1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 28, 1998 Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0135270
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3525 FAIRYSTONE PARK HIGHWAY
BASSETT, VIRGINIA 24055
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540/629-6000
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class: on which registered
-------------------- -------------------
Common Stock ($5.00 par value) NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for at least the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of February 23, 1999 was $276,083,245.
The number of shares of the Registrant's common stock outstanding on February
23, 1999 was 12,754,634.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Bassett Furniture Industries, Incorporated Annual Report
to Stockholders for the year ended November 28, 1998 (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 1999 Annual Meeting of Stockholders to be held
March 30,1999, filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of
this Form 10-K.
2
2
PART I
ITEM 1. BUSINESS
(dollar amounts in thousands except per share data)
GENERAL DEVELOPMENT OF BUSINESS
Bassett Furniture Industries, Incorporated was incorporated under the
laws of the Commonwealth of Virginia in 1930. The executive offices are
located in Bassett, Virginia.
During 1997, the Company commenced the restructuring of certain of its
operations and recorded restructuring and impaired asset charges of
$20,646. The restructuring plan is the result of management's decision
to focus on its core Bassett product line and efforts to improve
operating efficiencies. The principal actions of the plan include the
closure or sale of fourteen manufacturing facilities, elimination of
three product lines (National/Mt. Airy, Impact and veneer production)
and the severance of approximately 1,000 employees. Refer to Note J of
the Consolidated Financial Statements included in the Annual Report for
a detail of restructuring activity for 1997 and 1998 and refer to the
Management Discussion and Analysis section of the annual report for
additional discussion on this topic.
There have been no other material changes in the mode of conducting
business in the fiscal year beginning December 1, 1997.
INDUSTRY SEGMENT
In accordance with the instructions for this item, Bassett Furniture
Industries, Incorporated and its subsidiaries, all of which are
wholly-owned (Company), is deemed to have been engaged in only one
business segment, manufacture and sale of household furniture, for the
three years ended November 28, 1998.
DESCRIPTION OF BUSINESS
The Company manufactures and sells a full line of furniture for the
home, including bedroom and dining suites and accent pieces; occasional
tables, wall and entertainment units; home office systems and computer
work stations; upholstered sofas, chairs and love seats (motion and
stationary); recliners; and mattresses and box springs. The Company's
products are distributed through a large number of retailers,
principally in the United States. The retailers selling the Company's
products include mass merchandisers, department stores, independent
furniture stores, chain furniture stores, proprietary retail outlets
called Bassett Furniture Direct, and Bassett Gallery stores, decorator
showrooms, warehouse showrooms, specialty stores and rent-to-own
stores.
The Company's significant product lines are: wood, upholstery and
bedding, which accounted for 60%, 30% and 10% of net sales during 1998,
respectively.
Raw materials used by the Company are generally available from numerous
sources and are obtained principally from domestic sources. The Company
has not experienced significant raw materials cost pressures in 1998.
The Company's trademark "Bassett" and the names of its marketing
divisions and product collections are significant to the conduct of its
business. This importance is due to consumer recognition of the names
and identification with the Company's broad range of products. The
Company owns certain patents and licenses that are important in the
conduct of the Company's business.
The furniture industry in which the Company competes is not considered
to be a seasonal industry. There are no special practices in the
furniture industry, or applicable to the Company, that would have a
significant effect on working capital items.
3
3
Sales to one customer (J. C. Penney Company) amounted to approximately
15% of gross sales in 1998, 1997 and 1996. The Company's backlog of
orders believed to be firm was $35,000 at November 28,1998 and $43,000
at November 30, 1997. It is expected that the November 28, 1998 backlog
will be filled within the 1999 fiscal year.
The furniture industry is very competitive and there are a large number
of manufacturers both within the United States and offshore who compete
in the market on the basis of product quality, price, style, delivery
and service. Based on annual sales revenue, the Company is one of the
largest furniture manufacturers located in the United States. The
Company has been successful in this competitive environment because its
products represent excellent value combining attractive prices and
superior quality and styling; prompt delivery; and courteous service.
Competition from foreign manufacturers is not any more significant in
the marketplace today than competition from domestic manufacturers.
The furniture industry is considered to be a "fashion" industry subject
to constant change to meet the changing consumer preferences and
tastes. As such, the Company is continuously involved in the
development of new designs and products. Due to the nature of these
efforts and the close relationship to the manufacturing operations,
these costs are considered normal operating costs and are not
segregated. The Company is not otherwise involved in "traditional"
research and development activities nor does the Company sponsor
research and development activities of any of its customers.
In management's view, the Company has complied in all material respects
with all federal, state and local standards in the area of safety,
health and pollution and environmental controls. Compliance with these
standards has not had a material adverse effect on past earnings,
capital expenditures or competitive position. The Company is involved
in environmental matters at certain of its plant facilities, which
arise in the normal course of business. Although the final outcome of
these environmental matters cannot be determined, based on the facts
presently known, it is management's opinion that the final resolution
of these matters will not have a material adverse effect on the
Company's financial position or future results of operations.
