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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-8498
HAVERTY FURNITURE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (404) 881-1911
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($1.00 PAR VALUE)
(Title of class)
CLASS A COMMON STOCK ($1.00 PAR VALUE)
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
---
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of March 10, 1995 was $96,826,260. The
aggregate market value was computed by reference to the average of the closing
bid and asked prices of the registrant's two classes of common stock on such
date. For the purpose of this response only, executive officers, directors and
holders of 5% or more of common stock are affiliates of the registrant.
As of March 10, 1995, the number of shares outstanding of the registrant's
two classes of $1.00 par value common stock were: Common Stock -- 8,442,684;
Class A Common Stock -- 3,058,951.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 Annual Report to Stockholders are
incorporated by reference herein in response to Items 5-8 of Part II of this
report. Portions of the registrant's proxy statement, dated March 22, 1995,
for the 1995 annual meeting of stockholders are incorporated by reference
herein in response to Part III of this report, except information on executive
officers, which is included in Part I of this report.
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PART I
ITEM 1. BUSINESS.
GENERAL
Haverty Furniture Companies, Inc. (the "Company") operates 90 full service
retail furniture stores located in 11 contiguous states in the Southeast and
Southwest and is one of the largest specialty furniture retailers in the United
States. The Company sells a broad range of household furniture and
accessories, including living room, bedroom and dining room furniture, bedding,
lamps and occasional furniture. The Company purchases merchandise from a large
number of manufacturers, but considers its most popular lines to include
Broyhill, Clayton Marcus, Franklin, Landmark, Lane/Action, Massoud, Michael
Howard, Riverside, Sealy, Southern, Thomasville, Thornwood and Universal. As
an added convenience to its customers, the Company offers financing through a
revolving charge credit plan. In 1994 the Company provided customer financing
for approximately 80% of its sales. This compares to 78% in 1993.
Management believes that its remodeling and upscaling programs, its
addition of the Thomasville line and an improving economy have enabled the
Company to increase sales to its targeted customer base and to attract
additional customers from higher income levels. Sales productivity increased
from an average of $133 per square foot of selling area in 1992 to
approximately $148 per square foot in 1993 and $160 in 1994. Comparable-store
sales increased 10.0% in 1994, including a 7.5% increase during the fourth
quarter. The Company generated net income of $12.5 million in 1994 as compared
to $9.7 million in 1993.
The Company is the successor to a family furniture business established in
1885 in Atlanta, Georgia. The Company was incorporated in 1929 under the laws
of the State of Maryland. Its principal business address is 866 West Peachtree
Street, N.W., Atlanta, Georgia 30308-1123 and its telephone number is (404)
881-1911.
BUSINESS STRATEGY
The Company's strategy is to sell quality furniture to the middle to
upper-middle income consumer, with an emphasis on personalized customer
service, and to conveniently locate stores on prime retail sites in major
suburban shopping areas. The Company believes that its fundamental strengths
include its location in the growing southern region, its clearly focused
merchandising strategy, its long-term favorable relationships with its
principal suppliers, its sound financial position and its experienced
management. During the past three years, the Company has remodeled and
expanded many of its showrooms to incorporate a new upscale interiors
presentation, including full-scale room settings, professionally designed and
fully accessorized to portray how the furniture will look in the home. The
Company has also upgraded its merchandise line, adding moderately higher priced
items from its leading suppliers as well as adding the well-known Thomasville
line in 1992 and the Drexel Heritage line in 1994. The key elements of the
Company's strategy are:
Location and Merchandise Assortment. The Company locates its stores in
prime retail sites in suburban areas, most near regional malls or major
shopping districts, to better serve its middle and upper-middle income targeted
customer. Each store handles a full line of furniture in popular styles at
competitive prices within the area served. In addition, the Company tailors a
portion of its merchandise selections for each store and from city to city,
depending on the demand for various styles and price categories of merchandise
in store locations and the physical layout of each individual store. In
addition to offering regular lines, several suppliers provide a variety of
special items exclusively for the Company which carry well known brand names.
These additional furniture items provide the Company with an enhanced
assortment of merchandise and, by deterring aggressive consumer comparison
shopping, help the Company maintain consistent margins.
Customer Service. The Company's commitment to high-quality full service
extends from the purchase at the showroom to the prompt delivery and set up in
the customer's home. The Company guarantees customer satisfaction. The
Company maintains a management training program and a training program for
employees to ensure that all employees are equipped to deliver the Company's
high standard of customer service. These training
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programs cover all areas of operation, including sales, warehousing,
merchandising, personnel, credit and collection. As a convenience to its
customers, the Company offers customer financing through a revolving charge
credit plan.
Expansion and Remodeling. The Company's strategy has called for the
remodeling of a significant number of its existing showrooms to reflect an
upscale interiors presentation, including full-scale room settings,
professionally designed and fully accessorized to portray how the furniture
will look in the home. A number of these upscale showrooms are also being
expanded to broaden the merchandise assortment.
Premium Product Lines. The Company established a relationship with
Thomasville in 1992, as a result of which approximately half of the Company's
showrooms at the end of 1994 featured displays of Thomasville furniture. The
Drexel Heritage line, another well-known, upscale product offering, was added
to some of the Company's stores in 1994. The Company believes that
introduction of these higher priced lines increases the attractiveness of the
Company's stores to upper-middle income customers. Since the introduction of
these lines, the Company's customers have tended to purchase not only products
from these two companies, but also the higher price point merchandise from
other suppliers, thereby contributing to the success of the Company's strategy
by generally increasing the amount of its average sale. Within those
metropolitan market areas in which the Company is an authorized Thomasville
retailer, the Company often has exclusive distribution of this line. The
Company currently has "Premium Merchandise" gallery displays featuring higher-
end furnishings (generally 5,000 to 8,000 square feet of selling area) in 28
stores. The Company also has opened two new small stores dedicated entirely to
the higher-end lines and converted three other smaller stores to this format.
Cost Containment. The Company's business philosophy has always emphasized
cost containment. Executive and store level management of the Company
continually review expenses to realize cost reductions when appropriate.
Management of the Company believes that its attention to the expense side of
its operations has enabled it to maintain financial stability and profitability
even in recessionary environments.
MERCHANDISING
The following table sets forth the approximate percentage contributions by
product or service to the Company's gross revenues for the past three years
(gross revenues represent the gross sales of all merchandise plus all credit
service charge revenues as reflected by all sales invoices of the Company):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
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<S> <C> <C> <C>
Merchandise:
Living Room Furniture . . . . . . . . . . . . . . . . . 51.8% 51.9% 51.1%
Bedroom Furniture . . . . . . . . . . . . . . . . . . . 22.2 21.8 21.4
Dining Room Furniture . . . . . . . . . . . . . . . . . 13.1 13.5 13.4
Bedding . . . . . . . . . . . . . . . . . . . . . . . . 7.1 7.1 8.0
All Other Merchandise and Accessories . . . . . . . . . 2.9 2.7 2.7
Credit Service Charges . . . . . . . . . . . . . . . . . 2.9 3.0 3.4
----- ----- -----
100.0% 100.0% 100.0%
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</TABLE>
The Company tailors a portion of its merchandising selections for each
store and from city to city, depending in part on the demand for various styles
and price categories of merchandise in store locations and the physical layout
of each individual store. In general, the Company's stores feature a full line
of furniture in popular styles, with an emphasis on providing the customer
fashion, function and comfort at competitive prices.
During the past three years, the Company has upgraded its merchandise line
in all stores, adding moderately higher priced items from its main suppliers as
well as adding the well-known Thomasville line in approximately half of its
stores. The Company purchases merchandise from a large number of
manufacturers, but considers its most popular lines to include Broyhill,
Clayton Marcus, Franklin, Landmark, Lane/Action, Massoud, Michael Howard,
Riverside, Sealy, Southern, Thomasville, Thornwood and Universal. The
Company's targeted customer
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base is the middle to upper-middle income consumer. The Company monitors
demographic and style preference trends in the markets it serves and changes
its product mix in response to those trends.
The Company purchases its merchandise principally from manufacturers that
offer their products on a nationwide basis as well as from a smaller number of
regional suppliers. During 1994, approximately 75% of the dollar value of the
Company's purchases were made from 30 suppliers. No one supplier accounted for
more than 10% of the dollar volume of merchandise purchased by the Company in
1994. The Company has experienced no difficulty in obtaining satisfactory
sources of supply and believes that adequate sources of supply exist for the
types of merchandise sold in its stores. The Company has no long-term
contracts for the purchase of merchandise.
ADVERTISING AND PROMOTION
The Company uses multimedia advertising and promotions to stimulate sales.
The Company's advertising programs are coordinated to deliver a consistent
message that the Company's stores are attuned to their customers' preferences
and, accordingly, stock items which are attractive to those customers. For
1994, the Company's expenditures for advertising and promotions were
approximately 7.4% of net sales. The Company advertises in newspapers in
nearly every market in which its stores are located and also uses television,
radio and direct mail. Within a budget and guidelines established at Company
headquarters, each metropolitan market manager determines the style and content
of the area's advertising and promotional program, emphasizing merchandise
expected to sell in that geographic region. Newspaper layouts, television
spots, radio scripts and in-store display materials are placed at the store
level with design and creative assistance from corporate headquarters.
The Company conducts over 12 Company-wide promotions each year, and the
stores periodically conduct additional promotional events. Promotions include
high-impact, short duration events, such as holiday sales, general merchandise
promotional periods or theme promotions, and product-specific promotions. The
Company also advertises its credit availability and special interest and
payment terms promotions. During 1994 the Company distributed over 50 million
full-color newspaper inserts and direct mail circulars. The Company uses
direct mail primarily as a tool to maintain contact with existing customers and
to encourage additional purchases.
STORE OPERATIONS
General. From the Company's headquarters in Atlanta, Georgia, management
directs and coordinates purchasing and merchandising, advertising, personnel
training, information systems, financial planning and controls, site selection
and opening of new stores. The Company's stores are organized in four
geographic regions, each supervised by a regional manager who is primarily
responsible for coordinating merchandising plans and store operations. Within
guidelines provided by headquarters, each metropolitan market manager has
responsibility for personnel, purchasing, merchandising, marketing, credit and
store operations. In cities with multiple retail stores, the Company generally
operates those stores as a single profit center with one manager for the city
and individual managers in each branch store. Normal hours of store operation
(in most locations) are 10:00 a.m. to 9:00 p.m. Monday through Friday, 10:00
a.m. to 6:00 p.m. Saturday, and 1:00 p.m. to 6:00 p.m. Sunday.
The Company believes that locating its stores in prime retail sites in
suburban areas, preferably near regional malls or major shopping districts, is
an important element of its competitive strategy and allows the Company to gain
access to its targeted customer. The Company's showrooms average approximately
26,000 square feet and range in size from approximately 13,000 to 71,000 square
feet, with warehouse locations ranging in size from approximately 10,000 to
276,000 square feet. The Company maintains a total of 90 stores, 30 of which
have attached warehouses. The Company also has 19 separate local warehouses,
three regional distribution centers and two administrative offices. The
Company has four properties for future development and eight additional
facilities leased or subleased. Of these 126 facilities, 78 are leased with
various termination dates through 2010 plus renewal options. The remaining 48
properties are owned by the Company.
Distribution. The Company maintains furniture warehouses in each
metropolitan market in which it operates. If more than one retail store is
located in a single market area, those stores are served from one central
warehouse. In addition, the Company maintains regional distribution centers in
Charlotte, North Carolina (124,000 square feet)
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Jackson, Mississippi (180,000 square feet) and since December 1994, Ocala,
Florida (139,000 square feet). The distribution centers allow the Company to
purchase merchandise in larger order quantities, to consolidate freight and to
facilitate prompt delivery of popular items to its retail stores, thereby
lowering costs. Management believes that service levels can be maintained or
improved by greater reliance on the flow of merchandise through these regional
centers, while allowing for less inventory investment in local market
warehouses.
The Company maintains inventories sufficient to permit prompt delivery of
all items displayed for sale. With the exception of the Atlanta, Georgia
operation, which uses a contract delivery service, the Company operates a fleet
of trucks for local delivery of merchandise to its customers and for most
deliveries from regional distribution centers to the Company's stores and
warehouses.
Management Information System. The Company uses computer information
systems to provide Company-wide customer accounts receivable as well as
accounting and payroll functions. The Company has developed a proprietary
inventory management and operations system which provides automated processing
of purchasing, sales orders, billing and customer delivery information. During
1994, on-line credit approval functions were added which allow for faster, more
consistent response to customer applications, based on specific data accessed
through credit bureaus and a customized score for credit worthiness. This
system is currently installed in 38 stores in major markets and all three
regional warehouses representing more than half of total merchandise
inventories. The Company believes that this system enhances inventory
management and control as well as overall customer service and plans to
continue the implementation to most of its remaining stores in 1995 and 1996.
Training. The Company has an extensive in-house training program to train
new employees in the Company's operations and to keep current employees
informed of changes in Company policy and operational procedures. The Company
also maintains a management training program coordinated by the Company's
headquarters, pursuant to which management trainees are rotated through a
number of store management positions. The Company's training program for
employees covers all aspects of the Company's operations, including sales,
warehousing, merchandising, personnel, credit and collection. The training
program utilizes detailed store manuals, videotaped training films and classes
for employees. Management believes that the Company's on-going education
program is a significant factor in the Company's ability to develop personnel
capable of managing and operating its stores and maintaining a high level of
customer service.
