valuation and Qualifying Accounts
for the years ended November 27, 1999, November 28, 1998, and
November 30, 1997
(3) Listing of Exhibits
3A. Articles of Incorporation as amended are incorporated
herein by reference to Form 10-Q for the fiscal
quarter ended February 28, 1994.
3B. Amendment to the By-laws dated January 18, 2000,
including the By-laws as amended are filed
herewith.
4. $50 million Credit Agreement dated October 19, 1999
with First Union National Bank, is filed herewith.
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- PAGE -11-
** 10A. Bassett 1993 Long Term Incentive Stock Option Plan is
incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (no.33-52405)
filed on February 25, 1994.
** 10B. Bassett Executive Deferred Compensation Plan is
incorporated herein by reference to Form 10-K for the
fiscal year ended November 30, 1997.
** 10C. Bassett Supplemental Retirement Income Plan is
incorporated herein by reference to Form 10-K for the
fiscal year ended November 30, 1997.
** 10D. Bassett 1993 Stock Plan for Non-Employee Directors as
amended is incorporated herein by reference to Form
10-K for the fiscal year ended November 28, 1998.
** 10E. Bassett 1997 Employee Stock Plan is incorporated
herein by reference to the Registrant's Registration
Statement on Form S-8 ( no. 333-60327) filed on July
31, 1998.
10F. Severance Agreement and General Release dated January
31, 1999 between Registrant and Douglas W. Miller is
filed herewith.
10G. Severance Agreement and General Release dated
November 27, 1999 between Registrant and John S.
Lupo is filed herewith.
13. Portions of the Registrant's Annual Report to
Stockholders for the year ended November 27, 1999.
21. List of subsidiaries of the Registrant is filed
herewith.
23A. Consent of Arthur Andersen LLP is filed herewith.
23B. Consent of Dixon Odom PLLC is filed herewith.
27. Financial Data Schedule (EDGAR filing only)
**Management contract or compensatory plan or arrangement of the
Company.
(b) No reports on Form 8-K were filed during the last quarter of the
Registrant's 1999 fiscal year.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BASSETT FURNITURE INDUSTRIES, INCORPORATED (Registrant)
By:/s/ PAUL FULTON Date: 2-25-00
--------------------------------------- --------------------------
Paul Fulton
Chairman of the Board of Directors and
Chief Executive Officer
By:/s/ ROBERT H. SPILMAN, JR Date: 2-25-00
--------------------------------------- --------------------------
Robert H. Spilman, Jr.
President, Chief Operating Officer,
and Director
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By:/s/ AMY W. BRINKLEY Date: 2-25-00
--------------------------------------- --------------------------
Amy W. Brinkley
Director
By: Date:
--------------------------------------- --------------------------
Peter W. Brown
Director
By: /s/ THOMAS E.CAPPS Date: 2-25-00
--------------------------------------- --------------------------
Thomas E. Capps
Director
By: Date:
--------------------------------------- --------------------------
Willie D. Davis
Director
By: Date:
--------------------------------------- --------------------------
Alan T. Dickson
Director
By: Date:
--------------------------------------- --------------------------
William H. Goodwin, Jr.
Director
SIGNATURES Continued
12
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By: Date:
--------------------------------------- --------------------------
Howard H. Haworth
Director
By:/s/ MICHAEL E. MURPHY Date: 2-25-00
--------------------------------------- --------------------------
Michael E. Murphy
Director
By:/s/ ALBERT F. SLOAN Date: 2-25-00
--------------------------------------- --------------------------
Albert F. Sloan
Director
By: /s/ BARRY C. SAFRIT Date: 2-25-00
--------------------------------------- --------------------------
Barry C. Safrit
Vice President and Chief Accounting
Officer
(Principal Financial Officer)
13
[ ] PAGE [ ]13[ ]
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1)
CERTAIN EXHIBITS
YEAR ENDED NOVEMBER 27, 1999
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
BASSETT, VIRGINIA
14
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
15
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
================================================================================
TABLE OF CONTENTS
Page No.
