<PAGE>
- --------------------------------------------------------------------------------
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, 1999
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________TO__________
COMMISSION FILE NUMBER: 1-14445
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 9, 1999 were: Common Stock - 8,744,748;
Class A Common Stock - 2,405,777.
<PAGE>
HAVERTY FURNITURE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income -
Quarter and six months ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Quantitative and Qualitative Disclosure of Market Risk 9
Part II. Other Information 10
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,761 $ 1,874
Accounts receivable 175,512 194,472
Less allowance for doubtful accounts (7,900) (8,300)
------------ -----------
167,612 186,172
Inventories, at LIFO 81,922 82,084
Other current assets 9,119 8,047
------------ -----------
Total Current Assets 260,414 278,177
Property and equipment 209,459 196,814
Less accumulated depreciation and amortization (90,039) (85,481)
------------ -----------
119,420 111,333
Other assets 3,032 3,391
------------ -----------
$ 382,866 $ 392,901
------------ -----------
------------ -----------
</TABLE>
1
<PAGE>
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ --- $ 6,400
Accounts payable and accrued expenses 56,990 54,356
Current portion of long-term debt and
capital lease obligations 11,606 9,711
----------- ----------
Total Current Liabilities 68,596 70,467
Long-term debt and capital lease obligations,
less current portion 144,299 161,778
Other liabilities 2,669 2,598
Stockholders' Equity
Capital stock, par value $1 per share - -
Preferred Stock, Authorized: 1,000 shares;
Issued:
Common Stock, Authorized:
50,000 shares; Issued: 1999 - - 21,332 shares;
1998 - - 20,786 shares (including shares in treasury:
1999 - - 3,684; 1998 - - 3,478) 21,332 20,786
Convertible Class A Common Stock, Authorized:
15,000 shares; Issued: 1999 - - 5,360 shares;
1998 - - 5,544 shares (including shares in
treasury: 1999 - 522; 1998 - - 498) 5,360 5,544
Additional paid-in capital 29,090 27,173
Retained earnings 142,483 133,207
----------- ----------
198,265 186,710
Less cost of Common Stock and
Convertible Class A Common Stock in treasury (30,963) (28,652)
----------- ----------
167,302 158,058
----------- ----------
$ 382,866 $ 392,901
----------- ----------
----------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
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
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 142,239 $ 121,996 $ 292,020 $ 251,364
Cost of goods sold 75,237 64,841 154,210 133,278
----------- ----------- ----------- -----------
Gross profit 67,002 57,155 137,810 118,086
Credit service charges 3,834 4,301 7,814 8,599
----------- ----------- ----------- -----------
70,836 61,456 145,624 126,685
Cost and expenses:
Selling, general and administrative 59,292 53,237 119,892 107,447
Interest 2.963 3,353 6 023 6,848
Provision for doubtful accounts 830 1,951 2,200 4,083
Other (income) expense, net (14) (265) (85) (114)
----------- ----------- ----------- -----------
63,071 58,276 128,030 118,264
---------- ---------- ---------- ----------
Income Before Income Taxes 7,765 3,180 17,594 8,421
Income taxes 2,795 1,145 6,334 3,032
----------- ----------- ----------- -----------
Net Income $ 4,970 $ 2,035 $ 11,260 $ 5,389
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share $0.21 $0.09 $0.49 $0.23
Basic earnings per share $0.22 $0.09 $0.50 $0.23
Weighted average diluted shares 23,184 23,896 23,056 23,790
Weighted average basic shares 22,388 23,296 22,340 23,340
Cash dividends per common share
Common Stock $0.0475 $0.0400 $0.090 $0.080
Class A Common Stock $0.0450 $0.0375 $0.085 $0.075
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
1999 1998
--------------- ---------------
<S> <C> <C>
Operating Activities
Net income $ 11,260 $ 5,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,270 6,993
Provision for doubtful accounts 2,200 4,083
Gain on sale of property and equipment (3) (9)
----------- -----------
Subtotal 20,727 16,456
Changes in operating assets and liabilities:
Accounts receivable 16,360 21,285
Inventories 162 1,782
Other current assets (1,072) (1,023)
Accounts payable and accrued expenses 3,301 316
Income taxes (667) (3,596)
----------- ----------
Net cash provided by operating activities 38,811 35,220
----------- -----------
Investing Activities
Purchases of property and equipment (15,403) (5,657)
Proceeds from sale of property and equipment 49 137
Other investing activities 359 264
----------- -----------
Net cash used in investing activities (14,995) (5,256)
---------- ----------
Financing Activities
Net decrease in short-term borrowings (17,500) (82,500)
Proceeds from issuance of long-term debt --- 70,300
Payment of long-term debt and capital lease obligations( (4,484) ( 4,510)
Purchase of treasury stock (2,311) (13,439)
Exercise of stock options 2,279 2,884
Dividends paid (1,984) (1,855)
Other financing activities 71 47
----------- -----------
Net cash used in financing activities (23,929) (29,073)
----------- -----------
(Decrease) increase in cash and cash equivalents (113) 891
Cash and cash equivalents at beginning of period 1,874 390
----------- -----------
Cash and cash equivalents at end of period $ 1,761 $ 1,281
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
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.