CREDIT SALES OPERATIONS
The Company's customers are provided with a revolving charge credit plan in
a credit amount determined by a local credit sales manager. In 1994 and 1993,
credit sales constituted 80% and 78%, respectively, of the Company's net sales.
The Company's standard (non-promotional) credit service charge rate for
purchases during most of 1994 was 14.9% per annum (except in Arkansas where it
is lower due to state laws) and may vary in the future with market conditions.
The Company offers a lower credit service charge rate for individual purchases
of over $3,000 and periodically promotes free-interest for specified periods up
to one year.
Over the last five years, provisions for losses on customer accounts
receivable have averaged less than 1% of sales. Management believes this
relatively low rate, as compared to those of certain other furniture retailers,
is due to a thorough credit screening and collection program and to the Company
attracting a more affluent customer through its credit programs. Promotions
which offer free-interest for a specified period have been successful both in
attracting customers and stimulating sales.
CUSTOMER SERVICE
The Company believes that personalized customer service and experienced
personnel are important elements in the success of the Company's retail
furniture business, and the Company continually seeks to improve the quality of
customer service and its reputation with suppliers and customers. The Company
trains its sales personnel to understand and assist customers with their
individual furnishing and decorating needs and also emphasizes prompt and
careful delivery of merchandise.
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The Company solicits comments from its customers by leaving with each
customer at the time of delivery a form to be completed and returned to the
Company reporting the customer's level of satisfaction with the delivery and
set up of the furniture.
EXPANSION
Remodeling and Expansion of Existing Stores. For the past four years, the
Company has focused on remodeling, upgrading and expanding the total square
footage of selling area in many of its existing showrooms. At December 31,
1994, a total of 40 existing showrooms had been remodeled, including 24
showrooms which were expanded to increase square footage of selling area. The
refurbishing of existing showrooms includes improved lighting, wider aisles for
easy access to each department, and full-scale room settings, professionally
designed and fully accessorized to portray how the furniture will look in the
home. The Company believes that its customers are responding very favorably to
the attractive presentation of merchandise made possible through better
defined, coordinated groupings of furniture and accessories. Tentative plans
for 1995 and 1996 combined call for the remodeling and expansion of
approximately 10 additional existing showrooms. In addition, two showrooms
which have recently been remodeled will be expanded in 1995.
Premium Product Lines. During May of 1992, the Company established a
relationship with Thomasville Furniture Industries, Inc., a division of
Armstrong World Industries. At the end of 1994, more than half of the Company
showrooms featured displays of Thomasville furniture. The Company believes
that introduction of the higher priced lines increases the attractiveness of
the Company's stores to upper-middle income customers.
During 1994, the Company became a national account with Thomasville which
allows for greater flexibility in offering the product line in different
metropolitan market areas. The high-end line of Drexel Heritage was also added
during 1994 and the Company was also given national account status.
New Stores. The Company has identified approximately 20 additional market
area opportunities for one or multiple new stores within its present 11-state
territory. New stores in these areas would benefit from the Company's existing
name recognition and opportunities for freight consolidation. Tentative plans
for 1995 and 1996 combined call for the opening of 13 new stores. Seven of
these stores will be in six new cities for Havertys with one of these markets
in a new state.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 2,590
employees, 2,399 in individual retail store operations, 112 in general
administration and management, and 79 at regional warehouses. No employee of
the Company is a party to any union contract and the Company considers its
employee relations to be good.
COMPETITION
Although the degree of competition varies with geographic area, the retail
sale of home furnishings is a highly fragmented and competitive business. The
Company competes with numerous individual retail furniture stores as well as
chains. The Company currently ranks among the top ten in sales for full
service retail home furnishings store chains in the United States, based on
available industry data for 1993. The Company also competes with other
specialty retail sellers of home furnishings, especially the better department
stores. Department stores benefit competitively from more established name
recognition in specific markets, a larger customer base due to their department
store product lines and proprietary credit cards. The Company believes that
the effect of these competitive factors are offset by the Company's clearly
focused market position and its commitment to customer service.
The Company believes that the primary elements of competition in its
industry are customer service, merchandise quality, style, selection, display,
price and store location and design. The Company feels that its
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success to date is attributable in part to its abilities to focus an aggressive
well-defined merchandising and advertising effort on the middle and
upper-middle income customer, to make prompt delivery of orders through
maintenance of inventory and to tailor the inventory maintained at its stores
to local demands. In addition, the Company believes that its buying power
gives it a competitive advantage with respect to the price and value of its
product offerings. The Company emphasizes credit services tailored to its
product offerings and the specific needs of its target customers. By financing
its own customer accounts, the Company believes that it provides a significant
service to its customer which also enables the Company to maintain contact with
the customer over the term of the account. The Company regards its experienced
sales personnel and personalized customer service as important factors in its
competitive success. Lastly, the Company believes it has uniquely positioned
itself in the marketplace with merchandise that appeals to customers somewhat
more affluent than most other competitive furniture chain stores. This serves
as somewhat of a buffer to normal competitive pressures and provides the
opportunity for more consistent margins across the product line.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME AGE AND OTHER INFORMATION
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<S> <C> <C>
Rawson Haverty . . . . . . . . . . . . . . . . . . . 74 Chairman of the Board since 1984. President from 1955 to
1984. Chief Executive Officer from 1955 to 1990.
Director since 1947.
John E. Slater, Jr. . . . . . . . . . . . . . . . . . 60 President and Chief Executive Officer since April 1994.
Executive Vice President from 1993 to April 1994.
Chief Operating Officer from 1992 to April 1994.
Senior Vice President from 1987 to 1993. General
Manager, Stores of the Company from 1990 to 1992.
Director since 1983.
Dan C. Bryant . . . . . . . . . . . . . . . . . . . . 52 Controller since 1985.
Steven G. Burdette . . . . . . . . . . . . . . . . . 33 Vice President, Merchandising, since 1994. Assistant
Vice President, Merchandising, from 1993 to 1994.
J. Edward Clary . . . . . . . . . . . . . . . . . . . 34 Vice President, Management Information Services, since
1994.
Thomas P. Curran . . . . . . . . . . . . . . . . . . 42 Vice President, Advertising, since 1987.
Dennis L. Fink . . . . . . . . . . . . . . . . . . . 43 Senior Vice President and Chief Financial Officer since
1993. Principal accounting and financial officer and a
director of Horizon Industries, Inc., a publicly held
carpet manufacturer, from 1977 to 1992. Senior Vice
President, Treasurer and Chief Financial Officer of
Horizon from 1985 to 1992.
Ben M. Haverty . . . . . . . . . . . . . . . . . . . 34 Vice President of Marketing Programs, since 1994.
Assistant Secretary, since 1993. Assistant Vice
President, Merchandising from 1990 to 1994.
</TABLE>
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EXECUTIVE OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME AGE AND OTHER INFORMATION
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<S> <C> <C>
Rawson Haverty, Jr. . . . . . . . . . . . . . . . . . 38 Vice President, Real Estate and Insurance Divisions,
since 1992. Assistant Vice President from 1987 to
1992. Assistant Secretary from 1985 to 1993. Director
since 1992.
Christine M. Jones . . . . . . . . . . . . . . . . . 65 Vice President, Stockholder Relations, since 1993 and
Corporate Secretary since 1978. Assistant Vice
President from 1986 to 1993.
Joan S. Nagy . . . . . . . . . . . . . . . . . . . . 59 Vice President, Human Resources, since 1993. Assistant
Vice President, Human Resources from 1985 to 1993.
Clarence H. Smith . . . . . . . . . . . . . . . . . . 44 Vice President, Operations and Development, since 1994.
Vice President since 1984. Regional Manager and
General Manager of Atlanta, Georgia retail operations
from 1986 to 1994. Director since 1989.
Hugh G. Wells, Jr. . . . . . . . . . . . . . . . . . 61 Vice President since 1985 and Treasurer since 1987.
M. Tony Wilkerson . . . . . . . . . . . . . . . . . . 49 Senior Vice President, Marketing, since 1994. Vice
President, Merchandising, from 1990 to 1994. Assistant
Vice President from 1987 to 1990.
</TABLE>
Rawson Haverty, Frank S. McGaughey, Jr. (a director of the Company) and
John Rhodes Haverty, M.D. (a director of the Company) are first cousins.
Clarence H. Smith is the nephew of Rawson Haverty, the son of Alex W. Smith (a
director of the Company) and the first cousin of Clarence H. Ridley (a director
of the Company), Rawson Haverty, Jr. and Ben M. Haverty. Rawson Haverty, Jr.
and Ben M. Haverty are the sons of Rawson Haverty, first cousins of Clarence H.
Ridley and Clarence H. Smith and the nephews of Alex W. Smith. Alex W. Smith
is the brother-in-law of Rawson Haverty and the father of Clarence H. Smith.
Clarence H. Ridley is the nephew of Rawson Haverty and first cousin of Clarence
H. Smith, Rawson Haverty, Jr. and Ben M. Haverty.
ITEM 2. PROPERTIES.
The Company's executive and administrative offices are located at 866 West
Peachtree Street, N.W., Atlanta, Georgia and occupy a two-story brick building
purchased in 1971 and an adjacent, one-story brick building purchased in 1986.
These facilities contain approximately 29,000 and 15,000 square feet of working
area, respectively.
The Company maintains a total of 90 stores, 30 of which have attached
warehouses. The Company also has 19 separate local warehouses, three regional
distribution centers, two administrative offices four properties for future
development and eight additional facilities leased or subleased. Of these 126
facilities, 78 are leased with various termination dates through 2010 plus
renewal options. The remaining 48 properties are owned by the Company.
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These 48 owned properties and all improvements and buildings in progress
are carried on the books of the Company at December 31, 1994 at an original
cost of $129,418,000, and a book value of $80,198,000.
Fifteen properties are owned without debt; the remaining properties which
include one property for future development, a warehouse addition to a leased
property and a former store location are subject to the indebtedness as
indicated below:
<TABLE>
<CAPTION>
NUMBER PRINCIPAL MORTGAGE
OF BALANCE
LOCATIONS 12/31/94
--------- ------------------
<S> <C>
28 $19,081,000
NUMBER INDUSTRIAL DEVELOPMENT
OF BOND BALANCE
LOCATIONS 12/31/94
--------- ----------------------
<S> <C>
5 $2,975,000
</TABLE>
All other property was not subject to secured indebtedness at December 31,
1994.
The 78 properties (58 stores, 12 warehouses and 8 additional facilities)
leased by the Company at December 31, 1994 require minimum annual rentals which
amounted to $9,477,000 during 1994. Additional rentals based on sales volume
are required which amounted to $689,000 in 1994.
The Company considers that all of its stores and warehouses have been well
maintained and are adequate for their purposes. All are, in the opinion of the
Company's management, adequately insured.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than routine
litigation incidental to the business of the Company, to which the Company is a
party or of which its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1994.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Common Stock Market Prices and Dividends on the last page of the Company's
annual report to stockholders for the year ended December 31, 1994, are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected 10-Year Financial Data on page 11 of the Company's annual report
to stockholders for the year ended December 31, 1994, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 6 through 10 of the Company's annual report to stockholders
for the year ended December 31, 1994, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of the independent auditors and the financial statements
on pages 12 through 23 of the Company's annual report to stockholders for the
year ended December 31, 1994, are incorporated herein by reference.
Selected Quarterly Financial Data on pages 22 and 23 of the Company's
annual report to stockholders for the year ended December 31, 1994, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to directors of the Company contained in the
Company's proxy statement for the 1995 annual meeting of stockholders, dated
March 22, 1995, is incorporated herein by reference. Information relating to
executive officers of the Company is included in this report under Item 1 of
Part I.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation contained in the
Company's proxy statement, dated March 22, 1995, for the 1995 annual meeting of
stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to security ownership of certain beneficial owners
and management contained in the Company's proxy statement, dated March 22,
1995, for the 1995 annual meeting of stockholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
10
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following exhibits, financial statements and financial statement
schedule are filed as a part of this report:
(a) (1) and (2). LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
The following financial statements of Haverty Furniture Companies,
Inc., included in the annual report of the registrant to its stockholders
for the year ended December 31, 1994, are incorporated by reference in Item
8:
Balance Sheets--December 31, 1994 and 1993
Statements of Income--Fiscal Years ended December 31, 1994, 1993 and
1992
Statements of Stockholders' Equity--Fiscal Years ended December 31,
1994, 1993 and 1992
Statements of Cash Flows--Fiscal Years ended December 31, 1994, 1993
and 1992
Notes to Financial Statements
The following financial statement schedule of Haverty Furniture
Companies, Inc. is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Exhibits.
