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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, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-8498
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HAVERTY FURNITURE COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 58-0281900
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(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
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(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 10, 1994 were: Common Stock --
8,429,584; Class A Common Stock -- 3,064,551.
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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, 1994 and December 31, 1993 1
Condensed Statements of Income -
Nine months ended September 30, 1994 and 1993 3
Condensed Statements of Cash Flows -
Nine months ended September 30, 1994 and 1993 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>
<PAGE> 3
PART I. FINANCIAL INFORMATION
HAVERTY FURNITURE COMPANIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
(Unaudited) (Note)
----------- -----------
(Thousands of dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,213 $ 614
Accounts receivable 157,936 144,115
Less allowance for doubtful accounts 7,105 6,485
-------- --------
150,831 137,630
Inventories, at LIFO 64,768 54,739
Other current accounts 1,181 998
Deferred income taxes 2,800 1,193
-------- --------
TOTAL CURRENT ASSETS 220,793 195,174
PROPERTY AND EQUIPMENT 126,232 112,374
Less accumulated depreciation
and amortization 49,406 44,935
-------- --------
76,826 67,439
DEFERRED INCOME TAXES 0 158
OTHER ASSETS 1,838 1,582
-------- --------
$299,457 $264,353
======== ========
</TABLE>
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HAVERTY FURNITURE COMPANIES, INC.
CONDENSED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
(Unaudited) (Note)
----------- -----------
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 33,451 $ 27,062
Notes payable to banks 36,400 11,900
Income taxes payable 2,329 0
Current portion of long-term debt and
capital lease obligations 7,957 8,479
-------- --------
TOTAL CURRENT LIABILITIES 80,137 47,441
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less
current portion 89,464 94,197
OTHER LIABILITIES 3,159 2,297
STOCKHOLDERS' EQUITY
Capital stock, par value $1 per share:
Preferred Stock, Authorized -- 1,000,000 shares
Issued: None
Common Stock, Authorized -- 15,000,000 shares
Issued: 1994 -- 8,908,091 shares; 1993 -- 8,765,231
shares (including shares in treasury:
1994 and 1993 -- 498,948) 8,908 8,765
Convertible Class A Common Stock, Authorized --
5,000,000 shares, Issued: 1994 -- 3,302,237 shares;
1993 -- 3,354,475 shares (including shares
in treasury: 1994 and 1993 -- 249,055) 3,302 3,354
Additional paid-in capital 31,190 30,443
Retained earnings 88,874 83,433
-------- --------
132,274 125,995
Less cost of Common Stock and
Convertible Class A Stock in treasury (5,577) (5,577)
-------- --------
126,697 120,418
-------- --------
$299,457 $264,353
======== ========
</TABLE>
Note: The condensed financial statements as of December 31, 1993 were derived
from the audited financial statements at that date.
See notes to condensed financial statements.
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HAVERTY FURNITURE COMPANIES, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales $94,529 $81,179 $267,292 $230,789
Cost of goods sold 50,138 42,957 141,560 122,016
------- ------- -------- --------
Gross profit 44,391 38,222 125,732 108,773
Credit service charges 2,902 2,638 8,677 7,805
------- ------- -------- --------
47,293 40,860 134,409 116,578
Costs and expenses:
Selling, general and administrative 39,478 34,369 113,722 99,527
Interest 2,204 1,732 6,037 5,432
Provision for doubtful accounts 895 883 2,181 2,101
------- ------- -------- --------
42,577 36,984 121,940 107,060
------- ------- -------- --------
4,716 3,876 12,469 9,518
Other income (expense), net 38 (27) 4 (215)
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 4,754 3,849 12,473 9,303
Income taxes 1,807 1,453 4,740 3,471
------- ------- -------- --------
NET INCOME $ 2,947 $ 2,396 $ 7,733 $ 5,832
======= ======= ======== ========
Average number of common and common
equivalent shares outstanding 11,418 11,397 11,405 10,468
======= ======= ======== ========
Earnings per share $ 0.26 $ 0.21 $ 0.68 $ 0.56
======= ======= ======== ========
Dividends per common share:
Common Stock $ .0700 $ .0675 $ .2025 $ .1975
Class A Common Stock .0650 .0625 .1900 .1860
</TABLE>
See notes to condensed financial statements.