The Company had approximately 5,400 employees at November 28, 1998.
The Company owns a minority interest in International Home Furnishings
Center, which is a lessor of permanent exhibition space to furniture
and accessory manufacturers.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company has no foreign operations, and its export sales were
approximately $14.3 million, $12.5 million, and $11.7 million in 1998,
1997 and 1996 respectively.
ITEM 2. PROPERTIES
At November 28, 1998 the Company owns the following manufacturing
facilities:
Plant or Division Name Location Construction
---------------------- -------- ------------
J. D. Bassett Manufacturing Company Bassett, VA (2 plants) Brick, frame and concrete
Bassett Superior Lines Bassett, VA Brick, frame, concrete
and steel
Bassett Chair Company Bassett, VA Brick, frame, concrete
and steel
Bassett Table Company Bassett, VA Brick and frame
Bassett Veneer * Burkeville, VA Brick, frame and concrete
Bassett Fiberboard Bassett, VA Brick, concrete and steel
Bassett Upholstery Division Newton, NC (4 plants) Brick, concrete and steel
Bassett Upholstery Division Hiddenite, NC Brick, concrete and steel
4
4
Bassett Upholstery Division Dumas, AR Brick, concrete and steel
Bassett Furniture Industries
of North Carolina, Inc. Macon, GA Brick, concrete and steel
Dublin, GA Concrete, block and steel
Bassett Furniture Industries of * Statesville, NC Block, frame, and concrete
North Carolina, Inc.
Mt. Airy Mt. Airy, NC Brick, concrete and steel
Weiman Division Christiansburg, VA Metal frame
E. B. Malone Corporation Lake Wales, FL Concrete, block and frame
(2 plants)
E. B. Malone Corporation * Pottstown, PA Metal frame
E. B. Malone Corporation Walworth, WI Concrete, block and steel
E. B. Malone Corporation Fredericksburg, VA Brick and frame
E. B. Malone Corporation * Chehalis, WA Concrete, block and metal
frame
E. B. Malone Corporation Los Angeles, CA Concrete, block and metal
frame
E. B. Malone Corporation Los Angeles, CA Brick, concrete and steel
E. B. Malone Corporation Tipton, MO Concrete, block and steel
The Company also owns its general corporate office building in Bassett,
Virginia (brick, concrete and steel), two warehouses in Bassett,
Virginia (brick and concrete) and a showroom in High Point, North
Carolina (brick, concrete and steel).
In general, these facilities are suitable and are considered to be
adequate for the continuing operations involved. All facilities, except
those held for sale, are in regular use.
Properties designated by an asterisk "*" have ceased manufacturing
operations and are currently held for sale in connection with the
restructuring efforts.
The following facilities were sold or disposed of during 1998:
Plant Name Location Construction
---------- -------- ------------
W. M. Bassett Martinsville, VA Brick, frame and concrete
Bassett Motion Saltillo, MS Brick, concrete and steel
Bassett Motion Booneville, MS Brick, concrete and steel
Impact Hildebran, NC Brick, concrete and steel
E. B. Malone Corporation West Palm Beach, FL Brick, concrete and steel
ITEM 3. LEGAL PROCEEDINGS
A suit was filed in June, 1997, in the Superior Court of the State of
California for the County of Los Angeles (the "Superior Court") against
the Company, two major retailers and certain current and former
employees of the Company. The suit sought certification of a class
consisting of all consumers who purchased certain mattresses and box
springs from the major retailers which were manufactured by a
subsidiary of the Company, E.B. Malone Corporation, with different
specifications than those originally manufactured for the sale by these
retailers. The suit alleged various causes of action, including
negligent misrepresentation, breach of warranty, violations of
5
5
deceptive practices laws and fraud. Plaintiffs sought compensatory
damages of $100 million and punitive damages. In 1997, the Superior
Court twice sustained the Company's demurrers to several of plaintiffs'
causes of action, but granted the plaintiffs leave to amend. In
February, 1998, the Superior Court sustained the Company's demurrers to
many of the individual claims, this time without granting plaintiffs
leave to amend. The Superior Court also sustained the Company's
demurrer to the class action allegations in plaintiffs' Third Amended
Complaint, without granting leave to amend, and transferred the entire
action out of the class action department. Plaintiffs have filed a
notice of appeal from the class action ruling. Plaintiffs also filed a
petition for a writ of mandamus or other extraordinary relief seeking
immediate review of the other demurrer rulings, which petition was
denied. The suit was subsequently transferred from the Superior Court
for the County of Los Angeles to the Superior Court for Orange County.
After the case was transferred to Orange County, the plaintiffs
stipulated to a dismissal with prejudice of all individual defendants.
Additionally, all remaining claims against the Company were stayed by
the Court pending Plaintiffs' appeal of the dismissal of their class
action allegations. Although it is impossible to predict the ultimate
outcome of this litigation, the Company intends to vigorously defend
this suit because it believes that the damages sought are unjustified
and because this case is inappropriate for class action treatment.
Because the Company believes that the two major retailers were unaware
of the changes in specifications, the Company has agreed to indemnify
the two major retailers with respect to the above.