The exhibits listed below are filed with or incorporated by reference
into this Report. Unless otherwise indicated, the exhibit number of
documents incorporated by reference corresponds to the exhibit number in
the referenced document. Exhibits 10.1 through 10.10 represent
compensatory plans.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
*3.1 -- Articles of Incorporation of Haverty Furniture Companies, Inc. as
amended and restated on March 6, 1973, and amended on April 24,
1979, and as amended on April 25, 1985. (10-Q for the quarter
ended June 30, 1985)
*3.1.1 -- Articles of Incorporation of Haverty Furniture Companies, Inc. as
amended on April 25, 1986. (10-Q for the quarter ended March 31,
1986)
11
<PAGE> 13
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
*3.1.2 -- Amendment to Articles of Incorporation of Haverty Furniture
Companies, Inc. as amended on April 28, 1989. (10-Q for the
quarter ended June 30, 1989)
*3.2.2 -- Amended and Restated By-Laws of Haverty Furniture Companies, Inc.
as amended on August 5, 1987. (10-K for the year ended December
31, 1987)
*3.2.3 -- Amendment to By-Laws of Haverty Furniture Companies, Inc. as
amended on November 4, 1988. (10-Q for the quarter ended March 31,
1989)
*4.1 -- Note Agreement between Haverty Furniture Companies, Inc. and The
Prudential Purchasers (The Prudential Insurance Company of America)
c/o Prudential Capital Group, dated December 29, 1993. (10-K for
the year ended December 31, 1993)
4.1.1 -- First Amendment to Note Agreement between Haverty Furniture
Companies, Inc. and The Prudential Purchasers (The Prudential
Insurance Company of America) c/o Prudential Capital Group, dated
December 29, 1993
No other instrument authorizes long-term debt securities in an
amount in excess of ten percent (10%) of the total assets of the
Company. The Company agrees to furnish copies of instruments and
agreements authorizing long-term debts of less than ten percent
(10%) of its total assets to the Commission upon request.
*10.1 -- Directors' Deferred Compensation Plan having an effective date of
December 15, 1982 (Form S-2, Registration Statement No. 2-84860, as
filed with the Securities and Exchange Commission on June 30, 1983
and as amended on July 20, 1983 by Amendment No. I, Exhibit 10.2)
*10.1.1 -- First Amendment of Directors' Deferred Compensation Plan
(Registration Statement on Form S-2, File No. 33-59400, Exhibit
10.1.1)
*10.2 -- Supplemental Executive Retirement Plan, effective January 1, 1983
(10-K for the year ended December 31, 1984, Exhibit 10.3)
*10.3 -- Thrift Plan and Trust, as amended, effective January 1, 1985
(Exhibit 4.1 to Registration Statement on Form S-8, File No.
33-44285)
*10.4 -- 1986 Non-Qualified Stock Option Plan (10-K for the year ended
December 31, 1987, Exhibit 10.7)
*10.5 -- 1988 Incentive Stock Option Plan, as amended (Exhibit 4.1 to
Registration Statement on Form S-8, File No. 33-53609)
*10.6 -- 1988 Non-Qualified Stock Option Plan (10-Q for the quarter ended
June 30, 1989, Exhibit 10.2)
*10.6.1 -- Amendment Number One to 1988 Non-Qualified Stock Option Plan
(Registration Statement on Form S-2, File No. 33-59400, Exhibit
10.9.1)
10.7 -- Haverty Furniture Companies, Inc. Employee Stock Purchase Plan, as
amended and restated as of February 7, 1995
*10.8 -- Deferred Compensation Agreement between Haverty Furniture
Companies, Inc. and Rawson Haverty, Sr., dated December 21, 1992.
(10-K for the year ended December 31, 1993, Exhibit 10.9)
12
<PAGE> 14
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
*10.9 -- 1993 Non-Qualified Stock Option Plan (Registration Statement on
Form S-8, File No. 33-53607, Exhibit 5.1)
13.1 -- Annual Report to Stockholders for the year ended December 31, 1994.
18.1 -- Accountant's Preferability Letter regarding Change in Accounting
Principle
23.1 -- Consent of Ernst & Young LLP
27 -- Financial Data Schedule (for SEC use only)
- -----------------
* Incorporated by reference.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1994.
(c) Exhibits -- The response to this portion of Item 14 is as
submitted in Item 14(a)(3).
(d) Financial Statement Schedules -- The response to this portion of
Item 14 is submitted as a separate section of this report.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
HAVERTY FURNITURE COMPANIES, INC.
Date: March 17, 1995 By: /s/ JOHN E. SLATER, JR.
--------------------------------------------
John E. Slater, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 17, 1995 By: /s/ DENNIS L. FINK
--------------------------------------------
Dennis L. Fink
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 17, 1995 By: /s/ DAN C. BRYANT
--------------------------------------------
Dan C. Bryant
Controller (Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RAWSON HAVERTY
- ----------------------------------------------------- Chairman of the Board March 17, 1995
Rawson Haverty
/s/ JOHN E. SLATER, JR.
- ----------------------------------------------------- President, Chief Executive March 17, 1995
John E. Slater, Jr. Officer and Director
/s/ FRED J. BATES
- ----------------------------------------------------- Regional Manager and Director March 20, 1995
Fred J. Bates
- ----------------------------------------------------- Director March , 1995
Dr. Kenneth Black, Jr.
/s/ JOHN RHODES HAVERTY, M.D.
- ----------------------------------------------------- Director March 17, 1995
John Rhodes Haverty, M.D.
/s/ RAWSON HAVERTY, JR.
- ----------------------------------------------------- Vice President and Director March 20, 1995
Rawson Haverty, Jr.
/s/ L. PHILLIP HUMANN
- ----------------------------------------------------- Director March 17, 1995
L. Phillip Humann
/s/ LYNN H. JOHNSTON
- ----------------------------------------------------- Director March 17, 1995
Lynn H. Johnston
/s/ FRANK S. MCGAUGHEY, JR.
- ----------------------------------------------------- Director March 17, 1995
Frank S. McGaughey, Jr.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM A. PARKER, JR.
- ----------------------------------------------------- Director March 17, 1995
William A. Parker, Jr.
/s/ CLARENCE H. RIDLEY
- ------------------------------------------------------ Director March 20, 1995
Clarence H. Ridley
/s/ ALEX W. SMITH
- ------------------------------------------------------ Director March 20, 1995
Alex W. Smith
/s/ CLARENCE H. SMITH
- ------------------------------------------------------ Vice President and Director March 20, 1995
Clarence H. Smith
/s/ ROBERT R. WOODSON
- ------------------------------------------------------ Director March 17, 1995
Robert R. Woodson
</TABLE>
15
<PAGE> 17
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
HAVERTY FURNITURE COMPANIES, INC.
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C-1 Column D Column E
- ---------------------------------------------------------------------------------------------------------------
Additions
Balance at charged Balance at
beginning of to costs and Deductions- end of
Description period expenses describe (1) period
- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $6,485 $2,773 $2,153 $7,105
====== ====== ====== ======
Year ended December 31, 1993:
Allowance for doubtful accounts $5,400 $3,154 $2,069 $6,485
====== ====== ====== ======
Year ended December 31, 1992:
Allowance for doubtful accounts $4,600 $2,793 $1,993 $5,400
====== ====== ====== ======
</TABLE>
(1) Uncollectible accounts written off and losses on accounts resulting from
repossessions and discounts and allowances.
(2) Column C-2 "Additions Charged To Other Accounts" has been omitted as the
response is "none".
F-1
<PAGE> 18
EXHIBIT INDEX
HAVERTY FURNITURE COMPANIES, INC.
10-K FOR THE YEAR ENDED DECEMBER 31, 1994
Exhibit No. Description
- ----------- -----------
4.1.1 First Amendment to Note Agreement
between Haverty Furniture
Companies, Inc. and The Prudential
Purchasers (The Prudential
Insurance Company of America) c/o
Prudential Capital Group, dated
December 29, 1993
10.7 Haverty Furniture Companies, Inc.
Employee Stock Purchase Plan, as
amended and restated as of
February 7, 1995.
13.1 Annual Report to Stockholders for
the year ended December 31, 1994.
18.1 Accountant's Preferability Letter
regarding Change in Accounting
Principle
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule (for SEC use only)
<PAGE> 1
EXHIBIT 4.1.1
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
July 21, 1994
HAVERTY FURNITURE COMPANY
866 West Peachtree Street, N.W.
Atlanta, Georgia 30308
Attention: Mr. Dennis L. Fink
Chief Financial Officer
Ladies and Gentlemen:
This letter is to amend the Note Agreement between Haverty Furniture
Companies (the "Company") and The Prudential Insurance Company of America
("Prudential"), dated December 29, 1993, as previously amended, (the "Note
Agreement"). Capitalized terms used herein without definitions have the
meanings ascribed to such terms in the Note Agreement.
Pursuant to paragraph 12C of the Note Agreement, Prudential and the Company
hereby agree that, effective as of March 31, 1994, the definitions of
"Operating Lease Rentals" and "Retained Receivables Amount" set forth in
paragraph 11B of the Note Agreement are hereby amended and restated as follows:
"Operating Lease Rentals" shall mean, as at the date of determination,
all fixed rents or charges (including as such all payments which the lessee
is obligated to make on termination of the lease or surrender of the
property) payable by the Company and its Subsidiaries (as lessee,
sublessee, license, franchisee or the like) under all leases, licenses, or
other agreements for the use or possession of real or personal property,
tangible or intangible (except Capitalized Lease Obligations) having a term
of more than one year (whether as an initial term or any extension or
renewal thereof and including options to renew or extend any term, whether
or not exercised), during the last four consecutive fiscal quarters, all as
determined in accordance with generally accepted accounting principles.
"Retained Receivables Amount" shall mean, at any date of
determination, the aggregate amount of all outstanding customer accounts
and notes receivable, including installment contracts, of the Company and
all Subsidiaries which under generally accepted account principles are
shown on the balance sheet as an asset, less (without duplication):
(i) the greater of (a) or (b), where:
(a) is the amount of payments on such outstanding customer
accounts and notes receivable which are 61 days or more past due, and
(b) is an adequate reserve, or allowance for doubtful
accounts, as determined in accordance with generally accepted
principles, pertaining to the aggregate amount of all such outstanding
customer accounts and notes receivable, and
(ii) the amount of such outstanding customer accounts and notes
receivables sold, pledged, contributed or subject to a Lien in
connection with any Receivables Financing.
<PAGE> 2
Haverty Furniture Companies
July 21, 1994
Page 2
The terms and conditions of the Note Agreement as amended hereby are and
shall remain in full force and effect.
If you agree with the foregoing, please sign the enclosed counterparts of
this letter and return them to Prudential, at which time this letter shall
become a binding agreement between the Company and Prudential.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Thomas Cecka
----------------
Vice President
The foregoing is agreed to
and accepted as the date
first above written.
HAVERTY FURNITURE COMPANIES
By: /s/ Dennis L. Fink
---------------------------
Senior Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.7
HAVERTY FURNITURE COMPANIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated
February 7, 1995
<PAGE> 2
HAVERTY FURNITURE COMPANIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated
February 7, 1995
1. Purpose. The purpose of the Haverty Furniture Companies, Inc.
Employee Stock Purchase Plan (the "Plan") is to encourage and enable
eligible employees of Haverty Furniture Companies, Inc. (the
"Company") and any of its subsidiaries to acquire proprietary
interests in the Company through the ownership of Common Stock of the
Company. The Company believes that employees who participate in the
Plan will have a closer identification with the Company by virtue of
their ability as stockholders to participate in the Company's growth
and earnings. It is the intention of the Company to have the Plan
qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
the provisions of the Plan shall be construed so as to extend and
limit participation in a manner consistent with the requirements of
that section of the Code.
2. Definitions. The following words or terms have the following
meanings:
(a) "Plan" shall mean this Haverty Furniture Companies, Inc.
Employee Stock Purchase Plan.
(b) "Company" shall mean Haverty Furniture Companies, Inc.
(c) "Board of Directors" shall mean the Board of Directors of the
Company or the Executive Committee of such Board.
(d) "Shares", "Stock" or "Common Stock" shall mean shares of the
$1.00 par value Common Stock of the Company.
(e) "Committee" shall mean the Stock Option Committee of the Board
of Directors of the Company.
(f) "Subsidiary" shall mean any corporation, if the Company owns or
controls, directly or indirectly, more than 50 percent of the
voting stock of such corporation.
(g) "Eligible Employee" shall mean a person regularly employed by
the Company or a Subsidiary on the effective date of any
offering of stock pursuant to the Plan; provided, however, that
no person shall be considered an Eligible Employee unless he or
she is customarily employed by the Company or a Subsidiary for
at least twenty hours per week and as of such effective date has
been employed by the Company or a Subsidiary for more than one
year; and provided further, that the Board of Directors may
exclude the employees of any specified Subsidiaries from any
offering under the Plan.
-1-
<PAGE> 3
(h) "Offer Period" shall mean, with respect to any offering of Stock
hereunder, the period specified by the Committee (which shall
normally consist of six (6) calendar months) during which such
offering is effective and outstanding.
(i) "Grant Date" shall mean the commencement date of the applicable
Offer Period.
(j) "Exercise Date" shall mean the termination date of the
applicable Offer Period.
(k) "Options" shall mean the right or rights granted to Eligible
Employees to purchase the Company's Common Stock under an
offering made under the Plan and pursuant to such Eligible
Employees' elections to participate in such offering.
(l) "Fair Market Value" shall mean the closing price of the
Company's $1.00 par value Common Stock as quoted on the National
Association of Securities Dealers, Inc. National Market System.
(m) "Annual Pay" shall mean, with respect to any Eligible Employee,
the taxable earnings paid by the Employer to the Eligible
Employee and reported on his Form W-2 for the calendar year
preceding the year in which the applicable offering commences;
provided that Annual Pay will include (a) basic salary or wages,
(b) overtime pay, (c) bonuses, (d) commissions, and (e) amounts
deferred under Internal Revenue Code Sections 401(k) and/or 125
pursuant to the Eligible Employee's salary reduction agreement,
and Annual Pay will exclude (a) employer-paid FICA taxes and
contributions under any qualified pension plan and any deferred
compensation plan to the extent not currently taxable to the
Eligible Employee, (b) amounts realized from the exercise of
nonqualified stock options or the lapse of restrictions on stock
or other disposition of stock acquired under a qualified or
incentive stock option, (c) the imputed value of group term life
insurance, (d) cash and noncash fringe benefits including
taxable fringe benefits from the use of Company-owned vehicles,
(e) reimbursements and expense allowances, (f) moving expenses,
(g) welfare benefits, and (h) other amounts which receive
special tax benefits.