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INDEPENDENT AUDITORS' REPORT.......................................................................... 1
FINANCIAL STATEMENTS
Balance Sheets..................................................................................... 2
Statements of Income .............................................................................. 3
Statements of Stockholders' Equity (Deficit)....................................................... 4
Statements of Cash Flows........................................................................... 5
Notes to Financial Statements...................................................................... 6
16
F-1
[DIXON ODOM PLLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
International Home Furnishings Center, Inc.
High Point, North Carolina
We have audited the accompanying balance sheets of International Home
Furnishings Center, Inc. as of October 31, 1999 and 1998 and the related
statements of income, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended October 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Home Furnishings
Center, Inc. at October 31, 1999 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended October 31, 1999
in conformity with generally accepted accounting principles.
/s/ Dixon Odom PLLC
- --------------------
Dixon Odom PLLC
High Point, North Carolina
November 22, 1999
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Page 1
17
F-2
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
================================================================================
ASSETS 1999 1998
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 8,004,521 $ 16,396,705
Restricted cash (Note C) 2,275,974 2,275,974
Short-term investments 90,778 83,643
Receivables
Trade 2,253,583 2,163,950
Interest 14,627 36,892
Deferred income tax asset 610,000 592,000
Prepaid expenses 806,229 55,965
-------------- --------------
TOTAL CURRENT ASSETS 14,055,712 21,605,129
-------------- --------------
PROPERTY AND EQUIPMENT, at cost
Land and land improvements 3,293,772 3,293,772
Buildings, exclusive of theater complex 75,439,170 75,196,472
Furniture and equipment 3,631,421 3,536,662
-------------- --------------
82,364,363 82,026,906
Accumulated depreciation (43,926,570) (41,727,981)
-------------- --------------
38,437,793 40,298,925
-------------- --------------
OTHER ASSETS
Theater complex, at cost less amortization (Note G) 976,854 1,020,109
Deferred financing costs, net of accumulated amortization
of $104,413 in 1999 and $20,883 in 1998 480,296 563,826
-------------- --------------
1,457,150 1,583,935
-------------- --------------
TOTAL ASSETS $ 53,950,655 $ 63,487,989
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable, trade $ 780,010 $ 793,617
Accrued property taxes 1,667,283 1,668,201
Other accrued expenses 811,121 935,796
Rents received in advance 1,613,689 1,478,883
Current maturities of long-term debt 9,295,564 8,667,074
-------------- --------------
TOTAL CURRENT LIABILITIES 14,167,667 13,543,571
-------------- --------------
LONG-TERM DEBT 55,654,584 64,950,148
-------------- --------------
OTHER LONG-TERM LIABILITIES
Supplemental retirement benefits 1,504,227 963,091
Deferred income tax liability 1,454,000 1,936,000
-------------- --------------
2,958,227 2,899,091
-------------- --------------
COMMITMENT (Note G)
STOCKHOLDERS' DEFICIT
Common stock, $5 par value, 1,000,000 shares authorized,
527,638 shares issued and outstanding in 1999 and 1998 2,638,190 2,638,190
Additional paid-in capital 169,360 169,360
Accumulated deficit (21,637,373) (20,712,371)
-------------- --------------
(18,829,823) (17,904,821)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 53,950,655 $ 63,487,989
============== ==============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 2
18
F-3
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
================================================================================
1999 1998 1997
---------------- --------------- ----------------
OPERATING REVENUES
Rental income $ 31,684,174 $ 31,046,712 $ 31,099,737
Other revenues 6,472,825 6,333,233 5,907,086
---------------- --------------- ----------------
TOTAL OPERATING REVENUES 38,156,999 37,379,945 37,006,823
---------------- --------------- ----------------
OPERATING EXPENSES
Compensation and benefits 4,084,283 3,648,331 3,503,952
Market and promotional 2,558,772 2,554,960 2,705,908
Maintenance and building costs 862,804 743,347 1,188,784
Depreciation expense 2,202,723 2,187,359 2,191,755
Rent 152,234 138,835 138,835
Property taxes and insurance 1,987,898 2,012,249 2,061,772
Utilities 1,652,068 1,769,612 1,685,299
Other operating costs 617,201 472,929 439,691
---------------- --------------- ----------------
TOTAL OPERATING EXPENSES 14,117,983 13,527,622 13,915,996
---------------- --------------- ----------------
INCOME FROM OPERATIONS 24,039,016 23,852,323 23,090,827
---------------- --------------- ----------------
