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, 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 August 12, 1997 were: Common Stock -- 8,701,599; Class A Common Stock -- 2,929,222.
2 HAVERTY FURNITURE COMPANIES, INC. INDEX <TABLE> <CAPTION> Page No. <S> <C> <C> Part I. Financial Information: Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Income - Quarter and six months ended June 30, 1997 and 1996 3 Condensed Consolidated Statements of Cash Flows - Six months ended June 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> June 30 December 31 1997 1996 -------- ----------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 944 $ 414 Accounts receivable 198,803 208,014 Less allowance for doubtful accounts 7,105 7,105 -------- -------- 191,698 200,909 Inventories, at LIFO 81,143 77,385 Other current assets 6,533 4,422 -------- -------- TOTAL CURRENT ASSETS 279,450 283,130 Property and equipment 188,719 178,791 Less accumulated depreciation and amortization 69,169 64,441 -------- -------- 119,550 114,350 Other assets 2,022 2,395 -------- -------- $401,890 $399,875 ======== ======== </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> June 30 December 31 1997 1996 --------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 86,300 $ 80,500 Accounts payable and accrued expenses 37,007 35,412 Income taxes -- 1,622 Current portion of long-term debt and capital lease obligations 8,425 7,906 --------- ----------- TOTAL CURRENT LIABILITIES 131,732 125,440 Long-term debt and capital lease obligations, less current portion 115,925 120,434 Deferred income taxes 826 826 Other liabilities 2,320 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 -- 9,376,218 shares; 1996 -- 9,306,114 shares (including shares in treasury: 1997 -- 716,133; 1996 -- 494,328) 9,376 9,306 Convertible Class A Common Stock, Authorized: 1997 and 1996 -- 15,000,000 shares; Issued: 1997-- 3,182,751 shares; 1996 -- 3,191,804 shares (including shares in treasury: 1997 and 1996 -- 249,055) 3,183 3,192 Additional paid-in capital 34,059 33,556 Retained earnings 112,603 110,405 --------- ----------- 159,221 156,459 Less cost of Common Stock and Convertible Class A Common Stock in treasury 8,134 5,543 --------- ----------- 151,087 150,916 --------- ----------- $ 401,890 $ 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 Six Months Ended June 30 June 30 -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net sales $ 113,006 $ 103,341 $ 227,755 $ 214,091 Cost of goods sold 60,143 54,279 120,423 112,369 --------- --------- --------- --------- Gross profit 52,863 49,062 107,332 101,722 Credit service charges 4,032 3,150 7,836 6,445 --------- --------- --------- --------- 56,895 52,212 115,168 108,167 Costs and expenses: Selling, general and administrative 49,542 46,132 98,747 93,849 Interest 3,702 3,734 7,319 7,092 Provision for doubtful accounts 1,547 981 2,914 1,879 --------- --------- --------- --------- 54,791 50,847 108,980 102,820 --------- --------- --------- --------- Other income, net 47 40 119 59 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 2,151 1,405 6,307 5,406 Income taxes 774 520 2,270 2,000 --------- --------- --------- --------- NET INCOME $ 1,377 $ 885 $ 4,037 $ 3,406 ========= ========= ========= ========= Average number of common and common equivalent shares outstanding 11,678 11,689 11,678 11,663 ========= ========= ========= ========= Earnings per share $ 0.12 $ 0.08 $ 0.35 $ 0.29 ========= ========= ========= ========= Cash dividends per common share: Common Stock $ .0800 $ .0750 $ .1600 $ .1500 Class A Common Stock .0750 .0700 .1500 .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 ------------------------ 1997 1996 ------- ------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 4,037 $ 3,406 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,787 6,276 Provision for doubtful accounts 2,914 1,879 Loss on sale of property and equipment -- 24 ------- ------- Subtotal 13,738 11,585 Changes in operating assets and liabilities: Accounts receivable 6,297 (9,268) Inventories (3,758) (9,560) Other current assets (1,243) 1,015 Accounts payable and accrued expenses 1,595 (4,269) Income taxes (2,490) (2,008) ------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 14,139 (12,505) ------- ------- INVESTING ACTIVITIES Purchases of property and equipment (12,068) (10,839) Proceeds from sale of property and equipment 81 74 Other investing activities 373 (70) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (11,614) (10,835) ------- ------- FINANCING ACTIVITIES Net increase in short-term borrowings 5,800 27,800 Payment of long-term debt and capital lease obligations (3,990) (4,004) Purchase of treasury shares (2,591) -- Exercise of stock options 564 568 Dividends paid (1,839) (1,720) Other financing activities 61 36 ------- ------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,995) 22,680 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 530 (660) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 414 2,146 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 944 $ 1,486 ======= ======= </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 $7,230,000 and $6,800,000 for the six months ended June 30, 1997 and 1996, respectively. The Company made total income tax payments of $4,940,000 and $3,930,000 for the six months ended June 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, competition 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 second quarter and six months ended June 30, 1997 increased 9.4% and 6.4% over the same periods for 1996, respectively. Comparable-store sales increased 1.7% and decreased 0.4% over the year-earlier periods, respectively. A new store's results are included in the comparable-store sales computation on the one-year anniversary of its opening. Gross margin as a percent of net sales decreased to 46.8% from 47.5% and 47.1% from 47.5% for the quarter and six months ended June 30, 1997, respectively. 