(n) "Minimum Contribution" shall mean, with respect to any offering
under the Plan, 1% of Annual Pay.
3. Shares Reserved for Plan. The Shares of the Company's Common Stock to
be sold to Eligible Employees under the Plan may, at the election of
the Company, be either treasury shares or shares originally issued for
such purpose. The maximum number of Shares which shall be reserved
and made available for sale under the Plan shall be 750,000 (giving
effect to June 30, 1993 stock split). The Shares reserved may be
issued and sold pursuant to one or more offerings under the Plan.
With respect to each offering, the Board of Directors, or the
Committee, will specify the number of Shares to be made available, the
commencement date and the termination date of the applicable Offer
Period and such other terms and conditions not inconsistent with the
Plan as may be necessary or appropriate. In no event shall the Offer
Period for any offering exceed 27 months.
-2-
<PAGE> 4
In the event of a subdivision, combination or reclassification
of the Company's Shares, the maximum number of Shares which may
thereafter be issued and sold under the Plan and the number of Shares
subject to options to purchase at the time of such subdivision,
combination or reclassification will be proportionately increased or
decreased, the terms relating to the price at which Shares subject to
options to purchase will be sold will be appropriately adjusted, and
such other action will be taken as in the opinion of the Board of
Directors is appropriate under the circumstances.
4. Administration of the Plan. Except as otherwise provided herein, the
Plan shall be administered by the Committee. Subject to the
provisions of Paragraph 6, the Committee shall be vested with full
authority to make, administer and interpret such equitable rules and
regulations regarding the Plan as it may deem advisable. Except as
otherwise provided herein, any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive
and binding upon all Eligible Employees and any and all persons
claiming under or through an Eligible Employee.
The Committee may act by a majority vote at a regular or special
meeting of the Committee or by decision reduced to writing and signed
by a majority of the members of the Committee without holding a formal
meeting. Vacancies in the membership of the Committee shall be filled
by the Board of Directors.
The Committee may request that the management of the Company
appoint a "Plan Administrator" to carry out the administrative and
ministerial functions necessary to implement the determinations,
decisions and actions of the Committee with respect to any offering
under the Plan.
5. Offerings. The Plan will be implemented by offerings made by the
Company from time to time as determined by the Committee, but in any
event not more than two times per year. Participation in any offering
under the Plan shall neither limit, nor require, participation in any
other offering except that no employee may have more than one
authorization for a payroll deduction in effect simultaneously.
6. Participation in the Plan. (a) Options to purchase the Company's
Common Stock under the Plan shall be granted only to Eligible
Employees. With respect to any offering under the Plan, options to
purchase Shares shall be granted to all Eligible Employees of the
Company and its Subsidiaries (other than any Subsidiary whose
employees have been excluded from such offering by the Board of
Directors) who have elected to participate in such offering as
provided hereunder; provided, however, that the Board of Directors may
determine that any offering of Common Stock under the Plan will not be
extended to highly compensated employees (within the meaning of
Section 414(q) of the Code) of the Company or its Subsidiaries, and
provided further that in no event may an employee be granted an option
under this Plan if such employee, immediately after the option is
granted, owns Stock possessing five percent or more of the total
combined voting power or value of all classes of capital stock of the
Company or any Subsidiary.
-3-
<PAGE> 5
(b) For the purposes of determining stock ownership under this
Paragraph 6, the rules of Section 424(d) of the Code shall apply and
Stock which the employee may purchase under all outstanding options
(whether or not granted under this Plan) shall be treated as Stock
owned by the employee. Any decision relating to whether to include or
exclude any officer or highly compensated employee of the Company
pursuant to this Paragraph 6 shall be made only by the members of the
Board of Directors who are not executive officers of the Company and
who have not participated in this Plan or any similar employee stock
option plan of the Company (except the Company's 1986, 1988 and 1993
Non-Qualified Stock Option Plans) for a period of at least one year
prior to such determination.
(c) An Eligible Employee may become a participant by completing the
form provided by the Company for such purpose in connection with the
applicable offering and filing it with the Plan Administrator (or such
other person as may be designated by the Company on such form) prior
to the commencement date of the applicable offering. In completing
such form, the Eligible Employee shall designate the method by which
he will pay for the Shares subject to his option by either authorizing
a payroll deduction as provided herein or electing to make a lump sum
payment prior to the termination of the applicable offering. An
Eligible Employee may not elect both a payroll deduction and a lump
sum payment with respect to the same offering.
(d) With respect to any offer hereunder, each participating Eligible
Employee shall have the same rights and privileges subject to the
limitations set forth in Paragraph 10; provided, that the use of
Annual Pay (which varies among Eligible Employees) as the basis for
determining the number of Shares for which an Eligible Employee may be
granted an option shall not be construed to create a difference in
such rights and privileges so long as each Eligible Employee has the
right to elect the same percentage of his Annual Pay as a payroll
deduction or a lump sum payment under Paragraph 8.
7. Purchase Price. The purchase price for Shares purchased pursuant to
the Plan will be the lesser of (a) an amount equal to 85% of the Fair
Market Value of the Stock on the Grant Date, or if no Shares were
traded on that day, on the last day prior thereto on which Shares were
traded; or (b) an amount equal to 85% of the Fair Market Value of the
Stock on the Exercise Date, or if no Shares were traded on that day,
on the last day prior thereto on which Shares were traded.
8. Payroll Deductions and Lump Sum Payment. (a) If in the form filed
pursuant to Paragraph 6(c) a participant authorizes a payroll
deduction, such participant shall specify an amount which, in the
aggregate during such offering, is not less than one percent (1%) and
not more than ten percent (10%) of his Annual Pay which will be
deducted from his pay in equal (or as nearly equal as is practicable)
installments on each payday during the time he is a participant in
such offering. Payroll deductions for a participant shall commence on
the commencement date of the offering to which the authorization for a
payroll deduction is applicable and shall end on the termination date
of such offering unless sooner terminated by the Participant as
provided in Paragraph 13.
-4-
<PAGE> 6
(b) If in the form filed pursuant to Paragraph 6(c) a participant
elects to make a lump sum payment, such participant shall specify an
amount which is not less than one percent (1%) and not more than ten
percent (10%) of his Annual Pay which such participant intends to pay
to the Company in a lump sum prior to the termination of the
applicable offering in payment of the Shares subject to his option.
(c) All payroll deductions made for a participant and all cash
payments made by a participant shall be credited to his account under
the Plan. Except as otherwise provided herein, a participant who has
authorized payroll deductions with respect to an offering may not make
any separate cash payment into such account with respect to such
offering. A participant who has elected to make a lump sum payment
instead of payroll deductions with respect to an offering may not make
any cash payment with respect to such offering other than such lump
sum payment.
(d) If for any reason other than the termination of the
participant's employment subject to Paragraph 13(c), a participant who
has authorized payroll deductions with respect to an offering has no
pay or his pay is insufficient (after other authorized deductions) to
permit deduction of his scheduled payroll deductions hereunder during
a portion of the Offer Period, such participant must, if such
participant's actual payroll deductions during the Offer Period would
otherwise equal less than the Minimum Contribution, prior to the
termination of the applicable Offer Period, either (i) make a lump sum
payment for credit to his account in an amount sufficient to make such
account, as of the termination of the applicable Offer Period, at
least equal to the Minimum Contribution but not greater than the
aggregate of the scheduled payroll deductions, or (ii) withdraw from
the offering as provided in Paragraph 13.
(e) A participant may discontinue his participation in the Plan as
provided in Paragraph 13. During each Offer Period, a participant may
reduce the rate of his payroll deductions one time for that offering
by giving written notice of such reduction to the Plan Administrator;
provided, however, that a participant who is not discontinuing his
participation in the Plan as provided in Paragraph 13 may not reduce
the rate of his payroll deductions below that required to enable the
participant to make the Minimum Contribution. A participant may not
switch between the payroll deduction and lump sum payment options
during an offering.
9. Grants of Options. Subject to the limitations set forth below in this
Paragraph 9 or in Paragraph 10, each Eligible Employee participating
in an offering shall be granted an option to purchase a fixed maximum
number of Shares determined by the following procedure:
Step 1 - Determine (a) the aggregate amount which would
be withheld from the Eligible Employee's pay
during the applicable Offer Period in
accordance with such Eligible Employee's
authorization for a payroll deduction or (b)
the amount specified by such Eligible Employee
as the intended amount of such Eligible
Employee's lump sum payment, whichever is
applicable;
-5-
<PAGE> 7
Step 2 - Determine the figure which represents 85% of
the Fair Market Value on the Grant Date;
Step 3 - Divide the figure determined in Step 1 by the
figure determined in Step 2 and round off the
quotient to the nearest whole number. Subject
to the limitations set forth herein, this final
figure shall be the fixed maximum number of
Shares for which the Eligible Employee may be
granted an option to purchase under the
applicable offering.
In the event the total maximum number of Shares for which options
would otherwise be granted in accordance with this Paragraph 9 under any
offering hereunder exceeds the number of Shares offered, the Company shall
reduce the maximum number of Shares for which Eligible Employees may be granted
options to allot the Shares available in such manner as it shall determine, but
generally pro rata, and shall grant options to purchase only for such reduced
number of Shares. In such event, the payroll deductions and the amounts of the
lump sum payments to be made pursuant to the authorizations therefor shall be
reduced accordingly (without regard to the otherwise applicable Minimum
Contribution) and the Company shall give written notice of such reduction to
each employee affected thereby.
On the Grant Date each participating Eligible Employee shall be
granted an option to purchase the number of Shares determined under this
Paragraph 9, subject to the limitations set forth in Paragraph 10. Notice that
an option has been granted shall be given to each participating Eligible
Employee and such notice shall show the maximum number of Shares subject to
such option and the amount, if any, to be deducted from the Eligible Employee's
pay for each payroll period during the applicable Offer Period or the amount,
if any, to be paid by the Eligible Employee in a lump sum prior to the
termination of the applicable Offer Period, whichever is applicable.
All Shares included in any offering under the Plan in excess of the
total number of Shares for which options are granted hereunder and all Shares
with respect to which options granted hereunder are not exercised shall
continue to be reserved for the Plan and shall be available for inclusion in
any subsequent offering under the Plan.
10. Limitations Of Number Of Options Which May Be Granted And Shares Which
May Be Purchased. The following limitations shall apply with respect
to the number of Shares for which each Eligible Employee who elects to
participate in an offering under the Plan may be granted an option
hereunder:
(1) No Eligible Employee may purchase Shares under any one
offering pursuant to the Plan for an aggregate purchase price
in excess of 10% of his Annual Pay; and
(2) No Eligible Employee participating in an offering and not
withdrawing therefrom may purchase Shares under any one
offering pursuant to the Plan for an aggregate purchase price
which is less than 1% of his Annual Pay, unless such purchase
relates to the full number of shares subject to the option
granted to such Eligible Employee pursuant to the Plan; and
-6-
<PAGE> 8
(3) No Eligible Employee shall be granted an option to purchase
Shares under the Plan if such Eligible Employee immediately
after such option is granted, owns stock or holds options to
purchase stock possessing in the aggregate five percent or
more of the total combined voting power or value of the
capital stock of the Company or of any Subsidiary (under the
rules set forth in Section 424(d) of the Code); and
(4) No Eligible Employee may be granted an option to purchase
Shares which permits his right to purchase Stock under the
Plan and all other stock option plans of the Company and of
any Subsidiary pursuant to Section 423 of the Code to accrue
at a rate which exceeds in any one calendar year $25,000 of
the fair market value of such Stock (determined on the Grant
Date).
11. Exercise of Option. (a) Payroll Deductions. (1) Unless a participant
who has authorized payroll deductions with respect to the applicable
offering gives written notice to the Company as hereinafter provided,
his option to purchase Shares with payroll deductions made during such
offering will be exercised automatically for him on the termination
date of the applicable offering, for the purchase of the number of
whole Shares subject to such participant's option which the
accumulated payroll deductions and cash payments, if any, in his
account at that time will purchase at the applicable option price.
(2) By written notice to the Company not earlier than ninety (90)
days prior to the termination date of the applicable offering and not
later than the day prior to such termination date, a participant who
has authorized payroll deductions may elect, effective on the
termination date of such offering, to:
(i) Withdraw all the accumulated payroll deductions and
cash payments, if any, in his account at the
termination date; or
(ii) Exercise his option for a specified number of whole
Shares less than the number of whole Shares subject to
such option which the accumulated payroll deductions
and cash payments, if any, in his account at the
termination date will purchase at the applicable option
price; provided, however, no participant may exercise
an option pursuant to this Paragraph 11(a)(2)(ii) for a
number of whole shares which is less than the number of
whole shares which such participant's Minimum
Contribution would purchase at the applicable option
price.