NONOPERATING INCOME
Interest income 929,317 802,224 1,552,708
Dividend income 3,692 4,188 3,874
---------------- --------------- ----------------
TOTAL NONOPERATING INCOME 933,009 806,412 1,556,582
---------------- --------------- ----------------
NONOPERATING EXPENSES
Interest expense 4,936,077 1,517,248 -
---------------- --------------- ----------------
TOTAL NONOPERATING EXPENSES 4,936,077 1,517,248 -
---------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 20,035,948 23,141,487 24,647,409
PROVISION FOR INCOME TAXES 7,770,000 9,103,000 9,542,000
---------------- --------------- ----------------
NET INCOME $ 12,265,948 $ 14,038,487 $ 15,105,409
================ =============== ================
BASIC EARNINGS PER COMMON SHARE $ 23.25 $ 26.61 $ 28.63
================ =============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 527,638 527,638 527,638
================ =============== ================
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 3
19
F-4
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
================================================================================
Retained
Additional Earnings
Common Paid-In (Accumulated
Stock Capital Deficit) Total
-------------- ------------- ------------- --------------
BALANCE, OCTOBER 31, 1996 $ 2,638,190 $ 169,360 $ 77,905,998 $ 80,713,548
Net income - - 15,105,409 15,105,409
Dividends paid ($97.50 per common share) - - (51,444,705) (51,444,705)
-------------- ------------- ------------- --------------
BALANCE, OCTOBER 31, 1997 2,638,190 169,360 41,566,702 44,374,252
Net income - - 14,038,487 14,038,487
Dividends paid ($144.64 per common share) - - (76,317,560) (76,317,560)
-------------- ------------- ------------- --------------
BALANCE (DEFICIT), OCTOBER 31, 1998 2,638,190 169,360 (20,712,371) (17,904,821)
Net income - - 12,265,948 12,265,948
Dividends paid ($25.00 per common share) - - (13,190,950) (13,190,950)
-------------- ------------- ------------- --------------
BALANCE (DEFICIT), OCTOBER 31, 1999 $ 2,638,190 $ 169,360 $ (21,637,373) $ (18,829,823)
============== ============= ============= ==============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 4
20
F-5
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
================================================================================
1999 1998 1997
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,265,948 $ 14,038,487 $ 15,105,409
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,325,374 2,247,363 2,230,876
Provision for losses on accounts receivable 1,360 5,286 1,963
(Gain) loss on disposal of assets - (1,000) 2,000
Deferred income taxes (500,000) (77,000) (138,000)
Change in assets and liabilities
(Increase) decrease in trade and interest receivables (68,728) (290,003) 330,334
(Increase) decrease in prepaid expenses (750,264) 227,098 (35,698)
Increase (decrease) in accounts payable and
accrued expenses (139,200) 582,272 (267,282)
Increase (decrease) in rents received in advance 134,806 (19,689) 120,952
Increase in supplemental retirement benefits 541,136 159,350 147,547
-------------- -------------- --------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 13,810,432 16,872,164 17,498,101
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash - (2,275,974) -
Purchase and construction of property and equipment (337,457) (484,257) (146,092)
Proceeds from sale of property and equipment - 1,000 2,000
Purchase of short-term investments (7,135) (5,199) (4,585)
Proceeds from maturity of short-term investments - - 150,000
-------------- -------------- --------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (344,592) (2,764,430) 1,323
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 75,000,000 -
Principal payments on long-term debt (8,667,074) (1,382,778) -
Payment of deferred financing costs - (584,709) -
Dividends paid (13,190,950) (76,317,560) (51,444,705)
-------------- -------------- --------------
NET CASH USED BY
FINANCING ACTIVITIES (21,858,024) (3,285,047) (51,444,705)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (8,392,184) 10,822,687 (33,945,281)
CASH AND CASH EQUIVALENTS, BEGINNING 16,396,705 5,574,018 39,519,299
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, ENDING $ 8,004,521 $ 16,396,705 $ 5,574,018
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 9,049,420 $ 8,965,827 $ 9,707,600
Interest expense 4,988,768 1,069,696 -
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 5
21
F-6
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE A - DESCRIPTION OF BUSINESS
The Company is the lessor of permanent exhibition space to furniture and
accessory manufacturers which are headquartered throughout the United States and
in many foreign countries. This exhibition space, located in High Point, North
Carolina, is used by the Home Furnishings Industry to showcase its products at
the International Home Furnishings Market held each April and October. The
details of the operating leases with the Company's tenants are described in
Note I.
