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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, 1997
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____
Commission file number: 0-8498
HAVERTY FURNITURE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<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:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
</TABLE>
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.
---
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of February 28, 1998, was $115,844,187. The
aggregate market value was computed by reference to the last transaction 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 6, 1998, the number of shares outstanding of the registrant's
two classes of $1.00 par value common stock were: Common Stock -- 8,911,356;
Class A Common Stock -- 2,830,043.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement dated March 23, 1998, for the
1998 annual meeting of stockholders are incorporated by reference herein in
response to Items 5 - 8 of Part II and 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.
FORWARD-LOOKING INFORMATION
Certain information included in this Annual Report on Form 10-K 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.
GENERAL
Haverty Furniture Companies, Inc. (the "Company" or "Havertys") is a
full-service home furnishings retailer. The Company operates 97 showrooms in 13
contiguous southern and central states. Havertys provides its customers with a
wide selection of furniture and accessories primarily in the middle to
upper-middle price ranges. As an added convenience to its customers, the Company
offers financing through a revolving charge credit plan. The Company originated
as a family business in 1885 in Atlanta, Georgia. Havertys has been a publicly
held company since 1929, incorporated under the laws of the State of Maryland.
The Company's corporate headquarters are located at 866 West Peachtree Street,
N.W., Atlanta, Georgia, 30308.
BUSINESS STRATEGY
The Company serves a target customer in the middle to upper-middle income
ranges. Havertys has attracted this discriminating and demanding consumer by
focusing on what it believes are the key elements of furniture retailing:
stores, merchandise price and selection, and customer service. The Company has
made investments in technology and in new retail stores. Havertys plans to
continue to expand into new markets and strengthen its position in its current
market areas utilizing existing distribution infrastructure.
STORES
As of December 31, 1997, the Company operates 97 stores serving 60 cities
in 13 states. Havertys has executed a program of remodeling and expanding
showrooms and replacing smaller stores in growth markets with a new larger
format store. Accordingly, the number of retail locations has increased by only
seven since the year ended 1994, but total square footage has increased 34%.
Havertys entered two new cities during 1997: Louisville and Lexington, Kentucky.
The expansion into Kentucky was not with newly constructed stores. These leased
locations were formerly occupied by an independent furniture operator, and were
remodeled and reopened. The Company will use this approach and lease, remodel
and open six stores during 1998 in Birmingham, Alabama, Bowling Green, Kentucky,
Fredericksburg and Roanoke, Virginia and Springfield, Missouri (a new state for
Havertys).
MERCHANDISING
The Company is able to tailor its merchandise presentation to the needs and
tastes of the local market. Havertys offers many well-known brand names of
furniture, such as Broyhill, Thomasville, Lane/Action, Universal, Keller,
Hooker, Massoud, Clayton Marcus, and Drexel Heritage. The Company prefers to
carry multiple lines of furniture in order to offer the consumer broad product
choices at good values. All five regional managers are
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included in Havertys' buying team, and their input allows each store to present
a product mix that is roughly 20 to 25 percent regionalized. Each local market
manager can select from region specific items that are attractive to consumers
in their particular metropolitan area. These managers are also responsible for
pricing in their respective markets, with the exception of specific items that
are advertised chain-wide. Havertys can therefore be competitively priced in
each market while maintaining attractive gross margins.
The merchandising team develops a broad selection of merchandise for its
customers at values targeted to their income levels. Approximately six years
ago, the Company implemented a merchandising shift which has differentiated
Havertys from its competition. Management has avoided utilizing lower,
promotional price-driven merchandise favored by many national chains, which
gives Havertys a unique position for a large retailer. The Company purchases
approximately 54% of its merchandise from ten vendors and believes that adequate
merchandise sources are available to the Company. Combined with the movement
towards regional warehousing and the implementation of a centralized information
system, this provides significant purchasing power with its vendors.
Although it has only an approximate 1% national market share of the
highly-fragmented furniture retailing market, Havertys is becoming an important
customer to the largest furniture manufacturers due to its consistent track
record of profitable, controlled growth and reputable customer service. The
Company has a sizable presence with both Furniture Brands International
("Furniture Brands") and Lifestyle Furniture, the two largest manufacturers in
the industry.
In January 1998, the Company and Furniture Brands announced a strategic
alliance whereby the Company will allocate up to 50% of its retail space to
Furniture Brands' widely recognized brands, including Broyhill, Lane, and
Thomasville. Furniture Brands' lines currently account for approximately 20% of
the retail square footage in Havertys' stores. Furniture Brands will provide
Havertys with increased service support to each of its five regional
distribution centers. Implementation of the program will begin by the second
quarter of 1998, and is expected to be completed by mid-1999.
REVENUES
The following table sets forth the approximate percentage contributions by
product or service to the Company's gross revenues for the past three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
Merchandise:
Living Room Furniture...................................... 51.0% 52.2% 51.0%
Bedroom Furniture.......................................... 23.1 22.6 23.0
Dining Room Furniture...................................... 12.3 12.6 12.6
Bedding.................................................... 7.4 6.6 7.1
All Other Merchandise and Accessories...................... 3.4 3.5 3.5
Credit Service Charges....................................... 2.8 2.5 2.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
DISTRIBUTION
The Company uses a regional warehouse distribution network to provide
central receiving points from vendors and distribution of product to local
market warehouses. Havertys operates three regional warehouses in Charlotte,
North Carolina; Jackson, Mississippi; and Ocala, Florida. The regional
warehouses serve all of the Company's local markets except for Dallas, Texas and
Atlanta, Georgia, which each have a metro area warehouse. The combination of
enhanced information systems, just-in-time delivery practices and close
coordination with vendors has substantially reduced the need to carry inventory
in local market warehouses. The ratio of warehouse space to selling space has
decreased over the last five years. This reduction has allowed local
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management to convert space previously used for warehousing into additional
selling space, prepping centers and cross-dock locations for local deliveries.
The distribution system currently in place will facilitate the
implementation of additional distribution improvements. Havertys is implementing
EDI and just-in-time delivery systems with its major vendors, and the Company
has purchased and is starting to roll out a new software which will allow
management to forecast inventory requirements and reorder merchandise in a more
efficient manner.
CREDIT OPERATIONS
As a service to its customers, Havertys offers a revolving charge credit
plan with credit limits determined through its on-line credit approval system.
Havertys Credit Services, Inc. ("Havertys Credit"), a wholly-owned subsidiary of
Haverty Furniture Companies, Inc., was formed in 1996 to consolidate this
function. Management believes that Havertys gains significant advantages over
its primary competitors by controlling credit approval and the quality of
customer relations rather than outsourcing these functions. Havertys Credit
currently maintains a receivables portfolio of approximately $211 million,
before deducting reserves.
Prior to 1996, Havertys' internal credit program was handled in 45
individual markets, with each having its own credit department, manager, support
personnel and overhead. However, beginning in April 1996, Havertys' credit
operations were centralized into a single credit processing and collections
office in Chattanooga, Tennessee. By July 1996, 31 mid- to large markets
accounting for approximately 90% of receivables had been transitioned to this
office. The remaining smaller cities were phased in through June 1997 concurrent
with the roll-out of the Company's automated store computer system. During the
transition period, Havertys did experience an increase in delinquencies.
However, this coincided with increases in delinquencies throughout the credit
industry. Management believes that over the long-term, this move will allow the
Company to realize significant cost savings and improvements in collection
efforts while maintaining its high level of service. Although the centralized
system is relatively new, most credit approvals are completed within ten minutes
of initial input of the customer credit application.
