UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) | |||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended June 30, 2003 | |||
| OR | |||
| o |
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: 1-14445
HAVERTY FURNITURE COMPANIES, INC.
| MARYLAND | 58-0281900 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia | 30342 | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (404) 443-2900
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o
The number of shares outstanding of the registrant’s two classes of $1 par value common stock as of July 25, 2003 were: Common Stock – 17,441,915; Class A Common Stock – 4,498,376.
HAVERTY FURNITURE COMPANIES, INC.
INDEX
| Page No | ||||||||
| PART I. | FINANCIAL INFORMATION: |
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Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets -
June 30, 2003 and December 31, 2002 |
1 | |||||||
Condensed Consolidated Statements of Income -
Quarter and Six months ended June 30, 2003 and 2002 |
3 | |||||||
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2003 and 2002 |
4 | |||||||
Notes to Condensed Consolidated Financial Statements |
5 | |||||||
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
8 | |||||||
Item 3. Quantitative and Qualitative Disclosure about Market Risk |
15 | |||||||
Item 4. Controls and Procedures |
15 | |||||||
| PART II. | OTHER INFORMATION |
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Item 5. Submission of Matters to a Vote of Security Holders |
16 | |||||||
Item 6. Exhibits and Reports on Form 8-K |
16 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30 | December 31 | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 4,295 | $ | 3,764 | ||||||
Accounts receivable |
116,660 | 131,874 | ||||||||
Less allowance for doubtful accounts |
(5,200 | ) | (5,800 | ) | ||||||
| 111,460 | 126,074 | |||||||||
Inventories, at LIFO |
115,994 | 113,328 | ||||||||
Other current assets |
12,661 | 20,659 | ||||||||
Total Current Assets |
244,410 | 263,825 | ||||||||
Property and equipment |
265,201 | 241,064 | ||||||||
Less accumulated depreciation and amortization |
(114,300 | ) | (106,861 | ) | ||||||
| 150,901 | 134,203 | |||||||||
Deferred income taxes |
1,607 | 1,654 | ||||||||
Other assets |
4,510 | 5,157 | ||||||||
| $ | 401,428 | $ | 404,839 | |||||||
1
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30 | December 31 | |||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable and accrued expenses |
$ | 76,453 | $ | 88,843 | ||||||||
Current portion of long-term debt and
capital lease obligations |
12,682 | 12,677 | ||||||||||
Total Current Liabilities |
89,135 | 101,520 | ||||||||||
Long-term debt and capital lease obligations,
less current portion |
73,335 | 69,821 | ||||||||||
Other liabilities |
8,388 | 8,617 | ||||||||||
Stockholders’ Equity
Capital stock, par value $1 per share: |
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Preferred Stock, Authorized: 1,000 shares;
Issued: None |
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Common Stock, Authorized: 50,000 shares;
Issued: 2003 - 23,353 shares;
2002 - 23,233 shares (including shares in treasury: |
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2003 and 2002 - 5,943 and 5,927, respectively) |
23,353 | 23,233 | ||||||||||
Convertible Class A Common Stock, Authorized: |
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15,000 shares; Issued: 2003 - 5,040;
2002 - 5,048 shares (including shares in treasury: |
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2003 and 2002 - 522) |
5,040 | 5,048 | ||||||||||
Additional paid-in capital |
43,455 | 42,365 | ||||||||||
Retained earnings |
219,319 | 214,750 | ||||||||||
Accumulated other comprehensive (loss) |
(2,312 | ) | (2,389 | ) | ||||||||
| 288,855 | 283,007 | |||||||||||
Less cost of Common Stock and
Convertible Class A Common Stock in treasury |
(58,285 | ) | (58,126 | ) | ||||||||
| 230,570 | 224,881 | |||||||||||
| $ | 401,428 | $ | 404,839 | |||||||||
See notes to condensed consolidated financial statements.
2
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| Quarter Ended | Six Months Ended | |||||||||||||||||
| June 30 | June 30 | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net sales |
$ | 168,634 | $ | 164,892 | $ | 344,014 | $ | 339,845 | ||||||||||
Cost of goods sold |
87,988 | 86,734 | 177,456 | 177,431 | ||||||||||||||
Gross profit |
80,646 | 78,158 | 166,558 | 162,414 | ||||||||||||||
Credit service charges |
1,629 | 2,151 | 3,521 | 4,534 | ||||||||||||||
Gross profit and other revenue |
82,275 | 80,309 | 170,079 | 166,948 | ||||||||||||||
Expenses: |
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Selling, general and administrative |
76,927 | 71,373 | 155,543 | 142,967 | ||||||||||||||
Interest |
1,164 | 1,799 | 2,297 | 3,839 | ||||||||||||||
Provision for doubtful accounts |
532 | 962 | 1,105 | 2,149 | ||||||||||||||
Other (expense) income, net |
232 | 187 | (123 | ) | 1,237 | |||||||||||||
| 78,855 | 74,321 | 158,822 | 150,192 | |||||||||||||||
Income before income taxes |
3,420 | 5,988 | 11,257 | 16,756 | ||||||||||||||
Income taxes |
1,283 | 2,246 | 4,222 | 6,284 | ||||||||||||||
Net income |
$ | 2,137 | $ | 3,742 | $ | 7,035 | $ | 10,472 | ||||||||||
Basic earnings per share |
$ | 0.10 | $ | 0.17 | $ | 0.32 | $ | 0.49 | ||||||||||
Diluted earnings per share |
$ | 0.10 | $ | 0.17 | $ | 0.32 | $ | 0.47 | ||||||||||
Weighted average shares — basic |
21,862 | 21,631 | 21,845 | 21,519 | ||||||||||||||
Weighted average shares — assuming dilution |
22,152 | 22,388 | 22,036 | 22,321 | ||||||||||||||
Cash dividends per common share: |
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Common Stock |
$ | 0.0575 | $ | 0.0525 | $ | 0.115 | $ | 0.105 | ||||||||||
Class A Common Stock |
$ | 0.0525 | $ | 0.0500 | $ | 0.105 | $ | 0.100 | ||||||||||
See notes to condensed consolidated financial statements.
