UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 24, 2001 Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
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(Exact name of registrant as specified in its charter)
VIRGINIA 54-0135270
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3525 FAIRYSTONE PARK HIGHWAY
BASSETT, VIRGINIA 24055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 276/629-6000
------------------------------
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. [ X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of February 19, 2002 was $202,464,529.
The number of shares of the Registrant's common stock outstanding on February
19, 2002 was 11,730,274.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Bassett Furniture Industries, Incorporated Annual
Report to Stockholders for the year ended November 24, 2001 (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 2002 Annual Meeting of Stockholders to be held
March 26, 2002, 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.
Explanatory Comment:
This Amendment No. 1 on Form 10-K/A is being filed to file the Financial
Statements of a significant affiliate of the Company. The Financial Statements
of the Bassett Industries Alternative Asset Fund, L.P., which has a fiscal year
end of December 31, which is different than the Company's fiscal year end, are
included herein on pages F-31 to F-45. No other changes are being made to the
Form 10-K by this Amendment No. 1.
PAGE 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 1 through 5 of the Proxy Statement
under the headings "Principal Stockholders and Holdings of Management"
and "Election of Directors" is incorporated herein by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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 24, 2001 and
November 25, 2000
Consolidated Statements of Income--Years Ended
November 24, 2001, November 25, 2000 and November 27,
1999
Consolidated Statements of Stockholders' Equity--
Years Ended November 24, 2001, November 25, 2000 and
November 27, 1999
Consolidated Statements of Cash Flows-- Years Ended
November 24, 2001, November 25, 2000 and November 27,
1999
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-15.
LRG Furniture, LLC Financial Statements are included herein on
pages F-16 in F-28.
Bassett Industries Alternative Asset Fund, LP Statements are
included herein on pages F-31 to F-45
(2) Financial Statement Schedule:
Schedule II - Analysis of Valuation and Qualifying Accounts
for the years ended November 24, 2001, November 25, 2000, and
November 27, 1999
(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. By-laws as amended are filed herewith.
4A. Credit Agreement with a Bank Group dated October 25,
2000 is incorporated herein by reference to Form 10-K
for the fiscal year ended November 25, 2000.
4B. First Amendment to Credit Agreement with a Bank Group
dated October 5, 2001, is 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.
PAGE 10
** 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 25, 2000.
** 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.
13. Portions of the Registrant's Annual Report to
Stockholders for the year ended November 24, 2001.
21. List of subsidiaries of the Registrant
23A. Consent of Independent Public Accountants is filed
herewith.
23B. Consent of Independent Auditors is filed herewith.
**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 2001 fiscal year.
PAGE 11
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: 4/26/02
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Paul Fulton
Chairman of the Board of Directors
By: /s/ ROBERT H. SPILMAN JR. Date: 4/26/02
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Robert H. Spilman Jr.
President and Chief Executive Officer
Director
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ AMY W. BRINKLEY Date: 4/26/02
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Amy W. Brinkley
Director
By: /s/ PETER W. BROWN Date: 4/26/02
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Peter W. Brown
Director
By: /s/ WILLIE D. DAVIS Date: 4/26/02
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Willie D. Davis
Director
By: /s/ ALAN T. DICKSON Date: 4/26/02
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Alan T. Dickson
Director
By: /s/ HOWARD H. HAWORTH Date: 4/26/02
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Howard H. Haworth
Director
By: /s/ MICHAEL E. MURPHY Date: 4/26/02
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Michael E. Murphy
Director
By: /s/ DALE C. POND Date: 4/26/02
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Dale C. Pond
Director
By: /s/ DAVID A. STONECIPHER Date: 4/26/02
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David A. Stonecipher
Director
By: /s/ BARRY C. SAFRIT Date: 4/26/02
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Barry C. Safrit
Vice President and Chief Financial Officer
PAGE 12
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1)
CERTAIN EXHIBITS
YEAR ENDED NOVEMBER 24, 2001
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
BASSETT, VIRGINIA
INTERNATIONAL HOME FURNISHINGS
CENTER, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT.......................................................................... 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................................................ 2
Consolidated Statements of Income.................................................................. 3
Consolidated Statements of Stockholders' Equity (Deficit).......................................... 4
Consolidated Statements of Cash Flows.............................................................. 5
Notes to Consolidated Financial Statements......................................................... 7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
International Home Furnishings Center, Inc.
High Point, North Carolina
We have audited the accompanying consolidated balance sheets of International
Home Furnishings Center, Inc. and subsidiary as of October 31, 2001 and 2000 and
the related consolidated statements of income, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended October 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International Home
Furnishings Center, Inc. and subsidiary at October 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
High Point, North Carolina
November 30, 2001
/s/ DIXON ODOM, PLLC
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Page 1
F-2
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000
ASSETS 2001 2000
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 8,848,172 $ 4,859,447
Restricted cash 24,479,827 2,275,974
Short-term investments 98,570 94,489
Receivables
Trade 2,552,434 2,646,756
Interest 10,677 9,279
Deferred income tax asset 3,028,000 600,000
Prepaid expenses 192,271 717,172
-------------- --------------
TOTAL CURRENT ASSETS 39,209,951 11,203,117
-------------- --------------
PROPERTY AND EQUIPMENT, at cost
Land and land improvements 3,293,772 3,293,772
Buildings, exclusive of theater complex 88,350,771 75,391,981
Furniture and equipment 3,707,139 3,717,945
Construction in progress - 11,569,301
-------------- --------------
95,351,682 93,972,999
Accumulated depreciation (46,121,761) (46,022,092)
-------------- --------------
49,229,921 47,950,907
-------------- --------------
OTHER ASSETS
Theater complex, at cost less amortization 890,344 933,599
Deferred financing costs, net of accumulated amortization of $508,803
and $187,943 at October 31, 2001 and 2000, respectively 2,411,052 396,766
Interest rate cap agreement, at fair value 46,613 -
-------------- --------------
3,348,009 1,330,365
-------------- --------------
$ 91,787,881 $ 60,484,389
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable, trade $ 1,014,684 $ 3,994,972
Accrued property taxes 1,840,732 1,702,341
Other accrued expenses 851,281 693,418
Rents received in advance 7,765,348 1,502,952
Income taxes payable 1,949,956 -
Current maturities of long-term debt 2,627,187 9,995,880
-------------- --------------
TOTAL CURRENT LIABILITIES 16,049,188 17,889,563
-------------- --------------
LONG-TERM DEBT 130,555,336 45,658,704
-------------- --------------
OTHER LONG-TERM LIABILITIES
Supplemental retirement benefits 1,924,223 1,745,023
Deferred income taxes 587,000 1,090,000
-------------- --------------
2,511,223 2,835,023
-------------- --------------
COMMITMENTS (Note G)
STOCKHOLDERS' DEFICIT
Common stock, $5 par value, 1,000,000 shares authorized,
527,638 shares issued in 2001 and 2000 2,638,190 2,638,190
Additional paid-in capital 169,360 169,360
Accumulated deficit (60,135,416) (8,706,451)
-------------- --------------
(57,327,866) (5,898,901)
-------------- --------------
$ 91,787,881 $ 60,484,389
============== ==============
See accompanying notes to financial statements. Page 2
F-3
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
2001 2000 1999
--------------- --------------- ---------------
OPERATING REVENUES
Rental income $ 34,682,203 $ 31,620,514 $ 31,684,174
Other revenues 6,973,398 6,922,474 6,472,825
--------------- --------------- ---------------
TOTAL OPERATING REVENUES 41,655,601 38,542,988 38,156,999
--------------- --------------- ---------------
OPERATING EXPENSES
Compensation and benefits 4,642,208 4,242,802 4,084,283
Market and promotional 2,589,746 2,593,966 2,558,772
Maintenance and building costs 1,012,997 858,194 862,804
Depreciation expense 2,647,449 2,179,109 2,202,723
