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, 1995 ------------------- 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 9, 1995 were: Common Stock -- 8,613,356; Class A Common Stock -- 3,007,332.
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> Part I. Financial Information: Condensed Balance Sheets - September 30, 1995 and December 31, 1994 1 Condensed Statements of Income - Quarter and nine months ended September 30, 1995 and 1994 3 Condensed Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 4 Notes to Condensed 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. CONDENSED BALANCE SHEETS (In thousands, except share data) <TABLE> <CAPTION> September 30 December 31 1995 1994 (Unaudited) (Note) ------------- -------------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 1,392 $ 1,925 Accounts receivable 169,615 167,510 Less allowance for doubtful accounts 7,105 7,105 ------------- ------------ 162,510 160,405 Inventories, at LIFO 69,396 64,582 Other current assets 4,648 2,686 Deferred income taxes 3,396 3,396 ------------- ------------ TOTAL CURRENT ASSETS 241,342 232,994 Property and equipment 156,440 129,418 Less accumulated depreciation and amortization 53,399 49,220 ------------- ------------ 103,041 80,198 Other assets 1,844 1,911 ------------- ------------ $ 346,227 $ 315,103 ============= ============ </TABLE> -1-
4 HAVERTY FURNITURE COMPANIES, INC. CONDENSED BALANCE SHEETS (Continued) <TABLE> <CAPTION> September 30 December 31 1995 1994 (Unaudited) (Note) ------------- -------------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 49,000 $ 49,200 Accounts payable and accrued expenses 34,962 32,809 Income taxes 944 3,332 Current portion of long-term debt and capital lease obligations 7,962 7,958 ------------- ------------ TOTAL CURRENT LIABILITIES 92,868 93,299 Long-term debt and capital lease obligations, less current portion 112,468 87,164 Deferred income taxes 1,347 1,347 Other liabilities 2,219 2,238 Stockholders' Equity Capital stock, par value $1 per share -- Preferred Stock, Authorized: 1,000,000 shares; Issued: None Common Stock, Authorized: 1995 -- 50,000,000 shares; 1994 -- 15,000,000 shares; Issued: 1995 -- 9,105,559 shares; 1994 -- 8,928,532 shares (including shares in treasury: 1995 and 1994 -- 498,948) 9,106 8,929 Convertible Class A Common Stock, Authorized: 1995 -- 15,000,000 shares; 1994 -- 5,000,000 shares; Issued: 1995 -- 3,251,587 shares; 1994 -- 3,313,606 shares (including shares in treasury: 1995 and 1994 -- 249,055) 3,252 3,314 Additional paid-in capital 32,285 31,500 Retained earnings 98,259 92,889 --------- -------- 142,902 136,632 Less cost of Common Stock and Convertible Class A Common Stock in treasury 5,577 5,577 ------------- ------------ 137,325 131,055 ------------- ------------ $ 346,227 $ 315,103 ============= ============ </TABLE> Note: The condensed financial statements as of December 31, 1994 were derived from the audited financial statements at that date. See notes to condensed financial statements. -2-
5 HAVERTY FURNITURE COMPANIES, INC. CONDENSED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Quarter Ended Nine Months Ended September 30 September 30 ----------------------------- ------------------- 1995 1994 1995 1994 ------------------------------------------------------ <S> <C> <C> <C> <C> Net sales $100,970 $94,529 $284,031 $267,292 Cost of goods sold 53,307 50,138 150,232 141,560 -------- ------- -------- -------- Gross profit 47,663 44,391 133,799 125,732 Credit service charges 3,014 2,902 9,098 8,677 -------- ------- -------- -------- 50,677 47,293 142,897 134,409 Costs and expenses: Selling, general and administrative 42,234 39,478 121,805 113,722 Interest 2,852 2,204 8,120 6,037 Provision for doubtful accounts 736 895 2,036 2,181 -------- ------- -------- -------- 45,822 42,577 131,961 121,940 -------- ------- -------- -------- 4,855 4,716 10,936 12,469 Other income, net 139 38 1,842 4 -------- ------- -------- -------- INCOME BEFORE INCOME TAXES 4,994 4,754 12,778 12,473 Income taxes 1,899 1,807 4,857 4,740 -------- ------- -------- -------- NET INCOME $ 3,095 $ 2,947 $ 7,921 $ 7,733 ======== ======= ======== ======== Average number of common and common equivalent shares outstanding 11,559 11,418 11,533 11,405 ======== ======= ======== ======== Earnings per share $ 0.27 $ 0.26 $ 0.69 $ 0.68 ======== ======= ======== ======== Cash dividends per common share: Common Stock $ .0750 $ .0700 $ .2250 $ .2025 Class A Common Stock .0700 .0650 .2100 .1900 </TABLE> See notes to condensed financial statements. -3-
