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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1997 Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
------------------------------------------
(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
-------------------- --------------------------
Common Stock ($5.00 par value) NASDAQ
------------------------------ ------
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 18, 1998 was
$339,950,000.
The number of shares of the Registrant's common stock outstanding on
February 18, 1998 was 13,051,279.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Bassett Furniture Industries, Incorporated Annual
Report to Stockholders for the year ended November 30, 1997 (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 1998 Annual Meeting of Stockholders to be held
March 24,1998, 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 was incorporated under
the laws of the Commonwealth of Virginia in 1930. The executive
offices are located in Bassett, Virginia.
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. The major components of the restructuring and impairment
of assets charges and the remaining reserves as of November 30,1997
are as follows:
Writedown of
property and
equipment to
Original net realizable Reserves Reserve
charges value utilized balance
--------- -------------- -------- --------
Non-cash write-downs of
property and equipment
to net realizable value $13,362 $13,362 $ - $ -
Severance and related
employee benefit cost 5,684 - 774 4,910
Lease exit costs 614 - - 614
Other 986 - 261 725
------- ------- ------ ------
Total $20,646 $13,362 $1,035 $6,249
======= ======= ====== ======
The Company completed the closure of five of the fourteen
manufacturing facilities, disposed of one of the facilities and
severed approximately 600 employees during 1997. Eight additional
facilities were closed subsequent to year-end and management expects
to complete the remaining restructuring actions during 1998. Net
sales and operating losses from activities which were discontinued
were $46,221 and $ (31,602) respectively in 1997, $60,119 and
$(1,867) respectively in 1996, and $70,149 and $ (1,495) respectively
in 1995.
As a result of the plan, additional unusual and nonrecurring charges
including moving costs, plant consolidation inefficiencies and
inventory writedowns totaling $31,654 were recorded in 1997. Of
these costs, $28,325 are included in cost of goods sold and $3,329
are included in selling, general and administrative expenses in the
1997 consolidated statement of operations. The Company estimates
that additional charges due to plant inefficiencies and idle
facilities of approximately $10,540 will be incurred during 1998.
After an income tax benefit of $20,397, the restructuring and
impaired asset charges of $20,646 and additional nonrecurring
charges of $31,654 reduced fiscal year 1997 net income by $31,903 or
$2.34 per share.
In addition, the Company incurred other unusual and nonrecurring
charges during 1997 of $12,500 related to customer bankruptcies,
environmental matters and issues related to the Mattress Division.
Of these charges, $1,000 are included in cost of goods sold and
$11,500 are included in selling, general and administrative expenses
in the 1997 consolidated statement of operations. After an income
tax benefit of $4,875, these other unusual and nonrecurring charges
reduced fiscal year 1997 net income by $7,625 or $ .56 per share.
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There have been no other material changes in the mode of conducting
business in the fiscal year beginning December 1, 1996.
INDUSTRY SEGMENT
In accordance with the instructions for this item, Bassett Furniture
Industries, Incorporated and its subsidiaries, all of which are
wholly-owned (Company), is deemed to have been engaged in only one
business segment, manufacture and sale of household furniture, for
the three years ended November 30, 1997.
DESCRIPTION OF BUSINESS
The Company manufactures and sells a full line of furniture for the
home, including bedroom and dining suites and accent pieces;
occasional tables, wall and entertainment units; home office systems
and computer work stations; upholstered sofas, chairs and love seats
(motion and stationary); recliners; and mattresses and box springs.
The Company's products are distributed through a large number of
retailers, principally in the United States. The retailers selling
the Company's products include mass merchandisers, department
stores, independent furniture stores, chain furniture stores,
proprietary retail outlets called Bassett Furniture Direct, Bassett
Direct Plus and Bassett Gallery stores, decorator showrooms,
warehouse showrooms, specialty stores and rent-to-own stores.
The Company's significant product lines are: wood, upholstery and
bedding, which accounted for 46%, 29% and 12% of net sales during
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 1997.
The Company's trademark "Bassett" and the names of its marketing
divisions and product 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.
