<PAGE>
DRAFT
- -------------------------------------------------------------------------------
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, 2000
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.)
780 JOHNSON FERRY ROAD, SUITE 800, ATLANTA, GEORGIA 30342
---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 443-2900
866 WEST PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30308
- -------------------------------------------------------------------------------
(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 11, 2000 were: Common Stock - 15,926,366; Class
A Common Stock - 4,764,814.
<PAGE>
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
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information:
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows - 4
Three months ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Quantitative and Qualitative Disclosure of Market Risk 10
Part II. Other Information 11
</TABLE>
<PAGE>
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
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,786 $ 1,762
Accounts receivable 167,983 186,090
Less allowance for doubtful accounts (6,900) (7,000)
--------- ---------
161,083 179,090
Inventories, at LIFO 107,702 84,447
Other current assets 9,211 6,379
--------- ---------
Total Current Assets 279,782 271,678
Property and equipment 228,122 222,999
Less accumulated depreciation and amortization (99,122) (96,002)
--------- ---------
129,000 126,997
Other assets 5,254 5,973
--------- ---------
$ 414,036 $ 404,648
========= =========
</TABLE>
1
<PAGE>
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 23,200 $ 8,800
Accounts payable and accrued expenses 81,676 77,543
Current portion of long-term debt and
capital lease obligations 11,912 12,091
--------- ---------
Total Current Liabilities 116,788 98,434
Long-term debt and capital lease obligations,
less current portion 132,629 134,687
Other liabilities 2,760 2,734
Stockholders' Equity
Capital stock, par value $1 per share:
Preferred Stock, Authorized: 1,000 shares;
Issued: None
Common Stock, Authorized: 50,000 shares;
Issued: 2000 - - 21,740 shares;
1999 - - 21,639 shares (including shares 21,740 21,639
in treasury: 2000 and 1999 - - 5,731
and 4,810, respectively)
Convertible Class A Common Stock, Authorized:
15,000 shares; Issued: 2000 - -5,293 shares; 5,293 5,303
1999 - -5,303 shares (including shares
in treasury: 2000 and 1999 - -522 )
Additional paid-in capital 32,522 32,004
Retained earnings 158,548 156,428
--------- ---------
218,103 215,374
Less cost of Common Stock and
Convertible Class A Common Stock in treasury (56,244) (46,581)
--------- ---------
161,859 168,793
--------- ---------
$ 414,036 $ 404,648
========= =========
</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>
THREE MONTHS ENDED
MARCH 31
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 163,741 $ 149,781
Cost of goods sold 85,113 78,973
--------- ---------
Gross profit 78,628 70,808
Credit service charges 3,370 3,980
--------- ---------
Gross profit and other revenue 81,998 74,788
Expenses:
Selling, general and administrative 68,016 60,600
Interest 2,865 3,060
Provision for doubtful accounts 933 1,370
Other (income) expense, net (66) (71)
--------- ---------
71,748 64,959
--------- ---------
Income before income taxes 10,250 9,829
Income taxes 3,741 3,539
--------- ---------
Income before cumulative effect of a
change in accounting principle 6,509 6,290
Cumulative effect on prior years (to December 31, 1999)
of changing to a different revenue recognition method (3,356) --
--------- ---------
Net income $ 3,153 $ 6,290
========= =========
Weighted average shares - basic 21,097 22,294
Weighted average shares - assuming dilution 21,529 22,930
Basic earnings per share:
Income before cumulative effect of a change in accounting principle $ 0.31 $ 0.28
Cumulative effect on prior years (to December 31, 1999)
of changing to a different revenue recognition method (0.15) --
--------- ---------
Net income $ 0.16 $ 0.28
========= =========
Diluted earnings per share:
Income before cumulative effect of a change in accounting principle $ 0.30 $ 0.27
Cumulative effect on prior years (to December 31, 1999)
of changing to a different revenue recognition method (0.15) --
--------- ---------
Net income $ 0.15 $ 0.27
========= =========
Cash dividends per common share:
Common Stock $ 0.0500 $ 0.0425
Class A Common Stock $ 0.0475 $ 0.0400
</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>
THREE MONTHS ENDED MARCH 31
---------------------------
2000 1999
---------- -------------
<S> <C> <C>
Operating Activities
Net income $ 3,153 $ 6,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting principle 3,356 --
Depreciation and amortization 3,921 3,632
Provision for doubtful accounts 933 1,370
Loss (gain) on sale of property and equipment 40 (8)
-------- --------
Subtotal 11,403 11,284
Changes in operating assets and liabilities:
Accounts receivable 6,435 7,352
Inventories (12,682) (2,926)
Other current assets (2,255) (2,148)
Accounts payable and accrued expenses 3,610 1,712
Income taxes (3,344) 2,328
-------- --------
Net cash provided by operating activities 3,167 17,602
-------- --------
Investing Activities
Purchases of property and equipment (7,513) (11,022)
Proceeds from sale of property and equipment 1,549 26
Other investing activities 719 281
-------- --------
Net cash used in investing activities (5,245) (10,715)
-------- --------
Financing Activities
Net increase (decrease) in short-term borrowings 14,400 (4,500)
Payment of long-term debt and capital lease obligations( (2,237) (1,072)
Purchase of treasury stock (9,663) (2,205)
Exercise of stock options 609 1,219
Dividends paid (1,033) (935)
Other financing activities 26 17
-------- --------
Net cash provided by (used in) financing activities 2,102 (7,476)
-------- --------
Decrease (increase) in cash and cash equivalents 24 (589)
Cash and cash equivalents at beginning of period 1,762 1,874
-------- --------
Cash and cash equivalents at end of period $ 1,786 $ 1,285
======== ========
</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.