Rent 152,234 152,234 152,234
Property taxes and insurance 2,269,932 1,997,121 1,987,898
Utilities 1,872,132 1,655,730 1,652,068
Other operating costs 1,373,183 535,776 617,201
--------------- --------------- ---------------
TOTAL OPERATING EXPENSES 16,559,881 14,214,932 14,117,983
--------------- --------------- ---------------
INCOME FROM OPERATIONS 25,095,720 24,328,056 24,039,016
--------------- --------------- ---------------
NONOPERATING INCOME
Interest income 1,071,901 808,703 929,317
Dividend income 4,597 4,652 3,692
--------------- --------------- ---------------
TOTAL NONOPERATING INCOME 1,076,498 813,355 933,009
--------------- --------------- ---------------
NONOPERATING EXPENSES
Interest expense 7,870,387 4,109,489 4,936,077
--------------- --------------- ---------------
TOTAL NONOPERATING EXPENSES 7,870,387 4,109,489 4,936,077
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 18,301,831 21,031,922 20,035,948
PROVISION FOR INCOME TAXES 7,166,000 8,101,000 7,770,000
--------------- --------------- ---------------
INCOME BEFORE
EXTRAORDINARY ITEM 11,135,831 12,930,922 12,265,948
EXTRAORDINARY ITEM
Loss on early extinguishment of debt, net
of income tax benefit of $1,217,000 (1,886,426) - -
--------------- --------------- ---------------
NET INCOME $ 9,249,405 $ 12,930,922 $ 12,265,948
=============== =============== ===============
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item $ 21.11 $ 24.51 $ 23.25
Extraordinary item (3.58) - -
--------------- --------------- ---------------
Net income $ 17.53 $ 24.51 $ 23.25
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 527,638 527,638 527,638
=============== =============== ===============
See accompanying notes to financial statements. Page 3
F-4
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
-------------- ------------- ------------- --------------
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)
Net income - - 12,930,922 12,930,922
-------------- ------------- ------------- --------------
BALANCE (DEFICIT), OCTOBER 31, 2000 2,638,190 169,360 (8,706,451) (5,898,901)
Net income - - 9,249,405 9,249,405
Dividends paid ($115.00 per common share) - - (60,678,370) (60,678,370)
-------------- ------------- ------------- --------------
BALANCE (DEFICIT), OCTOBER 31, 2001 $ 2,638,190 $ 169,360 $ (60,135,416) $ (57,327,866)
============== ============= ============= ==============
See accompanying notes to financial statements. Page 4
F-5
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
2001 2000 1999
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,249,405 $ 12,930,922 $ 12,265,948
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,209,295 2,301,760 2,325,374
Decrease in fair value of interest rate cap agreement 265,887 - -
Loss on early extinguishment of debt 3,103,426 - -
Provision for losses on accounts receivable 25,154 6,341 1,360
(Gain) loss on disposal of assets 45,352 (3,134) -
Deferred income taxes (2,931,000) (354,000) (500,000)
Change in assets and liabilities
(Increase) decrease in trade and interest receivables 67,770 (394,166) (68,728)
(Increase) decrease in prepaid expenses 524,901 89,057 (750,264)
Increase (decrease) in accounts payable and
accrued expenses 39,047 207,521 (139,200)
Increase (decrease) in rents received in advance 6,262,396 (110,737) 134,806
Increase in supplemental retirement benefits 179,200 240,796 541,136
Increase in income taxes payable 1,949,956 - -
---------------- ---------------- ----------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 21,990,789 14,914,360 13,810,432
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase and construction of property and equipment (6,690,764) (8,764,159) (337,457)
Proceeds from sale of property and equipment - 4,000 -
Purchase of short-term investments (4,081) (3,711) (7,135)
Increase in restricted cash (22,203,853) - -
---------------- ---------------- ----------------
NET CASH USED BY
INVESTING ACTIVITIES (28,898,698) (8,763,870) (344,592)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 135,000,000 - -
Principal payments on long-term debt (57,472,061) (9,295,564) (8,667,074)
Cost incurred to extinguish debt early (2,720,580) - -
Purchase of interest rate cap (312,500) - -
Dividends paid (60,678,370) - (13,190,950)
Financing costs paid (2,919,855) - -
---------------- ---------------- ----------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 10,896,634 (9,295,564) (21,858,024)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 3,988,725 (3,145,074) (8,392,184)
CASH AND CASH EQUIVALENTS, BEGINNING 4,859,447 8,004,521 16,396,705
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, ENDING $ 8,848,172 $ 4,859,447 $ 8,004,521
================ ================ ================
See accompanying notes to financial statements. Page 5
F-6
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
2001 2000 1999
---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 6,302,511 $ 8,357,298 $ 9,049,420
Interest, net of amount capitalized 7,699,674 4,166,000 4,988,768
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
AND INVESTING ACTIVITIES
Accounts payable incurred for acquisition of property and
equipment $ 201,715 $ 2,924,796 $ -
================ ================ ================
See accompanying notes to financial statements. Page 6
F-7
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
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, theater complex and interest rate cap agreement are indicated in the
captions on the consolidated balance sheets. Other significant accounting
policies are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of International Home
Furnishings Center, Inc. and its wholly-owned subsidiary, IHFC Properties,
L.L.C., a company organized on December 21, 2000. All material intercompany
transactions have been eliminated. The Company and its subsidiary are referred
to collectively herein as "the Company." Notwithstanding the consolidation of
the Company and IHFC Properties, L.L.C. in these financial statements, IHFC
Properties, L.L.C. is a separate entity, with separate assets and liabilities
and has its own separate financial statements.
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 consolidated balance sheets.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
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.
Page 7
F-8
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued)
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.
Property, Equipment and Depreciation
Expenditures for maintenance, repairs, and minor renewals are charged to expense
as incurred. Major renewals and betterments are capitalized. 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 indications 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 long-term financing have been deferred and are
being amortized on the interest method over the term of the related debt.
Amortization expense charged to operations during the years ended October 31,
2001, 2000 and 1999 was $522,725, $83,530 and $83,530, respectively.
Derivative Instruments
As disclosed in Note E, the Company entered into an interest rate cap agreement
to limit its exposure to increasing interest cost on its term debt. The
Company's investment in the agreement is carried at fair value, and changes in
fair value are included in earnings. The agreement is not designated as a hedge.
Page 8
F-9
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
consolidated 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
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS"). Basic
EPS excludes all dilution and has been computed using the weighted average
number of common shares outstanding during the year. 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 has no
dilutive potential common shares.
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 vested portion of the
benefits under this plan amounted to approximately $1,345,000 at October 31,
2001. The Company has no obligation to fund this supplemental plan.
Fair Value of Financial Instruments
The carrying amount of the Company's significant financial instruments, none of
which are held for trading purposes, approximates fair value at October 31, 2001
and 2000. Cash, cash equivalents and restricted cash approximate fair value
because of the short maturities of these instruments. Long-term debt
approximates fair value because of its floating interest rate terms.
Page 9
F-10
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of consolidated 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
consolidated 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
The Company has restricted, interest-bearing cash accounts held by the lender
under the escrow provisions of the term loan agreement described in Note E. The
restricted cash balances are held for the following purposes at October 31,
2001:
Taxes and insurance $ 767,025
Required repairs 1,120,729
Replacements 142,251
Environmental 802,882
Debt service 7,438,700
Operating expenses 677,394
Ground rent 48,360
Cash management 13,482,486
----------------
$ 24,479,827
================
All rents and other income from operation of the Company's property are
deposited directly into a lockbox account controlled by the lender under the
Company's cash management agreement. In May and November of each year during the
term of the loan, the lender will disburse to the Company amounts in the cash
management account in excess of the amounts needed to replenish the various
escrow accounts.