The Company 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 14% of gross sales in 1997, 15% in 1996 and 14% in
1995. The Company's backlog of orders believed to be firm was
$43,000 at November 30,1997 and $48,000 at November 30, 1996. It is
expected that the November 30, 1997 backlog will be filled within
the 1998 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 values
combining attractive price and superior quality and styling; prompt
delivery; and quality, 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 change to meet the 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
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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
with these standards has not had a material adverse effect on past
earnings, capital expenditures 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 5,700 employees at November 30, 1997.
The Company owns a minority interest in International Home
Furnishings Center, which is a lessor of permanent exhibition space
to furniture and accessory manufacturers.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company has no foreign operations, and its export sales are
insignificant.
ITEM 2. PROPERTIES
At November 30, 1997 the Company owns the following manufacturing facilities:
Plant Name Location Construction
---------- -------- ------------
J. D. Bassett Manufacturing Company Bassett, VA (2 plants) Brick, frame and concrete
Bassett Superior Lines Bassett, VA Brick, frame, concrete and steel
Bassett Chair Company Bassett, VA Brick, frame, concrete and steel
Bassett Table Company Bassett, VA Brick and frame
Bassett Fiberboard Bassett, VA Brick, concrete and steel
Bassett Upholstery Division Newton, NC (4 plants) Brick, concrete and steel
Bassett Upholstery Division Taylorsville, NC Brick, concrete and steel
Bassett Upholstery Division Dumas, AR Brick, concrete and steel
Bassett Furniture Industries of North
Carolina, Inc. Macon, GA Brick, concrete and steel
Dublin, GA Concrete block and steel
* Statesville, NC Brick, frame, concrete and steel
Burkeville Veneer * Burkeville, VA Brick and frame
National/Mt. Airy Mt. Airy, NC Brick, concrete and steel
Weiman Division Christiansburg, VA Metal frame
E. B. Malone Corporation Lake Wales, FL
(2 plants) Concrete block and frame
* Pottstown, PA Metal frame
* West Palm Beach, FL Concrete block and steel
Walworth, WI Concrete block and steel
Fredericksburg, VA Brick and frame
Chehalis, WA Concrete block and metal frame
Los Angeles, CA Concrete block and metal frame
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Los Angeles, CA Brick, concrete and steel
Tipton, MO Concrete block and steel
Impact Furniture * Hickory, NC (1 plant and
1 warehouse) Brick, concrete and steel
Bassett Motion Division * Booneville, MS
(2 plants) Metal frame
The Company also owns its general corporate office building in
Bassett, Virginia (brick, concrete and steel), two warehouses in
Bassett, Virginia (brick and concrete) and a showroom in High Point,
North Carolina (brick, concrete and steel).
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.
Properties designated by an asterisk "*" have ceased manufacturing
operations and are currently held for sale in connection with the
restructuring efforts.
ITEM 3. LEGAL PROCEEDINGS
In June 1997, the Company's management learned that certain
mattresses and box springs manufactured by a subsidiary, E. B.
Malone Corporation, for sale to two major retail customers, were
made with different specifications that those originally
manufactured for sale by these retailers. To remedy this situation,
the Company implemented a program under which consumers who
purchased these products can obtain a rebate directly from the
Company.
On June 18, 1997, a suit was filed 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 seeking certification of a class
consisting of all consumers who purchased the above described
products from these two major retailers. The suit alleges various
causes of action, including negligent misrepresentation, breach of
warranty, violations of deceptive practices laws, and fraud, and
seeks compensatory damages of $100 million and punitive damages.
The Company filed a demurrer seeking to dismiss several of the
causes of action and on September 12, 1997, the Superior Court
sustained the Company's demurrer but granted the plaintiffs leave to
amend. Plaintiffs thereafter filed a Second Amended Complaint
adding certain independent retailers as additional plaintiffs. On
December 17,1997, the Superior Court again sustained the Company's
demurrer to plaintiffs' fraud, negligent misrepresentation and
conspiracy counts, and plaintiffs filed a third Amended Complaint.