On July 30, 1999, the Company declared a two-for-one stock split in the form
of a stock dividend which will be paid on August 25, 1999, to shareholders of
record on August 11, 1999. Accordingly, the stock split has been recognized
in these financial statements by reclassifying approximately $13,350,000, the
par value of the additional shares to be issued as a result of the split,
from additional paid in capital to common stock. For all periods presented,
all shares outstanding and per share amounts have been restated to reflect
the stock split.
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>
ITEM 2. 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, 1999, increased
16.6% and 16.2% over the same periods for 1998, respectively. Comparable-store
sales increased 14.3% and 13.4% over the year-earlier periods, respectively. The
Company's largest markets, Dallas and Atlanta, experienced the strongest
comparable-store sales for the quarter and six months period. However, such
increases were broad based, as five of the six regions had increases greater
than 10% for both periods. A store's results are included in the
comparable-store sales computation beginning with the anniversary of its
opening. Overall, continued steady economic growth and high employment
stimulated housing markets and consumer spending on home furnishings.
Gross margin as a percent of net sales was slightly improved, 47.1% for the
second quarter of 1999 compared to 46.9% for the 1998 period and 47.2%
compared to 47.0% for the six months ended June 30, 1999, and 1998,
respectively. The margins in 1998 were pressured because the Company was
liquidating discontinued inventory in conjunction with closing its clearance
center in Dallas. The Company reduced inventories $3 million in the second
quarter, the seasonally slowest quarter of the year. Management anticipates
that margins will improve in the seasonally-stronger second half of the year.
Selling, general and administrative expenses as a percent of net sales
decreased to 41.7% from 43.6% and 41.1% from 42.7% for the quarter and six
months ended June 30, 1999 and 1998, respectively. Effective cost controls in
advertising and administrative costs and continued leveraging of fixed costs,
particularly for occupancy, have contributed to these improvements.
The provision for doubtful accounts as a percentage of net sales decreased to
0.6% from 1.6% and 0.8% from 1.6% for the quarter and six months ended June 30,
1999, and 1998, respectively. This continued reduction reflects the trend of
decreased delinquencies and bankruptcies and a general reduction in overall
receivables. These combined factors led to a $400,000 reduction in the second
quarter provision in order to reduce the allowance for doubtful accounts by that
amount, as prescribed by the Company's methodology for calculating the required
allowance. The Company also continues to evaluate and improve its credit and
collection operations.
6
<PAGE>
Management does not expect significant changes in the current consumer credit
environment for the remainder of 1999.
Interest expense decreased $0.4 million and $0.8 million, and as a percent of
net sales, to 2.1% from 2.8% and to 2.1% from 2.7% for the quarter and six
months ended June 30, 1999 and 1998, respectively, from the year-earlier
periods. The Company's effective interest rate was slightly lower at 7.1%
for the quarter and 7.0% for the six month period with a decrease in average
debt levels of 9.4% and 10.3% for the quarter and six month periods,
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 $38.8 million during
the first six months of 1999. The Company carries its own customer accounts
receivables which provided positive cash flows as receivables decreased
$16.4 million due to less customer usage of credit promotions offered, shortened
free interest periods (which accelerate payoffs) and more customer purchases
using national credit cards.
Investing activities used $15.0 million of cash during the six months ended June
30, 1999. Capital expenditures during the period were $15.4 million primarily
for additional store locations, which will open primarily in the latter half of
1999.
Financing activities used $23.9 million of cash during the six months ended June
30, 1999, primarily to reduce debt in the amount of $22.0 million.
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, as determined by the interest rate environment, with
fixed-rate debt and interest rate swap agreements to reduce the impact of
changes in interest rates on its variable rate debt (99.3% of total debt was
interest rate protected at June 30, 1999). The Company's average effective
interest rate on all borrowings (excluding capital leases) was 7.0% at June 30,
1999.
The Company opened one store in the second quarter and has two additional stores
scheduled to open during the third quarter of 1999 as well as the closing of
one clearance center. Three stores are scheduled for opening in the fourth
quarter, one of which is a relocation, and three existing stores will be
physically expanded during the second half of 1999. Capital expenditures for
the remainder of 1999 to support these projects, and additional ones which
will be completed in 2000, are estimated to be $16 million. Funds available
from operations, bank lines of credit and other possible financing
transactions are expected to be adequate to finance the Company's current
planned expenditures.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
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.
YEAR 2000
As is more fully described in the Company's annual report on Form 10-K for the
year ended December 31, 1998, the Company is modifying or replacing portions of
its software and certain hardware for Year 2000 compliance. The review,
remediation and testing of the Company's store systems software was completed in
May 1998.