(b) Lump Sum Payments. (1) Unless a participant who has elected
to make a lump sum payment with respect to an offering and who has
made such lump sum payment (whether or not in the full amount
specified by such participant on the form filed pursuant to Paragraph
6(c)) with respect to the applicable offering gives written notice to
the Company as hereinafter provided, his option to purchase Shares
with such lump sum payment will be exercised automatically for him on
the termination date of the applicable offering, for the purchase of
the number of whole Shares subject to such participant's option which
the amount of such lump sum payment will purchase at the applicable
option price. Notwithstanding the terms of any written notice given
to the
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<PAGE> 9
Company pursuant to Paragraph 11(b)(2), in the event that a
participant who has elected to make a lump sum payment with respect to
an offering has not made such lump sum payment (whether or not in the
full amount specified by such participant on the form filed pursuant
to Paragraph 6(c)) prior to the termination date of such offering, his
option to purchase Shares under such offering will be cancelled
automatically for him on the termination date of such offering.
(2) By written notice to the Company not earlier than ninety (90)
days prior to the termination date of the applicable offering and not
later than the day prior to such termination date, a participant who
has elected to make a lump sum payment may elect, effective on the
termination date of such offering, to:
(i) Withdraw the full amount of the lump sum payment in his
account at the termination date; or
(ii) Exercise his option for a specified number of whole
Shares less than the number of whole Shares subject to
such option which the amount of the lump sum payment in
his account at the termination date will purchase at
the applicable option price; provided, however, no
participant may exercise an option pursuant to this
Paragraph 11(b)(2)(ii) for a number of whole shares
which is less than the number of whole shares which
such participant's Minimum Contribution would purchase
at the applicable option price.
12. Delivery. As promptly as practicable after the termination of each
offering, the Company will deliver to each participant, as
appropriate, either the Shares purchased upon the exercise of his
option together with a cash payment equal to the balance of any
payroll deductions and/or cash payments credited to his account during
such offering which were not used for the purchase of Shares, or a
cash payment equal to the total of the payroll deductions and/or cash
payments credited to his account during such offering.
13. Withdrawal. (a) A participant may withdraw payroll deductions and/or
cash payments credited to his account under the Plan at any time by
giving written notice to the Company. All of the participant's
payroll deductions and/or cash payments credited to his account will
be paid to him promptly after receipt of his notice of withdrawal, and
no further payroll deductions will be made from his pay except in
accordance with an authorization for a new payroll deduction filed
with respect to a different offering in accordance with Paragraph 6(c)
and no additional cash payment(s) will be accepted by the Company for
the account of the participant with respect to such offering.
(b) A participant's withdrawal will not have any effect upon his
eligibility to participate in a succeeding offering or in any similar
plan which may hereafter be adopted by the Company; provided, however,
in the event that a participant who is subject to Section 16 under the
Securities Exchange Act of 1934, as amended, gives notice of
withdrawal from an offering hereunder, or if any such participant who
has elected to make a lump sum payment hereunder fails to make such
payment prior to termination of the applicable offering, then such
participant shall be prohibited from
-8-
<PAGE> 10
participation in another offering under the Plan for a period of at
least six months from (i) the date such notice of withdrawal is
delivered to the Company or (ii) in case of a participant electing to
make a lump sum payment and not making such payment, the termination
date of the offering.
(c) Upon termination of the participant's employment for any
reason, including retirement, the payroll deductions and/or cash
payments credited to his account will be returned to him, or, in the
case of his death, to the person or persons entitled thereto under
Paragraph 14 and all options granted to such participant hereunder and
not previously exercised shall be deemed cancelled.
14. Designation of Beneficiary. A participant may file a written
designation of a beneficiary who is to receive any Shares and cash to
the participant's credit under the Plan in the event of such
participant's death prior to delivery to him of such Shares and cash.
Such designation of beneficiary may be changed by the participant at
any time by written notice. Upon the death of a participant and upon
receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by him under
the Plan, the Company shall deliver such Shares and cash to such
beneficiary. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall
deliver such Shares and cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company) the Company shall
deliver such Shares and cash to the applicable court having
jurisdiction over the administration of such estate. No designated
beneficiary shall, prior to the death of the participant by whom he
has been designated, acquire any interest in the Shares or cash
credited to the participant under the Plan.
15. Rights As Stockholder. An Eligible Employee shall have no rights as a
stockholder with respect to Shares subject to an option until such
option has been exercised with respect to such Shares in connection
with the terms hereunder. A certificate for the Shares purchased will
be issued as soon as practicable after the termination of the
applicable offering. Such Shares will be registered in the name of
the applicable Eligible Employee.
16. Options Not Transferable. Neither an Eligible Employee's options nor
the payroll deductions or cash payments credited to such Eligible
Employee's account may be sold, pledged, assigned or transferred in
any manner otherwise than by will or by the laws of descent and
distribution, and during the lifetime of the Eligible Employee, such
options may only be exercised by him or her. If this provision is
violated the right of the Eligible Employee to exercise such options
shall terminate and the only right remaining hereunder with respect to
such options and such payroll deductions and cash payments will be to
have paid over to the person entitled thereto the amount then credited
to the Eligible Employee's account.
17. Application of Funds. All funds received by the Company pursuant to
payroll deductions or cash payments authorized or made in accordance
with the terms hereof and held by the Company at any time may be used
for any valid corporate purpose and will not be
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<PAGE> 11
maintained in a segregated account. Participants shall not be
entitled to earn interest on any such funds held by the Company
hereunder. Until paid over to the applicable Eligible Employee or
used to purchase Shares as provided hereunder, the amount of each
Eligible Employee's payroll deductions and cash payments in connection
with any applicable offering shall represent an indebtedness of the
Company to such Eligible Employee.
18. Governmental Approvals or Consents. The Plan shall not be effective
unless it is approved by the stockholders of the Company within 12
months after the Plan is adopted by the Board of Directors of the
Company. The Plan and any offerings and sales to Eligible Employees
under it are subject to any governmental approvals or consents that
may be or become applicable in connection therewith. The Board of
Directors of the Company may make such changes in the Plan and include
such terms in any offering under the Plan as may be necessary or
desirable, in the opinion of counsel, so that the Plan will comply
with the rules and regulations of any governmental authority and so
that Eligible Employees participating in the Plan will be eligible for
tax benefits under the Code or the laws of any state.
19. Amendment or Termination. The Board of Directors of the Company may
at any time terminate or amend the Plan. No such termination shall
affect options previously granted, nor may an amendment make any
change in any option theretofore granted which would adversely affect
the rights of any participant nor may an amendment be made without
prior approval of the stockholders of the Company if such amendment
would:
(1) Increase the maximum number of shares authorized under
Paragraph 3 for sale under the Plan otherwise than as required
to reflect a subdivision, a combination or a reclassification
as provided in Paragraph 3 hereof; or
(2) Expand the persons eligible to participate in the Plan beyond
the employees of the Company and its Subsidiaries.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received by the Treasurer of the Company or when
received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-10-
<PAGE> 1
EXHIBIT 13.1
HAVERTY FURNITURE COMPANIES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
In the last five years, the Company's net sales have increased from
approximately $250 million to approximately $370 million. During this period,
actions were taken to better target the home furnishings preferences of the
Company's primary customers, the middle to upper-middle income household. A new
upscale interiors presentation was developed featuring professionally designed
and fully-accessorized room settings. The merchandise assortment was also
upgraded and expanded by carrying moderately higher priced items from certain
suppliers and by adding the Thomasville and Drexel Heritage lines. Management
took a conservative approach toward increasing the total number of stores
during this period but systematically sought better locations and market areas
by opening 16 new stores while closing 11 under-performing stores. The new
upscale interiors presentation was incorporated in 14 of these 16 new stores
opened since 1990. In addition, the Company began in 1991 a program of
remodeling and expanding existing stores to present the wider selection of
better furniture in fully-decorated room settings.
The stores' average selling area increased 17.0% from 22,542 square feet
during 1989 to 26,383 square feet in 1994 as management implemented its
strategy to remodel and expand the size of the stores. Sales productivity per
square foot increased 30% to $160 over this time period. Net income declined to
$6,431,000 in 1990 and declined again the following year during a difficult
economic environment marked by the beginning of the Company's implementation of
its strategic changes. Net income more than doubled in 1992 to $4,532,000 and
doubled again in 1993 to $9,716,000 as the economy strengthened and the
Company's business strategies gained acceptance. Net income in 1994 increased
to $12,538,000 as the Company continued to expand its base of primary customers
who were experiencing growth in disposable income.
In 1995, management will continue to focus on the upscale remodeling and
expansion program, with plans to expand and remodel six stores and expand two
stores which already have the upscale look. The Company is also planning to
open five new stores (one of which will replace an existing location) that
feature classical exteriors and larger showrooms designed for better traffic
flow. These new stores will provide target customers a wider selection of
choice merchandise combined with quality service which will further emphasize
the differentiation of the Company from its competition.
- -6-
<PAGE> 2
Results of Operations
The following table sets forth for the periods indicated certain items
from the Company's statements of income as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1993 1992
--------- -------- ------
<S> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0%
Gross profit.......................... 47.4 47.2 46.6
Credit service charges................ 3.2 3.3 3.7
Selling, general and administrative... 41.7 42.3 44.0
Interest expense...................... 2.3 2.2 2.7
Provision for doubtful accounts....... 0.8 1.0 1.0
Other expense, net.................... ( 0.3) ( 0.1) .0
Income before income taxes............ 5.5 4.8 2.5
Net income............................ 3.4 3.0 1.6
========= ======== ======
Effective tax rate.................... 38.2% 37.9% 37.0%
</TABLE>
1994 Compared to 1993
Net sales increased 14.6% as comparable-store sales (sales from stores
opened or expanded for one year or more) increased 10.0%. Management attributes
the improvement to several factors including a favorable general economic
climate. The program of remodeling and expanding stores in certain markets,
coupled with the success of upgraded merchandise lines, enabled sales to grow
at a faster pace than the home furnishings industry's estimated average of
6.5%, according to the American Furniture Manufacturers Association. Sales
growth for first-year expanded stores, which feature wider merchandise
assortments, was 36% during 1994. The well-known quality furniture lines of
Thomasville, and more recently, Drexel Heritage, continued to appeal to
upper-middle income customers and generate higher sales per transaction. The
promotional environment of retail furniture led to the continuation of
interest-free financing packages in 1994, at a pace similar to 1993. The
Company believes that responding to the terms of advertised financing
promotions offered by many of its competitors reduces the need to emphasize
off-price promotional activity and allows for more consistent pricing and gross
margins on its merchandise.
Gross profit as a percent of net sales improved 0.2% primarily due to the
effect of improved merchandise purchasing and lower inflation under the LIFO
accounting method which was partially offset by strong sales growth in large
metropolitan markets which have greater price competition. The increase in
sales of higher-price-point furniture lines, which typically yield slightly
lower gross margins, was also a factor.
The LIFO provision was 0.1% of net sales in 1994 versus 0.5% in 1993.
During the fourth quarter of 1994, the Company changed its method of accounting
for LIFO inventories from applying U.S. Bureau of Labor Statistics (BLS)
indices to internally developed indices. The Company believes the internally
developed indices more accurately measure increases and decreases in the
Company's cost of merchandise and produce a better matching of current costs
and revenues. The LIFO provision would have been 0.3% of net sales in 1994 had
the BLS indices been used. The cumulative effect of such change at the
beginning of the year and proforma amounts for prior years are not
determinable.
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<PAGE> 3
HAVERTY FURNITURE COMPANIES, INC.
Management's Discussion and Analysis (continued)
Credit service charges declined to 3.2% of net sales from 3.3% in 1993 as
customer financing at lower promotional interest rates increased slightly.
Free-interest promotions for specified periods up to one year were available on
a periodic basis to stimulate sales and meet competition. The Company plans to
continue to offer promotional interest-free financing packages at a level such
that credit service charges as a percent of net sales are not expected to
decline during 1995.
Selling, general and administrative expenses decreased 0.6% as a percent
of net sales in 1994 reflecting the fixed cost nature of many expenses in this
category as well as improvements in cost control by the Company. General
insurance costs declined 0.3% as a percent of net sales due to more favorable
claims experience and improved safety programs. Occupancy expense, as well as
personnel expenses, each declined 0.2% as a percent of net sales due to the
larger sales base. Advertising expense decreased 0.2% as a percent of net sales
as the Company continued to perform more production work in-house. In absolute
dollars, advertising expenses increased 12.3% as the Company moved to reinforce
the quality merchandise and service themes which management uses to
differentiate the Company. During 1994, the Company produced and broadcast in
all of its television markets a series of infomercials offering decorating
ideas featuring Haverty merchandise.
Interest expense increased 0.1% as a percent of net sales due to an
increase of 18.8% in average debt levels to support higher accounts receivable
and capital expenditures. Also, the Company's effective interest rate increased
17 basis points reflecting increased short-term rates.
A provision for doubtful accounts of 0.8% and 1.0% of net sales was
made in 1994 and 1993, respectively. The Company's accounts receivable rose
from the strong sales volume and the increase in credit versus cash sales to
80% of net sales versus 78% last year. The Company continued to experience bad
debt write-offs consistent with its expectations.
Other expenses increased from 0.1% to 0.3% of net sales. During the fourth
quarter of 1994, the Company determined that land originally purchased in 1987
for warehouse expansion in its Dallas market was no longer suitable in size or
location given the growth of that market and lack of improvements in the
immediate vicinity's infrastructure. The Company plans to sell this property
and a store site and in connection therewith, made a write-down of these
properties of $1.1 million which was charged to other expenses.
