<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
-------------
OR
--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_________TO_________
COMMISSION FILE NUMBER: 0-8498
-------
HAVERTY FURNITURE COMPANIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 58-0281900
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
866 WEST PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30308
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 881-1911
--------------
----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's two classes of $1 par value
common stock as of August 12, 1998 were: Common Stock - 8,835,968; Class A
Common Stock - 2,565,648.
<PAGE> 2
HAVERTY FURNITURE COMPANIES , INC.
I N D E X
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information:
<S> <C> <C>
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income -
Quarter and six months ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition and Results of
Operations 6
Part II. Other Information 8
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
---------------------------------------------
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,281 $ 390
Accounts receivable 185,895 211,263
Less allowance for doubtful accounts 8,500 8,500
------------ ------------
177,395 202,763
Inventories, at LIFO 78,931 80,713
Other current assets 6,786 5,763
------------ ------------
TOTAL CURRENT ASSETS 264,393 289,629
Property and equipment 192,138 187,113
Less accumulated depreciation and amortization 78,984 72,495
------------ ------------
113,154 114,618
Other assets 2,003 2,267
------------ ------------
$ 379,550 $ 406,514
============ ============
</TABLE>
1
<PAGE> 4
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Notes payable to banks $ --- $ 82,500
Accounts payable and accrued expenses 38,183 41,463
Current portion of long-term debt and
capital lease obligations 8,920 8,945
------------- -----------
TOTAL CURRENT LIABILITIES 47,103 132,908
Long-term debt and capital lease obligations,
less current portion 177,304 111,489
Deferred income taxes 199 199
Other liabilities 2,441 2,364
Stockholders' Equity
Capital stock, par value $1 per share -
Preferred Stock, Authorized: 1,000,000 shares;
Issued: None
Common Stock, Authorized: 1998 and 1997 -
50,000,000 shares; Issued: 1998 - 10,235,674 shares;
1997 - 9,604,063 shares (including shares in treasury:
1998 - 1,413,823; 1997 - 756,133) 10,236 9,604
Convertible Class A Common Stock, Authorized:
1998 and 1997 - 15,000,000 shares; Issued: 1998 -
2,815,503 shares; 1997 - 3,096,267 shares (including
shares in treasury: 1998 and 1997 - 249,055) 2,816 3,096
Additional paid-in capital 37,895 35,363
Retained earnings 123,651 120,117
------------- -----------
174,598 168,180
Less cost of Common Stock and
Convertible Class A Common Stock in treasury 22,095 8,626
------------- -----------
152,503 159,554
------------- -----------
$ 379,550 $ 406,514
============= ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 121,996 $ 113,006 $ 251,364 $ 227,755
Cost of goods sold 64,841 60,143 133,278 120,423
------------- ------------- ------------- -------------
Gross profit 57,155 52,863 118,086 107,332
Credit service charges 4,301 4,032 8,599 7,836
------------- ------------- ------------- -------------
61,456 56,895 126,685 115,168
Costs and expenses:
Selling, general and administrative 53,237 49,542 107,447 98,747
Interest 3,353 3,702 6,848 7,319
Provision for doubtful accounts 1,951 1,547 4,083 2,914
------------- ------------- ------------- -------------
58,541 54,791 118,378 108,980
------------- ------------- ------------- -------------
Other income, net 265 47 114 119
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 3,180 2,151 8,421 6,307
Income taxes 1,145 774 3,032 2,270
------------- ------------- ------------- -------------
NET INCOME $ 2,035 $ 1,377 $ 5,389 $ 4,037
============= ============= ============= =============
Diluted earnings per share $ 0.17 $ 0.12 $ 0.45 $ 0.34
Basic earnings per share $ 0.17 $ 0.12 $ 0.46 $ 0.35
Weighted average diluted shares 11,948 11,739 11,895 11,755
Weighted average basic shares 11,648 11,678 11,670 11,678
Cash dividends per common share:
Common Stock $ 0.080 $ 0.080 $ 0.160 $ 0.160
Class A Common Stock $ 0.075 $ 0.075 $ 0.150 $ 0.150
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------------
1998 1997
--------------- --------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 5,389 $ 4,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,993 6,787
Provision for doubtful accounts 4,083 2,914
Gain on sale of property and equipment ( 9) ---
--------------- --------------
Subtotal 16,456 13,738
Changes in operating assets and liabilities:
