-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BeCUlTpWFlm/KZ0tPe7C7XkN17rH4CqsNpMiAznaZrRe1oDzGmoUswqTdivRTnqa qLjpIb/BOS9jKatP8Yvq9A== 0000950144-98-003151.txt : 19980325 0000950144-98-003151.hdr.sgml : 19980325 ACCESSION NUMBER: 0000950144-98-003151 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: CSX SROS: NASD SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAVERTY FURNITURE COMPANIES INC CENTRAL INDEX KEY: 0000216085 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FURNITURE STORES [5712] IRS NUMBER: 580281900 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08498 FILM NUMBER: 98571933 BUSINESS ADDRESS: STREET 1: 866 W PEACHTREE ST NW CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4048811911 MAIL ADDRESS: STREET 1: 866 W PEACHTREE ST NW CITY: ATLANTA STATE: GA ZIP: 30308 10-K 1 HAVERTY FURNITURE COMPANIES, INC. 1 ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- None None
Securities registered pursuant to Section 12(g) of the Act: Common Stock ($1.00 Par Value) (Title of class) Class A Common Stock ($1.00 Par Value) (Title of class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant as of February 28, 1998, was $115,844,187. The aggregate market value was computed by reference to the last transaction prices of the registrant's two classes of common stock on such date. For the purpose of this response only, executive officers, directors and holders of 5% or more of common stock are affiliates of the registrant. As of March 6, 1998, the number of shares outstanding of the registrant's two classes of $1.00 par value common stock were: Common Stock -- 8,911,356; Class A Common Stock -- 2,830,043. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement dated March 23, 1998, for the 1998 annual meeting of stockholders are incorporated by reference herein in response to Items 5 - 8 of Part II and to Part III of this report, except information on executive officers, which is included in Part I of this report. ================================================================================ 2 PART I ITEM 1. BUSINESS. FORWARD-LOOKING INFORMATION Certain information included in this Annual Report on Form 10-K 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, the consumer spending environment for large ticket items, 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. GENERAL Haverty Furniture Companies, Inc. (the "Company" or "Havertys") is a full-service home furnishings retailer. The Company operates 97 showrooms in 13 contiguous southern and central states. Havertys provides its customers with a wide selection of furniture and accessories primarily in the middle to upper-middle price ranges. As an added convenience to its customers, the Company offers financing through a revolving charge credit plan. The Company originated as a family business in 1885 in Atlanta, Georgia. Havertys has been a publicly held company since 1929, incorporated under the laws of the State of Maryland. The Company's corporate headquarters are located at 866 West Peachtree Street, N.W., Atlanta, Georgia, 30308. BUSINESS STRATEGY The Company serves a target customer in the middle to upper-middle income ranges. Havertys has attracted this discriminating and demanding consumer by focusing on what it believes are the key elements of furniture retailing: stores, merchandise price and selection, and customer service. The Company has made investments in technology and in new retail stores. Havertys plans to continue to expand into new markets and strengthen its position in its current market areas utilizing existing distribution infrastructure. STORES As of December 31, 1997, the Company operates 97 stores serving 60 cities in 13 states. Havertys has executed a program of remodeling and expanding showrooms and replacing smaller stores in growth markets with a new larger format store. Accordingly, the number of retail locations has increased by only seven since the year ended 1994, but total square footage has increased 34%. Havertys entered two new cities during 1997: Louisville and Lexington, Kentucky. The expansion into Kentucky was not with newly constructed stores. These leased locations were formerly occupied by an independent furniture operator, and were remodeled and reopened. The Company will use this approach and lease, remodel and open six stores during 1998 in Birmingham, Alabama, Bowling Green, Kentucky, Fredericksburg and Roanoke, Virginia and Springfield, Missouri (a new state for Havertys). MERCHANDISING The Company is able to tailor its merchandise presentation to the needs and tastes of the local market. Havertys offers many well-known brand names of furniture, such as Broyhill, Thomasville, Lane/Action, Universal, Keller, Hooker, Massoud, Clayton Marcus, and Drexel Heritage. The Company prefers to carry multiple lines of furniture in order to offer the consumer broad product choices at good values. All five regional managers are 1 3 included in Havertys' buying team, and their input allows each store to present a product mix that is roughly 20 to 25 percent regionalized. Each local market manager can select from region specific items that are attractive to consumers in their particular metropolitan area. These managers are also responsible for pricing in their respective markets, with the exception of specific items that are advertised chain-wide. Havertys can therefore be competitively priced in each market while maintaining attractive gross margins. The merchandising team develops a broad selection of merchandise for its customers at values targeted to their income levels. Approximately six years ago, the Company implemented a merchandising shift which has differentiated Havertys from its competition. Management has avoided utilizing lower, promotional price-driven merchandise favored by many national chains, which gives Havertys a unique position for a large retailer. The Company purchases approximately 54% of its merchandise from ten vendors and believes that adequate merchandise sources are available to the Company. Combined with the movement towards regional warehousing and the implementation of a centralized information system, this provides significant purchasing power with its vendors. Although it has only an approximate 1% national market share of the highly-fragmented furniture retailing market, Havertys is becoming an important customer to the largest furniture manufacturers due to its consistent track record of profitable, controlled growth and reputable customer service. The Company has a sizable presence with both Furniture Brands International ("Furniture Brands") and Lifestyle Furniture, the two largest manufacturers in the industry. In January 1998, the Company and Furniture Brands announced a strategic alliance whereby the Company will allocate up to 50% of its retail space to Furniture Brands' widely recognized brands, including Broyhill, Lane, and Thomasville. Furniture Brands' lines currently account for approximately 20% of the retail square footage in Havertys' stores. Furniture Brands will provide Havertys with increased service support to each of its five regional distribution centers. Implementation of the program will begin by the second quarter of 1998, and is expected to be completed by mid-1999. REVENUES The following table sets forth the approximate percentage contributions by product or service to the Company's gross revenues for the past three years:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 ----- ----- ---- Merchandise: Living Room Furniture...................................... 51.0% 52.2% 51.0% Bedroom Furniture.......................................... 23.1 22.6 23.0 Dining Room Furniture...................................... 12.3 12.6 12.6 Bedding.................................................... 7.4 6.6 7.1 All Other Merchandise and Accessories...................... 3.4 3.5 3.5 Credit Service Charges....................................... 2.8 2.5 2.8 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
DISTRIBUTION The Company uses a regional warehouse distribution network to provide central receiving points from vendors and distribution of product to local market warehouses. Havertys operates three regional warehouses in Charlotte, North Carolina; Jackson, Mississippi; and Ocala, Florida. The regional warehouses serve all of the Company's local markets except for Dallas, Texas and Atlanta, Georgia, which each have a metro area warehouse. The combination of enhanced information systems, just-in-time delivery practices and close coordination with vendors has substantially reduced the need to carry inventory in local market warehouses. The ratio of warehouse space to selling space has decreased over the last five years. This reduction has allowed local 2 4 management to convert space previously used for warehousing into additional selling space, prepping centers and cross-dock locations for local deliveries. The distribution system currently in place will facilitate the implementation of additional distribution improvements. Havertys is implementing EDI and just-in-time delivery systems with its major vendors, and the Company has purchased and is starting to roll out a new software which will allow management to forecast inventory requirements and reorder merchandise in a more efficient manner. CREDIT OPERATIONS As a service to its customers, Havertys offers a revolving charge credit plan with credit limits determined through its on-line credit approval system. Havertys Credit Services, Inc. ("Havertys Credit"), a wholly-owned subsidiary of Haverty Furniture Companies, Inc., was formed in 1996 to consolidate this function. Management believes that Havertys gains significant advantages over its primary competitors by controlling credit approval and the quality of customer relations rather than outsourcing these functions. Havertys Credit currently maintains a receivables portfolio of approximately $211 million, before deducting reserves. Prior to 1996, Havertys' internal credit program was handled in 45 individual markets, with each having its own credit department, manager, support personnel and overhead. However, beginning in April 1996, Havertys' credit operations were centralized into a single credit processing and collections office in Chattanooga, Tennessee. By July 1996, 31 mid- to large markets accounting for approximately 90% of receivables had been transitioned to this office. The remaining smaller cities were phased in through June 1997 concurrent with the roll-out of the Company's automated store computer system. During the transition period, Havertys did experience an increase in delinquencies. However, this coincided with increases in delinquencies throughout the credit industry. Management believes that over the long-term, this move will allow the Company to realize significant cost savings and improvements in collection efforts while maintaining its high level of service. Although the centralized system is relatively new, most credit approvals are completed within ten minutes of initial input of the customer credit application. Havertys Credit typically requires a 15% down payment and offers financing over 12 to 48 months, with an average term of 18 months. The standard (non-promotional) credit service charge rate currently ranges from 18 to 21% per annum (except for 10% in Arkansas), but will vary in the future depending on market conditions and state laws. Havertys Credit offers a lower credit service charge rate for individual purchases of over $3,000, and the Company also routinely offers various interest-free periods (typically six to 12 months) as part of promotional campaigns. About half of financed sales allow for deferred payment periods, and, in late 1995, the deferred payment period was extended from three months to six months from the month of purchase. The Company has not offered payment deferrals beyond six months. Management believes that its credit offers are a reasonable response to similar or more aggressive promotions advertised by competitors, which therefore reduces the need to emphasize off-price promotions to stimulate sales. In addition, unlike many of its competitors, Havertys Credit does not charge retroactive interest to customers who do not completely pay off the balance during a free-interest or deferred payment period. These combined factors resulted in an average interest yield of approximately 7.9% for 1997. COMPETITION The retail sale of home furnishings is a highly fragmented and competitive business. The Company believes that the primary elements of competition in its industry are customer service, merchandise (quality, style, selection, price, and display) and store location and design. The degree and source of competition varies by geographic area. The Company competes with numerous individual retail furniture stores as well as chains and the better department stores. Department stores benefit competitively from more established name recognition in specific markets, a larger customer base due to their non-furnishings product lines and proprietary credit cards. The Company believes it has uniquely positioned itself in the marketplace with merchandise that appeals to customers who are somewhat more affluent than those of most other competitive furniture store chains. Management believes that this customer segment responds more cautiously to typical discount promotions and focuses on the real value and customer service offered by a retailer. The Company regards its experienced sales 3 5 personnel and personalized customer service as important factors in its competitive success. Lastly, management believes its ability to make prompt delivery of orders through maintenance of inventory and to tailor the inventory to a store's local market conditions provides additional competitive advantages. The Company currently ranks among the top five in sales for full-service retail home furnishings store chains in the United States, based on available industry data for 1996. EMPLOYEES As of December 31, 1997, the Company employed approximately 3,112 employees: 2,836 in individual retail store operations, 124 in its corporate offices, 72 in its credit operations and 80 in its regional warehouses. No employee of the Company is a party to any union contract and the Company considers its employee relations to be good. EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers of the Company:
POSITION WITH THE COMPANY NAME AGE AND OTHER INFORMATION ---- --- ------------------------- Rawson Haverty........................................... 77 Chairman of the Board since 1984. President from 1955 to 1984. Chief Executive Officer from 1955 to 1990. Director since 1947. John E. Slater, Jr....................................... 63 President and Chief Executive Officer since 1994. Executive Vice President from 1993 to 1994. Chief Operating Officer from 1992 to 1994. Senior Vice President from 1987 to 1993. General Manager, Stores of the Company from 1990 to 1992. Director since 1983. Dan C. Bryant............................................ 55 Controller since 1985. Dennis L. Fink........................................... 46 Executive Vice President since 1996 and Chief Financial Officer since 1993. Senior Vice President from 1993 to 1996. Senior Vice President, Treasurer and Chief Financial Officer and a director of Horizon Industries, Inc., a publicly held carpet manufacturer, from 1985 to 1992. Jenny Hill Parker......................................... 39 Corporate Secretary since July 1997 and Vice President, Finance since 1996. Financial Officer since 1994. Senior Manager at KPMG Peat Marwick LLP from 1988 to 1994 and other positions within that firm since 1981.
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POSITION WITH THE COMPANY NAME AGE AND OTHER INFORMATION ---- --- ------------------------- Clarence H. Smith........................................ 47 Senior Vice President and General Manager, Stores, since 1996. Vice President, Operations and Development, from 1994 to 1996. Vice President from 1984 to 1994. Regional Manager and General Manager of Atlanta, Georgia retail operations from 1986 to 1994. Director since 1989. M. Tony Wilkerson........................................ 52 Senior Vice President, Marketing, since 1994. Vice President, Merchandising, from 1990 to 1994.
Rawson Haverty and John Rhodes Haverty, M.D. (a director of the Company) are first cousins. Clarence H. Smith is the nephew of Rawson Haverty and the first cousin of Clearence H. Ridley and Rawson Haverty, Jr. (directors of the Company). Rawson Haverty, Jr. is the son of Rawson Haverty and the first cousin of Clarence H. Ridley and Clarence H. Smith. Clarence H. Ridley is the nephew of Rawson Haverty and first cousin of Clarence H. Smith and Rawson Haverty, Jr. 5 7 ITEM 2. PROPERTIES. The Company's executive and administrative offices are located at 866 West Peachtree Street, N.W., Atlanta, Georgia and occupy a two-story brick building purchased in 1971 and an adjacent, one-story brick building purchased in 1986. These facilities contain approximately 29,000 and 15,000 square feet of working area, respectively. Havertys Credit Services, Inc., a subsidiary, leases 15,000 square feet of office space in Chattanooga, Tennessee. The following table sets forth information concerning the operating facilities of the Company as of December 31, 1997:
Retail Market Area Regional Locations (c) Warehouses Warehouses --------- ----------- ---------- Owned (a) 48 9 3 Leased (b) 49 14 0 -- -- - Total 97 23 3 == == =
(a) Includes capital leases on 10 facilities and three retail stores built on sites under land leases. (b) The leases have various termination dates through 2010 plus renewal options. (c) 24 of the retail locations have attached warehouse space. In addition, as of December 31, 1997, the Company has entered into agreements for the lease of 2 retail facilities.
1997 1996 1995 ------ ------ ------ Retail square footage at December 31 (in thousands) 3,167 2,960 2,764 % Change in retail square footage 7.0% 7.1% 17.3% Annual Net Sales per Square Foot $ 158 $ 159 $ 159
For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this report under Item 7 of Part II. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings, other than routine litigation incidental to the business of the Company, to which the Company is a party or of which any of its properties is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of fiscal 1997. 6 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information under the heading "Market Prices and Dividend Information" on the last page of the Company's annual report to stockholders for the year ended December 31, 1997, is incorporated herein by reference in response to this item. ITEM 6. SELECTED FINANCIAL DATA. Selected 5-Year Financial Data on page 11 of the Company's annual report to stockholders for the year ended December 31, 1997, is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 12 through 14 of the Company's annual report to stockholders for the year ended December 31, 1997, is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The report of the independent auditors and the financial statements on pages 15 through 30 of the Company's annual report to stockholders for the year ended December 31, 1997, are incorporated herein by reference. Selected Quarterly Financial Data on page 29 of the Company's annual report to stockholders for the year ended December 31, 1997, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. 7 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information relating to directors of the Company contained on pages 5 through 8 of the Company's proxy statement for the 1998 annual meeting of stockholders, dated March 23, 1998, is incorporated herein by reference. Information relating to executive officers of the Company is included in this report under Item 1 of Part I. ITEM 11. EXECUTIVE COMPENSATION. The information relating to executive compensation contained on pages 10 through 18 of the Company's proxy statement for the 1998 annual meeting of stockholders, dated March 23, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information relating to security ownership of certain beneficial owners and management contained on pages 2 through 4 of the Company's proxy statement for the 1998 annual meeting of stockholders, dated March 23, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information relating to certain relationships and related transactions contained on pages 16 and 17 of the Company's proxy statement for the 1998 annual meeting of stockholders, dated March 23, 1998, is incorporated herein by reference. 8 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. The following exhibits, financial statements and financial statement schedule are filed as a part of this report: (a) (1) and (2). LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following consolidated financial statements of Haverty Furniture Companies, Inc., included in the annual report of the registrant to its stockholders for the year ended December 31, 1997, are incorporated by reference in Item 8: Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Income--Fiscal Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity--Fiscal Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows--Fiscal Years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements The following financial statement schedule of Haverty Furniture Companies, Inc. is included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits. The exhibits listed below are filed with or incorporated by reference into this Report. Unless otherwise indicated, the exhibit number of documents incorporated by reference corresponds to the exhibit number in the referenced document. Exhibits 10.1 through 10.13 represent compensatory plans.