1 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 0-8498 ---------- 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.) 866 West Peachtree Street, N.W., Atlanta, Georgia 30308 ------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 881-1911 -------------- ---------------------------------------------------- (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 April 30, 1996 were: Common Stock -- 8,732,339; Class A Common Stock -- 2,954,484.
2 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> <C> Part I. Financial Information: Condensed Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Income - Three months ended March 31, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995 4 Notes to Condensed Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information 8 </TABLE>
3 PART I. FINANCIAL INFORMATION HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) <TABLE> <CAPTION> March 31 December 31 1996 1995 --------- ----------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 3,272 $ 2,146 Accounts receivable 186,707 179,982 Less allowance for doubtful accounts 7,105 7,105 --------- --------- 179,602 172,877 Inventories, at LIFO 83,388 73,597 Other current assets 6,547 5,852 Deferred income taxes 2,938 2,938 --------- --------- TOTAL CURRENT ASSETS 275,747 257,410 Property and equipment 175,042 168,151 Less accumulated depreciation and amortization 58,522 55,746 --------- --------- 116,520 112,405 Other assets 2,190 1,963 --------- --------- $ 394,457 $ 371,778 ========= ========= </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> March 31 December 31 1996 1995 --------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 64,800 $ 53,400 Accounts payable and accrued expenses 45,354 35,988 Income taxes 687 112 Current portion of long-term debt and capital lease obligations 8,023 7,973 --------- --------- TOTAL CURRENT LIABILITIES 118,864 97,473 Long-term debt and capital lease obligations, less current portion 128,409 129,233 Deferred income taxes 1,786 1,786 Other liabilities 2,291 2,331 Stockholders' Equity Capital stock, par value $1 per share -- Preferred Stock, Authorized: 1,000,000 shares; Issued: None Common Stock, Authorized: 1996 -- 50,000,000 shares; 1995 -- 15,000,000 shares; Issued: 1996 -- 9,228,488 shares; 1995 -- 9,154,780 shares (including shares in treasury: 1996 and 1995 -- 498,948) 9,228 9,155 Convertible Class A Common Stock, Authorized: 1996 -- 15,000,000 shares; 1995 -- 5,000,000 shares; Issued: 1996 -- 3,197,363 shares; 1995 -- 3,217,411 shares (including shares in treasury: 1996 and 1995 -- 249,055) 3,197 3,217 Additional paid-in capital 32,930 32,494 Retained earnings 103,329 101,666 --------- --------- 148,684 146,532 Less cost of Common Stock and Convertible Class A Common Stock in treasury 5,577 5,577 --------- --------- 143,107 140,955 --------- --------- $ 394,457 $ 371,778 ========= ========= </TABLE> See notes to condensed consolidated financial statements. -2-
5 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31 ---------------------------------- 1996 1995 --------- -------- <S> <C> <C> Net sales $ 110,750 $ 94,383 Cost of goods sold 58,090 49,915 --------- -------- Gross profit 52,660 44,468 Credit service charges 3,295 3,063 --------- -------- 55,955 47,531 Costs and expenses: Selling, general and administrative 47,717 40,098 Interest 3,358 2,496 Provision for doubtful accounts 898 633 --------- -------- 51,973 43,227 Other income, net 19 98 --------- -------- INCOME BEFORE INCOME TAXES 4,001 4,402 Income taxes 1,480 1,673 --------- -------- NET INCOME $ 2,521 $ 2,729 ========= ======== Average number of common and common equivalent shares outstanding 11,637 11,498 ========= ======== Earnings per share $ 0.22 $ 0.24 ========= ======== Cash dividends per common share: Common Stock $ .0750 $ .0750 Class A Common Stock .0700 .0700 </TABLE> See notes to condensed consolidated financial statements. -3-
6 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Three Months Ended March 31 --------------------------------- 1996 1995 -------- -------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 2,521 $ 2,729 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 3,075 2,451 Loss (Gain) on sale of property and equipment 3 (53) Provision for doubtful accounts 898 633 -------- -------- Subtotal 6,497 5,760 Changes in operating assets and liabilities: Accounts receivable (7,623) (298) Inventories (9,791) (6,750) Other current assets (721) (484) Accounts payable and accrued expenses 9,366 (2,286) Income taxes 575 (529) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (1,697) (4,587) -------- -------- INVESTING ACTIVITIES Purchases of property and equipment (7,176) (10,067) Proceeds from sale of property and equipment 9 270 Other investing activities (227) 9 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (7,394) (9,788) -------- -------- FINANCING ACTIVITIES Net increase in short-term borrowings 11,400 100 Proceeds from issuance of long-term debt --- 15,000 Payment of long-term debt and capital lease obligations (774) (772) Exercise of stock options 489 398 Dividends paid (858) (847) Other financing activities (40) 27 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 10,217 13,906 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,126 (469) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,146 1,925 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,272 $ 1,456 ======== ======== </TABLE> See notes to condensed consolidated financial statements. -4-
7 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. NOTE B - 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. NOTE C - Supplementary Cash Flow Information The Company made total cash payments for interest (including capitalized interest) of approximately $3,308,000 and $2,807,000 for the three months ended March 31, 1996 and 1995, respectively. The Company made total income tax payments of $951,000 and $2,202,000 for the three months ended March 31, 1996 and 1995, respectively. -5-