The Company has granted the lender a security interest in each of the restricted
cash accounts as additional security for the outstanding term loan.
Page 10
F-11
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
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, 2001 and 2000:
2001
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- ---------------
Debt securities
State and local governments $ 3,015,466 $ - $ - $ 3,015,466
Corporate 3,000,000 - - 3,000,000
Equity securities 98,570 - - 98,570
-------------- -------------- --------------- ---------------
$ 6,114,036 $ - $ - $ 6,114,036
============== ============== =============== ===============
2000
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- ---------------
Debt securities
State and local governments $ 3,825,717 $ - $ - $ 3,825,717
Equity securities 94,489 - - 94,489
-------------- -------------- --------------- ---------------
$ 3,920,206 $ - $ - $ 3,920,206
============== ============== =============== ===============
Available-for-sale securities are classified in the following balance sheet
captions as of October 31, 2001 and 2000:
2001 2000
------------------ ------------------
Cash and cash equivalents $ 6,015,466 $ 3,825,717
Short-term investments 98,570 94,489
------------------ ------------------
$ 6,114,036 $ 3,920,206
================== ==================
All the Company's debt securities mature within three months.
Page 11
F-12
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at October 31, 2001 and 2000:
2001 2000
------------------ ------------------
Term note payable, consisting of three components - A ($94,482,523), B
($12,000,000), and C ($26,700,000). Principal payments are due
monthly based on an amortization schedule provided by the lender and
are applied first to component A. Interest is payable monthly at
varying rates for the three components - LIBOR plus 1.92% for
component A, LIBOR plus 2.22% for component B, and LIBOR plus 2.72%
for component C. At October 31, 2001, the interest rates were 4.5575%
for component A, 4.8575% for component B, and 5.3575% for component
C. The note matures in December 2003 and has two one-year extension
periods available, which the Company intends to exercise. The loan is
collateralized by land and buildings, restricted cash (Note C), rents
and assignment of leases with tenants. $ 133,182,523 $ -
Term note payable, repaid in fiscal year ended October 31, 2001. $ - $ 55,654,584
------------------ ------------------
133,182,523 55,654,584
Less current maturities 2,627,187 9,995,880
------------------ ------------------
$ 130,555,336 $ 45,658,704
================== ==================
The aggregate maturities of long-term debt are due as follows:
Year Ending October 31,
2002 $ 2,627,187
2003 2,880,776
2004 3,158,841
2005 3,463,746
2006 121,051,973
------------------
$ 133,182,523
==================
During the year ended October 31, 2001, the Company entered into an interest
rate cap agreement that has a notional amount of $133,182,523 at October 31,
2001. The notional amount will decrease as principal payments are made on the
Company's term debt and will be equal to the term debt until the agreement
expires January 3, 2004. Under the agreement, the Company will receive an amount
equal to the interest it incurs on its term debt in excess of 8%, if any. The
$265,887 decrease in the fair value of the interest rate cap agreement was
charged to earnings during the year ended October 31, 2001.
Page 12
F-13
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE E - LONG-TERM DEBT (CONTINUED)
Total interest cost incurred for the years ended October 31, 2001, 2000 and 1999
was $8,241,933, $4,303,766 and $4,936,077, respectively. Of the interest cost
for the years ended October 31, 2001 and 2000, $371,546 and $194,277,
respectively, was capitalized as part of the building construction costs. There
was no interest capitalized in the year ended October 31, 1999.
The Company recorded an extraordinary loss of $1,886,426 after income taxes as a
result of the early extinguishment of term debt in the amount of $54,039,689.
The loss consisted primarily of costs associated with the early extinguishment
and the write-off of unamortized financing costs of $382,846. The extinguishment
of the debt was financed with a portion of the proceeds from the $135,000,000
term loan.
NOTE F - INCOME TAXES
The provision for income taxes consists of the following for the years ended
October 31, 2001, 2000 and 1999:
2001 2000 1999
--------------- ---------------- ----------------
Federal:
Current $ 7,365,000 $ 6,975,000 $ 6,765,000
Deferred (2,415,000) (287,000) (395,000)
--------------- ---------------- ----------------
4,950,000 6,688,000 6,370,000
--------------- ---------------- ----------------
State:
Current 1,515,000 1,480,000 1,505,000
Deferred (516,000) (67,000) (105,000)
--------------- ---------------- ----------------
999,000 1,413,000 1,400,000
--------------- ---------------- ----------------
TOTAL $ 5,949,000 $ 8,101,000 $ 7,770,000
=============== ================ ================
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:
2001 2000 1999
--------------- ---------------- ----------------
Income taxes computed at the federal
statutory rate $ 5,319,000 $ 7,360,000 $ 7,013,000
State taxes, net of federal benefit 649,000 918,000 910,000
Nontaxable investment income (48,000) (112,000) (180,000)
Other, net 29,000 (65,000) 27,000
--------------- ---------------- ----------------
$ 5,949,000 $ 8,101,000 $ 7,770,000
=============== ================ ================
Page 13
F-14
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
NOTE F - INCOME TAXES (CONTINUED)
The components of deferred income taxes consist of the following:
2001 2000
-------------- ---------------
Deferred income tax assets:
Rents received in advance $ 3,028,000 $ 600,000
Supplemental retirement benefits 750,000 700,000
Interest rate cap 70,000 -
Deferred financing costs 9,000 -
-------------- ---------------
TOTAL DEFERRED TAX ASSETS 3,857,000 1,300,000
Deferred income tax liabilities:
Depreciation (1,416,000) (1,790,000)
-------------- ---------------
TOTAL NET DEFERRED
TAX ASSETS (LIABILITIES) $ 2,441,000 $ (490,000)
============== ===============
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, 2001 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 H - RETIREMENT EXPENSE
Amounts expensed under the Company's retirement plans amounted to $350,669,
$394,166 and $691,698 for the years ended October 31, 2001, 2000 and 1999,
respectively, including $179,200, $240,796 and $541,136 under the supplemental
retirement benefits plan for the years ended October 31, 2001, 2000 and 1999,
respectively.
Page 14
F-15
INTERNATIONAL HOME FURNISHINGS CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001, 2000 AND 1999
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 consolidated balance
sheets. Accumulated depreciation on this property amounted to $42,925,163 at
October 31, 2001 and $42,943,916 at October 31, 2000. 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, 2001, exclusive of amounts due under
escalation provisions of lease agreements:
Year Ending October 31,
2002 $ 30,048,586
2003 26,019,227
2004 22,329,312
2005 15,028,725
2006 2,073,780
----------------
Total minimum future rentals $ 95,499,630
================
Rental income includes contingent rentals under escalation provisions of leases
of $1,164,693, $823,536 and $1,322,521 for the years ended October 31, 2001,
2000 and 1999, respectively. Rental income from related parties amounted to
$2,682,719, $2,374,813 and $1,980,775 for the years ended October 31, 2001, 2000
and 1999, 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, 2001, the Company's bank balances
exceeded federally insured limits by $16,509,628. The Company's trade accounts
receivable are generally collateralized by merchandise in leased exhibition
spaces which is in the Company's possession.
NOTE K - STOCKHOLDERS' DEFICIT
The stockholders' deficit resulted from the payment of dividends substantially
in excess of accumulated earnings. The dividends in excess of accumulated
earnings were financed, in part, with the proceeds of long-term debt. Although
interest on this debt will negatively impact future earnings, management
believes, based on projections of future operations and cash flows, that 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.