On February 10,1998 the Superior Court sustained the Company's
demurer, without leave to amend the class action allegations of the
Third Amended Complaint and ordered the case transferred out of the
class action department. The Superior Court also sustained a
demurrer, without leave to amend, to many of the individual claims.
As a result of these rulings, the number and types of claims have
been substantially reduced. Although it is impossible to predict the
ultimate out- come of this litigation, the Company intends to
vigorously defend this suit because it believes that the damages
sought are unjustified and because certification of a class of
consumers is unnecessary and inappropriate in this case. Because the
Company believes that the two major retailers were unaware of the
changes in product specifications, the Company has agreed to
indemnify the two major retailers with respect to the above.
The Company is also involved in various other claims and actions
which arise in the normal course of business. Although the final
outcome of these legal 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
"Other Business Data" - "Market and Dividend 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 30, 1997,
contained in the "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 "Other Business
Data" in the Annual Report is incorporated herein by reference
thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated
financial statements 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 is included in this Form 10-K
following the Index to Financial Statements and Financial Statement
Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Bassett Furniture Industries decided to change its independent
Public Accountants from KPMG Peat Marwick (KPMG) to Arthur Andersen
effective November 21, 1997, and KPMG Peat Marwick was notified on
that date. This decision was approved unanimously by the Board of
Directors. The new management team at Bassett Furniture Industries,
since taking charge in August 1997, has changed the Company's
management focus and philosophy to more of a strategic focus and
emphasis on return on assets employed. Management believes that
Arthur Andersen's "business risk" audit approach is directly aligned
with the Company's philosophy and will provide this Company's
management team with invaluable information towards managing the
Company better and planning for the future.
During the Company's two most recent fiscal years ended November
30, 1996 and November 30, 1995 and the subsequent interim period
through November 21, 1997, there were no disagreements with KPMG on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which if not
resolved to their satisfaction would have caused them to make
reference to the subject matter of the disagreements in connection
with their opinion.
The audit reports of KPMG on the consolidated financial statements
of the Company for the fiscal years ended November 30, 1996 and
November 30, 1995 did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information contained on pages 1 through 5 of the Proxy
Statement under the captions "Principal Stockholders and Holdings of
Management" and "Election of Directors" is incorporated herein by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 6 through 13 of the Proxy
Statement under the captions "Organization, Compensation and
Nominating Committee Report," "Stockholder Return Performance
Graph," "Executive Compensation," "Supplemental Retirement Income
Plan" and "Deferred Compensation Agreements" is incorporated herein
by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 1 through 3 of the Proxy
Statement under the heading "Principal Stockholders and Holdings of
Management" 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 "Organization and Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as a
separate section of this report.
(2) All financial statement schedules for which provision is
made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore,
have been omitted.
(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. Bylaws as amended are incorporated as filed as an
exhibit to this form pursuant to item 14 (C) of this
report.
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 filed
herewith.
10C. Bassett Supplemental Retirement Income Plan is filed
herewith.
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10D. Bassett 1993 Stock Plan for Non-Employee Directors is
incorporated by reference of the Registrant's
Registration Statement on Form S-8 (no. 33-52407) filed
on February 25, 1994.
13. The registrant's Annual Report to Stockholders for the
year ended November 30, 1997.*
21. List of subsidiaries of the registrant
23A. Consent of Arthur Andersen LLP is filed herewith.
23B. Consent of KPMG Peat Marwick LLP is filed herewith.
23C. Consent of Dixon Odom PLLC is filed herewith.
27. Financial Data Schedule (EDGAR filing only)
*With the exception of the information incorporated in this Form
10-K by reference thereto, the Annual Report shall not be deemed
"filed" as a part of this Form 10-K.
(b) No reports on Form 8-K were filed during the last quarter of the
registrant's 1997 fiscal year.