The Company is also involved in various other claims and actions which
arise in the normal course of business. Although the final outcome of
these legal matters cannot be determined, based on the facts presently
known, it is management's opinion that the final resolution of these
matters will not have a material adverse effect on the Company's
financial position or future results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4b. EXECUTIVE OFFICERS OF THE REGISTRANT
Johne F. Albanese, 38, has been with the Company since 1993 as the Vice
President of Marketing and Communications (1993-1996) and Vice
President of the Retail Group (since 1997).
John E. Bassett III, 40, has been with the Company since before 1993 as
the Vice President and General Manager of Bassett Table and the Vice
President of Wood Manufacturing.
David R. Bilyeu, 38, was the Director of Information Systems with
Tokico, Inc from 1993 until 1995, the Vice President and Director of
Information Systems with Harman, Inc from 1995 until 1997, and has been
with the Company as Vice President and Chief Information Officer since
1997.
Grover S. Elliot, 58, was the Chief Financial Officer for Cochrane
Furniture from 1993 until 1996 and has been with the Company as Vice
President of Finance and Investor Relations since 1996.
Paul Fulton, 64, was the President of the Sara Lee Corporation (package
food & consumer products division) until 1993, from 1994 until 1997 he
was Dean of the Kenan-Flagler Business School at the University of
North Carolina at Chapel Hill, and has been Chairman and Chief
Executive Officer of the Company since 1997.
Janice E. Hamlin, 45, was the Vice President of Retail Business and
Product Development with Warner Bros. Consumer Products (Time Warner)
from 1990 until 1996, the Vice President of Marketing for Viacom Retail
Group from 1996 until 1997, and has been with the Company as Vice
President of Marketing since 1997.
Jay R. Hervey, Esq., 39, was an Associate with the Richmond Office of
McGuire, Woods, Battle and Boothe from 1993 through 1997 and has been
the General Counsel, Corporate Vice President and Secretary for the
Company since 1997.
Dennis S. Hoy, 40, was a furniture buyer with Marlo Furniture from 1987
until 1996 and has been with the Company working in the Impact
Division, as Casegoods and Merchandise Manager and as Vice President of
Merchandising since 1996.
John S. Lupo, 52, was the Senior Vice President and General Merchandise
Manager of Wal-Mart, Inc from 1993-1996, the Senior Vice President and
Chief Operating Officer of Wal-Mart International from 1996-1998, and
has been the Executive Vice President for Sales and Marketing for the
Company since October of 1998.
Thomas E. Prato, 43, has been with the Company since 1987 and is
currently the Vice President of Sales.
Steven P. Rindskopf, 43, was the Vice President of Human Resources for
The Bali Company (a division of the Sara Lee Corporation) from 1993
until 1997, the Owner & Operator of the Master's Loft (Bookstore &
Cafe) Company from 1997 until 1997, and has been with the Company as
Vice President, Administration and Human Resources since 1997.
Barry C. Safrit, 36, was with CHF Industries from 1993 until 1998 as
Controller and as Chief Financial Officer and has been the Vice
President and Chief Accounting Officer for the Company since October of
1998.
Keith R. Sanders, 54, was with Ethan Allen from 1993 until 1998 as the
Vice President of Manufacturing and Vice President of Upholstery and
has been the Vice President of Upholstery and Manufacturing for the
Company since 1998.
Robert H. Spilman, Jr., 42, was the Company's Executive Vice President
of Marketing and Merchandising from 1993 until 1997 and has served as
President and Chief Operating Officer since 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information contained in the Annual Report under the caption
"Investor Information" with respect to number of stockholders, market
prices and dividends paid is incorporated herein by reference thereto.
ITEM 6. SELECTED FINANCIAL DATA
The information for the five years ended November 28, 1998, contained
in "Other Business Data" in the Annual Report is incorporated herein by
reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in "Management's Discussion and Analysis of
Financial Condition and Result of Operations" in the Annual Report is
incorporated herein by reference thereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The information contained in "Management's Discussion and Analysis of
Financial Condition and Result of Operations" in the Annual Report is
incorporated herein by reference thereto.
6
6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated
financial statements of the Registrant and its subsidiaries contained
in the Annual Report are incorporated herein by reference thereto. In
addition, financial statements of the registrant's 50% or less owned
significant subsidiary are included in this Form 10-K on pages F-1 to
F-13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Bassett Furniture Industries decided to change its independent Public
Accountants from KPMG LLP (KPMG) to Arthur Andersen effective November
21, 1997, and KPMG was notified on that date. This decision was
approved unanimously by the Board of Directors. The new management
team at Bassett Furniture Industries, since taking charge in August
1997, has changed the Company's management focus and philosophy to
more of a strategic focus and emphasis on return on assets employed.
Management believes that Arthur Andersen's "business risk" audit
approach is directly aligned with the Company's philosophy and will
provide this Company's management team with invaluable information
towards managing the Company better and planning for the future.
During the Company's fiscal year ended November 30, 1996 and the
subsequent interim period through November 21, 1997, there were no
disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedures, which if not resolved to their satisfaction would have
caused them to make reference to the subject matter of the
disagreements in connection with their opinion.