Page 15
LRG FURNITURE, LLC
Financial Statements
As of November 30, 2001 and 2000
Together with Report of Independent Public Accountants
F-16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
LRG Furniture, LLC:
We have audited the accompanying balance sheets of LRG FURNITURE, LLC (a
Virginia limited liability company) as of November 30, 2001 and 2000, and the
related statements of operations and changes in members' deficit and cash flows
for the years then ended. 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 auditing standards generally accepted
in the United States. 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 LRG Furniture, LLC as of
November 30, 2001 and 2000, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas
December 21, 2001 /s/ Arthur Andersen, LLP
F-17
LRG FURNITURE, LLC
BALANCE SHEETS -- NOVEMBER 30, 2001 AND 2000
ASSETS 2001 2000
------ -------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,456,466 $ 4,191,154
Accounts receivable, net of allowances of $60,910 and $104,000 in
2001 and 2000, respectively 644,338 681,167
Merchandise inventories, net 10,119,254 11,785,997
Prepaid expenses 72,053 106,310
-------------- ----------------
Total current assets 13,292,111 16,764,628
-------------- ----------------
PROPERTY AND EQUIPMENT:
Computer equipment 374,909 343,577
Store fixtures 355,885 268,302
Office furniture, fixtures and equipment 1,027,155 1,222,508
Leasehold improvements 1,369,775 1,590,578
Vehicles 174,798 115,692
-------------- ----------------
3,302,522 3,540,657
Less - Accumulated depreciation (661,893) (345,033)
-------------- ----------------
2,640,629 3,195,624
-------------- ----------------
OTHER ASSETS, NET (NOTE 3) 776,379 825,775
-------------- ----------------
$16,709,119 $20,786,027
============== ================
LIABILITIES AND MEMBERS' DEFICIT
--------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 2,466,836 $ 1,548,636
Accounts payable, primarily to Members (Note 7) 9,882,446 10,970,062
Customer deposits 2,390,342 2,983,731
Accrued liabilities 1,026,186 909,448
-------------- ----------------
Total current liabilities 15,765,810 16,411,877
-------------- ----------------
LONG-TERM DEBT (NOTE 5) 1,306,344 3,299,364
-------------- ----------------
NOTES PAYABLE TO MEMBERS AND DEFERRED INTEREST
PAYABLE (NOTE 5) 13,291,482 7,981,333
-------------- ----------------
COMMITMENTS AND CONTINGENCIES (NOTES 6, 9 AND 11)
MEMBERS' DEFICIT (13,654,517) (6,906,547)
-------------- ----------------
$16,709,119 $20,786,027
============== ================
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-18
LRG FURNITURE, LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT
FOR THE YEARS ENDED NOVEMBER 30, 2001 AND 2000
2001 2000
------------ -----------
SALES $ 62,577,684 $63,058,739
COST OF GOODS SOLD 34,638,022 34,849,470
------------ -----------
Gross profit 27,939,662 28,209,269
OPERATING AND GENERAL EXPENSES 33,553,602 37,294,558
------------ -----------
Loss from operations (5,613,940) (9,085,289)
INTEREST EXPENSE 1,134,030 498,747
------------ -----------
NET LOSS (6,747,970) (9,584,036)
MEMBERS' (DEFICIT) EQUITY, BEGINNING OF YEAR (6,906,547) 2,677,489
------------ -----------
MEMBERS' DEFICIT, END OF YEAR $(13,654,517) $(6,906,547)
============ ===========
The accompanying notes to financial statements are an
integral part of these statements.
F-19
LRG FURNITURE, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2001 AND 2000
2001 2000
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,747,970) $(9,584,036)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 406,772 345,033
Amortization 422,014 53,568
Loss on sale of property and equipment 235,312 0
Changes in operating assets and liabilities:
Accounts receivable 36,829 71,918
Merchandise inventories 2,173,743 (2,245,991)
Prepaid expenses 39,757 54,805
Accounts payable and accrued liabilities (327,544) 1,131,932
Customer deposits (739,389) (1,509,920)
Other (5,049) (4,596)
--------------- --------------
Net cash used in operating activities (4,505,525) (11,687,287)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (206,232) (617,582)
Proceeds on sale of property and equipment 204,389 0
--------------- --------------
Net cash used in investing activities (1,843) (617,582)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 500,000 4,848,000
Repayment of long-term debt (1,827,320) (2,175,000)
Proceeds from notes payable to Members 4,100,000 7,808,000
--------------- --------------
Net cash provided by financing activities 2,772,680 10,481,000
--------------- --------------
NET DECREASE IN CASH (1,734,688) (1,823,869)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,191,154 6,015,023
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,456,466 $ 4,191,154
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - CASH PAID DURING THE YEAR FOR
INTEREST $ 479,430 $ 393,886
=============== ==============
The accompanying notes to financial statements are an
integral part of these statements.
F-20
LRG FURNITURE, LLC
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2001 AND 2000
1. HISTORY AND ORGANIZATION
LRG Furniture, LLC (the Company) was formed as a limited liability company
under the laws of Virginia on November 29, 1999. The Company was formed as a
joint venture between Bassett Furniture Industries, Inc. (Bassett) and
Bassett Direct Plus Texas, LLC (BDPT) (collectively referred to herein as
the Members). Bassett and BDPT were credited with 51% and 49%, respectively,
of the combined members' equity of $2,677,489 at the date of formation.
2. CONTINUING OPERATIONS
The Company has experienced significant losses from operations since
inception. The Company incurred a net loss of $6,748,000 and $9,584,000 in
the years 2001 and 2000, respectively, and has Members' deficit of
$13,655,000 and $6,907,000 as of November 30, 2001 and 2000, respectively.
Management has implemented a profit improvement program that includes
evaluation and realignment of the Company's business to improve
profitability. This program has resulted in significant operational changes,
overall downsizing of the Company's administrative and operating overhead
and disposals or planned disposals of selected stores (see Note 11). These
store disposals will leave the Company with seven stores in the Texas and
Nevada markets. As a result of these actions, the Company expects to
substantially reduce losses from operations, however, there can be no
assurances that management's program will be successful.
The Members have historically provided, and are currently providing,
sufficient financial support to the Company to fund the Company's
obligations and working capital requirements as those obligations become
due. The Members loaned a total of $4,100,000 to the Company in 2001 and
$7,808,000 in 2000 (see Note 5). Management of Bassett has committed to
provide the necessary level of financial support to the Company to enable it
to pay its obligations as they become due through November 30, 2003.
Bassett, however, is not legally obligated to provide such support. In
addition, Bassett has guaranteed repayment of all of the Company's
third-party long-term debt.
3. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The Company currently operates 12 retail furniture stores in North Carolina,
Virginia, Kentucky, Nevada and Texas (see Note 11). These stores operate
under the "Bassett Furniture Direct" name and substantially all of their
purchases are contractually obligated from Bassett and its affiliates.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and 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.
F-21
-2-
RECLASSIFICATIONS
For comparative purposes, certain amounts in the 2000 financial statements
have been reclassified to conform with the 2001 presentation.
CASH AND CASH EQUIVALENTS
Cash includes cash on hand, cash in banks and deposits in-transit from
credit card companies.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenue upon the delivery of products to its
customers. There is no concentration of credit risk to any one customer.
Allowances are provided for estimated losses associated with anticipated
future returns of products sold by the Company and inability of customers to
pay balances due. Actual product returns and cash collections could differ
from management's estimates making it reasonably possible that a change in
these estimates could occur in the near term.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of first-in, first-out
(FIFO) cost or market. Allowances are established to reduce the cost of
excess and obsolete inventories to their estimated net realizable value.
Shipping and handling costs associated with inbound freight are included in
cost of sales and amounts related to merchandise inventory on hand at
year-end are capitalized in merchandise inventories.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
Computer equipment 3-5 years
Store fixtures 7 years
Office furniture, fixtures and equipment 7 years
Leasehold improvements Life of lease
Vehicles 5 years
When property is sold or retired, the cost and accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized in
the statement of operations and changes in members' equity. Expenditures for
maintenance and repairs are charged to operations as incurred.
