1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION ---------------------------------- WASHINGTON, D.C. 20549 FORM 10-K/A ----------- AMENDMENT NO. 1 [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 ------------------------------------------ (Exact name of registrant as specified in its charter) VIRGINIA 54-0135270 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3525 FAIRYSTONE PARK HIGHWAY BASSETT, VIRGINIA 24055 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 540/629-6000 ----------------------- 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 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. 2 Explanatory Comment: This Amendment No. 1 on Form 10-K/A is being filed to correct printer typesetting mistakes in the Report of Independent Public Accountants dated January 17, 2000, which appears on page 17 of the Registrant's Annual Report to Stockholders for the year ended November 27, 1999. This and other portions of the Registrant's Annual Report are filed as Exhibit 13 hereto. No other changes are being made to the Annual Report on Form 10-K by this Amendment No. 1. 3 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. 4 - 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. 5 - PAGE -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ BARRY C. SAFRIT Date: 3-01-00 --------------------------------------- -------------------------- Barry C. Safrit Vice President and Chief Accounting Officer (Principal Financial Officer) 6 [ ] 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 7 INTERNATIONAL HOME FURNISHINGS CENTER, INC. FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 8 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 (Deficit)....................................................... 4 Statements of Cash Flows........................................................................... 5 Notes to Financial Statements...................................................................... 6 9 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 ---------- Page 1 10 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 11 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 12 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 13 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 14 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 15 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 16 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 17 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 18 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 19 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 20 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 21 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 22 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. 23 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. 24 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. 25 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)