Earnings per share and all shares outstanding have been restated to record
the effect of the 2-for-1 stock split on August 25, 1999.
NOTE B - CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
This bulletin provides guidance on revenue recognition matters and, in
accordance therewith, the Company changed its method of recognizing sales
effective January 1, 2000. Under the new method, revenue from merchandise
sales is recognized upon delivery to the customer. Previously, the Company
recognized revenue for sales of merchandise when certain criteria were met,
such as receipt of full payment, credit approval for charge sales and
merchandise in stock. These conditions were typically met at the point of
sale. The Company changed its method of revenue recognition on January 1,
2000. Accordingly, it is impractical to determine income utilizing the billed
method for the first quarter of 2000. Revenues recognized in the first
quarter of 2000 that were included in undelivered sales at December 31, 1999,
aggregated approximately $19,000,000. The cumulative effect of the accounting
change decreased net income by $3,356,000 or $0.15 per share and was recorded
in the three months period ended March 31, 2000. The pro forma amounts shown
below have been adjusted assuming that the change in the revenue recognition
method had occurred prior to January 1, 1999 (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
PRO FORMA PRO FORMA
2000 1999
--------- ---------
<S> <C> <C>
Net income........................................... $6,509 $5,435
Basic earnings per share............................. $ 0.31 $ 0.24
Diluted earnings per share........................... $ 0.30 $ 0.24
</TABLE>
NOTE C - 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 statements we make in this report, and other written or oral statements
made by or on behalf of the Company, may constitute "forward-looking statements"
within the meaning of the federal securities laws. Examples of such statements
in this report include descriptions of our plans with respect to new store
openings and relocations, our plans to enter new markets and expectations
relating to our continuing growth. These statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from the
company's historical experience and its present expectations or projections.
Management believes that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. Such statements
speak only as of the date they are made and we undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
future events, new information or otherwise. The following are some of the
factors that could cause the Company's actual results to differ materially from
the expected results described in the Company's forward-looking statements; the
ability to maintain favorable arrangements and relationships with key suppliers
(including domestic and international sourcing); conditions affecting the
availability and affordability of retail real estate sites; the ability to
attract, train and retain highly qualified associates to staff corporate
positions, existing and new stores and distribution facilities; general economic
and financial market conditions, which affect consumer confidence and the
spending environment for big ticket items; competition in the retail furniture
industry, changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations.
CHANGE IN ACCOUNTING PRINCIPLE
The Company changed its accounting method for recognizing revenues on January
1,2000, and is now recording merchandise sales upon delivery to the customer.
Historically, sales were recognized and "billed" prior to delivery when certain
criteria were met, such as receipt of full payment, credit approval for charge
sales and merchandise in stock. The change is consistent with new guidance on
revenue recognition provided by the Securities and Exchange Commission Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements. The
implementation of this change was accounted for as a change in accounting
principle and applied cumulatively as if the change occurred at January 1,
2000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Continued)
The following table outlines the results for the first quarter of 2000, 1999,
and 1999 pro forma results, assuming that the change in the revenue
recognition method had occurred prior to January 1, 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
Pro forma
2000 1999 1999
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 163,741 $ 149,781 $ 145,558
Cost of goods sold 85,113 78,973 76,665
--------- --------- ---------
Gross profit 78,628 70,808 68,893
Credit service charges 3,370 3,980 3,980
--------- --------- ---------
Gross profit and other revenue 81,998 74,788 72,873
Cost and expenses:
Selling, general and administrative 68,016 60,600 60,020
Interest 2,865 3,060 3,060
Provision for doubtful accounts 933 1,370 1,370
Other expense (income), net (66) (71) (71)
--------- --------- ---------
Total 71,748 64,959 64,379
--------- --------- ---------
Income before income taxes and cumulative
effect of a change in accounting principle 10,250 9,829 8,494
Income taxes 3,741 3,539 3,059
--------- --------- ---------
Income before cumulative effect of a
change in accounting principle 6,509 6,290 5,435
Cumulative effect on prior years (to December 31, 1999)
of changing to a different revenue recognition method (3,356) -- --
--------- --------- ---------
Net income $ 3,153 $ 6,290 $ 5,435
========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
Net sales for the first quarter of 2000 increased 12.5% to $163.7 million
compared to pro forma sales of $145.6 million for the first quarter of 1999. It
is not practical for the Company to compute comparable-store sales utilizing the
new delivered basis of revenue recognition. Calculated on the billed basis,
comparable-store sales increased 9.5% for the quarter. The Company's two largest
markets, Dallas and Atlanta, and its Florida region continued to experience the
strongest comparable-store sales increases. 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.