OTHER ASSETS
Other assets are comprised primarily of an assumed lease contract with an
independent third party that has terms that are favorable to its local
market value and refundable deposits with various utilities and property
lessors. The favorable lease contract, which has a gross balance of
$758,867, is amortized over the lease term, which is 15 years. Accumulated
amortization related to this favorable lease contract was $107,136 and
$53,568 in 2001 and 2000, respectively. The deposits are refundable at the
discretion of the utility or lessor as applicable.
F-22
-3-
LONG-LIVED ASSETS
The Company applies Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires that long-lived assets and certain
identifiable intangible assets to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In the event assets are impaired, losses are recognized based
on the excess carrying amounts over the estimated discounted future cash
flows or fair market value of the asset. SFAS No. 121 also requires that
assets to be disposed of be reported at the lower of the carrying amount or
the fair market value less selling costs. Management does not believe there
are any impairments of long-lived assets at November 30, 2001.
PREOPENING EXPENSES
Preopening expenses, which consist primarily of payroll and occupancy costs,
are expensed as incurred. Preopening expenses were $177,000 and $450,000 in
2001 and 2000, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
$4,355,000 and $5,931,000 in 2001 and 2000, respectively.
SHIPPING AND HANDLING FEES AND COSTS
In September 2000, the Emerging Issues Task Force issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs" (EITF 00-10). EITF
00-10 requires shipping and handling fees billed to customers to be
classified as revenue and shipping and handling costs to be either
classified as cost of sales or disclosed in the notes to the consolidated
financial statements. The Company includes shipping and handling fees billed
to customers in net sales. Shipping and handling costs associated with
outbound freight are included in operating and general expenses and totaled
$6,442,000 and $7,012,000 in fiscal 2001 and 2000, respectively.
CUSTOMER DEPOSITS
Customer deposits relate to amounts paid by customers to the Company at the
time they order goods. These deposits are applied to the ultimate sales
price once goods are delivered to the customer, and are recognized as
revenue at that time.
INCOME TAXES
The Company is treated as a pass-through entity for federal income tax
purposes. As a result, the Company is not subject to income tax, but rather
the liability for income taxes from the taxable income generated by the
Company is the obligation of the Members. The Company is treated similarly
for state income tax purposes and, under current law in the states in which
the Company is conducting business, the Company is not subject to state
income taxes. Accordingly, no provision or benefit for federal and state
income taxes has been recorded in the accompanying financial statements.
F-23
-4-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
accounts payable and long-term debt. Because of their short maturity, the
carrying amounts of cash, accounts receivable and accounts payable
approximate fair value. The carrying amounts of long-term debt approximate
fair value due to the variable rate nature of bank debt and the Company's
belief that its interest rates on fixed interest rate debt due to its
Members approximate fair value rates for the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board (FASB) issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." This statement amends the accounting and reporting standards of
Statement No. 133 for certain derivative instruments and certain hedging
activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted the provisions of this
statement in 2001 and the impact of adopting the statement is immaterial.
In April 2001, the Company adopted SFAS No. 140, "Accounting for Transfers
and Servicing Financial Assets and Extinguishment of Liabilities." This
statement replaces SFAS No. 125, but carries over most of the provisions of
SFAS No. 125 without reconsideration. The impact of adopting this
pronouncement was not material to the Company's financial statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement requires that all business combinations initiated after June 30,
2001, be accounted for by the purchase method, eliminating the availability
of the pooling-of-interests method. In addition SFAS No. 141 requires
recognition of intangible assets apart from goodwill if they meet certain
criteria. Any acquisition activity performed by the Company subsequent to
the effective date of this statement will be accounted for under the
purchase method. Management does not expect the impact of adopting SFAS No.
141 to be material to the Company's financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement supercedes APB Opinion No. 17. SFAS No. 142
establishes new standards for measuring the carrying value of goodwill
related to acquired companies. Instead of amortizing goodwill over a fixed
period of time, the Company will instead measure the fair value of acquiring
businesses annually to determine if goodwill has been impaired. The Company
plans to adopt this statement in fiscal 2002. Amortization of intangibles
recorded in fiscal 2001 that may no longer be recorded after implementation
was $367,569 (see Note 4). Management is currently assessing other
implementation issues and has not yet determined whether, or the extent to
which, it will affect the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121.
In addition, this statement addresses the accounting for the segment of a
business accounted for as a discontinued operation under APB Opinion 30.
This statement would impact the Company's reporting if the Company chose to
discontinue an operation, and becomes effective for the Company in fiscal
2003. Management does not expect the impact of adopting SFAS No. 144 to be
material to the Company's financial statements.
F-24
-5-
4. ACQUISITION OF LOUISVILLE STORE
On December 15, 2000, the Company acquired the assets and assumed the
liabilities of a third-party Bassett Furniture Direct licensee in
Louisville, Kentucky, in a noncash transaction. The fair value of
liabilities assumed (primarily customer deposits and loans payable which are
discussed further in Note 5) exceeded the fair value of assets acquired
(primarily inventory and leasehold improvements) by $367,569, which was
recorded as an intangible asset. The intangible asset, which relates
primarily to acquired order book and customer lists, was amortized as
operating and general expenses during 2001. As part of the transaction,
Bassett purchased the related building and was leasing it to the Company on
a month-to-month basis. This store was sold subsequent to year-end (see Note
11).
5. LONG-TERM DEBT AND NOTES PAYABLE TO MEMBERS
Long-term debt and notes payable to Members at November 30, 2001 and 2000,
consisted of the following:
2001 2000
--------------- --------------
Long-term debt:
Unsecured notes with a bank, payable in monthly installments as discussed
below from January 2001 to June 2004, plus interest payable monthly
ranging from prime plus 0.5% to 1.0%, as defined in the agreement (prime
was 5.0% at November 30, 2001) $ 3,773,180 $ 4,848,000
--------------- --------------
Notes payable to Members:
Unsecured notes and deferred interest payable to Bassett, accrues interest
at 8% per year, principle and interest due November 1, 2004 10,316,667 6,173,333
Unsecured demand note payable to Bassett, does not bear interest 566,815 0
Unsecured note payable to BDPT, interest payable quarterly at 8% per year,
$1,808,000 due November 30, 2003, $600,000 due November 30, 2004 2,408,000 1,808,000
--------------- --------------
Total notes payable to Members and deferred interest
payable 13,291,482 7,981,333
--------------- --------------
Total long-term debt and notes payable to Members 17,064,662 12,829,333
Less - Current maturities of long-term debt (2,466,836) (1,548,636)
--------------- --------------
$14,597,826 $11,280,697
=============== ==============
The aggregate future annual maturities of long-term debt and deferred
interest payable are as follows:
2002 $ 2,466,836
2003 3,014,344
2004 11,583,482
2005 0
--------------
$17,064,662
==============
F-25
-6-
At various dates from March 16, 2000, to August 15, 2000, the Company
entered into a total of eight unsecured notes with a bank for $606,000 each
for a total of $4,848,000. Each note has deferred principal payments of
$22,444 beginning 9 months from the close of each note and continuing for 27
months thereafter. The proceeds of these notes were used primarily to pay
for new store opening inventory. The balance due on these notes at November
30, 2001 and 2000, is $3,142,256 and $4,848,000, respectively. Repayment of
these loans is guaranteed by Bassett.
On June 4, 2001, the Company entered into an unsecured note with the same
bank for $500,000. The note has deferred principal payments of $16,667
beginning 6 months from the close of the note and continuing for 29 months
thereafter. The proceeds of this note were used primarily to pay for the new
store opening inventory. The balance due on this note at November 30, 2001,
is $500,000. Repayment of this loan is guaranteed by Bassett.
In connection with the acquisition of the Louisville store as discussed in
Note 4, the Company assumed a $252,500 unsecured note payable with the same
bank. The note requires monthly principal payments of $18,704 through June
30, 2002. The balance due on this note at November 30, 2001, is $130,924.