6 HAVERTY FURNITURE COMPANIES, INC. STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30 ---------------------------------------- 1995 1994 -------------- ------------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 7,921 $ 7,733 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 7,706 6,294 Provision for doubtful accounts 2,036 2,181 (Gain) loss on sale of property and equipment ( 597) 75 Gain from destruction of a retail location ( 1,235) --- Benefit from deferred taxes --- ( 649) ------------ ------------ Subtotal 15,831 15,634 Changes in operating assets and liabilities: Accounts receivable ( 4,141) ( 15,382) Inventories ( 5,271) ( 10,029) Other current assets ( 578) ( 183) Accounts payable and accrued expenses 2,153 6,389 Income taxes ( 2,388) 2,329 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,606 ( 1,242) ------------ ------------ INVESTING ACTIVITIES Purchases of property and equipment ( 32,632) ( 15,838) Proceeds from sale of property and equipment 2,346 102 Insurance proceeds 713 --- Other investing activities ( 4) ( 276) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES ( 29,577) ( 16,012) ------------ ------------ FINANCING ACTIVITIES Net (decrease) increase in short-term borrowings ( 200) 24,500 Proceeds from issuance of long-term debt 30,000 --- Payment of long-term debt and capital lease obligations ( 4,692) ( 5,255) Exercise of stock options 900 838 Dividends paid ( 2,551) ( 2,292) Other financing activities ( 19) 62 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 23,438 17,853 ------------ ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 533) 599 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,925 614 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,392 $ 1,213 ============ ============ </TABLE> See notes to condensed financial statements. -4-
7 HAVERTY FURNITURE COMPANIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE A - Basis of Presentation The accompanying unaudited condensed 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. 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 $8,987,000 and $5,730,000 for the nine months ended September 30, 1995 and 1994, respectively. The Company made total income tax payments of $7,239,000 and $3,225,000 for the nine months ended September 30, 1995 and 1994, 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, 1995 increased 6.8% and 6.3% over the same periods for 1994, respectively. Comparable-store sales (sales from stores in operation or expanded for a full year or more) increased 3.9 % and 3.7% over the year-earlier periods, respectively. Management believes that its overall marketing strategy has allowed the Company to attract more middle- to upper-middle income consumers which has continued to provide modest sales gains during the slower overall economic growth prevalent at this stage of the business cycle. Ongoing Company programs contributing to the appeal to these consumers include the interior and exterior remodeling of existing stores and the upscaling of merchandise lines enhanced by the use of fully accessorized room settings. Gross margin on a FIFO basis as a percentage of sales was flat compared to the prior year period at 47.4% for the third quarter and declined to 47.2% from 47.5% for the nine-month period. Management believes the use of its chain-wide advance marketing plan was successful in reducing the level of promotional pricing needed to respond to competition during the third quarter. Gross margin on a LIFO basis as a percentage of sales was 47.2% and 47.0% for the third quarter and 47.1% and 47.0% for the nine months ended September 30, 1995 and 1994, respectively. Credit service charges revenue increased 3.8% and 4.8% in absolute dollars for the quarter and nine-month period, respectively. The level of charge sales remained relatively flat when compared to the year-ago periods at approximately 79%. The Company raised its standard credit service charge rate beginning in March 1995 to a more industry-comparable 21% (where allowed by law) from 16.9% for newly-opened regular accounts. The provision for doubtful accounts decreased 0.3% and 0.1% as a percentage of net sales for the quarter and nine-month period, as compared to the same periods in 1994, respectively. Interest-free promotions were offered more frequently than in the prior-year quarter yet credit service charge revenue remained unchanged at 3% of net sales for the quarter. The Company plans to continue to