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *3.1 -- Articles of Incorporation of Haverty Furniture Companies, Inc. as amended and restated on March 6, 1973, and amended on April 24, 1979, and as amended on April 25, 1985. (10-Q for the quarter ended June 30, 1985) *3.1.1 -- Articles of Incorporation of Haverty Furniture Companies, Inc. as amended on April 25, 1986. (10-Q for the quarter ended March 31, 1986) *3.1.2 -- Amendment to Articles of Incorporation of Haverty Furniture Companies, Inc. as amended on April 28, 1989. (10-Q for the quarter ended June 30, 1989)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *3.1.3 -- Amendment to Articles of Incorporation of Haverty Furniture Companies, Inc. as amended on April 28, 1995. (10-K for the year ended December 31, 1996) *3.2.2 -- Amended and Restated By-Laws of Haverty Furniture Companies, Inc. as amended on August 5, 1987. (10-K for the year ended December 31, 1987) *3.2.3 -- Amendment to By-Laws of Haverty Furniture Companies, Inc. as amended on November 4, 1988. (10-Q for the quarter ended March 31, 1989) *4.1 -- Note Agreement between Haverty Furniture Companies, Inc. and The Prudential Purchasers (The Prudential Insurance Company of America) c/o Prudential Capital Group, dated December 29, 1993. (10-K for the year ended December 31, 1993) *4.1.1 -- First Amendment to Note Agreement effective March 31, 1994, between Haverty Furniture Companies, Inc. and The Prudential Insurance Company of America. (10-K for the year ended December 31, 1994) *4.1.2 -- Second Amendment to Note Agreement dated July 19, 1996, between Haverty Furniture Companies, Inc. and The Prudential Insurance Company of America, as previously amended. (10-K for the year ended December 31, 1996) No other instrument authorizes long-term debt securities in an amount in excess of ten percent (10%) of the total assets of the Company. The Company agrees to furnish copies of instruments and agreements authorizing long-term debts of less than ten percent (10%) of its total assets to the Commission upon request. *10.1 -- Second Amendment and Restatement of Directors' Deferred Compensation Plan. (10-Q for the quarter ended June 30, 1996, Exhibit 10.1.2) *10.2 -- Supplemental Executive Retirement Plan, effective January 1, 1983. (10-K for the year ended December 31, 1984, Exhibit 10.3) *10.3 -- Thrift Plan and Trust, as amended and restated, effective January 1, 1987. (Exhibit 4.1 to Registration Statement on Form S-8, File No. 33-44285) *10.3.1 -- Amendment No. One to Thrift Plan and Trust, as previously amended and restated, effective July 1, 1994. (10-K for the year ended December 31, 1996) *10.3.2 -- Amendment No. Two to Thrift Plan and Trust, as previously amended and restated, effective January 1, 1989. (10-K for the year ended December 31, 1996) *10.3.3 -- Amendment No. Three to Thrift Plan and Trust, as previously amended and restated, effective January 1, 1997. (10-K for the year ended December 31, 1996) *10.4 -- 1986 Non-Qualified Stock Option Plan. (10-K for the year ended December 31, 1987, Exhibit 10.7) *10.5 -- 1988 Incentive Stock Option Plan, as amended. (Exhibit 4.1 to Registration Statement on Form S-8, File No. 33-53609) *10.6 -- 1988 Non-Qualified Stock Option Plan. (10-Q for the quarter ended June 30, 1989, Exhibit 10.2)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *10.6.1 -- Amendment Number One to 1988 Non-Qualified Stock Option Plan. (Registration Statement on Form S-2, File No. 33-59400, Exhibit 10.9.1) *10.7 -- Haverty Furniture Companies, Inc. Employee Stock Purchase Plan, as amended and restated as of February 7, 1995. (10-K for the year ended December 31, 1994) *10.8 -- Deferred Compensation Agreement between Haverty Furniture Companies, Inc. and Rawson Haverty, Sr., dated December 21, 1992. (10-K for the year ended December 31, 1993, Exhibit 10.9) *10.9 -- 1993 Non-Qualified Stock Option Plan. (Registration Statement on Form S-8, File No. 33-53607, Exhibit 5.1) *10.10 -- Supplemental Executive Retirement Plan, effective January 1, 1996. (10-K for the year ended December 31, 1995) *10.11 -- Directors' Compensation Plan as of April 26, 1996. (10-Q for quarter ended June 30, 1996, Exhibit 10.11) *10.12 -- Form of Agreement dated January 1, 1997, Regarding Change in Control with the following Named Executive Officers: John E. Slater, Jr., Dennis L. Fink, Clarence H. Smith and M. Tony Wilkerson. (10-K for the year ended December 31, 1996) *10.13 -- Form of Agreement dated January 1, 1997, Regarding Change in Control with the following employee directors: Rawson Haverty, Jr. (a Named Executive Officer) and Fred J. Bates. (10-K for the year ended December 31, 1996) 13.1 -- Annual Report to Stockholders for the year ended December 31, 1997. 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Ernst & Young LLP 27 -- Financial Data Schedule (for SEC use only)
- ------------------ * Incorporated by reference. (b) No reports on Form 8-K were filed during the quarter ended December 31, 1997. (c) Exhibits -- The response to this portion of Item 14 is as submitted in Item 14(a)(3). (d) Financial Statement Schedules -- The response to this portion of Item 14 is submitted as a separate section of this report. 11 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 19, 1998 By: /s/ JOHN E. SLATER, JR. ------------------------------------ John E. Slater, Jr. President and Chief Executive Officer (Principal Executive Officer) Date: March 19, 1998 By: /s/ DENNIS L. FINK ------------------------------------ Dennis L. Fink Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 19, 1998 By: /s/ DAN C. BRYANT ------------------------------------ Dan C. Bryant Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RAWSON HAVERTY Chairman of the Board March 19, 1998 - ------------------------------------------------------- Rawson Haverty /s/ JOHN E. SLATER, JR. President and Chief Executive March 19, 1998 - ------------------------------------------------------- Officer; Director John E. Slater, Jr. /s/ FRED J. BATES Regional Manager and Director March 19, 1998 - ------------------------------------------------------- Fred J. Bates /s/ JOHN T. GLOVER Director March 19, 1998 - ------------------------------------------------------- John T. Glover /s/ JOHN RHODES HAVERTY, M.D. Director March 19, 1998 - ------------------------------------------------------- John Rhodes Haverty, M.D. /s/ RAWSON HAVERTY, JR. Vice President and Director March 19, 1998 - ------------------------------------------------------- Rawson Haverty, Jr. /s/ L. PHILLIP HUMANN Director March 19, 1998 - ------------------------------------------------------- L. Phillip Humann /s/ LYNN H. JOHNSTON Director March 19, 1998 - ------------------------------------------------------- Lynn H. Johnston /s/ FRANK S. MCGAUGHEY, III Director March 19, 1998 - ------------------------------------------------------- Frank S. McGaughey, III
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SIGNATURE TITLE DATE --------- ----- ---- Director March , 1998 - -------------------------------------------------------- William A. Parker, Jr. /s/ CLARENCE H. RIDLEY Director March 19, 1998 - -------------------------------------------------------- Clarence H. Ridley /s/ CLARENCE H. SMITH Senior Vice President March 19, 1998 - -------------------------------------------------------- and Director Clarence H. Smith /s/ ROBERT R. WOODSON Director March 19, 1998 - -------------------------------------------------------- Robert R. Woodson
13 15 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
(In thousands) Column A Column B Column C-1 Column C-2 Column D Column E - ---------------------------------------------------------------------------------------------------------------------- Additions Balance at charged Balance at beginning of to costs and Deductions- end of period expenses Other (1) describe (2) period -------- ---------- --------------- ------------ ------- Year ended December 31, 1997: Allowance for doubtful accounts $7,105 $7,648 $795 $7,048 $8,500 ====== ====== ==== ====== ====== Year ended December 31, 1996: Allowance for doubtful accounts $7,105 $4,416 - $4,416 $7,105 ====== ====== ====== ====== Year ended December 31, 1995: Allowance for doubtful accounts $7,105 $2,854 - $2,854 $7,105 ====== ====== ====== ======
(1) Represents a reclassification of amounts related to past due accounts receivable previously included in accrued liabilities. (2) Uncollectible accounts written off, net of recoveries and the disposal value of repossessions. F-1 16 EXHIBIT INDEX HAVERTY FURNITURE COMPANIES, INC. 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
Exhibit No. Description - ----------- ----------- 13.1 Annual Report to Stockholders for the year ended December 31, 1997. 21.1 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27 Financial Data Schedule (for SEC use only)
EX-13.1 2 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13.1 Annual Report to Stockholders for the year ended December 31, 1997 Selected 5-Year Financial Data In thousands, except per share data
1997 1996 1995 1994 1993 ----------------------------------------------------------- Net sales $490,007 $456,860 $395,470 $370,132 $322,859 ----------------------------------------------------------- Cost of goods sold 259,203 239,976 209,000 194,688 170,348 Income before income taxes 20,787 19,132 19,444 20,279 15,650 Income taxes 7,400 6,885 7,261 7,741 9,716 Net income 13,387 12,247 12,183 12,538 9,716 =========================================================== Earnings per Common Share $ 1.15 $ 1.05 $ 1.05 $ 1.10 $ .91 Diluted earnings per Common Share $ 1.14 $ 1.04 $ 1.05 $ 1.10 $ .91 =========================================================== Cash Dividends- Amount $ 3,675 $ 3,508 $ 3,406 $ 3,082 $ 2,772 Per Share: Common Stock .3200 .3050 .3000 .2750 .2650 Class A Common Stock .3000 .2850 .2800 .2550 .2490 =========================================================== Capital expenditures $ 14,528 $ 16,463 $ 44,896 $ 24,387 $ 13,721 Depreciation/amortization expense 13,792 12,644 10,634 8,602 6,875 Property and equipment, net 114,618 114,350 112,405 80,918 67,439 =========================================================== Inventories $ 80,713 $ 77,385 $ 73,597 $ 64,582 $ 54,739 Accounts receivable, net 202,763 200,909 172,877 160,405 137,630 Credit service charges 16,111 13,390 12,376 11,664 10,500 Provision for doubtful accounts 7,648 4,416 2,854 2,773 3,154 =========================================================== Total assets $406,514 $399,875 $371,778 $315,103 $264,353 =========================================================== Long-term debt $120,434 $128,340 $137,206 $ 95,122 $102,676 Interest expense 14,330 14,463 11,158 8,470 7,240 Stockholders' equity 159,554 150,916 140,955 131,055 120,418 =========================================================== Book value per share $ 13.64 $ 12.84 $ 12.13 $ 11.40 $ 10.59 ===========================================================
Haverty Furniture Companies, Inc. 1997 11 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This commentary should be read in conjunction with the Consolidated Financial Statements and Notes, presented elsewhere in this annual report, for a full understanding of Havertys' financial position and results of operations. Certain information included in the following discussion contains "forward-looking statements" which 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. Potential risks and uncertainties include, but are not limited to, general economic conditions, competition and other uncertainties detailed in this discussion and detailed from time to time in 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. The following table sets forth for the periods indicated certain items from the Company's consolidated statements of income as a percentage of net sales.