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HAVERTY FURNITURE COMPANIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,733 $ 5,832
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 6,294 5,046
(Benefit from) provision for deferred income taxes (649) 360
Loss (Gain) on sale of property and equipment 75 (103)
-------- --------
Subtotal 13,453 11,135
Changes in operating assets and liabilities
which (decrease) increase cash:
Accounts receivable (13,201) (14,381)
Inventories (10,029) (4,332)
Other current accounts (183) (67)
Accounts payable and accrued expenses 6,389 5,133
Income taxes payable 2,329 (1,401)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (1,242) (3,913)
INVESTING ACTIVITIES
Purchases of property and equipment (15,838) (10,375)
Proceeds from sale of property and equipment 102 770
Other investing activities (276) 359
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (16,012) (9,246)
FINANCING ACTIVITIES
Proceeds from (repayment of) short-term borrowings 24,500 (6,400)
Principal payments on long-term debt and
capital lease obligations (5,255) (6,430)
Exercise of stock options 838 3,418
Dividends paid (2,292) (2,022)
Other financing activities 62 17
Sale of Common Stock 0 25,016
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,853 13,599
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 599 440
Cash and cash equivalents at beginning of period 614 1,189
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,213 $ 1,629
======== ========
</TABLE>
See notes to condensed financial statements.
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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 interest payments (including capitalized interest) of
$5,730,000 and $5,489,000 for the nine months ended September 30, 1994 and
1993, respectively.
The Company made total income tax payments of $3,225,000 and $4,512,000 for the
nine months ended September 30, 1994 and 1993, respectively.
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<PAGE> 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, 1994
increased 16.4% and 15.8% from the prior year periods, respectively.
Comparable-store sales (sales from stores in operation or expanded for a full
year or more) increased 9.9% and 11.0% for the same comparison periods,
respectively. This is the ninth consecutive quarter comparable-store sales
have increased in excess of 9%. Management attributes the improvement to
several factors including a favorable general economic climate. Strong sales
increases have been reported in remodeled and new stores which have
professionally-designed and fully-accessorized room settings. The program of
providing stores with an upscale interior look while expanding these stores in
certain markets, coupled with the success of upgraded merchandise strategies
continues to have a positive impact. By September 30, 1994 the Company had
incorporated the enhanced appearance and upscale interiors format in 50 stores
and expanded the showroom floor in 23 of those stores. The Company has opened
three stores and expanded seven stores increasing its retail square footage by
153,000, or 7%, since September 30, 1993.
During the third quarter of 1994, the Company's infomercials were broadcast in
all of its television markets. The series of infomercials offered decorating
ideas featuring Haverty merchandise to consumers as they plan their home
furnishing improvements in the seasonally strong fall months. These
infomercials were designed to further reinforce the quality merchandise and
service themes which management uses to differentiate the Company.
Gross margin as a percentage of net sales decreased 0.1% for both the quarter
and nine-month period due in part to strong growth in larger metropolitan
markets which have greater price competition. The increase in sales of
well-known, higher-price-point furniture lines, which typically yield slightly
lower gross margins, was also a factor.
Selling, general and administrative expenses declined 0.5% and 0.6% as a
percentage of net sales for the quarter and nine-month period, respectively.
In dollars, such expenses increased 14.9% and 14.3% for the same periods due
principally to higher personnel costs associated with strong sales growth.
Selling expenses and occupancy costs decreased as a percentage of net sales due
to a broader sales base and cost control practices.
Credit service charges declined 0.1% and 0.2% as a percentage of net sales for
the quarter and nine-month period, respectively, as customer financing at lower
promotional interest rates increased slightly. In absolute dollars credit
service charges increased 10.0% and 11.2%, respectively, for the quarter and
nine-month period. Promotions involving free-interest and delayed payments are
expected to continue in the fourth quarter at a pace similar to 1993.
