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, 1997 ------------------ 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 October 31, 1997 were: Common Stock -- 8,769,711; Class A Common Stock -- 2,925,431.
2 HAVERTY FURNITURE COMPANIES, INC. INDEX <TABLE> <CAPTION> Page No. <S> <C> <C> Part I. Financial Information: Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Income - Quarter and nine months ended September 30, 1997 and 1996 3 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1997 and 1996 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 1997 1996 ------------ ----------- ASSETS <S> <C> <C> Current Assets Cash and cash equivalents $ 748 $ 414 Accounts receivable 204,598 208,014 Less allowance for doubtful accounts 7,455 7,105 -------- -------- 197,143 200,909 Inventories, at LIFO 80,405 77,385 Other current assets 9,238 4,422 -------- -------- TOTAL CURRENT ASSETS 287,534 283,130 Property and equipment 188,586 178,791 Less accumulated depreciation and amortization 71,663 64,441 -------- -------- 116,923 114,350 Other assets 2,053 2,395 -------- -------- $406,510 $399,875 ======== ======== </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> September 30 December 31 1997 1996 ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY <S> <C> <C> Current Liabilities Notes payable to banks $ 82,400 $ 80,500 Accounts payable and accrued expenses 42,101 35,412 Income taxes --- 1,622 Current portion of long-term debt and capital lease obligations 8,685 7,906 -------- -------- TOTAL CURRENT LIABILITIES 133,186 125,440 Long-term debt and capital lease obligations, less current portion 114,958 120,434 Deferred income taxes 826 826 Other liabilities 2,341 2,259 Stockholders' Equity Capital stock, par value $1 per share -- Preferred Stock, Authorized: 1,000,000 shares; Issued: None Common Stock, Authorized: 1997 and 1996 -- 50,000,000 shares; Issued: 1997 -- 9,503,769 shares; 1996 -- 9,306,114 shares (including shares in treasury: 1997 -- 716,133; 1996 -- 494,328) 9,504 9,306 Convertible Class A Common Stock, Authorized: 1997 and 1996 -- 15,000,000 shares; Issued: 1997 -- 3,175,486 shares; 1996 -- 3,191,804 shares (including shares in treasury: 1997 and 1996 -- 249,055) 3,175 3,192 Additional paid-in capital 35,042 33,556 Retained earnings 115,612 110,405 -------- -------- 163,333 156,459 Less cost of Common Stock and Convertible Class A Common Stock in treasury 8,134 5,543 -------- -------- 155,199 150,916 -------- -------- $406,510 $399,875 ======== ======== </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 ----------------------------- ------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- -------- <S> <C> <C> <C> <C> Net sales $ 128,160 $ 117,079 $ 355,915 $331,170 Cost of goods sold 68,037 61,460 188,460 173,829 ----------- ------------ ------------ -------- Gross profit 60,123 55,619 167,455 157,341 Credit service charges 4,098 3,403 11,934 9,848 ----------- ------------ ------------ -------- 64,221 59,022 179,389 167,189 Costs and expenses: Selling, general and administrative 52,320 48,637 151,067 142,486 Interest 3,524 3,669 10,843 10,761 Provision for doubtful accounts 2,215 1,072 5,129 2,951 ----------- ------------ ------------ -------- 58,059 53,378 167,039 156,198 ----------- ------------ ------------ -------- 6,162 5,644 12,350 10,991 Other (expense) income, net (29) (14) 90 45 ----------- ------------ ----------- -------- INCOME BEFORE INCOME TAXES 6,133 5,630 12,440 11,036 Income taxes 2,208 1,970 4,478 3,970 ----------- ----------- ----------- -------- NET INCOME $ 3,925 $ 3,660 $ 7,962 $ 7,066 =========== =========== =========== ======== Average number of common and common equivalent shares outstanding 11,623 11,697 11,660 11,674 =========== =========== =========== ======== Earnings per share $ 0.34 $ 0.31 $ 0.68 $ 0.61 =========== =========== =========== ======== Cash dividends per common share: Common Stock $ .0800 $ .0750 $ .2400 $ .2250 Class A Common Stock .0750 .0700 .2250 .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 ----------------------------------------- 1997 1996 ------------- ------------- OPERATING ACTIVITIES <S> <C> <C> Net income $ 7,962 $ 7,066 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,303 9,408 Provision for doubtful accounts 5,129 2,951 Loss on sale of property and equipment 115 7 ------------ ------------- Subtotal 23,509 19,432 Changes in operating assets and liabilities: Accounts receivable (1,363) (16,585) Inventories (3,020) (7,139) Other current assets (4,816) (520) Accounts payable and accrued expenses 6,689 8,435 Income taxes (1,622) (1,004) ------------ ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 19,377 2,619 ------------ ------------- INVESTING ACTIVITIES Purchases of property and equipment (13,112) (13,504) Proceeds from sale of property and equipment 121 507 Other investing activities 342 (106) ------------ ------------- NET CASH USED IN INVESTING ACTIVITIES (12,649) (13,103) ------------ ------------- FINANCING ACTIVITIES Net increase in short-term borrowings 1,900 2,300 Proceeds from issuance of long-term debt --- 15,000 Payment of long-term debt and capital lease obligations (4,697) (5,533) Purchase of treasury stock (2,591) --- Exercise of stock options 1,667 931 Dividends paid (2,755) (2,583) Other financing activities 82 (81) ------------ ------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,394) 10,034 ------------ ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 334 (450) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 414 2,146 ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 748 $ 1,696 ============ ============= </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 for both of the nine-month periods ended September 30, 1997 and 1996. The Company made total income tax payments of approximately $8,400,000 and $4,800,000 for the nine months ended September 30, 1997 and 1996, respectively. -5-