Havertys Credit typically requires a 15% down payment and offers financing
over 12 to 48 months, with an average term of 18 months. The standard
(non-promotional) credit service charge rate currently ranges from 18 to 21% per
annum (except for 10% in Arkansas), but will vary in the future depending on
market conditions and state laws. Havertys Credit offers a lower credit service
charge rate for individual purchases of over $3,000, and the Company also
routinely offers various interest-free periods (typically six to 12 months) as
part of promotional campaigns. About half of financed sales allow for deferred
payment periods, and, in late 1995, the deferred payment period was extended
from three months to six months from the month of purchase. The Company has not
offered payment deferrals beyond six months. Management believes that its credit
offers are a reasonable response to similar or more aggressive promotions
advertised by competitors, which therefore reduces the need to emphasize
off-price promotions to stimulate sales. In addition, unlike many of its
competitors, Havertys Credit does not charge retroactive interest to customers
who do not completely pay off the balance during a free-interest or deferred
payment period. These combined factors resulted in an average interest yield of
approximately 7.9% for 1997.
COMPETITION
The retail sale of home furnishings is a highly fragmented and competitive
business. The Company believes that the primary elements of competition in its
industry are customer service, merchandise (quality, style, selection, price,
and display) and store location and design. The degree and source of competition
varies by geographic area. The Company competes with numerous individual retail
furniture stores as well as chains and the better department stores. Department
stores benefit competitively from more established name recognition in specific
markets, a larger customer base due to their non-furnishings product lines and
proprietary credit cards.
The Company believes it has uniquely positioned itself in the marketplace
with merchandise that appeals to customers who are somewhat more affluent than
those of most other competitive furniture store chains. Management believes that
this customer segment responds more cautiously to typical discount promotions
and focuses on the real value and customer service offered by a retailer. The
Company regards its experienced sales
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personnel and personalized customer service as important factors in its
competitive success. Lastly, management believes its ability to make prompt
delivery of orders through maintenance of inventory and to tailor the inventory
to a store's local market conditions provides additional competitive advantages.
The Company currently ranks among the top five in sales for full-service retail
home furnishings store chains in the United States, based on available industry
data for 1996.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 3,112
employees: 2,836 in individual retail store operations, 124 in its corporate
offices, 72 in its credit operations and 80 in its regional warehouses. No
employee of the Company is a party to any union contract and the Company
considers its employee relations to be good.
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
---- --- -------------------------
<S> <C> <C>
Rawson Haverty........................................... 77 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....................................... 63 President and Chief Executive Officer since
1994. Executive Vice President from 1993
to 1994. Chief Operating Officer from 1992
to 1994. Senior Vice President from 1987
to 1993. General Manager, Stores of the
Company from 1990 to 1992. Director since 1983.
Dan C. Bryant............................................ 55 Controller since 1985.
Dennis L. Fink........................................... 46 Executive Vice President since 1996 and
Chief Financial Officer since 1993.
Senior Vice President from 1993 to 1996.
Senior Vice President, Treasurer and
Chief Financial Officer and a director of
Horizon Industries, Inc., a publicly held
carpet manufacturer, from 1985 to 1992.
Jenny Hill Parker......................................... 39 Corporate Secretary since July 1997 and
Vice President, Finance since 1996.
Financial Officer since 1994. Senior
Manager at KPMG Peat Marwick LLP from
1988 to 1994 and other positions within
that firm since 1981.
</TABLE>
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<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME AGE AND OTHER INFORMATION
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<S> <C> <C>
Clarence H. Smith........................................ 47 Senior Vice President and General Manager,
Stores, since 1996. Vice President,
Operations and Development, from 1994 to
1996. Vice President from 1984 to 1994.
Regional Manager and General Manager of
Atlanta, Georgia retail operations from 1986
to 1994. Director since 1989.
M. Tony Wilkerson........................................ 52 Senior Vice President, Marketing, since 1994.
Vice President, Merchandising, from 1990
to 1994.
</TABLE>
Rawson Haverty and John Rhodes Haverty, M.D. (a director of the Company) are
first cousins. Clarence H. Smith is the nephew of Rawson Haverty and the first
cousin of Clearence H. Ridley and Rawson Haverty, Jr. (directors of the
Company). Rawson Haverty, Jr. is the son of Rawson Haverty and the first
cousin of Clarence H. Ridley and Clarence H. Smith. Clarence H. Ridley is the
nephew of Rawson Haverty and first cousin of Clarence H. Smith and Rawson
Haverty, Jr.
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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. Havertys Credit Services, Inc., a subsidiary, leases 15,000
square feet of office space in Chattanooga, Tennessee.
The following table sets forth information concerning the operating
facilities of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
Retail Market Area Regional
Locations (c) Warehouses Warehouses
--------- ----------- ----------
<S> <C> <C> <C>
Owned (a) 48 9 3
Leased (b) 49 14 0
-- -- -
Total 97 23 3
== == =
</TABLE>
(a) Includes capital leases on 10 facilities and three retail stores
built on sites under land leases.
(b) The leases have various termination dates through 2010 plus
renewal options.
(c) 24 of the retail locations have attached warehouse space.
In addition, as of December 31, 1997, the Company has entered into
agreements for the lease of 2 retail facilities.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Retail square footage at December 31 (in thousands) 3,167 2,960 2,764
% Change in retail square footage 7.0% 7.1% 17.3%
Annual Net Sales per Square Foot $ 158 $ 159 $ 159
</TABLE>
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this report under
Item 7 of Part II.
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 any of its properties 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 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the heading "Market Prices and Dividend Information"
on the last page of the Company's annual report to stockholders for the year
ended December 31, 1997, is incorporated herein by reference in response to
this item.
ITEM 6. SELECTED FINANCIAL DATA.
Selected 5-Year Financial Data on page 11 of the Company's annual report
to stockholders for the year ended December 31, 1997, is incorporated herein by
reference in response to this item.
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 12 through 14 of the Company's annual report to
stockholders for the year ended December 31, 1997, is incorporated herein by
reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of the independent auditors and the financial statements on
pages 15 through 30 of the Company's annual report to stockholders for the year
ended December 31, 1997, are incorporated herein by reference.
Selected Quarterly Financial Data on page 29 of the Company's annual
report to stockholders for the year ended December 31, 1997, is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to directors of the Company contained on pages 5
through 8 of the Company's proxy statement for the 1998 annual meeting of
stockholders, dated March 23, 1998, 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 on pages 10
through 18 of the Company's proxy statement for the 1998 annual meeting of
stockholders, dated March 23, 1998, 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 on pages 2 through 4 of the Company's proxy
statement for the 1998 annual meeting of stockholders, dated March 23, 1998, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information relating to certain relationships and related transactions
contained on pages 16 and 17 of the Company's proxy statement for the 1998
annual meeting of stockholders, dated March 23, 1998, is incorporated herein by
reference.