The Company has been in business since June 27, 1919, and operates under the
trade name of "International Home Furnishings Center."
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies relative to the carrying values of property and
equipment and theater complex are indicated in the captions on the balance
sheets. Other significant accounting policies are as follows:
Rental Income
Income from rental of exhibition space is recognized under the operating method.
Aggregate rentals are reported as income on the straight-line basis over the
lives of the leases, and expenses are charged as incurred against such income.
Future rentals under existing leases are not recorded as assets in the
accompanying balance sheets.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Investment Securities
The Company has investments in debt and marketable equity securities. Debt
securities consist of obligations of state and local governments and U. S.
corporations. Marketable equity securities consist primarily of investments in
mutual funds.
Management determines the appropriate classification of securities at the date
individual investment securities are acquired, and the appropriateness of such
classification is reassessed at each balance sheet date. Since the Company
neither buys investment securities in anticipation of short-term fluctuations in
market prices or commits to holding debt securities to their maturities,
investments in debt and marketable equity securities have been classified as
available-for-sale. Available-for-sale securities are stated at fair value, and
unrealized holding gains and losses, if significant, net of the related deferred
tax effect, are reported as a separate component of accumulated other
comprehensive income in stockholders' equity. Premiums and discounts on
investments in debt securities are amortized over their contractual lives.
Interest on debt securities is recognized in income as accrued, and dividends on
marketable equity securities are recognized in income when declared. Realized
gains and losses are included in income and are determined on the basis of the
specific securities sold.
- --------------------------------------------------------------------------------
Page 6
22
F-7
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Equipment and Depreciation
Additions and major improvements to property and equipment are recorded at cost.
Expenditures for maintenance, repairs, and minor renewals are charged to expense
as incurred. Depreciation is provided primarily on the straight-line method over
the following estimated useful lives:
Land improvements 10 years
Building structures 20 to 50 years
Building components 5 to 20 years
Furniture and equipment 3 to 10 years
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company periodically reviews long-lived assets
when indicators of impairment exist, and if the value of the assets is impaired,
an impairment loss would be recognized.
Deferred Financing Costs
Costs associated with obtaining the term loan disclosed in Note E have been
deferred and are being amortized on the straight-line method over the term of
the related debt. Amortization expense charged to operations during the years
ended October 31, 1999 and 1998 was $83,530 and $20,883, respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to temporary differences between the reported amounts of assets and
liabilities and their tax bases. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Earnings Per Common Share
During the year ended October 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," which specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS"). It replaces the presentation of primary and fully diluted EPS with
basic and diluted EPS. Basic EPS excludes all dilution and has been computed
using the weighted average number of common shares outstanding during the year.
Diluted EPS would reflect the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. The Company has no dilutive potential common shares.
- --------------------------------------------------------------------------------
Page 7
23
F-8
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Retirement Plans
The Company maintains a 401(k) qualified retirement plan covering eligible
employees under which participants may contribute up to 25% of their
compensation subject to maximum allowable contributions. The Company is
obligated to contribute, on a matching basis, 50% of the first 6% of
compensation voluntarily contributed by participants. The Company may also make
additional contributions to the plan if it so elects.