Interest expense as a percentage of net sales increased 0.2% for the quarter
and decreased 0.1% for the nine-month period. In absolute dollars interest
expense increased 27.3% and 11.1% for the quarter and nine-month period,
respectively. During the nine-month period, the Company terminated certain
derivative instruments used to manage interest rate risk on short-term debt and
credited the gain to interest expense.
The third quarter's effective interest rate was 4 basis points higher than last
year's comparable quarter. Without considering the gain on derivatives, the
nine-month rate was 5 basis points higher than last year's nine-month period.
The average debt levels increased 28.1% and 16.0% for the same periods,
respectively. The increased debt level in 1994 was incurred to fund higher
inventory and accounts receivable, as well as the remodeling and expansion
programs.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND SOURCES OF CAPITAL
Although the Company is a retail furniture store chain, it has certain
characteristics of a finance company as a result of carrying its own customer
accounts receivable. There was a $1.2 million use of cash in operating
activities in the first nine months of 1994 as sales increases led to a $13.2
million increase in accounts receivable and an increase in inventories of $10
million in response to the greater demand. Stronger earnings and higher
depreciation charges offset most of these increases.
Non-interest-bearing receivables remained consistent with the prior year as a
percentage of total accounts receivable. Inventory turnover was improved over
the first nine months of 1993. It was enhanced by further refinements to the
Company's computerized inventory management system, more reliance on the two
regional distribution centers and increases in sales of certain upscale
merchandise which are often filled from special orders.
Investing activities in the first nine months of 1994 used $16 million of cash,
primarily for progress payments on planned capital expenditures. Financing
activities provided $17.9 million during the nine-month period, mostly from
short-term bank borrowings, net of other activity.
At September 30, 1994, the Company had arrangements with eight banks
under line-of-credit agreements to borrow up to $104 million. Of this amount,
$49 million were committed lines ($23 million unused) and $55 million were
uncommitted lines ($34.6 million unused). Borrowings accrue interest at
competitive money-market 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 activated, this facility would replace a
$10 million short-term committed line. The Company's financial covenants under
various loan agreements were modified in late 1993 to allow for securitization
of up to approximately 50% of the outstanding balances of accounts receivable.
The Company will consider a financing transaction of this type in 1995, the
proceeds of which would reduce accounts receivable and improve cash flow from
operating activities.
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.
Long-term debt transactions such as private placements and mortgage financing
are used periodically to reduce short-term borrowings and manage interest rate
risk. The Company pursues a diversified approach to its financing requirements
and presently balances its overall capital structure with approximately equal
amounts of fixed-rate and variable-rate debt.
Capital expenditures are presently expected to include, for the remainder of
1994 and through 1995, the remodeling of nine existing locations (with eight of
those also being expanded), the addition of eight new stores, the expansion of
three stores which already have the new upscale format, and the completion of a
new regional warehouse in Florida. Although the current estimate of
expenditures over this period is $50 million, this amount will be reduced by
$20 to 25 million for new properties which will be financed off the balance
sheet with operating leases. 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.
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<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
None.
(b) Reports on Form 8-K.
None.
-8-
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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, 1994 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)
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<PAGE> 12
EXHIBIT INDEX
Exhibit Number Description
- - -------------- -----------
EX-27 Financial Data Schedule (for the SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HAVERTY FURNITURE FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,213
<SECURITIES> 0
<RECEIVABLES> 157,936
<ALLOWANCES> 7,105
<INVENTORY> 64,768
<CURRENT-ASSETS> 220,793
<PP&E> 126,232
<DEPRECIATION> 49,406
<TOTAL-ASSETS> 299,457
<CURRENT-LIABILITIES> 80,137
<BONDS> 89,464
<COMMON> 12,210
0
0
<OTHER-SE> 114,487
<TOTAL-LIABILITY-AND-EQUITY> 299,457
<SALES> 267,292
<TOTAL-REVENUES> 275,969
<CGS> 141,560
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 2,181
<INTEREST-EXPENSE> 6,037
<INCOME-PRETAX> 12,473
<INCOME-TAX> 4,740
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,405
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