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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 consolidated financial statements of Haverty Furniture
Companies, Inc., included in the annual report of the registrant to its
stockholders for the year ended December 31, 1997, are incorporated by
reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Income--Fiscal Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity--Fiscal Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--Fiscal Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated 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 10.13 represent
compensatory plans.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
*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)
*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)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
*3.1.3 -- Amendment to Articles of Incorporation of Haverty Furniture
Companies, Inc. as amended on April 28, 1995. (10-K for the year
ended December 31, 1996)
*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 effective March 31, 1994,
between Haverty Furniture Companies, Inc. and The Prudential
Insurance Company of America. (10-K for the year ended December
31, 1994)
*4.1.2 -- Second Amendment to Note Agreement dated July 19, 1996,
between Haverty Furniture Companies, Inc. and The Prudential
Insurance Company of America, as previously amended. (10-K for
the year ended December 31, 1996)
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 -- Second Amendment and Restatement of Directors' Deferred
Compensation Plan. (10-Q for the quarter ended June 30, 1996,
Exhibit 10.1.2)
*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 and restated, effective
January 1, 1987. (Exhibit 4.1 to Registration Statement on Form
S-8, File No. 33-44285)
*10.3.1 -- Amendment No. One to Thrift Plan and Trust, as previously
amended and restated, effective July 1, 1994. (10-K for the year
ended December 31, 1996)
*10.3.2 -- Amendment No. Two to Thrift Plan and Trust, as previously
amended and restated, effective January 1, 1989. (10-K for the
year ended December 31, 1996)
*10.3.3 -- Amendment No. Three to Thrift Plan and Trust, as previously
amended and restated, effective January 1, 1997. (10-K for the
year ended December 31, 1996)
*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)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
*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-K for
the year ended December 31, 1994)
*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)
*10.9 -- 1993 Non-Qualified Stock Option Plan. (Registration Statement
on Form S-8, File No. 33-53607, Exhibit 5.1)
*10.10 -- Supplemental Executive Retirement Plan, effective January 1,
1996. (10-K for the year ended December 31, 1995)
*10.11 -- Directors' Compensation Plan as of April 26, 1996. (10-Q for
quarter ended June 30, 1996, Exhibit 10.11)
*10.12 -- Form of Agreement dated January 1, 1997, Regarding Change in
Control with the following Named Executive Officers: John E.
Slater, Jr., Dennis L. Fink, Clarence H. Smith and M. Tony
Wilkerson. (10-K for the year ended December 31, 1996)
*10.13 -- Form of Agreement dated January 1, 1997, Regarding Change in
Control with the following employee directors: Rawson Haverty,
Jr. (a Named Executive Officer) and Fred J. Bates. (10-K for the
year ended December 31, 1996)
13.1 -- Annual Report to Stockholders for the year ended December 31,
1997.
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Ernst & Young LLP
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------
* Incorporated by reference.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
(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.
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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.
HAVERTY FURNITURE COMPANIES, INC.
Date: March 19, 1998 By: /s/ JOHN E. SLATER, JR.
------------------------------------
John E. Slater, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 19, 1998 By: /s/ DENNIS L. FINK
------------------------------------
Dennis L. Fink
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 19, 1998 By: /s/ DAN C. BRYANT
------------------------------------
Dan C. Bryant
Controller (Principal Accounting
Officer)
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 19, 1998
- -------------------------------------------------------
Rawson Haverty
/s/ JOHN E. SLATER, JR. President and Chief Executive March 19, 1998
- ------------------------------------------------------- Officer; Director
John E. Slater, Jr.
/s/ FRED J. BATES Regional Manager and Director March 19, 1998
- -------------------------------------------------------
Fred J. Bates
/s/ JOHN T. GLOVER Director March 19, 1998
- -------------------------------------------------------
John T. Glover
/s/ JOHN RHODES HAVERTY, M.D. Director March 19, 1998
- -------------------------------------------------------
John Rhodes Haverty, M.D.
/s/ RAWSON HAVERTY, JR. Vice President and Director March 19, 1998
- -------------------------------------------------------
Rawson Haverty, Jr.
/s/ L. PHILLIP HUMANN Director March 19, 1998
- -------------------------------------------------------
L. Phillip Humann
/s/ LYNN H. JOHNSTON Director March 19, 1998
- -------------------------------------------------------
Lynn H. Johnston
/s/ FRANK S. MCGAUGHEY, III Director March 19, 1998
- -------------------------------------------------------
Frank S. McGaughey, III
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director March , 1998
- --------------------------------------------------------
William A. Parker, Jr.
/s/ CLARENCE H. RIDLEY Director March 19, 1998
- --------------------------------------------------------
Clarence H. Ridley
/s/ CLARENCE H. SMITH Senior Vice President March 19, 1998
- -------------------------------------------------------- and Director
Clarence H. Smith
/s/ ROBERT R. WOODSON Director March 19, 1998
- --------------------------------------------------------
Robert R. Woodson
</TABLE>
13
<PAGE> 15
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands)
Column A Column B Column C-1 Column C-2 Column D Column E
- ----------------------------------------------------------------------------------------------------------------------
Additions
Balance at charged Balance at
beginning of to costs and Deductions- end of
period expenses Other (1) describe (2) period
-------- ---------- --------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $7,105 $7,648 $795 $7,048 $8,500
====== ====== ==== ====== ======
Year ended December 31, 1996:
Allowance for doubtful accounts $7,105 $4,416 - $4,416 $7,105
====== ====== ====== ======
Year ended December 31, 1995:
Allowance for doubtful accounts $7,105 $2,854 - $2,854 $7,105
====== ====== ====== ======
</TABLE>
(1) Represents a reclassification of amounts related to past due accounts
receivable previously included in accrued liabilities.
(2) Uncollectible accounts written off, net of recoveries and the disposal value
of repossessions.
F-1
<PAGE> 16
EXHIBIT INDEX
HAVERTY FURNITURE COMPANIES, INC.
10-K FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
13.1 Annual Report to Stockholders for the year
ended December 31, 1997.
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 13.1
Annual Report to Stockholders for the year ended December 31, 1997
Selected 5-Year Financial Data
In thousands, except per share data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $490,007 $456,860 $395,470 $370,132 $322,859
-----------------------------------------------------------
Cost of goods sold 259,203 239,976 209,000 194,688 170,348
Income before income taxes 20,787 19,132 19,444 20,279 15,650
Income taxes 7,400 6,885 7,261 7,741 9,716
Net income 13,387 12,247 12,183 12,538 9,716
===========================================================
Earnings per Common Share $ 1.15 $ 1.05 $ 1.05 $ 1.10 $ .91
Diluted earnings per
Common Share $ 1.14 $ 1.04 $ 1.05 $ 1.10 $ .91
===========================================================
Cash Dividends-
Amount $ 3,675 $ 3,508 $ 3,406 $ 3,082 $ 2,772
Per Share:
Common Stock .3200 .3050 .3000 .2750 .2650
Class A Common Stock .3000 .2850 .2800 .2550 .2490
===========================================================
Capital expenditures $ 14,528 $ 16,463 $ 44,896 $ 24,387 $ 13,721
Depreciation/amortization expense 13,792 12,644 10,634 8,602 6,875
Property and equipment, net 114,618 114,350 112,405 80,918 67,439
===========================================================
Inventories $ 80,713 $ 77,385 $ 73,597 $ 64,582 $ 54,739
Accounts receivable, net 202,763 200,909 172,877 160,405 137,630
Credit service charges 16,111 13,390 12,376 11,664 10,500
Provision for doubtful accounts 7,648 4,416 2,854 2,773 3,154
===========================================================
Total assets $406,514 $399,875 $371,778 $315,103 $264,353
===========================================================
Long-term debt $120,434 $128,340 $137,206 $ 95,122 $102,676
Interest expense 14,330 14,463 11,158 8,470 7,240
Stockholders' equity 159,554 150,916 140,955 131,055 120,418
===========================================================
Book value per share $ 13.64 $ 12.84 $ 12.13 $ 11.40 $ 10.59
===========================================================
</TABLE>
Haverty Furniture Companies, Inc. 1997 11
<PAGE> 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This commentary should be read in conjunction with the Consolidated Financial
Statements and Notes, presented elsewhere in this annual report, for a full
understanding of Havertys' financial position and results of operations.