The audit report of KPMG on the consolidated financial statements of
the Company for the fiscal year ended November 30, 1996 did not contain
an adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 3 through 5 and page 11 of the Proxy
Statement under the "Election of Directors" and "Section 16 (a)
Beneficial Ownership Reporting Compliance" is incorporated herein by
reference thereto. Please see section entitled "Executive Officers of
the Registrant" in part I of this report for information concerning
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 through 10 of the Proxy Statement
under the captions "Organization, Compensation and Nominating Committee
Report," "Stockholder Return Performance Graph," "Executive
Compensation," "Supplemental Retirement Income Plan" and "Director
Compensation" is incorporated herein by reference thereto.
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
The information contained on page 5 of the Proxy statement under the
heading "Certain Transactions" is incorporated herein by reference
thereto.
7
7
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
of the registrant to its stockholders for the year ended
November 28, 1998 are incorporated herein by reference thereto:
Consolidated Balance Sheets--November 28, 1998 and
November 30, 1997
Consolidated Statements of Operations--Years Ended
November 28, 1998, November 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity-- Years
Ended November 28, 1998, November 30, 1997 and 1996
Consolidated Statements of Cash Flows-- Years Ended
November 28, 1998, November 30, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statements of certain significant 50% or less owned
persons are included herein on pages F-1 to F-13.
(2) All financial statement schedules for which provision is made
in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
(3) Listing of Exhibits
3A. Articles of Incorporation as amended are incorporated
herein by reference to Form 10- Q for the fiscal quarter
ended February 28, 1994.
3B. By-laws as amended are filed herewith.
** 10A. Bassett 1993 Long Term Incentive Stock Option Plan is
incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (no.33-52405) filed on
February 25, 1994.
** 10B. Bassett Executive Deferred Compensation Plan is
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 is
as amended filed herewith.
** 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.
8
8
13. The registrant's Annual Report to Stockholders for the
year ended November 28, 1998.*
21. List of subsidiaries of the registrant.
23A. Consent of Arthur Andersen LLP is filed herewith.
23B. Consent of KPMG LLP is filed herewith.
23C. Consent of Dixon Odom PLLC is filed herewith.
27. Financial Data Schedule (EDGAR filing only)
*With the exception of the information incorporated in this Form
10-K by reference thereto, the Annual Report shall not be deemed
"filed" as a part of this Form 10-K.
**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 1998 fiscal year.
9
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BASSETT FURNITURE INDUSTRIES, INCORPORATED (Registrant)
By: /s/ PAUL FULTON Date: 2/25/99
---------------------------------------- --------------
Paul Fulton
Chairman of the Board of Directors and
Chief Executive Officer
By: /s/ ROBERT H. SPILMAN JR. Date: 2/25/99
---------------------------------------- --------------
Robert H. Spilman Jr.
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ AMY W. BRINKLEY Date: 2/25/99
---------------------------------------- --------------
Amy W. Brinkley
Director
By: /s/ PETER W. BROWN Date: 2/25/99
---------------------------------------- --------------
Peter W. Brown
Director
By: /s/ THOMAS E. CAPPS Date: 2/26/99
---------------------------------------- --------------
Thomas E. Capps
Director
By: /s/ WILLIE D. DAVIS Date: 2/25/99
---------------------------------------- --------------
Willie D. Davis
Director
By: /s/ ALAN T. DICKSON Date: 2/25/99
---------------------------------------- --------------
Alan T. Dickson
Director
By: /s/ WILLIAM H. GOODWIN, JR. Date: 2/26/99
--------------------------------------- --------------
William H. Goodwin, Jr.
Director
10
10
SIGNATURES Continued
By: /s/ HOWARD H. HAWORTH Date: 2/26/99
---------------------------------------- --------------
Howard H. Haworth
Director
By: /s/ JAMES W. MCGLOTHLIN Date: 2/26/99
---------------------------------------- --------------
James W. McGlothlin
Director
By: /s/ THOMAS W. MOSS, JR. Date: 2/26/99
---------------------------------------- --------------
Thomas W. Moss, Jr.
Director
By: Date:
---------------------------------------- --------------
Michael E. Murphy
Director
By: /s/ ALBERT F. SLOAN Date: 2/26/99
---------------------------------------- --------------
Albert F. Sloan
Director
By: /s/ BARRY C. SAFRIT Date: 2/25/99
---------------------------------------- --------------
Barry C. Safrit
Vice President and Chief Accounting Officer
(Principal Financial Officer)
11
11
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (c)
CERTAIN EXHIBITS
YEAR ENDED NOVEMBER 28, 1998
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
BASSETT, VIRGINIA
12
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
13
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT............................................. 1
FINANCIAL STATEMENTS
Balance Sheets........................................................ 2
Statements of Income ................................................. 3
Statements of Stockholders' Equity (Deficit).......................... 4
Statements of Cash Flows.............................................. 5
Notes to Financial Statements......................................... 6
14
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
International Home Furnishings Center, Inc.