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. The pace of sales increases has slowed and free-interest periods have expired on many promotions originated in 1996. Accordingly, credit service charges as a percent of net sales increased to 3.5% from 3.0% for the quarter and six months ended June 30, 1997. Under the Company's credit programs, retroactive interest is not charged to customers who do not completely pay off the balance during the free- interest or deferred payment period, unlike many competitors' credit programs. The provision for doubtful accounts increased to 1.4% from 0.9% and 1.3% from 0.9% for the quarter and six months ended June 30, 1997, respectively. This higher level reflects the increased delinquencies and bankruptcies experienced in the consumer lending industry. Management believes that, given the current consumer credit environment, the dollar level of write-offs will increase for the remainder of the year. Selling, general and administrative expenses as a percent of net sales decreased to 43.8% from 44.6% and 43.4% from 43.8% for the quarter and six months ended June 30, 1997, respectively. The implementation of the on-line inventory and automated store system in all locations was completed during the second quarter of 1997. The centralized advertising production and purchasing and the completion of the on-line systems have improved these processes and reduced their related costs. -6-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Interest expense decreased 0.3% and 0.2% as a percent of net sales for the quarter and six-month period, respectively. The Company's effective interest rate was unchanged from the prior periods at 7.2% for the quarter and 7.1% for the six-month period. The average debt levels decreased 0.7% and increased 2.6% for the quarter and six-month period, 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 activities was $14.1 million during the first six months of 1997. The Company carries its own customer accounts receivables which provided positive cash flows as receivables decreased $6.3 million. Investing activities used $11.6 million of cash during the six months ended June 30, 1997. The Company opened two replacement stores and three new stores in addition to relocating one of its major distribution centers during this period. Capital expenditures were $12.1 million for improvements of these leased properties and other locations which are scheduled to open in the last half of 1997. Financing activities used $2.0 million of cash during the six months ended June 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 $131 million. At June 30, 1997, of this amount $96 million were committed lines ($38.6 million unused) and $35 million were uncommitted lines ($6.1 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. In addition to cash flows 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 (72% of total debt was interest-rate protected at June 30, 1997). The Company's average effective interest rates on all borrowings (excluding capital leases) was 7.0% at June 30, 1997. Four replacement stores are scheduled to open in the second half of 1997. One of these new facilities will be owned with the others held under operating leases. Capital expenditures for the remainder of 1997 to support this expansion as well as 1997 costs for improvements on projects which will be completed in 1998 are estimated to be $6.0 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 4. Submission of Matters to a Vote of Security Holders. The 1997 Annual Meeting of Stockholders of the Company was held on April 25, 1997. 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 -- 7,884,786, Withheld -- 254,771; Mr. Woodson = For -- 8,119,275, Withheld -- 20,282; Mr. Humann = For -- 8,118,611, Withheld -- 20,946; Mr. Glover = For 7,891,538, Withheld -- 248,019. 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: 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 The number of votes cast by the holders of Class A Common Stock was as follows: for each of the above nominees, except Rawson Haverty, For -- 2,882,783; Withheld -- 22; Mr. Haverty = For -- 2,882,534; Withheld -- 271. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report. 27 -- Financial Data Schedule. (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 August 14, 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-
12 EXHIBIT INDEX HAVERTY FURNITURE COMPANIES, INC. 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 27 -- Financial Data Schedule.