Certain information included in the following discussion contains
"forward-looking statements" which 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. Potential risks and uncertainties include, but are not limited to,
general economic conditions, competition and other uncertainties detailed in
this discussion and detailed from time to time in 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.
The following table sets forth for the periods indicated certain items from
the Company's consolidated statements of income as a percentage of net sales.
<TABLE>
<CAPTION>
1997 1996 1995
=================================
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 47.1 47.5 47.2
Credit service charges 3.3 2.9 3.1
Selling, general and administrative 41.7 42.1 42.4
Interest expense 2.9 3.2 2.8
Provision for doubtful accounts 1.6 1.0 0.7
Other income (expense), net 0.0 0.1 0.5
Income before income taxes 4.2 4.2 4.9
Net income 2.7 2.7 3.1
=================================
Effective tax rate 35.6% 36.0% 37.3%
</TABLE>
1997 Compared to 1996
Net sales for 1997 increased 7.3% from $456,860,000 to $490,007,000. This
increase was attributable to sales from new and relocated stores and a modest
0.7% comparable-store sales increase. Selling space increased 7.0% in 1997 to
3,167,000 square feet. A store's results are included in the comparable-store
sales computation on the anniversary of its opening. There were six new stores
opened in 1996 and 10 stores in 1997, seven of which replaced eight smaller
stores.
Sales increases have been more difficult to achieve in 1997 than in 1996,
when comparable-store sales increased 4.9% for the full year. Management
believes that increases have been more difficult due to more cautious consumer
spending in the furniture category industry-wide, combined with increased
competition through promotions and advertising from many financially pressured
retailers. Levitz and Montgomery Ward both declared bankruptcy during the year
and many other retailers experienced a decline in sales.
Gross profit as a percent of net sales was 47.1% for 1997 as compared to
47.5% in 1996. This decline was the result of inventory close-out sales as part
of several store relocations and the transition to the Company's new Dallas
warehouse facility. The LIFO charge was only 0.1% of net sales in both 1997 and
1996.
Credit service charges as a percent of net sales increased to 3.3% for
1997, up from 2.9% for 1996. The percentage of customer purchases using credit
programs was slightly lower than in 1996, with similar levels of free-interest
promotions. However, free interest periods from promotions run in 1996 have
expired and the remaining balances generated higher service charge income in
1997.
The provision for doubtful accounts as a percent of sales has continued to
increase, up from 1.0% in 1996 to 1.6% in 1997. In response to increased
delinquencies and bankruptcies affecting the entire consumer credit industry,
the Company tightened its credit approval criteria slightly in the third quarter
of 1997. Based on the current environment, management expects the provision in
1998 to remain at approximately 1.8% of sales, which is equal to the level of
the second half of 1997.
12 Haverty Furniture Companies, Inc. 1997
<PAGE> 3
Selling, general and administrative expenses as a percent of sales declined to
41.7% in 1997 from 42.1% in 1996. Efficiencies gained from further
centralization of production and purchasing of advertising contributed to the
improvement, as did lower overhead due to consolidation of the credit function.
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, which has
led to improvements in warehouse and delivery processes and reductions in their
related costs.
Interest expense for 1997 declined to 2.9% of net sales from 3.2% in 1996,
with a slight decrease in the total dollar amount of interest expense. Average
borrowings increased only slightly and the effective interest rate dropped
approximately 10 basis points to 7.0%. The Company has entered into interest
rate swap agreements to reduce the impact of changes in interest rates on its
floating-rate notes payable. The counterparties to these contracts are high
credit quality commercial banks. Consequently, credit risk, which is inherent in
all swaps, has been minimized to a large extent. Interest expense is adjusted
for the differential to be paid or received as interest rates change. The effect
of such adjustments on interest expense was not significant during 1997.
1996 Compared to 1995
Net sales for 1996 increased 15.5% from $395,470,000 to $456,860,000. This
increase was attributable to a 4.9% comparable-store sales increase, a 15.1%
increase in sales from stores expanded in the last year, and new stores. There
were seven new stores opened in 1995, of which four opened in the last quarter,
and six stores were opened in 1996.
Gross profit as a percent of net sales was 47.5% for 1996 as compared to
47.2% in 1995. This improvement is attributable to improved merchandising and
changes in the sales mix. The LIFO charge also decreased to 0.1% of net sales in
1996 from 0.2% in 1995.
Credit service charges declined to 2.9% of net sales in 1996 from 3.1% in
1995 as customer usage of finance promotions involving free interest periods
increased.
The amount expensed for the provision for doubtful accounts as a percent of
net sales increased to 1.0% for 1996 from 0.7% in 1995. This higher level
reflects the increased delinquencies and bankruptcies experienced in the
consumer lending industry. During 1996, the Company consolidated its credit
operations from 45 market-area locations to one corporate site. Management
believes that this consolidation, while accretive to earnings in the long-term
via savings in general and administrative expenses, contributed to higher
delinquencies during the transition year.
Selling, general and administrative expenses as a percent of sales
decreased to 42.1% in 1996 compared with 42.4% in 1995. The reduction is
primarily the result of leveraged fixed costs and reduced pre-opening costs
offsetting higher depreciation charges in the 1996 period.
Interest expense increased 0.4% from 1995 to 1996 as a percent of net sales
due to an increase of 23.7% in average debt levels in 1996 to support increased
accounts receivable and capital expenditures. The impact on expense from
increased debt levels was lessened by a 30 basis points decrease in the
Company's effective interest rate for 1996. The effect of adjustments to
interest expense for the differential arising from the Company's interest rate
swap agreements was not significant during 1996.
LIQUIDITY AND SOURCES OF CAPITAL
The Company historically has used internally generated funds and bank
borrowings to finance its operations and growth. Net cash provided by operating
activities was $24.8 million in 1997, as compared to net cash used of $3.1
million in 1996 and $1.4 million in 1995. Due to level credit sales in 1997,
increases in accounts receivable (the Company carries its own customer accounts
receivable) did not offset positive cash flows from operations. Accounts
receivable increased $9.5 million in 1997, $32.4 million in 1996 and $15.3
million in 1995.
The ratio of current assets to current liabilities was 2.2 at the end of
1997, compared to 2.3 and 2.6 at the end of 1996 and 1995, respectively. The
decrease in the 1997 current ratio is due to the modest increase in current
assets and the decision by the Company to use its positive cash flow for
investing and financing activities other than reducing its short term bank debt.
Haverty Furniture Companies, Inc. 13
<PAGE> 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Investing activities used $14.2 million of cash in 1997 compared to $14.5
million in 1996 and $42.5 million in 1995. During 1997, capital expenditures of
$14.5 million included the completion and construction of one new store,
leasehold improvements and equipment. Expenditures were also made for projects
which will be completed in 1998.
Financing activities used $10.6 million of cash during 1997 primarily for
$7.9 million in debt repayments and $3.7 million in dividend payments. The
Company also repurchased 267,600 shares of its stock for $3.1 million during
1997.
The Company has arrangements with six banks under line-of-credit agreements
to borrow up to $146 million. At December 31, 1997, of this amount, $96 million
were committed lines ($35.3 million unused) and $50 million were uncommitted
lines ($28.2 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 or capped-rate debt as determined by the
interest rate environment (73.2% of total debt was interest-rate protected at
December 31, 1997). The Company's average effective interest rates on all
borrowings (excluding capital leases) were 7.0%, 7.1% and 7.2% in 1997, 1996 and
1995, respectively.
