DRAFT - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER: 1-14445 HAVERTY FURNITURE COMPANIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 58-0281900 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 780 JOHNSON FERRY ROAD, SUITE 800, ATLANTA, GEORGIA 30342 ---------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 443-2900 866 WEST PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30308 - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's two classes of $1 par value common stock as of May 11, 2000 were: Common Stock - 15,926,366; Class A Common Stock - 4,764,814.
H A V E R T Y F U R N I T U R E C O M P A N I E S, I N C. I N D E X <TABLE> <CAPTION> PAGE NO. -------- <S> <C> Part I. Financial Information: Condensed Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 1 Condensed Consolidated Statements of Income - Three months ended March 31, 2000 and 1999 3 Condensed Consolidated Statements of Cash Flows - 4 Three months ended March 31, 2000 and 1999 Notes to Condensed Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial 6 Condition and Results of Operations Quantitative and Qualitative Disclosure of Market Risk 10 Part II. Other Information 11 </TABLE>
PART I. FINANCIAL INFORMATION - ------------------------------------------------------------------------------- HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) <TABLE> <CAPTION> March 31 December 31 2000 1999 ----------- ----------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 1,786 $ 1,762 Accounts receivable 167,983 186,090 Less allowance for doubtful accounts (6,900) (7,000) --------- --------- 161,083 179,090 Inventories, at LIFO 107,702 84,447 Other current assets 9,211 6,379 --------- --------- Total Current Assets 279,782 271,678 Property and equipment 228,122 222,999 Less accumulated depreciation and amortization (99,122) (96,002) --------- --------- 129,000 126,997 Other assets 5,254 5,973 --------- --------- $ 414,036 $ 404,648 ========= ========= </TABLE> 1
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> March 31 December 31 2000 1999 --------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 23,200 $ 8,800 Accounts payable and accrued expenses 81,676 77,543 Current portion of long-term debt and capital lease obligations 11,912 12,091 --------- --------- Total Current Liabilities 116,788 98,434 Long-term debt and capital lease obligations, less current portion 132,629 134,687 Other liabilities 2,760 2,734 Stockholders' Equity Capital stock, par value $1 per share: Preferred Stock, Authorized: 1,000 shares; Issued: None Common Stock, Authorized: 50,000 shares; Issued: 2000 - - 21,740 shares; 1999 - - 21,639 shares (including shares 21,740 21,639 in treasury: 2000 and 1999 - - 5,731 and 4,810, respectively) Convertible Class A Common Stock, Authorized: 15,000 shares; Issued: 2000 - -5,293 shares; 5,293 5,303 1999 - -5,303 shares (including shares in treasury: 2000 and 1999 - -522 ) Additional paid-in capital 32,522 32,004 Retained earnings 158,548 156,428 --------- --------- 218,103 215,374 Less cost of Common Stock and Convertible Class A Common Stock in treasury (56,244) (46,581) --------- --------- 161,859 168,793 --------- --------- $ 414,036 $ 404,648 ========= ========= </TABLE> See notes to condensed consolidated financial statements. 2
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 ---------------------- 2000 1999 --------- --------- <S> <C> <C> Net sales $ 163,741 $ 149,781 Cost of goods sold 85,113 78,973 --------- --------- Gross profit 78,628 70,808 Credit service charges 3,370 3,980 --------- --------- Gross profit and other revenue 81,998 74,788 Expenses: Selling, general and administrative 68,016 60,600 Interest 2,865 3,060 Provision for doubtful accounts 933 1,370 Other (income) expense, net (66) (71) --------- --------- 71,748 64,959 --------- --------- Income before income taxes 10,250 9,829 Income taxes 3,741 3,539 --------- --------- Income before cumulative effect of a change in accounting principle 6,509 6,290 Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (3,356) -- --------- --------- Net income $ 3,153 $ 6,290 ========= ========= Weighted average shares - basic 21,097 22,294 Weighted average shares - assuming dilution 21,529 22,930 Basic earnings per share: Income before cumulative effect of a change in accounting principle $ 0.31 $ 0.28 Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (0.15) -- --------- --------- Net income $ 0.16 $ 0.28 ========= ========= Diluted earnings per share: Income before cumulative effect of a change in accounting principle $ 0.30 $ 0.27 Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (0.15) -- --------- --------- Net income $ 0.15 $ 0.27 ========= ========= Cash dividends per common share: Common Stock $ 0.0500 $ 0.0425 Class A Common Stock $ 0.0475 $ 0.0400 </TABLE> See notes to condensed consolidated financial statements. 3