1997 1996 1995 ================================= Net sales 100.0% 100.0% 100.0% Gross profit 47.1 47.5 47.2 Credit service charges 3.3 2.9 3.1 Selling, general and administrative 41.7 42.1 42.4 Interest expense 2.9 3.2 2.8 Provision for doubtful accounts 1.6 1.0 0.7 Other income (expense), net 0.0 0.1 0.5 Income before income taxes 4.2 4.2 4.9 Net income 2.7 2.7 3.1 ================================= Effective tax rate 35.6% 36.0% 37.3%
1997 Compared to 1996 Net sales for 1997 increased 7.3% from $456,860,000 to $490,007,000. This increase was attributable to sales from new and relocated stores and a modest 0.7% comparable-store sales increase. Selling space increased 7.0% in 1997 to 3,167,000 square feet. A store's results are included in the comparable-store sales computation on the anniversary of its opening. There were six new stores opened in 1996 and 10 stores in 1997, seven of which replaced eight smaller stores. Sales increases have been more difficult to achieve in 1997 than in 1996, when comparable-store sales increased 4.9% for the full year. Management believes that increases have been more difficult due to more cautious consumer spending in the furniture category industry-wide, combined with increased competition through promotions and advertising from many financially pressured retailers. Levitz and Montgomery Ward both declared bankruptcy during the year and many other retailers experienced a decline in sales. Gross profit as a percent of net sales was 47.1% for 1997 as compared to 47.5% in 1996. This decline was the result of inventory close-out sales as part of several store relocations and the transition to the Company's new Dallas warehouse facility. The LIFO charge was only 0.1% of net sales in both 1997 and 1996. Credit service charges as a percent of net sales increased to 3.3% for 1997, up from 2.9% for 1996. The percentage of customer purchases using credit programs was slightly lower than in 1996, with similar levels of free-interest promotions. However, free interest periods from promotions run in 1996 have expired and the remaining balances generated higher service charge income in 1997. The provision for doubtful accounts as a percent of sales has continued to increase, up from 1.0% in 1996 to 1.6% in 1997. In response to increased delinquencies and bankruptcies affecting the entire consumer credit industry, the Company tightened its credit approval criteria slightly in the third quarter of 1997. Based on the current environment, management expects the provision in 1998 to remain at approximately 1.8% of sales, which is equal to the level of the second half of 1997. 12 Haverty Furniture Companies, Inc. 1997 3 Selling, general and administrative expenses as a percent of sales declined to 41.7% in 1997 from 42.1% in 1996. Efficiencies gained from further centralization of production and purchasing of advertising contributed to the improvement, as did lower overhead due to consolidation of the credit function. During the second quarter of 1997, the Company completed the roll-out of its on-line inventory and automated store system to all of its locations, which has led to improvements in warehouse and delivery processes and reductions in their related costs. Interest expense for 1997 declined to 2.9% of net sales from 3.2% in 1996, with a slight decrease in the total dollar amount of interest expense. Average borrowings increased only slightly and the effective interest rate dropped approximately 10 basis points to 7.0%. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating-rate notes payable. The counterparties to these contracts are high credit quality commercial banks. Consequently, credit risk, which is inherent in all swaps, has been minimized to a large extent. Interest expense is adjusted for the differential to be paid or received as interest rates change. The effect of such adjustments on interest expense was not significant during 1997. 1996 Compared to 1995 Net sales for 1996 increased 15.5% from $395,470,000 to $456,860,000. This increase was attributable to a 4.9% comparable-store sales increase, a 15.1% increase in sales from stores expanded in the last year, and new stores. There were seven new stores opened in 1995, of which four opened in the last quarter, and six stores were opened in 1996. Gross profit as a percent of net sales was 47.5% for 1996 as compared to 47.2% in 1995. This improvement is attributable to improved merchandising and changes in the sales mix. The LIFO charge also decreased to 0.1% of net sales in 1996 from 0.2% in 1995. Credit service charges declined to 2.9% of net sales in 1996 from 3.1% in 1995 as customer usage of finance promotions involving free interest periods increased. The amount expensed for the provision for doubtful accounts as a percent of net sales increased to 1.0% for 1996 from 0.7% in 1995. This higher level reflects the increased delinquencies and bankruptcies experienced in the consumer lending industry. During 1996, the Company consolidated its credit operations from 45 market-area locations to one corporate site. Management believes that this consolidation, while accretive to earnings in the long-term via savings in general and administrative expenses, contributed to higher delinquencies during the transition year. Selling, general and administrative expenses as a percent of sales decreased to 42.1% in 1996 compared with 42.4% in 1995. The reduction is primarily the result of leveraged fixed costs and reduced pre-opening costs offsetting higher depreciation charges in the 1996 period. Interest expense increased 0.4% from 1995 to 1996 as a percent of net sales due to an increase of 23.7% in average debt levels in 1996 to support increased accounts receivable and capital expenditures. The impact on expense from increased debt levels was lessened by a 30 basis points decrease in the Company's effective interest rate for 1996. The effect of adjustments to interest expense for the differential arising from the Company's interest rate swap agreements was not significant during 1996. LIQUIDITY AND SOURCES OF CAPITAL The Company historically has used internally generated funds and bank borrowings to finance its operations and growth. Net cash provided by operating activities was $24.8 million in 1997, as compared to net cash used of $3.1 million in 1996 and $1.4 million in 1995. Due to level credit sales in 1997, increases in accounts receivable (the Company carries its own customer accounts receivable) did not offset positive cash flows from operations. Accounts receivable increased $9.5 million in 1997, $32.4 million in 1996 and $15.3 million in 1995. The ratio of current assets to current liabilities was 2.2 at the end of 1997, compared to 2.3 and 2.6 at the end of 1996 and 1995, respectively. The decrease in the 1997 current ratio is due to the modest increase in current assets and the decision by the Company to use its positive cash flow for investing and financing activities other than reducing its short term bank debt. Haverty Furniture Companies, Inc. 13 4 Management's Discussion and Analysis of Financial Condition and Results of Operations Investing activities used $14.2 million of cash in 1997 compared to $14.5 million in 1996 and $42.5 million in 1995. During 1997, capital expenditures of $14.5 million included the completion and construction of one new store, leasehold improvements and equipment. Expenditures were also made for projects which will be completed in 1998. Financing activities used $10.6 million of cash during 1997 primarily for $7.9 million in debt repayments and $3.7 million in dividend payments. The Company also repurchased 267,600 shares of its stock for $3.1 million during 1997. The Company has arrangements with six banks under line-of-credit agreements to borrow up to $146 million. At December 31, 1997, of this amount, $96 million were committed lines ($35.3 million unused) and $50 million were uncommitted lines ($28.2 million unused). Borrowings accrue interest at competitive money-market rates and all lines are reviewed annually for renewal. 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 with fixed-rate or capped-rate debt as determined by the interest rate environment (73.2% of total debt was interest-rate protected at December 31, 1997). The Company's average effective interest rates on all borrowings (excluding capital leases) were 7.0%, 7.1% and 7.2% in 1997, 1996 and 1995, respectively. Capital expenditures in 1998 are presently expected to include the remodeling of six new leased locations. The preliminary estimate of capital expenditures for real estate in 1998 is approximately $10.0 million. In addition, the Company has commitments under operating lease agreements to lease three stores which opened in 1997. Minimum lease commitments, including guaranteed residual values, are expected to aggregate approximately $15.8 million for the initial three-year term. 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131), which is effective for 1998. FAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the new requirements in annual financial statements in 1998. Management has not completed its analysis of the effect of FAS 131 on its reported segments. IMPACT OF YEAR 2000 The Company has developed a plan to modify its information technology to recognize the year 2000 and has begun converting its critical data processing systems. This project is currently expected to be completed by early 1999 and its cost is not expected to be material. Management does not expect this project to have a significant effect on operations. The Company will continue to implement systems with strategic value though some projects may be delayed due to resource constraints. 14 Haverty Furniture Companies, Inc. 1997 5 Consolidated Statements of Income In thousands, except per share data Year Ended December 31