In 1991, the Company adopted a nonqualified supplemental retirement benefits
plan for key management employees. Benefits payable under the plan are based
upon the participant's average compensation during his last five years of
employment and are reduced by benefits payable under the Company's qualified
retirement plan and by one-half of the participant's social security benefits.
Benefits under the plan do not vest until the attainment of normal retirement
age; however, a reduced benefit is payable if employment terminates prior to
normal retirement age because of death or disability. The Company has no
obligation to fund this supplemental plan.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C - RESTRICTED CASH
Restricted cash consists of an interest-bearing debt service account. The
Company makes semi-annual escrow deposits each May and November in amounts
sufficient to provide interest and principal payments on the Company's term debt
for the ensuing six months.
NOTE D - INVESTMENT IN DEBT AND MARKETABLE EQUITY SECURITIES
The following is a summary of the Company's investment in available-for-sale
securities as of October 31, 1999 and 1998:
1999
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- ---------------
Debt securities
State and local governments $ 5,103,547 $ - $ - $ 5,103,547
U. S. corporations 1,000,000 - - 1,000,000
Equity securities 90,778 - - 90,778
-------------- -------------- --------------- ---------------
$ 6,194,325 $ - $ - $ 6,194,325
============== ============== =============== ===============
- --------------------------------------------------------------------------------
Page 8
24
F-9
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE D - INVESTMENT IN DEBT AND MARKETABLE EQUITY SECURITIES (CONTINUED)
1998
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- ---------------
Debt securities
State and local governments $ 10,528,478 $ - $ - $ 10,528,478
U. S. corporations 3,000,000 - - 3,000,000
Equity securities 83,643 - - 83,643
-------------- -------------- --------------- ---------------
$ 13,612,121 $ - $ - $ 13,612,121
============== ============== =============== ===============
Available-for-sale securities are classified in the following balance sheet
captions as of October 31, 1999 and 1998:
1999 1998
---------------- ----------------
Cash and cash equivalents $ 6,103,547 $ 13,528,478
Short-term investments 90,778 83,643
---------------- ----------------
$ 6,194,325 $ 13,612,121
================ ================
All the Company's debt securities mature within one year.
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at October 31, 1999 and 1998:
1999 1998
---------------- -----------------
Term note payable, principal and interest are due in monthly
installments of $1,137,987 through August 1, 2005, with interest
included at 7.06%, collateralized by land and buildings with a
carrying value of $37,870,349 at October 31, 1999 $ 64,950,148 $ 73,617,222
Less current maturities 9,295,564 8,667,074
---------------- -----------------
$ 55,654,584 $ 64,950,148
================ =================
- --------------------------------------------------------------------------------
Page 9
25
F-10
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE E - LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt are due as follows:
Year Ending October 31,
2000 $ 9,295,564
2001 9,995,880
2002 10,735,336
2003 11,529,494
2004 12,378,440
2005 11,015,434
----------------
$ 64,950,148
================
Under the provisions of the loan agreement, the Company is required, among other
things, to comply with restrictive loan covenants including maintaining certain
financial ratios and minimum levels of net worth and working capital. The
Company was in compliance with the terms of the loan agreement at October 31,
1999.
