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 SEPTEMBER 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 November 7, 1996 were: Common Stock -- 8,801,435; Class A Common Stock -- 2,950,749.
2 HAVERTY FURNITURE COMPANIES, INC. INDEX <TABLE> <CAPTION> Page No. <S> <C> Part I. Financial Information: Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Income - Quarter and nine months ended September 30, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows - Nine months ended September 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> September 30 December 31 1996 1995 -------------- --------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 1,696 $ 2,146 Accounts receivable 193,616 179,982 Less allowance for doubtful accounts 7,105 7,105 -------- -------- 186,511 172,877 Inventories, at LIFO 80,736 73,597 Other current assets 6,372 5,852 Deferred income taxes 2,826 2,938 -------- -------- TOTAL CURRENT ASSETS 278,141 257,410 Property and equipment 178,585 168,151 Less accumulated depreciation and amortization 62,598 55,746 -------- -------- 115,987 112,405 Other assets 2,069 1,963 -------- -------- $396,197 $371,778 ======== ======== </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> September 30 December 31 1996 1995 -------------- --------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 70,700 $ 53,400 Accounts payable and accrued expenses 43,439 36,100 Current portion of long-term debt and capital lease obligations 7,956 7,973 -------- -------- TOTAL CURRENT LIABILITIES 122,095 97,473 Long-term debt and capital lease obligations, less current portion 123,717 129,233 Deferred income taxes 1,766 1,786 Other liabilities 2,216 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 -- 9,283,763 shares; 1995 -- 9,154,780 shares (including shares in treasury: 1996 -- 494,328; 1995 -- 498,948) 9,284 9,155 Convertible Class A Common Stock, Authorized: 1996 and 1995 -- 15,000,000 shares; Issued: 1996 -- 3,193,804 shares; 1995 -- 3,217,411 shares (including shares in treasury: 1996 and 1995 -- 249,055) 3,194 3,217 Additional paid-in capital 33,319 32,494 Retained earnings 106,149 101,666 -------- -------- 151,946 146,532 Less cost of Common Stock and Convertible Class A Common Stock in treasury 5,543 5,577 -------- -------- 146,403 140,955 -------- -------- $396,197 $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 Nine Months Ended September 30 September 30 ----------------------------- --------------------------- 1996 1995 1996 1995 ----------- ----------- --------- --------- <S> <C> <C> <C> <C> Net sales $ 117,079 $ 100,970 $ 331,170 $ 284,031 Cost of goods sold 61,460 53,307 173,829 150,232 --------- --------- --------- --------- Gross profit 55,619 47,663 157,341 133,799 Credit service charges 3,403 3,014 9,848 9,098 --------- --------- --------- --------- 59,022 50,677 167,189 142,897 Costs and expenses: Selling, general and administrative 48,637 42,234 142,486 121,805 Interest 3,669 2,845 10,761 8,115 Provision for doubtful accounts 1,072 736 2,951 2,036 --------- --------- --------- --------- 53,378 45,815 156,198 131,956 --------- --------- --------- --------- 5,644 4,862 10,991 10,941 Other (expense) income, net ( 14) 132 45 1,837 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 5,630 4,994 11,036 12,778 Income taxes 1,970 1,899 3,970 4,857 --------- --------- --------- --------- NET INCOME $ 3,660 $ 3,095 $ 7,066 $ 7,921 ========= ========= ========= ========= Average number of common and common equivalent shares outstanding 11,697 11,559 11,674 11,533 ========= ========= ========= ========= Earnings per share $ 0.31 $ 0.27 $ 0.61 $ 0.69 ========= ========= ========= ========= Cash dividends per common share: Common Stock $ .0750 $ .0750 $ .2250 $ .2250 Class A Common Stock .0700 .0700 .2100 .2100 </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> Nine Months Ended September 30 ------------------------------ 1996 1995 -------- --------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 7,066 $ 7,921 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 9,408 7,706 Provision for doubtful accounts 2,951 2,036 Loss (gain) on sale of property and equipment 7 (597) Gain from destruction of a retail location -- (1,235) -------- -------- Subtotal 19,432 15,831 Changes in operating assets and liabilities: Accounts receivable (16,585) (4,141) Inventories (7,139) (5,271) Other current assets (520) (578) Accounts payable and accrued expenses 8,435 2,153 Income taxes (1,004) (2,388) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,619 5,606 -------- -------- INVESTING ACTIVITIES Purchases of property and equipment (13,504) (32,632) Proceeds from sale of property and equipment 507 2,346 Insurance proceeds -- 713 Other investing activities (106) (4) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (13,103) (29,577) -------- -------- FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 2,300 (200) Proceeds from issuance of long-term debt 15,000 30,000 Payment of long-term debt and capital lease obligations (5,533) (4,692) Exercise of stock options 931 900 Dividends paid (2,583) (2,551) Other financing activities (81) (19) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 