Capital expenditures in 1998 are presently expected to include the
remodeling of six new leased locations. The preliminary estimate of capital
expenditures for real estate in 1998 is approximately $10.0 million. In
addition, the Company has commitments under operating lease agreements to lease
three stores which opened in 1997. Minimum lease commitments, including
guaranteed residual values, are expected to aggregate approximately $15.8
million for the initial three-year term. 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), which is effective for 1998. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt the new requirements in annual financial statements in 1998. Management
has not completed its analysis of the effect of FAS 131 on its reported
segments.
IMPACT OF YEAR 2000
The Company has developed a plan to modify its information technology to
recognize the year 2000 and has begun converting its critical data processing
systems. This project is currently expected to be completed by early 1999 and
its cost is not expected to be material. Management does not expect this project
to have a significant effect on operations. The Company will continue to
implement systems with strategic value though some projects may be delayed due
to resource constraints.
14 Haverty Furniture Companies, Inc. 1997
<PAGE> 5
Consolidated Statements of Income
In thousands, except per share data
Year Ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
===============================
<S> <C> <C> <C>
Net sales $490,007 $456,860 $395,470
Cost of goods sold 259,203 239,976 209,000
--------------------------------
Gross profit 230,804 216,884 186,470
Credit service charges 16,111 13,390 12,376
--------------------------------
246,915 230,274 198,846
Expenses:
Selling, general and administrative 204,239 192,445 167,514
Interest 14,330 14,463 11,158
Provision for doubtful accounts 7,648 4,416 2,854
--------------------------------
226,217 211,324 181,526
--------------------------------
20,698 18,950 17,320
Other income, net 89 182 2,124
--------------------------------
Income before income taxes 20,787 19,132 19,444
Income taxes (Note 8) 7,400 6,885 7,261
--------------------------------
Net Income $ 13,387 $ 12,247 $ 12,183
================================
Earnings per Common Share $ 1.15 $ 1.05 $ 1.05
Diluted Earnings per Common Share $ 1.14 $ 1.04 $ 1.05
Weighted average common shares 11,670 11,694 11,555
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Haverty Furniture Companies, Inc. 1997 15
<PAGE> 6
Consolidated Balance Sheets
In thousands, except per share data
<TABLE>
<CAPTION>
December 31
1997 1996
-------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 390 $ 414
Accounts receivable (Note 2) 202,763 200,909
Inventories (Note 3) 80,713 77,385
Other current assets 5,763 4,422
-------------------------
Total current assets 289,629 283,130
-------------------------
Property and equipment (Notes 4 and 7) 114,618 114,350
Other assets 2,267 2,395
-------------------------
$406,514 $399,875
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks (Note 5) $ 82,500 $ 80,500
Accounts payable and accrued expenses (Note 6) 41,298 36,515
Deferred income taxes (Note 8) 165 519
Current portion of long-term debt and capital lease
obligations (Notes 7 and 12) 8,945 7,906
-------------------------
Total current liabilities 132,908 125,440
-------------------------
Long-term debt and capital lease obligations, less current
portion (Notes 7 and 12) 111,489 120,434
Deferred income taxes (Note 8) 199 826
Other liabilities 2,364 2,259
Total liabilities 246,960 248,959
-------------------------
Commitments (Note 12)
Stockholders' equity (Notes 9 and 11)
Preferred Stock, par value $1 per share, Authorized -
1,000 shares; Issued: None
Common Stock, Authorized - 50,000 shares; Issued: 1997 - 9,604
shares; 1996 - 9,306 shares (including shares in treasury: 1997 and
1996 - 756 and 494, respectively) 9,604 9,306
Convertible Class A Common Stock, Authorized - 15,000 shares; Issued:
1997 - 3,096 shares; 1996 - 3,192 shares (including shares in treasury:
1997 and 1996 - 249) 3,096 3,192
Additional paid-in capital 35,363 33,556
Retained earnings 120,117 110,405
-------------------------
168,180 156,459
Less cost of Common Stock and Convertible
Class A Common Stock in treasury 8,626 5,543
-------------------------
Total stockholders' equity 159,554 150,916
-------------------------
$406,514 $399,875
=========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16 Haverty Furniture Companies, Inc. 1997
<PAGE> 7
Consolidated Statements of Stockholders' Equity
In thousands, except per share data
<TABLE>
<CAPTION>
CLASS A
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN RETAINED TREASURY
($1 PAR VALUE) ($1 PAR VALUE) CAPITAL EARNINGS STOCK TOTAL
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 8,929 $ 3,314 $ 31,500 $ 92,889 $ (5,577) $ 131,055
Net income - - - 12,183 - 12,183
Cash dividends on common stock
Amount - - - (3,406) - (3,406)
Per share:
Common - $.30
Class A Common - $.28
Conversion of Class A Common Stock 100 (100) - - - -
Stock option transactions, net 126 3 994 - - 1,123
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 9,155 3,217 32,494 101,666 (5,577) 140,955
Net income - - - 12,247 - 12,247
Cash dividends on common stock:
Amount - - - (3,508) - (3,508)
Per share:
Common - $.305
Class A Common - $.285
Conversion of Class A Common Stock 49 (49) - - - -
Stock option transactions, net 102 24 1,062 - - 1,188
Treasury stock issued - - - - 34 34
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 9,306 3,192 33,556 110,405 (5,543) 150,916
Net income - - - 13,387 - 13,387
Cash dividends on common stock:
Amount - - - (3,675) - (3,675)
Per share:
Common - $.32
Class A Common - $.30
Conversion of Class A Common Stock 96 (96) - - - -
Stock option transactions, net 202 - 1,807 - - 2,009
Treasury stock transactions, net - - - - (3,083) (3,083)
---------------------------------------------------------------------------------
Balance at December 31, 1997 $ 9,604 $ 3,096 $ 35,363 $ 120,117 $ (8,626) $ 159,554
=================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Haverty Furniture Companies, Inc. 1997 17
<PAGE> 8
Consolidated Statements of Cash Flows
In thousands
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 13,387 $ 12,247 $ 12,183
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 13,792 12,644 10,634
Provision for doubtful accounts 7,648 4,416 2,854
Reduction of cost to market value of property held for sale - - 140
Deferred income taxes (768) 2,497 897
Loss (gain) on sale or involuntary conversion of
property and equipment 294 (510) (2,121)
-------------------------------------
Subtotal 34,353 31,294 24,587
Changes in operating assets and liabilities:
Accounts receivable (9,502) (32,448) (15,326)
Inventories (3,328) (3,788) (9,472)
Other current assets (1,341) 1,430 (1,161)
Accounts payable and accrued expenses 4,570 415 (41)
-------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,752 (3,097) (1,413)
-------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (14,528) (16,463) (44,896)
Proceeds from sale of property and equipment 174 2,384 2,407
Other investing activities 128 (432) ( 2,893)
Insurance proceeds - - 2,922
-------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (14,226) (14,511) (42,460)
-------------------------------------
FINANCING ACTIVITIES
Net increase in short-term borrowings 2,000 12,100 4,200
Proceeds from issuance of long-term debt - 15,000 50,044
Payment of long-term debt and capital lease obligations (7,906) (8,866) (7,960)
Treasury stock acquired (3,130) - -
Exercise of stock options 2,009 1,188 1,123
Dividends paid ( 3,675) (3,508) (3,406)
Other financing activities 152 (38) 93
-------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,550) 15,876 44,094
-------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (24) (1,732) 221
-------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 414 2,146 1,925
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 390 $ 414 $ 2,146
=====================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18 Haverty Furniture Companies, Inc. 1997
<PAGE> 9
Notes To Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
The Company is a full-service home furnishings retailer with 97 showrooms in 13
states, selling a broad line of middle to high-end furniture. The middle to
upper-middle income households are the Company's predominant target market.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT:
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.