High Point, North Carolina
We have audited the accompanying balance sheets of International Home
Furnishings Center, Inc. as of October 31, 1998 and 1997 and the related
statements of income, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended October 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Home Furnishings
Center, Inc. at October 31, 1998 and 1997 and the results of its operations and
its cash flows for each of the three years in the period ended October 31, 1998
in conformity with generally accepted accounting principles.
/s/ DIXON ODOM PLLC
High Point, North Carolina
November 25, 1998
Page 1
15
F-2
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
ASSETS 1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 16,396,705 $ 5,574,018
Restricted cash(Note D) 2,275,974 --
Short-term investments 83,643 78,444
Receivables
Trade 2,163,950 1,899,925
Interest 36,892 16,200
Deferred income tax asset 592,000 599,000
Prepaid expenses 55,965 283,063
------------ ------------
TOTAL CURRENT ASSETS 21,605,129 8,450,650
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Land and land improvements 3,293,772 3,293,772
Buildings, exclusive of theater complex 75,196,472 74,821,281
Furniture and equipment 3,536,662 3,464,427
------------ ------------
82,026,906 81,579,480
Accumulated depreciation (41,727,981) (39,581,587)
------------ ------------
40,298,925 41,997,893
------------ ------------
OTHER ASSETS
Theater complex, at cost less amortization(Note H) 1,020,109 1,063,364
Deferred financing costs, net of accumulated amortization
of $20,883 in 1998 563,826 --
------------ ------------
1,583,935 1,063,364
------------ ------------
TOTAL ASSETS $ 63,487,989 $ 51,511,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade $ 833,988 $ 736,947
Accrued property taxes 1,668,201 1,662,933
Other accrued expenses 895,425 415,462
Rents received in advance 1,478,883 1,498,572
Current maturities of long-term debt 8,667,074 --
------------ ------------
TOTAL CURRENT LIABILITIES 13,543,571 4,313,914
------------ ------------
LONG-TERM DEBT 64,950,148 --
------------ ------------
OTHER LONG-TERM LIABILITIES
Supplemental retirement benefits 963,091 803,741
Deferred income tax liability 1,936,000 2,020,000
------------ ------------
2,899,091 2,823,741
------------ ------------
COMMITMENT(Note H)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $5 par value, 1,000,000 shares authorized,
527,638 shares issued and outstanding in 1998 and 1997 2,638,190 2,638,190
Additional paid-in capital 169,360 169,360
Retained earnings (deficit) (20,712,371) 41,566,702
------------ ------------
(17,904,821) 44,374,252
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 63,487,989 $ 51,511,907
============ ============
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 2
16
F-3
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1998 1997 1996
------------ ------------ -------------
OPERATING REVENUES
Rental income $31,046,712 $31,099,737 $30,185,343
Other revenues 6,333,233 5,907,086 5,321,123
----------- ----------- -----------
TOTAL OPERATING REVENUES 37,379,945 37,006,823 35,506,466
----------- ----------- -----------
OPERATING EXPENSES
Compensation and benefits 3,648,331 3,503,952 3,277,406
Market and promotional 2,554,960 2,705,908 2,406,917
Maintenance and building costs 743,347 1,188,784 1,714,734
Depreciation expense 2,187,359 2,191,755 2,257,549
Rent 138,835 138,835 138,835
Property taxes and insurance 2,012,249 2,061,772 2,078,482
Utilities 1,769,612 1,685,299 1,777,009
Other operating costs 472,929 439,691 558,173
----------- ----------- -----------
TOTAL OPERATING EXPENSES 13,527,622 13,915,996 14,209,105
----------- ----------- -----------
INCOME FROM OPERATIONS 23,852,323 23,090,827 21,297,361
----------- ----------- -----------
NONOPERATING INCOME
Interest income 802,224 1,552,708 1,562,480
Dividend income 4,188 3,874 2,819
----------- ----------- -----------
TOTAL NONOPERATING INCOME 806,412 1,556,582 1,565,299
----------- ----------- -----------
NONOPERATING EXPENSES
Interest expense 1,517,248 -- --
----------- ----------- -----------
TOTAL NONOPERATING EXPENSES 1,517,248 -- --
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 23,141,487 24,647,409 22,862,660
PROVISION FOR INCOME TAXES 9,103,000 9,542,000 8,413,000
----------- ----------- -----------
NET INCOME $14,038,487 $15,105,409 $14,449,660
=========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 26.61 $ 28.63 $ 27.13
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 527,638 527,638 532,558
=========== =========== ===========
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 3
17
F-4
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 1995 $ 2,776,715 $ 178,252 $ 70,946,876 $ 73,901,843
Net income -- -- 14,449,660 14,449,660
Purchase and retirement of
27,705 common shares (138,525) (8,892) (7,490,538) (7,637,955)
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 1996 2,638,190 169,360 77,905,998 80,713,548
Net income -- -- 15,105,409 15,105,409
Dividends paid ($97.50 per
common share) -- -- (51,444,705) (51,444,705)
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 1997 2,638,190 169,360 41,566,702 44,374,252
Net income -- -- 14,038,487 14,038,487
Dividends paid ($144.64 per
common share) -- -- (76,317,560) (76,317,560)
------------ ------------ ------------ ------------
BALANCE (DEFICIT), OCTOBER 31, 1998 $ 2,638,190 $ 169,360 $(20,712,371) $(17,904,821)
============ ============ ============ ============
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 4
18
F-5