10,034 23,438 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (450) (533) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,146 1,925 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,696 $ 1,392 ======== ======== </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 $10,734,000 and $8,987,000 for the nine months ended September 30, 1996 and 1995, respectively. The Company made total income tax payments of $4,843,000 and $7,239,000 for the nine months ended September 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 third quarter and nine months ended September 30, 1996 increased 16.0% and 16.6% over the same periods for 1995, respectively. Comparable-store sales (sales from stores in operation or expanded for a full year or more) increased 3.4% and 4.3% over the year-earlier periods, respectively. Gross margin as a percentage of net sales increased to 47.5 % from 47.2 % and increased to 47.5% from 47.1% for the quarter and nine months ended September 30, 1996, respectively. This increase results from better pricing discipline and a more favorable product mix during the current year periods. The LIFO provision impact, as a percentage of net sales, was flat compared to the prior year periods at 0.2% for the third quarter and 0.1% for the nine-month period. Credit service charges increased 12.9% and 8.2% in absolute dollars for the quarter and nine-month period, respectively. The provision for doubtful accounts increased 0.2% as a percentage of net sales to 0.9% for both the quarter and the nine-month periods. Management believes that given the current consumer credit environment, write-offs will continue at this higher level during the coming year. Selling, general and administrative expenses decreased 0.3% and increased 0.1% as a percentage of net sales for the quarter and nine months, respectively. The increase for the nine months was primarily related to depreciation and amortization charges and other costs such as advertising, pre-opening and operating expenses associated with the ten new stores opened since September 30, 1995. The decrease for the quarter is attributable to leveraged general and administrative expenses offsetting the higher occupancy costs associated with a newer store base. Interest expense increased 0.4% as a percentage of net sales, or 29.0% and 32.6% in absolute dollars, for the quarter and nine-month period, respectively. The Company's effective interest rate decreased 43 basis points to 7.1% for the quarter and decreased 31 basis points to 7.1% for the nine-month period. The average debt levels increased 22.2% and 26.2% for the quarter and nine-month period, respectively, to fund physical expansions. Other income in the nine-month period for 1995 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 provided by operations was $2.6 million during the first nine months of 1996. The accounts receivable and inventories increases of $16.6 million and $7.1 million, respectively, were partially offset by depreciation and amortization of $9.4 million. Investing activities using $13.1 million in cash included $13.5 million of planned capital expenditures. During the nine 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 a net $10.0 million of cash during the first nine months primarily from $15.0 million in unsecured long-term borrowings under an existing facility. This note payable bears interest at 7.95% and matures in August 2008. The Company has arrangements with banks under line-of-credit agreements. At September 30, 1996, of these agreements, $99 million were committed lines ($45 unused) and $35 million were uncommitted lines ($18.3 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. In early October 1996, the Company cancelled a committed $15 million bank revolving line because it is expected that the remaining arrangements will be adequate for future needs. Under the terms of the cancelled agreement, the Company had the option to refinance short-term notes and, accordingly, $15,000,000 was classified as long-term debt at December 31, 1995. 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 is in the process of arranging a financing transaction of this type, 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 leases, 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 (79.2 % of total debt was interest-rate protected at September 30, 1996). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.2%. Planned capital expenditures presently include the remodeling of an acquired retail location to open in 1996 and additional store remodelings of existing and two acquired locations to be completed in 1997. The preliminary estimate of capital expenditures for these projects is $8.5 million. In addition, the Company has committed to lease four 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. 27 -- Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K. None. -8-
11 SIGNATURES 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 November 13, 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-
12 EXHIBIT INDEX HAVERTY FURNITURE COMPANIES, INC. 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 27 -- Financial Data Schedule (for SEC use only).