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 MARCH 31, 1999 OR [ ] TRANSACTION 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 May 13, 1999 were: Common Stock - 8,734,268; Class A Common Stock - 2,438,972.
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 - March 31, 1999 and December 31, 1998 1 Condensed Consolidated Statements of Income - Three months ended March 31, 1999 and 1998 3 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and 1998 4 Notes to Condensed Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Quantitative and Qualitative Disclosure of Market Risk 8 Part II. Other Information 9 </TABLE>
PART I. FINANCIAL INFORMATION - -------------------------------------------------------------------------------- HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) <TABLE> <CAPTION> March 31 December 31 1999 1998 -------- ----------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents ........................ $ 1,285 $ 1,874 Accounts receivable .............................. 185,750 194,472 Less allowance for doubtful accounts ............. (8,300) (8,300) --------- --------- 177,450 186,172 Inventories, at LIFO ............................. 85,010 82,084 Other current assets ............................. 10,195 8,047 --------- --------- Total Current Assets........................ 273,940 278,177 Property and equipment .............................. 205,617 196,814 Less accumulated depreciation and amortization ... (86,912) (85,481) --------- --------- 118,705 111,333 Other assets ........................................ 3,110 3,391 --------- --------- $ 395,755 $ 392,901 --------- --------- --------- --------- </TABLE> 1
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) <TABLE> <CAPTION> March 31 December 31 1999 1998 -------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks .................................... $ 1,900 $ 6,400 Accounts payable and accrued expenses ..................... 58,396 54,356 Current portion of long-term debt and capital lease obligations ............................... 10,876 9,711 --------- --------- Total Current Liabilities............................ 71,172 70,467 Long-term debt and capital lease obligations, less current portion .................................... 159,541 161,778 Other liabilities ............................................ 2,615 2,598 Stockholders' Equity Capital stock, par value $1 per share: Preferred Stock, Authorized: 1,000 shares; Issued: None Common Stock, Authorized: 50,000 shares; Issued: 1999 - - 10,544 shares; 1998 - - 10,393 shares (including shares in treasury: 1999 and 1998 - - 1,839 and l,739, respectively) ............................ 10,544 10,393 Convertible Class A Common Stock, Authorized: 15,000 shares; Issued: 1999 - - 2,703 shares; 1998 - - 2,772 shares (including shares in treasury: 1999 and 1998 - - 261) ................ 2,703 2,772 Additional paid-in capital ............................ 41,475 40,338 Retained earnings ..................................... 138,562 133,207 --------- --------- 193,284 186,710 Less cost of Common Stock and Convertible Class A Common Stock in treasury ........ (30,857) (28,652) --------- --------- 162,427 158,058 --------- --------- $ 395,755 $ 392,901 --------- --------- --------- --------- </TABLE> See notes to condensed consolidated financial statements. 2
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31 ------------------------ 1999 1998 ----------- ---------- <S> <C> <C> Net sales ...................................................... $ 149,781 $129,368 Cost of goods sold ............................................. 78,973 68,437 --------- -------- Gross profit ................................................ 70,808 60,931 Credit service charges ......................................... 3,980 4,298 --------- -------- 74,788 65,229 Cost and expenses: Selling, general and administrative ......................... 60,600 54,210 Interest .................................................... 3,060 3,495 Provision for doubtful accounts ............................. 1,370 2,132 Other (income) expense, net ................................. (71) 151 --------- -------- 64,959 59,988 --------- -------- Income Before Income Taxes............................. 9,829 5,241 Income taxes ................................................... 3,539 1,887 --------- -------- Net Income............................................. $ 6,290 $ 3,354 --------- -------- --------- -------- Diluted earnings per share ..................................... $ 0.55 $ 0.28 Basic earnings per share ....................................... $ 0.56 $ 0.29 Weighted average diluted shares ................................ 11,465 11,842 Weighted average basic shares .................................. 11,147 11,691 Cash dividends per common share: Common Stock ................................................ $ .085 $ .080 Class A Common Stock ........................................ $ .080 $ .075 </TABLE> See notes to condensed consolidated financial statements. 3
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Three Months Ended March 31 --------------------------- 1999 1998 ------- ------- <S> <C> <C> Operating Activities Net income .............................................. $ 6,290 $ 3,354 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................... 3,632 3,461 Provision for doubtful accounts ..................... 1,370 2,132 Gain on sale of property and equipment ............. (8) (11) -------- -------- Subtotal............................................. 11,284 8,936 Changes in operating assets and liabilities: Accounts receivable ............................... 7,352 9,190 Inventories ....................................... (2,926) 311 Other current assets .............................. (2,148) (492) Accounts payable and accrued expenses ............. 1,712 2,333 Income taxes ...................................... 2,328 (394) -------- -------- Net cash provided by operating activities............ 17,602 19,884 -------- -------- Investing Activities Purchases of property and equipment ..................... (11,022) (2,583) Proceeds from sale of property and equipment ............ 26 100 Other investing activities .............................. 281 278 -------- -------- Net cash used in investing activities................ (10,715) (2,205) -------- -------- Financing Activities Net increase in short-term borrowings ................... (4,500) (82,500) Proceeds from issuance of long-term debt ................ -- 67,300 Payment of long-term debt and capital lease obligations (1,072) (1,045) Purchase of treasury stock .............................. (2,205) (2,219) Exercise of stock options ............................... 1,219 2,352 Dividends paid .......................................... (935) (916) Other financing activities .............................. 17 17 -------- -------- Net cash used in financing activities................ (7,476) (17,011) -------- -------- (Decrease) increase in cash and cash equivalents ............. (589) 668 Cash and cash equivalents at beginning of period ............. 1,874 390 -------- -------- Cash and cash equivalents at end of period ................... $ 1,285 $ 1,058 -------- -------- -------- -------- </TABLE> See notes to condensed consolidated financial statements. 4