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION Certain information included in this Quarterly Report on Form 10-Q contains, and other reports or materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and pursuant to the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to financial results and plans for future business activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, general economic conditions, the consumer spending environment for large ticket items, competition in the retail furniture industry and other uncertainties detailed in this report and detailed from time to time in other filings by the Company with the Securities and Exchange Commission. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. RESULTS OF OPERATIONS Net sales for the third quarter of 1997 increased 9.5% to $128.2 million compared to sales of $117.1 million for the third quarter of 1996. For the first nine months of 1997, sales increased 7.5% to $355.9 million from sales of $331.2 million for the comparable period in 1996. The sales increase for both periods was primarily attributable to new stores and larger replacement stores. Retail square footage increased 9.0% to 3,160,000 at the end of the third quarter of 1997 from 2,898,000 at the end of the third quarter of 1996. Comparable-store sales increased 2.7% and 0.7% for the third quarter and the nine months ended September 30, 1997, respectively. A store's results are included in the comparable-store sales computation beginning with the one year anniversary of its opening. Management believes that sales increases have been more difficult to achieve in the current periods due to more cautious consumer spending in the furniture category and increased competition from many financially pressured retailers. Gross profit as a percent of sales was 46.9% for the third quarter of 1997 compared to 47.5% for the comparable period of 1996. The decrease for the period was primarily attributable to inventory close-out sales in certain large markets as part of three store relocations. Gross profit as a percent of sales was 47.0% for the nine months ended September 30, 1997 compared to 47.5% for the same period of 1996. Store relocations and the transition to the Company's new Dallas warehouse facility accelerated the merchandise close-out process and resulted in lower gross margins as excess inventory was sold. Credit sales continued at approximately the same rate as in the prior year periods with similar levels of interest promotions. Sales increases have been smaller than in prior periods and free-interest periods have expired on many accounts generated under promotions run during 1996 and early 1997. Accordingly, credit service charges as a percent of net sales increased to 3.2% from 2.9% and increased to 3.4% from 3.0%, respectively, for the quarter and nine months ended September 30, 1997, as compared to the prior year periods. The provision for doubtful accounts as a percentage of net sales increased to 1.8% from 0.9% and increased to 1.4% from 0.9%, respectively, for the quarter and nine months ended September 30, 1997, as compared to the prior year periods. This includes an increase in the reserve for doubtful accounts as a percentage of net sales of 0.3% and 0.1% for the quarter and nine months, respectively. This higher level reflects the increased delinquencies and bankruptcies experienced in the consumer lending industry. The Company slightly tightened its parameters for credit approval during the third quarter of 1997. Management expects that, given the current consumer credit environment, the write-offs will remain at approximately 1.8% of net sales level for the remainder of the year. -6-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Selling, general and administrative expenses as a percent of net sales decreased to 40.8% from 41.5% and to 42.4% from 43.0%, respectively, for the quarter and nine months ended September 30, 1997, as compared to the prior year periods. During the second quarter of 1997, the Company completed the roll-out of its on-line inventory and automated store system to all of its locations. These systems have yielded improvements in warehouse and delivery processes and their related costs. The Company also moved further towards centralized production and purchasing of advertising during the first half of 1997, creating additional cost savings. Interest expense was relatively flat in actual dollars but decreased 0.5% and 0.2% as a percent of net sales for the quarter and nine-month period, respectively, as compared to the prior year periods. The Company's effective interest rate of 7.1 % and its average debt levels remained relatively unchanged for the quarter and nine-month period. Net earnings as a percent of net sales were 3.1% for the third quarter of 1997 and 1996 and were 2.2% and 2.1% for the nine months ended September 30, 1997 and 1996, respectively. 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 operating activities was $19.4 million during the first nine months of 1997. Investing activities used $12.6 million of cash during the nine months ended September 30, 1997. The Company opened four replacement stores and three new stores in addition to relocating one of its major distribution centers during this period. Capital expenditures were $13.1 million for improvements of these leased properties and other locations which are scheduled to open in the fourth quarter of 1997. Financing activities used $6.4 million of cash during the nine months ended September 30, 1997. The Company used $2.6 million during the period for the acquisition of treasury stock. The Company has arrangements with seven banks under line-of-credit agreements to borrow up to $146 million. At September 30, 1997, of this amount, $96 million were committed lines ($32.7 million unused) and $50 million were uncommitted lines ($30.9 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. 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 with fixed-rate and capped-rate debt as determined by the interest rate environment (74% of total debt was interest-rate protected at September 30, 1997). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.1% at September 30, 1997. Three replacement stores are scheduled to open in the fourth quarter of 1997. One of these new facilities will be owned with the others held under operating leases. Capital expenditures for the fourth quarter of 1997, as well as 1997 costs for improvements on projects which will be completed in 1998, are estimated to be $4 million. 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. -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, 1997 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-