INTERNATIONAL HOME FURNISHINGS CENTER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,038,487 $ 15,105,409 $ 14,449,660
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,247,363 2,230,876 2,296,669
Provision for losses on accounts receivable 5,286 1,963 12,123
(Gain) loss on disposal of assets (1,000) 2,000 (1,707)
Deferred income taxes (77,000) (138,000) (67,000)
Change in assets and liabilities
(Increase) decrease in trade and interest
receivables (290,003) 330,334 (142,682)
(Increase) decrease in prepaid expenses 227,098 (35,698) 549,905
Increase (decrease) in accounts payable and
accrued expenses 582,272 (267,282) (78,363)
Increase (decrease) in rents received in advance (19,689) 120,952 28,833
Decrease in deferred compensation liability -- -- (3,100)
Increase in supplemental retirement benefits 159,350 147,547 136,617
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 16,872,164 17,498,101 17,180,955
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash (2,275,974) -- --
Purchase and construction of property and equipment (484,257) (146,092) (327,533)
Proceeds from sale of property and equipment 1,000 2,000 2,500
Collections on notes receivable -- -- 25,350
Purchase of certificates of deposit -- -- (2,000,000)
Purchase of short-term investments (5,199) (4,585) (6,929)
Proceeds from maturity of certificates of deposit -- -- 2,000,000
Proceeds from maturity of short-term investments -- 150,000 1,034,865
------------ ------------ ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (2,764,430) 1,323 728,253
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 75,000,000 -- --
Principal payments on long-term debt (1,382,778) -- --
Payment of deferred financing costs (584,709) -- --
Dividends paid (76,317,560) (51,444,705) --
Purchase and retirement of common stock -- -- (7,637,955)
------------ ------------ ------------
NET CASH USED BY
FINANCING ACTIVITIES (3,285,047) (51,444,705) (7,637,955)
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 10,822,687 (33,945,281) 10,271,253
CASH AND CASH EQUIVALENTS, BEGINNING 5,574,018 39,519,299 29,248,046
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 16,396,705 $ 5,574,018 $ 39,519,299
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 8,965,827 $ 9,707,600 $ 8,195,264
Interest expense 1,069,696 -- --
- -------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 5
19
F-6
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
J.
The Company has been in business since June 27, 1919, and operates under the
trade name of "International Home Furnishings Center."
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies relative to the carrying values of property and
equipment and theater complex are indicated in the captions on the balance
sheets. Other significant accounting policies are as follows:
Rental Income
Income from rental of exhibition space is recognized under the operating method.
Aggregate rentals are reported as income on the straight-line basis over the
lives of the leases, and expenses are charged as incurred against such income.
Future rentals under existing leases are not recorded as assets in the
accompanying balance sheets.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Investment Securities
The Company has investments in debt and marketable equity securities. Debt
securities consist of obligations of state and local governments and U. S.
corporations. Marketable equity securities consist primarily of investments in
mutual funds.
Management determines the appropriate classification of securities at the date
of adoption and thereafter at the date individual investment securities are
acquired, and the appropriateness of such classification is reassessed at each
balance sheet date. Since the Company neither buys investment securities in
anticipation of short-term fluctuations in market prices or commits to holding
debt securities to their maturities, investments in debt and marketable equity
securities have been classified as available-for-sale. Available-for-sale
securities are stated at fair value, and unrealized holding gains and losses, if
significant, net of the related deferred tax effect, are reported as a separate
component of stockholders' equity. Premiums and discounts on investments in debt
securities are amortized over their contractual lives. Interest on debt
securities is recognized in income as accrued, and dividends on marketable
equity securities are recognized in income when declared. Realized gains and
losses are included in income and are determined on the basis of the specific
securities sold.
Page 6
20
F-7
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Equipment and Depreciation
Additions to property and equipment are recorded at cost. Expenditures for
maintenance, repairs, and minor renewals are charged to expense as incurred.
Depreciation is provided primarily on the straight-line method over the
following estimated useful lives:
Land improvements 10 years
Building structures 20 to 50 years
Building components 5 to 20 years
Furniture and equipment 3 to 10 years
Deferred Financing Costs
Costs associated with obtaining the term loan disclosed in Note F have been
deferred and are being amortized on the straight-line method over the term of
the related debt. Amortization expense charged to operations during the year
ended October 31, 1998 was $20,883.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to temporary differences between the reported amounts of assets and
liabilities and their tax bases. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Earnings Per Common Share
During the year ended October 31, 1998, the Company adopted FASB Statement No.