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 --------------------------- 2000 1999 ---------- ------------- <S> <C> <C> Operating Activities Net income $ 3,153 $ 6,290 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of a change in accounting principle 3,356 -- Depreciation and amortization 3,921 3,632 Provision for doubtful accounts 933 1,370 Loss (gain) on sale of property and equipment 40 (8) -------- -------- Subtotal 11,403 11,284 Changes in operating assets and liabilities: Accounts receivable 6,435 7,352 Inventories (12,682) (2,926) Other current assets (2,255) (2,148) Accounts payable and accrued expenses 3,610 1,712 Income taxes (3,344) 2,328 -------- -------- Net cash provided by operating activities 3,167 17,602 -------- -------- Investing Activities Purchases of property and equipment (7,513) (11,022) Proceeds from sale of property and equipment 1,549 26 Other investing activities 719 281 -------- -------- Net cash used in investing activities (5,245) (10,715) -------- -------- Financing Activities Net increase (decrease) in short-term borrowings 14,400 (4,500) Payment of long-term debt and capital lease obligations( (2,237) (1,072) Purchase of treasury stock (9,663) (2,205) Exercise of stock options 609 1,219 Dividends paid (1,033) (935) Other financing activities 26 17 -------- -------- Net cash provided by (used in) financing activities 2,102 (7,476) -------- -------- Decrease (increase) in cash and cash equivalents 24 (589) Cash and cash equivalents at beginning of period 1,762 1,874 -------- -------- Cash and cash equivalents at end of period $ 1,786 $ 1,285 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 4
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a normal recurring nature. Earnings per share and all shares outstanding have been restated to record the effect of the 2-for-1 stock split on August 25, 1999. NOTE B - CHANGE IN ACCOUNTING PRINCIPLE In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. This bulletin provides guidance on revenue recognition matters and, in accordance therewith, the Company changed its method of recognizing sales effective January 1, 2000. Under the new method, revenue from merchandise sales is recognized upon delivery to the customer. Previously, the Company recognized revenue for sales of merchandise when certain criteria were met, such as receipt of full payment, credit approval for charge sales and merchandise in stock. These conditions were typically met at the point of sale. The Company changed its method of revenue recognition on January 1, 2000. Accordingly, it is impractical to determine income utilizing the billed method for the first quarter of 2000. Revenues recognized in the first quarter of 2000 that were included in undelivered sales at December 31, 1999, aggregated approximately $19,000,000. The cumulative effect of the accounting change decreased net income by $3,356,000 or $0.15 per share and was recorded in the three months period ended March 31, 2000. The pro forma amounts shown below have been adjusted assuming that the change in the revenue recognition method had occurred prior to January 1, 1999 (in thousands, except per share data): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------------- PRO FORMA PRO FORMA 2000 1999 --------- --------- <S> <C> <C> Net income........................................... $6,509 $5,435 Basic earnings per share............................. $ 0.31 $ 0.24 Diluted earnings per share........................... $ 0.30 $ 0.24 </TABLE> NOTE C - INTERIM LIFO CALCULATIONS An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since these are affected by factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION Certain statements we make in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward-looking statements" within the meaning of the federal securities laws. Examples of such statements in this report include descriptions of our plans with respect to new store openings and relocations, our plans to enter new markets and expectations relating to our continuing growth. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the company's historical experience and its present expectations or projections. Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. Such statements speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. The following are some of the factors that could cause the Company's actual results to differ materially from the expected results described in the Company's forward-looking statements; the ability to maintain favorable arrangements and relationships with key suppliers (including domestic and international sourcing); conditions affecting the availability and affordability of retail real estate sites; the ability to attract, train and retain highly qualified associates to staff corporate positions, existing and new stores and distribution facilities; general economic and financial market conditions, which affect consumer confidence and the spending environment