Accounts receivable 21,285 6,297
Inventories 1,782 ( 3,758)
Other current assets ( 1,023) ( 1,243)
Accounts payable and accrued expenses 316 1,595
Income taxes ( 3,596) ( 2,490)
--------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,220 14,139
--------------- --------------
INVESTING ACTIVITIES
Purchases of property and equipment ( 5,657) ( 12,068)
Proceeds from sale of property and equipment 137 81
Other investing activities 264 373
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES ( 5,256) ( 11,614)
--------------- --------------
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings ( 82,500) 5,800
Proceeds from issuance of long-term debt 70,300 --
Payment of long-term debt and capital lease obligations ( 4,510) ( 3,990)
Purchase of treasury stock ( 13,439) ( 2,591)
Exercise of stock options 2,884 564
Dividends paid ( 1,855) ( 1,839)
Other financing activities 47 61
--------------- --------------
NET CASH USED IN FINANCING ACTIVITIES ( 29,073) ( 1,995)
--------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 891 530
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 390 414
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,281 $ 944
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and all such adjustments are of a normal
recurring nature.
NOTE B - Interim LIFO Calculations
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Since these are
affected by factors beyond management's control, interim results are subject to
the final year-end LIFO inventory valuation.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
Certain information included in this Quarterly Report on Form 10-Q contains, and
other reports or materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company or its
management) contain or will contain, "forward-looking statements" within the
meaning of Section 21E of the Securities and Exchange Act of 1934, as amended,
Section 27A of the Securities Act of 1933, as amended, and pursuant to the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may relate to financial results and plans for future business
activities, and are thus prospective. Such forward looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, general economic conditions, changes in consumer spending for
large ticket items such as furniture, economic conditions affecting the housing
market, the mortgage interest rate environment, competition in the retail
furniture industry, and other uncertainties detailed in this report and detailed
from time to time in other filings by the Company with the Securities and
Exchange Commission. Any forward-looking statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
RESULTS OF OPERATIONS
Net sales for the second quarter and six months ended June 30, 1998 increased
8.0% and 10.4% over the same periods for 1997, respectively. Comparable-store
sales increased 5.8% and 6.2% over the year-earlier periods, respectively. The
Company's largest markets, Dallas and Atlanta, experienced double-digit
comparable-store sales for the quarter and six months period. A store's results
are included in the comparable-store sales computation beginning with the
anniversary of its opening. Overall, continued lower long term interest rates
and steady economic growth stimulated housing markets, mortgage refinancings and
consumer spending on home furnishings.
Gross margin as a percent of net sales was relatively flat, 46.9% for the second
quarter of 1998 compared to 46.8% for the 1997 period and 47.0% compared to
47.1% for the six months ended June 30, 1998 and 1997, respectively. The Company
has reduced local market warehouse inventories as part of its just-in-time
regional warehousing system. This has also resulted in increased close-out sales
of non-core products and other inventory remaining in those warehouses.
Management anticipates that this closeout activity will continue during the
third and fourth quarters, but at a slightly lower level, and will return to
normal levels by year-end.
Selling, general and administrative expenses as a percent of net sales decreased
to 43.6% from 43.8% and 42.7% from 43.4% for the quarter and six months ended
June 30, 1998 and 1997, respectively. The implementation of the on-line
inventory and automated store system in all locations was completed during the
second quarter of 1997. These systems have yielded improvements in warehouse and
delivery processes and their related costs. In general, increases in
administrative costs were held lower as a percent of sales than the sales
increase as the Company benefited from the cumulative impact of automation and
consolidation of a number of routine functions in recent years.