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.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and long-term debt. The carrying value of cash, accounts
receivable and accounts payable approximates fair market value; the carrying
amount of long-term debt approximates fair market value based on current
interest rates. The fair value of interest rate swap agreements is based on the
estimated amount the Company would pay to terminate the agreements at the
reporting date, taking into account current interest rates and the credit
worthiness of the swap counterparties.
INTEREST RATE SWAP AGREEMENTS:
These agreements involve the receipt of fixed-rate amounts in exchange for
floating-rate interest payments over the life of the agreements without an
exchange of the underlying principal amount. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the debt. The related amount payable to or
receivable from counterparties is included in other liabilities or assets. The
fair values of the swap Notes To Consolidated Financial Statements agreements
are not recognized in the financial statements.
ADVERTISING EXPENSE:
The cost of advertising is expensed upon first showing. The Company incurred
approximately $31,800,000, $33,100,000, and $28,000,000 in advertising costs
during 1997, 1996, and 1995, respectively.
Haverty Furniture Companies, Inc. 1997 19
<PAGE> 10
Notes To Consolidated Financial Statements
STOCK BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options and adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (FAS 123). The Company grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant and, accordingly, recognizes no
compensation expense for the stock option grants.
EARNINGS PER SHARE:
During 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (FAS 128). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with earnings per common share and diluted
earnings per common share. Earnings per common share excludes any dilutive
effects of options, warrants and convertible securities. The dilutive effect of
the Company's stock options is included in diluted earnings per common share and
had the effect of increasing the weighted average shares outstanding assuming
dilution by 96,000, 45,000, and 65,000 in 1997, 1996 and 1995, respectively. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to FAS 128 requirements.
Certain options outstanding during each of the following years and their
related exercise prices were not included in the computation of diluted earnings
per common share because their exercise price was greater than the average
market price of the shares and, therefore, the effect would be antidulitive:
1997 - 182,000 shares at prices ranging from $13.75 to $17.13; 1996 - 452,000
shares at prices ranging from $12.00 to $17.13; and 1995 - 152,000 at prices
ranging from $14.13 to $17.13.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), which is effective for 1998. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt the new requirements in annual financial statements in 1998. Management
has not completed its analysis of the effect of FAS 131 on its reported
segments.
NOTE 2 - ACCOUNTS RECEIVABLE
Credit sales under Company credit programs were, as a percent of sales,
approximately 68% in 1997; 72% in 1996 and 74% in 1995. Accounts receivable are
shown net of the allowance for doubtful accounts of $8,500,000 at December 31,
1997 and $7,105,000 at December 31, 1996. Accounts receivable terms vary as to
payment terms (30 days to four years) and interest rates (0% to 21%) and are
generally collateralized by the merchandise sold. Accounts receivable balances
due after one year at December 31, 1997 and 1996 were approximately $94,969,000
and $96,040,000, respectively, and have been included in current assets in
accordance with trade practice.
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 thirteen states.
20 Haverty Furniture Companies, Inc. 1997
<PAGE> 11
NOTE 3 - INVENTORIES
Inventories are measured using the last-in, first-out (LIFO) method of inventory
valuation because it results in a better matching of costs and revenues. The
excess of current cost over such carrying value of inventories was approximately
$14,520,000 and $14,020,000 at December 31, 1997 and 1996, 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
earnings per common share by $.03, $.03 and $.04 for the years ended 1997, 1996
and 1995, respectively, assuming the Company's effective tax rates were applied
to changes in income resulting therefrom, and no other changes in income were
made.
Note 4 - Property and Equipment
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Land $ 21,058 $ 22,366
Buildings and improvements 98,566 92,123
Equipment 58,900 54,514
Capital leases 8,276 8,276
Construction in progress 313 1,512
--------------------------
187,113 178,791
Less accumulated depreciation (66,453) (58,777)
Less accumulated capital lease amortization (6,042) (5,664)
--------------------------
Property and equipment, net $114,618 $114,350
==========================
</TABLE>
Interest cost capitalized amounted to $64,000 in 1997, $158,000 in 1996, and
$1,209,000 in 1995.
NOTE 5 - CREDIT ARRANGEMENTS
Under short-term line-of-credit arrangements with banks, the Company may borrow
up to $146,000,000 upon such terms as the Company and the banks mutually agree.
These arrangements are reviewed annually for renewal. Of such line of credit
arrangements, committed lines of credit totaled $96,000,000 with customary fees
payable on the unused portion ($35,300,000 unused at December 31, 1997). No fees
or compensating balances are required for the remaining $50,000,000 uncommitted
lines of credit ($28,200,000 unused at December 31, 1997).
The weighted average stated interest rates for these borrowings outstanding
at December 31, 1997 and 1996 were 6.2% and 5.9%, respectively.
Haverty Furniture Companies, Inc. 1997 21
<PAGE> 12
Notes To Consolidated Financial Statements
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Accounts payable, trade $ 16,256 $ 12,376
Accrued compensation 6,678 7,520
Taxes other than income taxes 4,273 5,459
Other 14,091 11,160
--------------------------
$ 41,298 $ 36,515
==========================
</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>
1997 1996
--------------------------
<S> <C> <C>
Unsecured term note (a) $ 30,000 $ 30,000
7.95% unsecured note payable (b) 15,000 15,000
7.44% unsecured note payable (c) 15,000 15,000
7.16% unsecured note payable (d) 30,000 30,000
10.1% unsecured note payable (e) 12,500 17,500
Secured debt (f) 14,830 17,165
6.3% to 10.5% capital lease obligations,
due through 2016 3,104 3,675
--------------------------
120,434 128,340
Less portion classified as current 8,945 7,906
--------------------------
$111,489 $120,434
==========================
</TABLE>
(a) The term note is payable in quarterly installments of $250,000 commencing
in February 1998, increasing to $1,000,000 commencing in February 2000.
The note matures in November 2006 and interest is payable quarterly. The
note has a floating rate of interest of LIBOR plus 0.7%.
(b) The note is payable in semi-annual installments of $500,000 commencing in
February 2000, increasing to $2,000,000 commencing in February 2007. The
note matures in August 2008 and interest is payable quarterly.
(c) The note is payable in semi-annual installments of $1,250,000 commencing
in January 2003 and matures in October 2008. Interest is payable quarterly.
(d) 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.
(e) The note is payable in semi-annual installments of $2,500,000 plus
interest payable quarterly and matures in April 2000.
(f) Secured debt is comprised of various first mortgage notes and first deeds
of trust including some with fixed rates of interest ranging from 5.7% to
7.9% and some with floating rates of interest ranging from LIBOR plus 0.5%
(note rate of 6.48% at December 31, 1997) to 70% 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,
1997, of approximately $29,429,000 is pledged as collateral on secured
debt.
22 Haverty Furniture Companies, Inc. 1997
<PAGE> 13
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, 1997.
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its bank line-of-credit arrangements and
floating-rate notes payable. At December 31, 1997, the Company had six
outstanding interest rate swap agreements, having notional amounts aggregating
$73,128,000. Two of the agreements effectively fix the average interest rate on
the Company's $30-million floating-rate term note at 8.2% through 2006. The
remaining agreements are at rates ranging from 5.29% to 5.95% maturing in 1998,
2000 and 2002. Under the terms of the agreements, the Company makes payments at
fixed rates and receives payments at variable rates which are based on LIBOR,
adjusted quarterly. The Company had net unrealized losses relating to such
instruments of $1,717,000 and $929,000 at December 31, 1997 and 1996,
respectively.