offer interest-free promotions such that this percentage is not expected to change significantly during the remainder of the year and into 1996. Selling, general and administrative expenses as a percentage of net sales was flat for the quarter and increased 0.4% for the nine-month period as compared to the year ago periods. In absolute dollars such expenses increased 7.0% and 7.1% for the quarter and the nine-month period, respectively. Increased depreciation and amortization charges reflecting the Company's continued expansion and investment in property and equipment were offset by savings realized from economies in advertising. Interest expense increased 0.6% and 0.5% as a percentage of net sales, or 29.3% and 34.5% in absolute dollars, for the quarter and the nine-month period, respectively. The Company's effective interest rate increased 66 basis points to 7.5% for the quarter and increased 64 basis points to 7.4% for the nine-month period. The average debt levels increased 31.1% and 30.3% for the quarter and nine-month period, respectively, to fund physical expansions. In the second quarter a tornado destroyed a retail location in Nashville, Tennessee. Insurance proceeds for replacement value of the facility, inventory and other coverages are expected to be approximately $3 million. The estimated gain resulting from this event is approximately $1.2 million and is included in other income for the nine-month period. -6-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES The Company generated $5.6 million in cash for operating activities in the first nine months of 1995 as compared to using $1.2 million in 1994. The primary contributions to the increased cash flow were declines in the growth of accounts receivable and inventories. Cash used in investing activities of $29.6 million for the first nine months of 1995 was primarily attributable to $32.6 million in planned capital expenditures, $16.8 million above the year-ago period. The Company presently estimates additional capital expenditures through the end of 1996 to be approximately $40 to $45 million. These expenditures are primarily for the continued construction of new format stores and the expansion and remodeling of certain existing stores. The Company has arrangements with nine banks under line-of-credit agreements to borrow up to $109 million. At September 30, 1995, of this amount, $64 million were committed lines ($15.6 million unused) and $45 million were uncommitted lines ($34.4 million unused). Borrowings accrue interest at competitive short-term 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 $10 million through 1997, at which time it converts to a term loan, maturing in 1999. If utilized, this facility would replace a $10 million short-term committed line. The Company's financial covenants under various loan agreements allow for securitization of up to approximately 55% of the outstanding balances of accounts receivable. The Company plans to enter into a financing transaction of this type during 1996, the proceeds of which would reduce accounts receivable and notes payable to banks while improving cash flow from operating activities. Cash provided from financing activities for the first nine months of 1995 of $23.4 million is related to $30 million unsecured long-term debt transactions at a fixed-average interest rate of 8.1% which was used to reduce short-term borrowings. The Company pursues a diversified approach to its financing requirements and balances its overall capital structure with appropriate amounts of fixed-rate or capped-rate debt as determined by the interest rate environment (64% of total debt was interest-rate protected at September 30, 1995). The Company anticipates that its cash requirements to finance its operations, open new stores and complete its remodeling/expansion plans will be adequately generated from operations, bank lines of credit and other possible financing transactions. The Company will continue to review all expenditures to maximize financial returns and maintain financial flexibility. -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 November 14, 1995 By s/ Dennis L. Fink ------------------------- ---------------------------------- Dennis L. Fink, Senior Vice President and Chief Financial Officer (principal financial officer) By s/ Hugh G. Wells ---------------------------------- Hugh G. Wells, Vice President and Treasurer By s/ Dan C. Bryant ---------------------------------- Dan C. Bryant, Controller (principal accounting officer) -9-