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the quarter increased 17.3% over the same period for 1995. Comparable-store sales (sales from stores in operation or expanded for a full year or more) increased 5.6% over the year-earlier period. An accelerated rollout of new stores in late 1995, as well as expansion of existing locations, also contributed to the increase in sales. Management believes that its overall marketing strategy has allowed the Company to attract more middle- to upper-middle income consumers through its ongoing programs of upscaling the store format and merchandise lines and the use of fully accessorized room settings. Gross margin as a percentage of net sales was 47.5% for the first quarter of 1996 as compared to 47.1% in 1995. This increase is attributed to the Company's ability to differentiate its products and improvement in the Company's pricing discipline in certain markets. Credit service charge revenue increased 7.6% in absolute dollars and the level of charge sales decreased approximately 2% from approximately 80% in the year-ago period. The provision for doubtful accounts increased 0.1% of net sales as the level of bad debt write-offs was as expected. Management believes that this percentage will remain at this slightly higher level during the phase-in and early periods of the consolidation of the Company's credit operations. Selling, general and administrative expenses increased 0.6% as a percentage of net sales. This increase was primarily related to advertising expenditures which were 1.0% of net sales greater than in the prior-year period. Occupancy costs also increased 0.5% as a percentage of net sales compared to the year ago quarter reflecting the increased depreciation and insurance costs associated with eight new and ten expanded stores. Pre-opening expenses were also higher than in the prior-year period. These increases were partially offset by decreases as a percentage of net sales in warehousing and administrative expenses. Interest expense increased 0.4% as a percentage of net sales as a result of an increase in average borrowings. The Company's effective interest rate decreased 12 basis points compared to the year ago period. LIQUIDITY AND SOURCES OF CAPITAL The Company has used internally generated funds and bank borrowings to finance its continuing operations and growth. Net cash used in operations was $1.7 million in the first quarter of 1996. The accounts receivable increase of $7.6 million during the quarter was partially offset by depreciation and amortization of $3.1 million. Investing activities used $7.4 million in cash, $7.2 million of which was used for planned capital expenditures. During the quarter, the Company completed the construction of two new stores and the expansion of three existing stores. Financing activities provided $10.2 million of cash during the first quarter primarily from $11.4 million in short-term borrowings. -6-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company has arrangements with banks under line-of-credit agreements. At March 31, 1996, of these agreements, $74 million were committed lines ($12.4 million unused) and $30 million were uncommitted lines ($11.8 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. The Company increased an existing committed line-of-credit agreement $20 million in April 1996. The Company has a revolving credit/term loan agreement with a commercial bank providing for borrowings of $15 million through 1998, at which time it converts to a term loan, maturing in 1998. If utilized, this facility would replace a $15 million short-term committed line. The Company's financial covenants under various loan agreements allow for securitization of up to approximately one-half of the outstanding balances of accounts receivable. The Company plans to enter into a financing transaction of this type in 1996, the proceeds of which would reduce accounts receivable and notes payable to banks. 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 sale/lease-backs, private placements and mortgage financing may be used 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 with fixed-rate or capped-rate debt as determined by the interest rate environment (75% of total debt was interest-rate protected at March 31, 1996). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.0%. Capital expenditures are presently expected to include for the remainder of 1996 the completion of four new stores and the remodeling and expansion of six existing locations. The preliminary estimate of capital expenditures remaining for these projects and projects which will be started in 1996 and completed in later years is approximately $25.0 million. In addition, the Company has committed to lease three stores and a distribution center commencing in 1996 under operating lease agreements. Minimum lease commitments, including guaranteed residual values, are expected to aggregate $31 million for the initial five-year term. 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. -7-
10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report. Exhibit 27 - Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K. None. -8-
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 14, 1996 By /s/ Dennis L. Fink -------------------- ------------------------------------ Dennis L. Fink, Executive Vice President and Chief Financial Officer (principal financial officer) By /s/ Hugh G. Wells ------------------------------------ Hugh G. Wells, Vice President & Treasurer By /s/ Dan C. Bryant ------------------------------------ Dan C. Bryant, Controller (principal accounting officer) -9-