The review, remediation and testing of the corporate office systems was
completed in March 1999. The Company brought substantially all of its software
and IT systems into compliance with Year 2000 issues in June 1999. Certain
additional, less critical, Y2K issues have been identified and are being
scheduled for remediation during the third quarter. These items relate to
personal computing, telephone voice communication and office document imaging.
Management's assessment of the estimated costs and risks associated with the
Year 2000 project and the status of the Company's contingency plans are
unchanged from that described in the 1998 annual report.
The Company also has identified its suppliers, vendors and financial
institutions (external agents) and is coordinating with them to address
potential Year 2000 issues. Year 2000 questionnaires were sent to these entities
to monitor their progress and to minimize any adverse consequences that might
result if an entity is not Year 2000 compliant. Responses have been received
from approximately 95% of these external agents with no major potential problems
identified. The non-responding external agents are primarily merchandise
suppliers for which the Company has identified substitute products from
compliant suppliers.
With respect to Year 2000 risks, the Company believes it has identified all
critical areas and is in the process of developing contingency plans for those
critical areas identified. Critical is defined as any business process or
application failure that would result in a material operational or financial
impact. If the Company's remediation efforts and the remediation efforts of
external agents fail (which the Company believes is the most reasonably likely
worst case scenario), the Company's contingency plans include performing certain
processes manually while working to assess and correct any errors in the current
systems and possibly changing suppliers. These plans are intended to enable the
Company to continue operating even if a degree of business interruption occurs
at Year 2000.
The complexity of the potential Year 2000 issues and the proposed solutions are
dependent on the technical skills of the Company's employees and on the
representations and preparedness of third parties and are among the factors that
could cause the Company's Year 2000 compliance efforts to be less than fully
effective. Additionally, there are a number of risks that are beyond the
Company's reasonable control, such as the failure of utility companies to
deliver electricity, the failure of telecommunications companies to provide
voice and data services, the failure of financial institutions to process
transactions and transfer funds, the failure of vendors to deliver merchandise
or perform services required by the Company and the collateral effects on the
Company of the effects of Year 2000 issues on the economy in general. Although
the Company believes that its Year 2000 compliance program is designed to
appropriately identify and address those Year 2000 issues that are subject to
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
the Company's reasonable control, there can be no assurance that the Company's
efforts in this regard will be fully effective or that Year 2000 issues will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There have been no material changes with respect to the Company's derivative
financial instruments and other financial instruments and its related market
risk since the date of the most recent annual report.
9
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 Annual Meeting of Stockholders of the Company was held on April 30,
1999.
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
Mylle B. Mangum
The number of votes cast "for" or "withheld" was as follows: Mr. Woodson: For =
7,939,466, Withheld = 111,440; Mr. Humann: For = 7,930,366, Withheld = 120,540;
Mr. Glover: For = 7,938,866, Withheld = 112,040 and Ms. Mangum: For = 7,938,766,
Withheld = 112,140.
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 Clarence H. Smith
John E. Slater, Jr. Rawson Haverty, Jr.
Clarence H. Ridley Frank S. McGaughey, III
Fred J. Bates M. Tony Wilkerson
Lynn H. Johnston
The number of votes cast by the holders of Class A Common Stock was as follows:
for each of the above nominees: For = 2,363,140, Withheld = 22.
10
<PAGE>
PART II. OTHER INFORMATION
(Continued)
Item 5. OTHER INFORMATION
As stated in the Company's 1999 Proxy Statement, proposals by stockholders
intended to be presented at the 2000 Annual Meeting must be received at the
office of the Company no later than November 23, 1999, for inclusion in the
Company's Proxy Statement for the 2000 Annual Meeting.
In connection with the Company's Annual Meeting of Shareholders to be held in
2000, if the Company does not receive notice of a matter or proposal to be
considered by February 6, 2000, 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.
11
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
HAVERTY FURNITURE COMPANIES, INC.
Date August 13, 1999 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
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,761
<SECURITIES> 0
<RECEIVABLES> 175,512
<ALLOWANCES> 7,900
<INVENTORY> 81,922
<CURRENT-ASSETS> 260,414
<PP&E> 209,459
<DEPRECIATION> 90,039
<TOTAL-ASSETS> 382,866
<CURRENT-LIABILITIES> 68,596
<BONDS> 155,905
0
0
<COMMON> 26,692<F1>
<OTHER-SE> 140,610<F1>
<TOTAL-LIABILITY-AND-EQUITY> 382,866
<SALES> 292,020
<TOTAL-REVENUES> 299,834
<CGS> 154,210
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,200
<INTEREST-EXPENSE> 6,023
<INCOME-PRETAX> 17,594
<INCOME-TAX> 6,334
<INCOME-CONTINUING> 11,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,260
<EPS-BASIC> .50<F1>
<EPS-DILUTED> .49<F1>
<FN>
<F1>REFLECTS TWO-FOR-ONE STOCK SPLIT
</FN>
</TABLE>
