<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NUMBER: 0-8498
------
HAVERTY FURNITURE COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 58-0281900
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
866 WEST PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30308
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 881-1911
--------------
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of the registrant's two classes of $1
par value common stock as of October 31, 1997 were: Common Stock -- 8,769,711;
Class A Common Stock -- 2,925,431.
<PAGE> 2
HAVERTY FURNITURE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income -
Quarter and nine months ended September 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 8
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------------
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 748 $ 414
Accounts receivable 204,598 208,014
Less allowance for doubtful accounts 7,455 7,105
-------- --------
197,143 200,909
Inventories, at LIFO 80,405 77,385
Other current assets 9,238 4,422
-------- --------
TOTAL CURRENT ASSETS 287,534 283,130
Property and equipment 188,586 178,791
Less accumulated depreciation and amortization 71,663 64,441
-------- --------
116,923 114,350
Other assets 2,053 2,395
-------- --------
$406,510 $399,875
======== ========
</TABLE>
-1-
<PAGE> 4
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Notes payable to banks $ 82,400 $ 80,500
Accounts payable and accrued expenses 42,101 35,412
Income taxes --- 1,622
Current portion of long-term debt and
capital lease obligations 8,685 7,906
-------- --------
TOTAL CURRENT LIABILITIES 133,186 125,440
Long-term debt and capital lease obligations,
less current portion 114,958 120,434
Deferred income taxes 826 826
Other liabilities 2,341 2,259
Stockholders' Equity
Capital stock, par value $1 per share --
Preferred Stock, Authorized: 1,000,000 shares;
Issued: None
Common Stock, Authorized: 1997 and 1996 --
50,000,000 shares; Issued: 1997 -- 9,503,769 shares;
1996 -- 9,306,114 shares (including shares in treasury:
1997 -- 716,133; 1996 -- 494,328) 9,504 9,306
Convertible Class A Common Stock, Authorized:
1997 and 1996 -- 15,000,000 shares; Issued: 1997 --
3,175,486 shares; 1996 -- 3,191,804 shares (including
shares in treasury: 1997 and 1996 -- 249,055) 3,175 3,192
Additional paid-in capital 35,042 33,556
Retained earnings 115,612 110,405
-------- --------
163,333 156,459
Less cost of Common Stock and
Convertible Class A Common Stock in treasury 8,134 5,543
-------- --------
155,199 150,916
-------- --------
$406,510 $399,875
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE> 5
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
----------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 128,160 $ 117,079 $ 355,915 $331,170
Cost of goods sold 68,037 61,460 188,460 173,829
----------- ------------ ------------ --------
Gross profit 60,123 55,619 167,455 157,341
Credit service charges 4,098 3,403 11,934 9,848
----------- ------------ ------------ --------
64,221 59,022 179,389 167,189
Costs and expenses:
Selling, general and administrative 52,320 48,637 151,067 142,486
Interest 3,524 3,669 10,843 10,761
Provision for doubtful accounts 2,215 1,072 5,129 2,951
----------- ------------ ------------ --------
58,059 53,378 167,039 156,198
----------- ------------ ------------ --------
6,162 5,644 12,350 10,991
Other (expense) income, net (29) (14) 90 45
----------- ------------ ----------- --------
INCOME BEFORE INCOME TAXES 6,133 5,630 12,440 11,036
Income taxes 2,208 1,970 4,478 3,970
----------- ----------- ----------- --------
NET INCOME $ 3,925 $ 3,660 $ 7,962 $ 7,066
=========== =========== =========== ========
Average number of common and common
equivalent shares outstanding 11,623 11,697 11,660 11,674
=========== =========== =========== ========
Earnings per share $ 0.34 $ 0.31 $ 0.68 $ 0.61
=========== =========== =========== ========
Cash dividends per common share:
Common Stock $ .0800 $ .0750 $ .2400 $ .2250
Class A Common Stock .0750 .0700 .2250 .2100
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 6
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30
-----------------------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 7,962 $ 7,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,303 9,408
Provision for doubtful accounts 5,129 2,951
Loss on sale of property and equipment 115 7
------------ -------------
Subtotal 23,509 19,432
Changes in operating assets and liabilities:
Accounts receivable (1,363) (16,585)
Inventories (3,020) (7,139)
Other current assets (4,816) (520)
Accounts payable and accrued expenses 6,689 8,435
Income taxes (1,622) (1,004)
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,377 2,619
------------ -------------
INVESTING ACTIVITIES
Purchases of property and equipment (13,112) (13,504)
Proceeds from sale of property and equipment 121 507
Other investing activities 342 (106)
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (12,649) (13,103)
------------ -------------
FINANCING ACTIVITIES
Net increase in short-term borrowings 1,900 2,300
Proceeds from issuance of long-term debt --- 15,000
Payment of long-term debt and capital lease obligations (4,697) (5,533)
Purchase of treasury stock (2,591) ---
Exercise of stock options 1,667 931
Dividends paid (2,755) (2,583)
Other financing activities 82 (81)
------------ -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,394) 10,034
------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 334 (450)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 414 2,146
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 748 $ 1,696
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 7
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and all such adjustments are of a normal
recurring nature.