NOTE F - INCOME TAXES
The provision for income taxes consisted of the following for the years ended
October 31, 1999, 1998 and 1997:
1999 1998 1997
--------------- -------------- --------------
Federal:
Current $ 6,765,000 $ 7,450,000 $ 7,785,000
Deferred (395,000) (62,000) (109,000)
--------------- -------------- --------------
6,370,000 7,388,000 7,676,000
--------------- -------------- --------------
State:
Current 1,505,000 1,730,000 1,895,000
Deferred (105,000) (15,000) (29,000)
--------------- -------------- --------------
1,400,000 1,715,000 1,866,000
--------------- -------------- --------------
TOTAL $ 7,770,000 $ 9,103,000 $ 9,542,000
=============== ============== ==============
- --------------------------------------------------------------------------------
Page 10
26
F-11
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE F - INCOME TAXES (CONTINUED)
A reconciliation of the income tax provision at the federal statutory rate to
the income tax provision at the effective tax rate is as follows:
1999 1998 1997
--------------- -------------- --------------
Income taxes computed at the federal
statutory rate $ 7,013,000 $ 8,100,000 $ 8,627,000
State taxes, net of federal benefit 910,000 1,115,000 1,232,000
Nontaxable investment income (180,000) (196,000) (414,000)
Other, net 27,000 84,000 97,000
--------------- -------------- --------------
$ 7,770,000 $ 9,103,000 $ 9,542,000
=============== ============== ==============
The components of deferred income taxes consist of the following:
1999 1998 1997
--------------- -------------- --------------
Deferred income tax assets:
Rents received in advance $ 610,000 $ 592,000 $ 599,000
Supplemental retirement benefits 602,000 384,000 321,000
--------------- -------------- --------------
TOTAL DEFERRED TAX ASSETS 1,212,000 976,000 920,000
Deferred income tax liabilities:
Depreciation (2,056,000) (2,320,000) (2,341,000)
--------------- -------------- --------------
TOTAL NET DEFERRED TAX LIABILITIES $ (844,000) $ (1,344,000) $ (1,421,000)
=============== ============== ==============
NOTE G - LAND LEASE COMMITMENT
During 1975, the Company completed construction of an eleven-story exhibition
building. The building is constructed on land leased from the City of High
Point, North Carolina under a noncancelable lease. The lease is for an initial
term of fifty years with three options to renew for periods of ten years each
and a final renewal option for nineteen years. Annual rental under the lease is
$152,234 as of October 31, 1999 and is subject to adjustment at the end of each
five-year period, such adjustment being computed as defined in the lease
agreement. As part of the lease agreement, the Company constructed a theater
complex for public use and office space for use by the City of High Point on the
lower levels of the building. Annual rental cash payments over the initial
fifty-year lease term are being reduced by $39,121 which represents amortization
of the cost of the theater and office complex constructed for the City of High
Point. At the termination of the lease, the building becomes the property of the
City of High Point. Under the terms of the lease, the Company is responsible for
all expenses applicable to the exhibition portion of the building. The City of
High Point is responsible for all expenses applicable to the theater complex and
office space constructed for use by the City.
- --------------------------------------------------------------------------------
Page 11
27
F-12
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE H - RETIREMENT EXPENSE
Amounts expensed under the Company's retirement plans amounted to $691,698,
$268,856 and $293,974 for the years ended October 31, 1999, 1998 and 1997,
respectively, including $541,136, $159,350 and $147,547 under the supplemental
retirement benefits plan for the years ended October 31, 1999, 1998 and 1997,
respectively.
NOTE I - RENTALS UNDER OPERATING LEASES
The Company's leasing operations consist principally of leasing exhibition
space. Property on operating leases consists of substantially all of the asset
"buildings, exclusive of theater complex" included on the balance sheets.
Accumulated depreciation on this property amounted to $40,937,431 and
$38,909,532 at October 31, 1999 and 1998, respectively. Leases are typically for
five-year periods and contain provisions to escalate rentals based upon either
the increase in the consumer price index or increases in ad valorem taxes,
utility rates and charges, minimum wage imposed by federal and state
governments, maintenance contracts for elevators and air conditioning,
maintenance of common areas, social security payments, increases resulting from
collective bargaining contracts, if any, and such other similar charges and
rates required in operating the Company. Tenants normally renew their leases.
The following is a schedule of minimum future rentals under noncancelable
operating leases as of October 31, 1999, exclusive of amounts due under
escalation provisions of lease agreements:
Year Ending October 31,
2000 $ 20,148,486
2001 15,420,350
2002 11,530,905
2003 6,363,437
2004 1,245,236
Thereafter 74,639
----------------
Total minimum future rentals $ 54,783,053
================
Rental income includes contingent rentals under escalation provisions of leases
of $1,322,521, $1,401,867 and $1,534,413 for the years ended October 31, 1999,
1998 and 1997, respectively.