1997 1996 1995 =============================== Net sales $490,007 $456,860 $395,470 Cost of goods sold 259,203 239,976 209,000 -------------------------------- Gross profit 230,804 216,884 186,470 Credit service charges 16,111 13,390 12,376 -------------------------------- 246,915 230,274 198,846 Expenses: Selling, general and administrative 204,239 192,445 167,514 Interest 14,330 14,463 11,158 Provision for doubtful accounts 7,648 4,416 2,854 -------------------------------- 226,217 211,324 181,526 -------------------------------- 20,698 18,950 17,320 Other income, net 89 182 2,124 -------------------------------- Income before income taxes 20,787 19,132 19,444 Income taxes (Note 8) 7,400 6,885 7,261 -------------------------------- Net Income $ 13,387 $ 12,247 $ 12,183 ================================ Earnings per Common Share $ 1.15 $ 1.05 $ 1.05 Diluted Earnings per Common Share $ 1.14 $ 1.04 $ 1.05 Weighted average common shares 11,670 11,694 11,555
See accompanying Notes to Consolidated Financial Statements. Haverty Furniture Companies, Inc. 1997 15 6 Consolidated Balance Sheets In thousands, except per share data
December 31 1997 1996 ------------------------- ASSETS Current assets Cash and cash equivalents $ 390 $ 414 Accounts receivable (Note 2) 202,763 200,909 Inventories (Note 3) 80,713 77,385 Other current assets 5,763 4,422 ------------------------- Total current assets 289,629 283,130 ------------------------- Property and equipment (Notes 4 and 7) 114,618 114,350 Other assets 2,267 2,395 ------------------------- $406,514 $399,875 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks (Note 5) $ 82,500 $ 80,500 Accounts payable and accrued expenses (Note 6) 41,298 36,515 Deferred income taxes (Note 8) 165 519 Current portion of long-term debt and capital lease obligations (Notes 7 and 12) 8,945 7,906 ------------------------- Total current liabilities 132,908 125,440 ------------------------- Long-term debt and capital lease obligations, less current portion (Notes 7 and 12) 111,489 120,434 Deferred income taxes (Note 8) 199 826 Other liabilities 2,364 2,259 Total liabilities 246,960 248,959 ------------------------- Commitments (Note 12) Stockholders' equity (Notes 9 and 11) Preferred Stock, par value $1 per share, Authorized - 1,000 shares; Issued: None Common Stock, Authorized - 50,000 shares; Issued: 1997 - 9,604 shares; 1996 - 9,306 shares (including shares in treasury: 1997 and 1996 - 756 and 494, respectively) 9,604 9,306 Convertible Class A Common Stock, Authorized - 15,000 shares; Issued: 1997 - 3,096 shares; 1996 - 3,192 shares (including shares in treasury: 1997 and 1996 - 249) 3,096 3,192 Additional paid-in capital 35,363 33,556 Retained earnings 120,117 110,405 ------------------------- 168,180 156,459 Less cost of Common Stock and Convertible Class A Common Stock in treasury 8,626 5,543 ------------------------- Total stockholders' equity 159,554 150,916 ------------------------- $406,514 $399,875 =========================
See accompanying Notes to Consolidated Financial Statements. 16 Haverty Furniture Companies, Inc. 1997 7 Consolidated Statements of Stockholders' Equity In thousands, except per share data
CLASS A COMMON COMMON ADDITIONAL STOCK STOCK PAID-IN RETAINED TREASURY ($1 PAR VALUE) ($1 PAR VALUE) CAPITAL EARNINGS STOCK TOTAL --------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 $ 8,929 $ 3,314 $ 31,500 $ 92,889 $ (5,577) $ 131,055 Net income - - - 12,183 - 12,183 Cash dividends on common stock Amount - - - (3,406) - (3,406) Per share: Common - $.30 Class A Common - $.28 Conversion of Class A Common Stock 100 (100) - - - - Stock option transactions, net 126 3 994 - - 1,123 --------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 9,155 3,217 32,494 101,666 (5,577) 140,955 Net income - - - 12,247 - 12,247 Cash dividends on common stock: Amount - - - (3,508) - (3,508) Per share: Common - $.305 Class A Common - $.285 Conversion of Class A Common Stock 49 (49) - - - - Stock option transactions, net 102 24 1,062 - - 1,188 Treasury stock issued - - - - 34 34 --------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 9,306 3,192 33,556 110,405 (5,543) 150,916 Net income - - - 13,387 - 13,387 Cash dividends on common stock: Amount - - - (3,675) - (3,675) Per share: Common - $.32 Class A Common - $.30 Conversion of Class A Common Stock 96 (96) - - - - Stock option transactions, net 202 - 1,807 - - 2,009 Treasury stock transactions, net - - - - (3,083) (3,083) --------------------------------------------------------------------------------- Balance at December 31, 1997 $ 9,604 $ 3,096 $ 35,363 $ 120,117 $ (8,626) $ 159,554 =================================================================================
See accompanying Notes to Consolidated Financial Statements. Haverty Furniture Companies, Inc. 1997 17 8 Consolidated Statements of Cash Flows In thousands
Year Ended December 31 1997 1996 1995 ------------------------------------- OPERATING ACTIVITIES Net Income $ 13,387 $ 12,247 $ 12,183 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,792 12,644 10,634 Provision for doubtful accounts 7,648 4,416 2,854 Reduction of cost to market value of property held for sale - - 140 Deferred income taxes (768) 2,497 897 Loss (gain) on sale or involuntary conversion of property and equipment 294 (510) (2,121) ------------------------------------- Subtotal 34,353 31,294 24,587 Changes in operating assets and liabilities: Accounts receivable (9,502) (32,448) (15,326) Inventories (3,328) (3,788) (9,472) Other current assets (1,341) 1,430 (1,161) Accounts payable and accrued expenses 4,570 415 (41) ------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,752 (3,097) (1,413) ------------------------------------- INVESTING ACTIVITIES Purchases of property and equipment (14,528) (16,463) (44,896) Proceeds from sale of property and equipment 174 2,384 2,407 Other investing activities 128 (432) ( 2,893) Insurance proceeds - - 2,922 ------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (14,226) (14,511) (42,460) ------------------------------------- FINANCING ACTIVITIES Net increase in short-term borrowings 2,000 12,100 4,200 Proceeds from issuance of long-term debt - 15,000 50,044 Payment of long-term debt and capital lease obligations (7,906) (8,866) (7,960) Treasury stock acquired (3,130) - - Exercise of stock options 2,009 1,188 1,123 Dividends paid ( 3,675) (3,508) (3,406) Other financing activities 152 (38) 93 ------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,550) 15,876 44,094 ------------------------------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (24) (1,732) 221 ------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 414 2,146 1,925 ------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 390 $ 414 $ 2,146 =====================================