Repayment of this note is guaranteed by Bassett.
On June 1, 2000, August 1, 2000, and May 1, 2001, the Company entered into
three unsecured notes with Bassett for $1,000,000, $5,000,000 and
$3,500,000, respectively. All of these notes have the same terms and have
deferred principal and interest payments, all payable November 1, 2004 (see
Note 11).
In connection with the acquisition of the Louisville store as discussed in
Note 4, the Company assumed an unsecured demand note due to Bassett of
$566,815 which is still outstanding at November 30, 2001.
On November 30, 2000 and 2001, the Company entered into unsecured notes with
BDPT for $1,808,000 and $600,000, respectively. These unsecured notes
contain various restrictive covenants which include, among others,
limitations on loans and contingent liabilities except in the normal course
of business. As of November 30, 2001, the Company was in compliance with all
of these covenants.
6. LEASE COMMITMENTS
The Company's administrative offices and retail locations are leased under
noncancelable operating lease agreements that expire from 2003 to 2016. Most
of these leases contain renewal options of 3 to 35 years. Certain of the
lease agreements for retail locations require the payment of contingent
rentals based on a percentage of sales above stipulated levels. No
contingent rental expense was incurred during 2001 or 2000. Certain of the
lease agreements contain rent escalation clauses that are not significant.
Total rent expense for 2001 and 2000 was $6,242,000 and $6,201,000,
respectively. Rent expense related to locations owned or leased from the
Members was $3,952,000 in 2001 and $3,823,000 in 2000.
Future minimum lease commitments for the office and retail locations under
operating leases having initial terms in excess of one year are as follows:
F-26
-7-
BASSETT BDPT OTHER TOTAL
------------- ------------- ------------ ------------
2002 $ 924,000 $ 2,483,000 $ 1,766,000 $ 5,173,000
2003 924,000 2,483,000 1,732,000 5,139,000
2004 924,000 2,483,000 1,203,000 4,610,000
2005 924,000 2,483,000 1,061,000 4,468,000
2006 924,000 2,483,000 1,061,000 4,468,000
Thereafter 8,111,000 21,879,000 3,630,000 33,620,000
------------- ------------- ------------ ------------
$ 12,731,000 $ 34,294,000 $ 10,453,000 $ 57,478,000
============= ============= ============ ============
Subsequent to November 30, 2001, the Company sold one store to a third
party. The third party assumed the lease related to the store (see Note 11).
As such, the lease commitment related to this store is not included in the
future minimum lease commitments above.
Additionally, Bassett will be assuming the "Bassett" and substantially all
of the "Other" lease commitments detailed above in connection with the
planned sale of certain stores to Bassett (see Note 11).
7. OTHER RELATED-PARTY TRANSACTIONS
Substantially all purchases of merchandise inventories are made from Bassett
and its affiliates. These related entities sell products to the Company at
prices and terms equal to their normal selling prices and terms to unrelated
entities. Accounts payable due to these related parties was $9,230,000 and
$10,534,000 in 2001 and 2000, respectively.
Interest expense on borrowings from related parties as described in Note 5
was $789,000 in 2001 and $173,000 in 2000. Portions of these amounts are
included in notes payable to Members and deferred interest payable in the
accompanying balance sheets at November 30, 2001 and 2000, respectively.
The Company paid salaries to principals of the Members for administrative
and executive services in the amount of $300,000 in both 2001 and 2000.
8. BENEFIT PLAN
EMPLOYEE SAVINGS PLAN
The Company maintains a qualified 401(k) employee savings plan covering
substantially all full-time employees. Under the plan, employees may elect
to contribute up to 15% of their compensation annually. Under the plan, the
Company is not required to make contributions to the plan and no
contributions were made in 2001 or 2000.
F-27
-8-
9. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has certain obligations under various employment agreements
through November 30, 2004, that stipulate, among other things, certain
levels of compensation, bonus potential, other miscellaneous benefits and
severance arrangements. Potential contingent liabilities under these
arrangements approximate $450,000.
LITIGATION
The Company is involved in various legal proceedings encountered in the
normal course of business. In the opinion of management, based on the
factors presently known, the resolution of these matters will not have a
material adverse effect on the Company's financial position or future
results of operations.
10. MEMBERS' DEFICIT
The Members' deficit account in the accompanying balance sheets reflects the
initial capital contributed by the Members of $2,677,489 and all losses of
the Company since inception. No distributions have been made to the Members
since inception. Under the terms of the Limited Liability Company Agreement
(the LLC Agreement), profits and losses and any distributions of the Company
are allocated to its members based upon the Members' relative ownership
interests in the Company and are made at the sole discretion of the Board of
Managers. Members may not assign or transfer their rights without consent of
the other Member. Both Members have two positions each in the Board of
Managers. There is a single class of Members with the same rights, powers,
duties, obligations, preferences and privileges. Each Member's liability is
limited to the sum of its capital contributions, its share of any
undistributed assets of the Company and any amounts previously distributed
to it from the Company.
As stated in the Articles of Organization, the latest date on which the
Company is to dissolve is November 30, 2019.
11. SALES AND CLOSURE OF RETAIL STORES
In December 2000, the Company sold its retail store operation in Columbia,
South Carolina, to an unrelated local furniture retailer. The transaction
involved the sale of inventory, property, equipment and leasehold
improvements. The buyer also assumed the customer deposit liability and the
future lease commitments for the store facility. The Company incurred a loss
of $97,000 primarily related to the disposal of property and equipment. As
management made the decision to dispose of this store before year-end and
management knew that the book value of the property exceeded fair value at
year-end, management accrued for these impaired assets in the accompanying
2000 statement of operations and changes in members' deficit.
The Company sold its retail furniture store in Knoxville, Tennessee, in
January 2001 to an unrelated third party. Substantially all of the inventory
in that location had been sold through a liquidation sale that began in
September 2000. The lease for this location has been assumed by an unrelated
third party, who will utilize the store as a "Bassett Furniture Direct"
store going forward. Losses due to this transaction were insignificant.
F-28
-9-
The Company closed its retail furniture store in Fredericksburg, Virginia,
in March 2001. Substantially all of the inventory in that location was
liquidated by May 2001. The lease for this location was terminated by
Bassett, the owner of the property, concurrent with the closure of the
store. Losses due to the closure of this store were insignificant.
The Company sold its retail furniture store in Hickory, North Carolina, to
Bassett in July 2001. The principal terms of the agreement called for
inventory and property to be sold at net book value to Bassett.
Additionally, Bassett assumed the customer deposit liability and the lease
of the retail facility in Hickory. There was no gain or loss associated with
this transaction.
The Company sold its retail furniture store in Greenville, South Carolina,
to an unrelated third party, in August 2001. The transaction involved the
sale of inventory, property, equipment and leasehold improvements. The buyer
also assumed the customer deposit liability and the future lease commitments
for the store. The Company incurred a loss of approximately $140,000
primarily related to the disposal of property and equipment.
Subsequent to November 30, 2001, the Company sold its retail furniture store
in Louisville, Kentucky to an unrelated local furniture retailer. The
purchaser has purchased substantially all assets and assumed all liabilities
of the store. Related losses on this transaction are not significant.
Subsequent to November 30, 2001, the Company and Bassett entered into an
agreement in principle to restructure the balance sheet and streamline the
operations of the Company. The agreement calls for Bassett to forgive debt
due by the Company of $2,150,000. Also, as part of the agreement, the
Company will sell the five remaining stores in North Carolina and Virginia
to Bassett for net book value as of the effective date of the agreement of
approximately $188,000 ($5,405,000 of assets and $5,217,000 of liabilities)
including bank debt of approximately $1,481,000.
Sales related to all stores sold, closed or planned to be sold included in
the statement of operations and changes in Members' deficit for the year
ended November 30, 2001, were $27,944,000 and related loss from operations
was $4,892,000.