The aggregate maturities of long-term debt and capital lease obligations
during the five years subsequent to December 31, 1997, are as follows: 1998 -
$8,945,000; 1999 - $9,711,000; 2000 - $12,091,000; 2001 - $11,259,000 and 2002 -
$11,179,000.
Cash payments for interest were approximately $14,321,000, $14,594,000 and
$11,754,000 in 1997, 1996, and 1995, respectively.
NOTE 8 - INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Current
Federal $ 8,027 $ 4,244 $ 5,653
State 141 144 711
----------------------------------------
8,168 4,388 6,364
========================================
Deferred
Federal (756) 2,423 787
State (12) 74 110
----------------------------------------
(768) 2,497 897
----------------------------------------
$ 7,400 $ 6,885 $ 7,261
========================================
</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>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Statutory rates applied to income
before income taxes $ 7,275 $ 6,696 $ 6,805
State income taxes, net of federal
tax benefit 92 94 462
Other 33 95 (6)
-----------------------------------------
$ 7,400 $ 6,885 $ 7,261
=========================================
</TABLE>
Haverty Furniture Companies, Inc. 1997 23
<PAGE> 14
Notes to Consolidated Financial Statements
Deferred tax assets and liabilities as of December 31, 1997 and 1996 were
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Deferred tax assets
Retirement and compensation obligations $ 1,200 $ 1,045
Retrospective and self-insurance accruals 466 565
Capitalized leases 412 412
Inventory related 5 284
Net operating loss carryforward 1,035 -
Alternative minimum tax credits 407 -
Other 284 226
--------------------------
Total deferred tax assets 3,809 2,532
==========================
Deferred tax liabilities:
Net property and equipment 807 1,836
Accounts receivable related 3,037 2,041
Other 329 -
--------------------------
Total deferred tax liabilities 4,173 3,877
--------------------------
Net deferred tax liabilities $ (364) $ (1,345)
==========================
</TABLE>
The Company made income tax payments of $11,084,000, $4,976,000, and
$9,403,000 in 1997, 1996 and 1995, respectively. The net operating loss
carryforward expires in 2012.
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 PLAN
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.
24 Haverty Furniture Companies, Inc. 1997
<PAGE> 15
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>
1997 1996
--------------------------
<S> <C> <C>
Actuarial present value of projected benefit obligations:
Accumulated benefit obligations, including vested
benefits of $23,250 in 1997 and $19,937 in 1996 $ 24,389 $ 20,886
Increase for projected salary increases 8,652 7,095
--------------------------
Projected benefit obligations for service rendered to date 33,041 27,981
Plan assets at fair value 33,616 27,517
--------------------------
Plan assets in excess of (less than) projected benefit obligations 575 (464)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (707) (349)
Unrecognized prior service cost 860 991
Unrecognized net asset (543) (746)
--------------------------
Prepaid asset (accrued pension expense)
included in the balance sheet $ 185 $ (568)
--------------------------
</TABLE>
Net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 1,655 $ 1,599 $ 1,041
Interest cost on projected benefit obligations 2,157 1,972 1,903
Actual return on plan assets (5,484) (3,628) (4,293)
Net amortization and deferral 3,048 1,667 2,599
------------------------------------
Net pension cost $ 1,376 $ 1,610 $ 1,250
====================================
</TABLE>
The weighted-average discount rates used in determining the actuarial
present value of benefit obligations were 7.25%, 7.75% and 7.50% at December 31,
1997, 1996 and 1995, respectively. The annual rate of increase for future
compensation was 6.0% for 1997, 1996 and 1995. The expected long-term rate of
return on plan assets was 8.5% for 1997, 1996 and 1995.
The plan's assets consist primarily of U.S. Government securities and
listed stocks and bonds. Included in the plan assets at December 31, 1997, were
34,000 shares of the Company's Common Stock and 143,000 shares of the Company's
Class A Common Stock with an aggregate fair value of $2,324,000.
The Company has a Non-Qualified, Non-Contributory Supplemental Executive
Retirement Plan (SERP) which covers five 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. The Company also has a
non-qualified, non-contributory SERP for employees whose retirement benefits are
reduced due to their annual compensation levels. The total amount of annual
retirement benefits that may be paid to an eligible participant in the Plan from
all sources (Retirement Plan, Social Security and the SERP) may not exceed
$125,000. Under the plans, which are not funded, the Company pays benefits
directly to covered participants beginning at their retirement. At December 31,
1997, the projected benefit obligation for these plans totaled $2,691,000 of
which $1,690,000 is included in the accompanying balance sheet. Pension expense
recorded under the SERPs amounted to approximately $320,000, $307,000 and
$204,000 for 1997, 1996 and 1995, respectively.
Haverty Furniture Companies, Inc. 1997 25
<PAGE> 16
Notes To Consolidated Financial Statements
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 $842,000
in 1997, $811,000 in 1996 and $801,000 in 1995 in matching employer
contributions to this plan.
The Company offers no post-retirement benefits other than pensions and no
significant post-employment benefits.
NOTE 11 - STOCK OPTION PLANS
The Stock Option Committee of the Board of Directors serves as Administrator for
the Company's stock option plans. Options are granted by the Committee under
stock plans to officers and non-officer employees. In accordance with certain
provisions, 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, 1997, the maximum number of options which may be granted under the stock
option plans was 30,848.
The table below summarizes options activity for the past three years under
the Company's stock option plans.
<TABLE>
<CAPTION>
Incentive Non-Qualified
Stock Options Stock Options
---------------------------------------------------
Option Average Option Average
Shares Price Shares Price
---------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 531,200 $12.68 261,500 $11.22
Granted 324,750 12.33 89,000 12.65
Exercised (24,200) 6.46 (76,000) 10.75
Canceled or expired (137,500) 14.13 (13,000) 5.15
---------------------------------------------------
Outstanding at December 31, 1995 694,250 $12.45 261,500 12.14
Granted 429,854 10.75 149,000 10.83
Exercised (14,754) 6.88 (51,000) 6.36
Canceled or expired (380,604) 12.34 (7,800) 12.03
---------------------------------------------------
Outstanding at December 31, 1996 728,746 $11.61 351,700 12.36
Granted 240,000 13.88 184,000 13.60
Exercised (78,371) 9.15 (23,000) 7.62
Canceled or expired (6,000) 10.75 (250) 14.63
---------------------------------------------------
Outstanding at December 31, 1997 884,375 $12.45 512,450 $13.01
---------------------------------------------------
Exercisable at end of year 540,647 $11.81 352,450 $12.71
===================================================
</TABLE>
All of the options outstanding at December 31, 1997, were for Common
Stock. Exercise prices for options outstanding as of December 31, 1997, ranged
from $10.75 to $17.12. The weighted-average remaining contractual life of those
options is four years. Options granted prior to 1997 generally vest on the grant
date; the remaining options vest over periods up to five years.
In addition, the Company had shares available for future purchases under
the Employee Stock Purchase Plan at December 31, 1997. This Plan promotes
broad-based employee ownership and provides employees a convenient way to
acquire Company stock. The Plan is a qualified plan under Section 423 of the
Internal Revenue Code and meets the requirements of APB 25 as a non-compensatory
plan. The Plan enables the Company to grant options to purchase up to 750,000
shares of Common Stock, of
26 Haverty Furniture Companies, Inc. 1997
<PAGE> 17
which 385,232 shares have been exercised from inception of the Plan, at a
price equal to the lesser of (a) 85% of the stock's fair market value at the
date of grant, or (b) 85% of the stock's fair market value at the exercise date.