The provision for doubtful accounts as a percentage of net sales increased to
1.6% from 1.4% and 1.6% from 1.3% for the quarter and six months ended June 30,
1998 and 1997, respectively. This 1.6% provision was lower than the levels of
the last half of 1997 and slightly better than expected. The Company's provision
has been higher than historical levels and reflects the increased delinquencies
and bankruptcies experienced in the consumer lending industry over the last two
years. The Company slightly tightened its criteria for credit approval during
the third quarter of 1997. During the first six months of 1998 the Company has
experienced a
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
moderating to improving trend in its rate of delinquencies and new consumer
bankruptcies. Management expects that given the current consumer credit
environment, the provision for doubtful accounts as a percent of sales will
trend to the lower levels experienced in the first half of 1997.
Interest expense decreased 0.5% and 0.3% as a percent of net sales for the
quarter and six month period ended June 30, 1998, respectively from the
year-earlier periods. The Company's effective interest rate was slightly higher
at 7.3% for the quarter and 7.2% for the six month period but was offset by the
decrease in average debt levels of 11.2% and 8.8% for the quarter and six month
period, respectively from the year-earlier periods.
LIQUIDITY AND SOURCES OF CAPITAL
The Company has historically used internally generated funds, bank borrowings
and private placements with institutions to finance its continuing operations
and growth. Net cash provided by operating activities was $35.2 million during
the first six months of 1998. The Company carries its own customer accounts
receivables which provided positive cash flows as receivables decreased $21.3
million due to less customer usage of credit promotions offered, shortened free
interest periods which accelerate payoffs and more purchases with national
credit cards.
Investing activities used $5.3 million of cash during the six months ended June
30, 1998. Capital expenditures during the period were $5.7 million primarily for
improvements to four additional leased store locations, two of which opened in
the third quarter of 1998.
Financing activities used $29.1 million of cash during the six months ended June
30, 1998, including $16.7 million to reduce debt and $13.4 million for the
acquisition of treasury stock.
In March 1998, the Company arranged a five year $105 million revolving credit
facility syndicated with five commercial banks. This facility provides a
multi-year commitment for the Company's capital requirements and replaced
existing bank line-of-credit agreements. At June 30, 1998, borrowings under this
facility of $70.3 million were classified as long term debt. The Company also
has uncommitted line-of-credit agreements with two banks to borrow up to $13
million which were unused at June 30, 1998. Borrowings under all of these
agreements are unsecured and accrue interest at competitive money-market rates.
In addition to cash flows from operations, the Company uses bank lines of credit
on an interim basis to finance capital expenditures and repay long-term debt.
Longer-term transactions such as private placements of senior notes,
sale/leasebacks and mortgage financings are used periodically to reduce
short-term borrowings and manage interest-rate risk. The Company pursues a
diversified approach to its financing requirements and balances its overall
capital structure with fixed-rate and capped-rate debt as determined by the
interest rate environment (88% of total debt was interest-rate protected at June
30, 1998). The Company's average effective interest rates on all borrowings
(excluding capital leases) was 7.2% at June 30, 1998.
The Company opened two stores in the first half of 1998 and has three additional
stores scheduled to open during the second half of 1998. All of these new
facilities will be leased under operating leases. Capital expenditures for the
remainder of 1998 to support improvements for this expansion and additional
projects which will be completed in 1999 are estimated to be $6 million to $8
million. The Company is considering other new stores for late 1998 or 1999, some
of which may require ownership and which would increase the estimated 1998
capital expenditures. Funds available from operations, bank lines of credit and
other possible financing transactions are expected to be adequate to finance the
Company's planned expenditures.
