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 June 30, 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 August 12, 1996 were: Common Stock -- 8,753,744; Class A Common Stock -- 2,941,749.
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 - June 30, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Income - Quarter and six months ended June 30, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 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> June 30 December 31 1996 1995 -------------- -------------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 1,486 2,146 Accounts receivable 187,371 179,982 Less allowance for doubtful accounts 7,105 7,105 -------- -------- 180,266 172,877 Inventories, at LIFO 83,157 73,597 Other current assets 4,837 5,852 Deferred income taxes 2,938 2,938 -------- -------- TOTAL CURRENT ASSETS 272,684 257,410 Property and equipment 177,821 168,151 Less accumulated depreciation and amortization 60,951 55,746 -------- -------- 116,870 112,405 Other assets 2,033 1,963 -------- -------- $391,587 $371,778 ======== ======== </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> June 30 December 31 1996 1995 ------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 81,200 $ 53,400 Accounts payable and accrued expenses 29,823 36,100 Current portion of long-term debt and 8,034 7,973 capital lease obligations -------- -------- TOTAL CURRENT LIABILITIES 119,057 97,473 Long-term debt and capital lease obligations, less current portion 125,168 129,233 Deferred income taxes 1,786 1,786 Other liabilities 2,305 2,331 Stockholders' Equity Capital stock, par value $1 per share -- Preferred Stock, Authorized: 1,000,000 shares; Issued: None Common Stock, Authorized: 1996 and 1995 -- 50,000,000 shares; Issued: 1996 -- 9,242,447 shares; 1995 -- 9,154,780 shares (including shares in treasury: 1996 -- 494,328; 1995 -- 498,948) 9,242 9,155 Convertible Class A Common Stock, Authorized: 1996 and 1995 -- 15,000,000 shares; Issued: 1996 -- 3,195,379 shares; 1995 -- 3,217,411 shares (including shares in treasury: 1996 and 1995 -- 249,055) 3,195 3,217 Additional paid-in capital 33,025 32,494 Retained earnings 103,352 101,666 -------- -------- 148,814 146,532 Less cost of Common Stock and Convertible Class A Common Stock in treasury 5,543 5,577 -------- -------- 143,271 140,955 -------- -------- $391,587 $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> Quarter Ended Six Months Ended June 30 June 30 -------------------------- ------------------------- 1996 1995 1996 1995 -------- ------- -------- -------- <S> <C> <C> <C> <C> Net sales $103,341 $88,678 $214,091 $183,061 Cost of goods sold 54,279 47,010 112,369 96,925 -------- ------- -------- -------- Gross profit 49,062 41,668 101,722 86,136 Credit service charges 3,150 3,021 6,445 6,084 -------- ------- -------- -------- 52,212 44,689 108,167 92,220 Costs and expenses: Selling, general and administrative 46,132 39,473 93,849 79,571 Interest 3,734 2,772 7,092 5,268 Provision for doubtful accounts 981 667 1,879 1,300 -------- ------- -------- -------- 50,847 42,912 102,820 86,139 -------- ------- -------- -------- Other income, net 40 1,605 59 1,703 -------- ------- -------- -------- INCOME BEFORE INCOME TAXES 1,405 3,382 5,406 7,784 Income taxes 520 1,285 2,000 2,958 -------- ------- -------- -------- NET INCOME $ 885 $ 2,097 $ 3,406 $ 4,826 ======== ======= ======== ======== Average number of common and common equivalent shares outstanding 11,689 11,540 11,663 11,519 ======== ======= ======== ======== Earnings per share $0.08 $0.18 $0.29 $0.42 ======== ======= ======== ======== Cash dividends per common share: Common Stock $ .0750 $ .0750 $ .1500 $ .1500 Class A Common Stock .0700 .0700 .1400 .1400 </TABLE> See notes to condensed consolidated financial statements. -3-
6 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Six Months Ended June 30 ---------------------------------------- 1996 1995 -------------- ------------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 3,406 $ 4,826 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 6,276 5,027 Provision for doubtful accounts 1,879 1,300 Loss (gain) on sale of property and equipment 24 (450) Gain from destruction of a retail location --- (1,177) ------------ ------------ Subtotal 11,585 9,526 Changes in operating assets and liabilities: Accounts receivable (9,268) 1,413 Inventories (9,560) (9,582) Other current assets 1,015 (549) Accounts payable and accrued expenses (4,269) (4,811) Income taxes (2,008) (3,332) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (12,505) (7,335) ------------ ------------ INVESTING ACTIVITIES Purchases of property and equipment (10,839) (20,301) Proceeds from sale of property and equipment 74 1,971 Insurance proceeds --- 206 Other investing activities (70) 88 ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (10,835) (18,036) ------------ ------------ FINANCING ACTIVITIES Net increase in short-term borrowings 27,800 100 Proceeds from issuance of long-term debt --- 30,000 Payment of long-term debt and capital lease obligations (4,004) (4,001) Exercise of stock options 568 398 Dividends paid (1,720) (1,698) Other financing activities 36 29 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 22,680 24,828 ------------ ------------ DECREASE IN CASH AND CASH EQUIVALENTS (660) (543) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,146 1,925 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,486 $ 1,382 ============ ============ </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 $6,800,000 and $6,005,000 for the six months ended June 30, 1996 and 1995, respectively. The Company made total income tax payments of $3,930,000 and $6,290,000 for the six months ended June 30, 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 second quarter and six months ended June 30, 1996 increased 16.5% and 17.0% over the same periods for 1995, respectively. Comparable-store sales (sales from stores in operation or expanded for a full year or more) increased 3.9% and 4.8% over the year-earlier periods, respectively. Gross margin as a percentage of net sales increased to 47.5% from 47.0% and 47.5% from 47.1% for the quarter and six months ended June 30, 1996, respectively. The LIFO reserve impact as a percentage of net sales was flat compared to the prior-year periods at 0.2% for the second quarter and 0.1% for the six-month period. Credit service charges increased 4.3% and 5.9% in absolute dollars for the quarter and six-month period, respectively. The provision for doubtful accounts increased 0.1% and 0.2% as a percentage of net sales for the quarter and the six- month period, respectively. 