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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: 3/1/98
---------------------------------------- ------------------
Paul Fulton
Chairman of the Board of Directors and
Chief Executive Officer
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: 2/28/98
---------------------------------------- ------------------
Amy W. Brinkley
Director
By: Date:
---------------------------------------- ------------------
Peter W. Brown
Director
By: /s/ THOMAS E. CAPPS Date: 3/2/98
---------------------------------------- ------------------
Thomas E. Capps
Director
By: Date:
---------------------------------------- ------------------
Willie D. Davis
Director
By: Date:
---------------------------------------- ------------------
Alan T. Dickson
Director
By: /s/ WILLIAM H. GOODWIN, JR. Date: 3/2/98
---------------------------------------- ------------------
William H. Goodwin, Jr.
Director
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SIGNATURES Continued
By: /s/ HOWARD H. HAWORTH Date: 2/28/98
---------------------------------------- ------------------
Howard H. Haworth
Director
By: /s/ JAMES W. MCGLOTHLIN Date: 3/2/98
---------------------------------------- ------------------
James W. McGlothlin
Director
By: /s/ THOMAS W. MOSS, JR. Date: 3/2/98
---------------------------------------- ------------------
Thomas W. Moss, Jr.
Director
By: /s/ MICHAEL E. MURPHY Date: 3/2/98
---------------------------------------- ------------------
Michael E. Murphy
Director
By: Date:
---------------------------------------- ------------------
Albert F. Sloan
Director
By: Date:
---------------------------------------- ------------------
John W. Snow
Director
By: /s/ DOUGLAS W. MILLER Date: 3/2/98
---------------------------------------- ------------------
Douglas W. Miller
Vice President and Chief Financial Officer
By: /s/ RONALD D. CASSELL Date: 3/2/98
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Ronald D. Cassell
Controller
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ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (c)
INDEX OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED NOVEMBER 30, 1997
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
BASSETT, VIRGINIA
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INTERNATIONAL HOME FURNISHINGS CENTER, INC.
===============================================================================
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13
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, 1997 and 1996 and the related
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended October 31, 1997. 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, 1997 and 1996 and the results of its operations and
its cash flows for each of the three years in the period ended October 31, 1997
in conformity with generally accepted accounting principles.
High Point, North Carolina
December 1, 1997
------------
Page 1
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INTERNATIONAL HOME FURNISHINGS CENTER, INC.
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
===============================================================================
ASSETS 1997 1996
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 5,574,018 $ 39,519,299
Short-term investments 78,444 223,859
Receivables
Trade 1,899,925 2,079,608
Interest 16,200 168,814
Deferred income tax asset 599,000 551,000
Prepaid expenses 283,063 247,365
-------------- -----------------
TOTAL CURRENT ASSETS 8,450,650 42,789,945
-------------- -----------------
INVESTMENTS AND OTHER ASSETS
Theater complex, at cost less amortization (Note F) 1,063,364 1,106,619
Other investments, at cost - 4,000
-------------- -----------------
1,063,364 1,110,619
-------------- -----------------
PROPERTY AND EQUIPMENT, at cost
Land and land improvements 3,293,772 3,293,772
Buildings, exclusive of theater complex 74,932,651 74,860,339
Furniture and equipment 3,353,057 3,306,837
-------------- -----------------
81,579,480 81,460,948
Accumulated depreciation (39,581,587) (37,421,526)
------------- ----------------
41,997,893 44,039,422
-------------- -----------------
TOTAL ASSETS $ 51,511,907 $ 87,939,986
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 736,947 $ 993,748
Accrued property taxes 1,662,933 1,691,800
Other accrued expenses 415,462 397,076
Rents received in advance 1,498,572 1,377,620
-------------- -----------------
TOTAL CURRENT LIABILITIES 4,313,914 4,460,244
-------------- -----------------
LONG-TERM LIABILITIES
Supplemental retirement benefits 803,741 656,194
Deferred income tax liability 2,020,000 2,110,000
-------------- -----------------
2,823,741 2,766,194
-------------- -----------------
COMMITMENT (Note F)
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 1,000,000 shares authorized,
527,638 shares issued and outstanding in 1997 and 1996 2,638,190 2,638,190
Additional paid-in capital 169,360 169,360
Retained earnings 41,566,702 77,905,998
-------------- -----------------
44,374,252 80,713,548
-------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $51,511,907 $ 87,939,986
============== =================
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See accompanying notes to financial statements. Page 2