7
<PAGE> 10
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 1998 Annual Meeting of Stockholders of the Company was held on April 24,
1998.
At the meeting the following persons were elected by the holders of Common Stock
to serve for a term of one year and until their successors are elected:
Robert R. Woodson
L. Phillip Humann
John T. Glover
The number of votes cast "for" or "withheld" was as follows: Mr. Woodson: For =
7,560,409, Withheld = 22,122; Mr. Humann: For = 7,559,659, Withheld = 22,872;
Mr. Glover: For = 7,558,659, Withheld = 23,872.
The holders of Class A Common Stock elected the following persons to serve for a
term of one year and until their successors are elected:
Rawson Haverty Lynn H. Johnston
John E. Slater, Jr. Clarence H. Smith
Clarence H. Ridley Rawson Haverty, Jr.
Fred J. Bates Frank S. McGaughey, III
The number of votes cast by the holders of Class A Common Stock was as follows:
for each of the above nominees, except Rawson Haverty and John E. Slater, Jr.:
For = 2,545,455, Withheld = 15,372; For Mr. Haverty and Mr. Slater each: For =
2,545,206, Withheld = 15,621.
A proposal to adopt the 1998 Stock Option Plan was approved by an 82.3%
affirmative vote of the 33,190,801 total votes cast at the meeting, as follows:
<TABLE>
<CAPTION>
Total Votes Abstentions
Cast at the Votes Votes and Broker
Class Meeting For Against Non-Votes
- -------------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Class A Common Stock
(ten votes per share) 25,608,270 22,992,740 170,900 2,444,630
Common Stock
(one vote per share 7,582,531 4,336,898 2,051,371 1,194,262
---------- ---------- --------- ----------
Total combined votes 33,190,801 27,329,638 2,222,271 3,638,892
========== ========== ========= ==========
</TABLE>
8
<PAGE> 11
Item 5. Other Information
As stated in the Company's 1998 Proxy Statement, proposals by
stockholders intended to be presented at the 1999 Annual Meeting must be
received at the offices of the Company no later than November 20, 1998,
for consideration for inclusion in the Company's Proxy Statement for the
1999 Annual Meeting.
In connection with the Company's Annual Meeting of Shareholders to be
held in 1999, if the Company does not receive notice of a matter or
proposal to be considered by February 5, 1999, then the persons
appointed by the Board of Directors to act as the proxies for such
Annual Meeting (named in the form of proxy) will be allowed to use their
discretionary voting authority with respect to any such matter or
proposal at the Annual Meeting, if such matter or proposal is raised at
the Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
27 -- Financial Data Schedule.
(b) Reports on Form 8-K.
None.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAVERTY FURNITURE COMPANIES, INC.
(Registrant)
Date August 14, 1998 By /s/ Dennis L. Fink
---------------------------- -------------------------------
Dennis L. Fink,
Executive Vice President and
Chief Financial Officer
(principal financial officer)
By /s/ Dan C. Bryant
-------------------------------
Dan C. Bryant,
Vice President and Controller
(principal accounting officer)
By /s/ Jenny H. Parker
-------------------------------
Jenny H. Parker, Vice President,
Secretary and Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,281
<SECURITIES> 0
<RECEIVABLES> 185,895
<ALLOWANCES> 8,500
<INVENTORY> 177,395
<CURRENT-ASSETS> 264,393
<PP&E> 192,138
<DEPRECIATION> 78,984
<TOTAL-ASSETS> 379,550
<CURRENT-LIABILITIES> 47,103
<BONDS> 177,304
0
0
<COMMON> 13,052
<OTHER-SE> 139,451
<TOTAL-LIABILITY-AND-EQUITY> 379,550
<SALES> 251,364
<TOTAL-REVENUES> 259,963
<CGS> 133,278
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,083
<INTEREST-EXPENSE> 6,848
<INCOME-PRETAX> 8,421
<INCOME-TAX> 3,032
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,389
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