NOTE J - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits in excess of federally insured
limits and trade accounts receivable from customers predominantly in the Home
Furnishings Industry. As of October 31, 1999, the Company's bank balances
exceeded federally insured limits by $2,110,209. The Company's trade accounts
receivable are generally collateralized by merchandise in leased exhibition
spaces which is in the Company's possession.
- --------------------------------------------------------------------------------
Page 12
28
F-13
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
================================================================================
NOTE K - STOCKHOLDERS' DEFICIT
During the year ended October 31, 1998, the Company paid dividends of
$76,317,560 resulting in a deficit in stockholders' equity of $17,904,821 at
October 31, 1998. During the year ended October 31, 1999, the deficit was
increased because of the payment of dividends in excess of net income for the
year. The 1998 dividends were financed, in part, with the proceeds of a
$75,000,000 term loan. Although interest on this debt will negatively impact
future earnings, management believes future earnings will provide adequate
equity capital for the Company and that operating cash flows will be sufficient
to provide for debt service and for the Company's other financing and investing
needs.
NOTE L - CONSTRUCTION PLANS
The Company's Board of Directors has approved a project to add additional
exhibition space to the existing facilities. Although contractual commitments
have not been finalized, construction is expected to begin in January 2000 and
to be completed in time for tenants to utilize the additional exhibition space
for the April 2001 International Home Furnishings Market. The cost of the
construction is estimated to approximate $13,250,000 and plans are to fund the
cost with operating cash flows. The assessment of the cost and the timetable for
completion are management's estimates, and it is reasonably possible that actual
and estimated results will differ materially.
- --------------------------------------------------------------------------------
Page 13
29
INDEX TO FORM 10-K SCHEDULE
Exhibit No.
- -----------
F - 14 Report of Independent Public Accountants
F - 15 Bassett Furniture Industries, Incorporated. Schedule II -
Analysis of Valuation and Qualifying Accounts for the years
ended November 27, 1999, November 28, 1998 and November 30,
1997.
30
F-14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Bassett Furniture Industries,
Incorporated:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in the Bassett Furniture Industries, Incorporated
Annual Report to Stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 17, 2000. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule on page F-15 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Greensboro, North Carolina,
January 17, 2000.
31
F-15
BASSETT FURNITURE INDUSTRIES, INCORPORATED
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 27, 1999, November 28, 1998 and November 30, 1997
Balance Additions Balance
Beginning Charged to End
Of Period Cost and Expenses Deductions Other Of Period
---------------------------------------------------------------------------------
(1)
For the Year Ended November 30, 1997:
Reserve deducted from
assets to which it applies-
Allowance for doubtful accounts $1,355 $7,706 $(7,077) --- $1,984
=================================================================================
Restructuring reserve --- $20,646 $(14,397) --- $6,249
=================================================================================
For the Year Ended November 28, 1998:
Reserve deducted from
assets to which it applies-
Allowance for doubtful accounts $1,984 $692 $(476) --- $2,200
=================================================================================
Restructuring reserve $6,249 --- $(3,760) --- $2,489
=================================================================================
For the Year Ended November 27, 1999:
Reserve deducted from
assets to which it applies-
Allowance for doubtful accounts $2,200 $680 $(322) --- $2,558
=================================================================================
Restructuring reserve $2,489 --- $(1,173) --- $1,316
=================================================================================
(1) Deductions are for the purpose for which the reserve was created.
32
INDEX TO EXHIBITS
Exhibit No.
- -----------
3 B Amendment to the By-laws dated January 18, 2000,
including the By-laws as amended.
4 $50 million Credit Agreement dated October 19, 1999 with First
Union National Bank
10F Severance Agreement and General Release dated January 31, 1999
between Registrant and Douglas N. Miller
10G Severance Agreement and General Release dated November 27,
1999 between Registrant and John S. Lupo
13 Portions of the Bassett Furniture Industries, Incorporated
Annual Report to Stockholders for the year ended November 27,
1999
21 List of subsidiaries of registrant
23A Consent of Independent Public Accountants
23B Consent of Independent Auditors
27 Financial Data Schedule (EDGAR filing only)