<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 MARCH 31, 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: 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 May 13, 1999 were: Common Stock - 8,734,268; Class A
Common Stock - 2,438,972.
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H A V E R T Y F U R N I T U R E C O M P A N I E S, I N C.
I N D E X
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<CAPTION>
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<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income -
Three months ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 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 8
Part II. Other Information 9
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PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................ $ 1,285 $ 1,874
Accounts receivable .............................. 185,750 194,472
Less allowance for doubtful accounts ............. (8,300) (8,300)
--------- ---------
177,450 186,172
Inventories, at LIFO ............................. 85,010 82,084
Other current assets ............................. 10,195 8,047
--------- ---------
Total Current Assets........................ 273,940 278,177
Property and equipment .............................. 205,617 196,814
Less accumulated depreciation and amortization ... (86,912) (85,481)
--------- ---------
118,705 111,333
Other assets ........................................ 3,110 3,391
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$ 395,755 $ 392,901
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--------- ---------
</TABLE>
1
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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks .................................... $ 1,900 $ 6,400
Accounts payable and accrued expenses ..................... 58,396 54,356
Current portion of long-term debt and
capital lease obligations ............................... 10,876 9,711
--------- ---------
Total Current Liabilities............................ 71,172 70,467
Long-term debt and capital lease obligations,
less current portion .................................... 159,541 161,778
Other liabilities ............................................ 2,615 2,598
Stockholders' Equity
Capital stock, par value $1 per share:
Preferred Stock, Authorized: 1,000 shares;
Issued: None
Common Stock, Authorized: 50,000 shares;
Issued: 1999 - - 10,544 shares;
1998 - - 10,393 shares (including shares
in treasury: 1999 and 1998 - - 1,839
and l,739, respectively) ............................ 10,544 10,393
Convertible Class A Common Stock, Authorized:
15,000 shares; Issued: 1999 - - 2,703 shares;
1998 - - 2,772 shares (including shares
in treasury: 1999 and 1998 - - 261) ................ 2,703 2,772
Additional paid-in capital ............................ 41,475 40,338
Retained earnings ..................................... 138,562 133,207
--------- ---------
193,284 186,710
Less cost of Common Stock and
Convertible Class A Common Stock in treasury ........ (30,857) (28,652)
--------- ---------
162,427 158,058
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$ 395,755 $ 392,901
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</TABLE>
See notes to condensed consolidated financial statements.
2
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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1999 1998
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<S> <C> <C>
Net sales ...................................................... $ 149,781 $129,368
Cost of goods sold ............................................. 78,973 68,437
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Gross profit ................................................ 70,808 60,931
Credit service charges ......................................... 3,980 4,298
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74,788 65,229
Cost and expenses:
Selling, general and administrative ......................... 60,600 54,210
Interest .................................................... 3,060 3,495
Provision for doubtful accounts ............................. 1,370 2,132
Other (income) expense, net ................................. (71) 151
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64,959 59,988
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Income Before Income Taxes............................. 9,829 5,241
Income taxes ................................................... 3,539 1,887
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Net Income............................................. $ 6,290 $ 3,354
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--------- --------
Diluted earnings per share ..................................... $ 0.55 $ 0.28
Basic earnings per share ....................................... $ 0.56 $ 0.29
Weighted average diluted shares ................................ 11,465 11,842
Weighted average basic shares .................................. 11,147 11,691
Cash dividends per common share:
Common Stock ................................................ $ .085 $ .080
Class A Common Stock ........................................ $ .080 $ .075
</TABLE>
See notes to condensed consolidated financial statements.
3
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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
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1999 1998
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<S> <C> <C>
Operating Activities
Net income .............................................. $ 6,290 $ 3,354
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 3,632 3,461
Provision for doubtful accounts ..................... 1,370 2,132
Gain on sale of property and equipment ............. (8) (11)
-------- --------
Subtotal............................................. 11,284 8,936
Changes in operating assets and liabilities:
Accounts receivable ............................... 7,352 9,190
Inventories ....................................... (2,926) 311
Other current assets .............................. (2,148) (492)
Accounts payable and accrued expenses ............. 1,712 2,333
Income taxes ...................................... 2,328 (394)
-------- --------
Net cash provided by operating activities............ 17,602 19,884
-------- --------
Investing Activities
Purchases of property and equipment ..................... (11,022) (2,583)
Proceeds from sale of property and equipment ............ 26 100
Other investing activities .............................. 281 278
-------- --------
Net cash used in investing activities................ (10,715) (2,205)
-------- --------
Financing Activities
Net increase in short-term borrowings ................... (4,500) (82,500)
Proceeds from issuance of long-term debt ................ -- 67,300
Payment of long-term debt and capital lease obligations (1,072) (1,045)
Purchase of treasury stock .............................. (2,205) (2,219)
Exercise of stock options ............................... 1,219 2,352
Dividends paid .......................................... (935) (916)
Other financing activities .............................. 17 17
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Net cash used in financing activities................ (7,476) (17,011)
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(Decrease) increase in cash and cash equivalents ............. (589) 668
Cash and cash equivalents at beginning of period ............. 1,874 390
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Cash and cash equivalents at end of period ................... $ 1,285 $ 1,058
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</TABLE>
See notes to condensed consolidated financial statements.