INDEX TO FORM 10-K SCHEDULE
Exhibit No.
- -----------
F-29 Report of Independent Public Accountants
F-30 Bassett Furniture Industries, Inc. Schedule II - Analysis of Valuation
and Qualifying Accounts for the years ended November 24, 2001, November 25, 2000
and November 27, 1999.
F-29
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Bassett Furniture Industries,
Incorporated:
We have audited in accordance with auditing standards generally accepted in the
United States, 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 15, 2002.
Our audits were made for the purpose of forming an opinion on those statements
taken as a whole. The schedule on page F-30 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 15, 2002
F-30
BASSETT FURNITURE INDUSTRIES, INC.
Schedule II
Analysis of Valuation and Qualifying Accounts
For the Years Ended November 24, 2001, November 25, 2000 and November 27, 1999
(in thousands)
Additions
Balance Charged to Balance
Beginning Cost and End
Of Period Expenses Deductions Other Of Period
----------------------------------------------------------------------------------
(1)
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
==================================================================================
For the Year Ended November 25, 2000:
Reserve deducted from
assets to which it applies-
Allowance for doubtful
accounts $2,558 $4,150 $(58) --- $6,650
==================================================================================
Restructuring reserve $1,316 $880 $(853) --- $1,343
==================================================================================
For the Year Ended November 24, 2001:
Reserve deducted from
assets to which it applies-
Allowance for doubtful
accounts $6,650 $481 $(4,631) --- $2,500
==================================================================================
Restructuring reserve $1,343 $2,402 $(3,163) --- $582
==================================================================================
(1) Deductions are for the purpose for which the reserve was created.
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 2001 AND 2000
TOGETHER WITH AUDITORS' REPORT
The Bassett Industries Alternative Asset Fund, L.P. has an exemption, pursuant
to CFTC Regulation 4.7, from certain provisions of Part 4 of the CFTC
Regulations.
F-31
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
OATH
AS OF DECEMBER 31, 2001 AND 2000
To the best of the undersigned's knowledge and
belief, the information contained in these
financial statements is accurate and complete.
/s/ Louis Moelchert, Jr.
--------------------------------------------
Louis Moelchert, Jr., President
Private Advisors, L.L.C.
General Partner for
Bassett Industries Alternative Asset Fund, L.P.
F-32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Bassett Industries Alternative Asset Fund, L.P.:
We have audited the accompanying statements of financial condition, including
the schedules of investments, of the Bassett Industries Alternative Asset Fund,
L.P. (a Delaware limited partnership) as of December 31, 2001 and 2000, and the
related statements of operations, changes in partners' capital and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an 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 the Bassett Industries
Alternative Asset Fund, L.P. as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Richmond, Virginia
February 8, 2002
F-33
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
TABLE OF CONTENTS
STATEMENTS OF FINANCIAL CONDITION
As of December 31, 2001 and 2000......................................1
SCHEDULE OF INVESTMENTS
As of December 31, 2001...............................................2
As of December 31, 2000...............................................3
STATEMENTS OF OPERATIONS
For the years ended December 31, 2001 and 2000........................4
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 2001 and 2000........................5
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001 and 2000........................6
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000............................................7
F-34
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
ASSETS
Fund investments, at fair value (Note 4) $ 59,044,501 $ 57,257,422
Cash and cash equivalents 87,955 241,067
------------- -------------
Total assets $ 59,132,456 $ 57,498,489
============= =============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued expenses $ 15,259 $ 10,326
------------- -------------
PARTNERS' CAPITAL:
General Partner 15,227 13,946
Limited Partner 59,101,970 57,474,217
------------- -------------
Total partners' capital 59,117,197 57,488,163
------------- -------------
Total liabilities and partners' capital $ 59,132,456 $ 57,498,489
============= =============
The accompanying notes are an integral part of these statements.
F-35
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 2001
NUMBER OF SHARES OR
PERCENT OWNERSHIP
FUND INVESTMENT OF FUND INVESTMENT FAIR VALUE
- ----------------------------- ------------------- -------------
STYX PARTNERS, L.P. 6.3% $ 14,571,935
OZ DOMESTIC PARTNERS, L.P. 1.0 14,024,502
HBK FUND, L.P. 0.9 13,490,433
DOUBLE BLACK DIAMOND, L.P. 1.7 9,496,869
FARALLON CAPITAL OFFSHORE 1,225,753 Class A -
INVESTORS, INC. Series A shares 7,460,762
-------------
Total (99.9% of net assets)-
cost $37,133,967 $ 59,044,501
=============
The accompanying notes are an integral part of this schedule.
F-36
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 2000
NUMBER OF SHARES OR
PERCENT OWNERSHIP
FUND INVESTMENT OF FUND INVESTMENT FAIR VALUE
- ----------------------------- ------------------- -------------
STYX PARTNERS, L.P. 6.9% $ 13,003,415
OZ DOMESTIC PARTNERS, L.P. 1.4 13,246,885
HBK FUND, L.P. 1.2 12,269,880
DOUBLE BLACK DIAMOND, L.P. 2.6 8,435,336
FARALLON CAPITAL OFFSHORE 10,301,906 Class A -
INVESTORS, INC. Series A shares 10,301,906
-------------
Total (99.6% of net assets) -
cost $39,826,563 $ 57,257,422
=============
The accompanying notes are an integral part of this schedule.
F-37
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
INVESTMENT INCOME:
Interest $ 9,830 $ 15,874
------------ ------------
EXPENSES:
Management fees 577,148 608,402
Other 15,727 20,632
------------ ------------
Total expenses 592,875 629,034
------------ ------------
NET INVESTMENT LOSS (583,045) (613,160)
REALIZED GAINS ON FUND INVESTMENTS 1,232,404 3,439,944
CHANGE IN NET UNREALIZED APPRECIATION ON
FUND INVESTMENTS 4,479,675 7,374,214
------------ ------------
NET INCREASE IN PARTNERS' CAPITAL RESULTING
FROM OPERATIONS $ 5,129,034 $ 10,200,998
============ ============
The accompanying notes are an integral part of these statements.
F-38
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
LIMITED GENERAL
PARTNER PARTNER TOTAL
------- ------- -----
BALANCE, DECEMBER 31, 1999 $ 59,275,310 $ 11,855 $ 59,287,165
Redemptions (12,000,000) -- (12,000,000)
Net increase in partners'
capital resulting from
operations 10,198,907 2,091 10,200,998
------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 57,474,217 13,946 57,488,163
Redemptions (3,500,000) -- (3,500,000)
Net increase in partners'
capital resulting from
operations 5,127,753 1,281 5,129,034
------------ ------------ ------------
BALANCE, DECEMBER 31, 2001 $ 59,101,970 $ 15,227 $ 59,117,197
============ ============ ============
The accompanying notes are an integral part of these statements.
F-39
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in partners' capital
resulting from operations $ 5,129,034 $ 10,200,998
Adjustment to reconcile net income to net
cash used in operating activities-
Change in net unrealized appreciation on
fund investments (4,479,675) (7,374,214)
Realized gains on fund investment (1,232,404) (3,439,944)
Increase in accrued expenses 4,933 219
------------ ------------
Net cash used in operating activities (578,112) (612,941)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fund investments -- (950,000)
Sales of fund investments 3,925,000 13,801,741
------------ ------------
Net cash provided by investing activities 3,925,000 12,851,741
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions paid (3,500,000) (12,000,000)
------------ ------------
Net (decrease) increase in cash and cash
equivalents (153,112) 238,800
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 241,067 2,267
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 87,955 $ 241,067
============ ============
The accompanying notes are an integral part of these statements.