See accompanying Notes to Consolidated Financial Statements. 18 Haverty Furniture Companies, Inc. 1997 9 Notes To Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION: The Company is a full-service home furnishings retailer with 97 showrooms in 13 states, selling a broad line of middle to high-end furniture. The middle to upper-middle income households are the Company's predominant target market. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. Investments in property under capital leases are amortized over the related lease term. CASH EQUIVALENTS: The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value. FAIR VALUES OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash, accounts receivable, accounts payable and long-term debt. The carrying value of cash, accounts receivable and accounts payable approximates fair market value; the carrying amount of long-term debt approximates fair market value based on current interest rates. The fair value of interest rate swap agreements is based on the estimated amount the Company would pay to terminate the agreements at the reporting date, taking into account current interest rates and the credit worthiness of the swap counterparties. INTEREST RATE SWAP AGREEMENTS: These agreements involve the receipt of fixed-rate amounts in exchange for floating-rate interest payments over the life of the agreements without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of the swap Notes To Consolidated Financial Statements agreements are not recognized in the financial statements. ADVERTISING EXPENSE: The cost of advertising is expensed upon first showing. The Company incurred approximately $31,800,000, $33,100,000, and $28,000,000 in advertising costs during 1997, 1996, and 1995, respectively. Haverty Furniture Companies, Inc. 1997 19 10 Notes To Consolidated Financial Statements STOCK BASED COMPENSATION: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options and adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (FAS 123). The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant and, accordingly, recognizes no compensation expense for the stock option grants. EARNINGS PER SHARE: During 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). FAS 128 replaced the calculation of primary and fully diluted earnings per share with earnings per common share and diluted earnings per common share. Earnings per common share excludes any dilutive effects of options, warrants and convertible securities. The dilutive effect of the Company's stock options is included in diluted earnings per common share and had the effect of increasing the weighted average shares outstanding assuming dilution by 96,000, 45,000, and 65,000 in 1997, 1996 and 1995, respectively. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to FAS 128 requirements. Certain options outstanding during each of the following years and their related exercise prices were not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of the shares and, therefore, the effect would be antidulitive: 1997 - 182,000 shares at prices ranging from $13.75 to $17.13; 1996 - 452,000 shares at prices ranging from $12.00 to $17.13; and 1995 - 152,000 at prices ranging from $14.13 to $17.13. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131), which is effective for 1998. FAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the new requirements in annual financial statements in 1998. Management has not completed its analysis of the effect of FAS 131 on its reported segments. NOTE 2 - ACCOUNTS RECEIVABLE Credit sales under Company credit programs were, as a percent of sales, approximately 68% in 1997; 72% in 1996 and 74% in 1995. Accounts receivable are shown net of the allowance for doubtful accounts of $8,500,000 at December 31, 1997 and $7,105,000 at December 31, 1996. Accounts receivable terms vary as to payment terms (30 days to four years) and interest rates (0% to 21%) and are generally collateralized by the merchandise sold. Accounts receivable balances due after one year at December 31, 1997 and 1996 were approximately $94,969,000 and $96,040,000, respectively, and have been included in current assets in accordance with trade practice. The Company believes that the carrying value of existing customer receivables is the best estimate of fair value because of their short average maturity and estimated bad debt losses have been reserved. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company's account base and their dispersion across thirteen states. 20 Haverty Furniture Companies, Inc. 1997 11 NOTE 3 - INVENTORIES Inventories are measured using the last-in, first-out (LIFO) method of inventory valuation because it results in a better matching of costs and revenues. The excess of current cost over such carrying value of inventories was approximately $14,520,000 and $14,020,000 at December 31, 1997 and 1996, respectively. A number of the Company's competitors use the first-in, first-out (FIFO) basis of inventory valuation which approximates current costs. The use of the LIFO valuation method as compared to the FIFO method had the effect of decreasing earnings per common share by $.03, $.03 and $.04 for the years ended 1997, 1996 and 1995, respectively, assuming the Company's effective tax rates were applied to changes in income resulting therefrom, and no other changes in income were made. Note 4 - Property and Equipment Property and equipment is summarized as follows (in thousands):
1997 1996 -------------------------- Land $ 21,058 $ 22,366 Buildings and improvements 98,566 92,123 Equipment 58,900 54,514 Capital leases 8,276 8,276 Construction in progress 313 1,512 -------------------------- 187,113 178,791 Less accumulated depreciation (66,453) (58,777) Less accumulated capital lease amortization (6,042) (5,664) -------------------------- Property and equipment, net $114,618 $114,350 ==========================
Interest cost capitalized amounted to $64,000 in 1997, $158,000 in 1996, and $1,209,000 in 1995. NOTE 5 - CREDIT ARRANGEMENTS Under short-term line-of-credit arrangements with banks, the Company may borrow up to $146,000,000 upon such terms as the Company and the banks mutually agree. These arrangements are reviewed annually for renewal. Of such line of credit arrangements, committed lines of credit totaled $96,000,000 with customary fees payable on the unused portion ($35,300,000 unused at December 31, 1997). No fees or compensating balances are required for the remaining $50,000,000 uncommitted lines of credit ($28,200,000 unused at December 31, 1997). The weighted average stated interest rates for these borrowings outstanding at December 31, 1997 and 1996 were 6.2% and 5.9%, respectively. Haverty Furniture Companies, Inc. 1997 21 12 Notes To Consolidated Financial Statements NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows (in thousands):
1997 1996 -------------------------- Accounts payable, trade $ 16,256 $ 12,376 Accrued compensation 6,678 7,520 Taxes other than income taxes 4,273 5,459 Other 14,091 11,160 -------------------------- $ 41,298 $ 36,515 ==========================
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations are summarized as follows (in thousands):
1997 1996 -------------------------- Unsecured term note (a) $ 30,000 $ 30,000 7.95% unsecured note payable (b) 15,000 15,000 7.44% unsecured note payable (c) 15,000 15,000 7.16% unsecured note payable (d) 30,000 30,000 10.1% unsecured note payable (e) 12,500 17,500 Secured debt (f) 14,830 17,165 6.3% to 10.5% capital lease obligations, due through 2016 3,104 3,675 -------------------------- 120,434 128,340 Less portion classified as current 8,945 7,906 -------------------------- $111,489 $120,434 ==========================
(a) The term note is payable in quarterly installments of $250,000 commencing in February 1998, increasing to $1,000,000 commencing in February 2000. The note matures in November 2006 and interest is payable quarterly. The note has a floating rate of interest of LIBOR plus 0.7%. (b) The note is payable in semi-annual installments of $500,000 commencing in February 2000, increasing to $2,000,000 commencing in February 2007. The note matures in August 2008 and interest is payable quarterly. (c) The note is payable in semi-annual installments of $1,250,000 commencing in January 2003 and matures in October 2008. Interest is payable quarterly. (d) The note is payable in semi-annual principal payments of $2,143,000 commencing in October 2000 and matures in April 2007. Interest is payable quarterly. (e) The note is payable in semi-annual installments of $2,500,000 plus interest payable quarterly and matures in April 2000. (f) Secured debt is comprised of various first mortgage notes and first deeds of trust including some with fixed rates of interest ranging from 5.7% to 7.9% and some with floating rates of interest ranging from LIBOR plus 0.5% (note rate of 6.48% at December 31, 1997) to 70% of prime rate due through 2007. The Company may prepay the floating-rate notes at any time without penalty. Property and equipment with a net book value at December 31, 1997, of approximately $29,429,000 is pledged as collateral on secured debt. 22 Haverty Furniture Companies, Inc. 1997 13 The Company's debt agreements require, among other things, that the Company: (a) meet certain working capital requirements; (b) limit the type and amount of indebtedness incurred; (c) limit the operating lease rentals; and (d) grant certain lenders identical security for any liens placed upon the Company's assets, other than those liens specifically permitted in the loan agreements. The Company is in compliance with these covenants at December 31, 1997. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its bank line-of-credit arrangements and floating-rate notes payable. At December 31, 1997, the Company had six outstanding interest rate swap agreements, having notional amounts aggregating $73,128,000. Two of the agreements effectively fix the average interest rate on the Company's $30-million floating-rate term note at 8.2% through 2006. The remaining agreements are at rates ranging from 5.29% to 5.95% maturing in 1998, 2000 and 2002. Under the terms of the agreements, the Company makes payments at fixed rates and receives payments at variable rates which are based on LIBOR, adjusted quarterly. The Company had net unrealized losses relating to such instruments of $1,717,000 and $929,000 at December 31, 1997 and 1996, respectively. The aggregate maturities of long-term debt and capital lease obligations during the five years subsequent to December 31, 1997, are as follows: 1998 - $8,945,000; 1999 - $9,711,000; 2000 - $12,091,000; 2001 - $11,259,000 and 2002 - $11,179,000. Cash payments for interest were approximately $14,321,000, $14,594,000 and $11,754,000 in 1997, 1996, and 1995, respectively. NOTE 8 - INCOME TAXES Income tax expense (benefit) consists of the following (in thousands):
1997 1996 1995 ---------------------------------------- Current Federal $ 8,027 $ 4,244 $ 5,653 State 141 144 711 ---------------------------------------- 8,168 4,388 6,364 ======================================== Deferred Federal (756) 2,423 787 State (12) 74 110 ---------------------------------------- (768) 2,497 897 ---------------------------------------- $ 7,400 $ 6,885 $ 7,261 ========================================
Income tax expense differs from the amount computed by applying the statutory Federal income tax rate. The differences are summarized as follows (in thousands):
1997 1996 1995 ----------------------------------------- Statutory rates applied to income before income taxes $ 7,275 $ 6,696 $ 6,805 State income taxes, net of federal tax benefit 92 94 462 Other 33 95 (6) ----------------------------------------- $ 7,400 $ 6,885 $ 7,261 =========================================
Haverty Furniture Companies, Inc. 1997 23 14 Notes to Consolidated Financial Statements Deferred tax assets and liabilities as of December 31, 1997 and 1996 were as follows (in thousands):
1997 1996 -------------------------- Deferred tax assets Retirement and compensation obligations $ 1,200 $ 1,045 Retrospective and self-insurance accruals 466 565 Capitalized leases 412 412 Inventory related 5 284 Net operating loss carryforward 1,035 - Alternative minimum tax credits 407 - Other 284 226 -------------------------- Total deferred tax assets 3,809 2,532 ========================== Deferred tax liabilities: Net property and equipment 807 1,836 Accounts receivable related 3,037 2,041 Other 329 - -------------------------- Total deferred tax liabilities 4,173 3,877 -------------------------- Net deferred tax liabilities $ (364) $ (1,345) ==========================
The Company made income tax payments of $11,084,000, $4,976,000, and $9,403,000 in 1997, 1996 and 1995, respectively. The net operating loss carryforward expires in 2012. NOTE 9 - STOCKHOLDERS' EQUITY Common Stock has a preferential dividend rate, while Class A Common Stock has greater voting rights (including the ability to elect a majority of the Board of Directors). Class A Common Stock is convertible at the holder's option at any time into Common Stock on a 1-for-1 basis; Common Stock is not convertible into Class A Common Stock. There is no present plan for issuance of Preferred Stock. NOTE 10 - BENEFIT PLAN The Company has a defined benefit pension plan covering substantially all employees. The benefits are based on years of service and the employee's final average compensation. The Company's funding policy is to contribute annually an amount which is within the range of the minimum required contribution and the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. 24 Haverty Furniture Companies, Inc. 1997 15 The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheet at December 31 (in thousands):
1997 1996 -------------------------- Actuarial present value of projected benefit obligations: Accumulated benefit obligations, including vested benefits of $23,250 in 1997 and $19,937 in 1996 $ 24,389 $ 20,886 Increase for projected salary increases 8,652 7,095 -------------------------- Projected benefit obligations for service rendered to date 33,041 27,981 Plan assets at fair value 33,616 27,517 -------------------------- Plan assets in excess of (less than) projected benefit obligations 575 (464) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (707) (349) Unrecognized prior service cost 860 991 Unrecognized net asset (543) (746) -------------------------- Prepaid asset (accrued pension expense) included in the balance sheet $ 185 $ (568) --------------------------
Net pension cost included the following components (in thousands):
1997 1996 1995 ------------------------------------ Service cost-benefits earned during the period $ 1,655 $ 1,599 $ 1,041 Interest cost on projected benefit obligations 2,157 1,972 1,903 Actual return on plan assets (5,484) (3,628) (4,293) Net amortization and deferral 3,048 1,667 2,599 ------------------------------------ Net pension cost $ 1,376 $ 1,610 $ 1,250 ====================================
The weighted-average discount rates used in determining the actuarial present value of benefit obligations were 7.25%, 7.75% and 7.50% at December 31, 1997, 1996 and 1995, respectively. The annual rate of increase for future compensation was 6.0% for 1997, 1996 and 1995. The expected long-term rate of return on plan assets was 8.5% for 1997, 1996 and 1995. The plan's assets consist primarily of U.S. Government securities and listed stocks and bonds. Included in the plan assets at December 31, 1997, were 34,000 shares of the Company's Common Stock and 143,000 shares of the Company's Class A Common Stock with an aggregate fair value of $2,324,000. The Company has a Non-Qualified, Non-Contributory Supplemental Executive Retirement Plan (SERP) which covers five retired executive officers. The Plan provides annual supplemental retirement benefits to the executives amounting to 55% of final average earnings less benefits payable from the Company's defined benefit pension plan and Social Security benefits. The Company also has a non-qualified, non-contributory SERP for employees whose retirement benefits are reduced due to their annual compensation levels. The total amount of annual retirement benefits that may be paid to an eligible participant in the Plan from all sources (Retirement Plan, Social Security and the SERP) may not exceed $125,000. Under the plans, which are not funded, the Company pays benefits directly to covered participants beginning at their retirement. At December 31, 1997, the projected benefit obligation for these plans totaled $2,691,000 of which $1,690,000 is included in the accompanying balance sheet. Pension expense recorded under the SERPs amounted to approximately $320,000, $307,000 and $204,000 for 1997, 1996 and 1995, respectively. Haverty Furniture Companies, Inc. 1997 25 16 Notes To Consolidated Financial Statements The Company has an employee savings/retirement (401k) plan to which substantially all employees may contribute. The Company matches employee contributions to the extent of 50% of the first 2% of earnings and 25% of the next 4% contributed by participants. The Company expensed approximately $842,000 in 1997, $811,000 in 1996 and $801,000 in 1995 in matching employer contributions to this plan. The Company offers no post-retirement benefits other than pensions and no significant post-employment benefits. NOTE 11 - STOCK OPTION PLANS The Stock Option Committee of the Board of Directors serves as Administrator for the Company's stock option plans. Options are granted by the Committee under stock plans to officers and non-officer employees. In accordance with certain provisions, options granted to non-employee directors of the Company are automatic annual grants on a pre-determined date to purchase a specific number of shares at the fair market value of the shares on such date. As of December 31, 1997, the maximum number of options which may be granted under the stock option plans was 30,848. The table below summarizes options activity for the past three years under the Company's stock option plans.