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 instruction 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. 5
ITEM 2. 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, changes in consumer spending for large ticket items such as furniture, economic conditions affecting the housing market, the mortgage interest rate environment, 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 first quarter of 1999 increased 15.8% to $149.8 million compared to sales of $129.4 million for the first quarter of 1998. Comparable-store sales increased 12.6% for the quarter ended March 31, 1999 as the Company continued to experience significant sales increases in its two largest markets, Dallas and Atlanta, together with strong growth in each of its four other regions. Two of these regions had comparable-store sales increases over 10% for the quarter and the other two were up by high single-digit percents. A store's results are included in the comparable-store sales computation beginning with the one-year anniversary of its opening, expansion or the date when it was otherwise non-comparable. Overall, economic fundamentals, including continued low long-term interest rates and steady economic growth, stimulated housing markets, mortgage refinancings and consumer spending on home furnishings. Management also believes that sales increases are attributable to the Company's focus on brand name products, effective merchandising in its stores, and the disarray of financially pressured competition. Gross profit as a percent of sales was 47.3% for the first three months of 1999 compared to 47.1% for the comparable period of 1998. The slight increase for the period was primarily attributable to the reduced level of promotional activity and reductions in inventory close-out sales during 1999. Selling, general and administrative expenses as a percent of net sales decreased to 40.5% for the three months ended March 31, 1999, from 41.9% in the prior year period. Increases in administrative costs were held lower as a percent of sales than the sales increase as the Company benefited from the cumulative impact of automation in areas such as advertising and increased leveraging of occupancy and general and administrative costs. The provision for doubtful accounts as a percentage of net sales decreased to 0.9% for the first quarter of 1999 from 1.6% for the first quarter of 1998. This reduction reflects the continuing trend of decreased delinquencies and bankruptcies experienced by the Company over the last year, due in part to managerial and systems improvements in the Company's credit operations. The consumer lending industry has generally seen a leveling 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) out of such trends in recent quarters after three years of sharp increases. Management expects that given the current consumer credit environment, the provision for doubtful accounts will remain below 1.0% for the remainder of 1999. Interest expense decreased $0.4 million and as a percent of net sales to 2.0% from 2.7% for the first quarter. The Company's effective interest rate was slightly lower as compared to the year-ago period and average debt levels were also lower. Net earnings as a percent of net sales were 4.2% for the first quarter of 1999 and 2.6% for the first quarter of 1998. Diluted earnings per share were $0.55 and $0.28 ($0.56 and $0.29 basic) for the three months ended March 31, 1999, and 1998, respectively. LIQUIDITY AND SOURCES OF CAPITAL The Company has historically used internally generated funds, bank borrowings and private placements with institutions to finance its continuing operations and growth. Net cash provided by operating activities was $17.6 million during the first three months of 1999. Inventories, exclusive of showroom display, have decreased despite the increase in sales. Receivables decreased $8.7 million as more customers chose to use third party credit or pay cash for their purchases and as delinquent accounts were reduced. Investing activities used $10.7 million of cash during the three months ended March 31, 1999. Capital expenditures during the period were $11.0 million primarily for additional store locations which will open in the second and third quarters of 1999. Financing activities used $7.5 million of cash during the first quarter of 1999 including $5.5 million to reduce debt and $2.2 million for the acquisition of treasury stock. 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 as determined by the interest rate environment with fixed-rate debt and interest rate swap agreements to reduce the impact of changes in interest rates on its variable rate debt (92.4% of total debt was fixed or interest rate protected at March 31, 1999). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.0% at March 31, 1999. The Company opened one store in March 1999 and has two additional stores scheduled to open during the second and third quarters of 1999. Three stores are scheduled for opening in the fourth quarter, and three existing stores will be physically expanded during the second half of 1999. Capital expenditures for the remainder of 1999 to support these projects, and additional ones which will be completed in 2000, are estimated to be $20 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. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. YEAR 2000 As is more fully described in the Company's annual report on Form 10-K for the year ended December 31, 1998, the Company is modifying or replacing portions of its software and certain hardware for Year 2000 compliance. The review, remediation and testing of the Company's store systems software was completed in May 1998. The review, remediation and testing of the corporate office systems was completed in March 1999. The Company presently anticipates that substantially all of its software and IT systems will be compliant with all Year 2000 issues by June 1999. Certain additional, less critical, Y2K issues have been identified recently and are being scheduled for remediation during the third quarter. These items relate to personal computing, telephone voice communication and office document imaging. Management's assessment of the estimated costs and risks associated with the Year 2000 project and the status of the Company's contingency plans are unchanged from that described in the 1998 annual report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK There have been no material changes with respect to the Company's derivative financial instruments and other financial instruments and its related market risk since the date of the most recent annual report. 8
PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this report. 27 - - Financial Data Schedule (only submitted to SEC in electronic format). (b) Report on Form 8-K. None 9
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. Date MAY 14, 1999 By: /s/DENNIS L. FINK -------------------- ------------------------------------- Dennis L. Fink, Executive Vice President and Chief Financial Officer (principal financial officer) By: /s/DAN C. BRYANT ------------------------------ Dan C. Bryant, Vice President and Controller (principal accounting officer) By: /s/JENNY H. PARKER ------------------------------ Jenny H. Parker, Vice President, Secretary and Treasurer 10