The Company will adopt AICPA Statement of Position 93-7 regarding
accounting for advertising costs in the first quarter of 1995. The adoption of
this statement is not expected to have a material impact on the Company's
financial position or results of operations.
1993 Compared to 1992
Net sales increased 14.5% while comparable-store sales (sales from stores
opened or expanded one year or more) increased 13.1%. Management attributes the
increase in sales to its remodeling and expansion program, the upscaling of its
merchandise lines and to an improvement in the general economy. Management
believes that its remodeling and upscaling programs enabled the Company to
increase sales to its targeted customer base and to attract additional
customers from higher income levels. Special free-interest financing promotions
continued as an important selling tool in 1993, although less frequently than
in 1992.
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<PAGE> 4
Gross profit as a percent of net sales improved 0.6% primarily due to
improved inventory control as well as the more consistent, orderly programs of
closing out discontinued and slow moving merchandise permitted in a better
economic climate. The LIFO provision was 0.5% of net sales in 1993 versus 0.6%
in 1992, based on changes in a U.S. Department of Labor, Bureau of Labor
Statistics price index.
Credit service charges declined to 3.3% of net sales from 3.7% in 1992
reflecting lower standard rates charged by the Company. In late 1992, the
Company's standard (non-promotional) credit service charge rate was lowered to
a more competitive 14.9% per annum (except in Arkansas where it is lower due to
state laws). The Company also offers a lower credit service charge rate for
individual purchases of over $3,000. Free-interest promotions for specified
periods up to one year were available on a periodic basis to stimulate sales
and meet competition.
Selling, general and administrative expenses decreased 1.7% as a percent
of net sales in 1993 reflecting the fixed cost nature of many expenses in this
category as well as improvements in cost control by the Company. Advertising
expense decreased 0.6% as a percent of net sales due to the better selection
and negotiation of media space and efficiencies from more in-house,
computer-aided production work. Occupancy expense, as well as personnel
expenses, declined 0.6% and 0.5%, respectively, as a percent of net sales due
to the larger sales base. General insurance costs declined 0.2% as a percent of
net sales.
Interest expense decreased 0.5% as a percent of net sales due in part to
the proceeds of the common stock public offering in April plus a 30-basis point
decline in the Company's average effective interest rate. This improvement was
realized despite the funding of capital expenditures of over $13 million and
significantly higher accounts receivable.
A provision for doubtful accounts of 1.0% of net sales was made in both
1993 and 1992. The Company's accounts receivable rose from the strong sales
volume and the increase in credit versus cash sales to 78% of net sales versus
75% last year. The Company continued to experience bad debt write-offs
consistent with its expectations.
In 1993, the Company adopted FASB statement No. 109, "Accounting for
Income Taxes" with no material impact on the Company's financial position or
results of operations. The Company does not provide a valuation allowance for
its net deferred tax asset as future income is expected to be sufficient to
fully realize the recorded benefit.
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 $1.9 million use of cash in operating
activities for 1994 as shown on the statements of cash flows since strong sales
increases led to a $25.9 million increase in accounts receivable. Stronger
earnings and somewhat higher depreciation charges offset a large portion of
this increase.
Receivables which bear no interest for specified periods up to one
year decreased as a percent of total accounts receivable due to slightly less
use of free-interest and delayed payment promotions during 1994. Such
promotions are expected to continue at a similar pace during 1995. Inventory
levels were 15.3% higher due to the 14.6% sales increase, a broader line of
merchandise and the new regional warehouse in Florida which was stocked in
November and December. Turnover was positively influenced by further
improvements to the Company's computerized inventory management system, more
reliance on the regional distribution centers and increases in sales of certain
upscale merchandise which are filled from special orders.
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<PAGE> 5
HAVERTY FURNITURE COMPANIES, INC.
Management's Discussion and Analysis (continued)
Investing activities used $24.6 million of cash in 1994 as the Company
constructed its new regional distribution warehouse in Ocala, Florida. Also,
one new store was opened and nine stores were remodeled with four of those also
being expanded. In addition, four stores which had been previously remodeled
were expanded in 1994. Approximately one-third of 1994 capital expenditures was
for additional expansion which will be completed in 1995. Financing activities
provided $27.8 million during the year, mostly from short-term bank borrowings.
The Company has arrangements with eight banks under line-of-credit
agreements to borrow up to $104 million. At December 31, 1994, of this amount,
$64 million were committed lines ($14.8 million unused) and $40 million were
uncommitted lines ($30.0 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 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 55% of the
outstanding balances of accounts receivable. The Company plans to enter into a
financing transaction of this type in 1995, the proceeds of which would reduce
accounts receivable and notes payable to banks while improving 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. Longer-term transactions such as sale/leasebacks, 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 balances its overall capital structure with
fixed-rate or capped-rate debt (45% of total debt was interest-rate protected
at December 31, 1994). The Company's average effective interest rates on all
borrowings (without capital leases) were 7.3%, 7.0% and 7.0% in 1994, 1993 and
1992, respectively.
Capital expenditures are presently expected to include for the two-year
period of 1995 and 1996 the addition of 13 new stores and the remodeling and
expansion of 10 existing locations and the expansion of two stores which
already have the new upscale format. Although the preliminary estimate of gross
capital expenditures over this two-year period is $55 million, the amount
recorded on the Company's balance sheet will exclude any new properties which
are arranged under operating leases. The Company intends to seek operating
leases for up to one-third of the total expenditures projected. 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> 6
HAVERTY FURNITURE COMPANIES, INC.
Selected 10-Year Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
10-Year/5-Year
Compounded
Annual Growth Rate
(1984-94) (1989-94) 1994 1993 1992 1991 1990 1989 1984
- -------------------------------------------------------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... 8.9% 9.8% $370,132 $322,859 $282,022 $246,390 $250,448 $232,081 $158,398
- -------------------------------------------------------------------------------------------------------------------- ---------
Cost of Goods Sold............ 8.5% 10.0% 194,688 170,348 150,725 129,581 132,427 120,917 86,149
Credit Service Charges........ 2.4% 1.4% 11,664 10,500 10,489 11,566 10,351 10,893 9,216
Depreciation and Amortization. 14.0% 11.8% 8,602 6,875 6,069 5,479 5,233 4,934 2,329
Interest Expense.............. 6.3% 0.4% 8,470 7,240 7,518 8,190 8,713 8,298 4,582
- -------------------------------------------------------------------------------------------------------------------- ---------
Income Before Income Taxes.... 4.8% 13.2% $ 20,279 $ 15,650 $ 7,188 $ 3,555 $ 8,795 $ 10,903 $ 12,685
Income Taxes.................. 2.9% 20.0% 7,741 5,934 2,656 1,315 2,364 3,110 5,814
---------------------------------------------------------------- --------
Net Income.................... 6.2% 10.0% $ 12,538 $ 9,716 $ 4,532 $ 2,240 $ 6,431 $ 7,793 $ 6,871
- -------------------------------------------------------------------------------------------------------------------- ---------
Income Before Income Taxes
as a % of Net Sales........ -- -- 5.5% 4.8% 2.5% 1.4% 3.5% 4.7% 8.0%
Net Income as a % of Net Sales -- -- 3.4% 3.0% 1.6% 0.9% 2.6% 3.4% 4.3%
==================================================================================================================== =========
Earnings Per Share (a)........ 3.6% 4.1% $ 1.10 $ .91 $ .53 $ .26 $ .75 $ .90 $ .77
==================================================================================================================== =========
Purchases of Property &
Equipment ................. $ 24,387 $ 13,721 $ 9,701 $ 8,353 $ 10,271 $ 5,794 $ 12,705
Additional Capitalized Leases -- -- -- 2,100 -- -- --
==================================================================================================================== =========
Cash Dividends-
Amount..................... 8.0% 8.7% $ 3,082 $ 2,772 $ 2,120 $ 2,102 $ 2,061 $ 2,034 $ 1,429
Per Share:
Old Common Stock......... n/a n/a n/a n/a n/a n/a .3200
Common Stock (a)......... .2750 .2650 .2550 .2533 .2467 .2400 n/a
Class A Common Stock (a). .2550 .2490 .2417 .2400 .2333 .2267 n/a
==================================================================================================================== =========
Working Capital............... 8.8% 6.6% $139,695 $147,733 $103,467 $ 99,190 $107,641 $101,363 $ 59,944
Current Ratio................. 2.50 to 1 4.11 to 1 2.66 to 1 3.02 to 1 3.49 to 1 4.89 to 1 3.09 to 1
==================================================================================================================== =========
Long-term Debt and Capital
Lease Obligations ......... 5.5% 0.9% $ 87,164 $ 94,197 $ 79,630 $ 74,406 $ 80,149 $ 83,392 $ 50,911
==================================================================================================================== =========
Stockholders' Equity ......... 10.4% 11.2% $131,055 $120,418 $ 83,567 $ 80,804 $ 80,969 $ 76,960 $ 48,775
Equity Per Common Share (a)... 7.6% 4.9% 11.40 10.59 9.77 9.54 9.51 8.97 5.98
==================================================================================================================== =========
Accounts Receivable, Net 11.0% 15.3% $160,405 $137,630 $109,301 $ 92,931 $ 94,796 $ 78,748 $ 56,694
==================================================================================================================== =========
Inventories .................. 8.9% 7.7% $ 64,582 $ 54,739 $ 50,573 $ 49,483 $ 50,443 $ 44,616 $ 27,658
==================================================================================================================== =========
Property and Equipment,
Net Carrying Value ........ 7.4% 5.6% $ 80,198 $ 67,439 $ 61,296 $ 57,899 $ 55,481 $ 61,082 $ 39,243
==================================================================================================================== =========
Total Assets ................. 9.2% 10.5% $315,103 $264,353 $229,184 $208,653 $208,862 $191,097 $130,124
==================================================================================================================== =========
Number of Retail Stores:
Open at beginning of period -- -- 89 88 86 86 85 82 68
Opened during period....... -- -- 1 3 5 -- 7 3 3
Closed/relocated
during period........... -- -- -- 2 3 -- 6 -- 3
----------------------------------------------------------------- ---------
Open at end of period...... -- -- 90 89 88 86 86 85 68
----------------------------------------------------------------- ---------
Remodeled and/or
expanded during period.... -- -- 13 16 12 4 -- -- --
==================================================================================================================== =========
</TABLE>
(a) Adjusted for all stock dividends and splits.
-11-
<PAGE> 7
HAVERTY FURNITURE COMPANIES, INC.
Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Net sales........................................................................ $ 370,132 $ 322,859 $ 282,022
Cost of goods sold............................................................... 194,688 170,348 150,725
--------- ---------- ----------
Gross profit.................................................................. 175,444 152,511 131,297
Credit service charges........................................................... 11,664 10,500 10,489
--------- ---------- ----------
187,108 163,011 141,786
Costs and expenses:
Selling, general and administrative........................................... 154,491 136,551 124,226
Interest..................................................................... 8,470 7,240 7,518
Provision for doubtful accounts............................................... 2,773 3,154 2,793
--------- ---------- ----------
165,734 146,945 134,537
--------- ---------- ----------
21,374 16,066 7,249
Other expense, net............................................................... ( 1,095) ( 416) ( 61)
--------- ---------- ----------
INCOME BEFORE INCOME TAXES 20,279 15,650 7,188
Income taxes (Note 8)............................................................ 7,741 5,934 2,656
--------- ---------- ----------
NET INCOME $ 12,538 $ 9,716 $ 4,532
========= ========== ==========
Average number of common and common equivalent shares outstanding................ 11,425 10,733 8,571
========= ========== ==========
Earnings per share............................................................... $ 1.10 $ .91 $ .53
========= ========== ==========
</TABLE>
See notes to financial statements.
- -12-
<PAGE> 8
HAVERTY FURNITURE COMPANIES, INC.
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31
------------------------
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ 1,925 $ 614
Accounts receivable (Note 2)................................................................... 160,405 137,630
Inventories (Note 3)........................................................................... 64,582 54,739
Other current assets........................................................................... 2,686 998
Deferred income taxes (Note 8)................................................................. 3,396 1,193
--------- ---------
TOTAL CURRENT ASSETS 232,994 195,174
Property and equipment (Notes 4 and 7)............................................................ 80,198 67,439
Deferred income taxes (Note 8)................................................................... -- 158
Other assets...................................................................................... 1,911 1,582
--------- ---------
$ 315,103 $ 264,353
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks (Note 5)................................................................ $ 49,200 $ 11,900
Accounts payable and accrued expenses (Note 6)................................................. 32,809 27,062
Income taxes (Note 8).......................................................................... 3,332 --
Current portion of long-term debt and capital lease obligations (Notes 7 and 12)............... 7,958 8,479
--------- ---------
TOTAL CURRENT LIABILITIES 93,299 47,441
Long-term debt and capital lease obligations, less current portion (Notes 7 and 12)............... 87,164 94,197
Deferred income taxes (Note 8).................................................................... 1,347 --
Other liabilities................................................................................. 2,238 2,297
Commitments (Note 12)
Stockholders' Equity (Notes 9 and 11):
Capital Stock, par value $1 per share-
Preferred Stock, Authorized-1,000,000 shares; Issued: None
Common Stock, Authorized-15,000,000 shares;
Issued: 1994-8,928,532 shares; 1993-8,765,231 shares
(including shares in treasury: 1994 and 1993-498,948)................................. 8,929 8,765
Convertible Class A Common Stock, Authorized-5,000,000 shares;
Issued: 1994-3,313,606 shares; 1993-3,354,475 shares
(including shares in treasury: 1994 and 1993-249,055)................................ 3,314 3,354
Additional paid-in capital................................................................. 31,500 30,443
Retained earnings........................................................................... 92,889 83,433
--------- ---------
136,632 125,995
Less cost of Common Stock and Convertible Class A Common Stock in treasury.................. 5,577 5,577
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 131,055 120,418
--------- ---------
$ 315,103 $ 264,353
========= =========
</TABLE>
See notes to financial statements.