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INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
1997 1996 1995
--------------- --------------- ----------------
OPERATING REVENUES
Rental income $ 31,099,737 $ 30,185,343 $ 29,485,652
Other revenues 5,907,086 5,321,123 5,082,713
--------------- --------------- ----------------
TOTAL OPERATING REVENUES 37,006,823 35,506,466 34,568,365
--------------- --------------- ----------------
OPERATING EXPENSES
Compensation and benefits 3,503,952 3,277,406 3,220,208
Market and promotional 2,705,908 2,406,917 2,339,099
Maintenance and building costs 1,188,784 1,714,734 1,237,126
Depreciation expense 2,191,755 2,257,549 2,085,521
Rent 138,835 138,835 138,835
Property taxes and insurance 2,061,772 2,078,482 2,007,112
Utilities 1,685,299 1,777,009 1,858,860
Other operating costs 439,691 558,173 650,896
--------------- --------------- ----------------
TOTAL OPERATING EXPENSES 13,915,996 14,209,105 13,537,657
--------------- --------------- ----------------
INCOME FROM OPERATIONS 23,090,827 21,297,361 21,030,708
--------------- --------------- ----------------
NONOPERATING INCOME
Interest income 1,552,708 1,562,480 1,391,149
Dividend income 3,874 2,819 2,470
--------------- --------------- ----------------
TOTAL NONOPERATING INCOME 1,556,582 1,565,299 1,393,619
--------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 24,647,409 22,862,660 22,424,327
PROVISION FOR INCOME TAXES 9,542,000 8,413,000 8,719,000
--------------- --------------- --- ---------
NET INCOME $ 15,105,409 $ 14,449,660 $ 13,705,327
=============== =============== ================
EARNINGS PER COMMON SHARE $ 28.63 $ 27.13 $ 24.68
=============== =============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 527,638 532,558 555,343
=============== =============== ================
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 3
16
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
Additional
Common Paid-In Retained
Stock Capital Earnings Total
-------------- -------------- -------------- ----------------
BALANCE, OCTOBER 31, 1994 $ 2,776,715 $ 178,252 $ 60,018,264 $ 62,973,231
Net income - - 13,705,327 13,705,327
Dividends paid ($5.00 per
common share) - - (2,776,715) (2,776,715)
-------------- -------------- ------------- ----------------
BALANCE, OCTOBER 31, 1995 2,776,715 178,252 70,946,876 73,901,843
Net income - - 14,449,660 14,449,660
Purchase and retirement of 27,705
common shares (138,525) (8,892) (7,490,538) (7,637,955)
------------- ------------- ------------- ----------------
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
============== ============== ============== ================
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 4
17
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF CASH FLOWS
Years Ended October 31, 1997, 1996 and 1995
===============================================================================
1997 1996 1995
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,105,409 $ 14,449,660 $ 13,705,327
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,230,876 2,296,669 2,124,642
Provision for losses on accounts receivable 1,963 12,123 14,718
(Gain) loss on disposal of assets 2,000 (1,707) 111,412
Deferred income taxes (138,000) (67,000) 29,000
Change in assets and liabilities
(Increase) decrease in trade and interest receivables 330,334 (142,682) 74,066
(Increase) decrease in prepaid expenses (35,698) 549,905 (16,701)
Decrease in accounts payable and accrued expenses (267,282) (78,363) (2,306,984)
Increase in rents received in advance 120,952 28,833 121,396
Decrease in deferred compensation liability - (3,100) (52,846)
Increase in supplemental retirement benefits 147,547 136,617 126,497
-------------- -------------- --------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 17,498,101 17,180,955 13,930,527
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase and construction of property and equipment (146,092) (327,533) (4,576,376)
Proceeds from sale of property and equipment 2,000 2,500 -
Collections on notes receivable - 25,350 6,200
Proceeds from liquidation of subsidiary - - 15,000
Purchase of certificates of deposit - (2,000,000) -
Purchase of short-term investments (4,585) (6,929) (1,189,115)
Proceeds from maturity of certificates of deposit - 2,000,000 1,000,000
Proceeds from maturity of short-term investments 150,000 1,034,865 1,062,868
-------------- -------------- -------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 1,323 728,253 (3,681,423)
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (51,444,705) - (2,776,715)
Purchase and retirement of common stock - (7,637,955) -
-------------- -------------- -------------
NET CASH USED BY
FINANCING ACTIVITIES (51,444,705) (7,637,955) (2,776,715)
-------------- -------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (33,945,281) 10,271,25 37,472,389
CASH AND CASH EQUIVALENTS, BEGINNING 39,519,299 29,248,046 21,775,657
-------------- -------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 5,574,018 $ 39,519,299 $ 29,248,046
============== ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 9,707,600 $ 8,195,264 $ 8,476,889
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 5
18
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
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 H.