128, "Earnings Per Share," which specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS"). It replaces the
presentation of primary and fully diluted EPS with basic and diluted EPS. Basic
EPS excludes all dilution and has been computed using the weighted average
number of common shares outstanding during the year. Diluted EPS would reflect
the potential dilution that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock. The Company
has no dilutive potential common shares.
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.
- --------------------------------------------------------------------------------
Page 7
21
F-8
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Retirement Plans (Continued)
In 1991, the Company adopted a nonqualified supplemental retirement benefits
plan for key management employees. Benefits payable under the plan are based
upon the participant's average compensation during his last five years of
employment and are reduced by benefits payable under the Company's qualified
retirement plan and by one-half of the participant's social security benefits.
Benefits under the plan do not vest until the attainment of normal retirement
age; however, a reduced benefit is payable if employment terminates prior to
normal retirement age because of death or disability. The Company has no
obligation to fund this supplemental plan.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C - ACQUISITION AND MERGER OF AFFILIATED COMPANY
On November 8, 1995, the Company and Southern Furniture Exposition Building,
Inc. (SFEB) agreed to a plan to merge SFEB into the Company. On that date, in
anticipation of the merger, six shareholders of SFEB who owned 527,638 shares
(95.01%) of the SFEB outstanding common stock exchanged their shares in SFEB for
527,638 shares (100%) of the common stock of the Company. As of January 4, 1996,
the date SFEB was merged into the Company, the Company acquired and retired the
remaining 4.99% (27,705 shares) of the common stock of SFEB for cash of
$7,637,955.
Because the Company and SFEB were commonly controlled, the exchange of stock and
resulting merger has been accounted for at historical cost in a manner similar
to a pooling of interest. Accordingly, the accompanying financial statements for
the year ended October 31, 1996 are based on the assumption that the two
companies were combined for the full year.
NOTE D - RESTRICTED CASH
Restricted cash consists of an interest-bearing debt service account. The
Company makes semi-annual escrow deposits each May and November in amounts
sufficient to provide interest and principal payments on the Company's term debt
for the ensuing six months.
- -------------------------------------------------------------------------------
Page 8
22
F-9
NOTE E - 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, 1998 and 1997:
1998
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ----------- -----------
Debt securities
State and local governments $10,528,478 $ -- $ -- $10,528,478
U. S. corporations 3,000,000 -- -- 3,000,000
Equity securities 83,643 -- -- 83,643
----------- ------------ ----------- -----------
$13,612,121 $ -- $ -- $13,612,121
=========== ============ =========== ===========
1997
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ----------- -----------
Debt securities
State and local governments $1,054,136 $ -- $ -- $1,054,136
U. S. corporations 2,000,000 -- -- 2,000,000
Equity securities 78,444 -- -- 78,444
---------- ------------ ---------- ----------
$3,132,580 $ -- $ -- $3,132,580
========== ============ ========== ==========
Available-for-sale securities are classified in the following balance sheet
captions as of October 31, 1998 and 1997:
1998 1997
------------- -------------
Cash and cash equivalents $13,528,478 $ 3,054,136
Short-term investments 83,643 78,444
----------- -----------
$13,612,121 $ 3,132,580
=========== ===========
All the Company's debt securities mature within one year.
- -------------------------------------------------------------------------------
Page 9
23
F-10
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at October 31, 1998:
Term note payable, principal and interest are due in
monthly installments of $1,137,987 through August 1,
2005, with interest included at 7.06%, collateralized by
land and buildings with a carrying value of $39,939,683
at October 31, 1998 $73,617,222
Less current maturities 8,667,074
-----------
$64,950,148
===========
The aggregate maturities of long-term debt are due as follows:
Year Ending October 31,
1999 $ 8,667,074
2000 9,295,564
2001 9,995,880
2002 10,735,336
2003 11,529,494
Thereafter 23,393,874
-----------
$73,617,222
===========
Under the provisions of the loan agreement, the Company is required, among other
things, to comply with restrictive loan covenants including maintaining certain
financial ratios and minimum levels of net worth and working capital. The
Company was in compliance with the terms of the loan agreement at October 31,
1998.