3
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30 | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating Activities |
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Net income |
$ | 7,035 | $ | 10,472 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
8,430 | 7,837 | ||||||||||
Provision for doubtful accounts |
1,105 | 2,149 | ||||||||||
Gain on sale of property and equipment |
(29 | ) | (13 | ) | ||||||||
Subtotal |
16,541 | 20,445 | ||||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
13,509 | 27,839 | ||||||||||
Inventories |
(2,666 | ) | (8,141 | ) | ||||||||
Other current assets |
7,998 | 4,475 | ||||||||||
Accounts payable and accrued expenses |
(12,390 | ) | (4,987 | ) | ||||||||
Net cash provided by operating activities |
22,992 | 39,631 | ||||||||||
Investing Activities |
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Purchases of property and equipment |
(16,466 | ) | (19,434 | ) | ||||||||
Proceeds from sale of property and equipment |
770 | 35 | ||||||||||
Other investing activities |
647 | (860 | ) | |||||||||
Net cash used in investing activities |
(15,049 | ) | (20,259 | ) | ||||||||
Financing Activities |
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Net increase (decrease) in borrowings under revolving credit facilities |
800 | (14,000 | ) | |||||||||
Payments on long-term debt and capital lease obligations |
(6,684 | ) | (5,588 | ) | ||||||||
Treasury stock acquired |
(245 | ) | — | |||||||||
Proceeds from exercise of stock options |
1,178 | 3,409 | ||||||||||
Dividends paid |
(2,466 | ) | (2,233 | ) | ||||||||
Other financing activities |
5 | 151 | ||||||||||
Net cash used in financing activities |
(7,412 | ) | (18,261 | ) | ||||||||
Increase in cash and cash equivalents |
531 | 1,111 | ||||||||||
Cash and cash equivalents at beginning of period |
3,764 | 727 | ||||||||||
Cash and cash equivalents at end of period |
$ | 4,295 | $ | 1,838 | ||||||||
See notes to condensed consolidated financial statements.
4
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
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. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Haverty Furniture Companies, Inc. and Subsidiaries (the “Company”) for the year ended December 31, 2002. Accordingly, the quarterly condensed consolidated financial statements and related disclosures should be read in conjunction with the 2002 Annual Report on Form 10-K. 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. The results of operations for the six months ended June 30, 2003, are not necessarily indicative of results for the entire year.
NOTE B – Stock-Based Compensation
At June 30, 2003, the Company had two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||||||||
| June 30 | June 30 | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income, as reported |
$ | 2,137 | $ | 3,742 | $ | 7,035 | $ | 10,472 | |||||||||
Deduct, Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects |
(698 | ) | (619 | ) | (1,296 | ) | (1,598 | ) | |||||||||
Pro forma net income |
$ | 1,439 | $ | 3,123 | $ | 5,739 | $ | 8,877 | |||||||||
Earnings per share: |
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Basic – as reported |
$ | 0.10 | $ | 0.17 | $ | 0.32 | $ | 0.49 | |||||||||
Basic – pro forma |
$ | 0.07 | $ | 0.14 | $ | 0.26 | $ | 0.41 | |||||||||
Diluted – as reported |
$ | 0.10 | $ | 0.17 | $ | 0.32 | $ | 0.47 | |||||||||
Diluted – pro forma |
$ | 0.07 | $ | 0.14 | $ | 0.26 | $ | 0.40 | |||||||||
5
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
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.
NOTE D – Comprehensive Income
Total comprehensive income for the following periods was comprised of (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||||||||
| June 30 | June 30 | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income |
$ | 2,137 | $ | 3,742 | $ | 7,035 | $ | 10,472 | |||||||||
Change in fair value of derivatives, net of
applicable income tax |
31 | (822 | ) | 77 | (465 | ) | |||||||||||
Total comprehensive income |
$ | 2,168 | $ | 2,920 | $ | 7,112 | $ | 10,007 | |||||||||
NOTE E — Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The Interpretation requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or othe