for big ticket items; competition in the retail furniture industry, changes in laws and regulations, including changes in accounting standards, tax statutes or regulations. CHANGE IN ACCOUNTING PRINCIPLE The Company changed its accounting method for recognizing revenues on January 1,2000, and is now recording merchandise sales upon delivery to the customer. Historically, sales were recognized and "billed" prior to delivery when certain criteria were met, such as receipt of full payment, credit approval for charge sales and merchandise in stock. The change is consistent with new guidance on revenue recognition provided by the Securities and Exchange Commission Staff Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements. The implementation of this change was accounted for as a change in accounting principle and applied cumulatively as if the change occurred at January 1, 2000. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table outlines the results for the first quarter of 2000, 1999, and 1999 pro forma results, assuming that the change in the revenue recognition method had occurred prior to January 1, 1999 (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------------- Pro forma 2000 1999 1999 --------- --------- --------- <S> <C> <C> <C> Net sales $ 163,741 $ 149,781 $ 145,558 Cost of goods sold 85,113 78,973 76,665 --------- --------- --------- Gross profit 78,628 70,808 68,893 Credit service charges 3,370 3,980 3,980 --------- --------- --------- Gross profit and other revenue 81,998 74,788 72,873 Cost and expenses: Selling, general and administrative 68,016 60,600 60,020 Interest 2,865 3,060 3,060 Provision for doubtful accounts 933 1,370 1,370 Other expense (income), net (66) (71) (71) --------- --------- --------- Total 71,748 64,959 64,379 --------- --------- --------- Income before income taxes and cumulative effect of a change in accounting principle 10,250 9,829 8,494 Income taxes 3,741 3,539 3,059 --------- --------- --------- Income before cumulative effect of a change in accounting principle 6,509 6,290 5,435 Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (3,356) -- -- --------- --------- --------- Net income $ 3,153 $ 6,290 $ 5,435 ========= ========= ========= </TABLE> RESULTS OF OPERATIONS Net sales for the first quarter of 2000 increased 12.5% to $163.7 million compared to pro forma sales of $145.6 million for the first quarter of 1999. It is not practical for the Company to compute comparable-store sales utilizing the new delivered basis of revenue recognition. Calculated on the billed basis, comparable-store sales increased 9.5% for the quarter. The Company's two largest markets, Dallas and Atlanta, and its Florida region continued to experience the strongest comparable-store sales increases. A store's results are included in the comparable-store sales computation beginning with the one-year anniversary of its opening, expansion, or the date when it was otherwise non-comparable. Management believes that the sales increases are attributable to the economic strength of its target customer and the Company's focus on brand name products and effective merchandising in its stores. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Gross profit, as a percent of sales, was 48.0% for the first three months of 2000 compared to 47.3% for the comparable pro forma period of 1999. These improved margins are primarily attributable to the reduced level of promotional activity and refinements in the Company's product mix. Additionally, the higher levels of associated delivery charges and product care and protection revenues have contributed to the increased margins. First quarter credit service charge revenues decreased to 2.1% of net sales from 2.7% on a pro forma basis in the prior year period. This reduction is due to a lower average outstanding accounts receivable portfolio and to a shift toward more consumer usage of the "12 month no interest with 12 equal payments" promotion rather than deferred-payment promotions. Selling, general and administrative expenses, as a percent of net sales increased to 41.5% for the three months ended March 31, 2000 from 41.2% in the prior year period on a pro forma basis. The shift in the level of attention to shortened delivery cycles to the customer resulted in increases in warehouse and delivery costs, particularly in markets where the sales increases were highest. Management believes that these increases are temporary and expects these expenses will return to their prior year's level during the second half of 2000. The provision for doubtful accounts, as a percentage of net sales, decreased to 0.6% for the first quarter of 2000 from 0.9% for the first quarter of 1999 on a pro forma basis. This reduction reflects the continuing trend of decreased delinquencies and bankruptcies experienced by the Company over the last two years. These combined factors led to a $100,000 reduction in the first quarter provision