NOTE G - INCOME TAXES
The provision for income taxes consisted of the following for the years ended
October 31, 1998, 1997 and 1996:
1998 1997 1996
------------ ----------- -----------
Federal:
Current $ 7,450,000 $ 7,785,000 $ 6,740,000
Deferred (62,000) (109,000) (54,000)
----------- ----------- -----------
7,388,000 7,676,000 6,686,000
----------- ----------- -----------
State:
Current 1,730,000 1,895,000 1,740,000
Deferred (15,000) (29,000) (13,000)
----------- ----------- -----------
1,715,000 1,866,000 1,727,000
----------- ----------- -----------
TOTAL $ 9,103,000 $ 9,542,000 $ 8,413,000
=========== =========== ===========
- --------------------------------------------------------------------------------
Page 10
24
F-11
NOTE G - INCOME TAXES (CONTINUED)
A reconciliation of the income tax provision at the federal statutory rate to
the income tax provision at the effective tax rate is as follows:
1998 1997 1996
----------- ----------- -----------
Income taxes computed at the federal
statutory rate $ 8,100,000 $ 8,627,000 $ 8,002,000
State taxes, net of federal benefit 1,115,000 1,232,000 1,143,000
Nontaxable investment income (196,000) (414,000) (411,000)
Other, net 84,000 97,000 (321,000)
----------- ----------- -----------
$ 9,103,000 $ 9,542,000 $ 8,413,000
=========== =========== ===========
The components of deferred income taxes consist of the following:
1998 1997 1996
----------- ----------- -----------
Deferred income tax assets:
Rents received in advance $ 592,000 $ 599,000 $ 551,000
Supplemental retirement benefits 384,000 321,000 264,000
----------- ----------- -----------
TOTAL DEFERRED TAX ASSETS 976,000 920,000 815,000
Deferred income tax liabilities:
Depreciation (2,320,000) (2,341,000) (2,374,000)
----------- ----------- -----------
TOTAL NET DEFERRED TAX LIABILITIES $(1,344,000) $(1,421,000) $(1,559,000)
=========== =========== ===========
NOTE H - LAND LEASE COMMITMENT
During 1975, the Company completed construction of an eleven-story exhibition
building. The building is constructed on land leased from the City of High
Point, North Carolina under a noncancelable lease. The lease is for an initial
term of fifty years with three options to renew for periods of ten years each
and a final renewal option for nineteen years. Annual rental under the lease is
$138,835 as of October 31, 1998 and is subject to adjustment at the end of each
five-year period, such adjustment being computed as defined in the lease
agreement. As part of the lease agreement, the Company constructed a theater
complex for public use and office space for use by the City of High Point on the
lower levels of the building. Annual rental cash payments over the initial
fifty-year lease term are being reduced by $39,121 which represents amortization
of the cost of the theater and office complex constructed for the City of High
Point. At the termination of the lease, the building becomes the property of the
City of High Point. Under the terms of the lease, the Company is responsible for
all expenses applicable to the exhibition portion of the building. The City of
High Point is responsible for all expenses applicable to the theater complex and
office space constructed for use by the City.
- --------------------------------------------------------------------------------
Page 11
25
F-12
NOTE I - RETIREMENT EXPENSE
Amounts expensed under the Company's retirement plans amounted to $268,856,
$293,974 and $277,553 for the years ended October 31, 1998, 1997 and 1996,
respectively, including $159,350, $147,547 and $136,617 under the supplemental
retirement benefits plan for the years ended October 31, 1998, 1997 and 1996,
respectively.
NOTE J - RENTALS UNDER OPERATING LEASES
The Company's leasing operations consist principally of leasing exhibition
space. Property on operating leases consists of substantially all of the asset
"buildings, exclusive of theater complex" included on the balance sheets.
Accumulated depreciation on this property amounted to $38,909,532 and
$36,893,568 at October 31, 1998 and 1997, respectively. Leases are typically for
five-year periods and contain provisions to escalate rentals based upon either
the increase in the consumer price index or increases in ad valorem taxes,
utility rates and charges, minimum wage imposed by federal and state
governments, maintenance contracts for elevators and air conditioning,
maintenance of common areas, social security payments, increases resulting from
collective bargaining contracts, if any, and such other similar charges and
rates required in operating the Company. Tenants normally renew their leases.
The following is a schedule of minimum future rentals under noncancelable
operating leases as of October 31, 1998, exclusive of amounts due under
escalation provisions of lease agreements:
Year Ending October 31,
1999 $26,611,372
2000 16,841,511
2001 11,655,406
2002 7,188,227
2003 1,625,780
Thereafter 223,916
-----------
Total minimum future rentals $64,146,212
===========
Rental income includes contingent rentals under escalation provisions of leases
of $1,401,867, $1,534,413 and $1,270,969 for the years ended October 31, 1998,
1997 and 1996, respectively.
NOTE K - 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, 1998, the Company's bank balances
exceeded federally insured limits by $3,054,561. The Company's trade accounts
receivable are generally collateralized by merchandise in leased exhibition
spaces which is in the Company's possession.
- --------------------------------------------------------------------------------
Page 12
26
F-13
NOTE L - STOCKHOLDERS' DEFICIT
During the year ended October 31, 1998, the Company paid dividends of
$76,317,560 resulting in a deficit in stockholders' equity of $17,904,821 at
October 31, 1998. The dividends were financed, in part, with the proceeds of a
$75,000,000 term loan. Although interest on the debt will negatively impact
future earnings, management believes future earnings will restore stockholders'
equity to a substantial positive amount and that operating cash flows will be
sufficient to provide for debt service and for the Company's other financing and
investing needs.
- --------
27
12
INDEX TO EXHIBITS
Exhibit No.
-----------
3B Amended By-laws
10D Bassett 1993 Stock Plan for Non-Employee Directors as amended.
13 Bassett Furniture Industries, Inc. Annual Report to
Stockholders for the year ended November 28, 1998
21 List of subsidiaries of registrant
23A Consent of Independent Public Accountants
23B Consent of Previous Independent Public Accountants
23C Consent of Independent Public Accountants
27 Financial Data Schedule (EDGAR filing only)