Management believes that the sales increases are attributable to the economic
strength of its target customer and the Company's focus on brand name products
and effective merchandising in its stores.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Continued)
Gross profit, as a percent of sales, was 48.0% for the first three months of
2000 compared to 47.3% for the comparable pro forma period of 1999. These
improved margins are primarily attributable to the reduced level of promotional
activity and refinements in the Company's product mix. Additionally, the higher
levels of associated delivery charges and product care and protection revenues
have contributed to the increased margins.
First quarter credit service charge revenues decreased to 2.1% of net sales from
2.7% on a pro forma basis in the prior year period. This reduction is due to a
lower average outstanding accounts receivable portfolio and to a shift toward
more consumer usage of the "12 month no interest with 12 equal payments"
promotion rather than deferred-payment promotions.
Selling, general and administrative expenses, as a percent of net sales
increased to 41.5% for the three months ended March 31, 2000 from 41.2% in the
prior year period on a pro forma basis. The shift in the level of attention to
shortened delivery cycles to the customer resulted in increases in warehouse and
delivery costs, particularly in markets where the sales increases were highest.
Management believes that these increases are temporary and expects these
expenses will return to their prior year's level during the second half of 2000.
The provision for doubtful accounts, as a percentage of net sales, decreased to
0.6% for the first quarter of 2000 from 0.9% for the first quarter of 1999 on a
pro forma basis. This reduction reflects the continuing trend of decreased
delinquencies and bankruptcies experienced by the Company over the last two
years. These combined factors led to a $100,000 reduction in the first quarter
provision for doubtful accounts as prescribed by the Company's methodology for
calculating the required allowance. Management does not expect any significant
changes in the current consumer credit environment with respect to its target
customers for the remainder of 2000.
Interest expense decreased $0.2 million and, as a percent of net sales, to 1.8%
from 2.1% for the first quarter. The Company's average debt level was 8.2% lower
and the effective interest rate was 12 basis points higher as compared to the
year-ago period.
Income before the cumulative effect of an accounting change, as a percent of
sales, was 4.0% for the first quarter of 2000 and 3.7% for the first quarter of
1999 on a pro forma basis. Diluted earnings per share before the cumulative
effect of an accounting change were $0.30 and $0.24 pro forma, for the three
months ended March 31, 2000, and 1999, 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 $3.2 million during
the first three months of 2000. The $12.7 million increase in inventory during
the first quarter was higher than anticipated. The Company intends to reduce
inventory levels in the second quarter.
Investing activities used $5.2 million of cash during the three months ended
March 31, 2000. Capital expenditures during the period were $7.5 million for
leasehold improvements, equipment and furniture and fixtures associated with the
Company's relocation of its corporate offices as well as new store construction
and renovations that will be completed later in the year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
8
<PAGE>
AND RESULTS OF OPERATIONS
(Continued)
Financing activities provided $2.1 million of cash during the first quarter of
2000 including $14.4 million in increased borrowings under the Company's
revolving credit facilities. Financing activities also included the use of $9.7
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 (83.2% of total debt was fixed or
interest rate protected as of March 31, 2000). The Company's average effective
interest rate on all borrowings (excluding capital leases) was 7.2% at March 31,
2000.
Capital expenditures for the remainder of 2000 are presently expected to include
the construction of three new store locations in existing markets, improvements
to two new leased store locations, the remodeling of two existing stores, and
the expansion and remodeling of two existing stores. The preliminary estimate of
capital expenditures in 2000 is approximately $40 million, which also includes a
portion of the construction costs for three new stores which will open in 2001.
Management expects that there will be disposition costs for stores to be
relocated, which will likely offset any gains generated from the sale of the
recently vacated former corporate office of the Company. 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.
9
<PAGE>
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.
10
<PAGE>
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
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.
(Registrant)
Date MAY 15, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,786
<SECURITIES> 0
<RECEIVABLES> 167,983
<ALLOWANCES> 6,900
<INVENTORY> 107,702
<CURRENT-ASSETS> 279,782
<PP&E> 228,122
<DEPRECIATION> 99,122
<TOTAL-ASSETS> 414,036
<CURRENT-LIABILITIES> 116,788
<BONDS> 144,541
0
0
<COMMON> 27,033
<OTHER-SE> 134,826
<TOTAL-LIABILITY-AND-EQUITY> 414,036
<SALES> 163,741
<TOTAL-REVENUES> 167,111
<CGS> 85,113
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 933
<INTEREST-EXPENSE> 2,865
<INCOME-PRETAX> 10,250
<INCOME-TAX> 3,741
<INCOME-CONTINUING> 6,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,356
<NET-INCOME> 3,153
<EPS-BASIC> .16<F1>
<EPS-DILUTED> .15<F1>
<FN>
<F1>A two-for-one stock split occurred effected in the form of a stock dividend on
August 25, 1999. Prior financial data schedules have not seen restated.
</FN>
</TABLE>