Shares purchased may not exceed 10% of the employee's annual compensation,
as defined, or $25,000 of Common Stock at its fair market value (determined at
the time such option is granted) for any one calendar year. Employees pay for
the shares ratably over a period of six months (the purchase period) through
payroll deductions or lump sum payments, and cannot exercise their option to
purchase any of the shares until the conclusion of the purchase period. In the
event an employee elects not to exercise such options, the full amount withheld
is refundable. During 1997, options for 117,219 shares were exercised at an
average price of $9.46 per share. At December 31, 1997, 73,323 options were
outstanding at an option price of $12.22 per share.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123 and has been determined as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994, under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1997 and 1996, respectively:
risk-free interest rates of 5.8%, 6.0% and 6.0%; dividend yields of 2.5%, 2.7%
and 2.7%; volatility factors of the expected market price of the Company's
Common Stock of 34.9%, 36.7% and 41.4%, and a weighted average expected life of
the options of 5.5 years, except for those issued under the Employee Stock
Purchase Plan, which is 6 months. The weighted-average fair value of options
granted under the Company's stock option plan was $4.45, $2.05 and $3.60 for the
years 1997, 1996 and 1995, respectively. The weighted-average fair value of
options granted under the Employee Stock Purchase Plan was $2.49, $2.90 and
$2.60 for the years 1997, 1996 and 1995, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Net income
As reported $13,387 $12,247 $12,183
Pro forma 12,771 10,850 11,216
Earnings per common share
As reported 1.15 1.05 1.05
Pro forma 1.09 .93 .97
=========================================
</TABLE>
The pro forma disclosures above are not likely to be representative of the
effects on net income and earnings per share in future years because of the
variability in the number of options granted and the amortization to expense
over the options' vesting period.
Haverty Furniture Companies, Inc. 1997 27
<PAGE> 18
Notes To Consolidated Financial Statements
NOTE 12 -COMMITMENTS
The Company leases certain property and equipment. Initial lease terms range
from five years to 30 years and certain leases contain renewal options ranging
from one to 25 years or provide for options to purchase the related property at
fair market value or at predetermined purchase prices which do not represent
bargain purchase options. The leases generally require the Company to pay all
maintenance, property taxes and insurance costs.
At December 31, 1997, aggregate future minimum payments under capital
leases and non-cancelable operating leases, including guaranteed residual values
of $25,000,000, 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>
1998 $ 889 $ 14,742
1999 668 14,210
2000 491 13,413
2001 353 12,575
2002 288 11,953
Subsequent to 2002 2,231 67,114
Less total minimum sublease rentals (4,206)
----------------------------------------------
Net minimum lease payments $129,801
==============================================
Total minimum lease amounts 4,920
Amounts representing interest (1,816)
Present value of future minimum ----------------------------------------------
lease payments $ 3,104
==============================================
</TABLE>
Rental expense applicable to operating leases consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Property
Minimum $13,315 $11,102 $10,343
Additional rentals based on sales 588 550 560
Sublease income (1,049) (1,025) (952)
----------------------------------------------
12,854 10,627 9,951
Equipment 3,793 3,209 2,360
----------------------------------------------
$16,647 $13,836 $12,311
==============================================
</TABLE>
The Company has committed to lease certain properties under operating
lease agreements beginning in 1998 with three-year terms from unaffiliated
groups. Minimum commitments, including guaranteed residuals, for such
properties to be leased aggregate approximately $15.8 million.
28 Haverty Furniture Companies, Inc. 1997
<PAGE> 19
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, 1997 and 1996. The 1996 and first three quarters of
1997 earnings per share amounts have been restated to comply with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
<TABLE>
<CAPTION>
1997 QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $114,749 $113,006 $128,160 $134,092
Gross profit 54,469 52,863 60,123 63,349
Credit service charges 3,804 4,032 4,098 4,177
Income before income taxes 4,156 2,151 6,133 8,347
Net income 2,660 1,377 3,925 5,425
Earnings per common share .23 .12 .34 .46
Diluted earnings per share .23 .12 .33 .46
1996 QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------------------------------------------------
(In thousands, except per share data)
Net sales $110,750 $103,341 $117,079 $125,690
Gross profit 52,660 49,062 55,619 59,543
Credit service charges 3,295 3,150 3,403 3,542
Income before income taxes 4,001 1,405 5,630 8,096
Net income 2,521 885 3,660 5,181
Earnings per common share .22 .08 .31 .44
Diluted earnings per share .22 .08 .31 .44
---------------------------------------------------
</TABLE>
Haverty Furniture Companies, Inc. 1997 29
<PAGE> 20
Report of Independent Auditors
Board of Directors
Haverty Furniture Companies, Inc.
We have audited the accompanying consolidated balance sheets of Haverty
Furniture Companies, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. 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 consolidated financial position of Haverty Furniture
Companies, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 30, 1998
Directors and Officers
30 Haverty Furniture Companies, Inc. 1997
<PAGE> 21
Market Prices and Dividend Information
The Company's two classes of common stock are quoted on The Nasdaq Stock Market
(National Market). The trading symbol for the Common Stock is HAVT and for Class
A Common Stock is HAVTA. Based on the number of individual participants
represented by security position listings, there are approximately 3,200 holders
of the Common Stock and 210 holders of the Class A Common Stock. High and low
sales prices reported by The Nasdaq National Market and dividends for the last
two years were (in dollars):
<TABLE>
<CAPTION>
1997 1996
Common Stock Class A Common Stock Common Stock Class A Common Stock
Quarter Dividend Dividend Quarter Dividend Dividend
Ended High Low Declared High Low Declared Ended High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 13-1/2 11 $0.080 13-1/8 11-1/4 $0.075 March 3 14-5/8 12 $0.075 14 12-1/4 $0.070
June 30 13 10-7/8 0.080 12-3/4 10-5/8 0.075 June 30 14-1/4 9-1/2 0.075 14 10 0.070
Sept.30 14-3/4 12 0.080 14-1/2 12-1/4 0.075 Sept. 30 11-1/2 9-1/4 0.075 11-1/2 9-3/8 0.070
Dec.31 14-3/4 11-3/4 0.080 14-3/8 11-7/8 0.075 Dec. 31 14-1/8 10-5/8 0.080 14 10-1/4 0.075
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Havertys Capital, Inc. Nevada
Havertys Credit Services, Inc. Tennessee
Havertys Enterprises, Inc. Nevada
</TABLE>
<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, 1998,
included in the 1997 Annual Report to Stockholders 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., the Registration Statement
(Form S-8 No. 33-28560) pertaining to the 1988 Non-Qualified Stock Option Plan
of Haverty Furniture Companies, Inc., the Registration Statement (Form S-8 No.
33-13755) pertaining to the 1986 Non-Qualified Stock Option Plan of Haverty
Furniture Companies, Inc., the Registration Statement (Form S-8 No. 33-53609)
pertaining to the 1988 Incentive Stock Option Plan of Haverty Furniture
Companies, Inc. and the Registration Statement (Form S-8 No. 33-45724)
pertaining to the Employee Stock Purchase Plan of Haverty Furniture Companies,
Inc. of our report dated January 30, 1998, 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 18, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 211,263
<ALLOWANCES> 8,500
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0
0
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<NET-INCOME> 13,387
<EPS-PRIMARY> 1.15
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