for doubtful accounts as prescribed by the Company's methodology for calculating the required allowance. Management does not expect any significant changes in the current consumer credit environment with respect to its target customers for the remainder of 2000. Interest expense decreased $0.2 million and, as a percent of net sales, to 1.8% from 2.1% for the first quarter. The Company's average debt level was 8.2% lower and the effective interest rate was 12 basis points higher as compared to the year-ago period. Income before the cumulative effect of an accounting change, as a percent of sales, was 4.0% for the first quarter of 2000 and 3.7% for the first quarter of 1999 on a pro forma basis. Diluted earnings per share before the cumulative effect of an accounting change were $0.30 and $0.24 pro forma, for the three months ended March 31, 2000, and 1999, respectively. LIQUIDITY AND SOURCES OF CAPITAL The Company has historically used internally generated funds, bank borrowings and private placements with institutions to finance its continuing operations and growth. Net cash provided by operating activities was $3.2 million during the first three months of 2000. The $12.7 million increase in inventory during the first quarter was higher than anticipated. The Company intends to reduce inventory levels in the second quarter. Investing activities used $5.2 million of cash during the three months ended March 31, 2000. Capital expenditures during the period were $7.5 million for leasehold improvements, equipment and furniture and fixtures associated with the Company's relocation of its corporate offices as well as new store construction and renovations that will be completed later in the year. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 8
AND RESULTS OF OPERATIONS (Continued) Financing activities provided $2.1 million of cash during the first quarter of 2000 including $14.4 million in increased borrowings under the Company's revolving credit facilities. Financing activities also included the use of $9.7 million for the acquisition of treasury stock. In addition to cash flow from operations, the Company uses bank lines of credit on an interim basis to finance capital expenditures and repay long-term debt. Longer-term transactions such as private placements of senior notes, sale/leasebacks and mortgage financings are used periodically to reduce short-term borrowings and manage interest-rate risk. The Company pursues a diversified approach to its financing requirements and balances its overall capital structure as determined by the interest rate environment with fixed-rate debt and interest rate swap agreements to reduce the impact of changes in interest rates on its variable rate debt (83.2% of total debt was fixed or interest rate protected as of March 31, 2000). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.2% at March 31, 2000. Capital expenditures for the remainder of 2000 are presently expected to include the construction of three new store locations in existing markets, improvements to two new leased store locations, the remodeling of two existing stores, and the expansion and remodeling of two existing stores. The preliminary estimate of capital expenditures in 2000 is approximately $40 million, which also includes a portion of the construction costs for three new stores which will open in 2001. Management expects that there will be disposition costs for stores to be relocated, which will likely offset any gains generated from the sale of the recently vacated former corporate office of the Company. Funds available from operations, bank lines of credit and other possible financing transactions are expected to be adequate to finance the Company's planned expenditures. SEASONALITY Although the Company does not consider its business to be seasonal, sales are somewhat higher in the second half of the year, particularly in the fourth quarter. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK There have been no material changes with respect to the Company's derivative financial instruments and other financial instruments and its related market risk since the date of the most recent annual report. 10
PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this report. 27 - - Financial Data Schedule (only submitted to SEC in electronic format). (b) Report on Form 8-K. None 11
S I G N A T U R E S Pursuant to the requirements 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. HAVERTY FURNITURE COMPANIES, INC. (Registrant) Date MAY 15, 2000 By: /s/ DENNIS L. FINK -------------------- ------------------------------ Dennis L. Fink, Executive Vice President and Chief Financial Officer (principal financial officer) By: /s/ DAN C. BRYANT ------------------------------ Dan C. Bryant, Vice President and Controller (principal accounting officer) By: /s/ JENNY H. PARKER --------------------------------- Jenny H. Parker, Vice President, Secretary and Treasurer 12