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
of adoption and thereafter 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 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.
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Page 6
19
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Equipment and Depreciation
Additions 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
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.
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.
Earnings Per Common Share
Earnings per common share amounts are based upon the weighted average number of
common shares outstanding during the year. The Company has no common
equivalent shares.
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Page 7
20
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common Share (Continued)
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share ("SFAS No. 128"), 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 is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The Company will adopt SFAS No. 128 as of the first quarter of fiscal 1998 and
believes adoption of the new standards will not have a significant effect on
previously reported earnings per common share.
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 - ACQUISITION AND MERGER OF AFFILIATED COMPANY
On November 8, 1995, the Company and Southern Furniture Exposition Building,
Inc. (SFEB) agreed to a plan to merge SFEB into the Company. On that date, in
anticipation of the merger, six shareholders of SFEB who owned 527,638 shares
(95.01%) of the SFEB outstanding common stock exchanged their shares in SFEB
for 527,638 shares (100%) of the common stock of the Company. As of January 4,
1996, the date SFEB was merged into the Company, the Company acquired and
retired the remaining 4.99% (27,705 shares) of the common stock of SFEB for
cash of $7,637,955.
Because the Company and SFEB were commonly controlled, the exchange of stock
and resulting merger has been accounted for at historical cost in a manner
similar to a pooling of interest. Accordingly, the accompanying financial
statements for the year ended October 31, 1996 are based on the assumption that
the two companies were combined for the full year, and financial statements of
prior years have been restated to give effect to the combination. Because the
Company was incorporated on October 30, 1995 and had no operations or
transactions prior to its acquisition of SFEB, the amounts included in the
accompanying financial statements for the year ended October 31, 1995 represent
amounts as previously reported by SFEB.
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Page 8
21
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
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, 1997 and 1996:
1997
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
Debt securities
State and local governments $ 1,054,136 $ - $ - $ 1,054,136
U. S. corporations 2,000,000 - - 2,000,000
Equity securities 78,444 - - 78,444
-------------- -------------- -------------- --------------
$ 3,132,580 $ - $ - $ 3,132,580
============== ============== ============== ==============
1996
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
Debt securities
State and local governments $ 26,247,827 $ - $ - $ 26,247,827
U. S. corporations 11,000,000 - - 11,000,000
Equity securities 224,305 - (446) 223,859
-------------- -------------- -------------- --------------
$ 37,472,132 $ - $ (446) $ 37,471,686
============== ============== ============== ==============
Available-for-sale securities are classified in the following balance sheet
captions as of October 31, 1997 and 1996:
1997 1996
--------------- ---------------
Cash and cash equivalents $ 3,054,136 $ 37,247,827
Short-term investments 78,444 223,859
--------------- ---------------
$ 3,132,580 $ 37,471,686
=============== ===============
All the Company's debt securities mature within one year.