4
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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 instruction 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
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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 first quarter of 1999 increased 15.8% to $149.8 million
compared to sales of $129.4 million for the first quarter of 1998.
Comparable-store sales increased 12.6% for the quarter ended March 31, 1999 as
the Company continued to experience significant sales increases in its two
largest markets, Dallas and Atlanta, together with strong growth in each of its
four other regions. Two of these regions had comparable-store sales increases
over 10% for the quarter and the other two were up by high single-digit
percents. A store's results are included in the comparable-store sales
computation beginning with the one-year anniversary of its opening, expansion or
the date when it was otherwise non-comparable. Overall, economic fundamentals,
including continued low long-term interest rates and steady economic growth,
stimulated housing markets, mortgage refinancings and consumer spending on home
furnishings. Management also believes that sales increases are attributable to
the Company's focus on brand name products, effective merchandising in its
stores, and the disarray of financially pressured competition.
Gross profit as a percent of sales was 47.3% for the first three months of 1999
compared to 47.1% for the comparable period of 1998. The slight increase for the
period was primarily attributable to the reduced level of promotional activity
and reductions in inventory close-out sales during 1999.
Selling, general and administrative expenses as a percent of net sales decreased
to 40.5% for the three months ended March 31, 1999, from 41.9% in the prior year
period. 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 in areas such as advertising and increased leveraging of occupancy
and general and administrative costs.
The provision for doubtful accounts as a percentage of net sales decreased to
0.9% for the first quarter of 1999 from 1.6% for the first quarter of 1998. This
reduction reflects the continuing trend of decreased delinquencies and
bankruptcies experienced by the Company over the last year, due in part to
managerial and systems improvements in the Company's credit operations. The
consumer lending industry has generally seen a leveling
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
out of such trends in recent quarters after three years of sharp increases.
Management expects that given the current consumer credit environment, the
provision for doubtful accounts will remain below 1.0% for the remainder of
1999.
Interest expense decreased $0.4 million and as a percent of net sales to 2.0%
from 2.7% for the first quarter. The Company's effective interest rate was
slightly lower as compared to the year-ago period and average debt levels were
also lower.
Net earnings as a percent of net sales were 4.2% for the first quarter of 1999
and 2.6% for the first quarter of 1998. Diluted earnings per share were $0.55
and $0.28 ($0.56 and $0.29 basic) for the three months ended March 31, 1999, and
1998, respectively.
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 $17.6 million during
the first three months of 1999. Inventories, exclusive of showroom display, have
decreased despite the increase in sales. Receivables decreased $8.7 million as
more customers chose to use third party credit or pay cash for their purchases
and as delinquent accounts were reduced.
Investing activities used $10.7 million of cash during the three months ended
March 31, 1999. Capital expenditures during the period were $11.0 million
primarily for additional store locations which will open in the second and third
quarters of 1999.
Financing activities used $7.5 million of cash during the first quarter of 1999
including $5.5 million to reduce debt and $2.2 million for the acquisition of
treasury stock.
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 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 (92.4% of total debt was fixed or
interest rate protected at March 31, 1999). The Company's average effective
interest rate on all borrowings (excluding capital leases) was 7.0% at March 31,
1999.
The Company opened one store in March 1999 and has two additional stores
scheduled to open during the second and third quarters of 1999. Three stores are
scheduled for opening in the fourth quarter, 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 $20 million. Funds available from
operations, bank lines of credit and other possible financing transactions are
expected to be adequate to finance the Company's planned expenditures.
7
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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 presently anticipates that substantially
all of its software and IT systems will be compliant with all Year 2000 issues
by June 1999. Certain additional, less critical, Y2K issues have been identified
recently 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.
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.
8
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this report.
27 - - Financial Data Schedule (only submitted to SEC in
electronic format).
(b) Report on Form 8-K.
None
9
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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 MAY 14, 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
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,285
<SECURITIES> 0
<RECEIVABLES> 185,750
<ALLOWANCES> 8,300
<INVENTORY> 85,010
<CURRENT-ASSETS> 273,940
<PP&E> 205,617
<DEPRECIATION> 86,912
<TOTAL-ASSETS> 395,755
<CURRENT-LIABILITIES> 71,172
<BONDS> 170,417
0
0
<COMMON> 13,247
<OTHER-SE> 149,180
<TOTAL-LIABILITY-AND-EQUITY> 395,755
<SALES> 149,781
<TOTAL-REVENUES> 153,761
<CGS> 78,973
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,370
<INTEREST-EXPENSE> 3,060
<INCOME-PRETAX> 9,829
<INCOME-TAX> 3,539
<INCOME-CONTINUING> 6,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,290
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
</TABLE>