F-40
BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
1. ORGANIZATION:
The Bassett Industries Alternative Asset Fund, L.P. (the Partnership) was
organized under the Delaware Revised Uniform Limited Partnership Act and
commenced operations on July 1, 1998. Private Advisors, L.L.C. is the general
partner (the General Partner) of the Partnership. Bassett Furniture Industries,
Inc. (the Limited Partner) and the General Partner are currently the only
partners.
The objective of the Partnership is to invest with hedge funds and other
experienced portfolio managers or otherwise utilize the services of investment
advisors or investment managers in order to make investments in and to purchase,
hold, trade and sell securities. The General Partner has discretion to make all
investment and trading decisions, including the selection of investment
managers.
2. PARTNERSHIP AGREEMENT:
The Partnership is governed by the terms of the limited partnership agreement
(the Agreement). A general summary of salient points of the Agreement is
provided below. Reference should be made to the Agreement to obtain a complete
understanding of all pertinent information.
MANAGEMENT OF PARTNERSHIP AFFAIRS
Responsibility for managing the Partnership is vested solely with the General
Partner. The General Partner's duties include the selection of investment
managers, monitoring of the Partnership's investments, which includes the
allocation of the Partnership's assets among the selected investment managers on
an ongoing basis, and various administrative functions necessary to support the
Partnership.
GENERAL PARTNER FEE
The General Partner receives a management fee from the Partnership, payable
quarterly, based on an annual rate of 1 percent as applied to quarterly net
assets, as defined.
F-41
CONTRIBUTION OF LIMITED PARTNER
The Limited Partner is required to make and maintain an investment in the
Partnership of not less than $1,000,000. The General Partner may, at its
discretion, waive these minimum requirements. Additional investments are
permitted at the discretion of the General Partner.
REDEMPTIONS
The Limited Partner may redeem part or all of its capital account as of the end
of any calendar quarter upon 90 days written notice to the General Partner (or
such lesser notice as may be acceptable to the General Partner). The General
Partner may redeem part or all of its capital account as of any calendar
year-end, as defined, upon 45 days notice to the Limited Partner. Redemptions
shall be at net asset value, as defined.
ALLOCATIONS
Each partner has a capital account with an initial balance equal to the amount
each individual partner contributed to the Partnership. At the end of each month
and at the time of any event causing the capital account of any partner to
change, profits and losses are allocated to the accounts of the partners in the
ratio that each partner's capital account bears to the balance of all partners'
accounts. A separate allocation is performed for Federal income tax purposes.
TERMINATION OF PARTNERSHIP
The Partnership shall terminate and be dissolved upon the occurrence of any of
the following events:
- - December 31, 2025;
- - the withdrawal, dissolution, insolvency, or removal of the General Partner;
- - the written consent of the General Partner and a majority-in-interest of
the Limited Partners; or
- - the election of a majority-in-interest of the Limited Partners, if the
Limited Partners determine that the General Partner has materially breached
any provision of the Agreement.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-42
INTEREST INCOME
The Partnership receives interest monthly based on prevailing short-term money
market rates applied to 100 percent of the Partnership's average daily cash
balance above a specified reserve, as defined. Interest income is accrued when
earned.
INCOME TAXES
A provision for income tax has not been provided, as partners are individually
liable for taxes, if any, on their share of the Partnership's net income.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
4. FUND INVESTMENTS:
The funds in which the Partnership invests engage primarily in speculative
trading of security interests and have the discretion to invest in any type of
security interest. Risks to these funds arise from the possible adverse changes
in the market value of such interests and the potential inability of
counterparties to perform under the terms of the contracts. However, the risk to
the Partnership is limited to the amount of the Partnership's investment in each
of these funds. In general, the Partnership may redeem part or all of its
investment in each of the funds as of the end of each quarter or calendar year,
upon 45 to 180 days prior written notice, as specified in the various fund
agreements.
Fund investments are valued on the basis of net asset value, with the resultant
difference from the prior valuation included in the accompanying statements of
operations. The net asset value is determined by the investee fund based on its
underlying financial instruments. The Partnership's share of the revenues and
expenses of each fund is based on the Partnership's proportionate share of
amounts invested during the period and is included as net gain (loss) on fund
investments in the accompanying statements of operations. The Partnership's
proportionate share of the investee funds' operating expenses, including
brokerage commissions and management and incentive fees, incurred directly by
the funds is reflected as a component of the change in net unrealized
appreciation (depreciation) on fund investments within the accompanying
statements of operations.
The following table summarizes the Partnership's fund investments as of December
31, 2001, and for the year then ended. The management agreements of the investee
funds provide for compensation to their managers in the form of
F-43
fees ranging from 1 percent to 1.5 percent annually of net assets, and
performance incentive fees equal to 20 percent of net trading profits earned.
These fees have been included as a component of the change in net unrealized
appreciation (depreciation) on fund investments in the accompanying statements
of operations.
PERCENTAGE
OF NET GAIN ANNUAL FEE PERCENTAGES*
PARTNERSHIP'S ON FUND ------------------------- REDEMPTIONS
INVESTMENT NET ASSETS INVESTMENTS MANAGEMENT INCENTIVE PERMITTED
- ---------- ---------- ----------- ---------- --------- ---------
Styx Partners, L.P. 24.7% $ 1,568,520 1.0% 20% Annually
Oz Domestic Partners, L.P. 23.7 777,617 1.5 20 Annually
HBK Fund, L.P. 22.8 1,220,553 1.5 20 Quarterly
Double Black Diamond, L.P. 16.1 1,061,533 1.0 20 Quarterly
Farallon Capital Offshore
Investors, Inc. 12.6 1,083,856 1.0 20 Quarterly
-------- ------------
Total 99.9% $ 5,712,079
======== ============
*For the year ended December 31, 2001, the management and incentive fees
allocated to Double Black Diamond, L.P. were $89,620 and $265,383, respectively,
and the management and incentive fees allocated to Styx Partners, L.P. were
$137,047 and $392,130, respectively. The General Partner is not able to obtain
the specific fee amounts for the other investee funds.
5. OPERATING EXPENSES:
The Partnership pays its routine legal, accounting, audit, computer and other
operating costs. The net assets of the Partnership reflect an accrual for such
expenses incurred but not yet paid.
6. FINANCIAL INSTRUMENTS WITH MARKET AND CREDIT RISKS AND CONCENTRATIONS OF
CREDIT RISK:
In the normal course of operations, the Partnership may enter into various
contractual commitments with elements of market risk in excess of the amounts
recognized in the statements of financial condition. Contractual commitments
that involve future settlement give rise to both market and credit risk. Market
risk represents the potential loss that can be caused by a change in the market
value of a particular financial instrument. The Partnership's exposure to market
risk is determined by a number of factors, including the size, composition and
diversification of positions held, volatility of interest, market currency rates
and liquidity. With reference to the Partnership's credit and concentration of
credit risks for investments in other security funds, the risk to the
Partnership is limited to the Partnership's investment.
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7. FINANCIAL HIGHLIGHTS:
The following financial highlights for the year ended December 31, 2001, have
been calculated in accordance with the guidance set forth by the American
Institute of Certified Public Accountants AUDIT AND ACCOUNTING GUIDE, AUDITS OF
INVESTMENT COMPANIES.
Total return 9.18%
Ratio to average net assets:
Net investment loss (1.00)%
Expenses (1.02)%
Returns and ratios for individual investors may differ from these returns and
ratios based on participation in hot issues, different fee arrangements, and
timing of capital transactions.
F-45
INDEX TO EXHIBITS
Exhibit No.
- -----------
3B Bylaws, as amended
4B First Amendment to Credit Agreement with a Bank Group dated October 5, 2001
13 Portions of the Bassett Furniture Industries, Incorporated Annual Report to
Stockholders for the year ended November 24, 2001
21 List of subsidiaries of registrant
23A Consent of Independent Public Accountants
23B Consent of Independent Auditors
99 Securities and Exchange Commission Representation