Incentive Non-Qualified Stock Options Stock Options --------------------------------------------------- Option Average Option Average Shares Price Shares Price --------------------------------------------------- Outstanding at December 31, 1994 531,200 $12.68 261,500 $11.22 Granted 324,750 12.33 89,000 12.65 Exercised (24,200) 6.46 (76,000) 10.75 Canceled or expired (137,500) 14.13 (13,000) 5.15 --------------------------------------------------- Outstanding at December 31, 1995 694,250 $12.45 261,500 12.14 Granted 429,854 10.75 149,000 10.83 Exercised (14,754) 6.88 (51,000) 6.36 Canceled or expired (380,604) 12.34 (7,800) 12.03 --------------------------------------------------- Outstanding at December 31, 1996 728,746 $11.61 351,700 12.36 Granted 240,000 13.88 184,000 13.60 Exercised (78,371) 9.15 (23,000) 7.62 Canceled or expired (6,000) 10.75 (250) 14.63 --------------------------------------------------- Outstanding at December 31, 1997 884,375 $12.45 512,450 $13.01 --------------------------------------------------- Exercisable at end of year 540,647 $11.81 352,450 $12.71 ===================================================
All of the options outstanding at December 31, 1997, were for Common Stock. Exercise prices for options outstanding as of December 31, 1997, ranged from $10.75 to $17.12. The weighted-average remaining contractual life of those options is four years. Options granted prior to 1997 generally vest on the grant date; the remaining options vest over periods up to five years. In addition, the Company had shares available for future purchases under the Employee Stock Purchase Plan at December 31, 1997. This Plan promotes broad-based employee ownership and provides employees a convenient way to acquire Company stock. The Plan is a qualified plan under Section 423 of the Internal Revenue Code and meets the requirements of APB 25 as a non-compensatory plan. The Plan enables the Company to grant options to purchase up to 750,000 shares of Common Stock, of 26 Haverty Furniture Companies, Inc. 1997 17 which 385,232 shares have been exercised from inception of the Plan, at a price equal to the lesser of (a) 85% of the stock's fair market value at the date of grant, or (b) 85% of the stock's fair market value at the exercise date. Shares purchased may not exceed 10% of the employee's annual compensation, as defined, or $25,000 of Common Stock at its fair market value (determined at the time such option is granted) for any one calendar year. Employees pay for the shares ratably over a period of six months (the purchase period) through payroll deductions or lump sum payments, and cannot exercise their option to purchase any of the shares until the conclusion of the purchase period. In the event an employee elects not to exercise such options, the full amount withheld is refundable. During 1997, options for 117,219 shares were exercised at an average price of $9.46 per share. At December 31, 1997, 73,323 options were outstanding at an option price of $12.22 per share. The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS 123, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FAS 123 and has been determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997 and 1996, respectively: risk-free interest rates of 5.8%, 6.0% and 6.0%; dividend yields of 2.5%, 2.7% and 2.7%; volatility factors of the expected market price of the Company's Common Stock of 34.9%, 36.7% and 41.4%, and a weighted average expected life of the options of 5.5 years, except for those issued under the Employee Stock Purchase Plan, which is 6 months. The weighted-average fair value of options granted under the Company's stock option plan was $4.45, $2.05 and $3.60 for the years 1997, 1996 and 1995, respectively. The weighted-average fair value of options granted under the Employee Stock Purchase Plan was $2.49, $2.90 and $2.60 for the years 1997, 1996 and 1995, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1997 1996 1995 ----------------------------------------- Net income As reported $13,387 $12,247 $12,183 Pro forma 12,771 10,850 11,216 Earnings per common share As reported 1.15 1.05 1.05 Pro forma 1.09 .93 .97 =========================================
The pro forma disclosures above are not likely to be representative of the effects on net income and earnings per share in future years because of the variability in the number of options granted and the amortization to expense over the options' vesting period. Haverty Furniture Companies, Inc. 1997 27 18 Notes To Consolidated Financial Statements NOTE 12 -COMMITMENTS The Company leases certain property and equipment. Initial lease terms range from five years to 30 years and certain leases contain renewal options ranging from one to 25 years or provide for options to purchase the related property at fair market value or at predetermined purchase prices which do not represent bargain purchase options. The leases generally require the Company to pay all maintenance, property taxes and insurance costs. At December 31, 1997, aggregate future minimum payments under capital leases and non-cancelable operating leases, including guaranteed residual values of $25,000,000, with initial or remaining terms in excess of one year, consisted of the following (in thousands):
Capital Operating Leases Leases ---------------------------------------------- 1998 $ 889 $ 14,742 1999 668 14,210 2000 491 13,413 2001 353 12,575 2002 288 11,953 Subsequent to 2002 2,231 67,114 Less total minimum sublease rentals (4,206) ---------------------------------------------- Net minimum lease payments $129,801 ============================================== Total minimum lease amounts 4,920 Amounts representing interest (1,816) Present value of future minimum ---------------------------------------------- lease payments $ 3,104 ==============================================
Rental expense applicable to operating leases consisted of the following (in thousands):
1997 1996 1995 ---------------------------------------------- Property Minimum $13,315 $11,102 $10,343 Additional rentals based on sales 588 550 560 Sublease income (1,049) (1,025) (952) ---------------------------------------------- 12,854 10,627 9,951 Equipment 3,793 3,209 2,360 ---------------------------------------------- $16,647 $13,836 $12,311 ==============================================
The Company has committed to lease certain properties under operating lease agreements beginning in 1998 with three-year terms from unaffiliated groups. Minimum commitments, including guaranteed residuals, for such properties to be leased aggregate approximately $15.8 million. 28 Haverty Furniture Companies, Inc. 1997 19 NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1997 and 1996. The 1996 and first three quarters of 1997 earnings per share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
1997 QUARTER ENDED --------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 --------------------------------------------------- (In thousands, except per share data) Net sales $114,749 $113,006 $128,160 $134,092 Gross profit 54,469 52,863 60,123 63,349 Credit service charges 3,804 4,032 4,098 4,177 Income before income taxes 4,156 2,151 6,133 8,347 Net income 2,660 1,377 3,925 5,425 Earnings per common share .23 .12 .34 .46 Diluted earnings per share .23 .12 .33 .46 1996 QUARTER ENDED --------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 --------------------------------------------------- (In thousands, except per share data) Net sales $110,750 $103,341 $117,079 $125,690 Gross profit 52,660 49,062 55,619 59,543 Credit service charges 3,295 3,150 3,403 3,542 Income before income taxes 4,001 1,405 5,630 8,096 Net income 2,521 885 3,660 5,181 Earnings per common share .22 .08 .31 .44 Diluted earnings per share .22 .08 .31 .44 ---------------------------------------------------
Haverty Furniture Companies, Inc. 1997 29 20 Report of Independent Auditors Board of Directors Haverty Furniture Companies, Inc. We have audited the accompanying consolidated balance sheets of Haverty Furniture Companies, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Haverty Furniture Companies, Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Atlanta, Georgia January 30, 1998 Directors and Officers 30 Haverty Furniture Companies, Inc. 1997 21 Market Prices and Dividend Information The Company's two classes of common stock are quoted on The Nasdaq Stock Market (National Market). The trading symbol for the Common Stock is HAVT and for Class A Common Stock is HAVTA. Based on the number of individual participants represented by security position listings, there are approximately 3,200 holders of the Common Stock and 210 holders of the Class A Common Stock. High and low sales prices reported by The Nasdaq National Market and dividends for the last two years were (in dollars):
1997 1996 Common Stock Class A Common Stock Common Stock Class A Common Stock Quarter Dividend Dividend Quarter Dividend Dividend Ended High Low Declared High Low Declared Ended High Low Declared High Low Declared March 31 13-1/2 11 $0.080 13-1/8 11-1/4 $0.075 March 3 14-5/8 12 $0.075 14 12-1/4 $0.070 June 30 13 10-7/8 0.080 12-3/4 10-5/8 0.075 June 30 14-1/4 9-1/2 0.075 14 10 0.070 Sept.30 14-3/4 12 0.080 14-1/2 12-1/4 0.075 Sept. 30 11-1/2 9-1/4 0.075 11-1/2 9-3/8 0.070 Dec.31 14-3/4 11-3/4 0.080 14-3/8 11-7/8 0.075 Dec. 31 14-1/8 10-5/8 0.080 14 10-1/4 0.075
EX-21.1 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation ---- ---------------------- Havertys Capital, Inc. Nevada Havertys Credit Services, Inc. Tennessee Havertys Enterprises, Inc. Nevada
EX-23.1 4 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Haverty Furniture Companies, Inc. of our report dated January 30, 1998, included in the 1997 Annual Report to Stockholders of Haverty Furniture Companies, Inc. Our audits also included the financial statement schedule of Haverty Furniture Companies, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Company's Registration Statement (Form S-8 No. 33-53607) pertaining to the 1993 Non-Qualified Stock Option Plan of Haverty Furniture Companies, Inc., the Registration Statement (Form S-8 No. 33-28560) pertaining to the 1988 Non-Qualified Stock Option Plan of Haverty Furniture Companies, Inc., the Registration Statement (Form S-8 No. 33-13755) pertaining to the 1986 Non-Qualified Stock Option Plan of Haverty Furniture Companies, Inc., the Registration Statement (Form S-8 No. 33-53609) pertaining to the 1988 Incentive Stock Option Plan of Haverty Furniture Companies, Inc. and the Registration Statement (Form S-8 No. 33-45724) pertaining to the Employee Stock Purchase Plan of Haverty Furniture Companies, Inc. of our report dated January 30, 1998, with respect to the financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Haverty Furniture Companies, Inc. /s/ Ernst & Young LLP Atlanta, Georgia March 18, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 390 0 211,263 8,500 80,713 289,629 187,113 72,495 406,514 132,908 120,434 0 0 12,700 146,854 406,514 490,007 506,118 259,203 0 0 7,648 14,330 20,787 7,400 13,387 0 0 0 13,387 1.15 1.14
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