-13-
<PAGE> 9
HAVERTY FURNITURE COMPANIES, INC.
Statements of Stockholders' Equity
(In thousands, except per share data)
<TABLE>
<CAPTION>
Class A Additional
Common Stock Common Stock Paid-in Retained
($1 Par Value) ($1 Par Value) Capital Earnings Treasury Stock Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992............... $ 5,330 $ 3,887 $ 3,087 $ 74,077 $(5,577) $ 80,804
Net income............................... -- -- -- 4,532 -- 4,532
Cash dividends on common stock:
Amount................................ -- -- -- (2,120) -- (2,120)
Per share:
Common-$.255
Class A Common-$.2417
Conversion of Class A Common Stock....... 139 (139) -- -- -- --
Stock option transactions, net........... 30 26 295 -- -- 351
Stock split (3 for 2).................... 84 ( 56) ( 28) -- -- --
-------- -------- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1992............. 5,583 3,718 3,354 76,489 (5,577) 83,567
Net income............................... -- -- -- 9,716 -- 9,716
Cash dividends on common stock:
Amount................................ -- -- -- (2,772) -- (2,772)
Per share:
Common-$.265
Class A Common-$.249
Conversion of Class A Common Stock....... 359 (359) -- -- -- --
Stock option transactions, net........... 470 100 4,321 -- -- 4,891
Sale of Common Stock..................... 1,391 -- 23,625 -- -- 25,016
Stock split (3 for 2).................... 962 ( 105) ( 857) -- -- --
-------- -------- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1993............. 8,765 3,354 30,443 83,433 (5,577) 120,418
Net income............................... -- -- -- 12,538 -- 12,538
Cash dividends on common stock:
Amount................................ -- -- -- (3,082) -- (3,082)
Per share:
Common-$.2750
Class A Common-$.2550
Conversion of Class A Common Stock....... 80 ( 80) -- -- -- --
Stock option transactions, net........... 84 40 1,057 -- -- 1,181
-------- -------- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1994............. $ 8,929 $ 3,314 $ 31,500 $ 92,889 $(5,577) $131,055
======== ======== ======== ======== ======= ========
</TABLE>
See notes to financial statements.
- -14-
<PAGE> 10
HAVERTY FURNITURE COMPANIES, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................................... $ 12,538 $ 9,716 $ 4,532
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................. 8,602 6,875 6,069
Provision for doubtful accounts............................................... 2,773 3,154 2,793
Reduction of cost to market value of property held for sale................... 1,100 -- --
Deferred income taxes......................................................... ( 698) 456 ( 810)
Loss (gain) on sale of property and equipment................................. 86 ( 85) 212
-------- -------- ---------
Subtotal 24,401 20,116 12,796
Changes in operating assets and liabilities:
Accounts receivable........................................................ (25,548) (31,483) (19,163)
Inventories................................................................ ( 9,843) ( 4,166) ( 1,090)
Other current assets....................................................... 24 375 ( 22)
Accounts payable and accrued expenses...................................... 5,747 1,769 2,300
Income taxes............................................................... 3,332 (1,789) ( 81)
-------- -------- ---------
NET CASH USED IN OPERATING ACTIVITIES ( 1,887) (15,178) ( 5,260)
-------- -------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment.............................................. (24,387) (13,721) ( 9,701)
Proceeds from sale of property and equipment..................................... 128 822 60
Other investing activities....................................................... ( 329) 635 121
-------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (24,588) (12,264) ( 9,520)
-------- -------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings................................. 37,300 (14,900) 10,350
Proceeds from issuance of long-term debt......................................... 925 30,000 13,502
Payment of long-term debt and capital lease obligations.......................... ( 8,479) (15,242) ( 7,832)
Exercise of stock options........................................................ 1,181 4,891 351
Dividends paid................................................................... ( 3,082) ( 2,772) ( 2,120)
Sale of Common Stock............................................................. -- 25,016 --
Other financing activities....................................................... ( 59) ( 126) ( 23)
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,786 26,867 14,228
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 1,311 ( 575) ( 552)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 614 1,189 1,741
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 1,925 $ 614 $ 1,189
======== ======== =========
</TABLE>
See notes to financial statements.
-15-
<PAGE> 11
HAVERTY FURNITURE COMPANIES, INC.
Notes To Financial Statements
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents: The Company considers all liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are stated at cost, which approximates fair market value.
Inventories: Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method. As discussed in Note
3, the Company changed its method of accounting for LIFO inventories in 1994.
Property and Equipment and Depreciation: Property and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation is
provided over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term of the related asset. Investments in property
under capital leases are amortized over the related lease term.
Fair Values of Financial Instruments: The Company's financial instruments
consist of cash, accounts receivable, accounts payable and long-term debt.
Cash, accounts receivable and accounts payable are stated at fair market value;
the carrying amount of long-term debt approximates fair market value based on
current interest rates.
Advertising Costs: During 1994, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 93-7 regarding accounting for
advertising costs. This SOP requires expensing the costs of all advertising in
the periods in which those costs are incurred, or the first time the
advertising takes place. The Company will adopt the new SOP in the first
quarter of 1995. The adoption of this SOP is not expected to have a material
impact on the Company's financial position or results of operations.
Income Taxes: Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 required a change from the deferred method to the asset and
liability method of computing deferred income taxes. SFAS No. 109 generally
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
reporting and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
Company elected not to restate the financial statements of any prior years and
the cumulative effect of this change in accounting was immaterial.
Earnings Per Share: Earnings per share are computed based on the weighted
average number of common shares plus the common stock equivalents related to
stock options, once the latter causes dilution in net income per share in
excess of 3%. The 1992 earnings per share amounts have been restated to record
the effect of the 3-for-2 stock split on June 30, 1993.
Reclassifications: Certain amounts in the 1993 financial statements have
been reclassified to conform to the 1994 presentation.
NOTE 2-ACCOUNTS RECEIVABLE
The Company is engaged in the sale of retail home furnishings in 11
Southeastern and Southwestern states. During 1994, credit sales under Company
credit programs were $294,620,000 or 80% of sales compared with 78% in 1993 and
75% in 1992. Accounts receivable are shown net of the allowance for doubtful
accounts of $7,105,000 and $6,485,000 at December 31, 1994 and 1993,
respectively. Accounts receivable terms vary as to payment terms (30 days to
three years) and interest rates (0% to 21%) and are generally collateralized by
the merchandise sold. Accounts receivables having balances due after one year
at December 31, 1994 and 1993 were approximately $121,142,000 and $98,220,000,
respectively and have been included in current assets in accordance with trade
practice.
- -16-
<PAGE> 12
HAVERTY FURNITURE COMPANIES, INC.
NOTE 2-ACCOUNTS RECEIVABLE (continued)
The Company believes that the carrying value of existing customer
receivables is the best estimate of fair value because of their short average
maturity and estimated bad debt losses have been reserved. Concentrations of
credit risk with respect to customer receivables are limited due to the large
number of customers comprising the Company's account base and their dispersion
across eleven states.
NOTE 3-INVENTORIES
Inventories are measured using the last-in, first-out (LIFO) method of
inventory valuation. The excess of current cost over the value of inventories
based upon the LIFO method was approximately $12,698,000 and $12,264,000 at
December 31, 1994 and 1993, respectively. A number of the Company's competitors
use the first-in, first-out (FIFO) basis of inventory valuation which
approximates current costs. The use of the LIFO valuation method as compared to
the FIFO method had the effect of decreasing net income by $.02, $.09 and $.12
per share for the years ended 1994, 1993 and 1992, respectively had the
Company's effective tax rate been applied to changes in income resulting
therefrom, and had no other assumptions been made as to changes in income.
During the fourth quarter of 1994, the Company changed its method of
accounting for LIFO inventories from applying U.S. Bureau of Labor Statistics
indices to internally developed indices. The Company believes the internally
developed indices more accurately measure increases and decreases in the
Company's cost of merchandise and produce a better matching of current costs
and revenues. The effect of the change in the accounting for LIFO inventories
was to increase net income by approximately $330,000 or $.03 per share in the
year ended December 31, 1994. The cumulative effect of such change at the
beginning of the year and proforma income amounts for prior years are not
determinable.
NOTE 4-PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Land $ 17,552 $ 13,145
Buildings and improvements 60,368 53,726
Equipment 40,159 35,215
Capital leases 9,989 10,288
Construction in progress 1,350 --
--------- ---------
129,418 112,374
Less accumulated depreciation ( 43,103) ( 38,954)
Less accumulated capital lease amortization ( 6,117) ( 5,981)
--------- ---------
Property and equipment, net $ 80,198 $ 67,439
========= =========
</TABLE>
During the year ended December 31, 1994 the Company determined that land
with a cost of $2,812,000 was no longer suitable for future operating use and
transferred the cost from land to other current assets.
NOTE 5-CREDIT ARRANGEMENTS
Under short-term line-of-credit arrangements with banks, the Company may
borrow up to $104,000,000 upon such terms as the Company and the banks mutually
agree. These arrangements are reviewed annually for renewal.
Committed lines of credit totaled $64,000,000 with customary fees payable
on the unused portion ($14,800,000 unused at December 31, 1994). No fees or
compensating balances are required for the remaining $40,000,000 uncommitted
lines of credit ($30,000,000 unused at December 31, 1994).
-17-
<PAGE> 13
HAVERTY FURNITURE COMPANIES, INC.
NOTE 5-CREDIT ARRANGEMENTS (continued)
At December 31, 1994, the Company owed $59,200,000 in short-term loans to
banks, of which $10,000,000 was classified as long-term debt as described in
Note 7. The weighted average interest rate for these borrowings outstanding at
December 31, 1994 and 1993 was 6.3% and 3.5%, respectively.
NOTE 6-ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accounts payable, trade............................... $ 12,495 $ 13,840
Accrued compensation.................................. 7,043 5,494
Taxes other than income taxes......................... 5,866 5,019
Other................................................. 7,405 2,709
--------- ---------
$ 32,809 $ 27,062
========= =========
</TABLE>
NOTE 7-LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
10.1% unsecured note payable (a)...................... $27,500 $ 32,500
7.16% unsecured note payable (b)...................... 30,000 30,000
Secured debt (c)...................................... 22,056 24,108
6.3% to 10.5% capital lease obligations,
due through 2016.................................... 5,566 6,068
Unsecured notes (d)................................... 10,000 10,000
------- --------
95,122 102,676
Less portion classified as current liability.......... 7,958 8,479
------- --------
$87,164 $ 94,197
======= ========
</TABLE>
(a) The note is payable in semi-annual installments of $2,500,000 plus
interest payable quarterly and matures in April 2000.
(b) The note is payable in semi-annual principal payments of $2,143,000
commencing in October 2000 and matures in April 2007. Interest
is payable quarterly.
(c) Secured debt is comprised of various first mortgage notes and first
deeds of trust including some with fixed rates of interest
ranging from 6.5% to 7.9% which were repaid during 1994 and some with
floating rates of interest ranging from LIBOR plus .875% (note rate of
7.39% at December 31, 1994) to 94% of prime rate due through 2007. The
Company may prepay the floating-rate notes at any time without penalty.
Property and equipment with a net book value at December 31, 1994 of
$31,442,000 is pledged as collateral on secured debt.
(d) The Company has a revolving credit/term loan agreement with a
commercial bank providing for borrowings of $10,000,000
revolving through 1997, at which time it converts to a term loan,
maturing in 1999. If utilized, this facility would replace a
$10,000,000 short-term committed line. Interest is charged at the
bank's prime rate, or any fixed rate as offered at that time acceptable
to the Company. The Company may prepay the loan at any interest payment
date without penalty. Under the terms of this agreement, the Company
has the option to refinance short-term notes and, accordingly,
$10,000,000 was classified as long-term debt at December 31, 1994.
The Company's debt agreements require, among other things, that the
Company: (a) meet certain working capital requirements; (b) limit the type and
amount of indebtedness incurred; (c) limit the operating lease rentals; and (d)
grant certain lenders identical security for any liens placed upon the
Company's assets, other than those liens specifically permitted in the loan
agreements. The Company is in compliance with these covenants at December 31,
1994.
The note agreement which governs the 10.1% and 7.16% unsecured notes
payable allows for the issuance of additional notes of up to $30 million in the
aggregate at any time over the next three years if requested by the Company.
This uncommitted "shelf" facility would be funded at prevailing market interest
rates for similar credit-rated borrowers and would mature in no more than 13
years with an average life of 10 years or less.
- -18-
<PAGE> 14
HAVERTY FURNITURE COMPANIES, INC.
NOTE 7-LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (continued)
The aggregate maturities of long-term debt and capital lease obligations
during the five years subsequent to December 31, 1994 are as follows:
1995-$7,958,000; 1996-$7,972,000; 1997-$11,805,000; 1998-$13,101,000;
1999-$10,065,000. Such scheduled maturities assume that the short-term notes
are refinanced under the maximum term available under the related $10,000,000
revolving credit/term loan agreement.
Cash payments for interest were approximately $8,156,000, $7,325,000 and
$7,796,000 in 1994, 1993 and 1992, respectively.