NOTE B - Interim LIFO Calculations
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Since these are
affected by factors beyond management's control, interim results are subject to
the final year-end LIFO inventory valuation.
NOTE C - Supplementary Cash Flow Information
The Company made total cash payments for interest (including capitalized
interest) of approximately $10,734,000 for both of the nine-month periods ended
September 30, 1997 and 1996.
The Company made total income tax payments of approximately $8,400,000 and
$4,800,000 for the nine months ended September 30, 1997 and 1996, respectively.
-5-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
Certain information included in this Quarterly Report on Form 10-Q
contains, and other reports or materials filed or to be filed by the Company
with the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by the Company or
its management) contain or will contain, "forward-looking statements" within the
meaning of Section 21E of the Securities and Exchange Act of 1934, as amended,
Section 27A of the Securities Act of 1933, as amended, and pursuant to the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may relate to financial results and plans for future business
activities, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, general economic conditions, the consumer spending environment
for large ticket items, competition in the retail furniture industry and other
uncertainties detailed in this report and detailed from time to time in other
filings by the Company with the Securities and Exchange Commission. Any
forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
RESULTS OF OPERATIONS
Net sales for the third quarter of 1997 increased 9.5% to $128.2
million compared to sales of $117.1 million for the third quarter of 1996. For
the first nine months of 1997, sales increased 7.5% to $355.9 million from sales
of $331.2 million for the comparable period in 1996. The sales increase for both
periods was primarily attributable to new stores and larger replacement stores.
Retail square footage increased 9.0% to 3,160,000 at the end of the third
quarter of 1997 from 2,898,000 at the end of the third quarter of 1996.
Comparable-store sales increased 2.7% and 0.7% for the third quarter and the
nine months ended September 30, 1997, respectively. A store's results are
included in the comparable-store sales computation beginning with the one year
anniversary of its opening. Management believes that sales increases have been
more difficult to achieve in the current periods due to more cautious consumer
spending in the furniture category and increased competition from many
financially pressured retailers.
Gross profit as a percent of sales was 46.9% for the third quarter of
1997 compared to 47.5% for the comparable period of 1996. The decrease for the
period was primarily attributable to inventory close-out sales in certain large
markets as part of three store relocations. Gross profit as a percent of sales
was 47.0% for the nine months ended September 30, 1997 compared to 47.5% for the
same period of 1996. Store relocations and the transition to the Company's new
Dallas warehouse facility accelerated the merchandise close-out process and
resulted in lower gross margins as excess inventory was sold.
Credit sales continued at approximately the same rate as in the prior
year periods with similar levels of interest promotions. Sales increases have
been smaller than in prior periods and free-interest periods have expired on
many accounts generated under promotions run during 1996 and early 1997.
Accordingly, credit service charges as a percent of net sales increased to 3.2%
from 2.9% and increased to 3.4% from 3.0%, respectively, for the quarter and
nine months ended September 30, 1997, as compared to the prior year periods.
The provision for doubtful accounts as a percentage of net sales
increased to 1.8% from 0.9% and increased to 1.4% from 0.9%, respectively, for
the quarter and nine months ended September 30, 1997, as compared to the prior
year periods. This includes an increase in the reserve for doubtful accounts as
a percentage of net sales of 0.3% and 0.1% for the quarter and nine months,
respectively. This higher level reflects the increased delinquencies and
bankruptcies experienced in the consumer lending industry. The Company slightly
tightened its parameters for credit approval during the third quarter of 1997.
Management expects that, given the current consumer credit environment, the
write-offs will remain at approximately 1.8% of net sales level for the
remainder of the year.