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 0.1% and 0.3% as a percentage of net sales for the quarter and the six months over the year-ago periods, respectively. This increase was primarily related to depreciation and amortization charges reflecting the Company's increased investment in property and equipment and other costs such as advertising and pre-opening expenses associated with ten new stores. These increases were partially offset by a decrease in administrative costs as a percentage of net sales. Interest expense increased 0.5% and 0.4% as a percentage of net sales for the quarter and six-month period, respectively. The Company's effective interest rate decreased 35 basis points to 7.2% for the quarter and decreased 26 basis points to 7.1% for the six-month period. The average debt levels increased 26.1% and 28.6% for the quarter and six-month period, respectively, to fund physical expansions. Other income in the year-ago periods included gains of $1.2 million for insurance recoveries on the loss of a retail location destroyed by a tornado and $.4 million in gains from other real estate transactions. 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 $12.5 million during the first six months of 1996. The accounts receivable and inventories increases of $9.3 million and $9.6 million, respectively, were partially offset by depreciation and amortization of $6.3 million. Investing activities used $10.8 million in cash which was used for planned capital expenditures. During the six months, the Company completed the construction of three new stores, the expansion of three existing stores and the remodeling of an acquired store. -6-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Financing activities provided $22.7 million of cash during the first six months primarily from $27.8 million in short-term borrowings. The Company has arrangements with banks under line-of-credit agreements. At June 30, 1996, of these agreements, $94 million were committed lines ($20.2 million unused) and $30 million were uncommitted lines ($7.6 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. 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 effect 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 lease transactions, 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 (68% of total debt was interest-rate protected at June 30, 1996). The Company's average effective interest rate on all borrowings (excluding capital leases) was 6.9%. Capital expenditures for the remainder of 1996 are presently expected to include the remodeling of a new retail location and scheduled expenditures for additional stores and remodelings to be completed in 1997. The estimate of capital expenditures remaining for these projects in 1996 is $6.2 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 4. Submission of Matters to a Vote of Security Holders. The 1996 Annual Meeting of Stockholders of the Company was held on April 26, 1996. At the meeting the following persons were elected by the holders of Common Stock to serve for a term of one year and until their successors are elected: William A. Parker, Jr. Robert R. Woodson L. Phillip Humann John T. Glover The number of votes cast "for" or "withheld" was as follows: Mr. Parker = For - -- 7,928,172, Withheld -- 96,882; Mr. Woodson = For -- 7,928,908, Withheld -- 96,146; Mr. Humann = For -- 7,928,808, Withheld -- 96,246; Mr. Glover = For 7,929,182, Withheld -- 95,872. The holders of Class A Common Stock elected the following persons to serve for a term of one year and until their successors are elected: <TABLE> <S> <C> Rawson Haverty Lynn H. Johnston John E. Slater, Jr. Clarence H. Smith John Rhodes Haverty, M.D. Rawson Haverty, Jr. Clarence H. Ridley Frank S. McGaughey, III Fred J. Bates </TABLE> The number of votes cast for each of the above nominees standing for election by the holders of Class A Common Stock was as follows: For -- 2,874,270; Withheld -- 12,944. A proposal to approve the Directors' Compensation Plan to provide for the payment of all or a portion of the annual retainer fees paid to directors in shares of the Company's Common Stock was approved by a 99.6% affirmative vote of the 36,897,194 total votes cast at the meeting, as follows: <TABLE> <CAPTION> Total Votes Abstentions Cast at the Votes Votes and Broker Class Meeting For Against Non-Votes -------------------- ----------- ------------ --------- ----------- <S> <C> <C> <C> <C> Class A Common Stock 28,872,140 28,845,850 19,250 7,040 (ten votes per share) Common Stock 8,025,054 7,920,951 38,979 65,124 ---------- ---------- ------ ------ (one vote per share) Total combined vote 36,897,194 36,766,801 58,229 72,164 ========== ========== ====== ====== </TABLE> -8-
11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (continued) A proposal to approve the Directors' Deferred Compensation Plan, as Amended and Restated, to allow (at the election of the individual directors) for deferment of the payment of semi-annual or annual retainer fees that are to be made in shares of Common Stock of the Company to a future date for distribution was approved by a 99.6% affirmative vote of the 36,897,194 total votes cast at the meeting, as follows: <TABLE> <CAPTION> Total Votes Abstentions Cast at the Votes Votes and Broker Class Meeting For Against Non-Votes --------------------- ----------- ------------ --------- ----------- <S> <C> <C> <C> <C> Class A Common Stock 28,872,140 28,842,910 22,190 7,040 (ten votes per share) Common Stock 8,025,054 7,914,068 43,181 67,805 ---------- ---------- ------ ------ (one vote per share) Total combined vote 36,897,194 36,756,978 65,371 74,845 ========== ========== ====== ====== </TABLE> Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report. 10.1.2 -- Second Amendment and Restatement of Directors' Deferred Compensation Plan (incorporated by reference from Registration Statement on Form S-2, File No. 33-59400, Exhibit 10.1.1). 10.11 -- Directors' Compensation Plan as of April 26, 1996. 27 -- Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K. None. -9-
12 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 August 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) -10-