NOTE 8-INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................... $ 7,269 $ 4,721 $ 3,121
State................................. 1,170 757 345
------- ------- -------
8,439 5,478 3,466
------- ------- -------
Deferred:
Federal.............................. ( 607) 444 (730)
State................................ ( 91) 12 ( 80)
------- ------- -------
( 698) 456 (810)
------- ------- -------
$ 7,741 $ 5,934 $ 2,656
======= ======= =======
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory Federal income tax rate. The differences are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Statutory rates applied to income
before income taxes................. $ 7,097 $ 5,376 $ 2,444
State income taxes, net of federal
tax benefit......................... 761 497 175
Other.................................. ( 117) 61 37
------- ------- -------
$ 7,741 $ 5,934 $ 2,656
======= ======= =======
</TABLE>
Deferred tax assets and liabilities as of December 31, 1994 and 1993 were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................... $ 1,628 $ 1,631
Retirement and compensation obligations............ 1,028 952
Inventory related.................................. 645 685
Retrospective and self-insurance accruals.......... 593 563
Capitalized leases................................. 501 477
Loss on property write-down........................ 429 --
Other.............................................. -- 99
------- -------
Total deferred tax assets 4,824 4,407
------- -------
Deferred tax liabilities:
Net property and equipment......................... 2,667 3,056
Other.............................................. 108 --
------- -------
Total deferred tax liabilities 2,775 3,056
------- -------
Net deferred tax assets............................... $ 2,049 $ 1,351
======= =======
</TABLE>
Deferred income tax benefit of $810,000 in 1992 resulted primarily from
benefits of $295,000 for allowance for doubtful accounts, $212,000 for
insurance reserves and $181,000 for excess book depreciation.
-19-
<PAGE> 15
HAVERTY FURNITURE COMPANIES, INC.
NOTE 8-INCOME TAXES (continued)
The Company made income tax payments of $5,107,000, $5,895,000 and
$3,201,000 in 1994, 1993 and 1992, respectively. Income tax benefit related to
stock options of approximately $156,000 and $1,331,000 was recorded as an
increase in additional paid-in capital in 1994 and 1993, respectively.
NOTE 9-STOCKHOLDERS' EQUITY
Common Stock has a preferential dividend rate, while Class A Common Stock
has greater voting rights (including the ability to elect a majority of the
Board of Directors). Class A Common Stock is convertible at the holder's option
at any time into Common Stock on a 1-for-1 basis; Common Stock is not
convertible into Class A Common Stock. There is no present plan for issuance of
Preferred Stock.
NOTE 10-BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's final
average compensation. The Company's funding policy is to contribute annually an
amount which is within the range of the minimum required contribution and the
maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Actuarial present value of projected benefit obligations:
Accumulated benefit obligations, including vested benefits
of $17,360 in 1994 and $17,967 in 1993................ $ 17,989 $ 18,363
Increase for projected salary increases................... 4,543 4,550
--------- --------
Projected benefit obligations for service rendered to date 22,532 22,913
Plan assets at fair value........................................ 19,391 21,386
--------- --------
Plan assets less than projected benefit obligations.............. (3,141) (1,527)
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions... 2,314 1,186
Unrecognized prior service cost.................................. 1,127 1,154
Unrecognized net asset........................................... (1,150) (1,352)
--------- --------
Accrued pension expense included in the balance sheet............ $ ( 850) $ ( 539)
========= ========
</TABLE>
Net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned
during the period..................... $ 1,130 $ 763 $ 602
Interest cost on projected benefit obligations 1,676 1,547 1,458
Actual loss (return) on plan assets...... 1,292 (2,747) (2,120)
Net amortization and deferral............ (3,173) 1,133 649
------- ------- -------
Net pension cost......................... $ 925 $ 696 $ 589
======= ======= =======
</TABLE>
The weighted-average discount rates used in determining the actuarial
present value of benefit obligations were 8.5% and 7.0% at December 31, 1994
and 1993, respectively. The annual rate of increase for future compensation was
6.0% for 1994 and 1993. The expected long-term rate of return on plan assets
was 8.5% for 1994, 1993 and 1992.
The plan's assets consist primarily of U.S. Government securities and
listed stocks and bonds. Included in the plan assets at December 31, 1994 were
34,000 shares of the Company's Common Stock and 42,000 shares of the Company's
Class A Common Stock with an aggregate fair value of $1,919,000.
- -20-
<PAGE> 16
HAVERTY FURNITURE COMPANIES, INC.
NOTE 10-BENEFIT PLANS (continued)
The Company has a non-qualified, non-contributory Supplemental Executive
Retirement Plan (SERP) which covers one executive officer and four retired
executive officers. The plan provides annual supplemental retirement benefits
to the executives amounting to 55% of final average earnings less benefits
payable from the Company's defined benefit pension plan and Social Security
benefits. Under the plan, which is not funded, the Company pays benefits
directly to covered executives beginning at their retirement. At December 31,
1994, the projected benefit obligation for this plan totaled $2,124,000, of
which $1,701,000 is included in the accompanying balance sheet. Pension expense
recorded under the SERP amounted to $246,000, $196,000, and $208,000 for 1994,
1993 and 1992, respectively.
The Company has an employee savings/retirement (401k) plan to which
substantially all employees may contribute. The Company matches employee
contributions to the extent of 50% of the first 2% of earnings and 25% of the
next 4% contributed by participants. The Company expensed approximately
$744,000 in 1994, $561,000 in 1993 and $557,000 in 1992 in matching employer
contributions to this plan.
The Company offers no postretirement benefits other than pensions and no
significant postemployment benefits.
NOTE 11-STOCK OPTION PLANS
The Stock Option Committee of the Board of Directors serves as
Administrator for the Company's incentive and non-qualified stock option plans.
Options are granted by the Committee under both stock plans to officers and
non-officer employees. In accordance with certain provisions of the
non-qualified plan, options granted to non-employee directors of the Company
are automatic annual grants on a pre-determined date to purchase a specific
number of shares at the fair market value of the shares on such date. As of
December 31, 1994 the maximum number of options which may be granted under
incentive and non-qualified stock option plans were 237,348 and 412,000,
respectively.
The table below summarizes options activity for the past three years under
the Company's stock option plans.
<TABLE>
<CAPTION>
Incentive Stock Non-Qualified
Option Plans Stock Option Plans
----------------------- ---------------------
Option Average Option Average
Shares Price Shares Price
---------- ------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1992.......... 795,413 $ 6.77 337,500 $ 6.23
Granted........................... 277,875 5.79 36,000 6.75
Exercised......................... ( 84,735) 6.15 (69,000) 5.99
Cancelled or expired.............. ( 107,040) 7.38 (36,000) 7.13
---------- ------- -------- --------
Outstanding at December 31, 1992........ 881,513 6.44 268,500 6.23
Granted........................... 234,375 12.65 57,000 16.13
Exercised......................... (778,818) 6.54 (106,000) 6.35
Cancelled or expired.............. ( 225) 7.00 -- --
---------- ------- -------- --------
Outstanding at December 31, 1993........ 336,845 10.55 219,500 8.74
Granted........................... 287,500 14.17 88,000 15.29
Exercised......................... ( 68,447) 8.67 ( 39,000) 6.99
Cancelled or expired.............. ( 24,698) 12.06 ( 7,000) 8.45
---------- ------- -------- --------
Outstanding at December 31, 1994........ 531,200 $ 12.68 261,500 $ 11.22
========== ======= ======== ========
</TABLE>
Of the options outstanding at December 31, 1994, 746,200 shares were for
Common Stock and 46,500 shares were for Class A Common Stock. All non-qualified
options outstanding were exercisable and 227,295 shares of options under the
incentive plans were exercisable at December 31, 1994.
-21-
<PAGE> 17
HAVERTY FURNITURE COMPANIES, INC.
NOTE 12-COMMITMENTS
The Company leases certain property and equipment. Initial lease terms
range from 5 years to 30 years and certain leases contain renewal options
ranging from 1 to 25 years or provide for options to purchase the related
property at fair market value. The leases generally require the Company to pay
all maintenance, property taxes and insurance costs.
At December 31, 1994, aggregate future minimum payments under capital
leases and non-cancelable operating leases with initial or remaining terms in
excess of one year consisted of the following (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1995.................................................. $ 983 $ 9,726
1996.................................................. 979 9,275
1997.................................................. 1,011 8,654
1998.................................................. 1,002 8,282
1999.................................................. 797 7,775
Subsequent to 1999.................................... 3,919 47,573
Less total minimum sublease rentals................... -- (2,761)
------- ---------
Net minimum lease payments............................ $ 88,524
=========
Total minimum lease amounts........................... 8,691
Amounts representing interest......................... 3,125
-------
Present value of future minimum lease payments........ $ 5,566
=======
</TABLE>
Rental expense applicable to operating leases consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Property
Minimum......................................... $ 9,477 $ 8,390 $ 8,148
Additional rentals based on sales............... 689 508 389
Sublease income................................. (858) (753) ( 727)
-------- -------- --------
9,308 8,145 7,810
Equipment.......................................... 1,584 1,235 1,161
-------- -------- --------
$ 10,892 $ 9,380 $ 8,971
======== ======== ========
</TABLE>
NOTE 13-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 Quarter Ended
--------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales........................... $ 88,016 $ 84,747 $ 94,529 $ 102,840
Gross profit......................... 41,509 39,832 44,391 49,712
Credit service charges............... 2,883 2,892 2,902 2,987
Income before income taxes........... 4,398 3,321 4,754 7,806
Net income........................... 2,726 2,060 2,947 4,805
Earnings per share................... .24 .18 .26 .42 (a)
</TABLE>
- -22-
<PAGE> 18
HAVERTY FURNITURE COMPANIES, INC.
NOTE 13-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
<TABLE>
<CAPTION>
1993 Quarter Ended
---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales........................... $ 77,734 $ 71,876 $ 81,179 $ 92,070
Gross profit......................... 36,387 34,164 38,222 43,738
Credit service charges............... 2,572 2,595 2,638 2,695
Income before income taxes........... 3,019 2,435 3,849 6,347
Net income........................... 1,902 1,534 2,396 3,884
Earnings per share (b)............... .21 .14 .21 .34
</TABLE>
(a) Reflects fourth quarter adjustments including a write-down of property
to fair value which reduced net income by approximately $680,000
or $.06 per share and the effect of a change in accounting for LIFO
inventories (Note 3) which increased net income by approximately
$330,000 or $.03 per share.
(b) Adjusted to reflect the 3-for-2 stock split in June 1993.
- -------------------------------------------------------------------------------
HAVERTY FURNITURE COMPANIES, INC.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Haverty Furniture Companies, Inc.
We have audited the accompanying balance sheets of Haverty Furniture
Companies, Inc. as of December 31, 1994 and 1993, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Haverty Furniture
Companies, Inc. at December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
January 30, 1995
-23-
<PAGE> 1
EXHIBIT 18.1
March 16, 1995
Mr. Dennis Fink
Senior Vice President and
Chief Financial Officer
Haverty Furniture Companies, Inc.
866 West Peachtree N.W.
Atlanta, Georgia 30308-1123
Dear Mr. Fink:
Note 3 of Notes to the financial statements of Haverty Furniture Companies, Inc.
included in its Form 10-K for the year ended December 31, 1994 describes a
change in the method of accounting for LIFO inventories from applying U.S.
Bureau of Labor Statistics indices to internally developed indices. You have
advised us that you believe the change is to a preferable method in your
circumstances because the internally developed indices more accurately measure
increases and decreases in the Company's cost of merchandise and produce a
better matching of current costs and revenues.
There are no authoritative criteria for determining a preferred LIFO costing
method based upon the particular circumstances; however, we conclude that the
change in the method of accounting for LIFO inventories is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
Atlanta, Georgia
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Haverty Furniture Companies, Inc. of our report dated January 30, 1995,
included in the 1994 Annual Report to Shareholders of Haverty Furniture
Companies, Inc.
Our audits also included the financial statement schedule of Haverty Furniture
Companies, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Company's Registration
Statement (Form S-8 No. 33-53607) pertaining to the 1993 Non-Qualified Stock
Option Plan of Haverty Furniture Companies, Inc. and in the Registration
Statement (Form S-8 No. 33-53609) pertaining to the 1988 Incentive Stock Option
Plan of Haverty Furniture Companies, Inc. of our report dated January 30, 1995,
with respect to the financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Haverty
Furniture Companies, Inc.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF HAVERTY FURNITURE COMPANIES, INC. AS OF DECEMBER 31, 1994, AND
THE RELATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,925
<SECURITIES> 0
<RECEIVABLES> 167,510
<ALLOWANCES> 7,105
<INVENTORY> 64,582
<CURRENT-ASSETS> 232,994
<PP&E> 129,418
<DEPRECIATION> 49,220
<TOTAL-ASSETS> 315,103
<CURRENT-LIABILITIES> 93,299
<BONDS> 95,122
<COMMON> 12,243
0
0
<OTHER-SE> 118,812
<TOTAL-LIABILITY-AND-EQUITY> 315,103
<SALES> 370,132
<TOTAL-REVENUES> 381,796
<CGS> 194,688
<TOTAL-COSTS> 194,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,773
<INTEREST-EXPENSE> 8,470
<INCOME-PRETAX> 20,279
<INCOME-TAX> 7,741
<INCOME-CONTINUING> 12,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,538
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
</TABLE>