-6-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Selling, general and administrative expenses as a percent of net sales
decreased to 40.8% from 41.5% and to 42.4% from 43.0%, respectively, for the
quarter and nine months ended September 30, 1997, as compared to the prior year
periods. During the second quarter of 1997, the Company completed the roll-out
of its on-line inventory and automated store system to all of its locations.
These systems have yielded improvements in warehouse and delivery processes and
their related costs. The Company also moved further towards centralized
production and purchasing of advertising during the first half of 1997, creating
additional cost savings.
Interest expense was relatively flat in actual dollars but decreased
0.5% and 0.2% as a percent of net sales for the quarter and nine-month period,
respectively, as compared to the prior year periods. The Company's effective
interest rate of 7.1 % and its average debt levels remained relatively unchanged
for the quarter and nine-month period.
Net earnings as a percent of net sales were 3.1% for the third quarter
of 1997 and 1996 and were 2.2% and 2.1% for the nine months ended September 30,
1997 and 1996, respectively.
LIQUIDITY AND SOURCES OF CAPITAL
The Company has used internally generated funds and bank borrowings to
finance its continuing operations and growth. Net cash provided by operating
activities was $19.4 million during the first nine months of 1997.
Investing activities used $12.6 million of cash during the nine months
ended September 30, 1997. The Company opened four replacement stores and three
new stores in addition to relocating one of its major distribution centers
during this period. Capital expenditures were $13.1 million for improvements of
these leased properties and other locations which are scheduled to open in the
fourth quarter of 1997.
Financing activities used $6.4 million of cash during the nine months
ended September 30, 1997. The Company used $2.6 million during the period for
the acquisition of treasury stock.
The Company has arrangements with seven banks under line-of-credit
agreements to borrow up to $146 million. At September 30, 1997, of this amount,
$96 million were committed lines ($32.7 million unused) and $50 million were
uncommitted lines ($30.9 million unused). Borrowings accrue interest at
competitive money-market rates and all lines are reviewed annually for renewal.
In addition to cash flow from operations, the Company uses bank lines
of credit on an interim basis to finance capital expenditures and repay
long-term debt. Longer-term transactions such as private placements of senior
notes, sale/leasebacks and mortgage financings are used periodically to reduce
short-term borrowings and manage interest-rate risk. The Company pursues a
diversified approach to its financing requirements and balances its overall
capital structure with fixed-rate and capped-rate debt as determined by the
interest rate environment (74% of total debt was interest-rate protected at
September 30, 1997). The Company's average effective interest rate on all
borrowings (excluding capital leases) was 7.1% at September 30, 1997.
Three replacement stores are scheduled to open in the fourth quarter of
1997. One of these new facilities will be owned with the others held under
operating leases. Capital expenditures for the fourth quarter of 1997, as well
as 1997 costs for improvements on projects which will be completed in 1998, are
estimated to be $4 million. Funds available from operations, bank lines of
credit and other possible financing transactions are expected to be adequate to
finance the Company's planned expenditures.
SEASONALITY
Although the Company does not consider its business to be seasonal,
sales are somewhat higher in the second half of the year, particularly in the
fourth quarter.
-7-
<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
27 -- Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
None.
-8-
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAVERTY FURNITURE COMPANIES, INC.
(Registrant)
Date November 13, 1997 By /s/ Dennis L. Fink
--------------------------- --------------------------------
Dennis L. Fink,
Executive Vice President and
Chief Financial Officer
(principal financial officer)
By /s/ Hugh G. Wells
--------------------------------
Hugh G. Wells, Vice President
& Treasurer
By /s/ Dan C. Bryant
--------------------------------
Dan C. Bryant, Controller
(principal accounting officer)
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 748
<SECURITIES> 0
<RECEIVABLES> 204,598
<ALLOWANCES> 7,455
<INVENTORY> 80,405
<CURRENT-ASSETS> 287,534
<PP&E> 188,586
<DEPRECIATION> 71,663
<TOTAL-ASSETS> 406,510
<CURRENT-LIABILITIES> 133,186
<BONDS> 114,958
0
0
<COMMON> 12,679
<OTHER-SE> 142,520
<TOTAL-LIABILITY-AND-EQUITY> 406,510
<SALES> 355,915
<TOTAL-REVENUES> 367,849
<CGS> 188,460
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,129
<INTEREST-EXPENSE> 10,843
<INCOME-PRETAX> 12,440
<INCOME-TAX> 4,478
<INCOME-CONTINUING> 7,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,962
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