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Page 9
22
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
NOTE E - INCOME TAXES
The provision for income taxes consisted of the following for the years ended
October 31, 1997, 1996 and 1995:
1997 1996 1995
------------- -------------- --------------
Federal:
Current $ 7,785,000 $ 6,740,000 $ 6,980,000
Deferred (109,000) (54,000) 17,000
------------ ------------- --------------
7,676,000 6,686,000 6,997,000
------------- -------------- --------------
State:
Current 1,895,000 1,740,000 1,710,000
Deferred (29,000) (13,000) 12,000
------------ ------------- --------------
1,866,000 1,727,000 1,722,000
------------- -------------- --------------
TOTAL $ 9,542,000 $ 8,413,000 $ 8,719,000
============= ============== ==============
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:
1997 1996 1995
------------- -------------- -------------
Income taxes computed at the federal
statutory rate $ 8,627,000 $ 8,002,000 $ 7,849,000
State taxes, net of federal benefit 1,232,000 1,143,000 1,121,000
Nontaxable interest income (414,000) (411,000) (339,000)
Other, net 97,000 (321,000) 88,000
------------- ------------- -------------
$ 9,542,000 $ 8,413,000 $ 8,719,000
============= ============== =============
The components of deferred income taxes consist of the following:
1997 1996 1995
------------- -------------- ----------------
Deferred income tax assets:
Rents received in advance $ 599,000 $ 551,000 $ 522,000
Supplemental retirement benefits 321,000 264,000 230,000
------------- -------------- ---------------
TOTAL DEFERRED TAX ASSETS 920,000 815,000 752,000
Deferred income tax liabilities:
Depreciation (2,341,000) (2,374,000) (2,378,000)
------------- -------------- ---------------
TOTAL NET DEFERRED TAX LIABILITIES $ (1,421,000) $ (1,559,000) $ (1,626,000)
============= ============== ================
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Page 10
23
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
NOTE F - 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 $138,835 as of October 31, 1997 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.
NOTE G - RETIREMENT EXPENSE
Amounts expensed under the Company's retirement plans amounted to $293,974,
$277,553 and $261,874 for the years ended October 31, 1997, 1996 and 1995,
respectively, including $147,547, $136,617 and $126,497 under the supplemental
retirement benefits plan for the years ended October 31, 1997, 1996 and 1995,
respectively.
NOTE H - 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 $36,893,568 at October
31, 1997 and $34,866,712 at October 31, 1996. 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.
- -------------------------------------------------------------------------------
Page 11
24
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
===============================================================================
NOTE H - RENTALS UNDER OPERATING LEASES (CONTINUED)
The following is a schedule of minimum future rentals under noncancelable
operating leases as of October 31, 1997, exclusive of amounts due under
escalation provisions of lease agreements:
Year Ending October 31,
1998 $ 26,196,947
1999 23,252,490
2000 12,379,320
2001 6,623,316
2002 1,708,230
Thereafter 373,192
---------------
Total minimum future rentals $ 70,533,495
===============
Rental income includes contingent rentals under escalation provisions of leases
of $1,534,413, $1,270,969 and $906,071 for the years ended October 31, 1997,
1996 and 1995, respectively.
NOTE I - 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. The Company's trade accounts receivable are generally
collateralized by merchandise in leased exhibition spaces which is in the
Company's possession. As of October 31, 1997, the Company's bank balances
exceeded federally insured limits by $2,889,175.
- -------------------------------------------------------------------------------
Page 12
25
INDEX TO EXHIBITS
Exhibit No.
3A Articles of Incorporation as amended - incorporated by reference
to Form 10-Q for the fiscal quarter ended February 28, 1994
3B Amended By-laws are filed herewith.
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 filed herewith.
10C Bassett Supplemental Retirement Income Plan is filed herewith.
10D Bassett 1993 Stock Plan for Non-Employee Directors is
incorporated by reference of the Registrant's Registration
Statement on Form S-8 (no. 33-52407) filed on February 25, 1994.
13 Bassett Furniture Industries, Inc. Annual Report to Stockholders
for the year ended November 30, 1997
21 List of subsidiaries of registrant
23A Consent of Independent Public Accountants
23B Consent of Previous Independent Public Accountants
23C Consent of Independent Public Accountants
27 Financial Data Schedule (EDGAR filing only)